Master of Business Administration

(Open and Distance Learning Mode)

Semester – I

Management Principles and Practices

Centre for Distance and Online Education (CDOE)

DEVI AHILYA VISHWAVIDYALAYA, INDORE
“A+” Grade Accredited by NAAC
IET Campus, Khandwa Road, Indore - 452001
www.cdoedavv.ac.in
www.dde.dauniv.ac.in

CDOE-DAVV
 Program Coordinator

Dr. Manishkant Arya

Centre for Distance and Online Education (CDOE)
Devi Ahilya Vishwavidyalaya, Indore – 452001

Content Design Committee

Dr. Sangita Jain

Institute of Management Studies
Devi Ahilya Vishwavidyalaya, Indore – 452001

Dr. Yamini Karmarkar

Institute of Management Studies
Devi Ahilya Vishwavidyalaya, Indore – 452001

Dr. Geeta Neema

International Institute of Professional Studies
Devi Ahilya Vishwavidyalaya, Indore – 452001

Dr. Manishkant Arya

Centre for Distance and Online Education (CDOE)
Devi Ahilya Vishwavidyalaya, Indore - 452001

Language Editors

Dr. Arti Sharan

Institute of Engineering & Technology
Devi Ahilya Vishwavidyalaya, Indore – 452001

Dr. Ruchi Singh

Institute of Engineering & Technology
Devi Ahilya Vishwavidyalaya, Indore – 452001

SLM Author(s)

Dr. Neelmegh Chaturvedi

MBA, PhD
EMRC, Devi Ahilya Vishwavidyalaya, Indore – 452001

Mr. Neal Jain

MBA
EMRC, Devi Ahilya Vishwavidyalaya, Indore – 452001

Copyright : Centre for Distance and Online Education (CDOE), Devi Ahilya Vishwavidyalaya
Edition : 2022 (Restricted Circulation)
Published by : Centre for Distance and Online Education (CDOE), Devi Ahilya Vishwavidyalaya
Printed at : University Press, Devi Ahilya Vishwavidyalaya, Indore – 452001
Management Principles
&
Practices
 Table of Content

UNIT-1 : PROCESS OF MANAGEMENT, EVOLUTION OF MANAGEMENT -

SCHOOL OF THOUGHTS
1.0 Objectives
1.1 Introduction
1.2 Definition - Process of Management
1.3 Elements of Management Process
1.3.1 Work Agenda
1.3.2 Factors affecting Work Agenda
1.3.3 Work Methods and Managerial Roles
1.4 Management Process
1.5 Evolution of Management
1.6 Management theories
1.7 Principles of Scientific Management
1.8 General Administrative Theorists
1.9 Quantitative Approach to Management
1.10 Behavioural Approach to Management
1.11 Systems Approach to Management
1.12 Contingency Approach to Management
1.13 Human Resource Approach to Management
1.14 Summary
1.15 Self assessment Questions
1.16 Reference
1.17 Case Study

UNIT -2 : TOTAL QUALITY MANAGEMENT, LEARNING ORGANISATIONS

2.0 Objectives
2.1 Introduction
2.2 Definition - Quality
2.3 Seven faces of quality
2.4 Factors affecting quality
2.5 Different dimensions of quality
2.6 Total Quality - Introduction
2.7 Principles of Total Quality.
2.8 PDCA cycle
2.9 Salient features of TQM
2.10 Principles of TQM
2.11 TQM methods
2.12 Befefits of TQM
2.13 Obstacles of TQM
2.14 Learning Organisations –Introduction
2.15 Characteristics of Learning Organisations
2.16 Why Learning Organisations
2.17 Benefits of Learning Organisations
2.18 Barriers to Learning Organisations.
2.19 Summary
2.20 Self assessment Questions
2.21 Reference
2.22 Case Study

UNIT -3 : TRENDS IN MANAGEMENT, CONTRIBUTIONS OF MANAGEMENT

GURUS - PETER DRUCKER, MICHAEL PORTER, C.K. PRAHALAD, SHI KHERA, A
CHAUDARY, GARY HAMEL, MICHAELHAMMER, JACK TROUT, AI RIES AND
TOM PETERS -
3.0 Objectives
3.1 Introduction –Trends in management
3.2 Peter Drucker
3.3 C.K Prahalad
3.4 A Chaudary
3.5 Shiv Khera
3.6 Michael Hammer
3.7 Michael Porter
3.8 Gary Hamel
3.9 Al Ries
3.10 Jack Trout
3.11 Tom Peters
3.12 Summary
3.13 Self Assessment Questions
3.14 References

UNIT –4 : MANAGEMENT AS ARTS / SCIENCE AND PROFESSION.

MANAGEMENT LEVELS AND SKILLS, MANAGERIAL ROLES, MINTZ BERG’S
ROLES OF PRESENT MANAGERS
4.0 Objectives
4.1 Introduction
4.2 Management as science
4.3 Management as Art
4.4 Management as a profession
4.5 Management Levels
4.5.1 Top level managers
4.5.2 Middle level managers
4.5.3 Lower level managers
4.6 Functional Managers
4.7 General Managers
4.8 Line managers
4.9 Staff managers
4.10 Managemetn skills
4.10.1 Technical skill
4.10.2 Human skill
4.10.3 Conceptual skill
4.11 Role Managers Play
4.12 Mintz Berg’s roles of present managers
4.13 Summary
4.14 Self assessment Questions
4.15 References

UNIT – 5: NATURE, IMPORTANCE AND APPROACHES TO PLANNING

5.0 Objectives
5.1 Introduction
5.2 Meaning and Definition
5.3 Nature of Planning
5.4 Need for Planning
5.5 Approaches to Planning
5.6 Major Steps in the Process of Planning
5.7 Summary
5.8 Self Assessment Questions
5.9 References

UNIT - 6 : VARIOUS TYPES OF PLANS

6.0 Objectives
6.1 Introduction
6.2 Elements of Planning
6.3 Types of Plans
6.4 Corporate Planning
6.5 Strategic Planning
6.6 Operational Planning
6.7 Summary
6.8 Self Assessment Questions
6.9 Reference

UNIT - 7 : MANAGEMENT BY OBJECTIVES STRUCTURE

7.0 Objectives
7.1 Introduction
7.2 Meaning and Definition of MBO
7.3 Process of MBO
7.4 Benefits of MBO
7.5 Drawbacks of MBO
7.6 Summary
7.7 Self Assessment Questions
7.8 References

UNIT - 8 : DECISION-MAKING
8.0 Objectives
8.1 Introduction
8.2 Meaning and Definition
8.3 Important Elements in Decision-Making
8.4 Decision-Making Process
8.5 Individual Vs Group Decision-Making
8.6 Types of Decision-Making
8.7 Techniques of Decision-Making
8.8 Modern Techniques of Decision - Making
8.9 Summary
8.10 Self Assessment Questions
8.11 Reference

UNIT-9: PRINCIPLES OF ORGANISATION

9.00 Objectives
9.01 Introduction
9.02 Meaning and definitions of organization
9.03 Nature and Characteristics of Organisation:
9.04 Importance of Organisation
9.05 Principles of Organisation
9.06 Organization as a process
9.07 Formal and Informal organisations
9.08 Types of organisations
9.09 Criticisms to the traditional view of organizations
9.10 Entrepreneuring
9.11 Development of entrepreneurship
9.12 Benefits of entrepreneuring
9.13 Barriers to entrepreneurship
9.14 How to overcome these barriers
9.11 Let us sum up
9.12 Self Assignment Questions
9.13 Case Study
9.14 References

UNIT - 10: ORGANISATION HIERARCHY STRUCTURE

10.0 Objectives
10.1 Introduction
10.2 Meaning and definitions of organization structure
10.3 Importance of Organization Structure
10.4 Levels of managements in organizations.
10.5 Features of good organization structure
10.6 Major decisions in designing an organizational structure
10.7 Variable factors in designing organization structure
10.8 Building vertical dimension of organization
10. 9 Building horizontal dimension of organization
10.9 Bases of organizational structure
10.11 Let us sum up
10.12 Keywords
10.13 Self Assignment Questions
10.14 Case Study
10.15 References

UNIT - 11: DEPARTMENTATION AND DELEGATION

11.0 Objectives
11.1 Introduction
11.2 Meaning and definitions of departmentation
11.3 The purpose and importance of departmentalization
11.4 Bases of Departmentation
11.5 Principles of Departmentation
11.6 Principles of Delegation
11.7 Features of Delegation
11.8 Defference between Delegation and Decentraligation
11.9 Principles of Delegation
11.10 Principal Tasks of Effective Delegation
11.11Advantages of Effective Delegation
11.12 Disadvantages of Delegation
11.13 Let us sum up
11.14 Keywords
11.15 Self Assignment Questions
11.16 Case Study
11.17 References

UNIT -12 : STAFFING

12.0 Objectives
12.1 Introduction
12.2 Concept of staffing
12.2.1 Process of staffing
12.3 Recruitment
12.3.1 Recruitment policy
12.3.2 Source of recruitment
12.3.3 Recruitment process
12.4 Selection
12.4.1 Step in the selection progress
12.4.2 Selection Test
12.4.3 Interviews
12.5 System approaches
12.6 Manpower planning
12.6.1 The process of human resource planning
12.7 Job design
12.7.1 Different approaches to job design
12.8 Modern management techniques
12.9 Training and Development
12.9.1 The need for Training & Development
12.9.2 Assessing Training need
12.9.3 Methods of Training
12.10 Performance Appraisal
12.10.1 Kinds of Performance appraisal
12.11 Let us sum up
12.12 Self Assessment Test
12.13 Glossary of the terms used in the test
12.14 Suggested answer to check your progress
12.15 References

UNIT-13 : DIRECTING
13.0 Objectives
13.1 Introduction
13.2 Meaning of Directing
13.3 Definition of Directing
13.4 Characteristics of Directing
13.5 Significance of Directing
13.6 Process of Directing
13.7 Principles of Directing
13.8 Elements of Directing
13.9 Approaches of Directing
13.10 Summary
13.11 Self Assessment Questions
13.12 References

UNIT -14 : COORDINATION

14.0 Objectives
14.1 Introduction
14.2 Meaning
14.3 Definition
14.4 Elements of Coordination
14.5 Characteristic features of Coordination
14.6 Types of Coordination
14.7 Principles of Coordination
14.8 Significance of Coordination
14.9 Techniques of Coordination
14.10 Summary
14.11 Self Assessment Questions
14.12 References

UNIT- 15 : LEADERSHIP
15.0 Objectives
15.1 Introduction
15.2 Definition of Leadership
15.3 Formal and Informal Leadership Styles
15.4 Theories of Leadership
15.5 Styles of Leadership
15.6 Qualities and Characteristics of Good Leader
15.7 Summary
15.8 Self Assessment Questions
15.9 References

UNIT-16: MOTIVATION
16.0 Objectives
16.1 Introduction
16.2 Definition of Motivation
16.3 Importance of Motivation
16.4 Essential Features of a good motivation system
16.5 Theories of Motivation
16.6 Summary
16.7 Self Assessment Questions
16.8 References

UNIT -17:CONTROL-INTRODUCTION
17.0 Objectives
17.1 Introduction
17.2 Control-Meaning
17.3 Steps in Control Process
17.4 Need for Control
17.5 Types of Control
17.6 Symptoms of Inadequate Control
17.7 Summary
17.8 Self Assesment Questions
17.9 Reference

UNIT - 18 : CONTROL SYSTEMS

18.0 Objectives
18.1 Introduction
18.2 Characteristics of effective control
18.3 Control - Pre-Requisites
18.4 Human aspect of control
18.5 Behavioural implications of control
18.6 Behavioural guidelines for effective control
18.7 Summary
18.9 Self Assesment Questions
18.10 Reference

UNIT - 19 : CONTROL TECHNIQUES

19.0 Objectives
19.1 Introduction
19.2 Control Techniques
19.3 Break Even analyses
19.4 Budgeting
19.5 Budget- Approaches
19.6 Characteristics of Effective Budgetary Control Systems
19.7 Benefits of Zero based budgeting
19.8 Benefits of budgetary control
19.9 Limitations of budgetary control
19.10 Financial Control
19.11 TQM Techniques
19.12 Summary
19.13 Self Assesment Questions
19.14 Reference

UNIT - 20: ROLE OF TECHNOLOGY - CONTROL FUNCTIONS

20.0 Objectives
20.1 Introduction
20.2 Importance of Information Technology in Controlling
20.3 Information
20.4 Types of information systems
20.5 Developing an MIS
20.6 Enterprise Audit
20.7 Social Audit
20.8 Trends in Quality and Financial Control.
20.9 Managing Challenges of Work Force Diversity
20.10 Summary
20.11 Self Assesment Questions
20.12 Reference
UNIT-1 : PROCESS OF MANAGEMENT,
EVOLUTION OF MANAGEMENT -
SCHOOL OF THOUGHTS

Structure
1.0 Objectives
1.1 Introduction
1.2 Definition - Process of Management
1.3 Elements of Management Process
1.3.1 Work Agenda
1.3.1 Factors affecting Work Agenda
1.3.2 Work Methods and Managerial Roles
1.4 Management Process
1.5 Evolution of Management
1.6 Management theories
1.7 Principles of Scientific Management
1.8 General Administrative Theorists
1.9 Quantitative Approach to Management
1.10 Behavioural Approach to Management
1.11 Systems Approach to Management
1.12 Contingency Approach to Management
1.13 Human Resource Approach to Management
1.14 Summary
1.15 Self assessment Questions
1.16 Reference
1.17 Case Study

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1 .0 OBJECTIVES
After studying this unit you will be in a position
• To define management.
• State the elements of management process.
• Define work agenda
• Mention the different theories of management.
1.1 INTRODUCTION

Management in simple terms, can be def ined as the attainment of

organisational goals in an effective and efficient manner through: Planning,
Organizing, Leading , Controlling and Staffing. Management makes human efforts
more productive and brings better technology, products and services to the society.
Management is a function of getting things done through and with people in
formally organised groups. And directing the efforts of individuals towards a
common objective. Managers guide and coordinate the efforts of other towards
certain specified goals. The skills which are required to get things done through
people consist of conceptual skills, technical skills, and administrative skills, and
social skills. Without proper management the resources of production ie., men
machine and materials cannot be converted into production. Thus management is
a vital function concerned with all aspects of the working of an organisation. It is
the art of creating the environment in which people can perform as individuals
and yet cooperate towards attainment of groups goals and removing hindrances to
high performance, a way of optimizing efficiency to reach goals.
Management is a vital aspect of the economic life of man, which is an
organized group activity. It is a activity consisting of a distinct process which is
primarily concerned with the important task of goal achievement.
1.2 PROCESS OF MANAGEMENT

Definition: Management Process is the set of ongoing decisions and work

activities in which managers engage as they plan, organize, lead and control. A
manager manages the work activities and are usually done in a continuous manner
hence it is referred to as a process.
The process of management involves the determination of objective and
putting them into action. Management as a process is considered as a continuing

6
activity made up of basic management functions. The process is on going. It assumes
a cyclical character: Planning, Organising, Direction and controlling. A manager
performs various functions. When management is reviewed as a process, planning
is the first function performed by the manager. The work of manager begins by
setting the objectives. Next is organising i.e., Bringing together personnel, capital
machinery , materials to execute the plans. Staffing involves filling positions
needed in the organisation which includes manpower planning , training, motivation
and performance appraisal. Managing workers through proper leadership effective
communication is important part of the process of directing and finally measuring
actual results with standard performance to find out for deviations and taking
corrective actions as and when necessary.
A process is a sequence of activities that is intended to achieve some result.
It is a unique combination of elements, conditions or causes that collectively
produces a given outcome or set of results. There are various ways of looking at
the management Process. Some of which are:
1. The traditional view point of management focuses on what the managers
do. It is generally accepted that they perform four functions ie., Planning
,organising, Leading and Controlling. Planning involves defining organizational
goals and proposing ways to reach them. Organising is the process of creating a
structure of relationships within the organisation that enables employees to interact
with one another, to interact with mangers and to carry out management’s plans
and meet its goals. Leading involves communicating with and motivating others
to perform the tasks necessary to achieve the organisation’s goals. And lastly
controlling is the process by which a person consciously monitors performance
and takes corrective action. In controlling mangers set standards of performance,
measure current performance against those standards, and take action to correct
any deviation and adjust the standards if necessary.
2. Behavioural view point of management focuses on the role which mangers
play while performing the four basic managerial functions. In the figurehead role,
the manger represents the organisation at ceremonial and symbolic functions. The
leader role of the manager involves responsibility for directing and co-ordinating
the activities of employees in order to accomplish organisational goals. As a liaison
role manager deals with people outside the organization. Such people include clients,
government officials, customers and suppliers. He seeks support from people who
can affect the organization’s success, such as the Chamber of Commerce.

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 3. Systems and Contingency viewpoint of Management recognises that an
organisation is an association of interrelated and interdependent parts or sub-
systems. The organisation has to interact with various external ‘systems’ such as
supplier, customers , shareholders, and government agencies. A manager with a
systems view of management will only make decision after identifying and
analyzing how other mangers , department, or customers might be affected by the
decisions. The underlying principle of Contingency viewpoint of management is
that different situations require different practices. It recommends using the other
three management viewpoints, namely the traditional, Behavioural and systems
viewpoints, independently or in combination , as necessary and appropriate to
deal with various situations. Managers are required to determine which of these
three approaches is likely to be more effective than others in a given situation.
Management is what mangers do. Management is the process of coordinating
work activities so that they are completed efficiently and effectively with and
through other people. The process represents the ongoing functions or primary
activities engaged in by managers. Efficiency refers to getting the most output
from the least amount of inputs. Effectiveness is often described as “doing the
right things”. Management is the process of planning, organising , staffing,
directing and controlling the efforts of organisation members in utilizing all
resources to achieve organizational goals, objectives and mission. Management
is a process as it operates the activities systematically.

1.3 ELEMENTS OF MANAGEMENT PROCESS

Steven J Carroll and Dennis J Gillen have identified the following

elements of the management process. :
• Work Agenda
• Work methods and managerial roles
• Management functions
• Knowledge base and key management skills
• Performance ( goal achievement)
1.3.1 Work Agenda
Kotter – Managers contribute towards organizational output through work
agenda. A work agenda is a loosely connected set of tentative goals and tasks that
a manager is attempting to accomplish. It is the broad outline within which the

8
managers have to guide their actions and those of others. These agendas are prepared
for both short-run and long-run job responsibilities. Managers are required to
perform various managerial roles ie., Interpersonal , Informational, Decisional
Roles – for putting these work agendas into practice , for example, managers have
to act as monitors , spokespersons, negotiators and figurehead so that they can
work actively according to work agendas.
Interpersonal roles:
Manager as the figure head
Managers as the leader
Manager as the liaison
Informational roles:
Managers as monitors
Managers as disseminators
Managers as spokespersons
Decisional roles:
Managers as entrepreneurs
Managers as disturbance handlers
Managers as resource allocators
Managers as negotiators
1.3.1 Factors affecting work agendas
Three factors that affect work agenda are Job demands, Job constraints and
Job choices
Job demands are the demands that a manager must fulfill. The various
requirements or demands of the job require different skills to be possessed by
managers like conceptual, Human and Technical skills in varying degrees and
are normally related to the overall goals and plans of the organization.
Job constraints are the factors that limit the managers’ capacity to work on
the job as defined under job demands. While working on a job, managers are
constrained by factors which are both internal and external to the organization.
The various internal constraints are the managers’ abilities, availability of
resources, industrial relations etc and the external constraints are the legal, political,
technological, economic and social factors which can delimit the capacity of
managers to work within work agendas.

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 Job Choices :The work agendas are also reflected by the job choices that
the mangers wish or do not wish to undertake. Within the framework of job
demands and job constraints, the managers often exercise their discretion to carry
out certain jobs on their own and delegate the rest to their sub-ordinates. They
may even take up additional responsibilities with respect to the jobs that they are
entrusted with and delete some of the activities related to their present jobs.
1.3.2 Work Methods and Managerial roles
On the basis of the study conducted by Henry Mintzberg to find out what
managers actually did on the job, the following conclusions are drawn
Work Methods - Work methods relate to the way the managers work. The
commonly held notion is that managers spend a considerable time in planning
and organizing the organizational activities and solving the organizational
problems which actually is not the case. The following observations have been
made by Mintzberg regarding the work methods adopted by the managers.
• Unrelenting pace
• Brevity, variety and fragmentation
• Verbal contacts and networks
Unrelenting Pace :It was observed that managers do not spend as much
time on planning as is normally expected of them. Rather, they are, most of the
times, working at such a fast pace, either attending meetings/conferences or
addressing subordinates that they do not even have time to enjoy a proper lunch
break.
Brevity, Variety and Fragmentation : The managers have to perform
such a wide variety of tasks –from receiving a routine telephone call to deciding
about various multinational corporate issues- that they tend to be brief over
each of their varied activities. They are often interrupted by other issues before
thy can solve the prior ones. Planning of various organizational matters was,
therefore, left to be taken care of after the normal working hours of the office.
Verbal Contacts and Networks: Managers are assumed to have preference
for verbal communication with their superiors, peers and subordinates rather than
written communication. This communication is facilitated through networks. A
network has been defined as a set of co-operative relationships with individuals
whose help is needed in order for a manager to function effectively. The
individuals helping the managers can be who are internal and external to the

10
organization like the superiors, peers, subordinates, customers, suppliers, and
consultants.
Managerial Roles : Managers perform multiple roles which have been
broadly classified into three main categories:
• Interpersonal Roles
• Informational Roles
• Decisional Roles
In the beginning of the 21 st century Henri Fayol , an French Industrialist
proposed that all managers perform five management functions: planning,
organizing, commanding, coordinating and controlling. As organisations exist to
achieve some particular purpose, it is very important to clearly define that purpose
and the means for it achievement. The reality of managing is not quite simplistic.
There are no simple , cut-and-dried beginning or ending points as mangers plan,
organize, lead and control.
1.4 MANAGEMENT PROCESS

Knowledge base and key

management skills

Management
Functions:
Work Work Methods Performance
Planning
Agenda
and Roles (goal achievement)
Organising

Leading

Controlling

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 THE MANAGEMENT PROCESS

Planning
Organising
Company mission is the
basis for planning .Planning Organising is the process of linking
is deciding in advance what and arranging activities in a
should be done. Managers sequence . It includes allocating
think logically to achieve work, authority and resources
goals.

Staffing

Staffing is acquiring, developing , utilizing

and compensating human resources
necessarily to achieve organisational
goals. Human resources help the process
of converting inputs into output and
achieving customer satisfaction.

Directing

Directing involves leading,

influencing and motivating
the people to perform
organizational tasks and to Controlling
convert input into output. It
Controlling is to make sure that
includes:
the organization is moving
• Motivation towards its mission and objectives
• Leadership
• Communication

Evolution of Management - School of thoughts

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1.5 EVOLUTION OF MANAGEMENT THOUGHT FROM EARLY
POINEERS TO MODERN MANAGEMENT THINKERS

Management Theories

Historical General Quantitative Organizational

Scientific

Background Administrative Approach Behavior

Management

Early examples of
management
Early
Advocates

Adam Smith

Hawthorne

Studies
Industrial

Evolution

1.6 MANAGEMENT THEORIES

Principles of management are evolved and different approaches to

management are designed. The first among the management theories is scientific
management.
Scientific Management:
The practice of management has existed since the earliest time. Western
civilization has been dramatically affected by the Catholic and Protestant churches,
which have developed worldwide organizational structures using managerial
concepts.
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 Management practice in business, government, and the church remained quite
stable through the centuries until the mid-18 th century with the birth of the Industrial
Revolution in England. With the Industrial Revolution, began the early scientific
inquiries into the practice of management. The forerunners of Scientific
Management theory are Robert Owen, Charles Babbage and F.W Taylor.
Robert Owen: was the first person to pay attention to labor welfare. He
suggested a change in the attitude of industrialists towards workers. He worked
up to his maximum possible extent for the amelioration of working conditions of
workers and thereby tried to win over their confidence. He stated that men should
not be treated as secondary and inferior to machines.
Charles Babbage: sometimes referred to as the patron saint of operations
research invented a predecessor to the modern day computers, an invention he
called the “difference machine” that actually performed mathematical calculations
and computed statistical probabilities. Two pioneering works of Babbage are ‘The
Differential Engine and On Economy of Machinery and Manufacturer’. He stated
that the methods of science and mathematics could be applied to the solution of
the factory’s problems.
Frederick Winslow Taylor: known popularly as the father of scientific
management and a classicist in management theory, was the first person whom
insisted on the introduction of scientific methods in management. He made for
the first time a systematic study of management and evolved an orderly set of
principles to replace the trial and error methods then in vogue. He observed that
workers were not enthusiastic and were doing as little as possible, just adequate
to maintain their job. Taylor’s contribution is based on his observation of the
working conditions and the behavior of the workers/ employees in the organization.
1.7 PRINCIPLES OF SCIENTIFICE MANAGEMENT

The contributions to scientific management evolved into principles. These

principles are called principles of scientific management. They include:
• Time and Motion Study
• Science, but not rule of the thumb
• Differential payment
• Group harmony
• Co-operation between workers and management

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 • Methods study
• Scientific selection and training
• Standardization
• Separation of planning from execution

1.8 GENERAL ADMINISTRATIVE THEORISTS

Another group of writers looked at the subject of management but focused

on the entire organization. They are referred to as the general administrative
theorists. They developed more general theories of what managers do and what
constituted good management practice. The important contributions given by Henry
Fayol and Max Weber are:
Henry Fayol : Fayol’s attention was directed at the activities of all
managers. He described the practice of management as something distinct from
accounting, finance, production, distribution and typical functions. He argued that
management was an activity common to all human endeavors in business and
government. He then proceeded to state 14 principles of management. Division of
work, Authority, Discipline, Unity of Command, Unity of Direction, Subordination
of individual interest to the general interest, Remuneration, Centralization, Scalar
Chain, Order, Equity, Stability of tenure of personnel, Initiative, Esprit de corps.
Max Weber: Max Weber developed a theory of bureaucratic management,
which emphasizes on a strictly defined hierarchy governed by clearly defined
regulations and lines of authority. For Weber the ideal organization was a
bureaucracy. Weber sought to improve the performance of socially significant
organizations by making their operations productive. Weber recognized that ideal
bureaucracy did not exist in reality. Instead he intended it as the basis for theorizing
about work and how work could be done in large groups. His theory became the
model structural design for many of today’s large organizations.

1.9 QUANTITATIVE APPROACH TO MANAGEMENT

The quantitative approach involves the use of quantitative techniques to

improve decision-making. This approach has also been labeled as Operations
Research or Management Science. This approach to management involves
applications of statistics, optimization model, information model and computer
simulation to management activities. The quantitative approach has contributed
directly to management decision-making in the areas of planning ad control.

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1.10 BEHAVIOURAL APPROACH / HUMAN RELATIONS APPROACH

The human element was recognized even in the scientific management school.
The human relations approach is the outcome of reactions of classical theorists
like Mary Parker and Chester I Bernard. Elton Mayo and his associates pointed out
that the techniques of scientific management are not adequate and they do not
contribute to individual and organizational goals. The essence of human relations
approach is that workers should be treated as human beings but not as mere factors
of production. Workers needs, feeling, attitudes, values and desires are extremely
important. The theme of human relations approach is that organizational situation
should be viewed in social terms as well as in economic and technical terms and the
social process of group behavior can be understood in terms of the clinical method
analogous. An intensive and systematic analysis of human factor was made in the
form of Hawthorne Experiments. The series of experiments conducted under the
Hawthorne study include the following:
• Illumination Experiment
• Relay Assembly Test Group
• Interviewing Program
• Bank Wiring Observation Room Experiment
The human relations approach pertains to motivating people in organizations
in order to develop teamwork, which effectively fulfils their needs and leads to
achieving organizations goals. Thus human relations strive to created a positive
and conducive work environment, focuses on people, has the ultimate goal of
increase in productivity, and seeks to build human cooperation towards achievement
of organizational goals.
1.11 SYSTMES APPROACH TO MANAGEMENT

Systems approach to management views the organization as a unified,

purposeful system composed of inter-related parts. Hence, managers have to deal
with the organization as a whole rather than dealing separately with various
segments of the organization. This approach also gives the managers to see the
organization as a whole and as a part of the larger external environment. The essence
of the systems approach is that each manager cannot function in isolation within
his organizational boundary of authority and responsibility of the traditional
organizational chart. Key concepts of systems approach are:

16
 • Sub-system
• Synergy
• Open system
• Closed system
• System boundary
• Flows
• Feedback

1.12 CONTINGENCY APPROACH TO MANAGEMENT

This approach is also called situational approach. Managers, consultants and

researchers who tried to apply the concepts of the major schools to real life
situation developed this approach. They sought to know the causes for the success
of methods in one situation and failure in another situation. This approach
emphasizes that managers have to identify the techniques, which will best
contribute to the attainment of the management’s goals in a particular situation,
under particular circumstance and at a particular time. Classical theorists suggest
work implication for increase in productivity whereas Behavioral Scientists suggest
job enrichment, but the manager under contingency approach should find out which
method will work better in that particular situation. This approach is builds upon
systems approach. The composition of a particular situation or system will help
to know the techniques best suited to that particular situation or system.
1.13 HUMAN RESOURCE MANAGEMENT APPROACH

Human resource is a principle and a sub-system and resource of an

organization. Both the human resource system and the entire organization operate
under the same environmental factors. Human resource management approach is
developmental. It is concerned with the growth and development of people towards
higher levels of competency, creativity and fulfillment. The human resource
management approach is supportive. It helps employees to develop through training
and development and other techniques of human development, it also develops more
responsible and committed persons through the creation of conducive organizational
climate, strong culture, attractive rewards system, free and challenging work
environment, team spirit and the like. This approach assumes that increased
capabilities and expanded opportunities for people will lead directly to the

17
improvement of the organizational effectiveness and efficiency, employee job
satisfaction will be a direct result when employees make use of their resources to
the fullest extent. Thus, the human resource management approach reveals that
sound management of human resource through proper training and development,
proper salary administration, creating conducive work environment, providing
challenging job and maintaining sound industrial relations result in the employee
contribution for achievement of organizational goals.

1.14 SUMMARY

Thus the basic role of managing is to achieve certain objectives and goals. A
precise and complete statement in this regard would make the objectives clear and
understood by all concerned who have to direct their activities towards its
attainment. In order to accomplish satisfactorily anything of importance, it is
necessary to plan in advance of doing. What should be done, how it should be
done, who will be responsible for doing it, where action is to be taken an why it is
to be done. Management process becomes a cycle and indicates the unending nature
of managers’ job.

1.15 SELF ASSESSMENT QUESTIONS

1. What is process of management?

2. Describe the process of management and explain how it can be used to
accomplish result in any organisation?
3. What are the principles of management?
4. Briefly explain a few management schools of thought.
5. State the Principles of Scientific Management.

1.16 REFERENCES

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.

2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-

Hill,1993

3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing

House PvtLimited,1997.

18
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.

5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.

6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.

7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.

9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing

House, 2011.

1.17 CASE

Rohith is an engineer in a large design engineering office. Rohith hails from

a rural background , and his family had a low income and stern rules. In order to
earn his college degree, he had to work, and he paid most of his own expenses.
Rohith is an intelligent and capable engineer. His main fault is that he does not want
to take risks. He hesitates to take decisions himself, often bringing petty and routine
problems to his supervisor or to other engineer colleagues of his for a decision.
Whenever he does a design job he brings it in rough draft to his chief engineer for
approval before he finalizes it. Since Rohith is a capable person, his chief engineer
wants to motivate him to be independent in his work. The chief engineer believes
that this approach will improve Rohith’ s performance, relieve the chief engineer
from extra routine and give Rohith more self confident. However the chief engineer
is not sure how to go about motivating Rohith to improve his performance.

Poser: In the role of chief engineer, explain how you would motivate Rohith. .
***************

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UNIT -2 : TOTAL QUALITY MANAGEMENT,
LEARNING ORGANISATIONS

Structure
2.0 Objectives
2.1 Introduction
2.2 Definition - Quality
2.3 Seven faces of quality
2.4 Factors affecting quality
2.5 Different dimensions of quality
2.6 Total Quality - Introduction
2.7 Principles of Total Quality.
2.8 PDCA cycle
2.9 Salient features of TQM
2.10 Principles of TQM
2.11 TQM methods
2.12 Befefits of TQM
2.13 Obstacles of TQM
2.14 Learning Organisations –Introduction
2.15 Characteristics of Learning Organisations
2.16 Why Learning Organisations
2.17 Benefits of Learning Organisations
2.18 Barriers to Learning Organisations.
2.19 Summary
2.20 Self assessment Questions
2.21 Reference
2.22 Case Study

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2.0 OBJECTIVES

After studying this unit you will be in a position

• To define quality.
• State the factors affecting quality.
• Understand the different dimensions of quality
• State the benefits of Learning organisations.

2.1 INTRODUCTION

During the advent of industrial revolution, manufacturers / craftsmen made

products and checked their quality themselves. No outside agencies or quality control
methods were employed to inspect and control the quality of the goods produced.
During the World War 1 , the need for manufacturing weapons in large quantities
arose and with that arose the need for imposing an effective control system over of
goods/ weapons produced. As a result of globalisation today, firms who wish to retain
their share in the world markets in terms of quality and reliability of their products
must maintain quality of their goods and services. The term ‘quality’ has thus, taken
a form of quality revolution which each firm today striving to aim at an if not should
aim at. Today every individual is living in a quality age and wish to possess quality
products , be it a hoe or a car or furniture or even consumables. The word ‘quality’ is
qualitative in nature and has different meaning for different people. Quality implies a
person’s state of mind and is associated with the following perceptions:
• A good product
• Sturdy
• Durable
• Easy to operate
• Good in appearance.
Quality means “Products that are manufactured exactly to specifications.” ISO
9000 defines quality as the totality of features and characteristics of a product and
service that bears on its ability to meet stated or implied needs.
Organisations everywhere are growing increasingly conscious of the competitive
potential of quality. Quality has become an issue because standards are now

21
contractually defined. Competition focuses not only on price but quality also. The
challenge for business today is to produce quality products efficiently. Quality is one
of the four key objectives in operations management along with cost, flexibility and
delivery of goods and services.
Quality is not a new concept in modern business. “the first job we have is to
turn out quality merchandise that consumers will buy and keep on buying. If we produce
it efficiently and economically, we will earn a profit, in which you will share” William
Cooper Procter. Customers are becoming increasingly intolerant of poor service, late
deliveries, unreliable goods ,shoddy workmanship and the like. The importance of
quality can be stated in the following sentences-” No quality , no sales. No sales, no
profit. No profit, no jobs.”
QUALITY - What it stands for?
Q: Quest for Excellence
U: Understanding customers needs
A: Action to achieve customer’s appreciation
L: Leadership – determination to be the leader
I: Involving people
T: Team spirit to work for a common goal and
Y: Yardstick to measure progress.
2.2 QUALITY - DEFINATION

Quality is defined as the “ability of a product or service to meet customers

needs”
“The integrity in delivering what a customer has a legitimate right to expect in
view of what was promised at the time of the agreement or purchase” . Quality is the
single most important force leading to organisational success and company growth in
national and international markets. Quality can be described as doing the right thing,
doing it the right way, doing it on time, doing it right the first time and doing it right
every time. Quality means meeting customer’s requirements , formal and informal, at
the lowest cost, first time and every time.
Quality is perfection, consistency eliminating waste, speed of delivery,
compliance with policies and procedures, providing a good, usable product, doing it

22
right the first time, delighting or pleasing customers, and total customer service and
satisfaction.
W.Edward Deming, a leading quality guru called quality as “Continuous
improvement.” According to Joseph M Juran, quality is “Fit for Use”

2.3 SEVEN FACES OF QUALITY

• Performance
• Features
• Reliability
• Conformance
• Durability
• Serviceability
• Aesthetics
Producing superior quality products or providing a quality service is vital to
the continued growth and success of a firm. There are number of benefits a firm derives
by offering quality products. Some of which are: It gives a positive company image; It
improves competitive ability both nationally and internationally; It increases market
share, which translates into improved profits; Overall , it reduces costs, which translates
into improved profits; It reduces atmosphere for high employee morale, which
improves productivity.

2.4 FACTORS AFFECTING QUALITY

Some of the factors that affect a company’s ability to produce quality

products are as follows:
Markets: Markets in terms of consumer demands are expanding today and consumers
demand qualitative products to satisfy their need.
Money: With increase in competition, firm’s profit margins are reducing and therefore,
they have to concentrate on minimising the quality costs.
Men: With increasing size, complexities and specialisation of business operations,
there is need to appoint workers with specialised knowledge who can produce quality
goods for the firms to be able to compete in competitive environment.

23
Materials: To cope up with high cost of production, business organisations have to
search for alternate materials which will keep the overall cost of materials low
inconsonance with high quality of goods.
Machines : Maintaining existing machines and looking for newer machines which
will help manufacturers reduce their cost of production can also add to the quality of
products.
Management: Quality should not confine itself to the product. Designing the product
transformation process that will produce the final product, marketing of the product,
providing for after sales service are all essential features of quality management which
require active support of top management in allocating responsibility to those concerned
so that product quality can be maintained.
Motivation: The greatest force that can contribute to quality of the product is the
workforce. Workers should, therefore, be motivated, through education and incentives
to contribute their best to the product quality.
Management Information Systems: The information systems through application of
computer –oriented tools and techniques also contribute to the quality of the products
by making right information accessible at the right time and the right place.

2.5 DIFFERENT DIMENSIONS OF QULAITY

Quality of Market research

Quality of Design Quality of Concept
Quality of Specification

Technology
Quality of Conformance Employee
Customer satisfaction
Management

Reliability

Availability Maintainability

Logistical Support

Promptness
Field Service Competence
Integrity
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Source: Roger G. Schroeder, Operations Management, Irvin McGraw Hill
2.6 TOTAL QUALITY (TQ)

Total Quality is a people focussed management system that aims at continued

increase in customer satisfaction at continually lower real cost. T is a total system
approach and an integral part of high –level strategy, it works horizontally across
functions and department, involves all employees , top to bottom and extends backward
and forward to include the supply chain and the customer chain. It includes systems ,
methods and tools. The concise definition of TQ used by Procter and Gamble is :
“Total quality is the unyielding and continually improving effort by everyone in an
organisation to understand , meet and exceed the expectations of customers.”
The term total quality management (TQM) has been commonly used to denote
the system of managing for total quality. TQM is a total, company wide effort trough
full involvement of the entire workforce and a focus on continuous improvement that
companies use to achieve customer satisfaction. TM is both a comprehensive
managerial philosophy and a collection of tools and approach for its implementation.
The concept of TQM has been around for some time, A.V Feigenbaum recognised the
importance of comprehensive approach to quality in the 1950s and coined the term
total quality control. Feigenbaum observed that the quality of products and services is
directly influenced by what he terms the 9Ms : “ Markets, Money, Men, and women,
Motivation, Materials, Machines and mechanisation, Modern information methods and
Mounting product requirements”.

2.7 PRINCIPLES OF TOTAL QUALITY

The core principles of total quality are

• A focus on the customer
• Participation and team work
• Employee involvement and empowerment
• Continuous improvement and learning
The modern definition of quality centres on meeting or exceeding customer
expectations. Thus, the customer is the principal judge of quality . Perception of value
and satisfaction are influenced by many factors throughout the customer’s overall
purchase , ownership and service experiences. Companies must focus on all product
and serve attributes that contribute to perceived value to the customer and lead to

25
customer satisfaction. To accomplish this task, a company’s efforts need to extend well
beyond merely meeting specifications, reducing defects and errors on eliminating
complaints. They ;must include both designing new products that truly delight the
customers and responding rapidly to changing consumer and market demands.
Japanese mangers made full use of the knowledge and creativity of the entire
workforce for their rapid quality achievements . In any organisation , the person who
performs a job is the person who best understands the job and how to improve both the
product and the process. By training employees to think creatively and rewarding
good suggestions, mangers can develop employee loyalty and trust. Managers must
formulate systems and procedures and put them in places to ensure that participation
becomes a part of the work culture. Participation of employee can be encouraged by
implementing suggestion systems or schemes that act quickly , provide feedback and
reward good suggestions.
Team work is another important element of total quality attention on customer
–supplier relationships among the employees and encourages the involvement of the
total work force in attacking systematic problems, particularly those that cross functional
boundaries. Success of team work needs managers’ acceptance of workers’ suggestions.
The primary role of management is to lead an organisation in its day-to –day
operations as well as maintain it as a viable entity into the future. Quality has become
an important factor to success.
In the late 1980s providing customer satisfaction in customer terms became a
specific goal of business organisation. Providing high quality was recognised as a key
element for success. At the end the 12th C, business organisations were involved in
what has become a quality revolution. It began in Japan and has spread to other parts
of the world. It involves an entirely new way of thinking about and dealing with quality
that encompasses the entire organisation. This new approach has been given a variety
of name viz., “Six Sigma” at Motorola, “Leadership through Quality” at Xerox,
“Perfect design Quality” at Intel and Total Quality Control” at Hewlett- Packard,
but more often referred to as “Total Quality Management”.
According to ISO, Quality management is defined as “that aspect of the overall
management function that determines and implements quality policy and as such is
the responsibility of top management. “ It is a managerial responsibility and relates to
control of all activities within the organisation for future success of the organisation.
Once an organisation decides to concentrate on quality of its products, it implements

26
this decision by applying managerial efforts to change the entire approach to business
and make quality a guiding factor in everything that an organisation does. The fact
that managerial attention is focused on every organisational activity, however small it
may be is the core of the concept of Total Quality Management.
“Total Quality Management” (TQM) is a philosophy that involves every one in
an organisation in a continual effort to improve quality and achieve customer
satisfaction.”There are two key philosophies in TQM . One is a never ending push to
improve(Continuous improvement) or Kaizen in Japanese and the other is a goal of
customer satisfaction which involves meeting or exceeding customer expectations.
The concept of TQM can be understood by understanding the meaning of three
terms that make up the concept. These are:
• Total – Everyone associated with company is involved in continuous improvement
including customers and suppliers
• Quality-Customers’ stated and implied requirements are fully met.
• Management- Executives are fully committed.
TQM is viewed as collection of systems that aims continuous improvement of
the production processes to satisfy the present and potential requirements of internal
and external customers, through management commitment, teamwork, participation,
involvement, education and training , recognition and reward and application of quality
tools and techniques.

2.8 PDCA CYCLE

Dr. W.E Deming ( Plan -Do -Check - Act).The steps in the PDCA are
implemented as follows:
Plan- It refers to product development .The team must lay down the objectives
,policies, and procedures of TQM , determine customer requirements, adopt appropriate
tools and techniques and educate and train personnel to produce products that meet
customer requirements. If a problem is detected in any area of product development,
the team must find the causes of the problem by collecting the necessary data and
information which must be based on facts and not mere judgment or thinking.
Do: It refers to working according to the plan. It amounts to manufacturing
according to product development plans. The process of TQM must be implemented
by introducing machines, material and men to the production processes. If any problem

27
is detected in the planning phase, the team will take necessary steps to solve that problem
in the Do phase.
Check- Once the production process has started , Check refers to finding
deviations if any, in outputs . It refers to finding the causes of deviations and analysing
their impact on the final product and the market relationships. It amounts to checking
the impact of company’s sales on customer satisfaction. In the event of any problem
having been detected in the plan the solution to which was implemented in the do
stage, the check phase aims to find out whether or not the improvement process was
successful.
Action- If steps taken are proved to be successful , better quality level should
be accepted and if steps have not proved to be successful, the PDCA cycle should be
repeated. It, therefore, deals with market research and aims to prevent problems rather
than correct them.
Total Quality demand new styles of managing and entirely new set of skills.
TQM is an approach to doing business that attempts to maximise the competitiveness
of an organisation through the continual improvement of the quality of its product,
services, people, processes and environments. Total quality organisations have a
comprehensive strategic plan that contains the following elements :
• Vision
• Mission
• Broad Objectives and
• Activities
An increasing number of firms find that commitment to their customers through
total quality is essential for their survival in the current global competitive environment.
This commitment to quality starts with managerial leaders. Strong leadership is a
characteristic common to a number of total quality organisation. Leadership is the
most important ingredient for launching and sustaining a quality improvement process.

2.9 SALIENT FEATURES OF TQM

1. Find out what the customers want. Customers include both internal as well as the
external customer.
2. Design a product or service what will meet or exceed what customers want.
3. Design a production process that facilitates doing the job right the first time.

28
4. Keep track of the result and use those to guide improvement in the system. Never
stop trying to improve.
5. Extend these concepts to suppliers and to distribution.

2.10 PRINCIPLES OF TOTAL QUALITY MANAGEMENT

• Customer Satisfaction
• Employee involvement
• Continuous improvements in quality.
• Primary responsibility for product quality rests with top management.
• Quality should be customer –focused and evaluated using customer –based
standards
• The production process and work methods must be designed consciously to
achieve quality of conformance.
• Quality cannot be inspected into a product. So make it right the first time.
• Quality must be monitored to identify problems quickly and correct quality
problems immediately.
• Companies must work with and extend TQM programs till their suppliers to
ensure quality inputs.
TQM adds value to the services offered to the customers. All personnel are
involved, which improves motivation and commitment. TQM provides assurance that
performance and processes are well understood and TQM is economic in the long-
term to both the company and its customers.
Scope of Total Quality Management

Practices

TQ
Principle
s Continuous Improvement and Learning
Customer Focus

Infrastructure Participation and team work Tools and Techniques

29
 All the principles of TQM must work together and support each other. The elements
of an infrastructure that support the core principles of total quality are leadership,
strategic planning, human resource management, process management and data and
information management. Tools include various graphical and statistical methods to plan
work activities, collect data , analyse results, monitor progress and solve problems.
TQM can be put to practice by adopting suitable TQM methods. Adoption of the
right method is important for mangers as the degree of success of TQM largely depends
upon the knowledge and selection of the method, its suitability for quality management
problems and its effective implementation by effective leaders.

2.11 TQM METHODS ARE:

1.Management methods 2.Analytical methods

Benchmarking Critical Path Method
Deming Wheel Failure mode & Effect Analysis
ISO 9000 Force –Field Analysis
Just-In-Time
Quality Circles
3.Idea generation 4.Data Collection , Analysis & Display
Brain storming C-Charts
Nominal Group Technique Histograms
Suggestion schemes P-Charts
Pie Charts
Tally Charts

2.12 BENEFITS OF TQM

• It helps to satisfy customer demand justifies the existence of a business

organisation.
• It helps firms face competition in the market and strength its competitive position.
• It enables the firm to optimally utilise its scarce resource ie., optimum allocation
of resources.
• It helps in maintaining quality cost relationships .

30
• It improves quality of the products by preventing and correcting defects and reducing
wastes.
• It increases organisational productivity .
• It improves the organisational environment in which quantity and quality are
positively correlated and overall social and financial position of the firm is
strengthened.
• It leads to development of committed personnel who work for the achievement
of individual and organisational goals.
• It adds to the competence of all personnel with respect to their jobs.
• It enhances both horizontal and vertical communication amongst managers and
employees.
• It leads to continuous improvement in the operational activities of the firm.
• It helps an organisation to towards dedication, ethics, integrity and technology.
As TQM is a necessity for any business organisation and its effective
implementation cannot be overlooked as a journey to reach the destination of successful
achievement of organisational goals through customer satisfaction.
2.13 OBSTACLES TO TQM

The various obstacle to TQM are:

• Insufficient management commitment
• Difficulty in changing the organisational culture
• Poor planning
• Lack of continuous education and training
• Incompatibility between organisational structure and individuals.
• Ineffective measurement techniques and poor accessibility to data and results.
• Lack of attention to internal and external customers.
• Insufficient use of empowerment and teamwork
• Failure to achieve continuous improvement.

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LEANING ORGANISATION
2.14 INTRODUCTION

A learning organization is the term given to a company that facilitates the

learning of its members and continuously transforms itself. Learning organizations
develop as a result of the pressures facing modern organizations and enables them to
remain competitive in the business environment. A learning organization has five main
features; systems thinking, personal mastery, mental models, shared vision and team
learning. The Learning organization concept was coined through the work and
research of Peter Senge and his colleagues  . It encourages organizations to shift to a
more interconnected way of thinking. Organizations should become more like
communities that employees can feel a commitment to. They will work harder for an
organization they are committed to. In a competitive environment of the present
millennium, only a learning organisation will survive.
The Learning Organisation is a concept that is becoming an increasingly
widespread philosophy in modern companies, from the largest multinationals to the
smallest ventures. What is achieved by this philosophy depends considerably on one’s
interpretation of it and commitment to it. The quote below gives a simple definition
that we felt was the true ideology behind the Learning Organisation.
“A Learning Organisation is one in which people at all levels, individuals and
collectively, are continually increasing their capacity to produce results they really
care about.” An organisation that learns and encourages learning among its people. It
promotes exchange of information between employees hence creating a more
knowledgable workforce. This produces a very flexible organisation where people
will accept and adapt to new ideas and changes through a shared vision.
The importance of learning was first put forward by a Chinese Philosopher
Confucius (551 - 479 BC). He believed that everyone should benefit from learning.
“Without learning, the wise become foolish; by learning, the foolish become wise.”
“Learn as if you could never have enough of learning, as if you might miss something.”
The underlying cause for recent emphasis on organisational learning is because
of the increased pace of change. Learning was something divorced from work and
innovation was seen as the necessary but disruptive way to change. The corporation
which is able to quickly learn and then innovate their work will be able to change their
work practices to perform better in the constantly changing environment. Change is

32
now measured in terms of months not years as it was in the past. Business re-engineering
used to concentrate on eliminating waste and on working smarter and learning.
Different definitions of a learning organization are given. According to Peter
Senge, a learning organization exhibits five main characteristics: systems thinking,
personal mastery, mental models, a shared vision, and team learning.
2.15 CHARACTERISTICS OF LEARNING ORGANISATIONS

Systems thinking. The idea of the learning organization developed from a body
of work called systems thinking. This is a conceptual framework that allows people to
study businesses as bounded objects. Learning organizations use this method of thinking
when assessing their company and have information systems that measure the
performance of the organization as a whole and of its various components. Systems
thinking states that all the characteristics must be apparent at once in an organization
for it to be a learning organization. If some of these characteristics are missing then
the organization will fall short of its goal. However O’Keeffe believes that the
characteristics of a learning organization are factors that are gradually acquired, rather
than developed simultaneously.
Personal mastery. The commitment by an individual to the process of learning
is known as personal mastery. There is a competitive advantage for an organization
whose workforce can learn more quickly than the workforce of other
organizations. Individual learning is acquired through staff training, development and
continuous self-improvement,]however learning cannot be forced upon an individual
who is not receptive to learning. Research shows that most learning in the workplace
is incidental, rather than the product of formal training, therefore it is important to
develop a culture where personal mastery is practiced in daily life. A learning
organization has been described as the sum of individual learning, but there must be
mechanisms for individual learning to be transferred into organizational learning.
Mental models. The assumptions held by individuals and organizations are
called mental models. To become a learning organization, these models must be
challenged. Individuals tend to espouse theories, which are what they intend to follow,
and theories-in-use, which are what they actually do. Similarly, organizations tend to
have ‘memories’ which preserve certain behaviours, norms and values. In creating a
learning environment it is important to replace confrontational attitudes with an open
culture that promotes inquiry and trust. To achieve this, the learning organization
needs mechanisms for locating and assessing organizational theories of

33
action. Unwanted values need to be discarded in a process called ‘unlearning’. Wang and
Ahmed refer to this as ‘triple loop learning.’
Shared vision. The development of a shared vision is important in motivating the
staff to learn, as it creates a common identity that provides focus and energy for learning.
The most successful visions build on the individual visions of the employees at all levels
of the organization, thus the creation of a shared vision can be hindered by traditional
structures where the company vision is imposed from above. Therefore, learning
organizations tend to have flat, decentralized organizational structures. The shared vision
is often to succeed against a competitor, however Senge states that these are transitory
goals and suggests that there should also be long term goals that are intrinsic within the
company.
Team learning. The accumulation of individual learning constitutes Team learning.
The benefit of team or shared learning is that staff grow more quickly and the problem
solving capacity of the organization is improved through better access to knowledge and
expertise. Learning organizations have structures that facilitate team learning with features
such as boundary crossing and openness. Team learning requires individuals to engage in
dialogue and discussion; therefore team members must develop open communication,
shared meaning, and shared understanding. Learning organizations typically have excellent
knowledge management structures, allowing creation, acquisition, dissemination, and
implementation of this knowledge in the organization.

2.16 WHY A LEARNING ORGANISATION

A company that performs badly is easily recognisable. The reasons why a leaning
organisations is needed is because employees seem unmotivated or uninterested in
their work; workforce lack the skill and knowledge to adjust to new jobs, only few
to come up with all the ideas, workforce simply follow orders, teams argue constantly
and lack real productivity, lack of communication between each other, when “head/
guru” is off do things get put on hold, always the last to hear about problems, worst
still the first to hear about customer complaints , and the same problems occur
over and over.
Before a Learning Organisations can be implemented , a solid foundation can
be made by taking into account the following :
• Awareness
• Environment

34
 • Leadership
• Empowerment
• Learning
Awareness : Organisations must be aware that learning is necessary before they
can develop into a Learning Organisation. This may seem to be a strange statement but
this learning must take place at all levels; not just the Management level. Once the
company has excepted the need for change, it is then responsible for creating the
appropriate environment for this change to occur in.
Environment : Centralised, mechanistic structures do not create a good
environment. Individuals do not have a comprehensive picture of the whole organisation
and its goals. This causes political and parochial systems to be set up which stifle the
learning process. Therefore a more flexible, organic structure must be formed. By
organic, we mean a flatter structure which encourages innovations. The flatter structure
also promotes passing of information between workers and so creating a more informed
work force.
It is necessary for management to take on a new philosophy; to encourage
openness, reflectivity and accept error and uncertainty. Members need to be able to
question decisions without the fear of reprimand. This questioning can often highlight
problems at an early stage and reduce time consuming errors. One way of over-coming
this fear is to introduce anonymity so that questions can be asked or suggestions made
but the source is not necessarily known.
Leadership : Leaders should foster the Systems Thinking concept and encourage
learning to help both the individual and organisation in learning. It is the leader’s
responsibility to help restructure the individual views of team members. For example,
they need to help the teams understand that competition is a form of learning; not a
hostile act.
Management must provide commitment for long-term learning in the form of
resources. The amount of resources available (money, personnel and time) determines
the quantity and quality of learning. This means that the organisation must be prepared
to support.
Empowerment : The locus of control shifts from managers to workers. This is
where the term Empowerment is introduced. The workers become responsible for their
actions; but the managers do not lose their involvement. They still need to encourage,
enthuse and co-ordinate the workers. Equal participation must be allowed at all levels so

35
that members can learn from each other simultaneously. This is unlike traditionally
learning that involves a top-down structure (classroom-type example) which is time
consuming.

Learning : Companies can learn to achieve these aims in Learning Labs. These
are small-scale models of real-life settings where management teams learn how to
learn together through simulation games. They need to find out what failure is like so
that they can learn from their mistakes in the future. These managers are then responsible
for setting up an open, flexible atmosphere in their organisations to encourage their
workers to follow their learning example.

Anonymity has already been mentioned and can be achieved through electronic
conferencing. This type of conferencing can also encourage different sites to
communicate and share knowledge, thus making a company truly a Learning
Organisation.
Five Keys to Building a Learning Organization.
1. Remember that corporate learning is “informal” and HR doesn’t own it.
2. Promote and reward expertise.
3. Unleash the power of experts.
4. Demonstrate the value of formal training.
5. Allow people to make mistakes.

2.17 BENEFITS OF LEARNING ORGANISATIONS ARE :

• Maintaining levels of innovation and remaining competitive

• Being better placed to respond to external pressures
• Having the knowledge to better link resources to customer needs
• Improving quality of outputs at all levels
• Improving Corporate image by becoming more people oriented
• Increasing the pace of change within the organisation.

2.18 BARRIERS

Even within or without learning organization, problems can stall the process of
learning or cause it to regress. Most of them arise from an organization not fully
embracing all the necessary facets. Once these problems can be identified, work can

36
begin on improving them. Some organizations find it hard to embrace personal mastery
because as a concept it is intangible and the benefits cannot be quantified;, personal
mastery can even be seen as a threat to the organization. This threat can be real, as Senge
]
points out, that “to empower people in an unaligned organization can be
counterproductive”. In other words, if individuals do not engage with a shared vision,
personal mastery could be used to advance their own personal visions. In some
organizations a lack of a learning culture can be a barrier to learning. An environment
must be created where individuals can share learning without it being devalued and
ignored, so more people can benefit from their knowledge and the individuals becomes
empowered. A learning organization needs to fully accept the removal of traditional
hierarchical structures.
In addition, organizational size may become the barrier to internal knowledge
sharing. When the number of employees exceeds 150, internal knowledge sharing
dramatically decreases because of higher complexity in the formal organizational
structure, weaker inter-employee relationships, lower trust, reduced connective efficacy,
and less effective communication. As such, as the size of an organizational unit
increases, the effectiveness of internal knowledge flows dramatically diminishes and
the degree of intra-organizational knowledge sharing decreases.

2.19 SUMMARY

The perfect Learning Organisation is not an attainable goal, it is merely a

desirable concept: there is no correct implementation of the Learning Organisation.
Every company can continuously adapt and adjust and some will be better Learning
Organisations than others, but every one of them has something new to learn. Finally
it should be mentioned that the Learning Organisation is just a means to a business
goal, created to improve productivity and most importantly profit. Quite how long this
philosophy will remain fashionable is unknown. What is certain is that for any company
in today’s global marketplace continuous change and adaptation is the only way to
survive.

2.20 REVIEW QUESTIONS

1. Define learning Organisations.

2. What are the benefit of learning organisations?
3. Mention the different barriers to learning organisstions.
4. What is Total Quality Management?

37
 5. Explain the concept of TQM.
6. State the different techniques of quality control..
7. What are the benefits of TQM?

2.21 REFERENCES

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.
2.22 CASE

TQM is a philosophy mainly dominated by large companies. Small businesses are

lagging behind larger ones when it comes to introducing and adopting new managerial
philosophies and advanced technology. Many small companies have stopped at quality
system certification, such as ISO 9000, in their quality journey rather than pursuing
further continuous improvement efforts through TQM. Small businesses must understand
the need to go beyond the quality system stage and work towards a total approach for
quality. Only through this total approach will their quality effort be a success.
1. Discusses the various issues confronting small businesses when embarking on TQM.

38
UNIT -3 : TRENDS IN MANAGEMENT, CONTRIBUTIONS OF
MANAGEMENT GURUS - PETER DRUCKER,
MICHAEL PORTER, C.K. PRAHALAD, SHI KHERA,
A CHAUDARY, GARY HAMEL, MICHAELHAMMER,
JACK TROUT, AI RIES AND TOM PETERS -

Structure
3.0 Objectives
3.1 Introduction –Trends in management
3.2 Peter Drucker
3.3 C.K Prahalad
3.4 A Chaudary
3.5 Shiv Khera
3.6 Michael Hammer
3.7 Michael Porter
3.8 Gary Hamel
3.9 Al Ries
3.10 Jack Trout
3.11 Tom Peters
3.12 Summary
3.13 Self Assessment Questions
3.14 References

39
3.0 OBJECTIVE

After studying this unit you will be in a position to know:

• The major trends in management.
• The contribution of various management gurus to the field of management.

3.1 INTRODUCTION : TRENDS IN MANAGEMENT

Wave of globalization has been the driving force behind most far-reaching and
powerful changes in business, then information technology has indisputably been the
facilitator. In the changing management scenario current trends include managers that
manage the work and not the people. Work is more predictable than people. Rather
than trying to manage people so strictly, managers are living in the light and kindness
with employees as they are real people; their own neighbors. Emerging Trends in
Management - 2012 by Dr. Harry CD include , Contemporary Management styles,.
Micro and Macro management ,. Virtual and Open source management, Globally
distributed management, Global and International Management , Business ecosystems
–Networked Management,. Green Management,. Smart Management, Sustainability
management. Green management measures such as certified environmental
management International and Global Management is systems (EMS) or tools like life
cycle concerned with the techniques and assessment activities are considered to improve
corporate environmental practices that are involved in directing and performance
directly by mandating controlling international organisations. Companies are trying to
introduce environmental goals and management structures as well as programs to
achieve them.
Dr. Harry CD 2012 focus on: S.M.A.R.T. Management includes (specific,
measurable, achievable, realistic, and time-based.) methods of implementation
Sustainable management takes the concepts from sustainability and synthesizes them
with the concepts of management. Sustainability has three branches: the environment,
the needs of present and future generations, and the economy Emerging Trends in
Management
Organizations are required to accomplish, a given task according to schedule
and pre-determined programme. People are made to work. They don not themselves
work. Management, therefore, has come to stay as an activity process in this complex
industrial and commercial world. Management is the body of people which performs

40
certain managerial functions for the accomplishment of pre-determined goals. The
concept of management is very old. Therefore, different view has been expressed
about its nature by different authorities. Management is a social science the subject
matter of which is a human being. Management generalisations and principles cannot
hold good in all the cultures and at the stages of economic development. Thus
management has evolved and changed considerably over a period of time and various
management experts and gurus have contributed to the development of management
concepts and principles.

3. 2 PETER DRUCKER

Peter Drucker popularly known as the ‘Father of Modern Management’ is still

remembered for his contribution in the field of management. He stressed on the fact
that the needs of society could be fulfilled only through business institutions and,
therefore, it was necessary that these institutions performed well. Drucker laid
emphasis on managers and management for the effective functioning of the business
institutions. His contributions to management is as follows:
• Each society is a society of institution which people look forward to a as a
source of employment and also the fulfillment of their varied needs. It is the
management of these institutions which affects their performance and survival.
The managers, he asserts , are different from the owners and possess specialized
skills to perform the managerial tasks. He, thus, considers management as a
profession.
• Amongst the various institutions, the focus of attention of management is on the
business institutions as the efficacy of management can be judged through the
economic results that it produced, and the most prevalent economic institutions
is the business institution. Besides, management is also liked at as a form to reform
Government and Society and also to further the traditional values, customs, and
belief’s of the society.
• Drucker originated the concept of Management by Objective (MBO) . It stresses
on the need of participative management whereby managers at all levels participate
in the goal setting process so that the individual performance synthesizes with
the organizational performance. According to him, MBO, if effectively organized
can help in overcoming four major organizational problems: the specialized
work of most managers; the hierarchical structure of management; the differences
in vision and work, and the compensation structure of the management group.

41
• Drucker advocated the skills managers must possess so as to make management an
effective task.
a. Skills to make effective decisions
b. Skills to communicate in an outside the organisation
c. Skills to make proper use of controls and measurements, and
d. Skills to make proper use of analytical tool – management science.
• Rather than focusing on task-oriented or person-oriented approach to management,
Drucker focused his attention on an organization structure that needs to be both
task-focused and person-focused. He, therefore, advocated both Scientific
Management and the Human Relations Doctrine.
• Every institution is a part of society in which it functions and, therefore, it cannot
remain oblivious of the impact of societal functions on business institutions and
vice versa. The systems approach to management, thus , is also considered by
Drucker while he advocated the need for management in the functioning of the
institutions.
Drucker’s work on management has been highly appreciated by subsequent
management thinkers. The work of Drucker is recognized even today and will continue
to guide managers , academicians, management thinkers. His work on management
has and will continue to provide a basic foundation for management thinkers.

3.3 C.K. PRAHALAD

He is known not only for his prolific works also for his management perceptions
and strategies C K Prahalad is a professor, researcher, speaker, author and prominent
consultant . Prahalad specializes in corporate strategy and the role of top management
in large, diversified, multinational corporations.
In 1994 he co-authored the bestseller, Competing for the Future, with Gary
Hamel. Translated into 14 languages, it was named the Best Selling Business Book of
the Year in 1994. Prahalad is particularly well known for the work he has conducted
with fellow strategy expert Gary Hamel. This includes the articles The Core Competence
of the Corporation (Harvard Business Review, May-June, 1990), Competing in the
New Economy: Managing Out of Bounds (Strategic Management Journal, Vol. 17,
No. 3, March, 1996) as well as the bestselling book Competing for the Future:
Breakthrough Strategies for Seizing Control of Your Industry and Creating the Markets
of Tomorrow (1994).

42
 Professor Prahalad’s books include: The Multinational Mission: Balancing Local
Demands and Global Vision (1987) with Yves. Many of the articles he has co-authored
have appeared in the Harvard Business Review, including Do You Really Have a Global
Strategy? (1985); Collaborate With Your Competitors - and Win (1989) Strategic Intent
(1989); The Core Competence of the Corporation (1990); Corporate Imagination and
Expeditionary Marketing (1991); Strategy as Stretch and Leverage (1993); Competing
for the Future (1994); and The End of Corporate Imperialism (1998).
Strategic Intent, The Core Competence of the Corporation and The End of
Corporate Imperialism won McKinsey Prizes in 1989, 1990 and 1998 respectively.
The Dominant Logic: A New Linkage Between Diversity and Performance (1986), co-
authored with Richard Bettis, was chosen as the best article published in Strategic
Management Journal for the Period 1980-88.
Professor Prahalad’ s contributions to strategic thinking are widely
acknowledged. In 1992 Business Week described him as a “Brilliant teacher at the
University of Michigan, Prahalad may well be the most influential thinker on corporate
strategy today”. He was named in Business Week as one of the top ten business
professors in the country, based on a nation-wide poll of MBA alumni. The Indo-
American Society presented Professor Prahalad with their 1994 Annual Award for his
outstanding contribution toward promotion of Indo-American goodwill, understanding
and friendship. In 1995 he received the American Society for Competitiveness Award
for his outstanding academic contribution to competitiveness.
One of the names most commonly cited in boardrooms across corporate America
is C K Prahalad. The pioneer of the ‘core competence’ management concept. In
surveying the corporate scene worldwide, one of the questions that has most intrigued
management guru C K Prahalad is how dark horses can beat the established favourites
at their own game, and on their turf.. What all that tells you, Dr Prahalad points out, is
that being small need not be a minus and being big need not be a plus, because the
small have not only survived, they have become winners. Madras-born Dr Prahalad,
who has taught at Harvard, the Indian Institute of Management in Ahmedabad and
INSEAD in France, was Harvey Freuhauf Professor of Business at the University of
Michigan. His list of awards and citations alone is as long as an arm.
His contribution to management theory and practice is reputedly path-breaking.
He pioneered the concept of “core competence” of a corporation — more on that later
— and together with his collaborator, Gary Hamel, has turned much of the conventional

43
wisdom on corporate strategy upside down. According to that wisdom, resources were
critical: resources equalled size and size equalled market share. Also, with big resources,
companies could innovate more because they could buy both brains and technology.
The old wisdom also focused on “maximising within constraints” — the idea that a
company’s ambitions should be in line with what it can afford. Furthermore, corporate
strategy was seen as something that was top-down: bosses came up with ideas and
employees put them into effect.
At first, Dr Prahalad tried to use the old paradigm to explain what was going on
in corporations. But it couldn’t do the job, no matter how much he twisted and stretched
it. “So what we ended up doing,” he says, “was to throw out all the old ideas and say:
there must be a totally different explanation, a different way of conceptualizing the
process of corporate strategy.” After much research, he narrowed down to four or five
central themes.
The first was that most companies are “imagination-constrained”, not resource-
constrained. “Imagination, passion, excitement — these have to be as much part of a
senior management’s tasks as resource allocation,” he says. And no, resources don’t
buy imagination; more often, they limit imagination. “The rich companies are typically
not the ones that are the most creative, because they have a lot of money to throw at
problems. It’s the poor who have come up with the most imaginative ideas. Look at
Apple, Microsoft, Oracle or Silicon Graphics. None of them started with big resources.
They started with a big idea, an aspiration to change the world. To them, strategy was
about discovery.”
Dr Prahalad’s second central idea blew the concept of “maximising within
constraints” to bits. “If you’re top management, you need to deliberately create a misfit
between aspirations and resources,” he suggests. “If your aspirations are not outside
the realm of your current resources, you’re unlikely to create new ideas. If you look at
all entrepreneurs, they instinctively follow this model.”
“The big question,” he says “is how do you create responsible entrepreneurship
in a large company which has 150,000 people working in 65 countries? If there are
eight people in a room, it’s no big deal. It happens spontaneously; there is no need for
a process. But in a large company, there is. Creating a misfit between aspirations and
resources is part of that process.”
Another part, according to Dr Prahalad, consists of tapping employees for
entrepreneurial ideas. He sees the elitist approach, where the top bosses are also the
top ideas people, as a recipe for mediocrity. “Smart strategy always involves a large

44
number of people,” he points out. “Because knowledge about customers, about
competitors, about new technologies — all this resides lower down in the organisation.
So any top management needs to capture the imagination of the people there.”
Another key element of strategy, according to Dr Prahalad, lies in the leveraging
of resources. “If you want to be innovative, you must leverage everything you can —
your suppliers, your partners, your employees, and even your competitors,” he points
out. “That’s how you get the most bang for your buck.”
But the scarcest and most important thing a company can leverage is talent and
skills, and the past products of these, he says. “A company must redeploy and recycle
what it has invested in.” “If you have a big investment over a long time in, say, optical
technology like Philips or Sony, you need to continuously redeploy it in new businesses.
It doesn’t have to be in businesses that you’re already in: it can be in businesses that
you’re not in. For example, the compact disc was invented as an audio device. But
every PC comes with a CD-ROM. The CD today is also an integral part of video,
graphics and games. That’s not what it was invented for. “The ability to leverage it
across multiple users is the basic idea behind core competence. It means re-using,
redeploying, sharing, furthering and nurturing the skill base of the company. If you
have a core technology, you must also have the capacity to share it across boundaries.”
“In other words,” says Dr Prahalad “you ought to look at a corporation not only
as a portfolio of businesses but as a portfolio of competencies that cut across multiple
businesses. Sometimes you have to create new businesses, you have to make new
space. That’s what discovery is all about.”

3.4 A. CHAUDARY

Speaking of contemporary business thinkers, another fine entrepreneur, educator,

author and enterprising personality is Arindham Chaudhuri. His contribution to the
field of management studies in India can be found in the iconoclastic “Theory ‘ i ’
Management” which he has developed for India Inc. “Theory ‘i’ Management” is
about India centric management ideas. For the last few years he has been conducting
workshops on Leadership and Strategic Vision exclusively for CEOs, MDs, Directors
and Presidents from the corporate sector. From the Managing Director of Hero Motors
to the President of Tata Chemicals, from the Executive President of A.V. Birla Group
to the CEO of Ernst & Young… have all taken leadership training workshops from
him. As a celebrated speaker he is regularly invited to speak at various annual
conferences and national conventions. He also happens to be highest paid speaker in the
country.

45
 An economist by passion and education, during Bill Clinton’s historic visit to
India he launched his Great Indian Dream -: India can beat America, a series of seminars
for every Indian. Held in all the metros of India, these seminars had thousands of
people pouring in from all walks of life. In these seminar’s he not only highlights the
inherent strengths of the Indian culture but also talks about an alternative resource
mobilization and allocation package for an Indian turnaround. To facilitate social
activities based on this he has started the Great Indian Dream Foundation in memory
of his brother Aurobindo Chaudhuri. He was recently rated as one of the 50 leading
thinkers in South Asia by Wilton Park (an organisation supported by the European
Commission and British foreign office).
Further, he was awarded the Academic Gold Medal while completing the Post
Graduate Diploma in Planning and Management from IIPM. Prof. Chaudhuri was
awarded “Management Guru 2000 Award” by Chennai based Om Venkatesa Society
which annually honours management experts.

3.5 SHIV KHERA

In this dog-eat-dog business world, if you are not self motivated, self confident
and unique, you will be trampled over. At such times look into the works of the
distinguished management guru and motivator, Shiv Khera. His gospel:- “Winners
don’t do different things, they do things differently” Shiv Khera is the founder of
Qualified Learning Systems Inc. An educator, business consultant, a much sought after
speaker and a successful entrepreneur. He has taken his dynamic personal message
around the world. Shiv has been recognized as a “Louis Marchesi Fellow” by the
Round Table Foundation. His client list includes the who’s who of the corporate world.
He has authored three bestsellers, amongst other books. His first book “You
Can Win”, which came out in 1998, has sold over a million copies worldwide. His
second book “Living With Honour” hit the stands in August 2003, becoming an instant
bestseller. Then within a span of six months in February 2004, his third book “Freedom
Is Not Free” was released, also to become a bestseller.
His first two books are on an individualistic level, where he defines the winning
edge as achieving excellence rather than perfection, as excellence paves the way for
progress. He also conveys that it is better to be honourable than to be honoured. His
work offers direction for living with pride in a cluttered environment. His latest book
concentrates on society. Here he firmly believes that a progressive society is the basis
for individual progress of its people.

46
 Transforming his years of experience as a motivator into a practical tool, he has
developed a core program/workshop known as the Blueprint for Success (BPS). This
program motivates people to recognize their true potential and gain success - personally
and professionally.

3.6 MICHAEL HAMMER

An engineer by training, Hammer was the proponent of a process-oriented view

of business management.
Michael Hammer is one of those celebrated big thinkers of the business world.
Reengineering the Corporation, his 1993 best-seller co-authored with James Champy,
prompted managers to overhaul their business structures in pursuit of dramatic
improvements. Some succeeded, but by the end of the decade, the term had also become
synonymous with layoffs and plant closures. Meanwhile, Hammer seemed bogged down
by his very success.
Dr. Hammer’s groundbreaking research and visionary thought leadership over
the years has galvanized the business world—beginning with his leadership of the
reengineering movement and continuing with his brilliant formulation of the process-
centered organization. Hammer’s ideas have become integrated into the DNA of
businesses and organizations worldwide and continue to retain their relevancy in today’s
challenging economic environment.
Michael Hammer five important contributions towards Business Process
Management. : ‘Reengineering and the Corporation’ emphasis on Concept of
‘Management Process Design’, ‘Coined the end of Adam Smith Era’, defended the
undoing of the Industrial Revolution and stated that a new organization had to re-
emerge under the supervision of a strong leader with vision , who, using information
technologies , consulting closely with the suppliers to reduce inventories, and
empowering employees , would build a more efficient organization. ‘Started Shaping
the modern Business Process ’, Michael Hammer defended that corporation ought to
simplify and reorganize business departments by having workers do their work which
could contribute for greater efficiency and productivity. ‘Empowered the information
worker’, Michael defended saying that in new organizations and managers should
switch from supervisory roles to facilitators. They ought to become enablers and mentors
of those who they manage , empowering them to perform value –adding processes
themselves, making sure their contribution would be recognized by the top management.
‘Powerful ideas gone bad’ this misinterpretation let to firing of workers, hence

47
Michael emphasized that the term re-engineering was misappropriated and misunderstood
and stated that re-engineering should be taken to promote greater production and create
more jobs.

3.7 MICHAEL PORTER

Professor Porter is a leading authority on competitive strategy and the

competitiveness and economic development of nations, states, and regions.
Professor Porter’s ideas on strategy have now become the foundation for one of
the required courses at the Harvard Business School. Professor Porter speaks widely
on competitive strategy and international competitiveness to business and government
audiences throughout the world. In 2001, Harvard Business School and Harvard
University jointly created the Institute for Strategy and Competitiveness, led by
Professor Porter, to further his work. Professor Porter is the author of 16 books and
over 85 articles. His book, Competitive Strategy: Techniques for Analyzing Industries
and Competitors, is in its 58th printing and has been translated into seventeen languages.
His second major strategy book, Competitive Advantage: Creating and Sustaining
Superior Performance, is in its 34th printing. His Harvard Business Review article
‘What is Strategy?’ is the foundation for a new strategy book it also well known. His
article ‘Strategy and the Internet’ (2001) won for Professor Porter an unprecedented
third first-place McKinsey Award as the best Harvard Business Review article of the
year.

3.8 GARY HAMEL

In the new economy, the companies that create new wealth are truly
revolutionaries: they upend long-held industry conventions, they fearlessly challenge
the old guard, and they amaze their customers with products and services that could
scarcely have been imagined a few years earlier. In doing so, they render existing
business models obsolete. In this environment, the most fearsome threat to continued
success is not inefficiency but irrelevancy. Any company that is not an industry
revolutionary is already on the road to insignificance.
Industry revolution is the product of strategy innovation. In an increasingly
non-linear world, only non-linear strategies will create new wealth. As companies move
beyond the incremental, strategy innovation—the capacity to reconceive product and
service concepts, redraw market boundaries, and radically alter deep-down industry
economics—will become the next critical competitive advantage. Strategy innovation
is the only way for a company to renew its lease on success.

48
 Yet most companies are built for continuous improvement, rather than for
discontinuous innovation. They know how to get better, but they don’t know how to
get different. In a world where incumbency is worth next to nothing, a company must
be capable of reinventing its deepest sense of self and its core business concept not
once a decade, in the midst of a crisis, when it trades out one CEO for another, but
continuously, year after year. Twenty years ago the challenge was quality. Ten years
ago the challenge was re-engineering. Now the challenge is strategy innovation.
In Leading the Revolution, Professor Gary Hamel, the world’s most profound
business thinker, lays out a clear plan of action for any company intent on becoming—
and staying—an industry revolutionary. Leading the Revolution is not a book for
dilettantes. It is not a book for corner-office types who would rather protect their
prerogatives than overthrow industry orthodoxy. It is not a book for those who need
reassurance that they’re already doing “the right thing.” Leading the Revolution is a
book for those who want to make a difference-in their world and in their organization.
It is a book for those who are tired of playing it safe. It is a book for people who care
so much about their customers, their colleagues and their own legacy that they can’t
imagine not Leading the Revolution.

3.9 AL RIES

Positioning, a concept developed by the authors, has changed the way people
advertise. The reason? It’s the first concept to deal with the problems of communicating
in an over communicated society. With this approach, a company creates a ‘position’
in the prospect’s mind, one that reflects the company’s own strengths and weaknesses
as well as those of its competitors. Witty and fast-paced, this book spells out how to
position a leader so that it gets into the mind and stays there, position a follower in a
way that finds a ‘hole’ not occupied by the leader, and avoid the pitfalls of letting a
second product ride on the coattails of an established one. Revised to reflect significant
developments in the five years since its original publication, Positioning reveals the
fascinating case histories and anecdotes behind the campaigns of many stunning successes
and failures in the world of advertising.
While he doesn’t go so far as to say that small is beautiful, Ries (Positioning)
levels a commonsense critique at the compulsion for growth that drives corporate
America. Growth for its own sake, particularly when it involves diversification into
products unrelated to a company’s original business, Ries says, causes many companies
to become unfocused, confuses customers and loses money. The frenzy for acquisitions

49
that spread many a well-known brand name over a diversity of products has proved
untenable, with the result that companies that grew fat are regaining their original
focus by slimming down. itself of all but its original retail chain.
Al Ries defines corporate focus as an organization’s “necessary” and relentless
pursuit to specialize within its industry. For example, one of Ries’ examples, PepsiCo,
should’ve focused on its core competency (the Pepsi cola brand), and spun off all
other divisions such as its food chains division (KFC, Pizza Hut, Del Taco) and its
snack foods division (Frito Lay). PepsiCo, he claims, will lose the war with Coca-
Cola unless it focuses on just one enemy (Coke) rather than several. Interestingly
enough, Ries’s prophecy towards future focus within organizations happens to have
become the biggest hit on Wall Street in 1997, and in the case of PepsiCo, came true.

3.10 TOM PETERS

“In no small part, what American corporations have become is what Peters
has encouraged them to be” New York. “Peters is ... the father of the post-modern
corporation.” —Los Angeles Times
“We live in a Tom Peters world.” —Fortune
Tom Peters the Uber-guru of management, and compares him to Ralph Waldo
Emerson, Henry David Thoreau, Walt Whitman, and H.L. Mencken. The Economist
tagged him the Uber-guru; and Business Week’s take on his “unconventional views”
led them to label him “business’s best friend and worst nightmare.” In 2004 the
Bloomsbury. Press book Movers and Shakers reviewed the contributions of 125
business and management thinkers and practitioners, from Machiavelli and JP Morgan
to Tom and Jack Welch.
“Tom Peters has probably done more than anyone else to shift the debate on
management from the confines of boardrooms, academia, and consultancies to a broader,
worldwide audience, where it has become the staple diet of the media and managers
alike. Peter Drucker has written more and his ideas have withstood a longer test of time,
but it is Peters—as consultant, writer, columnist, seminar lecturer, and stage performer—
whose energy, style, influence, and ideas have shaped new management thinking.”
Two Tom Peters biographies have been published: Corporate Man to Corporate
Skunk: The Tom Peters Phenomenon and Tom Peters: The Bestselling Prophet of
the Management Revolution In an in-depth analytic study released by Accenture’s
Institute for Strategic Change in 2002, Peters scored 2nd among the top 50 “Business
Intellectuals,” behind Michael Porter and ahead of Peter Drucker.

50
 Leadership guru Warren Bennis, the only person who knows both Peter Drucker
and Tom personally, told a reporter, “If Peter Drucker invented modern management,
Tom Peters verified it.” In fact, as even Tom’s book titles indicate, his passion is passion:
Destruction & Disruption & Re-imaginings ... Talent Liberation for a Brand You/WOW
Projects World ... Creativity, Game-changing Innovation & Sustained Entrepreneurship.
Tom’s newest passions are for Women-as-Leaders; the Supreme Role of Design in
product and service differentiation; the Creation of Customer Experiences that rival a
Cirque du Soleil performance; capturing the enormous, underserved market represented
by Women and Boomers-Geezers; Re-imagining Education for a Creative Age; and
reorienting healthcare from “fix-it-after-the-fact” to Wellness-Prevention. And pursuing
Excellence Variety2005 ... Tom’s first “return to excellence” in 22 years.

3.11 JACK TROUT

Instrumental in developing the vital approach to marketing known as “positioning,”

he is responsible for some of the freshest ideas to be introduced into marketing thinking
in the last decade. Jack Trout started his business career in the advertising department of
General Electric. In 1985 he and Al Ries wrote a second best-selling book entitled
Marketing Warfare. Positioning and Marketing Warfare are now published in 14 languages.
In 1988 Bottom-Up-Marketing was published. It became very popular as the “process”
book as it completed what has become known as the “Trilogy” of marketing books. In
1993 their book, The 22 Immutable Laws of Marketing quickly became the marketing
bible. It outlined the basic reasons why marketing programs succeed or fail in the
competitive nineties. Jack Trout closed the circle with the sequel to Positioning in 1995.
Entitled The New Positioning it takes the world’s No. 1 business strategy to a new level.
This was followed by The Power of Simplicity - A Management Guide To Cutting Through
the Nonsense and Doing Things Right. It is a candid, unvarnished look at the foibles and
complexities of business that get in the way of good decisions. This was followed by
Differentiate or Die - Survival in Our Era of Killer Competition. It presents the keys to
survival in a killer global economy. Differentiate or Die.- presents how you can and
cannot differentiate yourself in the age of killer competition. A very popular book and
lecture, it demonstrates that every product and service can be differentiated if you are
willing to focus and sacrifice.

51
3.12 SUMMARY

The field of management has always been responsive to environmental changes.

The modern society is experiencing more changes than were ever experienced in the
past and the modern managers must keep pace with these changes. In the light of the
recent developments in the economy, not only should management be responsive to
changes, it must, in fact, promote changes and create progress. Traditionally ,
management was viewed as a field of study relevant to solve the technical problems
related to production of goods. The focus was, thus, on the industrial sector. Gradually,
a shift was observed from industrial sector to almost every field of the society. The
focus changed from technical aspect to non- technical types of organizational problems.
No, wonder , management has come to be called as a generic and a universal concept.
Managers have to face ;bring about a change in the corporate governance. Thus the
contributions from various managements experts have a great deal in dealing with the
human element in the organization.

3.13 SELF ASSESSMENT QUESTIONS

1. Explain briefly the recent trends in management.

2. Discuss the contribution of Peter Drucker to the field of management.
3. In what way is Shiv Khera’s contribution different from A Chaudary contribution
to management ?.
4. In what way is Shiv Khera’s contribution benefiting the managers?
3.14 REFERENCES

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.

52
UNIT –4 : MANAGEMENT AS ARTS / SCIENCE AND
PROFESSION. MANAGEMENT LEVELS AND
SKILLS, MANAGERIAL ROLES, MINTZ BERG’S
ROLES OF PRESENT MANAGERS

Structure
4.0 Objectives
4.1 Introduction
4.2 Management as science
4.3 Management as Art
4.4 Management as a profession
4.5 Management Levels
4.5.1 Top level managers
4.5.2 Middle level managers
4.5.3 Lower level managers
4.6 Functional Managers
4.7 General Managers
4.8 Line managers
4.9 Staff managers
4.10 Managemetn skills
4.10.1 Technical skill
4.10.2 Human skill
4.10.3 Conceptual skill
4.11 Role Managers Play
4.12 Mintz Berg’s roles of present managers
4.13 Summary
4.14 Self assessment Questions
4.15 References

53
4.0 OBJECSTIVES

After studying this unit you will be in a position

• To define management.
• Able to understand why management is an art.
• Understand the concept of management as a science.

4.1 INTRODUCTION

Arts and Science of Management: A question often arises whether management

is a science or an art. “ Management is the oldest of arts and the youngest of sciences”.
To have an exact answer to this question, it is necessary to know the meanings of the
terms” Science “ and “Arts”.
4.2 MANAGEMENT AS SCIENCE

Science has been defined as a body of systematized knowledge which establishes

a relationship between cause and effect. Such systematized knowledge contains
concepts, hypotheses, theories, experimentation and principles. Science of Management
assumes that problems can be approached using rational, logical, objective and
systematic ways. Requires technical, diagnostic and decision-making skills and
techniques to solve problems. Now management has been given the shape of an
organized body of knowledge . Its study helps in gaining a rational approach to the
development of means for accomplishing certain goals. Management is a developing
science. However, management cannot be equated with exact sciences like physics
and chemistry. Most of the managerial activities like decision-making, planning,
organizing and directing cannot be an exact science. In management , it is not possible
to define , analyze and measure phenomena be repeating the same conditions over and
over again to obtain results. The observation puts a limitation on management as a
science. Management like other social sciences can be called as “inexact science”.
4.3 MANAGEMENT AS ART

Art understands how a particular activity can be done. Art can be acquired be
conscious effort and practice. Management is getting things done through other people.
They have to continuously analyse the environment and formulate the plans and
strategies. They have to modify the strategies based on the environmental changes.
The principles of management and theories of management cannot be implemented as

54
learnt, in the real world. They are to be applied after making necessary modifications
based on the real life situations. Art may be defined as ‘the technique of applying the
principles to actual practice so as to achieve the desired results with efficiency.’ It is
concerned with the application of knowledge and skills, If science is learnt the art is
practised. Decisions are made and problems are solved using a blend of intuition,
experience , instinct and personal insights. Conceptual , communication,, interpersonal
and time-management skills are required to accomplish the tasks associated with
managerial activities. The principles and techniques of management, when applied in
the organization to achieve its objectives, becomes an ‘art’. In this manner management
is an art.
Management is both a Science as well as an Art. The science of management
provides certain general principles , which can guide the managers in their professional
efforts. The art of management consists in tackling every situation in an effective
manner. As a matter of fact the science and the art of management go together and are
both mutually interdependent and complimentary. Management is thus a science as
well as an art. The art of management is as old as human history, but the science of
management is an event of the recent past. Although management has been recognized
as a science , it is not the biological or physical sciences. It falls in the area of ‘Social
Sciences’ as it is a social process and deals with complex human beings. The theories
and principles of management are situation bound. It may produce different results in
different situations. That is why Ernest Dale has called management a ‘Soft Science’.
It is clear that management is both a science and an art. It is considered a science
because it has an organized body of knowledge. It is considered an art because managing
requires certain skills. Science teaches hoe ‘to know’ and an art ‘to do’, hence science
and art are complimentary. A manager is a scientist as well as an artist. As a scientist
,he relies heavily on the existing knowledge and develops new knowledge and
principles. As an artist , he sometimes wholly depends on his institution, guesswork
and judgement. Thus a manager uses his knowledge to solve the problems in managing
men, materials, methods and money.
4.4 MANAGEMENT AS A PROFESSION

Over a large few decades, factors such as growing size of business unit,
separation of ownership from management, growing competition etc have led to an
increased demand for professionally qualified managers. The task of manager has been
quite specialized. As a result of these developments the management has reached a
stage where everything is to be managed professionally.

55
 A profession may be defined as an occupation that requires specialized knowledge
and intensive academic preparations to which entry is regulated by a representative body.
The essentials of a profession are:
1. Specialized Knowledge - A profession must have a systematic body of
knowledge that can be used for development of professionals. Every professional must
make deliberate efforts to acquire expertise in the principles and techniques. Similarly
a manager must have devotion and involvement to acquire expertise in the science of
management.
2. Formal Education & Training - There are no. of institutes and universities
to impart education & training for a profession. No one can practice a profession without
going through a prescribed course. Many institutes of management have been set up
for imparting education and training. For example, a CA cannot audit the A/C’s unless
he has acquired a degree or diploma for the same but no minimum qualifications and a
course of study has been prescribed for managers by law. For example, MBA may be
preferred but not necessary.
3. Social Obligations - Profession is a source of livelihood but professionals
are primarily motivated by the desire to serve the society. Their actions are influenced
by social norms and values. Similarly a manager is responsible not only to its owners
but also to the society and therefore he is expected to provide quality goods at reasonable
prices to the society.
4. Code of Conduct - Members of a profession have to abide by a code of
conduct which contains certain rules and regulations, norms of honesty, integrity and
special ethics. A code of conduct is enforced by a representative association to ensure
self discipline among its members. Any member violating the code of conduct can be
punished and his membership can be withdrawn. The AIMA has prescribed a code of
conduct for managers but it has no right to take legal action against any manager who
violates it.
5. Representative Association - For the regulation of profession, existance of
a representative body is a must. For example, an institute of Charted Accountants of
India establishes and administers standards of competence for the auditors but the
AIMA however does not have any statuary powers to regulate the activities of managers.
6. Specialised Educational Qualifications: There should be specialised
educational qualifications for employment for professional jobs. Specialised educational
institutions are established to impart specialized education. Indian Institutes of

56
Management and Department of Management in the Universities are established to
provide specialises management education leading to Post-Graduate Diploma in
Management and Master of Business Administration degree.
Management satisfies al the characteristics of a profession. Therefore,
management is a profession . From above discussion, it is quite clear that management
fulfills several essentials of a profession, even then it is not a full fledged profession
because: -
• It does not restrict the entry in managerial jobs for account of one standard or
other.
• No minimum qualifications have been prescribed for managers.
• No management association has the authority to grant a certificate of practice
to various managers.
• All managers are supposed to abide by the code formulated by AIMA,
• Competent education and training facilities do not exist.
• Managers are responsible to many groups such as shareholders, employees and
society. A regulatory code may curtail their freedom.
• Managers are known by their performance and not mere degrees.
• The ultimate goal of business is to maximize profit and not social welfare. That
is why Haynes has rightly remarked, “The slogan for management is becoming
• ‘He who serves best, also profits most’.”
Management Levels and Skills:
The Industrial Revolution which began in the eighteenth century transformed
the job of manager from owner-manager to professional, salaried manager. The
inventions, machines, and processes of the Industrial Revolution transformed business
and management (such as, the use of fossil fuels as sources of energy, the railroad, the
improvement of steel and aluminium metallurgical processes, the development of
electricity, and the discovery of the internal-combustion engine.) With the industrial
innovations in factory-produced goods, transportation, and distribution, big business
came into being. New ideas and techniques were required for managing these large-
scale corporate enterprises.
Today, business and management continue to be transformed by high technology.
In order to keep pace with the increased speed and complexity of business, new means

57
of calculating, sorting and processing information were invented. An interesting
description of the modern era is the Information Age that describes the general use of
technology to transmit information.
Managers realized that they could profit from immediate knowledge of relevant
information. Communication and processing technologies are an essential tool in almost
every field of business. Thus, the Information Age implies a time for a revolution in
the information environment for business and management. The changes that are taking
place may be more significant to management than the Industrial Revolution.
4.5 MANAGEMENT LEVELS

Managers basically formulate Mission , Objectives , Strategies and Tactics.

Management is essential to achieve the MOST. The organizational mission is the
basic reason for its existence. Mission provides a statement of what the company
stands for i.e., it purpose of its existence. Managers formulate objectives based on
the mission . Objectives are the ends towards which the activity is aimed. The goal
is precise and is expressed in clear and specific terms. For example the objective of
the firm is to earn profits whereas the goal is to earn certain percentage of profit on the
capital employed. Manager is the one who performs the managerial functions of
planning, organizing, staffing, directing, and controlling the human and non-human
resources for the successful achievement of the organizational goals.
Managers affect the establishment and accomplishment of many social ,
economic, and political goals. Making a better economic life possible , improving
social standards, and establishing and achieving more efficient and effective
government are challenges to modern managerial ability . There is no good substitute
for good management. “ good management is merely the exercise of common sense
and the Golden Rule”.
Management include all the managers of a company. Management is classified
as managers at different levels that is top level mangers, middle level managers, and
lower level managers
4.5.1 Top Level Managers
Top level managers are the senior level executives of the company including
the Managing Director or President, Vice-President, General Manager, Chief Managers
of the company. Top management particularly the Managing Director or President
of the company is responsible for the overall management and performance of the
company. The formulate objectives , policies, and corporate level strategies of the

58
company. Top level managers lead and motivate the middle level managers . They
coordinate the activities of middle level managers. These managers work at the highest
level of the organizational hierarch. The number of manager in this group is the smallest.
4.5.2 Middle Level Managers
Middle level managers are responsible for coordination of the activities of
various department. Middle level manager include managers of various departments
like Production , Marketing, Finance, Human Resource and Research and Development
department. These managers are responsible for the success or failure of their
departments. Middle level managers formulate the objectives, goals and strategies of
their departments based on those of the organization. In addition, middle level managers
lead, motivate, and coordinate the activities of the lower-level managers. They act as
a link between the top level and the lower level managers. They direct the activities
of their subordinates according to their capacities for the achievement of the overall
organizational goals. These managers spend most of their time in managing the
company’s day to day operations and have very little interaction with the outside parties.
A large organization has a fairly large number of middle level managers though the
number is less than the lower level managers.
4.5.3 Lower Level Managers
Lower level Managers are responsible for the work of the operating staff working
with them. Lower level managers are also called First-line or First-Level or Junior
Managers. They direct, lead, motivate, and coordinate the activities of the operating
employees. These managers, mostly supervise the operating employees while they
perform their work. The lower level managers are also called supervisors. Largest
number of managers belong to this level of management.
Lower level Managers are responsible for the work of the operating staff working
with them. Lower level managers are also called First-line or First-Level or Junior
Managers. They direct, lead, motivate, and coordinate the activities of the operating
employees. These managers, mostly supervise the operating employees while they
perform their work.

59
Different Management Levels

Managing Director/ President

Top Level Mgt.

General Manager General Manager
Management
……………..... ........... Vice-President Vice-President

Middle Level
Manager Manager Manager Manager Manager
Management
……………… Production Finance Human Resource Marketing R&D

.................................

Lower Level
Management
Manager Manager Manager Manager
Materials Scheduling Quality Control Assembly

Based on the scope of activities performed there are two type of mangers. They are
Functional Managers
General Managers
4.6 FUNCTIONAL MANAGERS

These managers perform only one type of activity may it be finance, marketing
or human resource management. People working under finance manager would be
engaged in activities related to finance only, employees working under marketing
manager would be looking after marketing activities and so on.
4.7 GENERAL MANAGERS

These managers look after an entire unit or an independent division of an

organization, such as a subsidiary of a company. All the functional activities, like
production, finance, marketing, personnel etc. of that unit are looked after by the
General Managers.
Based on the performance there are Line Managers and Staff Managers

60
4.8 LINE MANAGERS

The managers who are directly responsible for carrying out the various
organizational activities necessary for the production and sale of goods and services
are called the line managers. The chief executive, general managers and departmental
managers are all line managers. These managers are in line with the organizational
hierarchy.
4.9 STAFF MANAGERS

The staff managers are those who assist the line managers inefficiently
conducting the main business line of the firms. Managers heading the accounting, R
& D, and legal consultancy departments are staff managers.
4.10 MANAGEMENT SKILLS

In order to perform the functions of management and to assume multiple roles,

managers must be skilled Robert Katz identified three managerial skills that are
essential to successful management: technical, human, and conceptual.
4.10.1 Technical skill
Involves process or technique knowledge and proficiency. Managers use the
processes, techniques and tools of a specific area skill. Technical skills deals with
things. Technical skills are the proficiency in working with machines, tools and
techniques in human resource management. Managers at all levels should possess
technical skills. Those at the lower level should possess more of technical skills
whereas managers at the top level possess less technical skills compared to those at
middle and lower levels.
4.10.2 Human skill
Involves the ability to interact effectively with people. Managers interact and
cooperate with employees. Human skills include the ability to work with people
tactfully, interpersonal proficiency, ability to build, maintain and work in teams and
create an open environment. Managers at all levels should possess these skills.
4.10.3 Conceptual skill
Involves the formulation of ideas. Managers understand abstract relationships,
develop ideas, and solve problems creatively. Thus, technical skill deals with things,
human skill concerns people, and conceptual skill has to do with ideas.

61
 A manager’s level in the organization determines the relative importance of
possessing technical, human, and conceptual skills. Top level managers need conceptual
skills in order to view the organization as a whole. Conceptual skills are used in planning
and dealing with ideas and abstractions. Supervisors need technical skills to manage
their area of specialty. All levels of management need human skills in order to interact
and communicate with other people successfully.
Managerial Skills at Different levels

Conceptual
Top Management Skills

Human
Middle Mgt. Skills
Technical
Skills

Lower-level Mgt

Level Of Importance
As the pace of change accelerates and diverse technologies converge, new global
industries are being created (for example, telecommunications). Technological change
alters the fundamental structure of firms and calls for new organizational approaches
and management skills.
4.11 ROLES MANAGERS PLAY

To meet the many demands of performing their functions, managers assume

multiple roles. A role is an organized set of behaviors. Henry Mintzberg has identified
ten roles common to the work of all managers. The ten roles are divided into three
groups: interpersonal, informational, and decisional. The informational roles link all
managerial work together. The interpersonal roles ensure that information is provided.
The decisional roles make significant use of the information. The performance of
managerial roles and the requirements of these roles can be played at different times
by the same manager and to different degrees depending on the level and function of
management. The ten roles are described individually, but they form an integrated
whole.

62
 The three interpersonal roles are primarily concerned with interpersonal
relationships. In the figurehead role, the manager represents the organization in all
matters of formality. The top level manager represents the company legally and socially
to those outside of the organization. The supervisor represents the work group to higher
management and higher management to the work group. In the liaison role, the manger
interacts with peers and people outside the organization. The top level manager uses
the liaison role to gain favors and information, while the supervisor uses it to maintain
the routine flow of work. The leader role defines the relationships between the manger
and employees.
The direct relationships with people in the interpersonal roles place the manager
in a unique position to get information. Thus, the three informational roles are primarily
concerned with the information aspects of managerial work. In the monitor role, the
manager receives and collects information. In the role of disseminator, the manager
transmits special information into the organization. The top level manager receives
and transmits more information from people outside the organization than the
supervisor. In the role of spokesperson, the manager disseminates the organization’s
information into its environment. Thus, the top level manager is seen as an industry
expert, while the supervisor is seen as a unit or departmental expert.
The unique access to information places the manager at the center of
organizational decision making. There are four decisional roles. In the entrepreneur
role, the manager initiates change. In the disturbance handler role, the manger deals
with threats to the organization. In the resource allocator role, the manager chooses
where the organization will expend its efforts. In the negotiator role, the manager
negotiates on behalf of the organization. The top level manager makes the decisions
about the organization as a whole, while the supervisor makes decisions about his or
her particular work unit.
The supervisor performs these managerial roles but with different emphasis
than higher managers. Supervisory management is more focused and short-term in
outlook. Thus, the figurehead role becomes less significant and the disturbance handler
and negotiator roles increase in importance for the supervisor. Since leadership
permeates all activities, the leader role is among the most important of all roles at all
levels of management.

63
Roles of Managers

Formal Authority and Status

Interpersonal Roles

• Figurehead
• Leader
• Liaison

Informational Roles

• Monitor
• Disseminator
• Spokesman

Decisional Roles

• Entrepreneur
• Disturbance Handler
• Resource Allocator
• Negotiator

4.12 MINTZ GERG’S ROLES OF PRESENT MANAGERS

Henry Mintzberg has identified ten roles common to the work of all mangers.
The ten roles are divided into three groups :
• Interpersonal
• Informational
• Decisional
Interpersonal roles ensures that information is provided. Informational roles
link all managerial work together. The decisional roles make significant use of the
information. The activities of the mangers may be categorized under the following
heads:

64
i. Interpersonal Activities: Managers deal with the subordinates to get things done
with their help. For this , they interact and maintain good relations with them.
ii. Informational Activities : It is very important for managers to communicate
effectively in order to get things done. They continuously receive information from
various sources and transmit only the desired information. They exchange information
with their superiors , subordinates and peers.
iii. Decisional Activities: Decision making inherent to the job of a manager. The
managers have to take a large number of decisions daily to run the organisation. They
are expected to come up with solutions to difficult problems and to follow through
with their decisions, even when doing so may be unpleasant.

Roles of Manager Roles

Roles of Manager as part of the Figurehead
Interpersonal Activities he has to perform Leader
Liaison
Roles a Manager takes up while engaged Monitor
in Informational Activities Disseminator
Spokesperson
Roles of Manager plays in relationship Entrepreneur
with other individual both inside and Disturbance handler
outside the firm. Resource Allocator
Negotiator

Managerial activities involve variety , fragmentation, brevity and a large volume

of work to be performed quickly. The three interpersonal roles are primarily concerned
with interpersonal relationships. In the figurehead role, the manager represents the
organisation in all matters of formality. The top level manager represents the company
legally and socially to those outside of the organisation. The supervisor represents
the work group to higher management and higher management to the work group. In
the liaison role, the manger interacts with peers and people outside the organisation.
The top level manager uses the liaison role to gain favours and information, while the
supervisor uses it to maintain the routine flow of work. The leader ole defines the
relationship between the manger and employees.
The direct relationship with people in the interpersonal roles place the manager
in a unique position to get information. Thus, the tree informational roles are primarily
concerned tithe the information aspects of managerial work. In the monitor role, the
;manager receives and collects information. In this role as of disseminator, the transmits

65
special information into the organization. The top level manger receives and transmits
more information from people outside the organization than the supervisor. In the role
of spokesperson, the manager disseminates the organization’s information into its
environment. Thus, the top level manger is seen as an industry expert, while the
supervisor is unit or department.
The unique access to information places the manager at the centre of
organisational decision making. There are four decisional roles. In the entrepreneur
role, the manager initiates change. In the disturbance handler role, manager deals with
threats to the organisation. In the resource allocator role, the manager chooses where
the organization will expend its efforts. In the negotiator role, the manager negotiate
on behalf of the organization. The top level manger makes the decisions about the
organisation as whole, while the supervisor makes decisions about this or her particular
work unit.
The supervisor performs these managerial roles but with different emphasis
than higher managers. Supervisory management is more focused and short –term in
outlook. Thus, the figurehead role becomes less significant and the disturbance handler
and negotiator roles increase in importance for the supervisor. Since, leadership
permeates all activities, the leader role is among the most important of all roles at all
levels of management.
4.13 SUMMARY

Managers perform different roles . Formal authority gives rise to inter-personal

and informational roles. The manager in- charge of the organization or the department
coordinates the work of others and leads his subordinates. Formal authority provides
potential power to exercise and get the things done. As the leader of the organization,
the manager has to perform the functions of motivation, communication, encouraging
team spirit . Further, he has to coordinate the activities of all his subordinates which
involves the activity of liaison. According to Peter Drucker : “ the manager has the
task of creating a true whole that is larger than the sum of its parts, a productive entity
that turns out more than the sum of the resources put into it”. Though the different
roles of a manager are stated separately for convenience, they are not separable. The
manager has to perform these roles simultaneously, by integrating one with the other.
Thus, the role of the manager is integrating all the roles while playing the managerial
role or performing his tasks. The manager cannot play one role isolating the other
roles. As a strategist, the manager has to integrate all the roles in decision-making
and performing his tasks.

66
4.14 SELF ASSESSMENT QUESTIONS

1. Why is management called as an art?

2. Why management is called as Science?
3. Is management a profession ? Comment
4. Explain the different skills of management.
5. What are Mintz Berg’s roles of present managers?
4.15 REFERENCES

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.

67
UNIT - 5: NATURE, IMPORTANCE AND
APPROACHES TO PLANNING

Structure
5.0 Objectives
5.1 Introduction
5.2 Meaning and Definition
5.3 Nature of Planning
5.4 Need for Planning
5.5 Approaches to Planning
5.6 Major Steps in the Process of Planning
5.7 Summary
5.8 Self Assessment Questions
5.9 References

5
5.0 OBJECTIVES

After studying this unit you should be able to;

• Assess the meaning of planning
• Discuss the need for planning
• Highlight the importance of planning
• Assess the various approaches to planning
• Describe the process of planning
• Discuss the various steps involved in planning

5.1 INTRODUCTION

Planning as a management discipline emerged in USA and other developed

countries around 1950s. By 1965, it came in vogue and large undertakings began to
practice it. Since 1965 it has gained much recognition and wide acceptance all around.
Even in India it entered the academic field and came to be taught in the Indian
Universities and management institutes.
Planning is the key management function. The functions of organizing, leading
and controlling all carry out the decisions of planning. The increased emphasis on
planning can be seen rapidly in the great number of executive conferences, workshop
and writings on the subject the past few years.
Although some environments are less predictable than others all organizations
operate in uncertain environments. For an organization to succeed, management
somehow must cope with and adapt to change and uncertainity. Planning is the only
tool management has to help it adapt to change. If an organization does no planning its
position and fate five years hence will mostly be the result of any momentum built up
previously and of luck (hopefully good). On its own the organization would follow
some kind of course however, it must plam. Otherwise it will have to have any rely on
defensive reactions rather than on planned actions. Management will be forced to
respond to current pressures rather than the organization long run.
Every manager plans in one way or another. However the approach to planning the
manner of arriving at plans and the completeness of plans can differ greatly from
organization .Formal planning (as distinguished from the informal planning that we
do in thinking through proposed actions prior to their execution) is an activity that

6
distinguishes managers from non managers. Formal planning also distinguishes effective
managers from ineffective ones.

5.2 MEANING AND DEFINITION

Planning is regards as a process of making decisions on what is to be done, When

and how. Most management scholars and practitioners consider planning as a process of
visualizing or anticipating the future. It is not enough to have a vision of the future. It
should be backed by ways and means of realizing it. Broadly planning is a process of
determining objectives, discovering alternative courses of action and choosing suitable
ones for achieving objectives, many stages are involved in the process of planning which
have to be tackled in a logical sequence.
In the next context of globalization of the business operations planning aprocess
of identifying strengths and weakness of an organization and matching them with
environmental threats of this nature is known as strategic planning.
Let us discuss few definitions of planning for a better learning:
“Planning is selecting and relating of facts and the making and using of
assumptions regarding the future in the visualizations and formulation of proposed
activities believed necessary to achieve desired results”
- Terry
“Planning is a process by which a manager looks to the future and discovers
alternative courses of action open to him”
- Joseph Massie
The key elements of planning are :
• Process of deciding in advance what is to be done, how, when and by whom
• Logical thinking before doing
• Process of visualizing and anticipating the future by evaluating the past and
assessing the present.
• Futurism and a sense of futurity is an integral part of planning
• Process of determining objectives discovering alternative courses of action and
selecting suitable courses of action
• Involves decision making

7
• Process of identifying strengths and weakness of the organization and relating them
to opportunities and threats arising out of the changing environment and discovering
alternative courses of action open.

5.3 NATURE OF PLANNING

Planning is regards as a process of making decisions on what is to be done. When
and how. Most management scholars and practitioners consider planning as a process of
visualizing or anticipating the future. It is not enough to have a vision of the future. It
should be backed by ways and means of realizing it. Broadly planning is a process of
determining objectives, discovering alternative courses of action and choosing suitable
ones for achieving objectives, many stages are involved in the process of planning which
have to be tackled in a logical sequence.
In the next context of globalization of the business operations planning aprocess
of identifying strengths and weakness of an organization and matching them with
environmental threats of this nature is known as strategic planning.
i. Planning Is An Intellectual Activity
In every planning process objectives are determined future is visualized
forecasted, alternative courses of actions are developed and finally suitablecourses of
action is selected for which managers require analytical abilities, imagination judgment
creativity and innovativeness. Therefore planning is considered as an intellectual
process.
ii. Planning Is A Primary Function Of Management
The process of management starts with planning. It is only after planning various
activities that the structure of the organization is prepared. It is followed by staffing
directing and controlling. Without planning there is little organizing staffing directing
and controlling.
iii. Planning Involves Futurism
Plans are prepared for implementing them in the future. The planning process
calls for visualizing the future with the help of analysis of past performance and
evaluation of present position. Futurism has become an integral part of planning.
iv. Planning Involves Decision Making
In the process of planning after discovering various alternative courses action
the managers have to make a choice and select the best. For this purpose they have to
make decision

8
v. Planning Is A Goal Oriented Process
At the very outset the managers determine objectives. It is to achieve these
objectives that an action programme is formulated and implemented.
vi. Planning Is A Continuous Process
There is continuity and regularity in the planning process. It is an on going
process having no definable end. A set of carious plans made by the managers have to
be revised as per the changing environment. The managers keep a watch on the
environment on a regular basis and revise plans in the light of changing situations.
vii. Plan Is All Pervasive
Planning is the prime mover of an organization. By preparing and implementing
various plans different set of activities and resources of an organization are effectively
utilized for achieving predetermined objectives. Plans are made for various activities
carried out by different departments. Planning is the basic function of every manager.
A manner discharges his responsibility of directing and coordinating group effects to
seek objectives only by making sound plans and implementing them efficiently. Every,
managers irrespective of his level and position makes plan.
However the importance nature and magnitude of planning depends the level at
which it is made. Corporate planning at the top is broad fundamental and more strategic
compared to departmental planning and plans made by first linr supervisors. The scope
extent and importance of planning tends to decrease as n descends downward in the
organization
The nature of the problem area and degree of delegation of authority also effects
the coverage and scope of planning for example planning on vital matters affecting
survival and profitability of the organization is usually done at the higher level.
Planning is also regarded as a critical variable for the survival growth
development and diversification of organization activities. It is found in practice that
highly developed and profitability organization owe their success to sound planning
and effectiveness in implementation
The primacy and pervasiveness of planning may also be justified in terms of its
crucial place in the hierarchy of management functions. All managerial functions like
organizing staffing directing and controlling are by and large follow up functions.

9
5.4 NEED FOR PLANNING

You cannot develop a sound plant at any level of an organization without first
understanding and appreciating the necessary or planning if a manager does not believe
in the value of planning (and some managers do not) it is unlikely that he or she will
develop a useful plan.
To better appreciate the need for planning considers the following four important
factors.
1. The increasing time spans between present decision and future results
The time span separating the beginning of a project and its completion is
increasing in most organization. Managers today must look further into the future than
ever before. For example it took 10 years to develop the supersonic jet and 10 years
for general foods to develop maxim a concentrated instant coffee. Meanwhile Campbell
Soup Company spent 20 years in developing a line of dry soup mixes and Hills brothers
worked 22 years to develop its instant coffee.
Obviously planning becomes very critical in situations where the results of
decision will occur long after the decisions actually are made. So managers must attempt
to consider what could happen that might affect the desired outcome. Effective planning
can require large commitments of time and money but management must seek every
way possible to minimize uncertainity and its consequences. Planning is the only tool
managers have to help them cope with change.
2. Increasing organization complexity
As organization become larger and more complex, the manager’s job also
becomes bigger and more complicated by the interdependence among the organization
various parts. It is virtually impossible to find an organization (or even a division of a
large organization) in which the decisions of the various functions such as research
and development, production finance and marketingcan be made independently of one
another. The more products an organization offers and more markets it competes in
the greater the volume of its decisions. One mid western bank for instance offers more
than 175 services just for its consumers (not its business customers). Planning in these
circumstances becomes even more important for survival.
Planning enables each unit in the organization to define the job that needs to be
done and the way to go about doing it. With such a blue print of objectives there is less
likelihood of changing direction, costly improvising or making mistakes.

10
3. Increased external change
A major role of managers has always been that of change initiator A manager must
be an innovator and doer, someone in constant search of new markets business and
expanded missions Rapid rates of change in the external environment will force manager
at all levels to focus on larger issues rather than solely on solving internal problems.
The faster than pace of change becomes the greater the necessity for organized responses
at all levels in the organization and organized response spring from well thought out
plans.
4. Planning and other Management functions
The need for planning also is illustrated by the relationship between planning and
the other management functions. We already know that planning is the beginning of the
management process. Before a manager can organize, lead or control he or she must
have a plan. Otherwise these activities have no purpose or direction. Clearly defined
objectives and well-developed strategies set the other management functions into motion.
The effect of planning on the other management functions can be understood by
considering its influence on the function of control. Once a plan has been translated
from intention into actions, its relationship to the control functionbecomes obvious.
As time passes managers can compare actual results with the planned results. The
comparisons can lead to corrective action and that as well as see later in the book is
the controlling. The following management Application describes a company which
has only recently recognized the need for formal planning.
IMPORTANCE OF PLANNING
The need and importance of planning can be judged on the basis of following
factors:
i. Planning determines the future destination of an organization
At the first stage of the planning process the objectives of organization are
determined. All the activities are directed and coordinated for accomplishing the
objectives thereby making the organization a purposeful system with a predetermined
destination.
ii. Planning makes activities of employees meaningful
A clear understanding of the objectives helps the employees in knowing howtheir
work is related to organizational goals and enables them to direct their efforts to make
the contribution more valuable.

11
iii. Planning economics operations
Activities are planned to reduce inefficiency and wastage which leads to economy
in operations. It improves the performance of other managerial functions like organizing,
staffing directing and controlling by making the task of managing more effective.
iv. Planning helps in reducing the risk of uncertainties
The uncertainties associated with the future are exposed by using the technique
of forecasting which provides meaningful clues. Managers attempt to predict the nature
for identifying potential dangers and initiate action to reduce the adverse effects.
v. Planning leads to the discovery of new ideas and opportunities
Planning is an intellectual activity involving the use of analytical creative and
innovative abilities which may throw up ideas and generate opportunities for
profitability exploitation. Regular use of such abilities may inject dynamism in the
management of the organization
vi. Planning facilities co-ordination
Plans are made by managers at different levels of the organization which requires
co ordination. The corporate plan provides the guidelines and lays down the parameters
for different departments. First line supervisors plan within the departmental plan,
thereby providing complete co ordination of all activities from the lowest to the highest
one.
vii. Planning facilitate efficient control
Control pre supposes the existence of planning without planning control has
little meaning. The objectives serve as a base for control. Actual results are compared
with objectives which also are a standard of performance . Deviations are sorted out
and necessary remedial measures are taken to improve the results.
viii. Planning provides direction
The objectives laid down in planning become guiding posts for directing and
mobilizing the activities of the employees. The quality of leadership motivation and
communication is conducted by the objectives. The knowledge of objectives on the
part of employees and their contribution acts as a motivation force and inspires them
to increase their efforts.

12
ix. Planning as a response of the management to cope with the changing
environment
Planning enhances the capabilities of the organization to cope with rapidly
changing environment. Managers keep track of the development which maylikely to
affect future and take suitable timely measures to deal with them, Without heroic
planning efforts the uncertainty associated with the future environment cannot be
handled and managed properly. Keeping in view the degree of profitability of occurrence
of events in the future managers develop alternative plans.
The increased importance of planning for business organization is a direct result
of the fast changing environment consisting of socio economic technological political
and legal factors which are complex and dynamic. The following points also indicate
importance of planning.
1. Coping with future uncertainty and change
It is planning by means of which managers is able to deal effectively with the
future uncertainty and change.
2. Focuses attention on objectives
By its very nature planning is directed towards achieving enterprise objectives
that is what the enterprise aims at achieving in a given period and how it intends to
accomplish the predetermined objectives.
3. It obtains economical operations
Planning helps to minimize cost by bringing about efficiency in operation and
consistency all around eliminating expensive random inconsistent and haphazard
activities and overlapping efforts.
Without planning production would reach a stage of utter chaos and confusion
and would be so expensive.
4. Foundation for successful operations
Planning is the foundation of most successful operations of an enterprise
indicating the direction of its growth.
5. Provides performance standards and facilities control
A good plan clearly establishes and specifies its goals how will it be possible for
managers to check up and measurer their subordinates accomplishment? It is planning

13
that provides specific standards in terms of pre determined goals to check measure and
control.
6. Stimulates environmental awareness
For the successful operation of a business it becomes necessary for managers to
be well awake to the constant environmental changes that are taking place today and
are likely to occur in the future as a result of socioeconomic. political and technological
influences. It is planning that helps managers establish an agreeable relationship with
the environment and thus control the events posing risk and uncertainty.
7. Fosters unity of purpose
Within an organization there are functional departments like production finance
marketing and personnel. For carrying out their respective functional activities toward
the achievement of goals they rely on the so called functional plans which are essentially
based on and within the ambit of the corporate plan. It is fundamentally planning that
fosters unity of purpose within these plans.
8. It helps foreseeing and identifying potential opportunities and risks,
In an organization long term planning it seems impossible to eliminate altogether
the risk and uncertainty of its decision. However planning helps the organization to
foresee and identify those areas of potential and challenging opportunities risks and
uncertainties and thus direct its efforts to minimize these risks and uncertainties and to
better avail of the opportunities (o the advantage of the organization.

5.5 APPROACHES TO PLANNING

Managers adopt various approaches to planning based on the degree of participation

delegation of authority and required capabilities of lower level managers.
1. Top Down Approach
Normally adopted in family managed organizations or by tradition or conservative
managers in this approach authority and responsibility for planning is centralized at the
top. The top management formulates basic policies determines corporate objectives
makes strategies and devises a course of action for achieving the objectives. On
preparation the plans are communicated to the managers at the lower level responsible
for implementation. The managers at the lower level will have little say in planning but
are involved only in implementation

14
 The organization tends to be highly centralized because the mangers at the higher
level are more occupied with preparing plans and exercise final authority. Very little
authority is delegated to the lower level managers that too in implementation of plans.
The top down approach is based on the assumption that the managers working
at higher level are professionally qualified and well experienced. However it is found
in practice that many organizations do adopt modified and more refined form of this
approach either by getting lower level managers directly involved in the process or
indirectly by seeking their suggestions and ideas. It is done to get the benefits of their
involvement in execution.
2. Bottom up Approach
Based on the assumption that in planning thinking are closely related and both
functions can be performed by same managers a high degree of flexibility is maintained
in planning in the bottom up approach
Accordingly rough draft or tentative proposals on various plans originate at the
lower level and are communicated to the higher level managers for review and final
approval. However it can be profitably used provided the managers at the
implementation level have the requisite knowledge awareness and creativity to
undertake planning the basic job of top executives is to unify and coordinate various
sub plans originating from lower levels are not confined participative approach to
planning managers at lower levels are not confined to implementation only but are
equally involved in initiating plans.
In the words of Alwin Brown it is impossible to separate all the planning from
the duty of doing Brown contented that planning is done most effectively by the
managers who have to carry it through.
3. Composite Approach
Combining the attributes of top do and bottom up approaches the composite is
more popular here the top executives provide guidelines parameters and limitations
under which middle and lower level managers are expected to formulate tentative
plans which are communicated upwards for review and approval. The authority for
making plans rests with the top xecutives.
The composite approach offers the advantages of top down ad bottom up
approaches in s musch as the managers at the action level are associated with thinking
process of planning and their involvement in thinking is regulated by prescribed
guidelines and parameters.

15
4. Team Approach
It is always advisable to have as many managers s possible to participate in planning
the more active the managers are in planning the more enthusiastic they will be in carrying
out plans. In the team approach the job of initiating plans is assigned to a team of managers
from concerned areas. They do the spade work for preparing plans initiate planning identify
need and importance of plans, examineand analyze both internal as well s external
environment formulate tentative proposals which are submitted to the chief executive
under whose command they have been working. The team of managers works as a brain
of the chief executive suggesting and recommending proposal to him. However the
ultimate authority for approval lies with the chief executive.
The team approach has practical utility especially when the task of preparing plans
requires specialized knowledge of different areas.
In practice organizations use a combination of approaches as per requirements.
Nonetheless it is evident that joint participation of subordinate managers in the planning
process in any form is beneficial to the organization.

5.6 MAJOR STEPS IN THE PROCESS OF PLANNING

Although the steps in planning are presented here in connection with major
programmes, such as the acquisition of a plant or a fleet of jets or the development of
a product, managers would follow essentially the same steps in any thorough planning.
Since minor plans are usually simpler, some of the steps would be more easily
accomplished, but the practical steps listed below, and diagrammed in Figure 6.4 are
of general application. In practice, however, managers must study the feasibility of
possible courses of action at each stage. For example, in establishing objectives, it is
necessary to have some idea about the premises underlying the plans. An ambitious
objective of increasing sales by 200 per cent may be unrealistic in an environment
with a projected economic recession. Similarly, feedback is also essential. In formulating
supportive plans, there may be need to re-evaluate and change the overall objectives
set earlier. Also, a discriminating manager obviously would not use Rs. 100 worth of
time to make a decision worth 50 paise, but it is shocking to see 50 paise worth of time
used to make a planning decision involving millions of rupees.

16
Being Aware of Opportunities
Although it proceeds actual planning and is therefore not strictly a part of the
planning process, an awareness of problems opportunities in the external environment
as well as within the organization is the real starting point for planning. It is important
to take a preliminary loot at possible future opportunities and see them clearly and
completely. All managers should know what problems they wish to solve and why, and
know what they expect to gain. Setting realistic objectives depends on this awareness.
Planning requires realistic diagnosis of the opportunity situation, (see Figure 6.4)
1. Identifying and Establishing Objectives
The broader objectives need to be identified and stated in specific terms. These
objectives relate to the organization as a whole and functional areas.
• Overall objectives suggest the type of activities and their necessary sequence.
• These objectives point out where these activities have to be carried out.
• They will also determine the personnel to whom the duties and responsibilities of
the jobs connected with these activities are to be assigned.
• The objectives will also show the manner of doing the j ob, the methods and
techniques employed for the accomplishment of the work.
• Objectives also pinpoint the timing, as to when job is to be completed which is the
central element in every phase of planning. When all this done, it will be easier to
check and evaluate the actual performance against the expected performance in
the plan/Scheduled completion dates, qualitative standard specifications for output
and budgeted cost for a project provide good examples of what the objective will
cover.
2. Premizing
The second step is premising. This essentially involves critical assessment of
the present status of the organization, that is, knowledge about the presentactivities
being carried on by the organization and future outlook on activities to be planned and
their possible effect on the total environment-internal external-existing activities or in
other words, the expected environment of plans inoperation.
This step requires the collection of data that will help the planner for his
intelligent planning. The source for data availability will be past experiences, usages
and practices of other companies, observation, company’s records, data obtained fro
research and experiments,

17
 Equiped with this data the planner will go ahead to find out the needs of the
potential customers, dealers and individuals to be served.
As the developing situations demand, the manager will have to think aloud and
come up with some creative and new ideas for product methods and services.
This step encompasses forecasting, that is, what will be the future trends of
markets, competition, future sales potential, price trends, changes in demand range of
products, developments in technology, cost of manufacture and other relative factors
of finance-tax rates, policy, dividends, fiance involved in any industrial expansions,
industrial structure - new plants, modifications or revision in existing plans, socio-
economic and political environments.
We will come to a details discussion of forecasting, a little later.
3. Making Assumptions’
In planning process this step has its own importance.
Assumptions all how the total environmental (internal and external) factors will
behave, along with future facets in fact lead on to the development of the plan with the
showing up of good, average and bad economic conditions.
4. Determining Alternative Courses
This fourth step aims at searching, examining more promising - that hold most
gainful possibilities, alternative courses of action from amongst the several alternative
courses available.
5. Evaluating Alternative Courses
Having determined promising alternative courses of action the next step is to
evaluate them, weighing the various factors in light of promises and goals, with the
help of mathematical models and computing techniques as offered by operations
research, if necessary.
6. Selecting a course
This step involves the selection of optimum - most desirable, courses of action.
In this step, the plan itself emerges and develops. Now the plan is reduced& can
be writing which give to and rendered as a formal document. The plan is ready for
operation.

18
7. Arranging Detailed Sequences and Setting Specific Targets
For placing the plan in operation, its relations to all activities affected by it are
worked out.
Where when by whom the necessary action as the plan envisages to achieve the
objectives to take place is determined.
At this stage a plan may be called a budget schedule a routing or any other form
of target.
8. Follow up review checking up the progress of plan
This is the last step in planning and is concerned with the followup continual
review check up and if necessary withe the modification or revision of the initial plan
in light of experience gained as the success of the plan will depend upon the results
obtained i.e., its effectiveness in actual performances.

5.7 SUMMARY

The planning function includes those managerial activities that result in

predetermined courses of action. Planning necessarily focuses on the future and
managements responsibility is to prepare the organization for the future. Planning
requires managers to make decisions about objectives, actions, resources,
implementation. These four factors are essentials to effective planning.
In the past, planning almost always was done entirely by top managers, by
consultants, or by central planning departments. More modern approaches are the
decentralized planning staff or an interdepartmental task force composed of live
managers. Today’s learning organisations are pushing decentralisation even further
and involving workers at all levels in the planning process.

5.8 SELF ASSESSMENT QUESTIONS

1. Define Planning.
2. What is Planning ? Explain its characteristics.
3. What are planning premises ? Explain the classifications of planning premises.
4. Discuss the importance of planning. What should be done to overcome limitations ?
5. Explain the various approaches to planning with suitable examples.
6. Describe the steps involved in planning process.

19
5.9 REFERENCE

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.

20
UNIT - 6 : VARIOUS TYPES OF PLANS

Structure
6.0 Objectives
6.1 Introduction
6.2 Elements of Planning
6.3 Types of Plans
6.4 Corporate Planning
6.5 Strategic Planning
6.6 Operational Planning
6.7 Summary
6.8 Self Assessment Questions
6.9 Reference

21
6.0 OBJECTIVES

After studying this unit you should be able to ;

• Identify the various elements of planning
• Discuss the different types of plans Highlight the significance of each type of plan
Describe the corporate planning Give inputs about the strategic planning Discuss
the operational planning

6.2 ELEMENTS OF PLANNING

The planning function requires managers to make decisions about i’uur

fundamental elements of plans.
1. Objectives
2. Actions
3. Resources
4. Implementation
Objectives are integrals to plans because specify future conditions that the
planner deems satisfactory. For example the statement the firm objective is to achieve
a 12 percent rate of return on invested capital by the end of 1990 refers to a future
satisfactory condition.
Actions are the specified preferred means to achieve the objectives. The preferred
course of action to lead to a 12 percent return might to be engage in a product
development effort so that live new products are introduced in 1990.
Resources are constraints on the course of action for example the total cost to
be incurred in the development of five new products must not exceed the world is
filled with emotions.S 10 million. A plan should specify the kinds and amounts of
resources required as well as the potential sources and allocations of thoseresources.
Specifying resource onstraints also involves budgeting identifying the sources and
levels of resources that can be committed to planned courses of action.
Finally, a plan must include ways and means to implement the intended actions.
Implementation involves the assignment and direction of personnel to carry out the
plan

22
 Establishing objectives and prescribing actions also require forecasting the future.
A manager cannot plan without explicit consideration of future events and contingencies
that could affect what will be possible to accomplish.
Although the four elements of the planning functions are discussed separately
they are in fact inter wined. As will be seen objectives must be set according to what is
possible given the forecast of the future and the budgets of resources. Moreover
availability of resources can be affected by the very actions that management plans. In
the previous example if a 12 percent return is not achieved $ 10 million may not be
available because stockholders bond holders or other sources of capital will not invest
the funds. Then other action may not be feasible.
In some organizations planning is the combined effort of managers and
staffpersonnel. In other organization planning is done by the top management group in
still others it is done by one,individual, Planning activities can range from complex
formal procedures to simple and informal ones. Although the form of planning activities.
Objectives or goals may be described as the ends towards which group activities
in any enterprise are aimed. They do not only represent the consumption of planning
but the end towards which the management functions of organizing staffing directing
coordinating controlling etc are aimed.
It is essential that before taking any course of action the objectives must be
clearly determined well understood and sufficiently defined well defined objectivesand
goals lead to continuous growth and progress. They must also be realistic and reachable.
Objectives form the very core of the management processes without establishing
specified objectives we get no sense of direction and reach nowhere aimless efforts
simply go waste.

6.3 TYPES OF PLANS

Simply defined a policy is a verbal written or implied basic guide that provides
direction to a manager for action.
What policies achieve ?
Policies acting as principles thereby provide rules of action for achieving
organizations specific objectives (goals).

23
 The co-ordinating links in the organization are provided by policies. They govern
and guide the actions of an organizations overall performance and its objectives. These
provide him board guidelines for the achievement of company’s objectives.
While planning a course of action of policies is indispensable. The policies of
enterprises render purposive ness to the objectives.
With the guidelines as provided by the policies goal becomes clearer and more
realistic.
Policies are essential to foster co ordination so essential for effective group
working in short policy is an excellent means to achieve an intended objective.
Types of policies
There are many kinds’ o types of policies. Classifications of policies in a
particular enterprises will depend on purpose use subject extent of influence whether
verbal or written.
Types of policies generally in vogue in a typical enterprise are :
1. Basic Policy
This is comprehensive in its scope and permeates throughout the organization.
Basic policy formulation is the responsibility of the management at the highest say for
example Board of Directors in case of an incorporated company.
The basic policy is further split up into departmental divisions and sectional
parts of the organization for implementation under the overall supervision of the top
management .Within the ambit of basic policy comes marketing policy with all its
emphasis on the customer.
2. General Policy
This is more specific type of policy brought in application by middle level
managers. Purchasing policy comes within the scope of application of general policy
and it is concerned with giving preference to local suppliers.
3. Departmental policy
This is the most specific type of policy with its applicability confined to routine
activities in the department. Its use is made by first level managers, such as supervisors.
4. Advantages of Policies
Policies help considerably in the overall development of those who apply them.
Policies encourage the development of sound judgment

24
 The use of policies tends to bring about a better understanding and knowledge of
what is trying to be accomplished.
5. Characteristics of a Sound Policy
Sound policies by their very nature should be comprehensive in their scope flexible
in their implementations and excellent guides.
A sound policy must ensure that there exists good understanding and.harmony
between the departmental or sectional policies and the main (corporate) policy. A policy
m,ust be uniform in its application. A sound policy must breathe equity and justice
fairness to one and all affected by it.
Sound policies must be based on facts and sound judgement Policies to be sound
must reflect the intended objectives.
Policies to be effective in their implementation should be clear define positive
unambiguous consistent and well communicated and should be clearly understandable
to those affected by their decision. As far as possible policies to be sound should be
stated in writing Non written (verbal) or implied policies carry on effective voice
sometimes sound policies to obtain acceptance as guides must be reasonable permanent
and stable/
A sound policy during the course of its implementation requires periodic check
ups to find out how it has worked and does it necessitate any modification or altogether
revision of it.
In a sound policy formulation all possible contingencies should be anticipated
so that the organization may not be taken by surprise by the course of events.
A policy to be sound should never be conceived hastily.
Procedures
Procedures are also plans in as mush as they involve a course of action and
clarify how action is to be carried out in practice to achieve an organization objectives
as stated in the policies.
The procedures provide a sequence of actions directed at a single goal(usually
short term) of a repetitive nature eg procedure for recruiting employees for purchasing
materials or for preparation and dispatch of invoices to customers.
Perhaps a good example of a procedure that can be cited is that adopted in the
systematic selection of employees involving following steps.

25
 1. Preliminary interview
2. Application blank
3. Reference check
5. Final interview
6. Supervisors approval and acceptance
7. Medical check up
8. Appointment and
9. Induction or orientation
5. Methods
One of the most supporting means of an action is a method
A method is also categorized as a standing plan more specific in scope than a
procedure.
Methods may better be termed as work plans since they provide the manner and
the proper order keeping in full view the objective facilities available total time expense
and effort involved with other details for performing the individual tasks in particular
assignments.
Standard methods contribute to the efficiency in working and considerably
experience knowledge and skill and his creative ability all this considerably matter in
the solution of a problem in methods.
In practice methods are generally used in manufacturing and office work.
However they do work with success in the area of marketing planning also.
Management are quite prone to bring improvement in methods. Their efforts
are constantly directed to find out how best manual methods can be improved by
mechanical devices to bring about efficiency economy and resultant increase in the
output of an employee.
6. Rules
Rules reckon with the simple and most specific type of standing plans they are
characterized by rigidity and being more specific than a policy.
A rule demands whether a specific and definite action be taken or not taken
with respect to a situation so to say a rule guides action.

26
 The observance of the rules does not permit any lenience to come in the way of
their application. Generally w find No Smoking signs and boards prominently displayed
in the factories particularly those dealing with inflammable materials. This is a good
example of the rule which the management insist the workers to strictly observe.
A budget is also essentially a plan expressed in qualitative terms. This is the
numerical expression of the anticipated results. The anticipated results may be expressed
in financial terms or non financial (monetary) terms ie in terms of a quantity to be
produced material to be used number of hours to be worked and quantity to be soul
dot.
Like any other plans budget are flexible realistic and operate within a framework.
Budgets are drawn on the basis of well defined specific plans and policies.
Plans and policies are formulated on the basis of corporate business enterprises
and forecast of market trends supply factor and consumer preferences.
Within the corporate budget or plan as set up by a company are covered sales
budget, advertising budget sales promotion budget production budget materials budget
costs budget personnel budget equipment budget and profit budget.
Budgets serve a good purpose as a tool for planning and control. Top management
in an enterprises makes use of budgets in appraising the performance of divisions and
departments operating with in the enterprise and also in assessing the overall
performance of the enterprise.
A budget is distinguishable from other plans in the following respects.
I. A budget serves two purposes. It is a tool for planning as well as a controllingdevice.
II. A budget covers a specific period for example the business or financial year as is
generally the case of course we may have quarterly or monthly budgets also and
finally.
III. Budgets are expressed in financial terms as most values are expressed in monetary
terms.
Budgets obtain better planning and improved co ordination, they also ensure
efficient control through establishment of standards.
8. Programmes
Programmes being specific and comprehensive come within single use plans.

27
 Essentially programmes show the way and lay down procedure for activities to
take place within time limit for accomplishing the stated objectives.
A programme usually involves necessary financial and operating budgets and other
resources needed in the accomplishment of objectives.
The constituents of a programme include: objectives (goals), policies, procedures,
rules, methods and resources to be made use of for obtaining the objectives.
Characteristics Features of Programmes
1. These are single use plans quite comprehensive in their nature
2. These lay down procedure serve as leads to guide activities e^ontial in reaching the
assigned goals in a proper order.
3. Programmes work with a systematic approach. They make things hnprvn in a
systematic and unified manner.
4. Programmes enable management to anticipate and well prepare themselves ahead,
to meet any future contingencies or difficult situations.

6.4 CORPORATE PLANNING

Planning activity can be undertaken at various levels of the organization. Itmay

cover the whole organization or part of it. When planning is undertaken at the
organization level it is referred to as corporate planning. In management literature
sometimes even corporate planning strategic planning long range planning and strategic
management are used interchangeable-because of the similarobjectives of all these.
However some distinction exists among them at least atconceptual level. There are
some people who use corporate planning as synonymous tototal management process
for example Hussey has defined corporate planning as follows.
Corporate planning includes the setting of objectives .organizing the work people
and systems to enable those objectives to be attained, motivating through the planning
process and through the plans measuring performance and so controlling progress of
the plan and developing people through better decision making clears objectives more
involvement and awareness of progress.)
This definition of corporate planning is quite broad and may cover many
management functions not necessarily related to planning aspect of management
functions. For example planning sets further course of action and its implementation
is not strictly the planning function. Therefore the concept of corporate planning should

28
be taken as the total planning activities in the organization and not the total management
functions.
Similarly corporate planning is used as long range planning because longrange
planning emphasis the future orientation of the process. However there is growing
opinion which disfavors the use of long range planning as synonymous with corporate
planning because it underemphasizes the comprehensive nature of corporate planning.
The process of corporate planning is concerned with all aspects and not only the long
range. Although the future of orientation is certainly the most important argument in
favour of the process long range planning without the back up of short range planning
will fail. Difference between corporate planning and long range planning can be
understood by classifying the more comprehensive corporate planning further into
segments. Normally corporate planning is divided into strategic planning or long rang
planning and operational tactical or short range planning.

6.5 STRATEGIC PLANNING

Planning is concerned with future. Thus a plan process must involve different
degree of futurity. Some parts of the organization require planning for many years into
the future while others requires planning over a short period only. For example capital
expenditure is more of long term nature while budget for ayear has short term
orientation. The former is called strategic planning or longrange planning. Strategic
planning has been defined by Anthony as follows.
Strategic planning is the process of deciding on objectives of organization on
changes on these objectives on the resources used for attain these objectives and on
the policies that are to govern the acquisition use and disposition of these resources.
Examples of strategic planning in an organization may be planned growth rate
in sales diversification of business into new lines type of products to be offered and so
on. This way strategic planning encompasses all the functional areas of business and
is affected within the existing and long term frame work of economic political
technological and social factors Strategic planning also involves the analysis of various
environmental factors particularly with respect to how organization relates to its
environment.
A basic problem in strategic planning is the period for which plan is to be
formulated. Normally more than one year period is considered to be a long one. Usually
for most of the organizations it ranges between 3 and 5 years. However there should

29
be some logic in selecting the right time range for planning. In general since planning
and forecasting that underlies it are costly and organization should not plan for a longer
period than is economically justifiable yet it is risky to plan for a shorter period. The
choice of period lies in the commitment principle which suggests that logical planning
encompasses a period of time in the future necessary foresee as well as possible the
fulfillment of commitments involved in decision made today. What the commitment
principle implies is that long range planning is not really planning for future decisions
but rather planning for the future impact of todays decision. In other similar things
therefore the most striking application of planning period would be the setting up of
time period long enough to anticipate the recovery of costs sunk in the course of action.

6.6 OPERATIONAL PLANNING

Operational planning also known as tactical or short term planning usuallycovers

one year or so. It is aimed at sustaining the organization in its production and distribution
of current products or services to the existing markets. Operational planning can be
defined as follows.
Operational planning is the process of deciding the most effective use of the
resources already allocated and to develop a control mechanism to asure effective
implementation of the actions so that organizational objectives are achieved.
Operational planning taken in this way answers the questions about a particular
functions as follows :
1. Why is the action required?
2. What action is to be taken?
3. What will the action accomplish?
4. What are the results of the action required?
5. What objectives and conditions must be met?
Operational planning is undertaken out of the strategic planning. The various
examples of operational planning may be adjustment of production within given
capacity, increasing the efficiency of operating activities through analysing past
performance, budgeting future costs, programming the comprehensive and specific
details of future short term operations and so on.

30
6.7 SUMMARY

Objectives are statements of future conditions that, if realized are deemed

satisfactory or optimal by the planner. To be useful in planning, objectives should be
stated in measurable terms and should relate to significant organizational performance
determinants. Courses of action to achieve objectives must bespecified. Various types
of plans such as strategies and tactics refer to planned courses of action. Resource
requirements of a plan must be forecast and specified by budgets. The fourth part of
planning is implementation, a phase that takes account of the fact that plans usually
are carried out by other people. Also, there are three aproaches to implementation are
authority, persuation and policy. These approaches can be used individually or in
combination.

6.8 SELF ASSESSMENT QUESTIONS

1. What are the elements of planning ?

2. Define objectives. Explain the criteria of sound objectives.
3. Discuss briefly the various types of plans and classify them based on long term and
short term.±À
4. What do you understand by the term policy ? Explain the different types of policies
and describe how policies are formulated.
5. Distinguish between the terms ‘Strategy’ and ‘Policy’. Identify some of the issues
on which a policy is to be laid down in the area of finance.
6. Explain the difference between policy and procedure.
7. Write a note on :
a) Corporate planning
b) Strategic planning
c) Operational planning

31
6.9 REFERENCE

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.

32
UNIT - 7 : MANAGEMENT BY OBJECTIVES
STRUCTURE

Structure
7.0 Objectives
7.1 Introduction
7.2 Meaning and Definition of MBO
7.3 Process of MBO
7.4 Benefits of MBO
7.5 Drawbacks of MBO
7.6 Summary
7.7 Self Assessment Questions
7.8 References

33
7.0 OBJECTIVES

After studying this unit, you should be able to ;

• Assesss the meaning of MBO
• Discuss the process of MBO
• Highlight the elements of MBO
• Assess the drawbacks of MBO

7.1 INTRODUCTION

The ideas that led to MBO were contributed by Donaldson Brown and Alfred
Sloan 1920s and Edward Hageninin 1930s.
Peter Drucker a noted management writer introduced the term MBO in 1954.
the use of this term was first made by Drucker in his book Practice of management in
the same year. This book had a chapter in Objectives of a business in which objectives
of performance an results have to get be set. How the objectives to be set he explained
these objectives as set after all become the standard of evaluation or the results expected.
Management by objectives (MBO) has gained immense popularity during the
past two or three decades. The growing literature and increasing practice in
organizations in different countries confirm this. In India also many managers have
learnt about MBO and have applied it in their organizations. In many organizations
MBO has become the way of management process.
Concept and features of MBO
MBO is both a philosophy and approach of management It is a process where
by superiors and subordinates assess the contribution of each individual and integrate
individuals with the organization so as to make best use of organizational resources.
Thus MBO is a system for integrating managerial activities. For example Koontz an
others have defined MBO as follows.
MBO is a comprehensive managerial system that integrates many key managerial
activities in a systematic manner consciously directed towards the effective and efficient
achievement of organizational objectives.

34
7.2 MEANING AND DEFINITION OF MANAGEMENT BY OBJECTIVES

The integration of individual and organizational objectives through MBO has been
emphasized by Chakravarty when he has defined MBO as follows.
MBO is a result centered non specialist operational managerial process for the
effective utilsation of materials physical and human resources of the organization by
integrating the individual with the organization and organization with the environment
N.

7.3 PROCESS OF MBO

MBO is a system for achieving organizational objectives enhancement of employee

commitment and participation Therefore its process should facilitate.

Organizational Planning Premises

Key Results areas

Superiors objective

Subordinates
Superior’s
statements of his
recommendation
objectives

Matching resources Subordinates agreed

objectives

Subordinates
Performance

Performance review
and appraisal

35
 Translation of basic concepts into management practice. The MBO process is
characterized by the emphasis on the rigorous analysis, the clarity and balance of
objectives ad participation of the managers with accountability for results. The MBO
process is not as simple as it is appears to be. Managers need training and experience
for developing the required skills./The process has many nuances which can be
understood from fig 7.2 andjts explanation fig 7.2 suggests the following steps in
MBO process.
1. Setting of organizational purpose and objectives :
The first basic step in MBO is the definition of organizational purpose and
objectives. Questions such as why does the organization exist. What business are we
in and what should be our business provide guideliri^for the statement of purpose.
This in interaction with external factors then determines the Ions range
strategicobjectives like (i) whether to achieve growth through expansion in the same
line of business or diversity (ii) what should be the degree of vertical integration and
so on. usually the objectives setting starts at the top level of the organization and
moves downward to the lowest managerial levels. This will go in a sequence like
this9i) defining the purpose of organizational(ii) long range and strategic objectives
(iii) short term organizational objectives(iv) divisional/departmental/ sectional
objectives (v) individual managers objectives
2. Key results Areas :
Orgnisaional objectives and planning premises together provide the basis for
the identification of key result area (KRAs) it may be emphasized that KRAs are derived
from the expectations of the various stakeholders and indicate the priorities for
organizational performances. KRAs also indicates the present state of an organizations
health and the top management perspective for the future. Examples KRAs applicable
to most of the business organizations are (i) Profitability (ii) market standing (iii)
innovation (iv) productivity (v) worker performance (vi) financial and physical
resources (vii) manager performance and (viii) public responsibility, madura coasts
limited which has successfully installed MBO defined its KRAsduring 1978-1979 as
follows, (i) Financial resources (ii) profitability (iii) development of organization (iv)
management development (v) labour relations (vi) diversification and (vii) cotton
development. Even though KRAs are more durable the lit of KRAs gets considerable
changed over the period in response to new needs and opportunities sometimes the
achievement in a particular KRA also provide the impetus for a new KRA in future.

36
For example when Madhura coats achieved its objectives of diversification it did not
remain this KRA for the subsequent period.
3. Setting Subordinates :
Objectives the organizational objectives are achieved through individuals
therefore each individuals manager must know in advance what he is expected to
achieve. Every manager in he managerial hierarchy ks-both superior and subordinate
except the person at the top level and lowest level, therefore there is a series of superior
and subordinates relationships^ The process of objectives setting begins with superiors
proposed recommendations for his subordinates objectives in turn the subordinates
states his own objectives as perceived by him. Thereafter the final objectives for the
subordinate are set by the mutual negotiation between superior and subordinate. In the
beginning of MBO process in an organization there may be wide gap between the
recommended objectives by the superior and subordinates stated objectives because
the latter may like tp put lesser burden on him by setting easily achievable objectives.
However with he experience gained over the period of time this gap narrows because
of narrowing down of the perception of superior and subordinate about what can be
done at aparticular level.
4. Matching resource with objectives :
When objectives are set carefully they also indicate the resource requirement in
fact resource availability becomes an important aspect of objective setting because.
Therefore there should be matching between objectives and resources/By relating these
to objectives a superior manager is better able to see the need and economy should be
done in consultation with the subordinates manager.
5. Appraisal :
Appraisal aspect of MBO tries to measure whether the subordinates is achieving
his objective or not. If not what are the problems and how these problems can be
overcome. Appraisal is undertaken as an on going process with a view to find out
deficiency in the working and also to remove it promptly. It is not taken as a matter of
system to ensure that everything is going as planned and the organization is able to
achieve its objectives
6. Recycling :
Though appraisal is the last aspect of MBO process it is used as an input for
recycling objectives and other actions. Objectives are neither set at the top and

37
communicated o the bottom nor are they set at the bottom and go up. Objective setting
is ajoint process through interaction between superior and subordinate. Therefore what
happens at each level may affect other levels also. The outcome of appraisal at one
level is recycled to see if the objectives have been set properly at the level concerned
and also at the next higher level. This can be presented in fig 7.3

R Objective setting

E
Action planning
C
Y Performance review

The three aspects involved in recycling process include setting of objectives at

various action planning in the context of those objectives and performance review.
Each of these aspects gives for others. For example objectives give basis for action
planning which in turn gives basis for performance review and performance review
gives for objective setting and action planning this process goes on a continuous basis.

7.4 BENEFITS OF MBO

(a) Benefits for the enterprise

1. MBO represents one of the approaches to organization development and its
effectiveness which results in much improved managing and increased profitability.
2. MBO lays great emphasis on the development and utilization of human resources.
3. It facilitates the enterprise ability to change. Organizational changes get a pick up
through MBO Further it provides a framework and guidelines for planned changes.
It shows the way to initiate plan direct and control the direction and speed of
changes.
It may however be noted that MBO works best when it is properly implemented.
4. Problem areas of management including structures strategies and practices are well
identified by MBO.

38
It concentrates is attention energy and effort on these key areas in an organization.
5. MBO renders planning more specific and purposeful. Similarly it helps develop
effective controls in an organization like establishment of specific standards of
control which greatly facilitate self control.
6. It is MBO that adds clarifications to the objectives and focuses managers efforts
towards their achievement.
7. MBO helps bringing about coordination and co operation in the enterprises efforts
by highlighting interdependence and improving communication
8. MBO works so effectively in helping manage centralized operations laying emphasis
on delegation of authority process.
9. MBO is all pervading in an organization no doubt evaluation is rendered easy in
manufacturing when compared with some service functions but the basic idea as
enunciated by MBO is applicable in any part of the organization
10. MBO being flexible in its nature degree of its implementations can be made use by
management in any manner for achievement of organization objectives.
11. MBO being not a complex system is easily and clearly understood and can be
adopted and applied without much external help that of a consultant or a specialist.
12. The data as generated by MBO provides objective appraisal of managers
performance and helps identifying promotable managers and also rewarding them.
13. Clarification of results that will best serve the enterprises is another useful benefit
of MBO.
14. Voluntary commitments for [performance by the employees in an organization come
forth as a result of MBO involvement.
(b) Benefits of Superiors
1. MBO while providing participative atmosphere helps the superior coaching the
subordinates.
2. MBO pinpoints on setting standards for evaluating performance with the result
that guess methods and other vague performance tools are rendered obsolete.
3. MBO stimulates motivating subordinates to give better performance by
communicating themselves to achieve a set of results agreed through participation
helped by initiative of delegation provided by the superior.

39
(c) Benefits for employees (including lower level managers)
1. MBO enhances employee job satisfaction
2. While setting goals for individual it makes clear what is expected for the employees
3. It provides measurable objectives that the employee is expected to achieve.

7.5 DRAWBACKS IN MBO

Whereas MBO promises a number of benefits or advantages as we have already

examined I has many drawbacks too. Some of these are in the system itself and others
are in its application. Amongst these include the following.
The Puzzle Details
Howsoever simple MBO may apparently seem to be still details involved in this
system like what it constitutes of how it operates its underlaying purpose how far it is
going to be effective in measuring managerial performances? What gains to the
enterprises to the superiors and subordinates it ultimately holds remain all a puzzle to
the managers who have to practice I .Managers need to study all this thoroughly and
well and have a clear understanding of the various activities connected with its
application and working.
Lack in Direction and Guidance to Goal Setters
Goal setting forms the very nucleus of MBO. For any lack or insufficiency of
direction an guidance to the personnel who are supposed to involve themselves in goal
setting no MBO plans can work.
MBO plans work best where the persons involved in goal setting are able to
have a clear perception and a correct understanding of corelationship between
company’s policies and their area of operation of course being quite awake and
keeinginfull view the nature of objectives and programmes with which their goals are
so intimately connected.
Problems in Goal Setting
Setting realistic and true goals always remains a problem particularly when they
a pinch of time period say quarterly halfyearly or yearly.

40
Snag in Short term
Short term goal setting in every system of operating is a common feature in MBO.
They seldom stretch to more than a year usually quarterly and even less. Short run goals
may not sometimes prove to be efficacious in achieving the objectives.
Hazardous Inflexibility
Flexibility is the essence of MBO sometimes however it so happens that managers
do not favour rather hesitate to bring about any change in objectives and they remain
struck up to objectives one determined for the period.

7.6 SUMMARY

MBO is future oriented in its various aspects objective setting, action planning,
performance reviews and the lives. It demands for the revies of time spent in planning
of corrective action, for the achievement of objectives. As we have learnt, part
experience may not prove to be of much helpful in guidance for future situations and
activities, hence at stresses the need for development of some news and more effective
methodology for dealig with problems, and more effective methodology for dealing
with problems, which are identifiable. MBO ideology gives scope for participation of
employees at all levels in framing the action plan to achieve objectives of the
organisation. MBO believes in bringing changes and will always remain a challenge
to the business stratergies, business systems and procedures.

7.7 SELF ASSESSMENT QUESTIONS

1. What is MBO?
2. Explain the meaning and objectives of MBO.
3. Discuss the process of MBO in detail.
4. Identify the various factors that are prominent in MBO.
5. Describe few drawbacks of MBO.

41
7.8 REFERENCE

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.

42
UNIT - 8 : DECISION-MAKING

Structure
8.0 Objectives
8.1 Introduction
8.2 Meaning and Definition
8.3 Important Elements in Decision-Making
8.4 Decision-Making Process
8.5 Individual Vs Group Decision-Making
8.6 Types of Decision-Making
8.7 Techniques of Decision-Making
8.8 Modern Techniques of Decision - Making
8.9 Summary
8.10 Self Assessment Questions
8.11 Reference

43
8.0 OBJECTIVES

After studying this unit, you should be able to ;

• Discuss the meaning of decision making –
• Explain the Process of decision making
• Highlight the critical elements involved in the process of decision making
• Assess the types of decision making
• Discuss the techniques of decision making

8.1 INTRODUCTION TO DECISION-MAKING

Managers at all levels make decision. These decisions may ultimately influence
the survival of the organization. All decisions, however, will have some influence -
large and small - on performances. Thus, it is important for managers to develop
decision-making skills. Like it or not, managers are evaluated and rewarded on the
basis of imp.winnce, number, and results of their decisions. The quality of decisions
that managers reach is the yardstick of their effectiveness and of their value to the
organizations. Thus, decision-making is an important managerial activity, and a central
point of the managing process. Decisions are made by every manager though its
significance and coverage depends on the situation, problem and hierarchy. Indeed,
the managers manage by making decisions and getting them implemented. It is a regular
exercise on the part of manager. He makes decisions for solving problems, handling
the situation and resolving crises. By making decisions the manager translates various
plans such as objective, policy and strategy, etc., into action. These actions are
convertedinto outcome or results by implementing decisions.
Decisions are made on managerial functions like planning, organizing staffing,
controlling and other matters related to various functional areas such as production,
marketing, finance and personnel, etc. Decision-making involves manystages. The
success or failure of an organization depends on the quality of decisions. If the managers
make untimely and incorrect decisions on important matters, it may endanger the
existence of the organization.

44
8.2 MEANING AND DEFINITION OF DECISION-MAKING

Decision making is a managerial process involving selection of a particular course

of action out of alternatives for achieving given objectives or solving a problem. It takes
place only when more than one option is available to the manager. By taking a decision,
a manager attempts to reduce the gap between the present and the desired situation. A
few important definitions are :
Decision-making defined :
“Management decision-making a work the manager performs to arrive at a
conclusion and judgement.”
- Alien
“Decision-making is a conscious and human process of indentifying and
choosing alternative courses of action in a manner appropriate to the demand of the
situation. The act of choosing implies that alternative courses of action must be weighted
and weeded out.”
- Kreitner
“Decision-making is a conscious and human process involving both individual
and social phenomenon based upon factual and value premises which concludes with
a choice of one behavioural activity from among one or more alternatives with the
intention of moving towards some desired state of affairs.”
- Shull, Delberg and Gumming
“Broadly, decision-making involves making an organization committed to
adoption of a specific course of action and use of resources in a particular manner. To
identify the basic nature of decision-making, George Terry has treated managerial life
as “a perpetual decision-making challenge.”
“It is a process of a solution selected after examining several alternatives chosen
because the decider foresees that the course of action he elects will do more than the
others to further his goals and will be accompanied by the rewest possible objectionable
consequences.”
- Manley H. Jones
According to Peter Drucker: “Whatever a manager does, he does through decision-
making.” In every situation, a manager faces a challenge of making correct, timely and
effective decisions to get the best out of the situation. All decisions made by managers

45
are directed at making the organization a functional and productive unit, preserve its
identity and maintain continuity in its working life.
Decision-making Defined
Decision-making can be defined as an act of choice by the manager from among
two or more possible alternative courses in a given situation.
There are two important factors in the process of decision-making, viz., the underlying
purpose and the circumstances in which the decision is made.
Aims and Objectives of Decisions
The main objective a decision serves in helping to reach optimum and most
desired result.
As discussed earlier also, in the beginning of this chapter, there is no process of
management, be it, planning, organizing, actuating or controlling, where decisions do
not reign supreme. If there is anything that moves these fundamental functions of
management to action, it is decision.
There is not other such cohesive force in impelling creating a meeting point and
the resolution of conflicts as that of decisions. Successful decisions sometimes wofk a
miracle in bringing about the resolution of conflicts in varied and numeroustypes of
matters, situations and events. To name a few include, resolutions of conflict between
subtle realities and beliefs; different thinking in terms of experience and practice;
differing attitudes of broad-mindedness and narrow-mindedness; old and new concepts;
gain or loss of a chance and the more important are those conflicts that crop in between
the decision-maker and those who have to abide by the decision.
Main Characteristics of decision-making
i. Decision-making is a human and social process implying interference of individual
as well as social factors. An intelligent manager will always take into account
social and human implications of a decision.
ii. Decision-making is an integral part of planning. Every planner has to make a choice
of appropriate solutions or alternatives in a situation of availability of options.
iii. Decision-making involves judgement and discretion of the decision-maker. It is
not entirely a rational process because decisions are bound to be affected and
coloured by personal likes, dislikes and whims of the manager.

46
iv. Decision-making aims at choosing a suitable course of action by weighing and
weeding out several available alternatives.
v. Decisions made by the managers involves commitment of the organization for
adopting a specific course of action and utilizing resources in a particular manner.
vi. Decisions are made by managers for solving problems, resolving crises and conflicts
and tackling various situations.
vii. Decision-making is a purposive activity because it is directed towards the
achievement of goals and objectives.
viii.Decision-making requires giving freedom to the managers for making use of their
experience, skill and judgement. This is the reason why policies, which are a guide
to decision-making, are made flexible.
ix. The decision made by the managers may have a negative effect fro a short period
of time. For example, retrenchment, demotion, dismissal of employees, reduction
in scale of operation, introduction of change, closing down of some units,
withdrawing products from the market, etc.
Pervasiveness of decision-making
The manager manages by making decisions and getting them implemented. The
effectiveness of decision-making and quality of decisions depend upon a manager’s
skill, judgement competence and ability.
In the managerial set up of organization the required structural and administrative
arrangements are made for delegating the authority to lower level managers as to
authorize them for making decisions. Thus, Decision-making is not only at the core of
planning but an integral part of managerial activity. The top executives make decisions
only on basic and major issues and matters which are directly concerned with survival,
profitability and growth of organization. For handling the matters arising out of day-
to-day operations the lower level managers are granted authority to decide upon those
matters. Besides delegation of authority, other administrative arrangements are also
made including installation of information system, formulation of basic policies, training
of subordinate managers for developing required abilities and creating proper conducive
internal environment in organization which facilitates decentralized decision-making.
Importance of Decision-making
Decisions are required to be made regarding various elements of management
and matters involved therein such as determination of organizational goals and other

47
plans, designing the structure of organization, devising controlling techniques, providing
effective leadership, scheduling network of communication, designing motivational
systems. The managers have also to decide upon various issues related to functional
areas like, production, distribution finance, personnel and purchase, etc. Thus, it runs
through the entire process of management and allsub-systems of organization. In
organization resources can be mobilized and utilized in the direction of achieving desired
goals only by making decisions and getting them implemented. In the light of primacy
and pervasiveness of decision-making activity in the organizational functioning and its
management it seems to be desirable for the manager to make quality decisions timely
as the situation demands. A part from maintaining proper balance between timeliness
and quality of decisions, human needs and social implications of decisions should also
be taken into account at the time of making decisions.

8. 3 IMPORTANT ELEMENTS IN DECISION-MAKING

Institution, Facts, Experience and Authority are widely accepted fundamental

elements in decision-making.
All these elements in varying degrees, depending upon the nature of the problem
and that of the decision-making find place as basis for decision-making.
Intuition
Decision-making with an element of intuition as its basis, is generally the
offspring of the ‘inner feelings’ of the decision-maker because it is without any
conscious attention, or reasoning and concentration, etc,, to the issues involved in the
problem.
In such a type of decision-making, the things often influence the decision-maker
in reaching decisions are: Suggestions, influences, preferences and the decision-maker’s
own psychological bent of mind as a result of his unconscious thinking of his past
knowledge and experiences.
The element of intuition as a basis of decision-making is useful in view of time
expediency and making purposeful use of decision-making ability.
Possible drawbacks in the element of intuition are that the intuition and hunches
on which the decision-making is based may not bring about correctdecisions. Secondly,
the decision-maker may not take notice or even altogether ignore other basis for
decision-making.

48
 The element of facts, as basis for decision-making supported as it is with factual
data having relevancy to the given situation has been recognized as the most methodical,
efficient, and effective basis for reaching decisions.
However, before making use of the element of facts as basis for decision-making,
there is an important pre-condition that the given facts should be well analysed,
classified and interpreted.
Experience
The element of experience’ as a basis for decision-making is very important.
Past experience of the decision-maker, indicative of decisions made in particular
situations, varied types of people involved, and general areas affected by the decisions,
weighs considerably with the decision-maker and helps him in reaching accurate
decisions.
Authority
There exists a co-relationship between authority and decision-making.
In the managerial functional parlance, authority means the power to make
decisions and to see that they are carried out.
The very fact that decisions as made are acceptable to the company, this lends
authority to the decision-maker.
Decisions made involving the element of authority as basis for decision-making
also include, those reached essentially in accordance with company’s policies and with
the general instructions as followed by the decision-maker.
Amongst the various advantages of decision-making with element of authority
as basis, those important include:
Ready Accessibility
For obvious reasons that the decision-maker is invested with an authority to
make decisions and these decisions coming from him lend their ready acceptability to
the company.
Authenticity
Since such decisions are in keeping with systematic plan, they get the stamp of
authenticity, permanency and such decisions acquire nature of permanency as chances
of effecting any changes or modifications in them with a short span of time, become
remote.

49
 8.4 DECISION-MAKING PROCESS

When a manager makes a decision, it is in effect the organization’s response to a

problem. As such, decision should be thought of as means rather than ends. /Every decision
is the outcome of a dynamic process which is influenced by multiple forces. This process
is presented in Fig. 10.1. However, this process should not be interpreted to mean that
decision making is fixed procedure. A process is basically a dynamic concept rather
than static. Events and relationships are dynamic, continuous and flexible and must be
considered as a whole in which many forces interact; a force affecting others and being
affected by others. Therefore, the decision-making process as presented in Fig. 10.1
should be seen as sequential process rather than a series of steps to enable the decision
maker to examine each element in the progression that leads to a decision. Moreover,
the process reveals that it is more applicable to non-programmed ones. Problems that
occur infrequently are unstructured, and are characterized by a great deal of uncertainty
regarding their outcome, require the manager to utilize the entire process. For frequently
occurring, structured problems, it is not necessary to consider the entire process. If a
policy is established or a specific rule or proceduredeveloped to handle such problems,
it will not be necessary to develop and evaluatevarious alternatives each time the problem
arises.

Specific Identification Search for Evaluation of

Objectives of problems alternatives alternative

Feed back
Choice of
alternative
Results Actions

Fig. 10.1 Decision-making process.

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1. Specific Objective :
The need for decision making arises in order to achieve certain specific objective.
Every action of human being is goal directed. This is true for decision making also
which is an action. Therefore, the starting point in any analysis of decision making
involves the determination of whether a decision need to be made. In fact, setting of
specific objective itself is an outcome of an earlier decision. However, since the
objective setting is an outcome of earlier decision, this may not be considered truly as
the first step of decision process but provides framework for the decision.
2. Problem Identification :
Science a particular decision is made in the context of certain given objectives,
identification of problem is the real beginning of decision-making process) A problem
is a felt need, a question thrown forward for solution. It is the gap between present and
desired state of affairs on the subject-matter of decision. Itis just like the diagnosis of
patient by the doctor. When a doctor makes a diagnosis he has a normal, healthy person
and he also has a fairly clear concept of what a healthy person is. With this model as
the desired result, he looks for disparities in the patient’s actualstate of health or factors
which indicate that his future health will fall short of normal. In the case of management
decision, however, a manager cannot y on a commonly accepted norm such as healthy
person. The objectives, if set precisely and specifically on the subject-matter of decision,
will provide clue in identifying the problem and its possible solution. Further in
management, a problem exists whenever one faces a question whose answer involves
doubt and uncertainty. If there is no solution to the problem, it cannot be treated as
problem from decision point of view, though the consequences of not solving this
problem may be terrible. A problem can be identified much clearly, if managers go
through diagnosis and analysis of the problem.
3. Diagnosis :
The term diagnosis has come from Medical Science where it is used as the process
of identifying a disease from its sign and symptoms. A symptom is a condition or set of
conditions that indicates the existence of problem. For example, a patient has certain
symptoms on the basis of which his disease can be identified. Symptoms occupy an
essential of problem-solving process they signal the existence of problem and guide the
search for the underlying problem. For example, if an organization has high turnover of
its employees, it indicates that something is wrong with the organization. The symptom
of high turnover may provide the clue to the real problem and managers can overcome

51
the problem by taking appropriate action (decision making involves in taking action).
Often managers fail to diagnose the problem correctly and sometimes they treat symptom
as problem. Therefore, they should do this exercise very carefully^ Diagnosing the real
problemimplies knowing the gap between what is and what ought to be, identifying the
reasons for the gap, and understanding the problem in relation to higher objectives of
the organization.
4. Analysis :
While the diagnosis of problem gives the understanding of what should be done
in terms of decision making, analysis of problem takes it a step further. The analysis of
the problem requires to find outwho would make decision, what information would be
needed, and from where the information is available. This analysis may provide
managers with revealing circumstances that help them to gain an insight into the
problem.) The whole approach of analysis of problem should, however, be based around
critical factors like the availability of information for making decision, criticality of
decision, and the time available for making decision. For example, information may
be available from external and internal sources and some of the information may not
be available at all. Similarly the criticality of decision will determine the level at which
the decision can be made. Thus diagnosis and analysis of problem requiring decision
will clarify what is needed and where the alternatives for doing the thing can be sought.
5. Search for Alternatives :
A thorough diagnosis defines both a specific problem and the situation in which
the problem exists. With this definition in mind, a decision maker seeds possible
solution. A problem can be solved in several ways, however, all the ways cannot be
equally satisfying. Further, if there is only one way of solving a problem, no question
of decision arises. Therefore, the decision maker must try to find out the various
alternatives £JL available in order to get the most satisfactory result of a decision.
Identification of various alternatives not only serves the purpose of selecting the most
satisfactory one, but it also avoids bottlenecks in operation)as alternatives are available
if a particular decision goes wrong. However, it should be borae in mind that it may
not be possible to consider all alternatives either because some of the alternatives
cannot be considered for selection because of obvious limitations of the decision maker
or information about all alternatives may not be available. Therefore, while generating
alternatives, the concept of limiting factor should be applied^ A limiting factor is one
which stands in the way of accomplishing a desired objective. If these factors are

52
identified, managers will confine their search for alternatives to thosewhich will
overcome the limiting factors.! For examples, if an organizationhas limitation in raising
sizable finances, it cannot consider projects involving high investment.
A decision maker can use several sources for identifying alternatives his own
past experience, practices followed by others, and using creative techniques. Past
experience, applied in most cases of decision making, takes into account the actions
taken by the decision maker in the past with obvious differences between the former
challenges and the present one. This is a very simple approach but has obvious
limitations because there may be so much changes in the decision context (hat old
action becomes totally irrelevant. Copying from the experience of others is another
way of generating alternatives. Thus alternatives used by successful decision makers
can be thought of as alternatives of decision making. This is also practiced by many
organizations after making suitable amendments in the light of changed decision
context. Importing of technology from foreign countries with suitable changes is good
example of this type of alternatives. The third method of generating alternatives is
through creative process where various exercises are taken to generate entirely new
ideas. This aspect of search for alternatives will be discussed in a separate section of
the chapter.
6. Evaluation of Alternatives :
After the various alternatives are identified, the next step is to evaluate them
and select the one that will meet the choice criteria, However, all alternatives available
for decision making will not be taken for detailed evaluation because of the obvious
limitations of managers in evaluating all alternativesjThe energy of managers is limited
and psychologically most of them prefer to work on plans that have good prospect of
being carried out. In narrowing down the number of alternatives, two approaches can
be followed: constraint on alternatives and grouping of alternatives of similar nature.
The decision maker develops a list of limits that must be met by a satisfactory solution.
He may treat these limits as constraints, that is, he may check proposed alternatives
against limits, and if an alternative does not meet them, he can discard it. In the second
approach,various alternatives can be grouped into classes on some specific criteria
important to decision making. A representative alternative from one group may be
selected for future analysis. Then having found the group that shows up the best,
decision maker can concentrate on alternatives within this group. This method is very
helpful in decision making regarding the location of plant, warehouse, etc.

53
 Having narrowed down the alternatives which require serious consideration the
decision maker will go for evaluating how each alternative may contribute towards the
objectives supposed to be achieved by implementing the decision. Evaluation of various
alternatives dissects an alternative into various tangible and intangible factors. Tangible
factors are those which can be quantified because they are quite obvious like the cost
per unit, investment required, output to be received, ect. Such factors can be measured
easily, though their happening may not be measured with certainty; for example, demand
projection at a given price in a particular alternative. As against these, intangible factors
are mostly qualitative and cannot be measured in terms of quantity. Therefore, some
definitions can be used for such factors. For example, in a plant location, various non-
economic factors like psychological problem arising out of displacement of persons
from the plant site, ecological balance, etc., have to be taken into account which cannot
be quantified. In evaluating an alternative, both these factors have to be taken into
account. For determining the impact of a factor, various quantitative techniques have
been developed which can be discussed in a separate section of the chapter.
7. Choice of Alternative :
The evaluation of various alternatives presents a clear picture as to how each
one of them contributes to the objectives under question. A comparison in made among
the likely outcomes of various alternatives and the best one is chosen. Choice aspect
of decision making is related to deciding the most acceptable alternative which fits
with the organizational objectives.Tt may be seen that the chosen alternative should
be acceptable in the light of the organizational objectives. Thus it is notnecessary that
the chosen alternative is the best one. This concept is based on the satisfying approach
rather than the maximizing approach of decision making, to be discussed later in detail/
In choosing an alternative, the decision maker can go through three approaches:
experience, experimentation, and research and analysis.
i. Experience : Managers can choose an alternative based on their past experience
if they have solved similar problems earlier. Reliance on past experience plays a
larger part than it deserves in decision making. Managers rely more on experience
than alternative methods of choice. Past experience has some benefits but it has
certain limitation that it blocks making correct choice specially when the
environment factors are more flexible.
ii. Experimentation : Experimentation which is generally used in scientific enquiry
involves that a particular alternative is put in practice, result is observed, and the

54
 alternative giving the best result is selected. For example, many organizations go
for test marketing of their products before the products are really introduced in
the market. During test marketing, the actions can be taken to change product
features which are not acceptable. Experimentation as a method for choice of an
alternative can be used on a limited scale because of cost and time factor.
iii. Research and Analysis : Research and analysis is the most certain method of
selecting an alternative, specially when major decisions are involved. This
approach entails solving a problem first by comprehending it. This involves a
search for relationships between the more critical variables, constraints, and
planning premises that bear the objectives sought. In the second stage, the
alternative is broken into various components. Their individual impact on
objective is evaluated and the impact of all factors of an alternative is combined
to find out the total impact of the particular alternative. The one having the
mostpositive impact is chosen. Since this requires making a lot of calculations,
often the help of computer is taken. In fact, various computer-based models have
been developed to make the choice of an alternative easier.
Though various approaches are available for choosing an alternative, the decision
maker’s personal values and aspirations affect what alternative will be chosen. In fact,
in one way, the decision making is the translation of one’s values and aspirations into
action. Thus the rational process of decision making is considerable affected by the
personal factors. Further, managers should take into account the uncertainly of outcome
of a decision. Therefore, they should be ready with alternative action if one fails. In
order to do this, managers should often be ready with contingency plans.
8. Action Once the alternative is selected, it is put into action. Truly speaking, the
actual process of decision making ends with the choice of an alternative through which
the objectives can be achieved. However, decision making, being a continuous and
on-going process, must ensure that the objectives have been achieved by the chosen
alternative. Unless this is done, managers will never know what way their choice has
contributed. Therefore, theimplementation of decision may be seen as an integral aspect
of decision.
Once the creative and analytical aspects of decision making through which an
alternative has been chosen are over, the managerial priority is one of converting the
decision into something operationally effective. This is the action aspect of decision
making. The basic difference between decision making as an analytical process and

55
action is that the former requires the use of conceptual skills since it translates the
abstract ideas into reality. For example, suppose that there is a change in consumers
tastes. This change is very abstract and cannot be seen unless some specific techniques
and measurements are applied. How this change can provide opportunity to
theorganisation is mostly a conceptual exercise requiring managers to interpret what
changes are taking place and what products or services will be preferred in the changed
situation. Action, on the other hand, relates to putting a decision into practice so that
objectives of decision are achieved. This practice will provide further feedback for
evaluating the soundness of the decision and, if need be, a change in the decision.
Implementation of a decision requires the communication to subordinates, getting
acceptance of subordinates over the matters involved in the decision, and getting their
support for putting the decision into action. The decision should be effected at
appropriate time and in proper way to make the action more effective. The effectiveness
of action is important because it is only effective action through which organizational
objectives can be achieved, and right decisions help in effective action.
9. Results :
When the decision is put into action, it bringscertainresults. These results must
correspond with objectives, the starting point of decision process, if good decision has
been made and implemented properly. Thus results provide indication whether decision
making and its implementation is proper. Therefore, managers should take up a follow-
up action in the light of feedback received from the results. If there is any deviation
between objectives and results, this should be analysed and factors responsible for
this deviation should be located. The feedback may also help in reviewing the decision
when conditions change which may require changes in decision. Therefore, a successful
manager is one who keeps a close look at the objectives and results of the decision and
modifies his decision according to the changes in the circumstances.

8.5 INDIVIDUAL V/SGROUP DECISION MAKING

Every manager makes decisions in the organisation, either in his individual capacity
or as member of a group. In fact, organizational decisions are combination of individual
and group decisions. Both types of decisions have their positive andnegative aspects.
Therefore, the questions arises: what are the situations in which individual decisions
should be preferred. Following is the analysis of situations for individual and group
decisions.

56
1) Nature of Problem : If the policy guidelines regarding the decision for the problem
at hand are provided, individual decision making will result in greater creativity as
well as efficiency. While the problem requires a variety of expertise, group decision
making is suitable.
2) Time Availability : Group decision making is a time-consuming process and,
therefore, when time at the disposal is sufficient, group decision making can be
preferred.
3) Quality of Decision : Group decision making generally leads to higher quality
solution unless an individual has expertise in the decision area and this has been
identified in advance.
4) Climate of decision Making : Supportive climate encourages group problem solving
whereas competitive climate stimulates individual problem solving.
5) Legal Requirement: Legal requirement also determines whether individual or group
decision have to be made. Such requirement may be prescribed by government’s
legal framework or by the organizational police, rules, etc. For example, many
decisions have to be compulsorily made by board of directors (a group) or committee
in companies.
When a manager makes a decision as an individual, he has to consider the steps
involved in decision-making process and uses techniques for decision making. However,
when he has to make decision as a group member, he has to consider group behaviour
also. In group decision making, there can be either consensus among the members of
the group, or the decision can be arrived at through simple majority unless the group
prescribes any other mode of majority. Since many of the decisions are made in the
organizations by the groups and these decisions are of significant consequences, many
specific techniques have been developed for improving group decision-making.

8.6 TYPES OF DECISION-MAKING

Although managers in large business organizations, government offices, hospitals,

and schools may be separated by background, lifestyle, and distance, they all sooner or
later must share the common experience of making decisions. They all will face situations
involving several alternatives and an evaluation of the outcome.
The significance and nature of decisions differ. Some decisions are repetitive,
and others are one-time decisions. Similarly, some are made at group or individual
levels. All these may be classified as under Figure 3.3

57
Programmed Decisions
Programmed decisionsare the decisions managers make in response to repetitive
and routine problems. If a particular situation occurs often, managers will develop a
routine procedure for handling it.
Non-programmed Decisions
When a problem has not arisen in exactly the same manner before, or iscomplex
or extremely important, it may require a non-programmed decision.Decisions are termed
non-programmedwhen they are made for novel and unstructured problems. Making
such decisions is clearly a creative process.
The two classifications - programmed and non-programmed-are broad, yet it is
important to clearly differentiate between them.

Figure - 3.3
Programmed Non-programmed
Types of Decision

Type of problem Repetitive, routine Complex, Novel

Business: Processing Business: Introducing a new
payrollvouchers product
College: Processing admission College:Constructing new
Type of problem application classroom facilities
Hospital: Preparing patient for Hospital : Reacting to regional
surgery disease epidemic
Government: Using state-owned Government : spiraling inflation
motor- vehicle problem

Rules Standard operating Creative problem solving

Procedures procedures
Politics

1) Programmed and Non-programmed Decisions

Programmed decisions are routine and repetitive in nature. They refer to decisions
made by managers for solving those problems or tackling those situations which require
pre-determined set of procedures, techniques and rules. Programmed decisions are
made with regard to routine and recurring problems which require structures solutions
which can be arrivedat with the help of operating procedures and processes, determined
in advance. Here,’decision rules’ are very important which is a statement that identifies
the situation in which a decision is required and specifies how it will be made.

58
 Decision rules permit busy managers to make routine decisions quickly without
going through comprehensive problems-solving procedures, again and again. Carefully
and intelligently formulated and conceived decision rules may encourage lower level
managers to share responsibility for programmed decisions and allow higher level
managers to concentrate more on important non-programmed decisions.
The process of decision-making in respect of programmed decision is simplified
by decision rules as no judgment or discretion is needed to find outsolution of such
problems. It simply becomes a matter of identifying the problem and applying decision
rules for getting it solved. Programmed decisions remain consistent for a relatively
longer period of time and over many solutions.
Non-programmed decisions are made with respect to problems which are unique,
non-repetitive and about which required knowledge and information are not available.
Such decisions are made under new and unfamiliar circumstances, less frequently
compared to programmed decisions. Since non-programmed decisions are made with
regard to new situation, it renders standard and pre­determined procedure and rules
ineffective and irrelevant. And it calls for a lot of experience, creativity, innovativeness,
farsightedness and judgment.
Non-programmed decisions are usually made for solving unstructured problems
which keep on changing its character from time to time, marked by high degree of
uncertainty. To make such decisions, the managers have to restructure and reformulate
the problem by applying his managerial skill, judgment and creativity. Example of
non-programmed decisions include deciding whether to merge with other organisations,
diversify, open a new product or service, etc.
One of the decisions theorists has explained non-programmed decisions as
follows: “There is no shortcut and direct method for handling the problems because it
has not arisen before, or because its precise nature and structure are elusive and compels
or because it is so important that it deserves a custom-tailored treatment.” It is evident
that non-programmed decisions are made on the complex, novel, non-routine problems
which require creative decisions.
2. Strategic and Tactical Decisions
Strategic decisions are made by the top level managers on problems and matters
which are very important and critical for the survival, success and profitability of the
orginisation. These decisions exercise greaat influence on the functioning and direction
of the orginisation and have long-range implications because they are tenable for a

59
longer period of time. They define and establish the relationship of the orginisation with
its external environment. Such decisions require more resources, judgement and skill.
Therefore, the responsibility for such decisiona lies with the top management.
The main characterstics of strategic decisions is that they are taken,it is neither
desirable nor feasible to withdraw them. For example, selection of product, selection
of location, switching over to a new technology and taking over other orginisations.
Strategic decisions resemble non-programmed decisions because they possess some
of the characterstics of the former. These decisions are made under conditions of ‘risk’
that is managers may have partial knowledge and may not be sure about the outcome
of decisions.
To implement strategic decisions, some other decisions are made by the managers
know as tactical strategic decisions. Single strategic decisions may call for a number
of tactical decisions. These decisions are concerned with routine and repetitive maters
arising out of the functioning of an orginisation. They do not require managers
judgement and skill because they are related to implementation of strategic decisions.
This is the reason that the authority for making tactical decisions is vested in lower
level managers. Tactical decisions are more specific, functional and have short-term
implications. Since they are of routine nature, certain established guideline, procedures
and rules are followed.
The difference between strategic and operational decisions can be understood
with the help of the following example. In a manufacturing organisation, the strategic
decision of selecting a product, process, making capacity planning and selecting location
of a plant are made by higher level managers. Strategic decisions aare implemented by
making many operational or tactical decisions such as production planning, quality
control, etc. These operational decisions are made by departmental managers by using
a set procedure, rules and techniques.

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 Comparison

Programmed Decision Non-programmed Decision

1. These are made for solving unique or
1. These are made for solving the problem of
and non-repetitive problem.
routine and repetitive in nature.
2. Decisions are made by using
2. Decisions are made by using predetermined experiance, Creativity and
procedures and rules Innovativeness.

3. Less use of judgement 3. More use of judgement

4. Consistency for longer period of time over 4. There is no consistency

many situations.
5. Such decisions are made solving both
5. Such decisions are made for simple and generally for solving complex problems.
complex problems.

2. Individual and Group Decisions

Every manger faces the challenge of making decisions. Only by making decisions
he deals with situation effectively, resolves conflicts amicably and solves the problem
efficiently. Decisions made by individual managers by using managerial skill and
judgement predetermined procedures, techniques and rules are known as individual
decisions. To make decisions, managers are supplied with required and relevant
information and other inputs. They also get help from their subordinate mangers.
Individual decisions are made by all managers, from top executives to first line
supervisors. Group decisions are made by two or more managers jointly. In order to
make group decisions, managers working at the same or different levels come together,
make deliberations on the problem, express their view points on several aspects of the
problem and as a matter of collective responsibility, discover a solution to the problem.
Such types of decision-making seems to be very common with regard to the problems
which involve interest of many functional divisions or departments. For example, the
decision of product selection may be arrived at by joint efforts of production manager;
maarketing manager and manager of research and development department.
Compared to individual, group decisisons offer certain advantages. First, group
decisions are based on integrated collective knowledge and judgement pooled together.
Second, group decisions are considered to be more balanced in every respect because

61
they are made after considering different views of group members. Third, group decision-
making provides positive contribution to theexecutives in training and development
because subordinates get an opportunityto ahve an insight into the problem by discussing
it with superiors, fourth,participation of subordinate or other members in decision-
making serves as a motivation for them because they get involved in the problem; if it is
solved, the need of self-fulfilment on their part gets satisfied. Fifth, group decision-
making seems to be more desirable for solving complex inter-departmental
problemsbecause the group of managers, representing their respective departments, may
handle a situation more efficiently. Sixth, group decision-making represents the
cooperative nature of management which is considered more important for creating a
team spirit among the group members.
The group decision-making is best with certain problems and limitations. First, it
encourages indecisiveness and compramise on the problem because the least competent
member may impede the efforts of the most competent one. Second, divided
responsibility in group decisions adversely as due to these members do not exhibit a
sense of responsibility. Third, inordinate delay in decision-making is also marked in
group decision due to long discussions, procedural technicalities, and diverse options
of the members. It ultimately reduces effectiveness of the decision-making process.

8.7 TECHNIQUES OF DECISION-MAKING

Decision-making is an integrate part of the managerial job. Not only the efficiency
of the manager but the success, growth and development of an orginisation depends
on the quality of decisions. To help the managers, in the task of decision-making,
meaningful concerted efforts have been made on a regular basis for developing the
techniques of decision-making which may be classified into two groups, that is,
traditional and modern. Traditional techniques may further be classified into two groups,
namely, programmed decisions and non-programmed.
Decision-making techniques for programmed decisions
Habits
It is the most common techniques, used for repetitive and routine problems,
wherein less to no efforts are made for making decisons. As the problem arises, it is
solved without making much deliberation. Gradually, a habit is formed in respect of
those repetitive problems. This happens regularly in our daily life.

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Standard procedure and rules
In every orginisation, certain procedures and rules are formulated for solving
simple and repetitive problems. When a problem arises, the managers apply set
procedures and rules, in the form of standing orders or plans. These operating standard
procedures have twin objectives, that is, they help and guide the managers in making
decisions and solving problems and maintaining coordination as well as consistency
in respect of managerial actions and decisions.
Orginisational structure
The relationship od superior and subordinate arising out of assignment of work
and delegation of authority in an orginisation serves as a systematic and continuous
means of decisions. The managers need to have enough authority for solving problems
and making-decisions. Authority is delegated from top to lower levels, which includes,
among other rights, the right of making decisions. The authority for making decisions
is backed by a proper information network. All managers or decision-making centres
are linked to the information stem. So that necessary information may be supplied to
them when they need it.
Decision-making techniques for non-programmed decisions
The modern quantitative and scientific techniques of decision-making have
greater applicatiion for solving comples, unique and novel problems. To make, non-
programmed decisions, the manager does not totally rely on his personal abilities like
judgement, skill and creativity but uses these abilities through scientific methods and
prepares an optimal blend. The main objective of developing and introducing
quantitative techniques is to ensure a high degree of precision and accuracy.
Linear programming
This techniques is used for determining the optional combination of limited
resources for achieving a given objective.lt is based on the assumption that thereexists
a linear relationship between the variables. For example, in a production unit, these
variable may be identified as a unit of output per machine in a given time, direct
labour/material cost per unit of output, number of operations per unit, etc. With the
help of a linear equation, optimum combination of cost, time and utilization of machine
can be prepared. The objective function of this techniques is either to maximise benefit
or to minimise cost.

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Queuing theory
It is also known as ‘waiting line theory’ to be applied for maintaining a balance
between the cost of the waiting line and cost of preventing the waiting line in respect
of utilization pf personnel, equipment and services. It is based on the assumption that
although delays are costly, eliminating them may be even more costly. This technique
may be used in service orginisation like transportation, hospitals and banks, etc.
Probability theory
This statistical device is based on the assumption that certain things are likely
to happen in the future in a pattern which can be predicted to some extent by assigning
various probabilities. Decision-making based on probabilities is common in all areas
of management. In this techniques, pay-off matrices and decision trees are constructed
to represent variables. Pay-off matrices help in choosing an appropriate strategy which
would make the maximum contributionfor achieving the objectives. The decision tree
is an extension of pay-off matricesof action, modifying these result probabilities and
comparing them for selecting an appropriate course of action.
Simulation
In simulation, instead of studying and analysing the behavious of a particular
system, a model is prepared in an artificial setting. All features and variables of the
actual system are structured in the model and by making changes in the variable the
consequences are studied and suitable course of action is developed for tacklingthe
real situatiom.For example, instead of studying and analysing transporting system of
Delhi in a real setting, its model can be prepared and various properties of real situation
can be simulated to it. By making changes in respect of several variables of the model,
the results can be evaluated and the likely behaviour of events can be observed in the
model. On the basis this exercise, necessary modification can be made in the real
transportation system and problems related to it. :
Network Techniques
Network techniques of project evaluation and review technique (PERT) and
critical path method (cpm) are used for planning ,monitoring and implementing time
bound projects.These techniques help managers in deciding the logical sequence in
which various activities will be performed . By applying these techniques, large and
complex projects can be executed within the stipulated time and cost.

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8.8 MODERN TECHNIQUES OF DECISION-MAKING

On account of many drastic changes witnessed in the field of management, the process
of decision-making has become complicated and complex, particularly in the context
of the changing environment. A few decision-making techniques, developed in this
context, are listed below.
Heuristic Techniques
This techniques is based on the assumption that the process of decision-making
with regard to complex and strategic cannot be too rational and scientific. In the
environment of uncertainty and turbulence, marked by conflicting intrests, information
gap and subjective human behaviour, it is necessary for the decision maker to take a
fragmented view of the problem by breaking it inot small components.
Dispersal of the’complex problem into small parts and study and analysis of
each part may lead to appropriate solutions. It is basically a trial and-error technique,
based on certain rules of thumb. Heuristic techniques are developed by managers to
deal with various components at different stages. These heuristics may be used with
the help of a computer in more efficient manner for solving highly complex and strategic
problems. Heuristic technique is a more refined way of trial and error method because
it is developed by applying analytical approach and creativity.
Participative Decision-making
In order to encourage industrial democracy and to make role of the employees
more meaningful and contributive, the need for ‘workers’ participation in management
and decision-making has become relevant. Normally, decisions are made at the higher
level of management and imposed on lower level managers for implementation.
However, if lower level managers or subordinates are associated with decision-making,
not only balanced and timely decisiona will be made but it boost the morale and
motivation of subordinates.
Use of creativity in Decision-making
For making non-programmed decisions on unique, novel and non-repetitive
problems, it helps managers to think creativity and innovatively. Brain storming and
Delphi techniques are commonly used creative techniques for solving problems and
making decisions. These techniques are group-based and invove the following steps:

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1. Panel of experts on the particular problem is drawn both from inside as well as outside
the orginisation.
2. They are asked to throw up all possible alternative solutions or predictions which
may be wild and impracticable.
3. Each member is given feedback on all alternatives suggested by the various
members.
4. On the basis of feed-back, the members may be allowed to refine or modify
alternatives suggested by them.
Creativity
Creativity is a human faculty which helps the managers in solving complex and
non-repetitive problems. By applying creativity, managers generate new, novel,
improved ideas and approaches to a problem. Creativity may be defined as an ability
to think originally and come out with some novel idea. It is part of a genuine human
thinking process by which a particular individual strikes an idea which may not occour
to others. However, it neither denotes super human ability nor a divine gilt. Creative
ideas may be generated at the individual or the group level. Interaction among members
of the group is considered an important source of creativity. In every situation, creative
persons go beyond the conventional and beaten track and come out with best ideas and
new ways of doing things. The process of creativity has the following stages.
Preparation Stage
Creative ideas needs some preparation, they do not arise in a vacuum. A creative
thinkers has to let his imagination loose. It involves looking at a problem from different
angles.
Incubation Stage
If a creative person draws a blank during the preparation stage, he forgets the
problem and concentrate on other problems or activities. After some time, he may
experience sudden reflection on the problem, he had regulated to background. And, forms
a new idea about the problem by default.
Illumination Stage
In this stage, there is a sudden flash of an idea which was being hatched by the
creative person. Once the idea is illuminated, the creative person experiance profound
relief and satisfaction.

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Elaboration Stage
The illuminated idea conceived by the creative person has to be set in its right
perspective. It is to be certified, revised and modified and accommodated to deal with
the specific problem.

8.9 SUMMARY

Managers spend a great deal of time in making decisions that must be carried out
by others. Decisions can be classified in several ways like programmed and non-
programmed decisions, major and minor decisions, routine and strategic decisions,
individual, group decision and so on. Decision making process involves six steps.
i. Recognizing the problem
ii. Deciding priorities among problems
iii. Diagonizing the problem.
iv. Developing alternative solutions or course of action.
v. Measuring and comparing the consequences of alternative solutions and
vi. Converting the decision into effective action and follow up of action.
Assembly and measuring of consequences of each alternative can be done in
three conditions, certainity, risk and uncertainity. Managers under the conditions of
certainity, will precisely know about the result of each alternatives available to them.
Managers, under the conditions of risk, know the probable outcome of each alternative
within a small margin of error. When it comes to the condition of uncertainity,
probabilities cannot be asserted precisely.
Management decisions are made under some degree of uncertainity. Practically
ideal decisions are just imaginative because of the changes which can never be predicted.
Good decisions are the outcome of ample knowledge, relevant experience, and
consultation.

8.10 SELF ASSESSMENT QUESTIONS

1. What’s decision making ? What are the aims and objectives of decisions?
2. What are the characteristics of decision-making?
3. Mention the importance of decision making,
4. Discuss few important elements of decision-making.

67
5. Describe the process of decision-making.
6. Differentiate between Individual and Group decision-making.
7. Discuss few types of decision making.
8. Differentiate between
a) Programmed and Non-programmed decisions.
b) Strategic and Tactical decisions.
9. What are the various techniques employed for decision making?
10. Discuss few modern techniques of decision-making?

8.11 REFERENCE

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.

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UNIT-9: PRINCIPLES OF ORGANISATION

Structure
9.00 Objectives
9.01 Introduction
9.02 Meaning and definitions of organization
9.03 Nature and Characteristics of Organisation:
9.04 Importance of Organisation
9.05 Principles of Organisation
9.06 Organization as a process
9.07 Formal and Informal organisations
9.08 Types of organisations
9.09 Criticisms to the traditional view of organizations
9.10 Entrepreneuring
9.11 Development of entrepreneurship
9.12 Benefits of entrepreneuring
9.13 Barriers to entrepreneurship
9.14 How to overcome these barriers
9.11 Let us sum up
9.12 Self Assignment Questions
9.13 Case Study
9.14 References
9.00 OBJECTIVE

After reading this unit, you will be able to;

• Define and state the meaning and definitions of organisation
• Explain the principles of organisation
• Distinguish between formal and informal organisation.
• Understand the importance and problems of entrepreneurship
• Diagnose the barriers to entrepreneurship and solutions to the barriers.
• Discuss the different types of organisations

9.1 INTRODUCTION

Once the objectives are formulated, we have to prepare a plan or a course of

action to assist in the achievement of our stated objectives. An essential part of any
management in action is organization. Organization involves division of work among
people whose effort must be coordinated to achieve specific objectives and to implement
predetermined strategies.

9.2 MEANING AND DEFINITIONS OF ORGANISATION:

Organizing refers to the process of determining the tasks to be done, which will
do them and how those tasks will be managed and co-ordinated. It is an interactive and
organizing process that occurs throughout the life of the organization.
Koontz and O’Donnell defines “Organization is the grouping of activities
necessary to attain objectives, the arrangement of each grouping to a manager with
authority necessary to supervise it and the provision for co-ordination horizontally and
vertically in the enterprise structure”
An Organization has been defined by E. F. L. Breach as “a system of structural
interpersonal relationships. In it, individuals are differentiated in terms of authority,
status and roles with the result that personal interaction is prescribed, and anticipated
reactions between individuals tend to occur while ambiguity and spontaneity are
decreased”.
According to Louis A. Allen, Organization is “the process of identification and
grouping the work to be performed, defining and delegating responsibility and authority
and establishing relationships for the purpose of enabling people to work most effectively
together in accomplishing objectives”.
 James Mooney defines organization as “the form of every human association
for attainment of a common purpose”.
McFarland has defined organization, “as an identifiable group of people
contributing their efforts towards the attainment of goals”. Thus, the term organization
represents a particular group of individuals engaged in accomplishing common goals.
Organization as a group has certain features. They are as follows:
a. It is a cooperative relationship of two or more persons
b. Its purpose is to accomplish certain goals
c. Its members can communicate with each other.
d. The behaviour of the group is regulated through their own bye-laws.

9.3 NATURE AND CHARACTERISTICS OF ORGANISATION

Nature and characteristics of organization can be studied under the following four
heads.
1. Organisation as a Group of Persons: Barnard has defined organisation as an
identifiable group of people contributing their efforts towards the attainment of goals.
Further in his book he has written that “An organisation comes into existence when
there are a number of persons in communication and relationship to each other and
are willing to contribute towards a common endeavour”. People from groups or
organisations and pool their by defining and dividing various activities, responsibility
and authority. As such an organisation has the characteristics like communication,
Co operative efforts, Common objectives, and Rules and Regulations.
2. Structure of relationship: According to Brech, E.F.L organisation in a very narrow
sense by defining it as a framework of duties and responsibilities through which the

9.4 IMPORTANCE OF ORGANISATION:

An organization is not merely a chart or a lifeless structure. It is the mechanism

through which management directs, coordinates and controls the business. It is indeed
the foundation of management. The good organization is important because:
a. Ensures optimum utilization of human resources: Every enterprise appoints
employees for the conduct of various business activities and operations. They are
given the work according to their qualifications and experience. Organization ensures
that every individual. Is placed on the job for which he is best suited.
b. Facilitates coordination: It acts as a means of bringing coordination and integration
among the activities of individuals and departments of the enterprise. It establishes
clear-cut relationships between operating departments and brings proper balance in
their activities.
c. Facilitates division of work: Different departments are created for division of work,
specialization and orderly working of the enterprise. Similarly, delegation relieves
top level managers from routine duties.
d. Ensures growth, expansion and diversification: Sound Organization structure
facilitates expansion/diversification of an enterprise. Organization structure has in-
built capacity to absorb additional activities and also effective control on them. A
business enterprise brings diversification in its activities within the framework of its
Organization.
e. Stimulates creativity: Organization provides training and self-development facilities
to managers and subordinates through delegation and departmentation. It also
encourages initiative and creative thinking on the part of managers and others.
f. Facilitates administration: Effective administration of business will not be possible
without the support of sound organization structure. Delegation, departmentation and
decentralization are the tools for effective administration.
g. Determines optimum use of technology: Sound Organization structure provides
opportunities to make optimum use of technology. It facilitates proper maintenance
of equipment and also meets high cost of installation.
i. Determines individual responsibility: Responsibility is an obligation to perform
an assigned work. In a sound Organization, the manager finds it easy to pinpoint
individual responsibility when the work is spoilt.
Activity A
As a student of Master of Business Administration what do you know about
the importance of organization? Explain it with some practical examples.
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9.5 PRINCIPLES OF ORGANISATION

There are some principles which are common to all organizations that are
established in a classical form i.e. the form where there is hierarchy of authority and
responsibility and it flows downwards. The principles of Organization offer guidance
for the creation of a sound, efficient and effective Organization structure. In other words,
these principles are the sound criteria for efficient organizing. They ensure smooth and
orderly working of a business enterprise.
Principles of organizing are not given in a serial order by any authority on
management. Management thinkers (Henry Fayol, F. W. Taylor, U. L Urwick and others)
have laid down certain statements regarding organizing function of management. Such
statements are treated as principles of organization. Well accepted principles of
organization/organizing are as explained below.
i. Unity of Objectives: Objectives of the enterprise influence the Organisation
structure and hence the objectives of the enterprise should first be decided clearly
and firmly. In addition, there should be unity among the objectives decided. This
gives clear direction to the whole Organisation and it will be geared for the
achievement of such objectives. The Organisation acts as a tool for achieving the
objectives. The objectives may be divided into departmental objectives and
organizational objectives. There should be unity of objectives as such unity gives
one clear direction to the whole Organisation. In addition, objectives should be
made clear to all concerned persons so as to enable them to do their best to achieve
the objectives.
ii. Division of Work and Specialization: Division of work leads to specialization.
Every department of an Organisation should be given specialized functions. This
will raise the overall efficiency and quality of work of an Organisation. At the same
time, specialization and departmentation should not have any adverse effect on the
total integrated system. Coordination must be established among the departments
and activities. Specialization is necessary for raising the efficiency of the whole
Organisation structure. The functions given to each department should be preferably
only of one category. Employees should be assigned duties to different departments
as per their qualifications, qualities and so on.
iii. Delegation of Authority: There should be proper delegation of authored in every
Organisation, particularly in large organisations. The basic idea behind delegation
is to see that decision-making power is placed at a proper place. Delegation should
 go to the lower levels of management. Everyone should be given authority which is
adequate to accomplish the task assigned to him. Delegation is useful for getting
the things done through others. A successful manager normally does not perform
the jobs by himself. He delegates the authority and responsibility to his subordinates.
He also motivates his subordinates and see that they take initiative, work efficiently
and contribute for achieving organizational objectives.
iv. Coordination: Organisation involves division of work and departmentation. This
naturally suggests the need of proper coordination among the departments and
efforts of people working in an Organisation. Due to coordination one clear-cut
direction is given to people/ departments and efforts will not be wasted or
misdirected. Coordination also brings integration in the basic functions of
management. The principle of coordination is important as it facilitates achievement
of overall objectives of a business Organisation. It also brings unity of action in
the Organisation. Coordination will not be available automatically. For this, working
relationships need to be established within the Organisation.
v. Unity of Command: Unity of command principle suggests that each subordinate
should have only one superior whose command he has to obey. Dual subordination
is undesirable as it leads to confusion, disorder, uneasiness and indiscipline. An
employee should not have more than one boss to whom he has to report and also
function as per his orders and instructions. Reporting to more than one boss leads
to confusion.
vi. Flexibility: According to the principle of flexibility, the Organisation structure
should be flexible and not rigid. Such structure is adaptable to changing situations
and permits expansion or replacement without any serious dislocation and disruption.
There should be an in-built arrangement to facilitate growth and expansion of an
enterprise.
vii. Simplicity: The Organisation structure should be simple for clear understanding
of employees. The structure should be easy to manage. Internal communication
will be easy due to simplicity of Organisation. The Organisation structure should
be simple as far as possible. The levels of management should also be limited.
viii. Span of Control: The span of control, as far as possible, should be small and fair.
This means a manager should not be asked to keep supervision on large number of
subordinates. The span of control should be narrow and manageable. It should be
properly balanced.
ix. Scalar Principle (Chain of Command): The principle of chain of command
suggests that the line of authority from the chief executive to the first line of
superior should be clearly defined. The line of authority should be properly defined
so as to avoid any confusion as regards the line of authority. This principle suggests
that as far as possible, the chain of authority should be short and should not be
broken.
x. Exception Principle: The executives at the higher level are busy in important
matters and have limited time for the study of routine administrative matters. It is
not desirable to take routine matters to the top level managers frequently. Very
crucial and exceptionally complex problems should be referred to the top executives
and routine matters should be dealt with by the junior executives at the lower levels.
Moreover, time of top executives is saved. They can use their time for dealing with
more important and complex problems.
xi. Authority and Responsibility: Authority acts as a powerful tool by which a
manager can achieve a desired objective. Authority of every manager should be
clearly defined. Moreover, it should be adequate to discharge the responsibilities
assigned. The superior should be held responsible for the acts of his subordinates.
He cannot run away from the responsibility simply by delegating authority to his
subordinates. In fact, the responsibility of the superior for the acts of his
subordinates is absolute.
xii. Efficiency: The Organisation structure should enable the enterprise to function
efficiently. This will enable the enterprise to accomplish its objectives quickly
and also at the lowest cost. For this, the structure introduced should be suitable to
the nature, size, activities etc. of the Organisation. A suitable Organisation structure
ensures full and purposeful utilisation of available human and material resources
and ensures efficiency.
xiii. Proper Balance: Proper balance is necessary in different aspects of the
Organisation. This means there should be reasonable balance in the size and
functions of departments, centralisation and decentralisation of the Organisation,
span of control, chain of command and finally in between human and material
resources. This principle of balance suggests that the top management should see
that the vertical and horizontal dimensions of the Organisation are fairly balanced.
xiv. Separation of line and staff functions: Line functions should be separated from
the staff functions even when they are supplementary in character. Line functions
 are directly connected with operations while staff functions are auxiliary to the
line functions. These functions should be coordinated when necessary but normally
they should be kept separate.
9.6 ORGANIZATION AS A PROCESS

It is a process or managerial function of organizing work, people and the systems.

The process concept stresses dynamic nature of an organization and it permits an
organization to be considered as on open adaptive system. In this sense, an organization
is an ongoing process of structuring, arranging the parts of an organization. The second
concept of an organization as a process adds three major issues: 1. Provisions of an
organizational climate so that people are motivated to give off their best in achieving
organizational objectives. 2. Design of communication system for effective decision
making, control and coordination. 3. An overall organization that is innovative and
responsive to relevant environment changes.
The steps in forming an organization are:
1. Formulate objectives, strategies, plans and policies
2. Determine activities needed to execute these plans and policies and accomplish the
objectives.
3. Classify and group these activities in the best possible way such as grouping activities
to form individual jobs, grouping of jobs and people into sections, grouping of
sections into department, grouping of sections and departments to administrative
units such as division
4. Assign and delegate to the head of each group, section, department etc, the authority
needed to perform these activities.
5. Coordinate or tie these group of activities through authority relationship horizontally,
vertically and laterally and through organized information or communication system.
6. Organize work at shop or plant level.

9.7 FORMAL AND INFORMAL ORGANISATIONS

The Formal Organization is one which refers to a structure of well defined

jobs each bearing a measure of authority and responsibility. It is a conscious determination
by which people accomplish goals by adhering to the norms laid down by the structure.
This kind of organization is an arbitrary set up in which each person is responsible for
his performance. Formal organization has a formal set up to achieve pre- determined
goals. Examples of formal organization are:- a company, a school, a college, a bank, etc.
Informal Organization refers to a network of personal and social relationships
which spontaneously originates within the formal set up. Informal organizations develop
relationships which are built on likes, dislikes, feelings and emotions. Therefore, the
network of social groups based on friendships can be called as informal organizations.
There is no conscious effort made to have informal organization. It emerges from the
formal organization and it is not based on any rules and regulations as in case of formal
organization. If you and your colleagues decide to meet every Sunday evening for two or
three hours to play games and other events, you are meeting in an informal. The following
table gives the details about the differences between Formal and Informal Organizations

Sl. Formal Organisation Informal Organisation

No.
1 A formal organisation is formed by An informal organisation is formed by
the top level management. social forces within the formal
organisation.
2 The members of a formal The members of an informal organisation
organisation have to follow certain do not have to follow any rules and
rules and regulations. regulations.
3 In a formal organisation, the duties, In an informal organisation, there are no
responsibilities, authority and fixed duties, responsibilities, authority,
accountability of each member is accountability, etc. for the members.
well-defined.
4 In a formal organisation, the In an informal organisation, the
objectives or goals are specific and objectives are not specific and well-
well-defined. The main objectives defined. The main objectives of an
of a formal organisation are informal organisation are friendship,
productivity, growth, and security, common interest, individual and
expansion. group satisfaction, etc.
5 A formal organisation is stable. An informal organisation is not stable.
6 A formal organisation uses formal An informal organisation uses informal
channels of communication. channels of communication (i.e.
grapevine)
7 A formal organisation is shown on An informal organisation is not shown on
the organisational chart. the organisation chart.

8 In a formal organisation, there exist In an informal organisation, there is no

a superior-subordinate relationship such superior-subordinate relationship.
9 The members of the formal
organisation get financial benefits The members of informal organisation
and perks like wages or salaries, get social and personal benefits like
bonus, travelling allowances, health friend circle, community, groups, etc.
insurance, etc
ADVANTAGES AND BENEFITS OF FORMAL ORGANIZATIONS
The benefits and advantages of formal organization include the following.
1. They provide the basic structure of division of work and responsibilities. Without
such a structure it will e very difficult for employees to agree between themselves
on duties and responsibilities of each, and such difficulties multiply in geometric
proportions with increasing size of the organization.
2. It generates clarity on what support and input each employee can expect from others,
and in turn what is expected of him by others.
3. It promotes discipline in the organization.
4. It makes it easier to review and revise organization with changing requirements.
5. It provides a structure for laying down pay scales and taking other decisions linked
to organizational levels.
6. It helps in other human resources development activities such as recruitment,
promotions, career planning and development and manpower planning.
DISADVANTAGES OF FORMAL ORGANISATIONS
Although formal organizations and structures are absolutely essential, they are
not free of drawbacks or shortcomings. Following are some common disadvantages of
formal organizations:
1. Because of their rigid nature, working in a very formal structure can often lead to job
dissatisfaction. Although there are various factors that contribute to that, but a tedious,
non-social and non-creative working environment is a big factor.
2. In formal structures, there is no room for social affiliation and psychological needs.
They are built solely for the benefits of the organization. Eventually, they may end up
suppressing the social needs of the employees. The great downside of this is that
people often get de-motivated – especially the ones who have high social affiliation
needs. Moreover, the process of communication is also affected by lack of socializing.
3. We just learned that formal structures are very rigid and systematic in terms of job
assignment and responsibilities. This, as a result, stampedes the creativity of employees
in the organization. Though not every organization will suffer from it, but the ones
that do require their workers to exhibit creativity and out-of-the-box approaches are
affected severely by formal structures. In short, the formal organization – with its
rigid approach – does not offer enough room to stimulate creativity.
4. Sometimes, in order to speed up things, the structure and system should be avoided.
However, as formal organizations really require you to submit everything through a
well-organized system; it may result in operational delays. Everything goes through a
scalar chain, which is a hierarchical in nature. If there are no formal boundaries, a
labor can directly communicate and report to the top-level executive. But that’s hardly
the case in formal structures. As a result, formal structures do slow things quite a bit
– especially, when compared with the informal structures.
ADVANTAGES OF INFORMAL ORGANISATIONS:
Also known as the grapevine, the informal organization, consisting of informal
employee interaction, has some significant advantages over more formal communication
channels. Company leaders do sometimes have concerns about rumors or gossip
perpetuating through grapevine conversations. However, informal networks affect
company culture, and when well-managed, they can improve overall communication and
morale.
a. Rapid Communication
Some company leaders prefer to have employees hear important messages in more
formal ways. However, the informal organization often allows messages to spread fairly
quickly through employee ranks. If the message has a positive tone such as building
interest in supporting company initiatives or activities, employees can often inspire a
groundswell of interest through their informal interaction. This benefit is especially
useful in organizations that rely heavily on employee involvement.
b. Supports Formal Communication
Sometimes formal communication channels fail to produce enough useful and
relevant information to help employees optimize performance. Top managers and other
leaders may neglect to deliver important messages or leave front-line workers out of
communication. In these instances, informal communicate can help fill in some of the
gaps and keep more employees in the loop. Some front-line managers try to tap into this
benefit of informal organizations by asking workers to spread the word with important
messages.
c. Cohesion
A primary benefit of the informal organization is that it provides an opportunity
for employees to develop bonds with co-workers. This improves overall workplace
cohesion and morale. Employees that work together often produce better results if they
have good rapport away from work processes. Similar, when employees from various
functional areas or work teams interact informally, they have better communication and
willingness to work together with others.
d. Employee Feedback
Though some managers have concerns about the conversations that go on in
informal organizations, others realize they are inevitable and proactively try to make
use of them. They may get involved within the grapevine conversations or gain feedback
from key employees on the sentiments of employees on certain issues and situations.
This informal feedback often takes place more quickly and with greater honesty that
when employees are formally asked to offer feedback or share opinions on company
activities.
However, the managers need to consider the effects of the informal organizations
on individual and group behavior when they make any organizational changes, because
altering the formal structure may disrupt the informal norms that make the organization
work.
Activity E
List all the informal organizations in which you regularly participate. What
are the activities undertaken by these informal organizations?
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9.8 CRITICISMS TO THE TRADITIONAL VIEW OF ORGANIZATIONS

The classical writer’s recommendations for organizing and managing do not work
in all situations. Prescriptions for machine like efficiency that works in military
organizations and simple shop operations often fails to produce results in complex
organizations.
Fayol’s principles do not guarantee success. Experience proves that organizing is
more than just the strict compliance of rules that Taylor had stressed. Weber’s efficient
organizational formula fails to offer any benefits in actual practice. Bureaucracy, in fact
highlights the epitome of inefficiency. Additional challenges emerge from two other
sources.
 The first one is bottom-up authority. Traditionalists favoured flow of authority
from top to bottom, in an uninterrupted fashion. Owners preferred to exercise their
authority over those who are cut off by distance, through this route, much to the
resentment of those working at lower levels. Chester I. Bernard, instead, described
organizations as cooperative systems. He felt that a leader’s authority is eventually
determined by the willingness of subordinates to follow his commands.
The second challenge is Open Systems theory. The traditional concept of the
organizing process is task-oriented and emphasizes the work to be performed by
individuals, who are part of the organization. The organization is viewed as a closed
system, enclosed and sealed off from outside world. The organization has all the energy
it needs and there is not need to look into the environmental changes. The environment,
it is assumed, would be stable, predictable and would not pose problems. The essential
objective of management should be to provide a sound organization structure that
promises goal accomplishment. To this end, managers must try to find out ways for
increasing internal efficiency, the task should be made as simple as possible by ignoring
factors that increase uncertainty.
Recognizing the inadequacies in the traditional approach, Thompson suggested
the open-systems view, in order to develop an accurate picture of organizational life.
The open-systems view accepts the environment as an integral part of organizational
reality. Organizations are complex, goal-seeking social units. In addition to the
penultimate task of accomplishing goals, they must adapt to and shape the external
environment. The open systems view conceives of the organizational system as a set of
interrelated elements that acquires inputs, transforms them and delivers outputs to the
external environment. Thus, an organization is a social system composed of a number of
sub-systems, all of which are independent and interrelated. It is open and dynamic having
inputs, outputs, operations and feedback.
9.9 TYPES OF ORGANISATIONS

Ordering a neat classification scheme in an organization is known as organizational

typology. Typology shows a scheme of categorization, a tool for differentiation based
on certain general characteristics possessed by as an organization. There is, however, no
single correct typology of organization. When variations occur in major organizational
properties, typologies also need a face lift. Some of the popular ways of classifying
organizations may be listed as follows.
1. Functions performed: According to Talcott parsons, organizations can be classified
primarily into four categories, based on functions:
a. Economic organisations: these organisations are primarily concerned with producing
something of value to the society. They are wedded to a philosophy of generating
surplus profit. Examples: Industrial, Commercial and trading concerns.
b. Political organisations: These organisations survive on the basis of service to society.
They help in achieving the basic values cherished by the society.
c. Integrative organisations: Integrative organisations are concerned with social
control and maintenance. Police departments and other protective organisations are
included.
d. Pattern maintenance organisations: organisations like educational institutions,
research institutions, religious organisations, clubs etc. are primarily concerned with
long term interests of society.
2. Services rendered to the society: Peter M. Blau and Richard Scott’s have suggested
a two benefits criterion for classifying organisations. According to this scheme, an
organisation survives on the basis of the services rendered to the society. The authors
have suggested four types of organisations.
a. Mutual benefit associations: the associations like trade unions, political parties
professional bodies etc. crop up to serve the interests of members. It is not always
possible for these organisations to achieve the seemingly easy objectives because
of two problems-membership apathy and oligarchical control.
b. Business organisations: owners are the primary beneficiaries in business
organisations. They are mainly concerned with maintaining operational efficiency-
achieving maximum gain at minimum cost. It is true, that other groups like employees,
customers, society etc. receive benefits simultaneously from business organisations
but in the final analysis, the survival of such institutions depends on how effectively
the owners are rewarded for the risks undertaken.
c. Service Organisations: Organisations like hospitals, educational institutions, and
social welfare agencies etc. clients are the primary beneficiaries. In order to render
effective service to the clients, the professionals looking after these organisations
must emphasise two things. Service is more important than observing procedures
and the nature of service is to be decided by these clients and not by the clients.
d. Commonweal organisations: these organisations like the army, police departments,
post offices etc. are mainly concerned with serving the interests of the public at
large.
3. Objectives they satisfy for the society: According to Samuel Deep, organisations
can be classified according to the objectives they satisfy for the society, in the following
ways.
a. For profit organisations: These organisations provide goods and services at a profit.
Companies, partnership firms. Sole proprietorship firms are organised along these
lines and they generate profit for survival and continuance in the market.
b. Government organisations: These organisations satisfy the public need for order
and provide a means for people to exercise some measure of control over their
environment. Examples are central and state government undertakings.
c. Protective organisations: They shield citizens from danger. Examples are Police
and military organisations.
d. Service organisations: They act in the interest of the general public without always
receiving payment in full for services rendered. Examples are voluntary organisations.
e. Political organisations: They seek to influence legislation by electing a member of
their group to public office. Political parties, groups and associations are these
examples.
f. Religious organisations: they provide for the spiritual needs of members and try to
enlist non-believers into their fold.
g. Social organisations: they satisfy the needs of persons to make friendships and to
make friendships and to have contact with others who have compatible interests.
Examples are clubs, team, and fraternities.

9.10 ENTREPRENEURING

There are so many institutes and organizations which are involved in

entrepreneurship development activities and there are people who join these programmes
as a stepping stone to become entrepreneur. It is a known fact that so many management
institutes are coming up to cater to the growing need of industries by supplying traditional
managers/corporate manager.
The entrepreneurship is very an old concept according to which anyone who runs
business is called an entrepreneur.
 The more precise meaning of entrepreneur is; one who perceives a need and then
brings together manpower, material and capital required to meet that need. Entrepreneur
is one who understands the market dynamics and searches for change respond to it and
exploit it as an opportunity.
Entrepreneurship is different from management. Entrepreneurship involves in
initiating changes in production, whereas management involves the ongoing coordination
of the production process. The process of creating new organisations more specifically,
small business is known as entrepreneurship. In the words of Paul H. Wilken
“entrepreneurship is a discontinuous phenomenon, appearing to initiate changes in the
production process….and then disappearing until it reappears to initiate another change”.

DEVELOPMENT OF ENTREPRENEURSHIP:
The attention devoted to big companies during 1960s, obscured the fact that newer
and smaller firms create most of the new jobs. Moreover, the function of the entrepreneur
seemed unimportant to the dominant school of economics, which was chiefly interested
in managing consumer demand by inducing consumers to buy more products.
Later n 1970s, the mood changed when economies concerned primarily with
consumer demand failed to prevent the constant inflation of the decade. Economists
began to worry about the fact that productivity was increasing much less rapidly than it
had earlier. This made them more interested in the supply of goods and services-the
entrepreneur’s sphere- and less interested in managing demand. Slower growth in general
made those sectors of the economy that were still rapidly growing stand out, which were
founded by people wanted to change the business world.

BENEFITS OF ENTREPRENEURING
Any individual, who possesses a business, firm, or venture, is known as an
entrepreneur. He or she is accountable for its development, the inherent risks and returns
associated with it. Entrepreneurship is defined as the practice of beginning a new trade
or reviving an existing business, for capitalizing on fresh opportunities. Normally,
entrepreneurship is a difficult proposition as many new businesses fail to survive in
their initial periods and never take off. The entrepreneurial activities for a particular
kind of business depends upon various factors and is quite specific on the kind of business
or firm being run. Whatever may be the course of action, entrepreneurship has a lot of
benefits both for the entrepreneurs and the society in which these businesses are carried
out. Some of these benefits include:
1. Opportunity to get control.
Owning a firm or a business endows the entrepreneurs with the independence and
opportunity to control their own business. They can aim to achieve targets that are
important to them. Entrepreneurship provides entrepreneurs a chance to take decisions
according to their own wishes.
2. Offers a chance to make a difference
Some people begin and put a lot of effort just to make a difference in society.
This has given rise to the concept of social entrepreneurship, which is a recent
phenomenon. Such people search for opportunities to serve a cause that is significant to
them and try to find pioneering solutions to some of the most pressing and challenging
problems of society.
3. To reap high Profits
Reaping high profits by being an entrepreneur is one of the most important factors
that motivate people to become one and take up all the challenges associated with it. The
profits their companies and businesses make play a vital role in any decision made by
entrepreneurs. Owning a business or a firm is the best way towards accumulation of
wealth.
4. Helps people work to their full potential
Many entrepreneurs find their work to be extremely enjoyable. They consider
their business as an instrument of self-actualization and self-expression. Owning a firm
or a business acts as a test for the creativity skills, abilities, and determination of an
entrepreneur and is taken up as a challenge towards success.
5. Offers a chance to pursue their interests.
Most entrepreneurs don’t believe their work to be actual work. Most of them
establish businesses closely associated with their interests. As such, there is no particular
age for retirement of entrepreneurs.
With all these benefits people now consider the alternative of running their own
small businesses rather than doing jobs for others. However, the entrepreneurship has at
least four specific social benefits as follows:
a. It fosters economic growth.
b. It increases productivity.
c. It creates new technologies, products and services, and
d. It changes and rejuvenates market competition.
BARRIERS TO ENTREPRENEURSHIP
The following are the reasons which explain the failure of entrepreneurs.
1. A society putting premium on safety and security in matters of securing a livelihood,
such a value can become a strong social barrier to entrepreneurship.
2. In some societies, the business is considered as a profession of lower hierarchy.
Business people are considered inferior to office-goes, engineers, doctors etc. Such
a social response to entrepreneurs can be a big hurdle in developing and nurturing
entrepreneurs.
3. A society denying access to self-esteem will be placing hurdles in the path of an
entrepreneur.
4. Social factors such as
• insistence on conformity
• an excessive protective attitude among children during their formative years
• Discouragement to mobility will all thwart the following essential values of
entrepreneurship: creativity, innovative spirit, and Sense of adventure.
5. The capital for setting up the new venture is not accessible for the entrepreneur
6. Non-availability of labour at reasonable cost.
7. If the labour market is unreliable and is fraught with indiscipline and selfishness, it
will also become a barrier for entrepreneurship.
8. Shortfall in the availability of raw materials in the desired quality and quantity.
9. Inadequate infrastructure to transport the raw material to the factory.
10. Non-availability of easy access to the market for the finished goods.
11. A political environment that is characterised by instability and insecurity will
discourage entrepreneurs.
12. Political policies can retard the growth of entrepreneurial ventures in a country.
13. Excessive interference in the form of controls, delays etc. from the government
can discourage prospective entrepreneurs.
14. Once the venture starts functioning, the obstacles faced in the initial stages can
make the entrepreneurs to lose their commitment and consequently their level of
motivation dips. The entrepreneurs who lack toughness and perseverance often quit.
15. Certain perception barriers can hamper the progress of the entrepreneur. Lack of a
clear vision and misunderstanding can result in faulty perception. If the entrepreneur
demands everything to be clear and well-defined in order to develop a perception, it
will lead to disappointment. As entrepreneur’s world is basically disorderly and
ambiguous, the people who excessively depend on order will find it a barrier to
entrepreneurship.
HOW TO OVERCOME THESE BARRIERS
Entrepreneurship is the idea that you can begin your business and be your own
boss. While it does sound like a dream, and it is the dream for many people, there are
also barriers to overcome before you can become any sort of entrepreneur, much less a
successful one. Fortunately, barriers can be overcome if you’re deliberate and you look
for opportunities that will give you a hand up over the obstacles you face.
Write up a business plan. Your business plan is the blueprint for everything you
hope to do as an entrepreneur. It should cover your startup costs, your licensing fees,
your prospective earnings, competitors in the area, and anything else you can think of
when it comes to your business. This plan should educate anyone that reads it about what
you’re trying to do and what your business will be accomplishing.
Examine all barriers that you come across in writing your business plan. Whether
there’s not currently a business like yours and you need to get the word out, you don’t
have access to the venture capital that you need, you lack the business education and
experience or you just need to find a physical location for your business, these are all
hurdles that you will have to overcome.
Find solutions. Not all solutions to barriers will be quick ones, but you need to do
what is best for you and your business. For instance, if you lack venture capital, you
could apply for government grants or start-up loans, or you could attempt to persuade
individuals to invest in your business. If you lack the business knowledge and expertise,
then you could go to college and get a bachelor’s or associate’s degree in business to
help you better understands what you’re getting into. If you lack experience, work for
someone else in the field and gain knowledge and understanding. Whatever you need,
you have to find a way to get it.
ACTIVITY:
As an entrepreneur try to brief about the probable barriers in successful
entrepreneurship and also try to explain about the measures to overcome these
barriers.
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9.11 LET US SUM UP

An organization has many characteristics of music. Music is not constituted of

the individual notes but the relationship among them. Just as each note would be
meaningless if played itself so would each task in an organization be ineffective if not
coordinated with the others. The conductor’s function is, in a figurative sense, similar
to that of an organizer. Given a piece of music, the conductor must select the musicians
to play each instrument, determine the tempo, cue the musicians to enter at the right
time, and ensure that everyone works to together to complete the performance. Similarly,
given a plan with specified objectives, the organizer must assign people to accomplish
each objective and must coordinate their efforts so that each objective is accomplished
and the goal is attained. If the conductor’s efforts are successful, the results will be
music, not noise. If the organizer’s efforts are successful the results will be
accomplishment of the overall goals, not chaos.
A manager must organize people, materials, time, work jobs. When he does this,
he brings order out of chaos, creates relationships among the members of the
organization and provides systematic linkages amongst the different parts. He creates
an environment, which will be conducive to the achievement of the organizational
objectives. When a manager establishes goals, directs work and establishes authority
relationship, he is obviously performing the organizing function. Like planning, organizing
is an inseparable part of the managerial function. Before he issues a directive, a manager
must organize hi proposals. Organization must exist before hierarchies can be established
and before production facilities can be laid out. Before a manager can organize, he must
plan.
 The practice of taking an idea and inventing an organization for developing that
idea is known as entrepreneurship. The entrepreneur, who seeks environmental change
as an opportunity, uses the factors of production to produce new goods and services.
Entrepreneurship is different from management because it focuses on initiating change
in production and creation of a new organization whereas management involves on
ongoing coordination of the production process at an existing organization.
Entrepreneurship can occur when an individual or group of individuals start a new
business.
Informal organization exists in every formal organization. People group themselves
together to satisfy social needs. Informal organization is valuable for smoothing the
flow of information and coordinating organizational activities. They are testimony of
people’s ingenuity in carrying out their work and to their desire to work in a complex
web of relationships. These groups can work for or against the formal organization’s
goals.

9.12 KEYWORDS

1. Organizing: Creating a structure with inter-related parts

2. Organization: A group of people who come together to achieve certain
predetermined objectives.
3. Entrepreneur: An entrepreneur is the originator of a new business venture and a
new organization for that venture.
4. Entrepreneurship: Is a discontinuous phenomenon, appearing to initiate changes
in the production process and then disappearing until it reappears to initiate another
change.
5. Formal organization: A structure of well defined jobs, vertical division of labour
and communication channels.
6. Informal organization: Association of persons arising out of the work relations in
the work environment, also known as grapevine.
9.13 SELF ASSIGNMENT QUESTION

1. What do you mean by organizing? Explain the salient features of organizing.

2. Explain the different types of organizations. What are their features?
3. Explain the steps involved n the organizing process.
4. Differentiate between formal organization and informal organization.
5. Explain the principles proposed by Henrey Fayol for guiding the establishment of
formal organizations.
6. What advantages and disadvantages are available for formal organizations?
7. What is Entrepreneuring? How do you develop it?
8. What are social benefits derived out of Entrepreneuring?
9. Who is an entrepreneur? Explain the factors that affect the entrepreneurs.
10. Explain the barriers to entrepreneurship. How can you overcome them?

9.14 CASE STUDY-A

Mr. Kamal Nayan joined as office manager, Industrial Products Limited, Bombay,
after coming back from USA degree with specialization in personnel management. He
was young and energetic and believed in results. Before proceeding to USA, he had several
years of experience in India in different capacities. When Mr. Nayan joined Industrial
Products Limited, its office time was 10.30a.m. To 5.30p.m. He felt that the timing
should be changed to 10.00a.m. To 5p.m. because he knew that office personnel in USA
did not work after 5.00p.m. He thought this to be true for India also and, to ensure more
availability of effective time for office; he changed it to 10.a.m. to 5.00p.m. He
announced the change officially.
No one reacted initially but after two days Mr. Nayan received a written
memorandum by all the office personnel that old office timing to restored. Mr. Nayan
did not yield to this demand. However, he was convinced that the first step was to build
cooperative spirit among his employees through informal get-together. Therefore, he
prepared a scheme of having monthly dinner party of all members of the office. In the
party, all members were to bring their home-made dishes. Their wives and children were
to be encouraged to attend he monthly dinner party. The scheme was announced through
placing it on the information bulletin of the company. The notice also invited suggestions
from the members for making the scheme successful. Two weeks elapsed and no
suggestion came. On one occasion, when the day was nearing for the first dinner meeting,
he overheard the following conversation between two of his office members:
From employee: “So, what are you bringing for the party? As for myself, I will
bring Bhelpuri”.
Second employee: I will bring Chana!” (Both laughed)
Mr. Nayan felt that nobody was seemed to be concerned in his scheme.
QUESTIONS:
1. What are the reasons for not supporting the actions of Mr. Kamal Nayan by his
employees?
2. Advise Mr. Kamal Nayan how he should proceed in the matter.
CASE STUDY-B:
Mr. X, an MBA in his early fifties, an administrator occupying the number two
position in the hierarchy of a large organization had a number of junior levels managers
under him. He also had in the hierarchy, a couple of supervisors/inspectors (both male
and female) and a number of junior assistance working under him. A jovial person and a
workaholic, Mr. X was keen on the application of his formal education in management
and innovative techniques. Therefore, he used to move freely with his subordinates and
colleagues. Firm but fair, tough but tender, were his mottos. He was recently transferred
to a place where orthodoxy still persisted.
Some of the junior assistants in the new set up were extremely intelligent and
compensated for the average intelligence of the supervisor. Any important work assigned
to Mr. X was completed successfully with their help.
Mr. X noticed a changed pattern of behavior in his supervisors and was concerned
about it. When he tried to probe the reasons behind it, he was surprised to know that it
stemmed from his own casual behavior with the staff. It was felt that his language was
too familiar-in case of ladies, it conveyed a misconception of closeness, and with him,
it was perceived as disrespect.
The matter reached his boss also. The boss, who was his well wisher, pointed out
that he should change his pattern of behavior. Mr. X replied that the approach that he
used with youngsters, peers, and older people was one of affection, familiarity and
deference, respectively. He further argued that he did not stand on formalities arising
from his position in the office. Unfamiliarity with the language and ambiguity regarding
the usage of words were other factors he quoted as reason for the present dilemma.
Moreover, colleagues who were jealous of Mr. X were fanning the ill-feeling, he felt.
Regarding of anything, the boss advised Mr. X mend his behavior stating that the
Western techniques of “Personnel Management” which incorporates free mingling with
the subordinates and developing a spirit of camaraderie between the boss and the
subordinate, will not work in the Indian situation. However, Mr. X countered that the
existing pattern of boss-subordinate relationships in the Indian situation should be changed
to benefit the organization. The boss did not agree with his views and advised him to
change his pattern of working. Mr. X was also told to deal with junior assistants and
supervisors, etc., only through the junior manager’s indiscipline. Mr. X. changed his
pattern, by avoiding the regional language and also addressing everyone in the most
respectful tone. He started calling the junior managers even for minute matters. Some
of the staff who used to like Mr. X were upset due to his changed behavior and were
trying to keep away from him resulting in less productivity and turn over in the organization.
Colleagues who were jealous of Mr. X started pointing out to the Boss that Mr. X
was becoming inefficient and attributed it to negligence. When Mr. X came to know of
this, he offered to quit. The boss was perplexed. So were the staffs.
QUESTIONS:
1. How can the situation be improved? With whom do you agree, Mr. X or his boss?
2. Was Mr. X justified in changing his attitude, acting upon the advice of the boss?

9.15 REFERENCES

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
UNIT - 10: ORGANISATION HIERARCHY STRUCTURE

Structure
10.0 Objectives
10.1 Introduction
10.2 Meaning and definitions of organization structure
10.3 Importance of Organization Structure
10.4 Levels of managements in organizations.
10.5 Features of good organization structure
10.6 Major decisions in designing an organizational structure
10.7 Variable factors in designing organization structure
10.8 Building vertical dimension of organization
10. 9 Building horizontal dimension of organization
10.9 Bases of organizational structure
10.11 Let us sum up
10.12 Keywords
10.13 Self Assignment Questions
10.14 Case Study
10.15 References
10.0 OBJECTIVES

After reading this unit, you will be able to:

• Know the meaning and definitions of organisation structure
• Understand the importance of organisation structure.
• demonstrate about how to build horizontal and vertical dimension of organisation
• Discuss about the chain of command, span of control and delegation of authority.
• Summarise the knowledge of the bases for organizational structures.

10.1 INTRODUCTION

Organization is one important element of the management process. It is next to

planning. In management, organization is both the process as well as the end-product of
that process which is referred to as organization structure. Such structure acts as the
foundation on which the whole super-structure of management is built. Sound organization
structure is essential for the conduct of business activities in an efficient manner. It is
within the framework of the organization that the whole management process takes place.
The success of the management process will be determined by the soundness of the
organization structure. Organizing involves integration of resources in order to
accomplish the objectives. Therefore, in this unit will understand the theoretical
knowledge about organization, centralization and decentralization, and span of control,
etc.
A structure depends on the organizations objectives and strategy. In a centralized
structure, the top layer of management has most of the decision making power and has
tight control over departments and divisions. In a decentralized structure, the decision
making power is distributed and the departments and divisions may have different degrees
of independence. A company such as Proctor & Gamble that sells multiple products may
organize their structure so that groups are divided according to each product and
depending on geographical area as well an organizational chart illustrates the
organizational structure.
Organization structure is basically concerned with allocation of tasks and
delegation of authority. Its forms differ from one enterprise to another. Thus, any one of
the following forms of organization structure may be set up depending on the nature and
objectives.
10.2 MEANING AND DEFINITIONS OF ORGANISATION STRUCTURE

Organization structure is typically hierarchical arrangement of lines of authority,

communications, rights and duties of an organization. Organizational structure determines
how the roles, power and responsibilities are assigned, controlled, and coordinated, and
how information flows between the different levels of management.
Explicit and implicit institutional rules and policies designed to provide a structure
where various work roles and responsibilities are delegated, controlled and coordinated.
Organizational structure also determines how information flows from level to level within
the company. In a centralized structure, decisions flow from the top down. In a
decentralized structure, the decisions are made at various different levels.
A good organizational structure can often spell the difference between a smooth
operating organization and one in chaos. By establishing a hierarchical structure with a
clear chain of command, companies are better able to streamline their operations. levels
of management in organizations.
According to John Child in his book Organization, there are four major
components to the definition of structure:
1. It describes the assignment of tasks and responsibilities to individuals and
departments in the organization.
2. It designates formal reporting relationships, including the number of levels in the
management hierarchy and the span of control of each.
3. It identifies the grouping of individuals into departments and departments into the
organization.
4. It incorporates the design of systems to ensure effective communication,
coordination, and integration of efforts among departments and across levels of the
organization.
Essentially, structure is the way work is divided and coordinated among units of
the organization. The organization structure put in place by management is the formal
organization.
10.3 IMPORTANCE OF ORGANISATION STRUCTURE

Organization structure is the backbone of management. Its importance lies in

serving the following purposes:
1. Avoids confusions in relationships: Organization structure allocates authority and
responsibility, and thereby, enables people to know who is responsible for what and
to whom in the organization. People know who is to direct whom for what results.
This removes confusion, friction and conflict among people.
2. Leads to creativity and initiative: Organization structure stimulates creative thinking
and initiative among organizational members by providing them requisite authority
to perform their assigned tasks. Authority provides right to decision making to its
holder who feels motivated to take initiative in increasing and improving his team
performance.
3. Optimum utilization of resources: allocation of resources is the core activity of
organization structure. Proper allocation of resources helps in proper utilization
also. Division of work and specialization are the tools used by organization to attain
the objective of optimum utilization of human efforts and physical resources.
4. Technology improvement: A sound organization structure is flexible enough to
accommodate changes in the work technology. Improved work technology modifies
pattern of authority responsibility relationships and helps in improving work
performance of employees.
5. Encourage Growth of the enterprise: Organization structure provides the framework
within which an enterprise functions. A sound organization structure has the capacity
to handle increased level of activity. This helps in the expansion and growth of
enterprise.
6. Facilitates management process: Organization structure is a mechanism through
which manager’s plan, allocates, direct, coordinate and control the activities of
people. No activity remains unattended and work is assigned to people in accordance
with their skills, aptitude, level of commitment etc. this facilitates smooth operation
of the management process which results in attaining enterprise goals.
10.4 LEVELS OF MANAGSEMENT IN ORGANISATIONS

The following figure adopted by S. A. Sherlekar depicts the various levels of

management in organizations.

Society

Share Holders
Decides basic objectives,
Supreme Board of Directors strategies, plans and
Policy making body policies

TOP MANAGEMENT Formulates and carries out

objectives, plans and policies
approved by the board- ultimately
accountable for the operations of
the enterprise.
Top executive (MD)

Upper middle management

Senior executive’s co-

Senior executives ordinating activities to attain
objectives

Middle management

Assistant senior
executives acting as their
Deputies to senior
deputies
executives

In charge of
Heads of departments
functional areas
of business

Supervisory
management

Foremen and
supervisors

Operating force, workers, clerks, and salesmen

JOB TASK PYRAMID

Flow of authority Flow of accountability

(Downward) (Upward)
10.5 FEATURES OF GOOD ORGANIZATION STRUCTURE

1. Simple and Flexible: An organization structure should be basically simple.

The concept of the simplicity implies that various organizational relations should be
kept minimum possible. An organization structure should be flexible enough so that
changes can be incorporated whenever needs arise. The structure is design do not only
for a time period but for a distant further also. As such continuity must be maintained in
the organization structure over the period of time.
2. Clear line of authority: whatever the form of structure is adopted, there should
be clear lines of authority running from top to bottom or in horizontal directions. The
delegation of authority should be step by step and according to the nature of the work
assigned. Everybody in the organization should be clear about his work and the authority
delegated to him. In the absence of this clarity there will be confusion, friction and
conflict.
3. Application of ultimate responsibility: The concepts of the ultimate
responsibility suggest that although a superior manager assigns some of the work of his
subordinates. He is ultimately responsible for performance of total work.
4. Proper delegation of authority: the concept of ultimate responsibility can
work only when there is proper delegation of authority at various levels of the
organization. Delegation of the authority refers to authorization a manager to make certain
decisions.
5. Less managerial levels: as far as possible, there should be minimum
managerial levels. Greater the number of managerial levels, longer is the line of
communication in the chain of command and the communication has to travel along the
line creating problems of the delay and distortion.
6. Proper emphasis on staff: line functions should be separated from staff
functions and adequate emphasis should be placed on important staff activities.
7. Provision for top management: in corporate form of organization, it is
imperative to provide some means by which the share holder and members of the brand
of the broad of directors participate in management process. Normally the share holders
are indifferent so far as day to day management affairs of the company are concerned.
Activity B
Draw the organization chart of your company. Clearly mark your position
in the structure and draw the lines depicting the reporting relationships between
you and your immediate boss and immediate subordinate.
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10.6 MAJOR DECISIONS IN DESINGING AN ORGANISATIONAL STRUCTURE

1. Division of labour or work specialization: This refers to the extent to which

individual job are specialized. Most organisations consist of specialized jobs, with
workers performing different tasks. By dividing tasks into narrow specialities,
managers gain the benefits derived from division of labour.
2. Departmentation: It is the process of grouping jobs according to three key factors
like logic, physical location, and social harmony. Departmentalization is key to the
flow of work in an organisation and has become especially challenging for modern
managers with far-flung, global operations.
3. The chain of command: This refers to the line of authority, which extends from the
top of the organisation to lowest down and which is guided by two complementary
concepts authority and unity of command. This chain of command principles
empowers employees to take the decisions at their level in the organisation.
4. Span of control: Span of control refers to the number of people who report to one
manager or supervisor. The objective in establishing span of control is to determine
the optimal design i.e. wide or narrow? A wide span of control (flat organisational
structure) results in a large number of workers reporting to one supervisor. A narrow
span control (tall organisational structure) results in a small number of people
reporting to single manager.
5. Centralization and Decentralization: Centraliztion refers to the degree to which
decision-making is concentrated to a single (centralized) position in the organisation.
Typically, under a centralized setup, the top management makes the key organisational
decisions with hardly any input from the lower level personnel. In contrast to this,
when personnel at all levels are involved in the decision making process relevant to
 their areas of operation; it indicates that the decentralization decision discretion
exists. Today, in order to be flexible and more responsive, organisations are orienting
towards a decentralized decision making process.
6. Formalization: This refers to the extent to which the jobs are formalized and
standardized leaving very little choice to the employee on that, when and how the
job is to be done.

10.7 VARIABLE FACTORS IN DESIGNING ORGANISATION STRUCTURE

While designing an organization structure, management has to consider various

factors. These factors are discussed as follows:
1. Goals of the business: The objectives of the business have an influence on the
organization structure. The objectives or goals mean what the organisation seeks to
achieve. The nature of the tasks and their grouping into different departments depend
on the goals to be achieved. Changes in the goals of the enterprise require the changes
in the organisation structure.
2. Nature of business: The nature of business is another determinant of organisation
structure. The organisation may be either a business concern or service organisations
different the business concerns different types of organisation structure.
3. Form of organization: Form of organisation implies whether the business concern
is a joint stock company, a cooperative society or a partnership firm. A co-operative
society started on domestic principles cannot be organised like a joint stock company
which is a profit making organisation.
4. Size of the organization: The size of the organization is determined in terms of
number of employees, scale of operations and the amount of capital invested. The
size of the business and its structure are closely related. Large organisations tend to
have more specialization, more standardization and more formality compared to small
organisation.
5. External environment: Environment in which an organisation operates directly
influences the organisation structure. Every organization is functioning in economic,
political, cultural, legal and technological environment. Large organisations which
operate in a rapidly changing environment must design adaptive and flexible
organisation structure. For a stable environment where rules and regulations, job
and relationships are fixed and clearly defined and mechanistic structure is more
suitable.
6. Technology: Technology is another factor influencing the design of an organisation
structure. Technology refers to the way in which the work is performed and the system
of production. If technology is routine and simple, organisation structure may be
simple. In other words if technology is more complex large number of workers,
managers and managerial levels, more supervision and coordination is needed and
ultimately lead to complex organization structure.

10.8 BUILDING VERTICAL DIMENSION OF ORGANISATION

The organizational pyramid gives us vertical dimension. Delegation of authority

based on span of control creates multiple levels of management or organization. Narrow
span of control creates more levels in the organizational hierarchy and numerous levels
in the hierarchy are centralized, or closely controlled. We also have a tall organization
pyramid when there are multiple levels of management. On the other hand when we have
a wide span of control, there are fewer levels of management and the organization is
decentralized, or loosely controlled wide span of control also gives us flat organizational
pyramid. Now let us see some of the aspects of vertical dimension.
a. Chain of Command:
The chain of command, sometimes called the scalar chain, is the formal line of
authority, communication and responsibility within an organization. The chain of command
is usually depicted on an organizational chart, which identifies the superior and
subordinate relationships in the organizational structure. According to classical
organization theory the organizational chart allows one to visualize the lines of authority
and communication within an organizational structure and ensures clear assignment of
duties and responsibilities. By utilizing the chain of command, and its visible authority
relationships, the principle of unity of command is maintained. Unity of command means
that each subordinate reports to one and only one superior.
The order in which authority and power in an organization is wielded and delegated
from top management to every employee at every level of the organization. Instructions
flow downward along the chain of command and accountability flows upward.
According to its proponent Henri Fayol (1841-1925), the clearer the chain of
command, the more effective the decision making process and greater the efficiency.
Military forces are an example of straight chain of command that extends in unbroken
line from the top brass to ranks. Also called as line of command.
 Regardless of the degree of control or results achieved, and regardless of how
the hierarchy is justified and rationalized, certain aspects of a command hierarchy tend
to be similar:
• rank - especially military rank - “who outranks whom” in the power structure
• strict accountability - those who issue orders are responsible for the consequences,
not those who carry them out
• strict feedback rules - complaints go up the hierarchy to those with power to deal
with them, not down to those who do not have that power
• detailed rules for decision making - what criteria apply and when
• standardized language and terminology
• some ethics and key beliefs in common, usually enforced as early as recruiting and
screening of recruits
b. Authority and Responsibility:
Organisation is a structure of authority and responsibility relationships. It consists
of different positions arranged in a hierarchy. The hierarchy is an arrangement of superior
and subordinate relationship with clear definition of authority and responsibility of each
position. The term authority refers to the rights inherent in a managerial position to give
orders and expect the orders to be followed. The term responsibility refers to an obligation
to perform assigned activities. According to classical management writers, authority
has flowed from the top of the organisation to the bottom, from the owner or stockholders
to the board of directors to the president to the presidents to middle managers to
supervisors to workers.
c. Span of Control:
After Departmentalization and Division of Labour, the third main consideration
of any organizing effort is Span of Management – the no. of individuals a manger
supervises. The more individuals a manger supervises, the greater the span of management.
Span of management is also called the span of control, span of authority, span of
supervision and span of responsibility. The central concern of span of management is to
determine how many individuals a manager can supervise effectively. To use the company’s
human resources most productively, managers should supervise as many individuals as
they can best guide towards meeting the organization’s targets.
 The traditional view point of management holds that the ideal number of
subordinates reporting to any one manager should be no fewer than four and no more
than twelve. The following figure gives some idea about the span of control.

Assuming Span of 4 Assuming Span of 8

(Highest)

1 1 1

2 4 8

3 16 64

4 64 512

5 256 4096

6 1024

7 4096

Span of 4 Operatives = Span of 8 Operatives =

4,096 Manager 4,096 Manager

(Levels 1 to 6) = 1,396 (Levels 1 to 4) = 585

Figure 4.1: Contrasting span of Control

Although there is no correct number of subordinates that a manager can supervise

effectively. Let us consider four of the key factors that may influence the span of control
in any situation.
Factors influencing span of control:
The principles of the span of management states that there is a limit to the number
of subordinates a manager can effectively supervise, but the exact number will depend
on the impact of underlying factors.
i. Qualification and Qualities: This principle of span of management emphasises
that, if the superiors and subordinates are well-qualified, trained, experienced, and
if they are experts in their jobs then the span of control will be wide and vice-versa.
ii. Level of Management: The research has revealed that the sizes of an effective
span various with the organisation level. In a major study, researchers developed
and tested a model taking organisation level as one the variables. They concluded
that the degree of specialisation of individuals was the most prominent factor
affecting the span of control. If the superiors are working at the top level
management, then they have more responsibilities. Therefore, their span of control
will be narrow and vice-versa.
iii. Nature of Work: In case of routine and respective operations, span can be wider as
subordinates would not require frequent guidance from the supervisor. For this type
of work, managers can lay down permanent policies to control large number of
subordinates. Routine problems take lesser time than the expectations unusual type
of problems.
iv. Superior - Subordinates Relationship: If there are good relations between the
superior and subordinates, then the span of control will be wide and vice-versa.
v. Degree of Centralization: Under decentralization, the superior has to take fewer
decisions. Therefore, he can have a wide span of control. However, under
centralization, the superior has to take many decisions. Therefore, he should have a
narrow span of control.
vi. Use of Communication Technology: The span of management is also influenced
by the effectiveness of the communication techniques used. If face-to-face
communication is used to convey plan, instruction and order personally to
subordinates, then the span of control will be narrow. However, recent technological
advances have made it possible to get tasks done with fewer subordinates. Most
modern offices are equipped with fax, teleconferencing, internet and networking
facilities. These modes of communication help save the managers time and enhance
his span of control.
vii. Financial position of the Organization: If the organisation has a good financial
position, then it can have a narrow span of control. This is because a narrow span
requires more managers. More managers will increase the compensation or wage
bill of the organisation. However, if the organisation has a bad financial position,
then it will be forced to have a wide span of control.
viii. Clarity of Plans and Responsibilities: Much of what a subordinate is expected
to do depend on the plans that are to be implemented. If the plans are clear, workable,
and if the responsibilities are well-defined, then the span of control will be wide.
This will enable the subordinate to clearly understand what is expected of him or
her. This is because the subordinates will not have to go and consult their superior
repeatedly for getting orders and guidance.
ix. Faith and Trust in Subordinates: If the superior has good faith, trust and
confidence in his subordinates then the span of control can be wider.
x. Use of Objective Standards: Managers should get adequate feedback from their
subordinates to find out if the subordinates have understood the plans and are
following them. This feedback may be obtained either by personal observation or
through objective standards. Well-designed objective standards show if there has
been any deviation from the plans. They help a manager avoid time consuming
contacts and pay attention to those aspects that are very important for the successful
implementation of plans.
As reported by Harold Koontz, several important situational factors influence
the appropriateness of the size of an individual’s span of management:
i. Similarity of functions: The degree to which activities performed by supervised
individuals are similar or dissimilar. As the similarity of the subordinate’s activity
increases, the span of management increases and vice versa.
ii. Geographic continuity: The degree to which subordinates are physically separated.
In general, the closer subordinates are physically, the more of them managers can
supervise effectively.
iii. Complexity of functions: The degree to which worker’s activities is difficult and
involved. The more difficult and involved the activities are, the more difficult it is
to manage a large no. of individuals effectively.
iv. Coordination: The amount of time managers must spend synchronizing the
activities of their subordinates with the activities of other workers. The greater the
amount of time must be spent on such coordination, the smaller the span of
management can be.   
v. Planning: The amount of time managers must spend developing management system
objectives and plans and integrating them with the activities of their subordinates.
The more time managers must spend on the planning activities, the fewer individuals
they can manage effectively.
Activity C
Assume that your friend is interested in your company’s span of control
strategy. If he requests you to send detail information about span of control, then
how do you write a report? Explain in detail.
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d. Centralization and Decentralization:
Centralization and decentralization of authority are basic, overall management
philosophies of delegation, that is of where decisions are to be made. Centralization
refers to the extent to which authority is concentrated at the top of the organization.
Decentralization implies transfer of authority and decision making power to the lower
levels of management. Decentralization is an approach that requires managers to decide
what and when to delegate, to select and train personal carefully, and to formulate adequate
controls. Neither centralization nor decentralization is absolute in an organization. No
one manager makes all the decisions even in a highly centralized setting. Total delegation
would end the need for middle and first line managers. Thus there are only degrees of
decentralization and decentralization. In most organizations, some tasks are relatively
centralized and others are relatively decentralized.
A variety of factors can affect management’s decisions to centralize or decentralize
authority in various areas of decision making.
i. Cost decisions: cost is perhaps the most important factor in determining the extent
of centralization. As a general rule, the more costly the outcome, the more likely
top management will make the final decision.
ii. Uniformity of policy: managers who value consistency favour centralization of
authority. These managers want to assure customers that everyone is treated equally
in terms of quality, price, credit, delivery and service.
iii. Competency levels: many organizations work to ensure a adequate supply of
competent managers and employees an absolute necessity for decentralization.
iv. Control mechanisms: even the most avid proponents of decentralization insist on
controls and procedures to avoid mistakes and to determine whether actual events
are meeting expectations.
i. Environmental influences: External factors affect the degree of centralization in
an organization. For example, laws and government regulations regarding hours,
wages, working conditions, and safety make it difficult to decentralize authority in
those areas.
Advantages of Centralised Structure for organisations are many. The advantages
of decentralisation are the limitations of centralisation. For example, senior managers
enjoy greater control over the organisation, the use of standardised procedures can results
in cost saving, decisions can be made to benefit the organisations as a whole. Whereas a
decision made by a department manager may benefit their department, but disadvantage
other departments, the organisation can benefit from the decision making of experienced
senior managers, and finally in uncertain times the organisation will need strong
leadership and pull in the same direction. It is believed that strong leadership is often
best given from above.
Advantages of Decentralised Structure for Organisations are also many. The
advantages of centralisation are the limitations of decentralisation. For example, senior
managers have time to concentrate on the most important decisions (as the other decisions
can be undertaken by other people down the organisation structure, decision making is a
form of empowerment. Empowerment can increase motivation and therefore mean that
staff output increases, people lower down the chain have a greater understanding of the
environment they work in and the people (customers and colleagues) that they interact
with. This knowledge skills and experience may enable them to make more effective
decisions than senior managers; Empowerment will enable departments and their
employees to respond faster to changes and new challenges. Whereas it may take senior
managers longer to appreciate that business needs have changed, and Empowerment makes
it easier for people to accept and make a success of more responsibility.

10.9 BUILDING THE HORIZONTAL DIMENSION OF ORGANISATIONS

An organization structure has more than a vertical dimension that focuses on the
integration and co-ordination of work activities between organizational levels. It also
has horizontal dimension that looks at how work activities are organized at each specific
level of the organization.
a. Division of Labour:
The term division of labour was used by the economist and philosopher Adam
Smith in the late 1700s. Division of labour is the process of breaking a large task into
components an individual or group can accomplish and designing them specifically so
they can be coordinated and the organizations goals can be achieved. Restaurants provide
a simple illustration of how organizations goals must be vary their division of labour
according to their goals. Each restaurant has a number of tasks that must be performed.
For example, greeting customers, taking drink, and food orders, transferring food orders
to cooks, delivering food and drinks to customers, cleaning the tables, calculating a bill,
delivering a bill, collecting money, and preparing the table for the next customers.
The work of specialization allows an employee to master a task in the shortest
time with a minimum of skill. It allows human labour to become interchangeable, which
contributes greatly to organizational efficiency. There are a number of other efficiencies
achieved through division of labour. Efficiency is exhibited in reducing time spent in
changing tasks, in putting away one’s tools and equipment from a prior step in the work
process and in getting ready for another. These inefficiencies are eliminated through
specialization. Additionally, training for specialization is more efficient from the
organizational perspective.
b. Departmentalization:
Each organization has its own specific way that it classifies and group work
activities. This process of grouping individuals into separate units or departments to
facilitate the accomplishment of organizational goals is known as departmentalization.
Departmentalization subdivides work into jobs and tasks and assigns them to specialized
units within an in organization. It includes dividing the standards for the performance of
jobs and tasks. L. A. Allen defined departmentalization as “a means of dividing a large
and monolithic functional organization into smaller, flexible administrative units”.
Departmentalization has important implications for organizational performance
and effectiveness. It helps in increasing the efficiency of the organization in many ways.
For example, departmentalization enables to get the advantages of division of labour and
specifications, provides for fixation of standards for performance of each of department
and individuals, enables the managers to take decisions independently and learn new
managerial skills, creates semi-autonomous units and managers are free to take operative
decisions concerning their department without consulting their superior, and finally it
helps in assessing the size, skills and capabilities of the personnel required to various
departments.
There are few recognized and accepted bases of departmentation. For example,
functional base, product base, customer base, geographic base, and process base.
Activity D
Identify and explain the various blocks of vertical organization structure
and horizontal organization structure. Draw a beautiful figure and identify these
blocks in figure.
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10.10 BASES FOR ORGANISATION STRUCTURE

a. Product Structure: A product organizational structure creates a structure cantered

on the company’s product lines. Companies with multiple product lines or specific retail
divisions can benefit from a product-style organizational structure

President

Vice President Vice President Vice President Vice President

Production Marketing Finance Human Resources

General General General

Manager Manager Manager
Product A Product B Product C
 This allows the company to create a tall structure divided by product type or style.
Each division has its own internal departments and operates like a mini-business.
Using a product organization structure is most common in companies such as
retail stores. These organizations will separate out their products by group, such as
apparel, appliances, food or electronics. This helps owners and managers run their
operations more efficiently.
A significant downside to a product organizational structure is that it can segment
the company into divisions that do not work together. Managers may compete with each
other in an unhealthy manner that inhibits the natural growth of the business or its ability
to achieve goals.
b. Functional Structure: It is the organizational structure that is based on the functions
of the units and sub-units of activities. Every organization has specialized functions and
they constitute as separate units of the organization.

President

Vice President Vice President Vice President Vice President

Production Marketing Finance Human Resources

It is the organizational structure that is based on the functions of the units and
sub-units of activities. Every organization has specialized functions and they constitute
as separate units of the organization. The entire activities that are connected with such
functions are placed in the same unit. The increase in volume of activity results in addition
of number of persons under each manager at various levels. It also results in the increase
of sub-units that are created at lower levels in each unit. It finally results in the inter-
related positions taking the shape of a pyramid. Its major significance is that there is
functional specialization in each unit. It leads to operational efficiency of the persons
engaged in the organization. The organization also gets the benefit of specialized
operations. This type of arrangement is well suited for small and medium size
organization. It becomes incompetent while handling problems of an organization as it
grows in size and complexity. When there are diverse trends of activities performed in
large number of sub-units, it become difficult to manage. In such type of arrangements,
the probability of lack of communication and coordination and control arises that leads
to problems in the organization.
c. Divisional Structure: This type of structure is well suited for large enterprise. It
works effectively to those large enterprises that deal in multiple products serving many
distinct markets. The division of organization takes place into small business units that
are entrusted with business related to difficult products or different market territories.

President

Vice President Vice President Vice President Vice President

Production Marketing Finance Human Resources

General General General

Manager Manager Manager
Division A Division B Division C

This type of structure is well suited for large enterprise. It works effectively to
those large enterprises that deal in multiple products serving many distinct markets. The
division of organization takes place into small business units that are entrusted with
business related to difficult products or different market territories. All the divisional
managers are given authority and autonomy to run all function relating to their respective
products or marketing segments or regional markets. Each division contributes planned
profits to the organization but works as independent business. Managers head the
functional units while divisional managers take the final authority. In this type of
arrangement, top management determines the organizational goals and formulates
policies. This type of structure is characterized by the decentralization of authority. It
enables managers to take decision promptly and helps them resolve problems that are
related to their respective divisions. Divisional managers are provided with opportunities
to take initiative in matters that are within their jurisdiction. Its demerits are that it
involves heavy financial costs due to the duplication of supporting functional u nits for
the divisions. It also demands adequate number of potential managers taking charge of
their respective divisions and their respective functional units.
d. Matrix Organization: It aims to combine the advantages of autonomous project
organization and functional specialization. In this structure functional departments are
having full time specialized workers to accommodate and are capable of handling more
than one project at a time. This is found suitable as the organization is most of the time
engaged in the project activities and the managers are also more in number and can
accomplish the project work effectively. It provides for the flexible system of working
as it adapts the changes quickly. The demerit of such organizations is that the employees
are engaged in dual jobs and are burdened with more work which affects the unity of
command at times in the organization.

President

Executive Vice President

Vice President Vice President Vice President Vice President

Production Marketing Finance Human Resources

Manager
Project A

Manager
Project B

Manager
Project C
e. Team-based structure:
Here the total organization is made up of teams or work groups which perform
the organization’s work. Employees feel more involved, empowered and motivated. It
reduces fractions among functional areas. Though chain of command maybe a problem.
To make team-based structures successful, the employees need to be trained to work as
group members, acquire cross-functional skills and a matching compensation.
f. Boundary less Organization:
An organization whose design or structure is not limited to, or not defined by, the
horizontal, vertical or external boundaries imposed by a predefined structure is known
as boundary less organization. The historical boundaries are blurred by increasing an
organization’s interdependence with its environment. The boundary less organization
doesn’t bother of job specialization, chain of command or span of management and
replaces departments with empowered teams. To eliminate these boundaries managers
might use virtual organization, network organization, modular organization and learning
organization.
The one common technological thread that makes the boundary less organization
possible is a networked computer. They allow people to communicate across intra-
organizational and inter-organizational boundaries. Electronic mail, for instance, enables
hundreds of employees to share information simultaneously and allows rank and file
workers to communicate directly with senior executives.
g. Virtual Structure:
A small, core organization that outsources major business functions is called a
virtual organization. This organization structure is based on the concept of “why own
when you can rent?” This structure is also called as network organization or modular
organization. In structural terms, this structure is likely centralized, with little or no
departmentalization. The virtual organizations create networks of relationships that allow
them to contract out manufacturing, distribution, marketing or any other business function
when management feels that others can do it better or more cheaply. This structure stands
in sharp contrast to the typical bureaucracy that has many vertical levels of management
and where control is sought through ownership. In such organizations, research and
development are done in-house, production occurs in company owned plants, and sales
and marketing are performed by the company’s won employees. To support all this,
management has to employ extra personnel including accountants, human resource
specialists, lawyers, etc. the virtual organization, however, outsources many of those
functions and concentrates on what it does best.
The major advantage of this structure is its flexibility. Such companies allow
someone with an innovative idea and little money, to successfully compete against large
companies. The primary drawback to this structure is that it reduces management’s control
over the key parts of its business.
Activity:
Draw charts of different types of organizational structures and explain the
main features of these structures over others and also explain the applicability of
these inorganisations.
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10 .11 LET US SUMUP

Organizing refers to the process of determining the tasks to be done, who will do
them and how those tasks will be managed and co-ordinated. It is an interactive and
organizing process that occurs throughout the like of the organization. The organization
hierarchy includes both vertical and horizontal dimensions. Building the vertical
dimension of organization includes unity of command, authority and responsibility, span
of control, centralization and decentralization. Building the horizontal dimension include
division of labour and departmentalization. There are different approaches to organization
structures like product structure, functional structure, divisional structure, Matrix
structure, team based structure, boundary less organization structure, and Virtual
structure. While designing an organization structure management has to consider various
factors like goals of the business, nature of business, form of organization, size of
organization and external environment.
10.12 KEY WORDS

1. Organisational structure: It is an established pattern of relationships among the

component parts of an organisation.
2. Work specialization: It is the extent to which tasks can be divided into separate
jobs.
3. Deparmentation: It involves clubbing the group jobs together so that common tasks
can be coordinated.
4. Chain of Command: It is the line of authority with the unity of command principle,
which flows from the top to the bottom clearly indicating who will report to whom.
5. Span of control: It is the ideal number of subordinates that a manager can effectively
and efficiently direct.
6. Formalization: It is the extent to which jobs within the organisation are standardized,
with little discretion over what is to be done, when it is to be done and how the job is
to be done.

10.13 SELF ASSIGNMENT QUESTIONS

1. What is the importance of an organisational structure? Explain its need and the
elements in its formation.
2. Distinguish and differentiate between product structure and functional organisational
structure.
3. Explain the main decisions in organisational structure process.
4. Explain the types of structures.
5. What is meant by span of control? State the factors influencing the span of control.

10.14 CASE STUDY

CASE STUDY-A:
John and Peter are working in an engineering organization, a reputed one, where
excellence goes hand-in-hand with every new imperative flexibility. By laying down its
clear-cut policies and procedures and corporate plans, this organization has earned the
name of one the best managed companies always striving for excellence by keeping
itself abreast of the developments in the endlessly changing world.
 During the recent review of the functioning of one of the departments headed by
Peter, it was discovered that his department had been continuously showing declining
trend in terms of meeting the targets fixed for them and the problems of high rate of
turnover/absenteeism came to light. Majority of the subordinates working under Peter
were dissatisfied with their job and were feeling frustrated and depressed over the way
they were being handled by him. There was a break-down of communication and
innumerable complaints about the rude behaviour of Peter started pouring in. Peter, on
the other hand, had been in this department for the last so many years and was in the habit
of treating his subordinates in the traditional style. The situation started aggravating
day-by-day. The workers under Peter had to take the shelter of unions for airing their
greivences and the management was naturally disturbed over the state of affairs and could
no longer afford to be a silent spectator. Search for a suitable replacement of Peter was
accordingly initiated and John was identified for the purpose.
John was selected for replacing Peter as he possessed the skills of managing
different types of people under different situations. His acceptability and creditability
have all along been of the highest order.
Initially, of course, it was a painful surprise for John for this sudden change and
as it always happens any change in status quo affects people and John was no exception.
However, John moved in the department and was soon able to overcome initial difficulties.
With his concerted efforts and sincerity of purpose, he was soon able to create a strong
trust-bond with his subordinates. He gave them a free hand in setting time-bound goals
for themselves. The subordinates were by then participating in arriving at the vital decision
in regard to their production and productivity. A very cordial and harmonious atmosphere
prevailed upon in this department under John. All this naturally resulted in ‘a blessing in
disguise’ both for the management and the workers in as much as that this department
paved the way in improving the climate and culture of the organization.
QUESTIONS:
1. Identify the issues involved in the above case?
2. What in your opinion could be the causes for replacement of Peter and the secret of
success of John in the so-called difficult department?
3. Do you agree with the statement that “a true manager should know the art of managing
his people?” Comment?
4. “Developing an effective team having healthy interpersonal relationship is the need
of the hour”. Please comment.
CASE-B:
R and Company Ltd. Is an organization having a total strength of about 2000
employees. It has a personnel officer for the factory having 300 workers and a Director
(personnel) at the corporate office. There is one Union commanding a good membership.
On a particular day, the Union office bearers wanted a meeting with the personnel
officer but the personnel officer stated that he would meet the union office bearer only
on the nominated days as per the existing rules. The union argued that they wanted an
immediate meeting on an issue, which they considered very urgent. The personnel officer
said he would meet the branch secretary or assistant secretary to sort out the urgent
issues, if any, but the union brought about twenty members with them. The personnel
officer refused and the members started to agitate by slogan shouting and disturbing the
work.
The personnel officer wanted to take action and curb attitude of indiscipline and
hence sought the assistance of Director (Personnel) on the phone. The director permitted
the personnel officer to go ahead and take action. Meanwhile, on his return to the site of
action, the personnel officer found the agitators returning back. He allowed matters to
rest at that.
Nest day the Director (personnel) wanted to know the position and action taken
and the personnel officer stated that the matter had been settled by compromise.
The director got annoyed on the discipline having been given a ‘go by’ and asked
for the explanation of the personnel officer. The personnel officer explained that the
‘Line manager’ had intervened and settled the matter during his absence of a few minutes
to talk to the director (personnel). The director was not satisfied and the personnel officer
was perplexed.
QUESTIONS:
1. Whether the personnel officer was right in asking for advice and then not following
advice of his chief?
2. Was it right on the part of line manager to intervene?
3. Now that the personnel officer has informed the Director (personnel) that the line
manager has intervened, will the relation between line and staff get alerted?
10.15 REFERENCES
1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.
UNIT - 11: DEPARTMENTATION AND DELEGATION

Structure
11.0 Objectives
11.1 Introduction
11.2 Meaning and definitions of departmentation
11.3 The purpose and importance of departmentalization
11.4 Bases of Departmentation
11.5 Principles of Departmentation
11.6 Principles of Delegation
11.7 Features of Delegation
11.8 Defference between Delegation and Decentraligation
11.9 Principles of Delegation
11.10 Principal Tasks of Effective Delegation
11.11 Advantages of Effective Delegation
11.12 Disadvantages of Delegation
11.13 Let us sum up
11.14 Keywords
11.15 Self Assignment Questions
11.16 Case Study
11.17 References
11.1 OBJECTIVES

After reading this unit, you will be able to:

• Understand the meaning of departmentation
• Define and state the meaning and definitions of delegation
• Examine the purpose and importance of the departmentation
• Explain the principles of delegation
• Distinguish between formal and informal delegation.
• Discuss about the advantages and disadvantages of delegation.
• Summarise the features of delegation.

11.1 INTRODUCTION

It is established fact that there is a limitation on the number of personnel an

enterprise or a supervisor can directly control. This limitation of control restricts the
size of the enterprise unless it divides and groups its activities into departments.
Departments comprise a framework for an organization and enable it to expand
indefinitely. Department aims at specialization of activities for efficient performance;
simplifying the task of management within a workable span; and maintaining coordination
and control of various activities. In this unit, we will acquaint you with the concept of
organization delegation. In order to provide you some general ideas, we shall first explain
the concept of departmentation. With a view to facilitate your understanding about the
nature of delegation, we shall explain the various elements of delegation. We shall also
highlight the process involved in effective departmentation in order to have a sound
delegation system.

11.2 MEANING AND DEFINITIONS OF DEPARTMENTATION

Departmentation represents the pattern of grouping activities. Similar activities

intimately related with a distinct function are grouped together to form departmentation.
It is concerned with horizontal organization on any one level of hierarchy. It aims at
achieving unity of direction, effective communication, coordination and control.
Departmentation may be defined as “the process of dividing the work and then
grouping them into units and sub-units or departments for the purpose of administration”.
 According to L.A. Allen” departmentation is the means of dividing a large and
monopolistic functional organization into smaller, flexible, administrative units”.
Departmentation is the grouping of homogeneous activities into one organization unit
on the basis of special and contiguous nature of activities.
Departmentation should be based on analysis of activities so that similar activities
are grouped together.
Drucker provides three broad areas for grouping activities
i. Key activities should never be subordinated to secondary activities
ii. Revenue producing activities should never be subordinated to non-revenue producing
activities
iii. Support activities should never be grouped with result producing and result
contributing activities.

11.3 THE PURPOSE AND IMPORTANCE OF DEPARTMENTALIZATION:

The main purpose of departmentalization is to administer the enterprise in the

best possible manner. It aims at scientific distribution of work of the enterprise among
different sections and their personnel’s in a manner in which their work can be supervised,
guided, controlled, and coordinated to the maximum advantage of the organization and
to the benefit of the personnel who are on the operation line. Departmentalization seeks
diffusion of authority and responsibility aiming at the attainment of the goal of the
enterprise in a manner in which it stands benefitted. It is an easy and simplified appraisal
of the efforts to achieve the most important purpose of departmentalization. It is for
this purpose the work and personnel’s are divided to groups and sub-groups known as
departments.
Departmentalization is an important process in an organization function.
Departments increase the efficiency of the enterprise. The following are the main
advantages of departmentalization from which the importance of departmentalization
may be judged.
a. Departmentalization leads to the benefits of specialization as various organizational
activities are grouped according to their relation with specific functions or
objectives. Every departmental manager specializes in the tasks assigned to him.
b. The efficiency of the organization increases with division of sub-division of work
and the personnel’s. With such a division one is in know of his précised duties,
 responsibilities and authority. Well defined duties and responsibilities help in
motivating the workers to put a better performance and get the enterprise marching
ahead.
c. Departmentation helps in effective managerial control because the standards of
performance for each and every department can be laid down precisely. Every
department has a separate objective. This also facilitates taking the various
expenditures within limits.
d. In this organization as the duties are well defined and responsibilities are clearly
mentioned it is easy to know and fix the responsibility for any erroneous work.
e. Assignment of work according to skill, knowledge, training, experience and aptitude
is the motto of departmentalization. This brings specialization in a field. It also
brings standardization to both job and the product.
f. The duties, responsibilities and authority are well defined before departmentalization
takes place. This obviously helps not only in fixing the responsibility but also in
evaluating the work carried on by an individual or a group of individuals or the
department as a whole.
g. Budgeting according to departments help in controlling the finance effectively. In
this way economy can also be administered in every sphere of activity of the
enterprise through its different departments.
h. Departmentation helps in the development of managerial personnel by providing
them opportunities to take independent decisions and initiative. The executives can
develop themselves for promotion to higher jobs.

11.4 BASES OF DEPARTMENTATION

The activities of an organization can be grouped into departments on any of the

following bases:
a. Function: Departments can be created on the basis of functions like production,
sales, personnel, finance, etc. This is the most popular basis of departmentation. It
results into creation of units, each one of which deals with functionally similar
activities. Though functions differ from organization to organization, key functions
in a manufacturing organization are production, marketing, finance and personnel.
Top management assign the function to people who can perform them effectively.
b. Product or Service: Large companies with different product lines can set up
separate departments for each product or service that it produces or provides.
Specialized product knowledge and fixing of specific responsibilities are the merits
of this division. This is also called divisionalization. The main advantage is, it permits
specialization of production facilities, technical skills and knowledge and also it
helps in overcoming diseconomies of size and makes possible the functioning of
big conglomerate engaged in the production and marketing of a wide variety of
products.
c. Customers: Departmentation may be done on the basis of the customers of the
concern. A marketing company may have separate departments to cater to the
wholesalers, retailers, mail order customers, etc. Thus, by doing so, it can focus on
the special customer and it also focus on the need to employ personnel with special
ability required for meeting different customer requirements.
d. Location: This is also called territorial division or departmentation. A company may
have separate departments to serve the southern region, northern region, etc. It has
the advantage of the intimate knowledge of local conditions.
e. Time: When a working unit called a department works in different shifts, for each
shift the working unit or department may be separate. It is useful for production
departments, public utilities, and restaurants. Different units create similar functions.
In such cases efforts should not be made to group specialized activities working
only normal times and others discharging their duties during extra hours.
f. Process: Different departments can be created on the basis of functional processes,
e.g., bleaching department, drying department, printing department, etc. It facilitates
coordination by grouping production facilities needed for the completion of each
distinct phase in the flow of work and utilizes specialized equipments and skills
effectively. Adopting this basis it puts full responsibility on head of each process
department for completion of each stage in the process.
g. Combination: One or more bases can be adopted to constitute a department according
to the necessity of the organization. It may be a mix of functional and product or
functional and process (steel companies).
However, to fulfill the organizational objectives, management has to consider
certain factors in designing any of the departmental structure.
• The first basic thing is, it should facilitate control and should be thought of in terms
of effectively regulating and evaluating the different activities of the understanding.
• The mechanism of coordination should be inbuilt in the structure of the organization
itself so that departmentation does not create any problems of coordination.
• Departmentation should not imply excessive cost of operation. The benefits arising
from departmentation should outweigh the additional expenditure to be incurred in
exacting departments.
• Persons should be trained to man the deparments. If necessary new staff who are
qualified and competent to manage independently should be recruited. Follows up-
control channels have to be provided to get feedback on and personnel matters. All
these require adequate administrative preparation before understanding the process
of departmentation.
ACTIVITY:
Explain the different bases of departmentation with diagrams.
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11.5 PRINCIPLES OF DEPARTMENTATION

a. Specialization: This is the most important factor for grouping activities. Activities
should be divided and grouped in a way that the similar activities are under one
department. This helps in using the advantage of specialization. Specialization may
be functional or by products.
b. Control: Departmentation should be able to facilitate control as effectively as
possible. There should be a clear break-up between two departments so that
responsibilities can be fixed clearly. Territorial departments may be established in
such a way that the performance of one can be checked by comparison with other.
c. Coordination: Activities which differ quietly should be grouped together under
one executive because they need to be coordinated.
d. Attention: The activities which are basic to the success of an enterprise should be
given greater attention than others and be placed in a separate division.
e. Local Conditions: Departments should be created in such a way that local conditions
like personalities of individuals who will man the organizations or the pattern of
 informal relationships among people or the need to combine activities in full time
job must be given due consideration.
f. Economy: The cost of creation of department should be weighed against the benefits
of its creation.
11.6 PRINCIPLES OF DELEGATION

1. Specialization: Departmentation automatically provides the benefit of division of labour

and specialization. It increases the efficiency and performance level of the
organization. All the specialized skills and individual talents can be fully utilized by
creating specialization through departmentation.
2. Determining responsibility: Departmental heads should be free to take decisions for
the smooth and effective performance of their units. At the same time, responsibility
will also have to be fixed for their performance.
3. Coordination: The departmentalization process ensures coordination among different
units.
4. Skills and talents can be developed: Individual skills and talents can be developed to
the fullest possible level in the departmental system of work distribution.
Dangers of Departmentation:
Although departmentation is very essential for the efficient running and control
of a business, there are a few dangers of departmentation, which should be taken care of
while assigning, and grouping of activities.
1. Dividing the business house into various departments makes the coordination of
various activities very difficult. To achieve individual efficiency, one department
may work against the interest of another department, thus reducing the overall
efficiency and profitability of the business as a whole.
2. Departmentation creates difficulties of communication among the various
departments of the organization and renders planning and control more difficult.
3. Departmentation increases the levels of management, which is more expensive, and
it also increases the gap between the top management and the workers.
Activity:
Discuss the advantages and dangers of departmentation
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11.7 FEATURES OF DELEGATION

A manager alone cannot perform all the tasks assigned to him. In order to meet
the targets, the manager should delegate authority. Delegation of Authority means division
of authority and powers downwards to the subordinate. Delegation is about entrusting
someone else to do parts of your job. Delegation of authority can be defined as
subdivision and sub-allocation of powers to the subordinates in order to achieve effective
results.
Delegation is the assignment of responsibility or authority to another person
(normally from a manager to a subordinate) to carry out specific activities. It is one of
the core concepts of management leadership. However, the person who delegated the
work remains accountable for the outcome of the delegated work. The word delegation
can be defined in many ways:
General: Grant of authority by one party (the delegator) to another (the delegatee)
for agreed purpose(s). Under the legal concept of vicarious liability, the delegator remains
responsible for the delegatee’s acts or omissions in carrying out the purpose of the
delegation.
Agency: Transfer of an agent’s right to act for the principal (such as from a
contractor to a sub-contractor) that can take place only (1) with the permission of the
principal, (2) where it is customary, or (3) where it is necessary for the performance of
the entrusted duty.
Management: Sharing or transfer of authority and the associated responsibility,
from an employer or superior (who has the right to delegate) to an employee or
subordinate.
11.8 FEATURES OF DELEGATION

According to McFarland, delegation of authority is attended by following features:

1. Delegation involves taking decision about the logical and meaningful units of work
into which the overall duties of the delegator can be broken up.
2. It also involves deciding by the delegator as to who are the subordinates capable of
handing different parts of the sub-divided job. By implication, delegation includes
the features of division of labour and specialisation.
3. Since delegation of authority is done to subordinates, it involves a correct assessment
of the span of supervision which the delegator would be able to effectively control.
4. Delegation of authority is also attended by the feature of connecting more than one
level of organizational hierarchy. The delegator must decide how many levels would
be appropriately liked up through delegation.
5. Delegation of authority to handle a job is also accompanied by authorisation of the
delegate to call for and use resources necessary for executing his part of the task.
6. Delegation of authority is always accompanied by the feature of ‘Accountability’
Accountability signifies the obligation or answerability of the delegate to the delegator
for the proper accomplishment of responsibility cast upon him through delegation
of authority.
7. Delegation of authority is attended by the feature of detailed and exhaustive records
of performance of each of the delegate’s. This feature ensures proper enforcement
of accountability.
11.8 DIFFERENCE BETWEEN DELEGATION AND DECENTRALIAZATION

Basis Delegation Decentralization

Managers delegate some of Right to take decisions is shared by top

Meaning their function and authority to management and other level of
their subordinates. management.

Scope of delegation is limited

as superior delegates the Scope is wide as the decision making is
Scope
powers to the subordinates on shared by the subordinates also.
individual bases.

Responsibility remains of the

Responsibility is also delegated to
Responsibility managers and cannot be
subordinates.
delegated

Freedom is not given to the

Freedom to work can be maintained by
Freedom of subordinates as they have to
subordinates as they are free to take
Work work as per the instructions of
decision and to implement it.
their superiors.

It is an important decision of an
Nature It is a routine function
enterprise.

Need on Delegation is important in all Decentralization becomes more

purpose concerns whether big or small. important in large concerns and it
No enterprises can work depends upon the decision made by the
 It is a systematic act which takes
Grant of The authority is granted by one
place at all levels and at all functions
Authority individual to another.
in a concern.

Grant of Responsibility cannot be Authority with responsibility is

Responsibility delegated delegated to subordinates.

Degree of delegation varies Decentralization is total by nature. It

Degree from concern to concern and spreads throughout the organization
department to department. i.e. at all levels and all functions

Delegation is a process which It is an outcome which explains

Process explains superior subordinates relationship between top management
relationship and all other departments.

Delegation is essential of all Decentralization is a decisions

Essentiality
kinds of concerns function by nature.

Delegation is essential for Decentralization is an optional policy

Significance
creating the organization at the discretion of top management.

It is considered as a general policy of

Delegated authority can be
Withdrawal top management and is applicable to
taken back.
all departments.

Decentralization can be called as extension of delegation. When

delegation of authority is done to the fullest possible extent, it gives use to
decentralization.
11.9 PRINCIPLES OF DELEGATION

Purpose of delegation is to get the work done more effectively and efficiently by
someone else. To get the desired result is the objective of Delegation. For that the goals
are already set and properly communicated to the subordinates and it must be understood
by him. If the subordinate is not able to perform and accomplish the desired objective,
there is no point in assigning the task to him. Delegation does not always work the same
way as the manager may expect. To make delegation effective, it should be based on the
following principles
i. Functional Clarity: The subordinates should be made to understand their duties
and responsibilities. In addition, knowledge of objectives and policies of the
enterprise should be provided to them. This will enable them to discharge their
roles purposefully in the process of delegation.
ii. Matching Authority with Responsibility: When authority is delegated, it should
be commensurate with the responsibility of the subordinate. In fact, the authority
and responsibility should be made clear to the subordinate so that he will know
what he is expected to do within the powers assigned to them. There should be
proper balance/parity or co-existence between the authority and responsibility. A
subordinate will not function efficiently, if authority given to him is inadequate. On
the other hand, if the excess authority is given, he may misuse the same. For avoiding
this, the subordinates who are assigned duties should be given necessary/ adequate
authority enables them to carry out their duties.
iii. Unity of Command: A subordinate should get orders and instructions from one
superior and should be made accountable to one superior only. This means ‘no
subordinate should be held accountable to more than one superior’. When a
subordinate is asked to report to more than one boss, it leads to confusion and
conflict. Unity of command also removes overlapping and duplication of work. In
the absence of unity of command, there will be confusion and difficulty in fixing
accountability.
iv. The Scalar Principle: The principle of delegation maintains that there should be
clear and direct lines of authority in the Organisation, running from the top to the
bottom. The subordinate should know who delegates authority to him and to whom
he should contact for matters beyond his authority. They (subordinates) should also
know what is expected from them. This principle justifies establishment of the
hierarchical structure within the Organisation.
v. Absoluteness of Responsibility: This principle of delegation suggests that it is
only the authority which is delegated and not the responsibility. The responsibility
is absolute and remains with the superior. He cannot run away from the same even
after delegation. Even when the manager delegates authority to his subordinate, he
remains fully accountable to his superiors because responsibility cannot be divided
between a superior and his subordinate. No superior can delegate responsibilities
for the acts of his subordinates. He is responsible for the acts and omissions of his
subordinates.
vi. Use of Exception Principle: This principle of delegation indicates that when
authority is delegated, it is expected that the subordinate will exercise his own
judgment and take decisions within the purview of his authority. He is to be given
adequate freedom to operate within his authority even at the cost of mistakes. He
should refer the problems to the top level management only when he is unable to
take decisions. Unnecessary interference in the work of delegates should be avoided.
This normal rule can be given up under exceptional circumstances. Here, the superior
can interfere in the work of his subordinate and even withdraw the delegated duties
and authority. The superior takes this decision under exceptional circumstances.
vii. Completeness of Delegation: This principle of delegation suggests that there
should be completeness in the process of delegation. The process of delegation
should be taken to its logical end. Otherwise, there will be confusion of authority
and accountability.
viii. Effective Communication Support System: There should be continuous flow of
information between the superior and the subordinates with a view to furnishing
relevant information to subordinate for decision making. This helps him to take
proper decisions and also to interpret properly the authority delegated to him.
Delegation system may not work smoothly in the absence of effective
communication between the superior and subordinates.
ix. Reward for Effective Delegation: Effective delegation and successful assumption
of authority should be rewarded. This will facilitate fuller delegation and effective
assumption of authority within the Organisation. Reward for effective delegation
will provide favourable environmental climate for its fair introduction.
11.10 PRINCIPAL TASKS OF EFFECTIVE DELEGATION

Delegation means achieving results by giving someone else the authority to do

work for which you are ultimately responsible. Despite the fact that delegation has many
benefits, the process also has some potential pitfalls, so you need to use a delegation
process that will minimize the risks and maximize the rewards.
Consider these questions when deciding whether to delegate a task or project . . .
• Do I really have to do this myself?
• Who else has the ability to do this?
• Who might benefit from learning to do this?
• What is the worst thing that may happen if I delegate this?
• How can I prevent that from happening?
• Who has the biggest stake in the outcome?
• Who really “owns” this problem?
The following are tasks of effective delegation.
i. Assignment of duties to subordinates:
Before delegating, the delegator has to decide precisely the duties which are to
be delegated to the subordinate or a group of subordinates. The authority is delegated
accordingly and the subordinate is told what is expected from him. The usual practice is
to list the functions to be performed by the subordinate. If necessary, targets to be
achieved by the subordinate are also spelt out. Subordinates may be assigned tasks either
in terms of activities or results. The manager (delegator) must communicate clearly his
expectations. Competent and responsible employees may be given general guidelines
about what needs to be accomplished. Their less competent and responsible counter-
parts need more specific guidelines. In brief, in the first stage of delegation process,
duties are assigned to the subordinate.
ii. Transfer of authority to perform the duty:
In the second stage of delegation process, the authority is granted by the delegator
to his subordinate (delegate). Authority must be delegated strictly to perform the assigned
duty. The performance of duties suffers serious setback when required authority is not
delegated along with the duty. In brief, the transfer of authority should be adequate
considering the duties assigned to the subordinate.
iii. Acceptance of the assignment:
In this third stage of delegation process, the subordinate/delegate has to accept
or reject the task assigned to him in the first stage along with the authority given in the
second stage. If the delegates refuse, the delegator has to make fresh plan of delegation
or may consider some other subordinate who is capable and is willing to accept the
assignment. On the other hand, the process of delegation will move to the fourth and the
last stage, if the first delegates accept the assignment of work accompanying the authority.
iv. Creation of Obligation / Accountability / Responsibility:
The fourth stage in the, delegation of authority is the creation of obligation on
the part of the subordinate to perform duties assigned to him in a satisfactory manner by
using the authority given. When subordinate accepts a task and the authority is given,
an obligation is created. He has to perform the assigned task by using the authority
granted to him. A subordinate is also responsible/ accountable for completing the
assigned work. He is held answerable to a superior for the satisfactory performance of
that work assigned. The delegator has to help his subordinate as and when necessary as
he is responsible to his superior/organisation.
v. The prepared to run interference, if necessary:
Delegated tasks can be bogged down if resources are insufficient or if the person
delegated to do the task run up against resistance from others. We can readily imagine a
case where a transfer of reward power causes some third party to complain or try to go
around the person who was delegated the task.
vi. Establish a feedback system:
Delegating managers establish a system of checkpoints and feedback so they will
remain advised of progress and can offer or “mid-course adjustments” if necessary. They
select the feedback system carefully, bearing in mind that the tighter their controls, the
less actual delegation is taking place.
Activity F
Assume that you want delegate some of authority and responsibility to your
subordinate. How do you take a decision to delegate and what factors do you
consider before delegating authority and responsibilities to your subordinates.
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11.11 ADVANTAGES OF EFFECTIVE DELEGATION

When used properly, delegation has several important benefits to the manager/
supervisors, to the employees, and for the organizations.

BENEFITS TO THE BENEFITS TO THE BENEFITS FOR THE

MANAGER / EMPLOYEE ORGANIZATION
SUPERVISOR
1 Makes managers job easy Provides professional growth It saves money
and exciting opportunities
2 Reduces stress and makes Develops their professional It promotes teamwork
the people to look good knowledge and skills
3 Frees managers to do what Elevates their self-image and It brings about
they should be doing ultimately self-esteem professionalism
4 Develops trust and rapport Enhances their confidence It increases productivity
with your employees and value to the organization and efficiency
5 Grooms the successor so Brings them personal
that manager can move on satisfaction and a sense of
to bigger and better achievement
things. Often managers
and supervisors derail
their own advancement by
not having someone to
take their place
11.12 DISADVANTAGES OF DELEGATION

Whatever might be the benefits of delegation to the managers, the employees,

and for the organization, there are so many disadvantages from the delegation of authority
and responsibility.
a. Central management is far removed from the actual operations where the decisions
are made so that it becomes difficult to pinpoint major problems when they occur
because decisions are made by many subordinates.
b. The second problem may lie in the area of coordination. If coordination among these
many subordinate is not adequate, then confusion may result and it may become
difficult to exercise control over procedures and policies.
c. It may be difficult to perfectly match the task with the capability of the subordinate.
Activity G
Assume that you are a manager of X ltd. Now you have decided to delegate
some your powers and authorities to your subordinates. Now the question is first
you should take the permission of your boss. Then how do you convince your boss
about the concept, the advantages and disadvantages of delegation of authority?
Explain.
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11.13 LET US SUM UP

The functioning or grouping of similar activities is called departmentation. The

growing size and ever growing activities of an enterprise necessitates the creation of
small functional divisions in an organization. This also solves the increasing problems
of diversification. The selection of a specific departmentation is essential to achieve
the organizational objectives. There are several bases, which can be used for
departmentalizing the activities and people of an organization. But there is no single
best way to organize. One has to select a particular basis or combine with any major
basis keeping in mind, the work to be performed, the way in which it has to be performed,
the technology involved and the people being served.
 A manager alone cannot perform all the tasks assigned to him. In order to meet
the targets, the manager should delegate authority. Delegation of Authority means division
of authority and powers downwards to the subordinate. Delegation is about entrusting
someone else to do parts of your job. Delegation of authority can be defined as
subdivision and sub-allocation of powers to the subordinates in order to achieve effective
results. To make delegation effective, it should be based on the certain principles and a
systematic procedure is to be followed.

11.14 KEY WORDS

1. Departmentation: It involves clubbing the group jobs together so that common tasks
can be coordinated.
2. Functional Departmentation: Similar tasks requiring similar skills grouped into
workunit is referred to as functional departmentation also known as U-form
organization.
3. Delegation: Delegation is the assignment of responsibility or authority to another
person (normally from a manager to a subordinate) to carry out specific activities.

11.15 SELF ASSIGNMENT QUESTIONS

a. Define departmentation. Why is departmentation necessary?

b. Discuss the advantages and disadvantages of departmentation.
c. what are the bases for departmentation? State the different kinds of departmentation.
d. Explain the principles of departmentation.
e. what is the concept of delegation of authority? What are its characteristics?
f. what are the principles of delegation?
g. “Delegation of authority is not a smooth process”. Explain the statement and discuss
the obstacles to delegation.

11.16 CASE STUDY:

CASE STUDY-A:
Narmada Chemicals is a large chemicals manufacturing firm located in the
Western Ghats. It is involved with both research and the production of various products
sold to wholesale customers as well as over the counter pharmaceutical items. Recently,
Ram Mohan was appointed as the new Director of the company’s research and development
function. He took over at a time when this part of Narmada Chemicals seemed to be in
some turmoil. The previous director resigned suddenly, leaving an administrative vacuum.
In addition, executives of some of the other departments had been complaining that the
R and D people were not pulling their weight. Several had wondered out loud where the
new products were that the company needed in order to remain competitive. Why were
not those high priced professionals working harder to achieve new breakthrough.
The firm’s CEO seemed to be on the side of the other department heads in believing
that major changes in the R and D function were needed quickly. He frequently stated,
“This is a fast-moving industry and those firms that do not remain novel will simply be
left behind”. At any rate, he instructed Ram Mohan to get things moving as rapidly as
possible.
Ram Mohan’s appointment was approved by the Board of Directors over the
expressed opposition of several of the senior research people. They did not feel that his
background or previous experience made him sufficiently qualified to take over the
complex task of supervising a diverse group of research scientists. There were twenty-
five highly trained professionals in this group, twenty of whom possessed a Ph.D. in
physics, chemistry or microbiology. The other five had Master’s degrees but had worked
in R and D for over fifteen years. There was relatively little agreement within this large
group about the major problems facing the group or how they could be solved. In fact,
several of the scientists believed that everything was finding the way it was.
Even though Ram Mohan had no direct experience with R and D, he did have a
track record as manager in other areas and he had Master’s degree in both finance and
chemical engineering. He did not believe that he would have problems relating to the R
and D group. In fact, he felt quite confident that he could turn things around in relatively
short order. Upon assuming his new duties, Ram Mohan moved quickly to change the R
and D department. He began by conducting interviews with several of the senior scientists
in order to learn about the operation and how the employees perceived the situation. He
followed up with several open meetings attended by most of the department members.
For the first few months everything was smooth. The employees appeared satisfied
with Ram Mohan and morale actually improved. However, it soon became apparent that
things were not as rosy as they seemed at first. Several of the senior researchers began
to complain that changes were taking place and that they had never been consulted. In
addition, a number of people had received long critical letters from Ram Mohan suggesting
that they were no longer making a positive contribution to the company or the department.
 By the end of the first year, top management was very bad. There seemed to be a
movement afoot to request Ram Mohan’s resignation. Two of the more promising younger
scientists submitted their resignations citing intolerable working conditions, and a number
of others were threatening to do the same. To make matters worse, the firm was not
successful in recruiting the replacements it needed. Whether or not this was due to Ram
Mohan was not really clear.
When asked, the senior researchers complained that Ram Mohan was an autocrat.
He did not carefully think through problems and appeared not to systematically analyze
situations. Also, he was impatient. He wanted everything to happen immediately. For
example, for sometime top management had been considering the use of robots in several
departments. Without consulting anyone in R and D Ram Mohan volunteered his
department as a test site. One morning a memo arrived announcing the change. Nobody
in the department was even aware of the possibility of such a change.
At the moment, top management is faced with a serious dilemma. Ram Mohan
had a record of competent management and he was hired with a mandate to get things
moving. However, rather than improving, this situation seems to have gone worse. Should
they fire Ram Mohan, move him to another department, or just assume that everyone is
experiencing growing pains and things will work out if given him?
Questions:
1. Evaluate Ram Mohan’s approach to organisational change.
2. Does the fact that the way Ram Mohan is dealing with research scientists and
professionals make any different?
3. If you were given the task of revamping the R and D department, how would you
proceed? Consider the model for implementing change. Outline an approach you
think would be successful.
CASESTUDY-B:
Ram Nivas is an electrical engineer working with Kamath engineering (private)
Limited. He has a diploma in electrical engineering and after joining the company, he
has been trained in the inventory control and repair departments. He is 29 years old and
has been working as a supervisor in the inventory control department for the last 3 years.
On 16th December, 2011, Shankar, foreman of the repairs department retired due
to ill health. The management of the company promoted Ram Nivas and he was made the
foreman of the repairs department.
 The repairs department has four supervisors assigned to different types of repair
work. According to the organization chart, foremen Ram Nivas has four supervisors under
him. (B, Rao-Unit I, S. M. Lal-unit II, P. Mane-unit III and S. Kapoor-unit IV) who have
repair workers under their charge.
The supervisors working under Ram Nivas were senior people with an average
experience of 15 years in the company. P. Mane was the youngest with 9 years experience
and S. Kapoor was the senior most with 20 years. Kapoor had joined the company as a
watchman and after completing some training courses had become supervisor. Even though
the he did not possess formal education, he was the popular leader among the employees
of the repairs department.
Since Ram Nivas was a newcomer to the department, he did not want to make any
major changes in the established procedures and practices. He noticed, however, that
quite frequently workers and other supervisors referred their problems to S. Kapoor.
Ram Nivas did not object to this since he was interested in developing good working
relations with his subordinates.
At the end of June 2012, the accounting department notified Ram Nivas that the
monthly expenditure on equipment purchases for the repairs department had exceeded
the budget. He was asked to give an explanation. On checking accounts, it was found that
spare part No. 1004 costing Rs. 15,000 was purchased even though he had authorized
only a less expensive part costing Rs. 9,000. On further enquiry, it was revealed that
Kapoor had suggested the purchase of No. 1004 and the concerned billing clerk had
agreed with Kapoor. When this was brought to the notice of Ram Nivas, he remarked “it
is all old Kapoor’s fault”.
During early 2012, Ram Nivas received a telephone call from an old friend Nitin
Guha was managerial sonsultant specializing in the area of human relations. Guha visited
Ram Nivas at the latter’s residence and Ram Nivas narrated the incident to him. Ram
Nivas suggested the following alternatives and wanted Guha’s advice on the best possible
course of action:
1. Kapoor should be warned and he should be told about the scope of his authority.
2. Ram Nivas should send a report recommending the dismissal of Kapoor.
3. Kapoor should be transferred to another department.
4. The billing clerk should be punished for his mistake.
5. Ram Nivas should establish closer control over Kapoor and other subordinates.
 Guha was interested in analyzing the problem further before suggesting a possible
course of action.
Give your suggestions as a consultant to improve the situation.

11.17 REFERENCES

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.
UNIT -12 : STAFFING

Structure
12.0 Objectives
12.1 Introduction
12.2 Concept of staffing
12.2.1 Process of staffing
12.3 Recruitment
12.3.1 Recruitment policy
12.3.2 Source of recruitment
12.3.3 Recruitment process
12.4 Selection
12.4.1 Step in the selection progress
12.4.2 Selection Test
12.4.3 Interviews
12.5 System approaches
12.6 Manpower planning
12.6.1 The process of human resource planning
12.7 Job design
12.7.1 Different approaches to job design
12.8 Modern management techniques
12.9 Training and Development
12.9.1 The need for Training & Development
12.9.2 Assessing Training need
12.9.3 Methods of Training
12.10 Performance Appraisal
 12.10.1 Kinds of Performance appraisal
12.11 Let us sum up
12.12 Self Assessment Test
12.13 Glossary of the terms used in the test
12.14 Suggested answer to check your progress
12.15 References
12.1 OBJECTIVES

After going through this unit, you should be able to;

• Explain the concept of staffing
• Discuss the systems approach to human resource management
• Explain manpower planning and job design
• Explain the how do you conduct training & Development activities
• Evaluate performance of the employees

12.1 INTRODUCTION

Though the term human resource management is frequently used for the managerial
function of “staffing”, staffing is just a part of the HRM process and plays an important
role. Staffing involves a set of activities aimed at attracting and selecting individuals for
positions in a way that will facilitate the achievement of organizational goals. You know
two basic steps of staffing area: recruitment and selection
The staffing process is a systematic attempt to implement the human resource
plan by recruiting, evaluating and selecting qualified candidates for job positions in the
organization. Recruitment involves finding and attempting to attract job candidates who
are suitable for filling job vacancies. Job analysis, job description, and job specification
are important tools in the recruitment process. Once suitable candidates are attracted to
the job position, the management needs to find qualified people to fill the positions
through the selection process. Several methods are used in selecting prospective
candidates. These include preliminary screening. Application blanks, selection test.
Comprehensive interviews, etc.
According to Koontz and O’ Donell “The managerial function of staffing involves
managing the organization structure through proper and effective selection, appraisal
and development of personnel fill the roles designed into the structure” and Theo
Hainmann opined that “Staffing function is concerned with the placement, growth and
development of all those members of the organization whose function is to get things
done through the efforts of other individuals “
12.2 CONCEPT OF STAFFING

While performing the staffing function, we have to see that men are fit for jobs
and jobs are not altered for men. We have to concentrate on the concept of staffing are
given below:
• Effective recruitment and selection.
• Proper placement
• Adequate and appropriate training for development
• Satisfactory and fair transfer and promotion
• Sound relationship between management and workers
• Adequate provision for retirement
12.2.1 Process of Staffing
1. Manpower planning & Job Design: The term planning of staff members includes
estimation of the number of staff members required for the company in various
grades. It is based upon the size of the company and the policy followed by the
company. Job design also gives information about the qualifications required for
doing the job and the reward (financial and non-financial benefits) for doing the job.
2. Recruitment and Selection: It deals with the selection of qualified applicants to
fill the jobs in the organization. A standard procedure may be followed while selecting
the staff members. The procedure may be valid for different types of personnel.
3. Training of developments: It is concerned with providing training to new staff
members as well as the existing staff members. The working efficiency of the staff
members may be developed through the training programs
4. Performance Appraisal: Performance appraisal deals with measurement of the
work performed by the staff members in an organization. A standard may be fixed in
order to evaluate the efficiency of the staff members.

12.3 RECRUITMENT

Recruitment has acquired immense importance in today’s organizations.

Organizations have realized the value of human capital and its role in development.
Recruitment is the first step in the process of acquiring and retaining human resources
for an organization. In today’s rapidly changing business environment, organizations have
to respond quickly to requirements for people. Hence, it is important to have a well-
defined recruitment policy in place, which can be executed effectively to get the best
fits for the vacant positions.
Recruiting is the process of attracting applicants with certain skills, abilities, and
other personal characteristics to job vacancies in an organization. Byers and Rue define
recruitment as “the process of seeking and attracting a pool of people from which qualified
candidates for job vacancies can be chosen’.
12.3.1 Recruitment Policy
The recruitment policy is concerned with quality, qualifications of manpower and
guidelines for the staffing process. A good recruitment policy is as below
• Complies with government policies on hiring.
• Provides optimum employment security and avoids frequent lay – offs or time loss,
• Assures the candidates of the management’s interest in their development.
• Prevents the formation of cliques which result in employing the members of the
same household or community in the organization
• Reflects the social commitment of the organization by employing physically
challenged people and other underprivileged of the society whenever there is a
possibility of job fit.
• Is in alignment with the objectives and policies of the organization.
• Is flexible enough to accommodate changes in the organization.
• Is designed in such a way that is ensuring long-term employment opportunities for
its employees.
• Stresses and reflects the importance of job analysis.
• Is cost effective for the organization.
12.3.2 Sources of Recruitment
SOURCES OF RECRUITMENT

Internal External
1. Transfer 1. Advertisements
2. Promotion 2. Employee Referrals
3. Employment agencies
4. Educational Institutions
5. Interested Applicants
6. Other sources
12.3.3 Recruitment Process

HR Planning

Identify the human resource requirements

Determine the number, levels and theoretically of vacancies

Choose the resources and methods of recruitment

Analyze the cost & time involved

Start implementing the recruitment program

Select and hire the candidates

Evaluate the program

Activity: A
Multiple Choice Questions:
1. The process of attracting and inviting application from candidates is known as:
a. Recruitment b. Selection
c. Induction d. Promotion
2. Selection if the process of :
a. Inviting prospective candidates to apply for the job
b. Selecting the best candidate out of all the candidates who have applied for the job
c. Screening the candidates for the interview
d. Selecting the candidates for the promotion
3. Which one of the following is an internal source of recruitment?
a. Advertisements b. Present Employees
c. Campus Recruitment d. Management Consultants
4. Which one of the following is the process of searching the candidates for
employment and stimulating them to apply for jobs in the organizations?
a. Transfer b. Recruitment
c. Induction d. Promotion
(Ans. 1.a 2.b 3.b 4.b)
Activity B
What are the important methods used in your organization for recruiting
management trainees, managerial, and supervisory personnel?
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12.4 SELECTION

The next step after recruitment is the selection of candidates for the vacant
positions from among the applicants. This is the most important stage of employment as
the concept of the right candidate for the right position takes its final shape here. Selecting
the wrong candidate or rejecting the right candidate could turn out to be costly mistakes
for the organization. Selection is one area where the interference of external factors is
minimal. Hence the HR department can use its discretion in framing its selection policy
and using various selection criteria for the best results.
You know the outcomes of selection, which can have four possible outcomes.
Two of the possible outcomes have a positive effect on the organization, whereas the
other two have a negative impact. Let us first look at the positive outcomes. The first
positive outcome is selecting the right candidate. It is obvious that the impact of this is
going to be positive. The second positive outcome is rejecting an unsuitable candidate.
This also has a positive impact because, had an unsuitable candidate been selected, he
would not have performed successfully on the job
The two negative outcomes are selecting an unsuitable candidate, or rejecting the
right candidate. In the first case, the cost of having an unsuitable candidate in the job is
high. He or she would not add any value to the organization; instead the person may
create problems. The organization would incur costs in training the candidate. It would
have to bear the cost of his non-performance: if he has to be replaced, the cost of
separation and recruiting another candidate would also add to the cost of having hired
the wrong person. In the last case, where the right candidate is rejected, the organization
loses potential candidate who could have turned out to be an asset to the organization
because of his positive contribution.
12.4.1 Steps in the Selection Process
Resumes / Review

Initial Screening Interview

Analyze the Applications Blank

Conducting Tests and Evaluating Performance

 Preliminary Interview

Core ad Departmental Interviews

Reference Checks

Job Offer

Medical Examination

Placement

12.4.2 Selection Tests

Different types of test are used as selection methods to evaluate an applicant.
Some of these tests assess the skill level of the applicant; others are psychometric test
that tries to assess employee attitudes and personality. There are different tests designed
to evaluate different aspects of performance, like intelligence, aptitude, attitude etc.
Some of the tests are discussed below.
Intelligence Tests: defined the components of intelligence as reasoning, judgment,
memory, and the power of abstraction. They measure intelligence as the general mental
ability of individuals in intelligent behaviors and described intelligence testing as
classifying not measuring.
Aptitude Tests: these tests measure an individual’s ability to learn a given job, when
given adequate training. They do not test the knowledge or proficiency possessed by the
individual; instead they test his ability to learn, or gain the required proficiency.
Achievement Tests: These tests measure the job- related proficiency and knowledge of
the applicants. Organizations use these tests to identify and select experienced applicants.
These tests can be classified as job knowledge tests and work sample tests.
Situational Tests: Situational tests are generally used in middle and senior level
management selection to test the applicants’ likely responses to real – life business
situations. The Candidates are exposed to simulated business situations and their
responses are recorded and evaluated, Situational tests include group discussions, in
basket exercises and simulated business games.
Personality Tests: The personality of an individual plays a decisive role in this
performance. Proficient and knowledgeable employees, who have excellent skills and
intelligence sometimes, fail to deliver because of personality problems. Personality
tests help in understanding the basic job – related personality traits of a candidate. These
tests help in assessing an individual’s value system, emotions, maturity and other personal
characteristics.
Activity C
Multiple Choices:
1. The recruitment and selection process helps in:
a. Attracting and acquiring highly qualified and competent candidates
b. Decreasing the productivity of the organization
c. The increasing problem of absenteeism and turnover
d. Decreasing the pool of job candidates
2. External source of recruitment:
a. Helps to motivate employees
b. Increases cost
c. Promotes greater loyalty
d. Leads to a feeling of job security
3. Which of the following is an external source of recruitment?
a. Present employees b. Employee Referrals
c. Advertisements d. Former employees
4. Which of the following is not an employment test?
a. Aptitude Tests b. Interest Tests
c. Reference Tests d. Personality Tests
(Ans. 1.d 2.a 3.d 4.b)
12.4.3 Interviews
The most commonly used interviewing techniques are briefly discussed below
Preliminary Interview: it is also called screening interview. The purpose is to decide
through mutual information sharing whether a comprehensive interview is desired. In
this interview, besides providing information about the job and the organization,
preliminary information is sought on past work experience, education and motivation.
Most of those interviews are generally conducted by personnel people who, sometimes,
involve people from the areas where the applicant is finally going to be placed. This is
usually done for jobs that are technical in nature.
Patterned interview: A number of standard questions are rated well in advance which
are to be put before the applicant. The answers to these questions are found while framing
the questions and answers are written near the questions. These are used for a verification
purpose when answers are given by the applicant during the interview. This is the
procedure adopted under this type of interview to evaluate the suitability of the applicant.
Stress Interview: Irritating questions are put before the applicant by the interviewer. If
any applicant gets angry when these types of questions are put to him, the particular
applicant is evaluated as unfit for the job. For example, the Interviewer may ask, how
many gigs do an eight legged insect have? Or Dear Mr. Ramesh what is your name?
These are some questions which irritate anybody in normal conditions. If an applicant
gets angry over these questions, he/she is rejected as unfit for the job. The idea is to
know how a candidate is able to keep cool & his mental balance despite external stress.
All kinds of jobs do not call for Stress interview.
Systematic in-depth interview: under this type of interview, the interviewer asks any
one of the questions initially. Then, he proceeds step-by step to get an integrated view of
the skills and personality of the applicants.
Board or Panel interview: A group of persons called ‘interviewers’ ask the applicant
questions in the area of interest of the applicants. Immediately after the interview, they
evaluate the performance of an applicant based on the answers given by the applicant.
Group Interview: it may be otherwise called group discussion or host party technique.
A number of applicants are interviewed simultaneously. A common topic is presented
before the group. One group consists of six to eight members. Each applicant is allotted
a number. They may call other members of the group by calling the concerned member’s
number. They are restricted to use their names. The applicants are selected or rejected
on the basis of performance in group discussion.
Activity D
Have you attended any interviews in your career? If so, identify the kind of interview
which you attended from the above types and explain in a few words.
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12.5 SYSTEM APPROACHES:

How the managerial function of staffing relates to the total management system.
Specifically, enterprise plans become the basis for organization plans, which are
necessary in order to achieve enterprise objectives. The present and projected
organization structures determine the number and kinds of managers required. These
demands are compared with available talent through the management inventory. On the
basis of this analysis, external and internal sources are utilized in the processes of
recruitment, selection, placement, promotion and separation. Other essential aspects of
staffing are appraisal, career strategy, and training and development of managers.
Staffing, affects leading and controlling. For instance well-trained managers create
an environment in which people, working together in groups, can achieve enterprise
objectives and at the same time accomplish personal goals. In other words, proper staffing
facilitates leading. Similarly, selecting quality managers affects controlling, for example,
by preventing many undesirable deviations from becoming major problems.
Staffing requires an open-system approach. It is carried out within the enterprise,
which in turn is linked to the external environment. Therefore, internal factors of the
firm-such as personnel policies, the organizational climate, and the required system –
must be taken into account. Clearly, without adequate rewards, it is impossible to attract
and keep quality managers. The external environment cannot be ignored either: high
technology demands well trained, well educated, and highly skilled managers. Inability
to meet the demand for such managers may well prevent an enterprise from growing at a
desired rate.
12.6 MANPOWER PLANNING

Manpower planning involves planning for long term needs, rather than for
temporary replacement needs. It has to take into consideration the career planning for
individual employees and succession planning in the organization.
Manpower Planning which is also called as Human Resource Planning consists
of putting the right number of people, the right kind of people at the right place, right
time, doing the right things for which they are suited for the achievement of the goals of
the organization. Human Resource Planning has got an important place in the arena of
industrialization. Human Resource Planning has to be a systems approach and is carried
out in a set procedure.
12.6.1 The Process of Human Resource Planning
The Manpower forecasting processes commonly employed by the organizations
are as follows:
i. Analyzing organizational plans: the process of human resource planning should start
with analyzing the organizational plan/goals into production plan, technological plan,
plans for expansion, diversification etc., Marketing plan, sales plan, and financial
plan. Each plan can be further analyzed into sub-units. Analysis of organizational
plans and programs helps in forecasting the demand for human resources as it provides
the quantum of future work activity.
ii. Forecasting the Overall Human Resource Requirements: the existing job design and
analysis may thoroughly be reviewed keeping in view the future capabilities, knowledge
and skills of present employees. Further, the jobs should be redesigned and re-analyzed
keeping in view the organization and unit-wise plans and programs, future work
quantum, future activity or task analysis, future skills, values, knowledge and
capabilities of present employees and prospective employees.
iii. Supply Forecasting: we have to forecast the future supply of human resource by
obtaining the data and information about the present human resource inventory.
iv. Estimating the Net Human Resource Requirement: we calculate Net human resource
requirements in terms of number and components are to be determined in relation to
the overall human resource requirements for the future. The difference between overall
human requirements and future supply of human resource is to be found out.
v. In case of future surplus, plan for redeployment, retrenchment and lay-off.
vi. In case of the future deficit forecast the future supply of human resource from all
sources with reference to the plans of other companies.
vii. Plan for recruitment, development and internal mobility if future supply is more
than or equal to net human resource requirements
viii. Plan to modify or adjust the organization plan if future supply will be inadequate
with reference to future net requirements.

12.7 JOB DESIGN

Job design is the process of structuring work and designating the specific activities
at individual or group levels. These work activities and the eventual work done, have to
contribute to the organizational objectives in the most effective and efficient manner.
Job design determines the responsibility of an employee, the authority he enjoys over
his work, his scope of decision-making, and eventually, his level of satisfaction and his
productivity. Job satisfaction and productivity are interrelated and interdependent. Job
design also has an effect on the relationships in a group and the productivity of the group
Effective job design is a complex process that must be viewed from several
standpoints. Organizational goals, employee aspirations, performance standards and work
environment are some of the major factors that need to be taken into consideration in
job design. The role of the HR function is limited in job design; the line managers play
a major role in job design, as they understand the work processes better.
The major components of a job design are the job content or scope and the job
depth. The job content includes the various tasks or activities that have to be performed
by the job holder, the responsibilities attached to the job and the relationships with other
jobs in the organizational set –up. Job depth is the autonomy or the authority that the job
holder enjoys in planning and organizing the work attached to the job. There are various
steps involved in job design that follow a logical sequence, The sequence is as follows:
What tasks are required to be done or what tasks is part of the job?
How are the tasks performed?
What amount are tasks are required to be done?
What is the sequence of performing these tasks?
All these questions are aimed at arriving upon a clear definition of a specific job
and thereby make it less risky for the one performing the same. A well defined job
encourages a feeling of achievement among the employees and a sense of high self
esteem. The whole process of job design is aimed to address various problems within
the organizational setup, those that pertain to one description of a job and the associated
relationships. More specific the following areas are fine tuned:
• Checking the work overload.
• Upon checking the work under load.
• Ensuring tasks are not repetitive in nature.
• Ensuring that employees don not remain isolated.
• Defining working hours clearly.
• Defining the work processes clearly.
The above mentioned are factors that if not taken care of result into building
stress within the employees.
12.7.1 Defferent Approaches to Job Design
Different approaches to job design have been proposed over the years. While the
earlier approaches concentrated on just the “technical” aspect and ignored the human
aspect, the latest approaches tried to add a “human touch”
a. Human Approach
The human approach to job design laid emphasis on designing a job around the
people or employees and not around the organizational processes. In other words it
recognizes the need of designing jobs that are rewarding (financially and otherwise) and
interesting at the same time.
According to this approach jobs should gratify an individual’s need for recognition,
respect, growth and responsibility. Job enrichment as popularized by Herzberg’s research
is one the ways in human approach of job design. Herzberg classified these factors into
two categories - the hygiene factors and the motivators.
Motivators include factors like achievement, work nature, responsibility, learning
and growth etc. That can motivate an individual to perform better in the workplace.
Hygiene factor on the other hand include things like working conditions,
organizational policies, salary etc that may not motivate directly but the absence of which
can lead to dissatisfaction at the work place.
b. Engineering Approach
The engineering approach was devised by FW Taylors et al. They introduced the
idea of the task that gained prominence in due course of time. According to this approach
the work or task of each employee is planned by the management a day in advance. The
instructions for the same are sent to each employee describing the tasks to be undertaken
in detail. The details include things like what, how and when the task along with the time
deadlines.
The approach is based on the application of scientific principles to job design.
Work, according to this approach should be scientifically analyzed and fragmented into
logical tasks. Due emphasis is then laid on organizing the tasks so that a certain logical
sequence is followed for efficient execution of the same. The approach also lays due
emphasis on compensating employees appropriately and training them continuously for
work efficiency.
c. The Job Characteristics Approach
The job characteristics approach was popularized by Hack man and Oldham.
According to this approach there is a direct relationship between job satisfaction and
rewards. They said that employees will be their productive best and committed when
they are rewarded appropriately for their work. They laid down five core dimensions
that can be used to describe any job - skill variety, task identity, task significance, autonomy
and feedback.
• Skill variety: The employees must be able to utilize all their skills and develop
new skills while dealing with a job.
• Task Identity: The extent to which an identifiable task or piece or work is required
to be done for completion of the job.
• Task Significance: How important is the job to the other people, what impact
does it create on their lives?
• Autonomy: Does the job offer freedom and independence to the individual
performing the same.
• Feedback: Is feedback necessary for improving performance.
These are different approaches but all of them point to more or less the same
factors that need to be taken into consideration like interest, efficiency, productivity,
motivation etc. All these are crucial to the effective job design.
Activity E
You are required to interact with few employees working with various organizations
and verify Hackman and Oldham thoughts are still relevant and record the same.
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12.8 MODERN MANAGEMENT TECHNIQUES

In the recent past, organizations have departed from the traditional work schedules
and policies in order to motivate the employees perform more efficiently and effectively.
HR initiatives have also helped in optimizing the human resources of an organization
and enriching the quality of work life of the employees. Some of the recent trends in job
design are discussed below.
a. Job Rotation:
Job Rotation is a management approach where employees are shifted between
two or more assignments or jobs at regular intervals of time in order to expose them to
all verticals of an organization. It is a pre-planned approach with an objective to test the
employee skills and competencies in order to place him or her at the right place. In
addition to it, it reduces the monotony of the job and gives them a wider experience and
helps them gain more insights.
Job rotation is a well-planned practice to reduce the boredom of doing the same
type of job everyday and explore the hidden potential of an employee. The process serves
the purpose of both the management and the employees. It helps the management in
discovering the talent of employees and determining what he or she is best at. On the
other hand, it gives an individual a chance to explore his or her own interests and gain
experience in different fields or operations.
b. Job enlargement:
Job enlargement is a job design technique wherein there is an increase in the
number of tasks associated with a certain job. In other words, it means increasing the
scope of one’s duties and responsibilities. The increase in scope is quantitative in nature
and not qualitative and at the same level.
 Job enlargement is a horizontal restructuring method that aims at an increase in
the workforce flexibility and at the same time reducing monotony that may creep up
over a period of time. It is also known as horizontal loading in that the responsibilities
increase at the same level and not vertical.
Many believe that since the enlargement is horizontal in nature there is not a
great need for training! Contrary to this, job enlargement requires appropriate training
especially on time and people management. Task related training is not required much
since the person is already aware of the same or doing it for some time.
c. Job Enrichment:
Typically job enrichment involves combining various existing and new tasks into
one large module of work. The work is then handed over to an employee, which means
there is an increase in responsibilities and scope. This increase in responsibility has
been often vertical. The idea is to group various tasks together such that natural work
units are created.
In addition expanding jobs vertically also gives employee direct control over
works units and employees that were formerly under the jurisdiction of top management
only. While on one hand this increases the ownership of the employees in their work, it
also relieves the unnecessary burden from the top management.
Job enrichment also opens up a feedback channel for the employees. Employees
are frequently appraised of their performance. This keeps them on track and helps them
know their weaknesses and strong points. Performance standards are set for the
employees themselves and future performances are matched against the benchmarks.
All this is done without any serious intervention or involvement of the top management.

12.9 TRAINING AND DEVELOPMENT

Training and development is a vital part of the human resource development. It

has assumed ever important role in the wake of the advancement of technology which
has resulted in ever increasing competition, the rise in customer’s expectation of quality
and service and a subsequent need to lower costs. It is also becoming more important
globally in order to prepare workers for new jobs. In the current write up, we will focus
more on the emerging need of training and development, its implications upon individuals
and the employers.
Noted management author Peter Drucker said that the fastest growing industry
would be training and development as a result of replacement of industrial workers with
knowledge workers. In the United States, for example, according to one estimate
technology is the de-Skilling 75 % of the population. This is true for the developing
nations and for those who are on the threshold of development. In Japan for example,
with increasing number of women joining traditionally male jobs, training is required
not only to impart necessary job skills but also for preparing them for the physically
demanding jobs. They are trained in everything from sexual harassment policies to the
necessary job skills.
12.9.1 The Need for Training and Development
Before we say that technology is responsible for increased need of training inputs
to employees, it is important to understand that there are other factors too that contribute
to the latter. Training is also necessary for the individual development and progress of
the employee, which motivates him to work for a certain organization apart from just
money. We also require training update employees of the market trends, the change in
the employment policies and other things.
Michael Armstrong defines training as “the systematic development of the
knowledge, skills and attitudes required by an individual to perform adequately a given
task or job”. Edwin B Flipper opined that “training is the act of increasing knowledge and
skill of an employee for doing a particular job”
12.9.2 Assessing Training Needs
The needs analysis / assessment is carried out at three levels - organizational,
Individual and Job. We now take up each one of them in detail.
a. Organizational Analysis
The organizational analysis is aimed at short listing the focus areas for training within
the organization and the factors that may affect the same. Organizational mission, vision,
goals, people’s inventories, processes, performance data are all studied. The study gives
clues about the kind of learning environment required for the training. Motorola and
IBM for example, conduct surveys every year keeping in view the short term and long
term goals of the organization.
b. Job Analysis
The job analysis of the needs assessment survey aims at understanding the ‘what’ of the
training development stage. The kind of intervention needed is what is decided upon in
the job analysis. It is an objective assessment of the job wherein both the worker oriented
- approach as well as the task - oriented approach is taken into consideration. The worker
approach identifies key behaviors and ASK for a certain job and the task - oriented
approach identifies the activities to be performed in a certain job. The former is useful
in deciding the intervention and the latter in content development and program evaluation.
c. Individual Analysis
As evident from the name itself, the individual analysis is concerned with who in
the organization needs the training and in which particular area. Here performance is
taken out of the performance appraisal data and the same is compared with the expected
level or standard of performance. The individual analysis is also conducted through
questionnaires, 360 feedback, personal interviews etc. Likewise, many organizations
use competency ratings to rate their managers; these ratings may come from their
subordinates, customers, peers, bosses etc.
12.9.3 Methods of Training
The most widely used methods of training used by organizations are classified
into two categories: On-the-Job Training & Off-the-Job Training.
ON-THE-JOB TRAINING is given at the work place by superior in a relatively
short period of time. This type of training is cheaper & less time-consuming. This training
can be impacted by basically four methods: -
Coaching is learning by doing. In this, the superior guides his sub-ordinates &
give him/her job instructions. The superior points out the mistakes & give suggestions
for improvement.
Job Rotation: - In this method, the trainees move from one job to another, so that
he/she should be able to perform all types of jobs. E.g. In banking industry, employees
are trained for both back-end & front-end jobs. In case of emergency, (absenteeism or
resignation), any employee would be able to perform any type of job.
OFF THE JOB TRAINING: - This is given outside the actual workplace.
Lectures/Conferences: - This approach is well adapted to convey specific information,
rules, procedures or methods. This method is useful, where the information is to be
shared among a large number of trainees. The cost per trainee is low in this method.
Films: - can provide information & explicitly demonstrate skills that are not easily
presented by other techniques. Motion pictures are often used in conjunction with
Conference, discussions to clarify & amplify those points that the film emphasized.
Simulation Exercise: - Any training activity that explicitly places the trainee in an
artificial environment that closely mirrors actual working conditions can be considered
a Simulation. Simulation activities include case experiences, experiential exercises,
vestibule training, management games & role-play.
Cases: - present an in depth description of a particular problem an employee might
encounter on the job. The employee attempts to find and analyze the problem, evaluate
alternative courses of action & decide what course of action would be most satisfactory.
Experiential Exercises: - are usually short, structured learning experiences where
individuals learn by doing. For instance, rather than talking about interpersonal conflicts
& how to deal with them, an experiential exercise could be used to create a conflict
situation where employees have to experience a conflict personally & work out its
solutions.
Vestibule Training: - Employees learn their jobs on the equipment they will be using,
but the training is conducted away from the actual work floor. While expensive, Vestibule
training allows employees to get a full feel for doing tasks without real world pressures.
Additionally, it minimizes the problem of transferring learning to the job.
Role Play: - It’s just like acting out a given role as in a stage play. In this method of
training, the trainees are required to enact defined roles on the basis of oral or written
description of a particular situation.
Management Games: - The game is devised on a model of a business situation. The
trainees are divided into groups who represent the management of competing companies.
They make decisions just like these are made in real-life situations. Decisions made by
the groups are evaluated & the likely implications of the decisions are fed back to the
groups. The game goes on in several rounds to take the time dimension into account.
In-basket Exercise: - Also known as In-tray method of training. The trainee is presented
with a pack of papers and files in a tray containing administrative problems & is asked to
take decisions on these problems and are asked to take decisions on these within a
stipulated time. The decisions taken by the trainees are compared with one another. The
trainees are provided feedback on their performance
Activity F:
Multiple Choice Questions
1. According to —————— “the fastest growing industry would be training
and development as a result of replacement of industrial workers with knowledge workers”
a. Peter Drucker b. Flippo
c. Pepper d. Nadler
2. Which one of the following training methods is an on-the-job training method?
a. Role plays b. Case study
c. Job Rotation e. In- Basket Exercise
3. Case study is a technique of:
a. T-group learning b. off-the –job Training
c. Role plays d. In-Basket Training
4. A training, which is not conducted at the workplace, is called
a. on-the-job Training b. Off-the-job training
c. Job Enhancement d. Job Rotation
(Ans. 1.a.2.c 3.b 4.b)

12.10 PERFORMANCE APPRAISAL

A member in an organization expresses an opinion or views about others. The

opinion may be about the way of mixing with others, way of working, character, etc.
These opinions become a basis for the appraisal of an employee. A superior has some
opinion about his subordinates in determining many things like promotion, transfer,
training, pay fixation etc.
Performance Appraisal is the systematic evaluation of the performance of
employees and to understand the abilities of a person for further growth and development.
Edwin B Flippo, suggested that “performance appraisal in a systematic, periodic and so
far as humanly possible, an impartial rating of an employee’s excellence in matters
pertaining to his present job and to his potentialities for a better job”.
12.10.1 KINDS OF PERFORMANCE APPRAISAL Following are the tools used by the
organizations for Performance Appraisals of their employees.
 1. Ranking
2. Paired Comparison
3. Fused Distribution
4. Confidential Report
5. Essay Evaluation
6. Critical Incident
7. Checklists
8. Graphic Rating Scale
9. BARS
10. Forced Choice Method
11. MBO
12. Field Review Technique
We will be discussing the important performance appraisal tools and techniques
in detail.
1. Critical incident method
This format of performance appraisal is a method which is involved identifying
and describing specific incidents where employees did something really well or that
needs improving during their performance period.
2. Weighted checklist method
In this style, performance appraisal is made under a method where the jobs being
evaluated based on descriptive statements about effective and ineffective behavior on
jobs.
3. Paired comparison analysis
This form of performance appraisal is a good way to make full use of the methods
of options. There will be a list of relevant options. Each option is in comparison with the
others in the list. The results will be calculated and then such option with highest score
will be mostly chosen.
4. Graphic rating scales
This format is considered the oldest and most popular method to assess the
employee’s performance.
In this style of performance appraisal, the management just simply does checks on the
performance levels of their staff.
5. Essay Evaluation method
In this style of performance appraisal, managers/ supervisors are required to figure
out the strong and weak points of staff’s behaviors. Essay evaluation method is a non-
quantitative technique. It is often mixed with the method the graphic rating scale.
6. Behaviorally anchored rating scales
This formatted performance appraisal is based on making rates on behaviors or
sets of indicators to determine the effectiveness or ineffectiveness of working
performance. The form is a mix of the rating scale and critical incident techniques to
assess performance of the staff.
7. Performance ranking method
The performance appraisal of ranking is used to assess the working performance
of employees from the highest to lowest levels.
Managers will make comparisons of an employee with the others, instead of making
comparison of each employee with some certain standards.
8. Management By Objectives (MBO) method
MBO is a method of performance appraisal in which managers or employers set
a list of objectives and make assessments on their performance on a regular basis, and
finally make rewards based on the results achieved. This method mostly cares about the
results achieved (goals) but not to the way how employees can fulfill them.
9. 360 degree performance appraisal
The style of 360 degree performance appraisal is a method that employees will
give confidential and anonymous assessments on their colleagues. This post also
information that can be used as references for such methods of performance assessments
of 720, 540, 180…
10. Forced ranking (forced distribution)
In this style of performance appraisal, employees are ranked in terms of forced
allocations.
For instance, it is vital that the proportions be shared in the way that 10 or 20 %
will be the highest levels of performances, while 70 or 80% will be in the middle level
and the rest will be in the lower one.
11. Behavioral Observation Scales
The method based on the scales of observation on behaviors is the one in which
important tasks that workers have performed during their working time will be assessed
on a regular basis.

12.11 LETS US SUM UP

Staffing means filling positions in the organization structure, it involves

identifying workforce requirements, inventorying the people available. And recruiting,
selecting, placing, promoting, appraising, planning the careers of, compensating and
training people.
12.12 KEY WORDS

Potential: The inner strength, belief and capabilities of individuals to succeed in their
responsibilities.
Human Capital: is the stock of competencies, knowledge, social and personality
attributes, including creativity, embodied in the ability to perform labor so as to produce
economic value.
Appraisal: An expert or official evaluation.
Job enrichment: is the process of making a job more interesting, challenging and
satisfying for the employees.

12.13 SELF ASSESSMENT QUESTIONS

1. Explain the concept of staffing and brief the significant activities performed in it?
2. What are the sources of recruitment? What factors are to be considered while giving
promotion?
3. Describe the steps in recruitment and selection. What should be the features of a
sound promotion policy?
4. What do you mean by performance appraisal? Discuss its needs and importance in
an organization
5. What is meant by job design? Explain , different approaches to job design
6. What are the different types of training?
12.14 SUGGESTED ANSWER TO CHECK YOUR PROGRESS

1. The below listed are the sources of recruitment except

• Unsolicited applicants
• Private employment search firms
• Survey
• Job posting
2. A Good source of hiring technical staff would be
• Private search firms
• Campus selection
• Vocational schools
• Rival firms
3. Job evaluation is done by all of the below methods, except by
• Critical Incidental Evaluation
• Market pricing
• Point comparison method
• Factor comparison method
4. Evaluation of training program can be done by all, but
• Counseling
• Job Behaviour
• Reactions
• Ultimate Value
5. A The simplest type of individual evaluation method which gives objective or
descriptive statement for employee evaluation is
• Ranking Method
• Rating Method
• Checklist Method
• Comparison Method
12.15 REFERENCES
1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.
UNIT-13 : DIRECTING

Structure
13.0 Objectives
13.1 Introduction
13.2 Meaning of Directing
13.3 Definition of Directing
13.4 Characteristics of Directing
13.5 Significance of Directing
13.6 Process of Directing
13.7 Principles of Directing
13.8 Elements of Directing
13.9 Approaches of Directing
13.10 Summary
13.11 Self Assessment Questions
13.12 References

5
13.0 OBJECTIVES

After studying this unit, you should be able to:

• Give the meaning and definition of directing
• Identify characteristics of directing
• Evaluate the significance of directing
• Explain the process of directing
• Bringout the principles and elements of directing
• Discuss the approaches of directing

13.1 INTRODUCTION

In practice, management is essentially the art and process of getting things done.
The managers have therefore, the responsibility not only of planning and organizing
the operations but also of guiding and supervising the subordinates. This is the
managerial function of direction. In the words of Marshall “Directing involves
determining the course, giving orders and instructions and providing dynamic
leadership”.
At one time there was a management emphasis on “directing” in the directorial
(autocratic) sense, but in recent times, the concept of directing has become more
congruent with leading than with pushing. Thus today, directing is more related to
leading and leadership styles. Leadership in this context means the process whereby a
work environment is created in which people can do their best work and feel a
proprietary interest in producing a quality product or service. Keeping this in view let
us understand the directing and its elements in detail.

13.2 MEANING

Directing is said to be a process in which the managers instruct, guide and oversee
the performance of the workers to achieve predetermined goals. Directing is said to be
the heart of management process. Planning, organizing, staffing has got no importance
if direction function does not take place.

6
13.3 DEFINITION

“Directing involves determining the course, giving orders and instructions and
providing dynamic leadership”- Marshall.
“Directing concerns the total manner in which a manager influences the actions
of subordinates. It is the final action of a manager in getting others to act after all
preparations have been completed.” -Joseph Massie
“Direction is the impersonal aspect of managing by which subordinates are led
to understand and contribute effectively and efficiently to the attainment of enterprise
objectives.”-Koontz and O’Donnell
“Direction is telling people what to do and seeing that they do it to the best of
their ability. It includes making assignments, corresponding procedures, seeing that
mistakes are corrected, providing on-the-job instructions and of course, issuing orders.
“-Ernest Dale
“Direction is the sum total of managerial efforts that are applied for guiding
and inspiring the working terms to make better accomplishments in the organization. “
-S.S. Chatterjee
According to G. R. Terry - “Directing means moving to action and supplying
stimulative power to a group of persons”.
Another term used to describe this function is “Activating”. In the words of G.
R. Terry - “Activating means moving into action - supplying stimulative power to the
group”.

13.4 CHARACTERISTICS OF DIRECTING

Directing as a function of management has got the following characteristics

• Pervasive function
• Continuous activity
• Human factor
• Creative activity
• Executive function
• Delegate function

7
 Pervasive Function - Directing is required at all levels of organization. Every
manager provides guidance and inspiration to his subordinates.
Continuous Activity - Direction is a continuous activity as it continuous
throughout the life of organization.
Human Factor - Directing function is related to subordinates and therefore it
is related to human factor. Since human factor is complex and behavior is unpredictable,
direction function becomes important.
Creative Activity - Direction function helps in converting plans into
performance. Without this function, people become inactive and physical resources
are meaningless.
Executive Function - Direction function is carried out by all managers and
executives at all levels throughout the working of an enterprise; a subordinate receives
instructions from his superior only.
Delegate Function - Direction is supposed to be a function dealing with human
beings. Human behavior is unpredictable by nature and conditioning the people’s
behavior towards the goals of the enterprise is what the executive does in this function.
Therefore, it is termed as having delicacy in it to tackle human behavior.

13.5 SIGNIFICANCE OF DIRECTING

Directing or Direction function is said to be the heart of management of process

and therefore, is the central point around which accomplishment of goals take place. A
few philosophers call Direction as “Life spark of an enterprise”. It is also called as on
actuating function of management because it is through direction that the operation of
an enterprise actually starts. Being the central character of enterprise, it provides many
benefits to a concern which are as follows:
• Directing initiate action
• Direction integrates efforts
• Directing is means of motivation
• Directing provides stability
• Directing will enable to cope up with changes
• Directing helps in efficient utilization of resources

8
 Directing initiates actions: Directions is the beginning of the subordinate’s
execution of their work. Actions begin right from this function onward as the employees
learn their jobs and carry out the proper instructions that are given to them. Plans
which are made can be carried out only after the actual job begins and it is only then that
the direction turns out to be helpful.
Directing integrates efforts: The superiors are capable of directing, inspiring
and instructing the employees to work only by directing. To do this, every person
needs to work hard in order to accomplish the goals of an organization. Every
department’s efforts can be easily connected and included along with the other
departments through proper direction. This can also be achieved through influential
leadership and efficient communication. A concern achieves certain stability only
through effectively incorporating all the efforts made by all.
Directing is a means of motivation: The function of direction aids in achieving
all the goals effectively. A manager uses this motivation factor effectively in order to
enhance the employee’s performance in the organization. This can be easily achieved
by giving proper salaries or rewards and this in turn enables to help as a sort of ‘’Morale
Booster’’ for the employees in an organization. The employees can do their best through
effective motivation and this in turn aids in the eventual expansion of an organization.
Directing provides stability: An organization’s balance and constancy is very
vital for surviving in the market in the long run. The managers can achieve this
effectively by using four tools or essentials of direction, cautiously blending influential
leadership skills, able communication, a firm command and also a well-organized
motivation. Stability is very vital as it is an indication of the enterprise’s expansion.
Hence, a manager can utilize all the four traits within himself in order to uphold the
standards of performance of an organization.
Directing will enable to cope with the changes: It is normal for humans to
resist any new changes that are brought in an organization. However, in order to become
a leader in the market, it is important to able to adapt oneself to the ever-changing
environment which in turn aids in supporting planned growth of an organization. The
function of direction is necessary for meeting the new challenges in a fast-changing
environment, both internally and externally. The changes in an environment can be
managed easily through effective communication. The manager’s role is to effectively
communicate all the contents and nature of new modifications explicitly to the
employees. This aids in clarifying, easily adapting and an enterprise’s smooth

9
functioning. For instance, if an enterprise changes from handlooms to doing power looms,
it is necessary to bring about a vital change in the methods of production. This results in
a decrease of human labor and an increase in using more machines for this purpose.
Hence, in this case, the manager can explain to his employees that it is important to
bring about this change in order to benefit them. Production increases as a result of
utilization of more machines and this in turn results in more profits for the enterprise.
Hence, the subordinates are benefited indirectly through this change in the form of high
salaries being given to them.
Directing helps in efficient utilization of resources: The proper direction of
money aids in defining the roles and responsibilities of all the employees towards
their own work. Utilization of resources can be effectively done only when there is no
duplication of any efforts, no wastage, overlapping of achievements and so on. The
roles of employees become defined only through proper direction as the manager uses
his control, guiding and instructional abilities and skills of motivating and inspiring
all his subordinates in the organization. This aids in the greatest employment of
resources pertaining to humans, materials, machines and finance and this further aids
in cost reduction and an increase in profits of an organization.

13.6 PROCESS OF DIRECTING

Process of directing consist of four different stages and are as follows

1. Defining objectives
2. Organizing the efforts
3. Measuring the work
4. Developing the people

13.7 PRINCIPLES OF DIRECTING

Direction is always a complicated task as it involves dealing with employees of

different kind. A manager can become successful in the skill of efficient direction by
learning and practicing the basics of direction. Nevertheless, observing the following
principles is important for managers to guide his sub-ordinates;
• Principle of harmony of objectives
• Principle of scalar chain
• Principle of unity of command

10
 • Principle of unity of direction
• Principle of effective communication
• Principle of direct supervision
• Principle of effective leadership
• Principle of follow-up
Principle of harmony of objectives
An organization aims at achieving the predetermined objectives with the help of
people. With different techniques of direction management should try to integrate the
organisational and individual objectives. The interest of the group must always prevail
over individual interests. A manager must try to reconcile personal interest of the
subordinates with the common interest. Harmony of objectives makes the task of direction
easy.
Principle of scalar chain
Scalar chain means that chain of subordinates and superiors ranging from top to
the lowest ranks. This chain clearly establishes superior- subordinate relationships
and scope of authority is clearly defined. For carrying the function of direction
successfully a clear scalar chain is immensely helpful.
Principle of unity of command
Principle of unity of command means that a subordinate should get orders and
instructions from one boss only. The employee will be confused, if he has to report to
more than one superior. In the absence of unity of command, authority is undermined,
discipline weakened, Loyalty divided and confusion and delays in work are frequent.
Principle of unity of direction
For ensuring effective direction, there should be one head and one plan for a
group of activities having the same objectives. This principle clearly lays down that
the efforts of all the members should be directed by a single head for the accomplishment
of the objectives of the organization.
Principle of effective communication
Communication is an important instrument for effective direction. Without
communication, the function of direction cannot be performed. Two-way
communication provides an opportunity to the subordinates a chance to express their
feelings and the superior to know the feelings of the subordinates.

11
 A well knit system of communication provides for free flow of ideas, information,
suggestion, complaints and grievances.
Principle of direct supervision
The function of direction becomes more effective, if the supervisor maintains a
direct and personal contact with his subordinates. Direct supervision infuses a sense
of participation among the subordinates and encourages them to give their best to
attain the organisational goals.
It also boosts the morale of the employees, increases their loyalty and provides
the superior with immediate feedback about their performance.
Principle of effective leadership
Effective leadership is the essence of the function of direction. The superior
must possess the qualities of a good leader, if he is to get the work done from the
subordinates. Effective leadership is also helpful in winning the confidence of the
subordinates.
Principle of follow-up
A manager or the superior has to monitor or follow-up the performance of the
subordinates constantly so as to ensure that the work is being performed as per the
plans made. He should keenly observe the subordinates at work and correct them
wherever they go wrong.

13.8 ELEMENTS OF DIRECTING

Following are the elements of directing, managers has to consider while

performing the role of directing
• Delegating:
• Supervision
• Leadership
• Motivation
• Communication
• Coordination
Delegating
Delegation is a very important process to carry on the work systematically in the
organization. But delegation is not a process of abdication which means accountability

12
is absolute. It can never be passed or delegated. After creating accountability on
subordinates, the superiors also remain accountable.
Supervision
It refers to monitor the progress of routine work of one’s subordinates and guiding
them properly. Supervision is an important element of the directing function of
management. Supervision has an important feature that face-to-face contact between
the supervisor and his subordinate is a must.
Leadership
It refers to influence others in a manner to do what the leader wants them to do.
Leadership plays an important role in directing. Only through this quality, a manager
can inculcate trust and zeal among his subordinates.
Motivation
It refers to that process which excites people to work for attainment of the desired
objective. Among the various factors of production, it is only the human factor which
is dynamic and provides mobility to other physical resources.
If the human resource goes static then other resources automatically turn
immobile. Thus, it becomes essential to motivate the human resource to keep them
dynamic, aware and eager to perform their duty. Both the monetary and non-monetary
incentives are given to the employees for motivation.
Communication
It refers to an art of transferring facts, ideas, feeling, etc. from one person to
another and making him understand them. A manager has to continuously tell his
subordinates about what to do, how to do, and when to do various things.
Also, it is very essential to know their reactions. To do all this it becomes essential
to develop effective telecommunication facilities. Communication by developing mutual
understanding inculcates a sense of cooperation which builds an environment of
coordination in the organization.
Coordination
It refers to synchronization and integration of activities, responsibilities, and
command and control structures to ensure that the resources of an organization are used
most efficiently in pursuit of the specified objectives Along with organizing, monitoring,
and controlling, coordinating is one of the key functions of management.

13
13.9 APPROACHES TO DIRECTING

Approaches or styles of directing are as follows

• Consultative directing
• Free rein directing
• Autocratic directing
Consultative directing
Consultative direction promotes consultative leadership style, as the term implies,
leader is willing to consult the group and encourages his subordinates to present their
opinions for decision making process creating an environment of openness and
conviction. Owing to this style, there establishes two way method of communication
which leads to reach the conclusions as smoothly as possible. In other words, it is
seeking win-win solutions opening the doors of opinion to the talented employees.
Since a great concern of their leader to his subordinates is manifested by this method,
the employees develop the sense of confidence and their morale is enhanced accordingly.
Advantages of the consultative direction are many, whereas the disadvantages
in proportion are few, such as, it may be time consuming to reach the conclusions and
the subordinates may dominate or it may be that they may cause disruptions.
Nonetheless, talented employees seek their own ways to strengthen their professionalism
owing to the consultative direction.
Free rein directing
Free-rein Directing, also called Laissez-Faire, is a type of leadership style in
which managers are hands-off and allow group members to make the decisions. Mangers
set objectives and employees are free to do whatever is appropriate to accomplish
those objectives. The traits managers need in such organization includes warmth,
friendliness, and understanding. Free-rein is often the most successful style concerning
organization is which managers supervise doctors, engineers, professors and other
professionals.
Some of the primary characteristics of Free-rein Directing include:
• Very little guidance from leaders
• Complete freedom for followers to make decisions
• Leaders provide the tools and resources needed
• Group members are expected to solve problems on their own

14
The downside of Free-rein Directing:
• Not ideal in situations where group members lack the knowledge or experience they
need to complete tasks and make decisions.
• Some people are not good at setting their own deadlines, managing their own projects
and solving problems on their own.
• Lack of feedback
• Miscommunication among managers and group members
Autocratic directing
Autocratic Directing is a style characterized by individual control over all
decisions and little input from group members. Autocratic managers typically make
choices based on their own ideas and judgments and rarely accept advice from followers.
Autocratic directing involves absolute, authoritarian control over a group. This style
is effective in emergencies and when absolute followership is needed. This directing
style is also effective sometimes with new, relatively unskilled workers who need clear
direction and guidance.
Some of the primary characteristics of autocratic directing include:
• Little or no input from group members
• Leaders make the decisions
• Group leaders dictate all the work methods and processes
• Group members are rarely trusted with decisions or important tasks
The downside of autocratic directing includes:
• Viewed as bossy, controlling and dictatorial, which can lead to resentment among
group members.
• Group may dislike that they are unable to contribute ideas
• Lack of feedback from group members
• Lack of initiative from group members
13.10 SUMMARY

Directing is said to be a process in which the managers instruct, guide and oversee
the performance of the workers to achieve predetermined goals. Directing is said to be
the heart of management process. Planning, organizing, staffing has got no importance
if direction function does not take place.

15
 Directing initiates action and it is from here actual work starts. Direction is said
to be consisting of human factors. In simple words, it can be described as providing
guidance to workers is doing work. In field of management, direction is said to be all
those activities which are designed to encourage the subordinates to work effectively
and efficiently. According to Human, “Directing consists of process or technique by
which instruction can be issued and operations can be carried out as originally planned”
Therefore, Directing is the function of guiding, inspiring, overseeing and instructing
people towards accomplishment of organizational goals.

13.11 SELF ASSESSMENT QUESTIONS

1. Define directing
2. Explain the characteristics of directing
3. What are the significances of directing?
4. Critically evaluate the principles of directing
5. Discuss the process of directing.
6. Explain the key elements of directing
7. Discuss the approaches of directing.

13.12 REFERENCES

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.

16
UNIT -14 : COORDINATION

Structure
14.0 Objectives
14.1 Introduction
14.2 Meaning
14.3 Definition
14.4 Elements of Coordination
14.5 Characteristic features of Coordination
14.6 Types of Coordination
14.7 Principles of Coordination
14.8 Significance of Coordination
14.9 Techniques of Coordination
14.10 Summary
14.11 Self Assessment Questions
14.12 References

17
14.0 OBJECTIVES

After studying this unit, you should be able to:

• Give the meaning and definition of coordination
• Identify the elements of coordination
• Analyze characteristic features of coordination
• Explain the types of coordination
• Evaluate the significance of coordination
• Discuss the techniques of coordination

14.1 INTRODUCTION

Co-ordination is the unification, integration, synchronization of the efforts of

group members so as to provide unity of action in the pursuit of common goals. It is a
hidden force which binds all the other functions of management. According to Mooney
and Reelay, “Co-ordination is orderly arrangement of group efforts to provide unity of
action in the pursuit of common goals”. According to Charles Worth, “Co-ordination
is the integration of several parts into an orderly whole to achieve the purpose of
understanding”.
Management seeks to achieve co-ordination through its basic functions of
planning, organizing, staffing, directing and controlling. That is why; co-ordination is
not a separate function of management because achieving of harmony between
individuals efforts towards achievement of group goals is a key to success of
management. Co-ordination is the essence of management and is implicit and inherent
in all functions of management.

14.2 MEANING

“Coordination means integration of activities”

Coordination is done to achieve the objectives of the organization. Co-ordination
is a process. It is not fixed. It applies to group activities. It does not apply to individual
activities. The managers have to make special efforts to get coordination. Coordination
does not come automatically. Co-ordination leads to unity of action.
Coordination encourages team spirit. It gives proper direction to the organisation.
It motivates the employees. It makes proper use of the resources. Coordination affects

18
all the functions of management. Therefore, it is also called the “Essence of
Management”.

14.3 DEFINITION

According to G.R. Terry “coordination is the orderly synchronization of efforts

to provide the proper amount, timing and directing of execution in harmonious and
unified actions to a unified actions to a stated objectives”
According to Henry Fayol “To coordinate is to harmonize all the activities of a
concern in order to facilitate its working and success”
14.4 ELEMENTS OF COORDINATION

According to Louis Allen co-ordination comprises three principal elements or steps-

• Balancing
• Timing and
• Integrating.
Balancing implies that something is provided more in order to compensate for
some other thing which is less. Thus in a large organisation it involves the provision to
staff support to the line personnel and vice versa.
Timing suggests that different parts of an operation are carried on according to
such schedules that the beginning of each part synchronizes with the end of the
preceding part and its end, in turn with the beginning of the following part.
Integrating is the effective co-ordination of different elements’ and diverse
interests so that all the units of the organisation and whatever they do ultimately conform
to the common goal of the enterprise.

14.5 CHARACTERISTIC FEATURES OF COORDINATION

Coordination is a process to establish harmony among the different activities of

an organisation, so that the desired objectives can be achieved. Definitions of
coordination present the following facts about its characteristics:
(1) Coordination Integrates Group Effort:
The need for coordination is felt when group effort is needed for the
accomplishment of an objective. In short, it can be said that coordination is related to
group effort and not individual effort. The question of coordination does not arise, if
the job is done by one person only.

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(2) Coordination Ensures Unity of Action:
The nature of coordination is of creating unity in action. It means during
coordinating process an effort is made to create unity among the various activities of
an organisation. For example, the purchase and sales departments have to coordinate
their efforts so that supply of goods takes place according to purchase orders.
(3) Coordination is a Continuous Process:
It is not a job which can be performed once and for all, but its need is felt at
every step. Many activities are performed in a business. Sometimes or the other, if any
one of the activities goes on fluctuating either for more or less than required, the
whole organisational balance is disrupted. Thus, a close watch has to be kept on all the
activities to maintain the balance.
(4) Coordination is an All-pervasive Function:
Pervasiveness refers to that truth which is applicable to all spheres (business
and non-business organisations) and places uniformly. The nature of coordination is
pervasive. Like making of time­table in an educational institution is an apt example of
establishing coordination.
In the game of cricket, the placement of players at pre-determined positions is
nothing but coordination. In the same manner, to synchronise the activities of different
departments, like purchase, sales, production, finance, etc. in a business organisation
is coordination.
(5) Coordination is the Responsibility of All Managers:
Coordination is needed at all the three, i.e., top, middle and lower managerial
levels. Different activities performed at all the levels are equally important. Thus it is
the responsibility of all the managers that they make efforts to establish coordination.
That is why, it could not be said that coordination is of more importance to any one
particular managerial level or a manager.
(6) Coordination is a Deliberate Function:
Coordination is never established by itself but it is a deliberate effort. Only
cooperation does not suffice but coordination is also needed. For example, a teacher
aspires to teach effectively (this is cooperation) but the timetable is not prepared in the
school (this is lack of coordination).

20
 In this situation, classes cannot be arranged for. Here, the effort made by the
teacher is meaningless, in the absence of coordination. On the other hand, in the absence
of cooperation, coordination dissatisfies the employees. Thus, both are required at a
given point of time.

14.6 TYPES OF COORDINATION

Depending upon the nature and coverage, coordination may be studied under
different types. On the basis of its coverage, coordination may be divided into two
types, such as, internal and external. Another type of classification is possible on the
basis of its flow under two headings, mainly, vertical and horizontal coordination.
Internal coordination
Coordination between units of the sale organization is termed as internal
coordination. It summarizes the activities of different units so as to make the
organization store effective.
External coordination
Organizations are not free from the influence of external environment. Hence,
establishing a close link between organisations and external environment is a must
either to survive or surpass the growing competition. External environment includes
technology, competition, market forces, customers Government policy etc. External
co-ordination tries to coordinate all these forces up to the advantage of an organization.
Vertical and Horizontal Coordination
Coordination between different levels of hierarchy down the line is termed as
“vertical coordination”. It ensures that all levels of people, from top to the bottom,”
fork in harmony. It is greatly facilitated by a technique like delegation of authority to
the lower levels of hierarchy.
Coordination between people of the same cadre and between different
departments at the same level is termed as “Horizontal Coordination”.

14.7 PRINCIPLES OF COORDINATION

A good coordination depends on well defined principles and they are as follows:
1. Simplified Organization: – Authority, responsibility, duty and other job description
should clearly be described by the organization. Coordination may be simple and easy
when all duties and power are clearly simplified.

21
2. Harmonized Programs and Policies: – An organization must set the programs and
policies. These programs and policies must be harmonized. Harmonized policies help
to make coordination effective.
3. Well Designed System of Communication: – Without effective communication
coordination and harmonizing activities is not possible. Therefore, communication
system must be well designed.
4. Voluntary Cooperation: - When all members of the organization are voluntarily
cooperated, then only coordination can be successful.
5. Coordination Through Supervision: -Supervisors are most important actor to
coordinate the workers and their work. Mainly in all organization supervisors coordinate
the resources and activities.
6. Continuity: – It is never ending process. When it is done continuously, the resources
are not used effectively and they cannot provide the contribution.
7. Direct Contact: – Direct contact is necessary in effective coordination. Face to
face contact may provide more effectiveness
8. Clearly Defined Goals: – Organizational goals and other departmental goals must
be clearly defined otherwise it isn’t easy to coordinate the resources and activities.
9. Effective Leadership: – Leadership must be effective. It helps to increase the
confidence of employees and it develops the morale of workers. In fact effective
leadership helps in effective coordination.

14.8 SIGNIFICANCE OF COORDINATION

Coordination is required whenever and wherever a group of persons work

together to achieve common objectives. It is the basic cement­ing force in an
organisation. Coordination becomes necessary because of the following disintegrating
forces.
1. Increase in Size and Complexity of Operations:
Growth in the number and complexity of activities is the major factor requiring
coordination. Need for coordination arises as soon as the operations become multiple,
diversified and complex. In a large organisation, a large number of individuals are
employed.

22
 These people may work at cross purposes if their efforts and activities are not
properly coordinated. Increasing scale of operations may also increase geographical
distance among the members of the organisation. Several layers of authority create
problem of communication.
Personal contact is not possible and formal methods of coordination become
essential. Operations are multifarious and there are too many centrifugal forces.
Therefore, constant efforts are required to ensure harmonious functioning of
the enterprise. As the size of organisation increases, the task of coordination becomes
increasingly difficult.
2. Specialization:
Division and subdivision of work into specialized functions and departments,
leads to diversity of tasks and lack of uniformity. Specialists in charge of various
departments focus on their own functions with little regard to other functions.
For example, production department may insist on the manufacture of those
products which are convenient and economical to produce overlooking their suitability
to consumers. It becomes necessary to synchronies the diverse and specialized activities
of different units to create unity in the midst of diversity.
Generally, greater the division of labor more is the need for coordination.
Specialization will not yield desired results unless specialized efforts are ‘effectively
integrated. Where division of labor is inevitable, coordination becomes mandatory.
Need to specialise leads to horizontal and vertical differentiation of
organizational activities. The greater the differentiations, more serious are the problems
of communication and coordination.
3. Clash of Interests:
Individuals join an organisation to fulfill their personal goals, i.e., their
physiological and psychological needs. Often individuals fail to appreciate how the
achievement of organizational goals will satisfy their own goals. They may pursue
their own specialized personal interests often at the expense of the larger organizational
goals.
They tend to work at cross-purposes. Coordination helps to avoid conflict between
individual and organizational goals. It brings about harmony between the two types of
goals by making individuals see how their jobs contribute to the common goals of the

23
organisation. Coordination avoids all splintering efforts that may destroy the unity of
action.
4. Different Outlook:
Every individual in the organisation has his own way of working and approach
towards problems. Capacity, talent and speed of people differ widely. It becomes
imperative to reconcile differences in approach, timing and effort of different
departments to secure unity of action.
Cooperation serves as the binding force in an organisation in the face of narrow
and sectional outlook. Coordination becomes difficult due to differences in the attitudes
and working styles of personnel.
5. Interdependence of Units:
Various units of an organisation depend upon one another for their successful
functioning. For instance the spinning plant supplies yarn to the weaving plant.
The output of one unit serves as the input of another unit. James D. Thompson
has identified three types of interdependence, namely,
(a) Pooled interdependence,
(b) Sequential interdependence, and
(c) Reciprocal interdependence.
Pooled interdependence refers to the situation wherein the various departments
of an organisation functions as autonomous units and do not depend on each other for
the performance of their day-today-activities. In sequential interdependence, the work
of different units forms a sequence and one unit cannot do its work until the work in
preceding unit has been compelted.
In reciprocal interdependence, different units are reciprocally related and there
is a give and take relationship among them. The need for coordination increases with
an increase in the interdependence between organizational units. It is highest in
reciprocal interdependence, higher in sequential interdependence and high in pooled
interdependence.
6. Conflicts:
In an organisation, conflicts may arise between line managers and staff specialists
or between management and workers. Human nature is such that a person emphasizes
his own area of interest and does not want to get involved in the activities of others.
Coordination avoids potential sources of conflict.

24
7. Empire-building:
In order to boost up self-importance and personal ego, some members of the
organisation tend to over-emphasize their own activities. Such empire-builders try to
get maximum possible share of the total resources for their own units as if the units
were separate entities.
This empire building tendency does not allow cooperation and self-coordination.
Special efforts become necessary to coordinate the activities and efforts of empire-
builders.
8. Personal Jealousies and Rivalries:
Personality clashes are quite common in human organizations. Members of rival
groups deliberately sabotage coordination. In their efforts to settle personal scores,
some persons do not permit harmonious action or team work. Such rivalry is often
accentuated by lack of clear-cut goals and specific authority limits.

14.9 TECHNIQUES OF COORDINATION

The basic objective of all managerial functions is to get things done by

coordinated efforts of other. Thus, every function leads to coordination. However,
following are the specific techniques for achieving coordination.
1. Well defined goals: – The first means or technique of coordination is well
defined goals. The goals of the organization should be clear and well defined. Each
individual in the organization should understand the overall goals. When the goals are
not well defined the coordination may not effective.
2. Sound organization structure: – Coordination is the essence of management.
It is not possible without sound organization structure. The authority and responsibility
for each and every positions and employees should be clearly defined.
3. Effective communication: – Coordination helps in creating proper
understanding among persons. Without effective communication, coordination may
be effective. The ideas, opinions should be interchanged freely. It is only through
effective communication that even individual understand his/her limitations, positions
and responsibility in the organization. Effective communication helps in coordination.
Therefore, it is also an important means of coordination.
4. Proper leadership: – Proper leadership leads the subordinates effectively
and efficiently. A good managerial leader uses the motivational tools to coordinate the

25
employees with effective communication system. In short, coordination is made possible
through proper leadership.
5. Proper supervision: – Supervisors coordinate the subordinates and their
activities. Top level management cannot coordinate all employees. In short, proper
supervision helps in effective coordination.
6. Better plans and policies: – Coordination is made according to plans and
policies of the organization and departments. When the plans and policies are not
better coordination is not effective in the organization.
7. Cooperation: – Without cooperation, coordination may not succeed because
coordination is related to employees and their activities. When they are not cooperative,
coordination may not be made. So, cooperation is essential in the organization.
8. Meeting and conference: – Coordination may be possible when all employees
their all activities and departmental goals are involved in organizational planning and
policies. Their all problems and matters may be involved. When there is environment of
constructive discussion and debate with meeting and conference.
9. Group decision: – The group decision is a decision in which all members of
the organization are participated to make decisions. The ideas and feelings are mixed
into the decision and coordination may succeed.

14.10 SUMMARY

“Co-ordination is the Essence of Management.” The meaning of this sentence

implies, Co-ordination affects all the functions of management. In other words, Co-
ordination affects Planning, Organizing, Staffing, Directing, Communication, Leading,
Motivating and Controlling.
Now we can conclude that all the functions of management are affected by
coordination. Hence coordination is essential for achieving the objectives of the
organisation. It is also required for the survival, growth and profitability of the
organisation. Coordination encourages team spirit, gives right direction, motivates
employees, and makes proper utilization of resources. Therefore, Coordination is rightly
called the “Essence of Management”.

26
14.11 SELF ASSESSMENT QUESTIONS

1. What do you mean by coordination? Add a note on elements of coordination.

2. Define coordination.
3. Discuss the various characteristic features of coordination and evaluate the suitability
of these characters in the modern organisations.
4. Explain the various types of coordination with suitable examples.
5. What are the principles of coordination? Discuss them in detail with suitable
examples.
6. Discuss the various techniques of coordination.
14.12 REFERENCES

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.

27
UNIT- 15 : LEADERSHIP

Structure
15.0 Objectives
15.1 Introduction
15.2 Definition of Leadership
15.3 Formal and Informal Leadership Styles
15.4 Theories of Leadership
15.5 Styles of Leadership
15.6 Qualities and Characteristics of Good Leader
15.7 Summary
15.8 Self Assessment Questions
15.9 References

28
15.0 OBJECTIVES

After studying this unit, you should be able to:

• Define leadership
• Evaluate formal and informal leadership styles
• Analyze various theories of leadership
• Explain various styles of leadership
• Identify qualities and characteristics of good leader

15.1 INTRODUCTION

In the earlier units we have discussed about directing and coordinating as an

important activities of management in achieving the goals of organisation. In this unit
we will understand the third aspect that is leadership; an organization has the greatest
chance of being successful when all of the employees work toward achieving its goals.
Since leadership involves the exercise of influence by one person over others, the
quality of leadership exhibited by supervisors is a critical determinant of organizational
success. Thus, supervisors study leadership in order to influence the actions of
employees toward the achievement of the goals of the organization.
Supervisors can learn about leadership through research. Leadership studies
can be classified as trait, behavioral, contingency, and transformational. Earliest theories
assumed that the primary source of leadership effectiveness lay in the personal traits
of the leaders themselves. Yet, traits alone cannot explain leadership effectiveness.
Thus, later research focused on what the leader actually did when dealing with
employees. These behavioral theories of leadership sought to explain the relationship
between what the leaders did and how the employees reacted, both emotionally and
behaviorally. Yet, behavior can’t always account for leadership in different situations.
Thus, contingency theories of leadership studied leadership style in different
environments. Transactional leaders, such as those identified in contingency theories,
clarify role and task requirements for employees. Yet, contingency can’t account for
the inspiration and innovation that leaders need to compete in today’s global market
place. Newer transformational leadership studies have shown that leaders, who are
charismatic and visionary, can inspire followers to transcend their own self-interest
for the good of the organization.

29
15.2 DEFINITION OF LEADERSHIP

A traditional definition of leadership: Leadership is an interpersonal influence

directed toward the achievement of a goal or goals.
Three important parts of this definition are the terms interpersonal, influence,
and goal.
• Interpersonal means between persons. Thus, a leader has more than one person
(group) to lead.
• ·Influence is the power to affect others.
• Goal is the end one strives to attain.
Basically, this traditional definition of leadership says that a leader influences
more than one person toward a goal.
After understanding the traditional definition of leadership let us understand
the standard definition
LEADERSHIP is a dynamic relationship based on mutual influence and common
purpose between leaders and collaborators in which both are moved to higher levels
of motivation and moral development as they affect real, intended change.
Three important parts of this definition are the terms relationship, mutual, and
collaborators. Relationship is the connection between people. Mutual means shared in
common. Collaborators cooperate or work together.
This definition of leadership says that the leader is influenced by the collaborators
while they work together to achieve an important goal.
15.3 FORMAL AND INFORMAL LEADERSHIP STYLES

As we have seen the definition of leadership let us try to understand the styles
of leadership. In general leadership styles are classified as Formal and Informal,
Formal Leadership Style is usually exercised through an official position or a
grant of authority from an organization to accomplish a specific task or mission. Leaders
using a formal leadership style are generally more concerned with getting the job done
than the welfare of the people doing the job.
Leadership strategies within formal leadership style are coercive, authoritative,
and affirmative. Coercive leaders expect immediate responses, authoritative leaders
expect positive responses to directions, and affirmative leaders capitalize on the skills
of people within a group.

30
 Informal Leadership Style is not based on a grant of authority but is a result of
a person’s innate ability to lead others. Informal leadership skills result from a
combination of natural ability, training and work experience. Informal leadership style
is characterized by democratic and performance strategies. Democratic leadership
strategies focuses on encouraging group participation and decision process input.
Performance-based leadership strategies focus on getting people to follow your example
of taking the lead and getting the job done.

15.4 THEORIES OF LEADERSHIP

As we have seen in the introduction, over the time; various theories of leadership
has been developed, let s try to understand each of them in detail.
1. Great Man Theory
2. Trait Theory
3. Behavioral Theories
a. Role Theory
b. The Managerial Grid
4. Participative Leadership
a. Lewin’s Leadership Styles
b. Likert’s Leadership Styles
5. Situational Leadership
a. Hersey and Blanchard’s Situational Leadership
b. Vroom and Yetton’s Normative Model
c. House’s Path-Goal Theory of Leadership
6. Contingency Theories
a. Fiedler’s Least Preferred Co-worker (LPC) Theory
b. Cognitive Resource Theory
c. Strategic Contingencies Theory
7. Transactional Leadership
a. Leader-Member Exchange (LMX) Theory

31
8. Transformational Leadership
a. Bass’ Transformational Leadership Theory
b. Burns’ Transformational Leadership Theory
c. Kouzes and Posner’s Leadership Participation Inventory
1. Great man theory: this theory was originally proposed by Thomas Carlyle
The Assumptions of this theory are:
• Leaders are born and not made.
• Great leaders will arise when there is a great need.
Description
Early research on leadership was based on the study of people who were already
great leaders. These people were often from the aristocracy, as few from lower classes
had the opportunity to lead. This contributed to the notion that leadership had something
to do with breeding.
The idea of the Great Man also strayed into the mythic domain, with notions
that in times of need, a Great Man would arise, almost by magic. This was easy to
verify, by pointing to people such as Eisenhower and Churchill, let alone those further
back along the timeline, even to Jesus, Moses, Mohammed and the Buddha.
Discussion
Gender issues were not on the table when the ‘Great Man’ theory was proposed.
Most leaders were male and the thought of a Great Woman was generally in areas
other than leadership. Most researchers were also male, and concerns about androcentric
bias were a long way from being realized.
It has been said that history is nothing but stories of great men. Certainly, much
has this bias, although there is of course also much about peoples and broader life.
2. Trait theory
This theory has got some assumptions and are as follows
Assumptions
• People are born with inherited traits.
• Some traits are particularly suited to leadership.
• People who make good leaders have the right (or sufficient) combination of traits.

32
 Description
Early research on leadership was based on the psychological focus of the day,
which was of people having inherited characteristics or traits. Attention was thus put
on discovering these traits, often by studying successful leaders, but with the underlying
assumption that if other people could also be found with these traits, then they, too,
Traits
could also become great leaders.
Stogdill (1974) identified the following traits and skills as critical to leaders.

Traits Skills

• Adaptable to situations • Clever (intelligent)

• Alert to social environment • Conceptually skilled
• Ambitious and achievement-orientated • Creative
• Assertive • Diplomatic and tactful
• Cooperative • Fluent in speaking
• Decisive • Knowledgeable about group task
• Dependable • Organized (administrative ability)
• Dominant (desire to influence others) • Persuasive
• Energetic (high activity level) • Socially skilled
• Persistent, Self-confident
• Tolerant of stress
• Willing to assume responsibility

McCall and Lombardo (1983) researched both success and failure identified
four primary traits by which leaders could succeed or ‘derail’:
• Emotional stability and composure: Calm, confident and predictable, particularly
when under stress.
• Admitting error: Owning up to mistakes, rather than putting energy into covering
up.
• Good interpersonal skills: Able to communicate and persuade others without
resort to negative or coercive tactics.

33
• Intellectual breadth: Able to understand a wide range of areas, rather than having
a narrow (and narrow-minded) area of expertise.
Discussion
There have been many different studies of leadership traits and they agree only
in the general saintly qualities needed to be a leader.
For a long period, inherited traits were sidelined as learned and situational factors
were considered to be far more realistic as reasons for people acquiring leadership
positions.
Paradoxically, the research into twins who were separated at birth along with
new sciences such as Behavioral Genetics have shown that far more is inherited than
was previously supposed. Perhaps one day they will find a ‘leadership gene’.
3. Behavioral Theory:
Assumptions
• Leaders can be made, rather than are born.
• Successful leadership is based in definable, learnable behavior.
Description
Behavioral theories of leadership do not seek inborn traits or capabilities. Rather,
they look at what leaders actually do.
If success can be defined in terms of describable actions, then it should be
relatively easy for other people to act in the same way. This is easier to teach and learn
then to adopt the more ephemeral ‘traits’ or ‘capabilities’.
Discussion
Behavioral is a big leap from Trait Theory, in that it assumes that leadership
capability can be learned, rather than being inherent. This opens the floodgates to
leadership development, as opposed to simple psychometric assessment that sorts those
with leadership potential from those who will never have the chance.
A behavioral theory is relatively easy to develop, as you simply assess both
leadership success and the actions of leaders. With a large enough study, you can then
correlate statistically significant behaviors with success. You can also identify behaviors
which contribute to failure, thus adding a second layer of understanding.

34
a. Role theory
Assumptions
• People define roles for themselves and others based on social learning and reading.
• People form expectations about the roles that they and others will play.
• People subtly encourage others to act within the role expectations they have for
them.
• People will act within the roles they adopt.
Description
We all have internal schemas about the role of leaders, based on what we read,
discuss and so on. We subtly send these expectations to our leaders, acting as role
senders, for example through the balance of decisions we take upon ourselves and the
decisions we leave to the leader.
Leaders are influenced by these signals, particularly if they are sensitive to the
people around them, and will generally conform to these, playing the leadership role
that is put upon them by others.
Within organizations, there is much formal and informal information about what
the leader’s role should be, including ‘leadership values’, culture, training sessions,
modeling by senior managers, and so on. These and more (including contextual factors)
act to shape expectations and behaviors around leadership.
Role conflict can also occur when people have differing expectations of their
leaders. It also happens when leaders have different ideas about what they should be
doing vs. the expectations that are put upon them.
Discussion
Role expectations of a leader can vary from very specific to a broad idea within
which the leader can define their own style.
When role expectations are low or mixed, then this may also lead to role conflict.
b. Managerial Grid
Description
Leaders may be concerned for their people and they also must also have some
concern for the work to be done. The question is, how much attention to they pay to
one or the other? This is a model defined by Blake and Mouton in the early 1960s.

35
 Country
Team
High Club
management
management

Concern for
Middle of the
People Medium
road management

Impoverished Authority-
Low
management compliance

Low Medium High

Concern for Production (Task)

Impoverished management
Minimum effort to get the work done, a basically lazy approach that avoids as
much work as possible.
Authority-compliance
Strong focus on task, but with little concern for people Focus on efficiency,
including the elimination of people wherever possible.
Country Club management
Care and concern for the people, with a comfortable and friendly environment
and collegial style. But a low focus on task may give questionable results.
Middle of the road management
A weak balance of focus on both people and the work. Doing enough to get
things done, but not pushing the boundaries of what may be possible.
Team management
Firing on all cylinders: people are committed to task and leader is committed to
people (as well as task).

36
Discussion
This is a well-known grid that uses the Task vs. Person preference that appears in
many other studies, such as the Michigan Leadership Studies and the Ohio State
Leadership Studies. Many other task-people models and variants have appeared since
then. They are both clearly important dimensions, but as other models point out, they
are not all there is to leadership and management.
The Managerial Grid was the original name. It later changed to the Leadership
Grid.
4. Participative leadership theory
Assumptions
• Involvement in decision-making improves the understanding of the issues involved
by those who must carry out the decisions.
• People are more committed to actions where they have involved in the relevant
decision-making.
• People are less competitive and more collaborative when they are working on
joint goals.
• When people make decisions together, the social commitment to one another is
greater and thus increases their commitment to the decision.
• Several people deciding together make better decisions than one person alone.
Style
A Participative Leader, rather than taking autocratic decisions, seeks to involve
other people in the process, possibly including subordinates, peers, superiors and other
stakeholders. Often, however, as it is within the managers’ whim to give or deny control
to his or her subordinates, most participative activity is within the immediate team.
The question of how much influence others are given thus may vary on the manager’s
preferences and beliefs, and a whole spectrum of participation is possible, as in the
table below.

37
< Not participative Highly participative >

Leader
Team
proposes
proposes Joint decision
Autocratic decision by decision, Full delegation of
decision, with team as
leader listens to decision to team
leader has equals
feedback, then
final decision
decides

There are many varieties on this spectrum, including stages where the leader sells
the idea to the team. Another variant is for the leader to describe the ‘what’ of objectives
or goals and let the team or individuals decide the ‘how’ of the process by which the
‘how’ will be achieved (this is often called ‘Management by Objectives’).
The level of participation may also depend on the type of decision being made.
Decisions on how to implement goals may be highly participative, whilst decisions
during subordinate performance evaluations are more likely to be taken by the manager.
Discussion
There are many potential benefits of participative leadership, as indicated in
the assumptions, above.
This approach is also known as consultation, empowerment, joint decision-
making, democratic leadership, Management By Objective (MBO) and power-sharing.
Participative Leadership can be a sham when managers ask for opinions and
then ignore them. This is likely to lead to cynicism and feelings of betrayal.
a. Lewin’s leadership styles
Description
Kurt Lewin and colleagues did leadership decision experiments in 1939 and
identified three different styles of leadership, in particular around decision-making.
I. Autocratic
In the autocratic style, the leader takes decisions without consulting with others.
The decision is made without any form of consultation. In Lewin’s experiments, he
found that this caused the most level of discontent.

38
 An autocratic style works when there is no need for input on the decision, where
the decision would not change as a result of input, and where the motivation of people
to carry out subsequent actions would not be affected whether they were or were not
involved in the decision-making.
II. Democratic
In the democratic style, the leader involves the people in the decision-making,
although the process for the final decision may vary from the leader having the final
say to them facilitating consensus in the group.
Democratic decision-making is usually appreciated by the people, especially if
they have been used to autocratic decisions with which they disagreed. It can be
problematic when there are a wide range of opinions and there is no clear way of
reaching an equitable final decision.
III. Laissez-Faire
The laissez-faire style is to minimize the leader’s involvement in decision-
making, and hence allowing people to make their own decisions, although they may
still be responsible for the outcome.
Laissez-faire works best when people are capable and motivated in making their
own decisions, and where there is no requirement for a central coordination, for example
in sharing resources across a range of different people and groups.
Discussion
In Lewin his colleagues experiments, he discovered that the most effective style
was Democratic. Excessive autocratic styles led to revolution, whilst under a Laissez-
faire approach, people were not coherent in their work and did not put in the energy
that they did when being actively led.
These experiments were actually done with groups of children, but were early
in the modern era and were consequently highly influential.
b. Likert’s leadership styles
Description
Rensis Likert identified four main styles of leadership, in particular around
decision-making and the degree to which people are involved in the decision.

39
I. Exploitive authoritative
In this style, the leader has a low concern for people and uses such methods as
threats and other fear-based methods to achieve conformance. Communication is almost
entirely downwards and the psychologically distant concerns of people are ignored.
II. Benevolent authoritative
When the leader adds concern for people to an authoritative position, a
‘benevolent dictatorship’ is formed. The leader now uses rewards to encourage
appropriate performance and listens more to concerns lower down the organization,
although what they hear is often rose-tinted, being limited to what their subordinates
think that the boss wants to hear. Although there may be some delegation of decisions,
almost all major decisions are still made centrally.
III. Consultative
The upward flow of information here is still cautious and rose-tinted to some
degree, although the leader is making genuine efforts to listen carefully to ideas.
Nevertheless, major decisions are still largely centrally made.
IV. Participative
At this level, the leader makes maximum use of participative methods, engaging
people lower down the organization in decision-making. People across the organization
are psychologically closer together and work well together at all levels.
Discussion
This is a classic 1960s view in that it is still very largely top-down in nature,
with the cautious addition collaborative elements towards the Utopian final state.
5. Situational Leadership
Assumptions
• The best action of the leader depends on a range of situational factors.
Style
When a decision is needed, an effective leader does not just fall into a single
preferred style, such as using transactional or transformational methods. In practice,
as they say, things are not that simple.
Factors that affect situational decisions include motivation and capability of
followers. This, in turn, is affected by factors within the particular situation. The

40
relationship between followers and the leader may be another factor that affects leader
behavior as much as it does follower behavior.
The leaders’ perception of the follower and the situation will affect what they
do rather than the truth of the situation. The leader’s perception of themselves and
other factors such as stress and mood will also modify the leaders’ behavior.
Yukl (1989) seeks to combine other approaches and identifies six variables:
• Subordinate effort: the motivation and actual effort expended.
• Subordinate ability and role clarity: followers knowing what to do and how to
do it.
• Organization of the work: the structure of the work and utilization of resources.
• Cooperation and cohesiveness: of the group in working together.
• Resources and support: the availability of tools, materials, people, etc.
• External coordination: the need to collaborate with other groups.
Leaders here work on such factors as external relationships, acquisition of
resources, managing demands on the group and managing the structures and culture of
the group.
Discussion
Tannenbaum and Schmidt (1958) identified three forces that led to the leader’s
action: the forces in the situation, the forces in then follower and also forces in the
leader. This recognizes that the leader’s style is highly variable, and even such distant
events as a family argument can lead to the displacement activity of a more aggressive
stance in an argument than usual.
Maier (1963) noted that leaders not only consider the likelihood of a follower
accepting a suggestion, but also the overall importance of getting things done. Thus in
critical situations, a leader is more likely to be directive in style simply because of the
implications of failure.
a. Hersey and Blanchard’s Approach
Assumptions
Hersey and Blanchard (1999) and other books suggest leaders should adapt
their style to follower development style (or ‘maturity’), based on how ready and willing
the follower is to perform required tasks (that is, their competence and motivation).

41
 There are four leadership styles (S1 to S4) that match the development levels
(D1 to D4) of the followers.
The four styles suggest that leaders should put greater or less focus on the task
in question and/or the relationship between the leader and the follower, depending on
the development level of the follower.
Style
Follower development level

Low High
Leadership style in response to
R4 R3 R2 R1
follower development level
Task / directive behavior

Low High

High
S3 S2

Partici- Selling

Relationship / pating
supportive
behavior

S4 S1

Dele- Telling

gating
Low

S1: Telling / Directing

Follower: R1: Low competence, low commitment / Unable and unwilling or insecure
Leader: High task focus, low relationship focus
When the follower cannot do the job and is unwilling or afraid to try, then the
leader takes a highly directive role, telling them what to do but without a great deal of
concern for the relationship. The leader may also provide a working structure, both for
the job and in terms of how the person is controlled.

42
 The leader may first find out why the person is not motivated and if there are any
limitations in ability. These two factors may be linked, for example where a person believes
they are less capable than they should be may be in some form of denial or other coping.
They follower may also lack self-confidence as a result.
If the leader focused more on the relationship, the follower may become confused
about what must be done and what is optional. The leader thus maintains a clear ‘do
this’ position to ensure all required actions are clear.
S2: Selling / Coaching
Follower: R2: Some competence, variable commitment / Unable but willing or
motivated
Leader: High task focus, high relationship focus
When the follower can do the job, at least to some extent, and perhaps is over-
confident about their ability in this, then ‘telling’ them what to do may demotivate
them or lead to resistance. The leader thus needs to ‘sell’ another way of working,
explaining and clarifying decisions.
The leader thus spends time listening and advising and, where appropriate,
helping the follower to gain necessary skills through coaching methods.
Note: S1 and S2 are leader-driven.
S3: Participating / Supporting
Follower: R3: High competence, variable commitment / Able but unwilling or insecure
Leader: Low task focus, high relationship focus
When the follower can do the job, but is refusing to do it or otherwise showing
insufficient commitment, the leader need not worry about showing them what to do,
and instead is concerned with finding out why the person is refusing and thence
persuading them to cooperate.
There is less excuse here for followers to be reticent about their ability, and the
key is very much around motivation. If the causes are found then they can be addressed
by the leader. The leader thus spends time listening, praising and otherwise making
the follower feel good when they show the necessary commitment.

43
S4: Delegating / Observing
Follower: R4: High competence, high commitment / Able and willing or motivated
Leader: Low task focus, low relationship focus
When the follower can do the job and is motivated to do it, then the leader can
basically leave them to it, largely trusting them to get on with the job although they
also may need to keep a relatively distant eye on things to ensure everything is going
to plan.
Followers at this level have less need for support or frequent praise, although as with
anyone, occasional recognition is always welcome.
Note: S3 and S4 are follower-led.
Discussion
Hersey and Blanchard (of ‘One Minute Manager’ fame) have written a short
and very readable book on the approach. It is simple and easy to understand, which
makes it particularly attractive for practicing managers who do not want to get into
heavier material. It also is accepted in wider spheres and often appears in college
courses.
It is limited, however, and is based on assumptions that can be challenged, for
example the assumption that at the ‘telling’ level, the relationship is of lower importance.
b. Vroom and Yetton’s Normative Model
Assumptions of this theory are:
• Decision acceptance increases commitment and effectiveness of action.
• Participation increases decision acceptance.
Description
Decision quality is the selection of the best alternative, and is particularly
important when there are many alternatives. It is also important when there are serious
implications for selecting (or failing to select) the best alternative.
Decision acceptance is the degree to which a follower accepts a decision made
by a leader. Leaders focus more on decision acceptance when decision quality is more
important.

44
Vroom and Yetton defined five different decision procedures. Two are autocratic (A1
and A2), two are consultative (C1 and C2) and one is Group based (G2).
A1: Leader takes known information and then decides alone.
A2: Leader gets information from followers, and then decides alone.
C1: Leader shares problem with followers individually, listens to ideas and then decides
alone.
C2: Leader shares problems with followers as a group, listens to ideas and then decides
alone.
G2: Leader shares problems with followers as a group and then seeks and accepts
consensus agreement.
Situational factors that influence the method are relatively logical:
• When decision quality is important and followers possess useful information, then
A1 and A2 are not the best method.
• When the leader sees decision quality as important but followers do not, then G2
is inappropriate.
• When decision quality is important, when the problem is unstructured and the
leader lacks information / skill to make the decision alone, then G2 is best.
• When decision acceptance is important and followers are unlikely to accept an
autocratic decision, then A1 and A2 are inappropriate.
• When decision acceptance is important but followers are likely to disagree with
one another, then A1, A2 and C1 are not appropriate, because they do not give
opportunity for differences to be resolved.
• When decision quality is not important but decision acceptance is critical, then
G2 is the best method.
• When decision quality is important, all agree with this, and the decision is not
likely to result from an autocratic decision then G2 is best.
Discussion
Vroom and Yetton (1973) took the earlier generalized situational theories that
noted how situational factors cause almost unpredictable leader behavior and reduced
this to a more limited set of behaviors.

45
 The ‘normative’ aspect of the model is that it was defined more by rational logic
than by long observation.
The model is most likely to work when there is clear and accessible opinions
about the decision quality importance and decision acceptance factors. However these
are not always known with any significant confidence.
c. Path-Goal Theory of Leadership
Description
The Path-Goal Theory of Leadership was developed to describe the way that
leaders encourage and support their followers in achieving the goals they have been
set by making the path that they should take clear and easy.
In particular, leaders:
• Clarify the path so subordinates know which way to go.
• Remove roadblocks that are stopping them going there.
• Increasing the rewards along the route.
Leaders can take a strong or limited approach in these. In clarifying the path,
they may be directive or give vague hints. In removing roadblocks, they may scour the
path or help the follower move the bigger blocks. In increasing rewards, they may give
occasional encouragement or pave the way with gold.
This variation in approach will depend on the situation, including the follower’s
capability and motivation, as well as the difficulty of the job and other contextual
factors.
I. House and Mitchell (1974) describe four styles of leadership:
i. Supportive leadership
Considering the needs of the follower, showing concern for their welfare and
creating a friendly working environment. This includes increasing the follower’s self-
esteem and making the job more interesting. This approach is best when the work is
stressful, boring or hazardous.
ii. Directive leadership
Telling followers what needs to be done and giving appropriate guidance along
the way. This includes giving them schedules of specific work to be done at specific
times. Rewards may also be increased as needed and role ambiguity decreased (by
telling them what they should be doing).

46
 This may be used when the task is unstructured and complex and the follower is
inexperienced. This increases the follower’s sense of security and control and hence is
appropriate to the situation.
iii. Participative leadership
Consulting with followers and taking their ideas into account when making
decisions and taking particular actions. This approach is best when the followers are
expert and their advice is both needed and they expect to be able to give it.
iv. Achievement-oriented leadership
Setting challenging goals, both in work and in self-improvement (and often
together). High standards are demonstrated and expected. The leader shows faith in
the capabilities of the follower to succeed. This approach is best when the task is
complex.
Discussion
Leaders who show the way and help followers along a path are effectively
‘leading’.
This approach assumes that there is one right way of achieving a goal and that
the leader can see it and the follower cannot. This casts the leader as the knowing
person and the follower as dependent.
It also assumes that the follower is completely rational and that the appropriate
methods can be deterministically selected depending on the situation.
6. Contingency Theory
Assumptions
• The leader’s ability to lead is contingent upon various situational factors, including
the leader’s preferred style, the capabilities and behaviors of followers and also
various other situational factors.
Description
Contingency theories are a class of behavioral theory that contends that there is
no one best way of leading and that a leadership style that is effective in some situations
may not be successful in others.
An effect of this is that leaders who are very effective at one place and time may
become unsuccessful either when transplanted to another situation or when the factors
around them change.

47
 This helps to explain how some leaders who seem for a while to have the ‘Midas
touch’ suddenly appear to go off the boil and make very unsuccessful decisions.
Discussion
Contingency theory is similar to situational theory in that there is an assumption
of no simple one right way. The main difference is that situational theory tends to
focus more on the behaviors that the leader should adopt, given situational factors
(often about follower behavior), whereas contingency theory takes a broader view that
includes contingent factors about leader capability and other variables within the
situation.
a. Fiedler’s Least Preferred Co-worker (LPC) Theory
Assumptions
• Leaders prioritize between task-focus and people-focus.
• Relationships, power and task structure are the three key factors that drive effective
styles.
Description
Fiedler identified the a Least Preferred Co-Worker scoring for leaders by asking
them first to think of a person with which they worked that they would like least to
work with again, and then to score the person on a range of scales between positive
factors (friendly, helpful, cheerful, etc.) and negative factors (unfriendly, unhelpful,
gloomy, etc.). A high LPC leader generally scores the other person as positive and a
low LPC leader scores them as negative.
High LPC leaders tend to have close and positive relationships and act in a
supportive way, even prioritizing the relationship before the task. Low LPC leaders
put the task first and will turn to relationships only when they are satisfied with how
the work is going.
Three factors are then identified about the leader, member and the task, as follows:
• Leader-Member Relations: The extent to which the leader has the support and
loyalties of followers and relations with them are friendly and cooperative.
• Task structure: The extent, to which tasks are standardized, documented and
controlled.
• Leader’s Position-power: The extent to which the leader has authority to assess
follower performance and give reward or punishment.

48
 The best LPC approach depends on a combination of these three. Generally, a
high LPC approach is best when leader-member relations are poor, except when the
task is unstructured and the leader is weak, in which a low LPC style is better.

Leader's
Leader-Member Most Effective
# Task structure Position-
Relations leader
power

1 Good Structured Strong Low LPC

2 Good Structured Weak Low LPC

3 Good Unstructured Strong Low LPC

4 Good Unstructured Weak High LPC

5 Poor Structured Strong High LPC

6 Poor Structured Weak High LPC

7 Poor Unstructured Strong High LPC

8 Poor Unstructured Weak Low LPC

Discussion
This approach seeks to identify the underlying beliefs about people, in particular
whether the leader sees others as positive (high LPC) or negative (low LPC). The neat
trick of the model is to take someone where it would be very easy to be negative about
them.
This is another approach that uses task- vs. people-focus as a major categorization
of the leader’s style.

49
b. Cognitive Resource Theory
Assumptions
• Intelligence and experience and other cognitive resources are factors in leadership
success.
• Cognitive capabilities, although significant are not enough to predict leadership
success.
• Stress impacts the ability to make decisions.
Description
Cognitive Resource Theory predicts that:
1. A leader’s cognitive ability contributes to the performance of the team only when
the leader’s approach is directive.
When leaders are better at planning and decision-making, in order for their
plans and decisions to be implemented, they need to tell people what to do, rather than
hope they agree with them.
When they are not better than people in the team, then a non-directive approach
is more appropriate, for example where they facilitate an open discussion where the
ideas of team can be aired and the best approach identified and implemented.
2. Stress affects the relationship between intelligence and decision quality.
When there is low stress, then intelligence is fully functional and makes an
optimal contribution. However, during high stress, a natural intelligence not only makes
no difference, but it may also have a negative effect. One reason for this may be that
an intelligent person seeks rational solutions, which may not be available (and may be
one of the causes of stress). In such situations, a leader who is inexperienced in ‘gut
feel’ decisions is forced to rely on this unfamiliar approach. Another possibility is that
the leader retreats within him/herself, to think hard about the problem, leaving the
group to their own devices.
3. Experience is positively related to decision quality under high stress.
When there is a high stress situation and intelligence is impaired, experience of
the same or similar situations enables the leader to react in appropriate ways without
having to think carefully about the situation. Experience of decision-making under
stress also will contribute to a better decision than trying to muddle through with
brain-power alone.

50
4. For simple tasks, leader intelligence and experience is irrelevant.
When subordinates are given tasks which do not need direction or support, then it
does not matter how good the leader is at making decisions, because they are easy to
make, even for subordinates, and hence do not need any further support.
Discussion
CRT arose out of dissatisfaction with Trait Theory.
Fiedler also linked CRT with his Least Preferred Co-worker (LPC) Theory,
suggesting that high LPC scores are the main drivers of directive behavior.
A particularly significant aspect of CRT is the principle that intelligence is the
main factor in low-stress situations, whilst experience counts for more during high-
stress moments.
c. Strategic Contingencies Theory
Description
Intraorganizational power depends on three factors: problem skills, actor
centrality and uniqueness of skill.
If you have the skills and expertise to resolve important problems, then you are
going to be in demand. And by the law of supply and demand, that gives you the upper
hand in negotiations. It also gives you power from the reciprocity created.
If you work in a central part of the workflow of the organization, then what you
do is very important. This gives you many opportunities to be noticed. It also means
you are on the critical path, such that if your part of the company fails, the whole show
stops. Again creating attention and giving you bargaining power.
Finally, if you are difficult to replace, then if you do make enemies up the
hierarchy, then they cannot just move you out or sideways.
Example
A production manager in an organization is in charge of a key manufacturing
operation (centrality), and understands its complexities very well (uniqueness). From
a long experience, when things go wrong, he is very good at fixing things, both
mechanically and with the unions.

51
So what?
Using it
Get a job on the critical path through the organization. Become expert in problem
solving in it. Acquire and defend knowledge and skills that nobody else has.
Defending
Do not let any one person become indispensable.
7. Transactional Leadership
Assumptions
• People are motivated by reward and punishment.
• Social systems work best with a clear chain of command.
• When people have agreed to do a job, a part of the deal is that they cede all
authority to their manager.
• The prime purpose of a subordinate is to do what their manager tells them to do.
Style
The transactional leader works through creating clear structures whereby it is
clear what is required of their subordinates, and the rewards that they get for following
orders. Punishments are not always mentioned, but they are also well-understood and
formal systems of discipline are usually in place.
The early stage of Transactional Leadership is in negotiating the contract whereby
the subordinate is given a salary and other benefits, and the company (and by implication
the subordinate’s manager) gets authority over the subordinate.
When the Transactional Leader allocates work to a subordinate, they are
considered to be fully responsible for it, whether or not they have the resources or
capability to carry it out. When things go wrong, then the subordinate is considered to
be personally at fault, and is punished for their failure (just as they are rewarded for
succeeding).
The transactional leader often uses management by exception, working on the
principle that if something is operating to defined (and hence expected) performance
then it does not need attention. Exceptions to expectation require praise and reward
for exceeding expectation, whilst some kind of corrective action is applied for
performance below expectation.

52
 Whereas Transformational Leadership has more of a ‘selling’ style, Transactional
Leadership, once the contract is in place, takes a ‘telling’ style.
Discussion
Transactional leadership is based in contingency, in that reward or punishment
is contingent upon performance.
Despite much research that highlights its limitations, Transactional Leadership
is still a popular approach with many managers. Indeed, in the Leadership vs.
Management spectrum, it is very much towards the management end of the scale.
The main limitation is the assumption of ‘rational man’, a person who is largely
motivated by money and simple reward, and hence whose behavior is predictable. The
underlying psychology is Behaviorism, including the Classical Conditioning of Pavlov
and Skinner’s Operant Conditioning. These theories are largely based on controlled
laboratory experiments (often with animals) and ignore complex emotional factors and
social values.
In practice, there is sufficient truth in Behaviorism to sustain Transactional
approaches. This is reinforced by the supply-and-demand situation of much
employment, coupled with the effects of deeper needs, as in Maslow’s Hierarchy. When
the demand for a skill outstrips the supply, then Transactional Leadership often is
insufficient, and other approaches are more effective.
a. Leader-Member Exchange (LMX) Theory
Description
Leader-Member Exchange Theory, also called LMX or Vertical Dyad Linkage
Theory, describes how leaders in groups maintain their position through a series of
tacit exchange agreements with their members.
In-group and out-group
In particular, leaders often have a special relationship with an inner circle of
trusted lieutenants, assistants and advisors, to whom they give high levels of
responsibility, decision influence, and access to resources. This in-group pay for their
position. They work harder, are more committed to task objectives, and share more
administrative duties. They are also expected to be fully committed and loyal to their
leader. The out-group, on the other hand, is given low levels of choice or influence.

53
 This also puts constraints upon the leader. They have to nurture the relationship
with their inner circle whilst balancing giving them power with ensuring they do not
have enough to strike out on their own.
The LMX process
These relationships, if they are going to happen, start very soon after a person
joins the group and follow three stages.
1. Role taking
The member joins the team and the leader assesses their abilities and talents.
Based on this, the leader may offer them opportunities to demonstrate their capabilities.
Another key factor in this stage is the discovery by both parties of how the other
likes to be respected.
2. Role making
In the second phase, the leader and member take part in an unstructured and
informal negotiation whereby a role is created for the member and the often-tacit
promise of benefit and power in return for dedication and loyalty takes place.
Trust-building is very important in this stage, and any felt betrayal, especially
by the leader, can result in the member being relegated to the out-group.
This negotiation includes relationship factors as well as pure work-related ones,
and a member who is similar to the leader in various ways is more likely to succeed.
This perhaps explains why mixed gender relationships regularly are less successful
than same-gender ones (it also affects the seeking of respect in the first stage). The
same effect also applies to cultural and racial differences.
3. Routinization
In this phase, a pattern of ongoing social exchange between the leader and the
member becomes established.
Success factors
Successful members are thus similar in many ways to the leader (which perhaps
explains why many senior teams are all white, male, middle-class and middle-aged).
They work hard at building and sustaining trust and respect.

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 To help this, they are empathetic, patient, reasonable, sensitive, and are good at
seeing the viewpoint of other people (especially the leader). Aggression, sarcasm and
an egocentric view are keys to the out-group wash-room.
The overall quality of the LMX relationship varies with several factors.
Curiously, it is better when the challenge of the job is extremely high or extremely
low. The size of the group, financial resource availability and the overall workload are
also important.
Onwards and upwards
The principle works upwards as well. The leader also gains power by being a
member of their manager’s inner circle, which then can then share on downwards.
People at the bottom of an organization with unusual power may get it from an unbroken
chain of circles up to the hierarchy.
So what?
Using it
When you join a team, work hard to also join the inner circle. Take on more
than your share of administrative and other tasks. Demonstrate unswerving loyalty.
See your leader’s point of view. Be reasonable and supportive in your challenges to
them, and pick your moments carefully.
As a leader, pick your inner circle with care. Reward them for their loyalty and
hard work, whilst being careful about maintaining commitment of other people.
Defending
If you want to be an ‘ordinary’ member of a team, play your part carefully.
There will be others with more power. If you want to lead an equal team, beware of
those who carry favor.
8. Transformational Leadership
Assumptions
• People will follow a person who inspires them.
• A person with vision and passion can achieve great things.
• The way to get things done is by injecting enthusiasm and energy.

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Style
Working for a Transformational Leader can be a wonderful and uplifting
experience. They put passion and energy into everything. They care about you and
want you to succeed.
Developing the vision
Transformational Leadership starts with the development of a vision, a view of
the future that will excite and convert potential followers. This vision may be developed
by the leader, by the senior team or may emerge from a broad series of discussions.
The important factor is the leader buys into it, hook, line and sinker.
Selling the vision
The next step, which in fact never stops, is to constantly sell the vision. This
takes energy and commitment, as few people will immediately buy into a radical vision,
and some will join the show much more slowly than others. The Transformational
Leader thus takes every opportunity and will use whatever works to convince others to
climb on board the bandwagon.
In order to create followers, the Transformational Leader has to be very careful
in creating trust, and their personal integrity is a critical part of the package that they
are selling. In effect, they are selling themselves as well as the vision.
Finding the way forwards
In parallel with the selling activity is seeking the way forward. Some
Transformational Leaders know the way, and simply want others to follow them. Others
do not have a ready strategy, but will happily lead the exploration of possible routes to
the Promised Land.
The route forwards may not be obvious and may not be plotted in details, but
with a clear vision, the direction will always be known. Thus finding the way forward
can be an ongoing process of course correction and the Transformational Leader will
accept that there will be failures and blind canyons along the way. As long as they feel
progress is being made, they will be happy.
Leading the charge
The final stage is to remain up-front and central during the action.
Transformational Leaders are always visible and will stand up to be counted rather
than hide behind their troops. They show by their attitudes and actions how everyone

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else should behave. They also make continued efforts to motivate and rally their followers,
constantly doing the rounds, listening, soothing and enthusing.
It is their unswerving commitment as much as anything else that keeps people
going, particularly through the darker times when some may question whether the
vision can ever be achieved. If the people do not believe that they can succeed, then
their efforts will flag. The Transformational Leader seeks to infect and reinfect their
followers with a high level of commitment to the vision.
One of the methods the Transformational Leader uses to sustain motivation is
in the use of ceremonies, rituals and other cultural symbolism. Small changes get big
hurrahs, pumping up their significance as indicators of real progress.
Overall, they balance their attention between action that creates progress and
the mental state of their followers. Perhaps more than other approaches, they are people-
oriented and believe that success comes first and last through deep and sustained
commitment.
Discussion
Whilst the Transformational Leader seeks overtly to transform the organization,
there is also a tacit promise to followers that they also will be transformed in some
way, perhaps to be more like this amazing leader. In some respects, then, the followers
are the product of the transformation.
Transformational Leaders are often charismatic, but are not as narcissistic as
pure Charismatic Leaders, who succeed through a belief in themselves rather than a
belief in others.
One of the traps of Transformational Leadership is that passion and confidence
can easily be mistaken for truth and reality. Whilst it is true that great things have been
achieved through enthusiastic leadership, it is also true that many passionate people
have led the charge right over the cliff and into a bottomless chasm. Just because
someone believes they are right, it does not mean they are right.
Paradoxically, the energy that gets people going can also cause them to give up.
Transformational Leaders often have large amounts of enthusiasm which, if relentlessly
applied, can wear out their followers.

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 Transformational Leaders also tend to see the big picture, but not the details,
where the devil often lurks. If they do not have people to take care of this level of
information, then they are usually doomed to fail.
Finally, Transformational Leaders, by definition, seek to transform. When the
organization does not need transforming and people are happy as they are, then such a
leader will be frustrated. Like wartime leaders, however, given the right situation they
come into their own and can be personally responsible for saving entire companies.
a. Bass’ Transformational Leadership Theory
Assumptions
• Awareness of task importance motivates people.
• A focus on the team or organization produces better work.
Description
Bass defined transformational leadership in terms of how the leader
affects followers, who are intended to trust, admire and respect the transformational
leader.
He identified three ways in which leaders transform followers:
• Increasing their awareness of task importance and value.
• Getting them to focus first on team or organizational goals, rather than their own
interests.
• Activating their higher-order needs.
Charisma is seen as necessary, but not sufficient, for example in the way that
charismatic movie stars may not make good leaders. Two key charismatic effects that
transformational leaders achieve is to evoke strong emotions and to cause identification
of the followers with the leader. This may be through stirring appeals. It also may
occur through quieter methods such as coaching and mentoring.
Bass has recently noted that authentic transformational leadership is grounded
in moral foundations that are based on four components:
• Idealized influence
• Inspirational motivation
• Intellectual stimulation

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 • Individualized consideration
...and three moral aspects:
• The moral character of the leader.
• The ethical values embedded in the leader’s vision, articulation, and program (which
followers either embrace or reject).
• The morality of the processes of social ethical choice and action that leaders and
followers engage in and collectively pursue.
This is in contrast with pseudo-transformational leadership, where, for
example, in-group/out-group ’us and them’ games is used to bond followers to the
leader.
Discussion
In contrast to Burns, who sees transformational leadership as being inextricably
linked with higher order values, Bass originally saw it as amoral, and attributed
transformational skills to people such as Adolf Hitler and Jim Jones, although later
changed his view after discussion with Burns.
b. Burns’ Transformational Leadership Theory
Assumptions
• Association with a higher moral position is motivating and will result in people
following a leader who promotes this.
• Working collaboratively is better than working individually.
Description
Burns defined transformational leadership as a process where leaders and
followers engage in a mutual process of ‘raising one another to higher levels of morality
and motivation.’
Transformational leaders raise the bar by appealing to higher ideals and values of
followers. In doing so, they may model the values themselves and use
charismatic methods to attract people to the values and to the leader.
Burns’ view is that transformational leadership is more effective than transactional
leadership, where the appeal is to more selfish concerns. An appeal to social values thus
encourages people to collaborate, rather than working as individuals (and potentially

59
competitively with one another). He also views transformational leadership as an ongoing
process rather than the discrete exchanges of the transactional approach.
Discussion
Using social and spiritual values as a motivational lever is very powerful as they
are both hard to deny and also give people an uplifting sense of being connected to a
higher purpose, thus playing to the need for a sense of meaning and identity.
Ideals are higher in Maslow’s Hierarchy, which does imply that lower concerns
such as health and security must be reasonably safe before people will pay serious
attention to the higher possibilities.
c. The Leadership Challenge
James Kouzes and Barry Posner developed a survey (The Leadership Practices
Inventory) that asked people which, of a list of common characteristics of leaders,
were, in their experiences of being led by others, the seven top things they look for,
admire and would willingly follow. And over twenty years, they managed ask this of
seventy five thousand people.
The results of the study showed that people preferred the following
characteristics, in order:
• Honest
• Forward-looking
• Competent
• Inspiring
• Intelligent
• Fair-minded
• Broad-minded
• Supportive
• Straightforward
• Dependable
• Cooperative

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 • Determined
• Imaginative
• Ambitious
• Courageous
• Caring
• Mature
• Loyal
• Self-controlled
• Independent
The main part of the book discusses the five actions that Kouzes and Posner identify
as being key for successful leadership:
Model the way
Modeling means going first, living the behaviors you want others to adopt. This is
leading from the front. People will believe not what they hear leaders say but what they
see leader consistently do.
Inspire a shared vision
People are motivated most not by fear or reward, but by ideas that capture their
imagination.
Note that this is not so much about having a vision, but communicating it so
effectively that others take it as their own.
Challenge the process
Leaders thrive on and learn from adversity and difficult situations. They are
early adopters of innovation.
Enable others to act
Encouragement and exhortation is not enough. People must feel able to act and
then must have the ability to put their ideas into action.
Encourage the heart
People act best of all when they are passionate about what they are doing. Leaders
unleash the enthusiasm of their followers this with stories and passions of their own.

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 Overall, it is difficult to ignore the combined views of 75,000 people. The placing
of honesty first is notable and highlights the importance of telling the truth to those they
would lead. The overall process identified is clearly transformational in style, which
again has a strong focus on followers.

15.5 LEADERSHIP STYLES

There are a number of different approaches, or ‘styles’ to leadership and

management that are based on different assumptions and theories. The style that
individuals use will be based on a combination of their beliefs, values and preferences,
as well as the organizational culture and norms which will encourage some styles and
discourage others.
i. Charismatic Leadership: The Charismatic Leader gathers followers through
dint of personality and charm, rather than any form of external power or authority.
ii. Participative Leadership: A Participative Leader, rather than taking
autocratic decisions, seeks to involve other people in the process, possibly including
subordinates, peers, superiors and other stakeholders. Often, however, as it is within
the managers’ whim to give or deny control to his or her subordinates, most participative
activity is within the immediate team.
iii. Situational Leadership: When a decision is needed, an effective leader
does not just fall into a single preferred style, such as
using transactional or transformational methods. In practice, as they say, things are
not that simple.
iv. Transactional Leadership: The transactional leader works through creating
clear structures whereby it is clear what is required of their subordinates, and the rewards
that they get for following orders. Punishments are not always mentioned, but they are
also well-understood and formal systems of discipline are usually in place.
v. Transformational Leadership: Working for a Transformational Leader can
be a wonderful and uplifting experience. They put passion and energy into everything.
They care about you and want you to succeed.
vi. The Quiet Leader: The approach of quiet leaders is the antithesis of the
classic charismatic (and often transformational) leaders in that they base their success
not on ego and force of character but on their thoughts and actions. Although they are
strongly task-focused, they are neither bullies nor unnecessarily unkind and may

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persuade people through rational argument and a form of benevolent Transactional
Leadership.
Servant Leadership: The servant leader serves others, rather than others serving
the leader. Serving others thus comes by helping them to achieve and improve.

15.6 QUALITIES OF A GOOD LEADER

With the above detailed discussion of theories and styles of a leadership, we

can arrive at following qualities of a good leader:
i. Inspire action.
Try to paint a vision of the future that inspires your people to do whatever it
takes to get there. The best leaders also clear away the organizational roadblocks that
constrain employees’ natural creativity and initiative, unleashing a tremendous amount
of energy in the process.
ii. Be optimistic.
We all want to work with and for people who lift us up into the clouds instead
of dragging us down into the mud. Make sure to seek out the positives in your people,
helping them overcome their own feelings of self-doubt and spreading optimism
throughout your organization.
iii. Have integrity.
Research shows that the top thing that employees want from their leaders is
integrity. Be honest, fair, candid and forthright, and treat everyone in the same way
that you yourself would want to be treated.
iv. Support and facilitate your team.
For people to do their very best work, they need an organizational environment
that supports them by making it safe to take risks, to tell the truth, and to speak up ...
without being punished for doing so. Support your employees by creating this kind of
environment, and it will facilitate their progress toward attaining your organization’s
goals.
v. Have confidence.
Highly effective leaders know deep down inside that they and their team can
accomplish anything they set their minds to. Failure is not an option. Tentative leaders
make for tentative employees. If you’re confident, your people will be too.

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vi. Communicate.
In any organization, knowledge is power, and great leaders ensure that every
employee, from the very top to the very bottom of the org chart, is provided with
complete and up-to-date information about the organization’s goals, performance,
successes and failures. To achieve this level of connection, you should also provide
ample channels for two-way communication between employees and managers, actively
soliciting their ideas for improvement and rewarding employees for submitting them.
vii. Be decisive.
One of the most basic duties of any leader is to make decisions. Highly effective
leaders aren’t afraid to be decisive and to make tough calls quickly when circumstances
require it. Once you have all the information you need to make an informed decision,
then don’t hesitate—make it. And once you make a decision, then stick with it unless
there is a particularly compelling reason for you to change it.
No matter what type of organization or industry you’re in, it’s possible to become
a more effective leader, inspiring your people to give their very best every day of the
week. Make a point of practicing these 7 leadership traits, and you will be a highly
effective leader too.

15.7 SUMMARY

We have examined and clarified leadership terminology especially the main

theories and styles of leadership at the end we also explored the qualities of a leadership.

15.8 SELF ASSESSMENT QUESTIONS

1. Define Leadership
2. Explain the formal and informal styles of leadership.
3. Discuss the great Man theory of leadership
4. Explain the Trait Theory of Leadership.
5. Discuss the Behavioral Theory of Leadership
6. Enumerate Participative Theory of Leadership
7. Explain the Situational Theory of Leadership
8. Discuss the contingency Theory of Leadership.
9. Explain the Transactional Theory of Leadership

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10. Critically evaluate the transformational theory of leadership.
11. Discuss the qualities of a good leader and analyze the suitability of these qualities
in the light of modern organisation.

15.9 REFERENCE

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.

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UNIT-16: MOTIVATION

Structure
16.0 Objectives
16.1 Introduction
16.2 Definition of Motivation
16.3 Importance of Motivation
16.4 Essential Features of a good motivation system
16.5 Theories of Motivation
16.6 Summary
16.7 Self Assessment Questions
16.8 References

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16.0 OBJECTIVES

After studying this unit, you should be able to:

• Define motivation
• Evaluate Importance of motivation
• Enumerate essential features of good motivation system
• Analyze various theories of motivation
16.1 INTRODUCTION

In the earlier units, we have discussed the process of Directing, Coordinating and
leadership as functions of management; in this unit let us try to understand one more
important concept of management, which is motivation.
Since motivation influences productivity, supervisors need to understand what
motivates employees to reach peak performance. It is not an easy task to increase
employee motivation because employees respond in different ways to their jobs and
their organization’s practices. Motivation is the set of processes that moves a person
toward a goal. Thus, motivated behaviors are voluntary choices controlled by the
individual employee. The supervisor (motivator) wants to influence the factors that
motivate employees to higher levels of productivity.
Factors that affect work motivation include individual differences, job
characteristics, and organizational practices. Individual differences are the personal
needs, values, and attitudes, interests and abilities that people bring to their jobs. Job
characteristics are the aspects of the position that determine its limitations and
challenges. Organizational practices are the rules, human resources policies, managerial
practices, and rewards systems of an organization. Supervisors must consider how
these factors interact to affect employee job performance.
Let us make an attempt to study the various elements associated with motivation
so that we can motivate the employees in the organisation to achieve the desired goals
of an individual as well as organisational.

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16.2 DEFINITION OF MOTIVATION

“The willingness to exert high levels of efforts to reach organisational goals,

conditioned by the effort’s ability to satisfy some individual need”
Although the general definition refers to effort toward any goal, here in our
discussion it refers to organisational goals because our focus is on work related behavior.
The three key elements in our definition are effort, organisational goals and needs.
The effort element is a measure of intensity. When someone is motivated he /
she try hard. However high levels of effort are unlikely to lead to favorable job
performance outcomes unless the effort is channeled in directions that benefit the
organisation. Therefore we must consider the quality of the effort as well as its intensity.
Effort that is directed toward and consistent with the organization’s goal is the kind of
effort that we should be seeking,
A need in our terminology is some internal state that makes certain outcomes
appear attractive. An unsatisfied need creates tension that stimulates drives with in an
individual. These drives generate a search behavior to find particular goals that, if
attained, will satisfy the need and reduce the tension.

16.3 IMPORTANCE OF MOTIVATION

Motivation is a very important for an organization because of the following

benefits it provides:
1. Puts Human Resources into Action
Every concern requires physical, financial and human resources to accomplish
the goals. It is through motivation that the human resources can be utilized by making
full use of it. This can be done by building willingness in employees to work. This will
help the enterprise in securing best possible utilization of resources.
2. Improves Level of Efficiency of Employees
The level of a subordinate or a employee does not only depend upon his
qualifications and abilities. For getting best of his work performance, the gap between
ability and willingness has to be filled which helps in improving the level of performance
of subordinates. This will result into-

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 a. Increase in productivity,
b. Reducing cost of operations, and
c. Improving overall efficiency.
3. Leads to Achievement of Organizational Goals
The goals of an enterprise can be achieved only when the following factors take
place :-
a. There is best possible utilization of resources,
b. There is a co-operative work environment,
c. The employees are goal-directed and they act in a purposive manner,
d. Goals can be achieved if co-ordination and co-operation takes place
simultaneously which can be effectively done through motivation.
4. Builds Friendly Relationship
Motivation is an important factor which brings employees satisfaction. This
can be done by keeping into mind and framing an incentive plan for the benefit of the
employees. This could initiate the following things:
a. Monetary and non-monetary incentives,
b. Promotion opportunities for employees,
c. Disincentives for inefficient employees.
In order to build a cordial, friendly atmosphere in a concern, the above steps
should be taken by a manager. This would help in:
• Effective co-operation which brings stability,
• Industrial dispute and unrest in employees will reduce,
• The employees will be adaptable to the changes and there will be no resistance to
the change,
• This will help in providing a smooth and sound concern in which individual
interests will coincide with the organizational interests,
• This will result in profit maximization through increased productivity.

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5. Leads to Stability of Work Force
Stability of workforce is very important from the point of view of reputation and
goodwill of a concern. The employees can remain loyal to the enterprise only when they
have a feeling of participation in the management. The skills and efficiency of employees
will always be of advantage to employees as well as employees. This will lead to a good
public image in the market which will attract competent and qualified people into a
concern. As it is said, “Old is gold” which suffices with the role of motivation here, the
older the people, more the experience and their adjustment into a concern which can be
of benefit to the enterprise.
From the above discussion, we can say that motivation is an internal feeling which
can be understood only by manager since he is in close contact with the employees.
Needs, wants and desires are inter-related and they are the driving force to act. These
needs can be understood by the manager and he can frame motivation plans accordingly.
We can say that motivation therefore is a continuous process since motivation process
is based on needs which are unlimited. The process has to be continued throughout.
We can summarize by saying that motivation is important both to an individual
and a business. Motivation is important to an individual as:
1. Motivation will help him achieve his personal goals.
2. If an individual is motivated, he will have job satisfaction.
3. Motivation will help in self-development of individual.
4. An individual would always gain by working with a dynamic team.
Similarly, motivation is important to a business as:
1. The more motivated the employees are, the more empowered the team is.
2. The more is the team work and individual employee contribution, more profitable
and successful is the business.
3. During period of amendments, there will be more adaptability and creativity.
4. Motivation will lead to an optimistic and challenging attitude at work place.

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16.4 ESSENTIAL FEATURES OF A GOOD MOTIVATION SYSTEM

Motivation is a state of mind. High motivation leads to high morale and greater
production. A motivated employee gives his best to the organization. He stays loyal
and committed to the organization. A sound motivation system in an organization
should have the following features:
• Superior performance should be reasonably rewarded and should be duely
acknowledged.
• If the performance is not consistently up to the mark, then the system must make
provisions for penalties.
• The employees must be dealt in a fair and just manner. The grievances and obstacles
faced by them must be dealt instantly and fairly.
• Carrot and stick approach should be implemented to motivate both efficient and
inefficient employees. The employees should treat negative consequences (such
as fear of punishment) as stick, an outside push and move away from it. They
should take positive consequences (such as reward) as carrot, an inner pull and
move towards it.
• Performance appraisal system should be very effective.
• Ensure flexibility in working arrangements.
• A sound motivation system must be correlated to organizational goals. Thus, the
individual/employee goals must be harmonized with the organizational goals.
• The motivational system must be modified to the situation and to the organization.
• A sound motivation system requires modifying the nature of individual’s jobs.
The jobs should be redesigned or restructured according to the requirement of
situation. Any of the alternatives to job specialization - job rotation, job
enlargement, job enrichment, etc. could be used.
• The management approach should be participative. All the subordinates and
employees should be involved in decision- making process.

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• The motivation system should involve monetary as well as non- monetary rewards.
The monetary rewards should be correlated to performance. Performance should
be based on the employees’ action towards the goals, and not on the fame of
employees.
• “Motivate yourself to motivate your employees” should be the managerial
approach.
• The managers must understand and identify the motivators for each employee.
• Sound motivation system should encourage supportive supervision whereby the
supervisors share their views and experiences with their subordinates, listen to
the subordinates views, and assist the subordinates in performing the designated
job.
16.5 THEORIES OF MOTIVATION

The motivation concepts were mainly developed around 1950’s. Main theories
were made during this period. For our purpose of understanding these theories can be
studied under two broad heads they are:
1. Content theories of motivation
2. Process theories of motivation
1. Content Theories of Motivation
In a historical perspective, the content theories tend to be the earliest theories
of motivation or later modifications of early theories. Within the work environment
they have had the greatest impact on management practice and policy, whilst within
academic circles they are the least accepted.
Content theories are also called needs theories, because they are generally
associated with a view that concentrates on the importance of determining ‘what’
motivates us. In other words they try to identify what our ‘needs’ are and relate
motivation to the fulfilling of these needs.
• Maslows Hierarchy of Needs
• “Management Assumptions” (Theory X and Theory Y)
• ERG Theory
• McClellands Need for Achievement, Affiliation and Power
• Herzbergs’ Two Factor Theory

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Maslows Hierarchy of Needs
This is the most widely known theory of motivation and was hypothesized by
American psychologist Abraham Maslow in the 1940s and 1950s. Maslow put forward
the idea that there existed a hierarchy of needs consisting of five levels in the hierarchy.
These needs progressed from lower order needs through to higher level needs.

The basic premise of the theory is that we all have these five levels of needs and
that starting at the lowest level we are motivated to satisfy each level in ascending
order. As each level is sufficiently satisfied we are then motivated to satisfy the next
level in the hierarchy. The five different levels were further sub-categorised into two
main groups, these being:
Deficiency needs - Maslow considered these the very basic needs required for survival
and security. These needs include:
• physiological needs
• safety needs
• social needs

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Growth needs - These are needs associated with personal growth and fulfillment of
personal potential.
• esteem needs
• self-actualization needs
In Maslow’s theory we can never run out of motivation because the very top
level, self-actualization, which relates to the achievement of our full potential, can
never be fully met.
Maslow’s theory has been widely embraced and taught within the business world
and few people who have attended a company supervision or basic management training
course are unlikely not to be familiar with this theory.
Management Assumptions” (Theory X and Theory Y)
Douglas McGregor further developed the needs concept of Maslow and
specifically applied it to the workplace. McGregor maintained that every manager
made assumptions about their employees and adopted a management approach based
upon these assumptions. He maintained there were two main categories and that
managers adopted one or the other.
The first category, which he termed Theory X, he maintained was the dominant
management approach and assumed:
• the average human being has an inherent dislike of work and will avoid it if
possible,
• because of this most people needed to be coerced, controlled, directed and
threatened with punishment to get them to put adequate effort into the achievement
of organisational objectives, and
• The average person prefers to be directed, wishes to avoid responsibility, has
very little ambition and wants security above all else.
McGregor maintains that the application of this approach, as well as
misunderstanding the real needs of employees, creates a self-fulfilling outcome because
it forces people to become like this—they have no alternative.
McGregor proposed an alternative set of assumptions which he called Theory
Y. The assumptions here are virtually the opposite of Theory X. They are:
• Work is as natural as play or rest.

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• External control and threat of punishment are not the only means of bringing about
effort towards organisational objectives. People will exercise self-direction and
self-control towards the achievement of objectives they are committed to.
• Commitment to objectives is a function of the rewards associated with their
achievement.
• The average person learns under proper conditions to not only accept responsibility
but also seek it.
• The ability to seek and develop innovative problem solving approaches is widely,
not narrowly distributed across the whole population.
• In most work organisations the abilities of most employees is only partially utilized.
McGregor advocated that the application of Theory Y, would not only meet the
needs of the organisation but also those of the employee. He believed that Theory X at
best only met Maslows Deficiency needs, whilst Theory Y also met the Growth Needs.
You would thus have more motivated employees if you adopted Theory Y.
ERG Theory
Clayton Alderfer revised Maslow’s theory in 1972. He reduced the levels in the
hierarchy from five to three and termed these Existence needs, Relatedness needs
and Growth needs. His most significant contribution, however, was to alter Maslow’s
concept of a one-way progression up the hierarchy, to one that allowed for regression
to lower levels if these needs are no longer being met. This is a more realistic approach
as it recognizes that, because a need is met, doesn’t mean it will always remain met.
For example, if I were to remove all the air from the room you are in, would you be
motivated to keep learning?
McClellands Need for Achievement, Affiliation and Power
McClelland’s model argues that all people have these three needs. He further
maintains that there is a direct link between high-performing managers and their need
for achievement, and to a lesser extent their need for power and affiliation. In other
words, people with a high drive to succeed are more likely to be more highly motivated
than people with a low drive to succeed. He also maintains that it is possible to arrange
work situations and conditions to gain the high motivational benefits from those with

75
a high need for achievement—starting by employing people with a high need for
achievement.
Herzbergs’ Two Factor Theory
Next to Maslow, Herzberg’s theory has probably received the most attention within
the workplace. He developed a theory that differentiated between factors that satisfied
employees, and factors that dissatisfied employees. In his theory the opposite of
‘satisfaction’ is not ‘dissatisfaction’ but rather ‘no satisfaction’. Likewise, the opposite
of ‘dissatisfaction’ is ‘no dissatisfaction’.
Herzberg related job satisfaction to five factors:
• achievement
• recognition
• work itself
• responsibility
• advancement
He termed these factors ‘motivators’ and related the m back to growth needs.
Herzberg related job dissatisfaction to:
• company policy and administration
• supervision
• salary
• interpersonal relationships
• working conditions
These he termed ‘hygiene factors’ and equated them with deficiency needs.
His major impact was to argue that providing hygiene factors (more money, better
working conditions, etc) wouldn’t create more motivation, only less dissatisfaction. Only
motivators could motivate.
2. Process theories of Motivation
Whereas the content theories concentrate on the question of ‘what’ motivates,
the process theories address more the issues relating to how the process works and
sustains itself over time, such as factors that determine the degree of effort, the
continuation of effort, the modification of effort, etc.

76
As with content theory, there are a number of process theories. These include:
• Equity theory
• Expectancy theory
• The Porter-Lawler Model
Equity theory
In this theory employee constantly assesses their level of effort against fellow
workers and the reward they receive for their effort. If they perceive there is a significant
difference between their level of effort and their fellow workers, they will Endeavour
to bring about equality of effort for everyone—by adjusting up or down their own
performance or by taking measures to adjust the level of their fellow workers. Likewise,
the relative reward for effort is also monitored. The message for managers is that
employees need to be seen to be rewarded on a fair and equitable basis, and inequities
quickly adjusted.

Expectancy Theory
This has been an important theory in the history of the study of motivation. This
theory highlights that motivation is partly a decision-making process that evaluates
effort for outcomes. It highlights the involvement of the active cognitive processes

77
and user choice in the process. It also highlights the importance of the outcome
representing a valued reward for the individual involved.
The actual evaluation process is broken down into a number of parts:
1. If I put in effort, can I expect to perform at the required task?
2. Will performing this act or task achieve a desired outcome?
3. Can I expect the outcome will be available and forthcoming?
Porter-Lawler Model
This model of motivation although based on the expectancy theory, is probably
the most complete theory of workplace motivation. It is an integrated approach that
includes elements of nearly all the other motivation theories. This is important as it
helps explain why each of the various theories have a contribution to make but also
serious limitations. If we consider each as part of a more complex model of motivation
this starts to make sense.

The model thus suggests that using individual theories won’t work. A more
integrated approach is needed. It also differs from content theories, particularly ‘two
factor’ theory, in suggesting that performance leads to job satisfaction, rather than job
satisfaction leading to performance

78
 The complexity of the model, and the need to evaluate and provide valued rewards
on an individual basis, are practical limitations. However it is difficult to argue with the
process of the model. The area of motivation is complex and the model highlights this—
rather than presenting an unrealistically simple approach, as is the case with many of the
alternative theories.
16.6 SUMMARY

This unit has discussed the meaning and definition of motivation. We have also
evaluated the importance of motivation, features of motivation and the various useful
theories of motivation which are suitable to the managers in the present organisation
to achieve the goals of individuals and organisations.

16.7 SELF ASSESSMENT QUESTIONS

1. Define Motivation. Discuss the elements involved in the definition of motivation

2. Explain the importance of motivation. Add a note on benefits of motivation to
individual and organisation.
3. Enumerate the essential features of good motivation system. Discuss the usefulness
of these features in modern organisation.
4. Discuss the content theories of motivation.
5. Explain the various process theories of motivation.
16.8 REFERENCES

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.
79
UNIT -17:CONTROL-INTRODUCTION

Structure
17.0 Objectives
17.1 Introduction
17.2 Control-Meaning
17.3 Steps in Control Process
17.4 Need for Control
17.5 Types of Control
17.6 Symptoms of Inadequate Control
17.7 Summary
17.8 Self Assesment Questions
17.9 Reference

5
17.0 OBJECTIVES

After studying this unit, you will be able to;

• Explain controlling as a function of management and steps in setting standards
• Discuss various ways of performance appraisal
• Explain some of the devices used in measuring performance
• Describe various types of controls in relation to operations

17.1 INTRODUCTION

Control is a critical issue faced every manager in every organization. As managers

need to find new ways to cut costs, increase efficiency, and build i the organizations
otherwise will not survive. All organizations face similar challenges. Improving product
quality, minimizing the time need to supply to means retail stores, decreasing the number
of steps needed to process an online me order, or improving the tracking procedures for
overnight package delivery, including quality control. Also monitoring involves office
productivity, such as elimination bottlenecks and reduction in paperwork mistakes. In
addition, every organization i basic systems for allocating financial resources, developing
human resources, accering financial performance and evaluating overall profitability.
The term control in common parlance indicates that there is strict adherence to
the set of plans. Controls are there to ensure that the events turn up as they are intended
to be. Plans with out control are hollow hopes. It is not just enough if you have the road
map in your hand, you should also know where the deviations take place. Let us study
the basic control process in the present unit.

17.2 CONTROLLING – MEANING

The systematic process through which managers regulate organizational activities

to make them consistent with expectations established in plans, targets, and standards of
performance.
Let us consider few definitions:
Douglas S. Sherwin summarizes controlling as: “The essence of control is action
which adjusts operations to predetermined standards, and its basis is information in the
hands of managers.”

6
 Robert. Mockler defines “Management control is a systematic effort to set
performance standards with planning objectives, to design information feedback systems,
to compare actual performance with those pre-determined standard to determine whether
there are any deviations and to measure their significance and to take any action required
to assure that all corporate resources are being used in the most effective and efficient
way possible in achieving corporate objectives”.
Thus, effectively controlling an organization requires information about
performance standards and actual performance, as well as actions taken to correct any
deviations from the standards. Managers need to decide what information is essential,
how they will obtain that information (and share it with employees), and how they can
and should respond to it. Having the correct data is essential. Managers have to decide
which standards, measurements, and metrics are needed to effectively monitor and control
the organization and set up systems for obtaining that information.
Mockler defines that “controlling involves setting performance standards,
measuring the performance with devices, comparing measured performance with
performance standards and taking corrective actions”. These steps are to be carefully
followed.

17.3 STEPS IN CONTROL PROCESS

Control process has four steps. Even though controls are placed at different stages
of operations these phases are always present in each control cycle. Regardless of what
is being controlled, these elements are always involved. The steps involved are explained
below.
Establishing Standards
In order to evaluate the performance, standards have to be established. Standards
are in a way, levels of activities established by the management. The standards should
have certain characteristics.
• They must be clearly specified
• They must be understood by all the organizational members without ambiguity
• They should be defined in measurable terms.
• Vague wording of the standards should be avoided. Standards should be precisely
stated.

7
 • In situations, where it is not possible to quantify standards, efforts should be made
to understand the qualitative goals and design the control mechanisms accordingly.
Some quantitative standards against which the performance can be measured are
given below
• Time Standards : The goals are set on the basis of time involved in performing a
Particular task. It could be units produced per hour, number of pages typed per hour
etc. Workflow and employee output are better forecasted by using time standards.
• Cost Standards: These are goals in terms of cost involved. These indicate financial
expenditure involved per unit of product. These standards are like monetary check
posts. These enable the comparison of actual costs with budgeted costs. ,
• Income Standards: These refer to standards set in terms of financial rewards
received for a particular activity. Eg: Sales volume per month, sales generated by
sales person per year etc.
• Market share standards: This is based on the percentage of the total market that a
company wants to retain or further acquire.
• Quality Standards: Standards are based on quality. But adherence to norms may
vary depending on the nature of the produce involved. Space shuttle and aircraft
manufacturers have zero defect production requirements while other products may
have less stringent quality standards.
• Productivity: Productivity standards are expressed in numerical terms. These are
set on the basis of past performance, degree of mechanization, employee’s skills
and training required, and motivation of employees. Eg. Items produced per man-
hour.
• Return on investment: It is the ratio of net income to invested capital. It is a useful
standard and it involves all facts of the business such as turnover sales, working
capital, invested capital, inventory levels at given times, production costs, marketing
costs and so on.
• Quantitative Personnel Standards : Personnel matters like morale and dedication
can be measured to some degree by some quantitative standards. These standards
may be the extern! of employee I turnover, number of work related accidents,
absenteeism, number of grievances, quality of performance and so on.

8
Measuring Performance
This is the second step in controlling process. It involves monitoring and measuring
the actual performance. This includes collection of data regarding the actual performance
of the activity. Then, a comparison can be made between what is to be accomplished and
what is intended to be accomplished. It is an ongoing and repetitive process. The
frequency of measurement depends upon the type of activity being measured. Continuous
monitoring may be required in some cases like that of levels of gas particles in the air,
in case of manufacturing plant. Long-term expansion objectives might be reviewed by
the top management, /only once or twice in a year,
According to Such man, there are five types of evaluation, which are given below:
• Effort: This involves the extent of input. The idea is to measure whether the input is
adequate in meeting the set objectives. For example, the number of patient beds in a
hospital would be a measure of input for providing health care. A sales person
performance may be measured by the number of calls he makes per day.
• Effectiveness: Since measurement of input is a poor indicator of results,
measurement of output is also required to convey the degree of effectiveness. In
case of employment agency the number of clients placed in jobs would be a better
measure than the member of applicants interviewed and counseled,
• Efficiency: Efficiency measures are useful for comparing the same process at
different points of time or different processes with the same output. Efficiency
relates output to input.
• Process : Hence, the focus is on evaluation of process that converts efforts into
results.
• Measuring devices : The performance measures used in controlling organizational
and individual performances should be valid as well as reliable. The measure should
reflect its quality and consistency in obtaining results.
Some measuring devices are given below:
• Mechanized measuring devices: Variety of technical instruments are used to
measure machine operations, product quality for size and ingredients and for
production processes. These instruments may be mechanical, electronic or chemical
in nature. Computers are widely used as measuring devices in recent days.
• Ratio Analysis: Various aspects of business operations are measured with the help
of this tool, Ratio relates the business variables with one another. There are various

9
 ratios like net sales to working capital, net sales ratio, net profit to tangible net
worth ratio, net profit to net working capital ratios, collection period etc. These
ratios provide measuring yardsticks for liquidity, profitability, solvency, capital
gearing in the firm etc.
• Comparative statistical analysis: Measuring involves comparison also. Similar
operations of different companies can be compared or operations of any company
can be compared with the industry average. This in fact is a practical performance
measuring methodology. Data pertaining to the required area is used in such cases.
Statistical models can be used for such measures and comparisons.
• Personal observations: To measure the performances of the personnel, usually
personal observation is followed. Observation can be formal or informal, observation
is generally day-to-day routine type. Informal discussions with the concerned persons
also contribute to effective control. It allows for watching the work closely.
• Sampling: Measurement can be done considering only a sample, which is presumably
typical of the whole. For some operations sampling does the work of measuring the
performance. In some other cases a hundred percent check is desirable.
In spite of the usefulness of all these methods, it is important to balance the cost
of incremental measurements against the increased value that might accrue from catching
more errors.
Determining whether performance matches the standard
This step is considered to be the earliest one because; the complexities of the
process are already dealt in the first two steps. This involves comparing measured results
with the standards. If performance matches with the standards set, it is an indication that
everything is under control. If not taking corrective action becomes necessary.
Taking corrective action
If performance falls short of standards, corrective action is, required. The action
may in terms of further improvement in performance. Some stringent corrective action
may imply change in the standard-if the standard is too high and unattainable, there is a
need to lower it or else it will cause frustration among the workers.

10
17.4 NEED FOR CONTROL

A new philosophy about organizational control involves lower-level workers in

management and control decisions. However effective the plan may be, it goes awry
without proper control. Organization environment has undergone lots of changes in recent
years. Consequently, the importance of control too has steadily grown. The factors which
stress the importance of control can be listed as below.
• To create better quality
Quality in the work place has gone beyond creating a better than average product
at a good price and now refers to achieving increasingly better products and services at
progressively more competitive prices. This includes doing things right the first time,
rather than making and correcting mistakes. Total quality management is essential for
improvements in control. Process loopholes can be found out/Mistakes can be set right.
Quality is the key to success. Lack of Quality creates crisis. Control is inevitable, in the
process of creating better quality.
• To cope with Changes
Nothing is permanent in any organizational environment, except change. There
will be shift in the markets. There may be new products and services flocking into the
market, there may be new competitors trying their way. New technologies may enter the
fields. The government may make amendments to the existing Law-or-enact a new one.
Threats and opportunities go on changing. Control enables the managers to detect changes
that are affecting the organizations products and services.
• To create faster cycles
Speed with which the orders are filled is the standard to be achieved by a business.
Yet this speed alone looks as an outdated standard/Today’s consumers expect not only
speed but customized product and services. But both the attitudes require effective
control.
• To add value
To succeed in today’s highly competitive world, creating faster cycles is essential.
Equally essential is adding value Just increasing the quality of goods will not provide a
competitive edge to the firm. Adding value is equally important and it makes the customer
buy the product or service in preference to the competitor’s offering. Quality is achieved
through enacting control procedures.

11
• To facilitate delegation and teamwork
The traditional autocratic system had the impact of hampering employees
creatively. Today trend is towards participative management. Everyone in the organization
should be given a chance to contribute and participate.

17.5 TYPES OF CONTROL

There are broadly two types of control namely direct control and indirect control.
Cost control, quality control, budgetary control etc., are direct control. Indirect control
means establishing system in such a way that control is automatically exercised. On the
basis of time period in which the control is applied in relation to the operation being
performed, there are three types of controls.
Feed forward control
Control that focuses on human, material, and financial resources flowing into the
organization; also called preliminary or preventive control.
Control that attempts to identify and prevent deviations before they occur is called
feed forward control. Sometimes called preliminary or preventive control, it focuses
on human, material, and financial resources that flow into the organization. Its purpose
is to ensure that input quality is high enough to prevent problems when the organization
performs its tasks.
Feed forward controls are evident in the selection and hiring of new employees.
Organizations attempt to improve the likelihood that employees will perform up to
standards by identifying the necessary skills, using tests and other screening devices to
hire people who have those skills, and providing necessary training to upgrade important
skills. Numerous nursing homes and assisted living centers have come under fire in
recent years due to lax feed forward controls, such as failing to ensure that workers have
the appropriate skills or provide them with the training needed to adequately care for
residents. Banks typically require extensive documentation before approving major loans
to identify and manage risks.
Concurrent Control
Control that monitors ongoing employee activities to ensure they are consistent
with performance standards is called concurrent control. Concurrent control assesses
current work activities, relies on performance standards, and includes rules and
regulations for guiding employee tasks and behaviors.

12
Concurrent control is also known as Steering Control.
This involves taking corrective action as soon as the deviation takes place the
process here will not be complete when the control is exercised. For example, when a
car is off the lane, it can be steered into the lane. Steering control has the advantage of
taking corrective action early
Many manufacturing operations include devices that measure whether the items
being produced meet quality standards. Employees monitor the measurements; if they
see that standards are not met in some area, they make a correction themselves or signal
the appropriate person that a problem is occurring. Technology advancements are adding
to the possibilities for concurrent control in services as well.
Other concurrent controls involve the ways in which organizations influence
employees. An organization’s cultural norms and values influence employee behavior,
as do the norms of an employee’s peers or work group. Concurrent control also includes
self-control, through which individuals impose concurrent controls on their own behavior
because of personal values and attitudes.
Feedback Control
These are the controls that measure results from completed action. These are
also known as Post Action Control. These results measured so are compared with the
standards that are set initially. If there are any deviations, corrections can be taken for
future activities. For example, -If the actual expenses for office supplies exceed the
budgeted expenses for a given year, then the reasons for such a difference can be
investigated and in the light of this feedback, the budget for the following year can be
revised.
The advantage of feedback control is that, it enhances employees’ motivation. It
allows the employees to know how well they have performed and how to make
improvement.

17.6 SYMPTOMS OF INADEQUATE CONTROL

Deviations from pre-planned course of events are traced during the process, of
control and effective remedial actions are taken. Some cases exhibit symptoms reflecting
inadequacy of the control process. In such cases, the system itself had to be analysed in
depth, re-organized and re-evaluated.

13
 Some such symptoms are, unexplained decline in revenues or prafi|Sv ft degradation
of service and customer complaints, employee dissatisfaction,, unnecessary working
capital shortages, idle facilities or personnel, Disorganized and evidence of waste,
inefficiency and excessive cost.

17.7 SUMMARY

Control is essential in any organization to ensure that events are turning out as
required. It involves four steps namely establishing standards, measuring performance,
comparing the performance with the standards and taking corrective actions. The standards
may be set in terms of time required cost involved, income generated, market share,
quality, productivity, return on investment and so on. Measuring performance is in terms
of effort, effectiveness, and adequacy efficiency. To measure the performance, devices
like ratio analysis, comparative statistical analysis personal observation and sampling
are used. Comparison is the next step involved. If performance matches the standards
then it is an indication that everything is under control. If performance falls short of
standards, the effort towards improvement has to be made on the other hand, it the
standards are very high, and on account of it, reaching the target is difficult, then the
standard may have to be lowered.
Inadequacy of control leads to a lot of problems like decline in profit, lack of
working capital, bottlenecks in operations, waste, inefficiency, high cost etc. control is
an inevitable function of any organization.

17.8 SELF ASSESMENT QUESTIONS

• Define Controlling.
• Explain the steps in Control Process
• Describe the various types of Control.
• Examine the essence of control in any organisation.

14
17.9 REFERENCE

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.

15
UNIT - 18 : CONTROL SYSTEMS

Structure
18.0 Objectives
18.1 Introduction
18.2 Characteristics of effective control
18.3 Control - Pre-Requisites
18.4 Human aspect of control
18.5 Behavioural implications of control
18.6 Behavioural guidelines for effective control
18.7 Summary
18.9 Self Assesment Questions
18.10 Reference

16
18.0 OBJECTIVES

After studying this unit, you should be able to:

• Bring out the characteristics of effective control system.
• Examine the process of control.
• Enumerate the pre-requisites of control.
• Compare and contrast bureaucratic and decentralized control
• Explain behavioral implications of control

18.1 INTRODUCTION

Control, as you have gone though in the previous unit is essential for any
organization. It’s role is not denied in ensuring that-the plans are not mere pipe drums.
Control in fact is the way of assessing the outcome of a plan-therefore no plan is complete
without control. Effective control should be exercised at all the three stages of inputs,
processes and outputs. Effective control system has some characteristics.

18.2 CHARACTERISTICS OF EFFECTIVE CONTROLS

Effective control system has some characteristics. The importance of these

characteristics varies with the situation. However, some common characteristics of
effective control system are explained below.
• Accuracy
Accurate information is essential for effective managerial decisions. Control
system should generate accurate data and information. If the control lacks this accuracy,
it would divert management efforts. Small problems or problems with low priority may
not be identified. Such ignored things may aggravate and result in serious problems at a
later stage. To identify the problem, before it sprouts up, it is highly desirable to be
accurate.
• Timeliness
The information should reach the top management in time. Timeliness helps the
management in taking corrective action. Decision makers should get the information in
time, to facilitate a meaningful response and right action. After the lapse of time, the
information becomes useless. The events with time are to be carefully watched and caught
before it passes.

17
• Flexibility
The control system should never be rigid. Business environment is undergoing
lots of changes. New technologies are flocking into the field of business. New products
are developed. Innovations are taking place. These changes call for a change in planning
as well as in controlling. An effective control system should allow for updating as the
need arises. Planning should allow for adjustments for anticipated threats and
opportunities, so, is controlling.
• Acceptability
The control system should be accepted by all those are affected by it. The people
in the organization should understand it and appreciate its objectives. Lack of
understanding makes it a burden, which may lead to frustration among employees. Control
system should be such as to help employees achieve their personal-as well as
organizational goals
• Integration
Effective control system is always an integrated part of the organizational
environment. It becomes easier to enforce control, when they are consistent with
corporate values and culture. These controls work in harmony with the organizational
policy.
• Economic Feasibility
The cost and benefits of the control system also are very important. The benefits
should outweigh the cost. The system should be reasonable to operate. Squandering money
over a very small benefit is not economically justified.
• Strategic placement
Effective controls are placed in critical and strategic points in the areas of
productions, sales, finance and customer service. Placing control points must be done
strategically. Some delicate points in the process cannot tolerate failures; when failure
occurs the time and money costs of it are much more.
• Corrective action
Control system does not end up in checking only. Identifying deviations must be
followed by solutions. Control is meaningful, when corrective actions are taken.

18
• Emphasis on exception
Exception principle should be followed. Only important deviations should be
brought to the notice of management. If the management is flooded with lots of
information’s, important as well as unimportant, it becomes a tedious task to take
corrective action.

18.3 CONTROL - PRE-REQUISITES

Koontz and O Donnel have said, “If controls are to work, they must be specially
tailored”. The term specially tailored implies that controls must be suitably planned
keeping in view the plans and positions, individual managers and their personalities and
the needs for efficiency and effectiveness. There are seven pre requisites for an adequate
control system. They are explained below:
• Control should be tailored to plans and positions
• Control must be tailored to the personality of individual manager
• Control should be objective
• Control should be economical
• Control should aim at prevention first and corrections afterwards

18.4 HUMAN ASPECT OF CONTROL

An effective control system should aid in employee motivation. But it can have
negative effects on employee morale and performance. Response to control, make the
system effective or ineffective. The controls may be mistrusted and disregarded. Creating
positive responses to control is a must studying the behavioural implications of control
is essential from this regard.
Bureaucratic control involves monitoring and influencing employee behavior
through extensive use of rules, policies, hierarchy of authority, written documentation,
reward systems, and other formal mechanisms.22 In contrast, decentralized control relies
on cultural values, traditions, shared beliefs, and trust to foster compliance with
organizational goals. Managers operate on the assumption that employees are trustworthy
and willing to perform effectively without extensive rules and close supervision.
Bureaucratic methods define explicit rules, policies, and procedures for employee
behavior. Control relies on centralized authority, the formal hierarchy, and close personal
supervision. Responsibility for quality control rests with quality control inspectors and

19
supervisors rather than with employees. Job descriptions generally are specific and task
related, and managers define minimal standards for acceptable employee performance.
In exchange for meeting the standards, individual employees are given extrinsic rewards
such as wages, benefits, and possibly promotions up the hierarchy Employees rarely
participate in the control process, with any participation being formalized through
mechanisms such as grievance procedures. With bureaucratic control, the organizational
culture is somewhat rigid, and managers do not consider culture a useful means of
controlling employees and the organization. Technology often is used to control the
flow and pace of work or to monitor employees, such as by measuring how long
employees spend on phone calls or how many keystrokes they make at the computer.
Bureaucratic control techniques can enhance organizational efficiency and
effectiveness. Many employees appreciate a system that clarifies what is expected of
them, and they may be motivated by challenging, but achievable, goals. However, although
many managers effectively use bureaucratic control, too much control can backfire.
Employees resent being watched too closely, and they may try to sabotage the control
system.
Decentralized control is based on values and assumptions that are almost opposite
to those of bureaucratic control. Rules and procedures are used only when necessary.
Managers rely instead on shared goals and values to control employee behavior. The
organization places great emphasis on the selection and socialization of employees to
ensure that workers have the appropriate values needed to influence behavior toward
meeting company goals. No organization can control employees 100 percent of the time,
and self-discipline and self-control are what keep workers performing their jobs up to
standard. Empowerment of employees, effective socialization, and training all can
contribute to internal standards that provide self-control.
With decentralized control, power is more dispersed and is based on knowledge
and experience as much as position. The organizational structure is flat and horizontal,
with flexible authority and teams of workers solving problems and making improvements.
Everyone is involved in quality control on an ongoing basis. Job descriptions generally
are results-based, with an emphasis more.

20
18.5 BEHAVIOURAL IMPLICATIONS OF CONTROL

Some of the behavioral implications of control are given below.

• Control effects individual freedom, naturally an individual resists certain controls
that restrict him/ her.
• Certain states and power implications are inherent in any control system, A quality
control inspector may carry more power than the line supervisor. Those who have
controlled may develop some sense of resent
• Control system may involve both qualitative standards and quantitative standards. If
the control is based on personal judgement, there is scope for misuse on the one
hand and there may fee chances of interpersonal or inter group conflicts within the
organization.
• Control may have an effect on flexibility and creativity. It may hamper the creativity
of employees. Rigidity in the system has little scope for innovations.
• Invalid and in accurate information may be generated due to control. For example:
If the top management habitually reduces the budget requested, the lower
management will develop the habit of over estimating the cost in their budget. Since
control involves comparing the performance with the standards set, the managers
may set the standard at a lower level and try to impress during the performance
appraisal.
• If the concerned employee does not have control over the situation, he/she may
tend to resent it. Achieving the standards set, is not possible when othjer things are
not conductive, the time and other resources go out of control the performance
evaluation based on standards becomes frustrating. When a person does not have
authority to make operational changes, control makes him frustrated.
• There should be perfect synchronization in the system. The standards set should be
complimenting each other, some contradictory standards like increasing in sales
and reduction in advertisement expenses, or increasing in the quality of goods and
reduction in cost etc., may cause confusion, chaos and frustration.

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18.6 BEHAVIOURAL GUIDELINES FOR EFFECTIVE CONTROL

In order to make the control acceptable by the employees, some behavioral

dimensions are to be incorporated such guidelines are explained below.
• Relating controls to meaningful and accepted goals
The desirable end result may not be the same for all the employees in an
organization. For example, the operating Vice-president of a firm may concentrate on
financial budget. The supervisors think in terms of machine loading output per man-
hour, spoilage or material usage etc. The criterion becomes meaningful to a person when
it is expressed in terms that are operation to him. I.e. in terms of actions and results
within his sphere of activities. He should be in a position to affect the outcome
significantly and the outcome should be clearly measurable. The goals of control should
be meaningful and accepted by all.
• Goals relevant to the Job
Goals may be accepted, when a person accepting them feels that they are relevant
to his job. Psychological acceptance is a pre-requisite for the success of any control. If
the goal is not accepted, certainly there is going to be resentment, manipulation of reports
and buck passing. Acceptance, at times can be passive; control objectives may be accepted
as a responsibility but beyond that, it may be accepted with indifference.
• Participation
In order to gain positive commitment to control, participation in setting standards
is widely advocated. Participating helps to secure understanding and acceptance. It should
be real participation. Pretending that the goals can be changed in participation discussions
is misleading. When participants recognize it, a kind of cynicism and mistrust over the
system may develop among them. Real Participation helps in developing a mutual
understanding of the aims and mechanisms used in translating the broad goals into
meaningful criteria and in setting stimulating levels of achievements.
• Setting Pars
The pars or the levels of achievements set should be tough and at the same time
attainable. There is necessity to refine the goals further. Many a time the levels of
achievements enforced and reasonable. At the same time, most evidence indicates that
people generally respond to a challenging target. Meeting a tough assignment gives more
pleasure than exceeding an easy standard.

22
 Tough pairs may not always motivate people. The employees must feel that the
target is attainable with reasonable effort. Supportive atmosphere is necessary. Social
norms should not be affected by motivating pars. How peer groups affect responses to
controls should be examined for each case. Because there are many shades of group
attitudes between direct opposition and strong support.
If the Par is impossible to achieve in the views of controllers, negative emotional
response is likely. When the pressure of appearing to meet a standard mounts tendency
of the workers towards falsifying records, in complete works, passing the buck becomes
common.
In such a situation we can see the presence of vicious circle. More pressure leads
to more resistance, negative attitude - negligence and undermining of the social system.
Therefore realistic standards are much needed for the success of any control system. ;
What is reasonable and what is unreasonable depends on the feelings, which can
be realized only through participation. Participation includes frank discussion about the
levels of expected results. It includes fact-finding, communication, prediction,
negotiation and mutual agreement. Output pars like sales quotas or budgeted profits must
be reset for each period of time. Activating plays its role here. It involves choosing a
mode of activating, gaining commitment or compliance, gaining understanding and
activating a dynamic setting.
• Total load is another behavioral consideration
Multitude of control creates some psychological problems. For example. A
purchasing agent has to adhere to many standards. Standards regarding the quality of
materials depend on production standards. Delivery dates must anticipate actual use.
Inventory level must be in terms of cost estimates; departmental operating expenses
must be within the budgets. Thus when the variety of standards are put before a person,
an additional load of even a very small dose of control, may have the effect of “a straw
that breaks a camel’s back”.
There are individual differences regarding security and freedom. One person may
welcome specific working assignments. Another may feel that is breaks his rhythm of
work. From this point of view steering controls are better than yes-no controls.
In order to make controls tolerable; satisfactory levels of achievements are added
to most of the controls. Controls exist in such cases yet there won’t be pressure to
improve performance beyond a particular level. Though additional improvement is
scarified in such cases, it is desired because the potential benefit to tighter control is

23
not worth the cost of reduced effort due to psychological aspect in other areas. Commonly
a person can give serious attention to only four to six objectives. Controls beyond this
number may cause fatigue.
Each control may be desirable and acceptable. Chasing the control standards should
not lead to completion for attention. The employee may then trade of between various
things. It is essential to see that control fits into the total need of control in an organization.
Control should be confined to detail of self-adjustment. Interference so
sometimes becomes annoying. Most experienced people regard interference by outsiders
as lack of confidence and respect for their skill.
Feedback helps self-adjustment. Self-control should be encouraged to avoid
interference by an outsider. An evaluation of overall results and the feedback should
help the local decision maker to achieve the desired overall results.

18.7 SUMMARY

Effective control system has some characteristic features like accuracy,

timeliness, flexibility, acceptability, integration, and economic feasibility. Strategic
placement providing for corrective action and emphasis on exception. With all these
qualities a system of control becomes successful in an organization. Most organizations
display some aspects of both bureaucratic and decentralized control, but managers
generally emphasize one or the other, depending on the organizational culture and their
own beliefs about control.
The use of organizational culture, group norms, and a focus on goals, rather than
rules and procedures, to foster compliance with organizational goals.However effective
the control system may be, they become effective, only when they influence the behavior
of people. When a control system is designed, it is essential to consider, how executives
and other people involved will react. Controls should be related to meaningful and
accepted goals. To gain acceptance, participation of employees is necessary. Acceptance
again can be passive though active acceptance is common. Pars should be tough, yet
attainable. There are pars that motivate people. At the same time, there are pars that
breed dissent. Psychological tolerance of the people for controls should be borne in
mind and too much load of standards is to be avoided. Self-adjustment should be
encouraged. All these ways help in mitigating the behavioral problem arising while
implementing control.

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18.8 SELF ASSESMENT QUESTIONS

1. What are the symptoms of inadequate control?

2. Explain some of the reasons as to why such controls are inadequate
3. Describe the characteristics of effective control
4. Explain the behavioural implications of control
5. What types of controls do the workers resent the most? Explain steps can be taken to
reduce this resentment
6. Self control is the best control “comment on the statement explaining whether
eliminated the necessity for all other controls
7. What are the guidelines to be followed by management for behavioural control?

18.9 REFERENCE

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.

25
UNIT - 19 : CONTROL TECHNIQUES

Structure
19.0 Objectives
19.1 Introduction
19.2 Control Techniques
19.3 Break Even analyses
19.4 Budgeting
19.5 Budget- Approaches
19.6 Characteristics of Effective Budgetary Control Systems
19.7 Benefits of Zero based budgeting
19.8 Benefits of budgetary control
19.9 Limitations of budgetary control
19.10 Financial Control
19.11 TQM Techniques
19.12 Summary
19.13 Self Assesment Questions
19.14 Reference

26
19.0 OBJECTIVES

After studying this unit, you will be able to;

• Assess the need and scope for budgetary control.
• Explain the types of budget
• Describe the budget preparation process
• Explain the concept of Zero based budgeting.
• List out the characteristics of effective budgetary control system
• Bring out the benefits and limitations of budgetary control
• Discuss enterprise audit and social audit
• Examine the role of financial controls for effective controlling.
• Explain the benefits of quality control and various methods of achieving the
specified quality.
• Describe the relevance of effective control systems.

19.1 INTRODUTION

Control is indispensable for any organization, whether it is a school o, hospital or

manufacturing firm. Controlling is very essential for effective management of the
organizations. The process of control involves four steps namely setting of standards,
measuring the performance, comparing the actual with the standards and taking corrective
actions. For an effective control it is a must that activities must take place according to
the plans, and the deviations must be minimum. The tools of control should be such as to
ensure minimum deviation. Control should ensure performance, and should not become
a deterrent factor for performance.

19.2 CONTROL TECHNIQUES

Management has many control devices at its disposal. The type of control device
used depends on the situation that exists. Some common control devices used by every
organization is given below.
• Break - Even – analysis
• Budgets

27
 • Financial Control
• TQM Techniques
Let us learn these techniques in detail.

19.3 BREAK-EVEN-ANALYSIS

Break Even-Analysis is extensively employed by executive in all organizations.

Break-Even-Analysis is also known as cost volume-profit relationship. It is designed to
assist planning and decision making, by predicting the net effect of change in cost-volume
price and the level of activity on the profit of the company. Constitution of the Break-
Even-Chart takes into account, the following assumption.
• All the cost can be classified conveniently into fixed and variable.
• There is a linear relation between cost and revenues
• No changes in selling price, product mix, manufacturing process, efficiency, fixed
cost and management policies.
• There is no closing stock and opening stock-The total number of units produced and
sold are the same.
A company is said to be in break-even-position, when its total cost is just equal to
the total revenue. In other words, the contribution (Sales-variable cost) is just to meet
the fixed cost variable costs vary according to the production level or in other words,
they remain fixed per unit. Fixed costs remain fixed over a period of time.
Break even point can be calculated by two methods namely algebraic method and
graphical method. To find out break even sales, the following formula is uesd.
Break - Even (Sales) = Fixed Cost X Sales
Contribution.
Graphical method involves constructing a graph, by taking horizontal axis to-
represent the output and vertical axis to represent cost & revenue. The total cost and
total revenue lines are drawn and the point of intersection is called break-even point.
Break-Even analysis helps managers it taking decisions, as it establishes the
relationship between cost, volume and profits. Though there are limitations to the
application of break-even analysis it is widely employed by managers of the day. The
greatest advantage of this method is its simplicity in understanding, presentation analysis
and interpretation.

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19.4 BUDGETING

Budgets are quantitative statement of objectives, plans and programs of

enterprises. These are the statement of resources set aside for carrying out planned
activities over given period of time. Organization prepares various budgets like sales
budget, production budget, cash budget, programme budget, capital expenditure budget,
material budget, manpower requirement budget etc. An overall master budget is also
prepared.
Budgets can be fixed as well as flexible. Fixed budget is a budget that is designed
to remain unchanged irrespective of the level of activity attained. Generally it is prepared
for a certain definite capacity level. Flexible budgets are prepared for coping with the
changing future. It is a dynamic budget and it works towards a range of activities.
A special budget is prepared to improve the organizational efficiency. This is
‘Programmed budgeting’. A programmes budget is a financial statement of programmed
plan. It allocated funds to groups of programmes or activities while setting programme
budgets, first of all objectives are set to reflect the major activities of the department.
Secondly, programmes are formulated to achieve these goals. According to these
programmes, budgets are allocated and finally the output of the programme is carefully
analysed in terms of the objectives laid down.
• Programme budgeting differs from traditional budgeting in many respects. Such
points of difference are given below.
• Programme budgeting emphasizes output of programmes that cut across system lines.
Traditional budgeting concentrate on inputs or organizational resources.
• Programme budgeting takes into account programme and its goal rather than resources
inputs before allocating the funds to these programmes.
• Programme budget extends over many years and is not confined to a specific period
of time.
• Programme budgets are most beneficial incase of long-range programme.
• Programme budgeting enables the management to analyse more carefully the costs
versus benefits of programme alternative.

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19.5 BUDGETS- APPROACHES

Budgeting involves the following steps.

• Setting goals
• Planning and scheduling to reach the goals.
• Identifying and pricing resources
• Locating needed funds
• Adjusting goals, plans and resources to match actual fund availability.
The approaches used in the preparation of budgets are explained below.
♦ Top down budgeting
Senior managers prepare these budgets and pass down it to lower levels; lower
level managers may or may not contribute input to it. Top management shall carefully
build the budget, by asking for input by others and taking into consideration all relevant
factors. Every care has to be taken to see that no significant information about
opportunities and risks is missed.
♦ Bottom up budgeting
Members of the departments prepare inputs with respect to the respective needs
and priorities of their departments. These inputs are consolidated to create a
comprehensive framework. It is a participative style of budget building and is known as
‘ grass root budgeting. Participation in preparing the budget gives the employees the
required enthusiasm in implementation. Due to downsizing of the companies and
decentralizing of authority bottom up budgeting is gaining additional significance
nowadays.
♦ Zero based budgeting
Dependence on previous budgets is common while building budgets zero based
budget builds up the cost from zero, rather than starting with current level of costs.
Zero-based budgeting involves the following steps.
• Activities are divided into parts known as decision packages. Each decision package
contains all the information about an activity.
• All such activities are evaluated and ranked on the basis of benefit to the organization
the activities with the highest ranks will get immediate and first attention and the

30
 activities at the lowest ranks would get the lowest priority. The activities whose
benefits cannot be justified relative to the associated costs may even be eliminated.
• After assigning priorities to the activities the resources are budgeted according to
these priorities.

19.6 CHARACTERISTICS OF EFFECTIVE BUDGETARY CONTROL SYSTEM

Following are the features of an effective budgetary control system.

• Budgets should be result oriented
• Goals should be realistically established
• There should be provision for periodic evaluation and assessment of performance.
• Budgets allocated should be appropriate for the established goals.
• Duties and responsibilities for all operation should be well defined and rightly
assigned.
• Budgets should be based on document able information.
• A budget should be simple and understandably fair and objective.
• Communications should be effective, so that timely information on deviation should
be available to the managers. A quick and two-way communication is needed.
• The budgets should be viewed as positive and be conducive to self control.

19.7 BENEFITS OF ZERO BASED BUDGETING

Compared to the conventional budgeting techniques. Zero-Based budgeting has

many advantages.
• It provides more rational justification regarding whether an activity should be
continued or terminated.
• It allows for greater participation of all concerned people in the planning process.
• The assessment and evaluation of each activity is clear and unambiguous, as managers
must quantify each alternative, which makes the measures needed for comparison,
objective in nature.
• It enables the management to eliminate low priority activities without considerable
economic losses.
• It focuses the management process on analysis and decision-making.

31
• It combines planning, budgeting and operational decision making into one process.
• It forces the managers to evaluate in detail the cost effectiveness of their operations.
• It provides a system to trade off between long term and short term needs during the
budgeting period.
• It is flexible and allows for quick budget adjustments or resources shifts during the
year, if necessary.
• It identifies similar functions among different departments for comparison and
evaluation.
• It expands management participation and training in the planning, budgeting and
decision making process.

19.8 BENEFITS OF BUDGETARY CONTROL

The benefits of budgetary control are outlined below.

• Budgets help managers in integrating personnel efforts within the organizational
towards a common goal. By properly appropriating adequate budgets to different
activities within the organization, all activities can be synchronized and all efforts
can be co-ordinate to achieve the organizational objectives.
• Budgets act as controlling devices to correct any deviations. If the expenditure for a
given activity exceeds the allotted budget, at any point of time this will signal deviation
from the prescribed course, requiring attention and action by the management.
• Just measurement of performance is possible through budget. Due to qualification
of budgets, the measurement of performance becomes more objective in nature,
eliminating biases that might be introduced due to subjective evaluation.
• The budgeting process helps management learn from past experience. The management
can critically look at the success or failure of the past budgets and isolate errors and
analyse their causes and establish steps to be taken to avoid repetition of such errors.
• The budgeting process induces the management to shift attention to the future
operations. Since budgets area part of the planning process, they force managers to
anticipate and forecast the trends and changes in the external environment.
• Budgets facilitate communications throughout the organization. Budgets are the blue
prints for the company’s plan of operations and can only be coordinated through
proper communication at all levels, and these budgets are specially helpful to lower

32
 level mangers, who are responsible for implementing the budgets and plans. They let
these managers know how their operations relate to their units or departments within
the organization. This improved communication reduces the risk of failure due to
any misunderstanding.
• Budgets help new people and lower level managers to see where the organization is
going and where they fit the organization such budgets assist the junior managers to
be acquainted with the organizational goals and priorities and their own
responsibilities and how their operations relate to other units or departments within
the organization.

19.9 LIMITATIONS OF BUDGETARY CONTROL

• Budgets are often too rigid and restrictive. Supervisors are not given much liberty to
manage their resources. The budgets may either be changed too often or not at all.
Employees find it difficult to meet the performance level.
• Funds allocated for various activities may not be transferable from one account to
another resulting in difficult situations.
• Budgets are used to evaluate the performance and the result, but the causes of failures
and successes are not thoroughly investigated. A poor manager may meet the budgetary
standards and be considered as superior, while on the other hand a good manager
may be reprimanded for failure to follow the budgetary guidelines exactly.
• Budgets may be used punitively. The employees may regard budget, simply as rating
tools or as a device for catching there mistakes. This will lower their morale and
dilute their sense of dedication.
• Some managers believe that all funds allocated in a budget for a given activity must
be spent on the activity. They fear that if they do hot spend the entire allocation,
their budgets will be reduced for the following year. This type of attitude is detrimental
to the organizational effectiveness.
• Budgeted goals may be perceived as too high. A high production level or sales level
may be resented as unrealistic and may create tension and pressures which could
result it worker inefficiency and create conflicts between the workers and the
management.

33
19.10 FINANCIAL CONTROL

Managers in every’ organization, need to watch how well the organization is

performing financially. Not only do financial controls tell whether the organization is
on sound financial footing, but they can be useful indicators of other kinds of performance
problems. For example, a sales decline may signal problems with products. customer
service or sales force effectiveness.
Balance sheet
A financial statement that shows the firm’s financial position with respect to assets
and liabilities at a specific point in time.
Income statement
A financial statement that summarizes the firm’s financial performance for a given
time interval; sometimes called a profit-and-loss statement.
Financial Statements
Financial statements provide the basic information used for financial control of
an organization. Two major financial statements — the balance sheet and the income
statement — are the starting points for financial control.
The balance sheet shows the firm’s financial position with respect to assets and
liabilities at a specific point in time. The balance sheet provides diree types of
information: assets, liabilities, and owners’ equity Assets are what the company owns,
and they include current assets (those that can be converted into cash in a short time
period) and fixed assets (such as buildings and equipment that are long term in nature).
Liabilities are die firm’s debts, including both current debt (obligations that will be
paid by the company in the near future) and long-term debt (obligations payable over a
long period). Owners’ equity is the difference between assets and liabilities and is the
company’s net worth in stock and retained earnings.
The income statement, sometimes called a profit-and-loss statement or P & L
for short, summarizes the firm’s financial performance for a given time interval, usually
one year.
Organizations calculate the income statement at three-month intervals during the
year to see if they are on target for sales and profits. The income statement shows
revenues coming into the organization from all sources and subtracts all expenses,
including cost of goods sold, interest, taxes, and depreciation. The bottom line indicates
the net income—profit or loss—for the given time period.

34
 More discussion about the topics covered will be dealt in detail in the accounting
and financial management papers.

19.11 TQM TECHNIQUES

The implementation of total quality management involves the use of many

techniques, including quality circles, benchmarking, Six Sigma principles, reduced cycle
time, and continuous improvement.
Quality Circles
One technique for implementing the decentralized approach of TQM is to use
quality circles. A quality circle is a group of 6 to 12 volunteer employees who meet
regularly to discuss and solve problems affecting the quality of their work. At a set time
during the workweek, the members of the quality’ circle meet, identify problems, and
try to find solutions. Circle members are free to collect data and take surveys. Many
companies train team members in team building, problem solving, and statistical quality
control. The reason for using quality circles is to push decision making to an organization
level at which recommendations can be made by the people who do the job and know it
better than anyone else.
Benchmarking
Benchmarking is defined as “the continuous process of measuring products,
services, and practices against the toughest competitors or those companies recognized
as industry leaders.”27 The key to successful benchmarking lies in analysis. Starting with
its own mission statement, a company should honestly analyze its current procedures
and determine areas for improvement. As a second step, a company carefully selects
competitors worthy of copying. Introduced by Xerox in 1979, benchmarking is now a
major TQM component. For example, Xerox studied the order fulfillment techniques
of L. L. Bean and learned ways to reduce warehouse costs by 10 percent. Companies can
emulate internal processes and procedures of competitors, but must take care to select
companies whose methods are compatible. Once a strong, compatible program is found
and analyzed, the benchmarking company can then devise a strategy for implementing a
new program.
Six Sigma
Six Sigma quality principles were first introduced by Motorola in the 1980s and
were later popularized by General Electric, where former CEO Jack Welch praised Six
Sigma for quality and efficiency gains that saved the company billions of dollars. Based
on the Greek letter sigma, which statisticians use to measure how far something deviates

35
from perfection, Six Sigma is a highly ambitious quality standard that specifies a goal of
no more than 3.4 defects per million parts. That essentially means being defect-free
99.9997 percent of the time.28 However, Six Sigma has deviated from its precise
definition to become a generic term for a quality-control approach that takes nothing
for granted and emphasizes a disciplined and relentless pursuit of higher quality and
lower costs. The discipline is based on a five-step methodology referred to as DMAIC
(Define, Measure, Analyze, Improve, and Control), which provides a structured way for
organizations to approach and solve problems.
Effectively implementing Six Sigma requires a major commitment from top
management, because Six Sigma requires widespread change throughout the organization.
Hundreds of organizations have adopted some form of Six Sigma program in recent
years. Six Sigma has evolved to a process used in all industries and affecting every aspect
of company operations, from human resources to customer service. Six Sigma is
important for both manufacturing and service organizations.
Continuous Improvement
The implementation of a large number of small, incremental improvements in all
areas of the organization on an ongoing basis is known as continuous improvement.
Managers measure the expected benefits of a change and favor the ideas with the biggest
payoffs. Japanese companies have realized extraordinary success from making a series
of mostly small improvements. This; approach, called continuous improvement, or kaizen
is the implementation of a large number of small, incremental improvements in all areas
of the organization on ar. ongoing basis. In a successful TQM program, all employees’
learn that they are expected to contribute by initiating changes in their own job activities.
The basic philosophy is that improving things a little bit at a time, all the time, has the
highest probability of success. Innovations can start simple, and employees can build on
their success in this unending process.

19.12 SUMMARY

Control techniques play a significant role in achieving the organizational goals.

Control techniques vary from organizations, nature of operations, and organizational
culture. Control tools used depend upon the type of situation that exists. Budgetary control
is a commonly used device. There are different types of budgets like master budget,
materials budget, revenue budget sales budget, production budget etc., while developing
budgets, methods employed can be top down budgeting, bottom up budgeting and zero
based budgeting.

36
 Financial controls do help the organizations to know their financial positions.
The investment decisions related to expansions, diversifications need the better
understanding of organizations financial positions.
Quality control techniques have undergone sea change in the wake of technology
advancement. Total quality is the order of the day to compete in the global market. Total
quality management practices have brought delight to the customers and are rapidly
progressing.

19.13 SELF ASSESMENT QUESTIONS

1. Bring out the importance of effective control devices techniques.

2. Explain the steps in break-even analysis.
3. What is master budget? What are the steps involved in the preparation of master
budget
4. What is zero-based budgeting? How is it better than the traditional budgeting methods?
5. What are the benefits of budgetary control? Also list out the limitations.
6. What are the advantages and limitations of break-even analysis?
7. What is financial control?
8. Explain the components of financial control.
9. Write a note on balance sheet and income statement.
19.14 REFERENCE

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.

37
UNIT - 20: ROLE OF TECHNOLOGY - CONTROL FUNCTIONS

Structure
20.0 Objectives
20.1 Introduction
20.2 Importance of Information Technology in Controlling
20.3 Information
20.4 Types of information systems
20.5 Developing an MIS
20.6 Enterprise Audit
20.7 Social Audit
20.8 Trends in Quality and Financial Control.
20.9 Managing Challenges of Work Force Diversity
20.10 Summary
20.11 Self Assesment Questions
20.12 Reference

38
20.0 OBJECTIVES

After studying this unit, you will be able to,

• Bring out the necessity of technology for effective control.
• Describe the use of computers in processing information and reporting
• Explain the various types of information systems.
• Identify the symptoms of inadequate reporting and develop guidelines to improve
system.

20.1 INTRODUCTION

Managers use not only extrinsic rewards such as pay, but the intrinsic rewards of
meaningful work and the opportunity to learn and grow. Technology is used to empower
employees by giving them the information they need to make effective decisions, work
together, and solve problems. People are rewarded for team and organizational success
as well as their individual performance, and there is an emphasis on equity among
employees. Employees participate in a wide range of areas, including setting goals,
determining standards of performance, governing quality, and designing control systems.
Measurement of performance is an important step in controlling. This step is of
little value, if the information on such approaches is not given to the executives, who
take corrective actions.

20.2 IMPORTANCE OF INFORMATION TECHNOLOGY IN CONTROLLING

In a small company, a supervising executive can evaluate the results himself when
few people are involved, it is easy to carry out all the four steps in controlling. When
more people are involved, the task of reporting evaluation becomes more important.
Who should receive the control reports is a question that needs explanation.
Control information should be sent immediately to the person whose work is being
controlled. It does not mean that information should go to .a machine operator. It should
go to the person who takes decisions at the lower level. Control in formations should
flow as a summary, at a later date to the controller’s boss.

39
20.3 INFORMATION

Information is team that stands district from data. Data refers to collection of
unorganized facts, statistics, opinions or prediction. Information on the other hand is
processed data which is directly used in the decision making process. A data undergoes
many steps before becoming information. Assembly is the, I st stage, then comes
processing. Processed data has to be analyzed, after undergoing storage-retrieval,
evaluation and dissemination it becomes information.

20.4 TYPES OF INFORMATION SYSTEMS

Several types of information systems are in use. Some of them are explained
below.
• Transaction processing system
Transactions taking place between two or more business entities are recorded
here. The purpose of this system is to record, process and store information about
transactions that take place in the functional areas like production, marketing, accounting,
quality control, human resources, finance research and development, and so on. Optical
scanning is used recently as a part of transaction processing system.
• Management Information system
These are general purpose - systems, providing managers with vital information
about organizational activities. Input for management information system comes from
transaction processing system. The volume and type of information handled are affected
by some factors, that change continuously Economic, technological; social, political,
and legal factors keep on changing. In order to control management decisions. MIS is
much needed. Moreover, due to wide use of computers, there is rapid growth in the field
of MIS. Day by Day, the computers are becoming more useful and less expensive to
operate.
• Decision support system
This system accessed and processes vast amount of internal and external data and
integrates these data with various decision making models. Best alternative can then be
selected. MIS draws information mainly from internal transaction system, where as DSS
is more capable of analyzing internal as well as external information in an integrated
way

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• Executive support system
Executive support system is a specialised decision support system. This is
designed mainly for the use of top executive of a company. The information is used by
the top management engaged in long range planning crisis management and other strategic
decisions. :
• Expert Systems (ES)
An Expert system has three main components. Knowledge base serves as a
storehouse for knowledge and experience of experts in a give field. Inference engine
selects the appropriate knowledge arid application related to the specific problems. User
interface consists of menus, graphics and help users to interact with the system. Expert
system is also known as artificial intelligence.
• Office automation system
It serves the needs of those who are primarily involved in processing of data. This
system includes word processing desktop publishing, E-mail, Videoconferencing and
facsimile transmission etc.

20.5 DEVELOPING MIS

It involves two phases namely, design phase and implementation phase.

Design phase consists of four steps. The decisions to be made for running an
organization have to be identified. Objectives for the system should be set. Thirdly a
feasibility report has to be prepared and finally a technical report has to be prepared.
Implementation phase consists of the following steps.
• Acquiring the necessary facilities, equipments and personnel
• Training the personnel
• Installing the new MIS
• Operating the system and
• Evaluating the MIS to see if it is doing what it was designed to do.
There should be a “management information system” that should act as a central
location for processing all the information into. This center has all technical accessories
to gather the facts and turn them management information.

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 An effective management information system should supply complete, accurate,
and the timely information, so as to facilitate effective planning and decision-making. It
identifies operational and performance variables in order to use them to forecast future
trends. It should facilitate cost control. It identifies the separate needs of all units of a
decentralized organization in a cohesive manner, so that these needs can be attended ti
without duplication and waste of efforts. It should present information in a presentable
from. It should provide flexibility, i.e. it should be adaptable to the changes.

20.6 ENTERPRISE AUDIT

The examination, monitoring and analysis of activities related to a company’s

operation, including its business structure, employee behavior and information systems.
An internal audit is designed to review what a company is doing in order to identify
potential threats to the organization’s health and profitability, and to make suggestions
for mitigating the risk associated with those threats in order to minimize costs.
Objectives of Internal Audit
The objectives of the internal audit can be summarized as follows:
1. To verify the correctness, accuracy and authenticity of the financial accounting and
statistical records presented to the management.
2. To confirm that the liabilities have been incurred by the organization in respect of
its valid and legitimate activities.
3. To comment on the effectiveness of the internal control system and the internal
check system in force and to suggest ways and means to improve these systems.
4. To facilitate the early detection and prevention of frauds.
5. To examine the protection afforded to company’s assets and use of them for business
purpose.
6. To identify the authorities responsible for purchasing assets and other items as well
as disposal of assets.
7. To ensure that the standard accounting practices which have to be followed by the
organization are strictly followed.
8. To undertake special investigation for the management.
9. To assist management in achieving the most efficient administration of the operation
by establishing procedures by complying with company’s operating policies.

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Advantages of Internal Audit
The advantages of internal audit are as follows:
1. Staffs remain alert because their work shall be checked by the internal auditor. So,
accounting remains correct.
2. Internal audit helps to detect errors and frauds and provides suggestions to improve
them which helps the management to take corrective action.
3. Internal audit detects the misuse of resources in time which helps to reduce
unnecessary expenses.
4. Internal audit checks the efficiency of staffs which helps to increase the efficiency
of them.
5. Internal audit checks the books of accounts, detects errors and frauds and helps in its
correction which makes the act of final auditor easier.
6. Internal audit increases the morale of honest staff because evaluation of performance
of any staffs will be made at any time.
20.7 SOCIAL AUDIT

Social audit is the process of communicating the social and environmental effects
of organizations’ economic actions to particular interest groups within society and to
society at large. Social audit is commonly used in the context of business, or corporate
social responsibility (CSR), although any organization, including NGOs, charities,
and government agencies may engage in social audit. Social Audit can also be used in
conjunction with Community-Based Monitoring (CBM).
Social audit emphasizes the notion of corporate accountability. D. Crowther
defines social audit in this sense as “an approach to reporting a firm’s activities which
stresses the need for the identification of socially relevant behavior, the determination
of those to whom the company is accountable for its social performance and the
development of appropriate measures and reporting techniques.” It is an important step
in helping companies independently develop CSR programs which are shown to be much
more effective than government mandated CSR.
Social audit is often used as an umbrella term to describe a broad field of research
and practice. The use of more narrow terms to express a specific interest is thus not
uncommon. Environmental audit may e.g. specifically refer to the research or practice
of audit for an organization’s impact on the natural environment. Sustainability audit is

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often used to express the measuring and the quantitative analysis of social and
economic sustainability.

20.8 TRENDS IN QUALITY AND FINANCIAL CONTROL

Globalization has driven sea change in the operations of the organizations. Change
has become the order of the day, and organizations are competing to evolve various
strategies to have an edge over others. Control tools and techniques had to change
accordingly to keep in pace with the globalization. Some of the trends witnessed are
discussed below.
ISO 9000
A set of international standards for quality management, setting uniform guidelines
for processes to ensure that products conform to customer requirements.
Many companies are responding to changing economic realities and global
competition by reassessing organizational management and processes—including control
mechanisms. Some of the major trends in quality and financial control include
international quality standards, economic value-added and market value-added systems,
and activity-based costing.
International Quality Standards
One impetus for total quality management in the United States is the increasing
significance of the global economy. Many countries have endorsed a universal framework
for quality assurance called ISO 9000, a set of international standards for quality
management systems established by the International Organization for Standardization
in 1987 and revised in late 2000. Hundreds of thousands of organization in 150 countries,
including the United States, have been certified to demonstrate their commitment to
quality. ISO 9000 has become the recognized standard for evaluating and comparing
companies on a global basis, and more U.S. companies are feeling the pressure to
participate in order to remain competitive in international markets. In addition, many
countries and companies require ISO 9000 certification before they will do business
with an organization.
New Financial Control Systems
In addition to traditional financial tools, managers in many of today’s organizations
are using systems such as economic value-added, market value-added, and activity-based
costing to provide effective financial control.

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Economic Value-Added (EVA)
A control system that measures performance in terms of after-tax profits minus
the cost of capital invested in tangible assets.
EVA can be defined as a company’s net (after-tax) operating profit minus the cost
of capital invested in the company’s tangible assets. Measuring performance in terms of
EVA is intended to capture all the things a company can do to add value from its activities,
such as run the business more, efficiently, satisfy customers, and reward shareholders.
Each job, department, process, or project in the organization is measured by the value
added. EVA can also help managers make more cost-effective decisions.
Market Value-Added (MVA)
A control system that measures the stock market’s estimate of the value of a
company’s past and expected capital investment projects.
Market value-added (MVA) adds another dimension because it measures the stock
market’s estimate of the value of a company’s past and projected capital investment
projects. For example, when a company’s market value (the value of all outstanding stock
plus the company’s debt) is greater than all the capital invested in it from shareholders,
bondholders, and retained earnings, the company has a positive MVA, an indication that
it has increased the value of capital entrusted to it and thus created shareholder wealth. A
positive MVA usually, though not always, goes hand-in-hand with a high overall EVA
measurement.
Activity-Based Costing (ABC)
A control system that identifies the various activities needed to provide a product
and allocates costs accordingly.
Managers measure the cost of producing goods and services so they can be sure
they are selling those products for more than the cost to produce them. Traditional
methods of costing assign costs to various departments or functions, such as purchasing,
manufacturing, human resources, and so on. With a shift to more horizontal, flexible
organizations has come a new approach called activity-based costing (ABC), which
allocates costs across business processes. ABC attempts to identify all the various
activities needed to provide a product or service and allocate costs accordingly. For
example, an activity-based costing system might list the costs associated with processing.

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20.9 MANAGING CHALLENGES OF WORK FORCE DIVERSITY

Workplace diversity refers to the variety of differences between people in an

organization.
That sounds simple, but diversity encompasses race, gender, ethnic group, age,
personality, cognitive style, tenure, organizational function, education, background and
more.Diversity not only involves how people perceive themselves, but how they perceive
others. Those perceptions affect their interactions. For a wide assortment of employees
to function effectively as an organization, human resource professionals need to deal
effectively with issues such as communication, adaptability and change. Diversity will
increase significantly in the coming years. Successful organizations recognize the need
for immediate action and are ready and willing to spend resources on managing diversity
in the workplace now.
Challenges of Diversity in the Workplace
Taking full advantage of the benefits of diversity in the workplace is not without
its challenges. Some of those challenges are:
Communication - Perceptual, cultural and language barriers need to be overcome for
diversity programs to succeed. Ineffective communication of key objectives results in
confusion, lack of teamwork, and low morale.
Resistance to change - There are always employees who will refuse to accept the fact
that the social and cultural makeup of their workplace is changing. The “we’ve always
done it this way” mentality silences new ideas and inhibits progress.
Implementation of diversity in the workplace policies - This can be the overriding
challenge to all diversity advocates. Armed with the results of employee assessments
and research data, they must build and implement a customized strategy to maximize the
effects of diversity in the workplace for their particular organization.
Successful Management of Diversity in the Workplace - Diversity training alone is
not sufficient for your organization’s diversity management plan. A strategy must be
created and implemented to create a culture of diversity that permeates every department
and function of the organization.

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20.10 SUMMARY

Information in ones hand is equivalent to power in ones hand. Information is

processed data which is directly used in the decision making process. The process of
transformation of data into information involves different stages namely assembly,
processing, analysis, storage and retrieval, evaluation and dissemination. Good
information should be understandable, relevant, complete, available reliable, concise,
timely and cost effective.
Computerised information system has grown rapidly nowadays. Expert systems
rely on Artificial intelligence. Information system are of six types namely, transaction
processing systems, management information systems and office automation systems.
Developing an MIS undergoes the .phases of design and implementation. MIS conception
of MIS may lead to failures. Whenever the symptoms of inadequate MIS are observed,
corrective actions are to be taken. Information is communicated faster nowadays with
advanced technology. We can say that information superhighway is under construction
in advanced Western countries and” it will soon reach the entire world. Controlling can
be effective with the efficient use of reporting system.
The philosophy of controlling has shifted to reflect changes in leadership methods.
Traditional bureaucratic controls emphasize establishing rules and procedures, then
monitoring employee behavior to make sure the rules and procedures are followed. With
decentralized control, employees assume responsibility for monitoring their own
performance.
Besides monitoring financial results, organizations control the quality of their
goods and services. They might do this by adopting total quality management (TQM)
techniques such as quality circles, benchmarking, Six Sigma, reduced cycle rime, and
continuous improvement.
Recent trends in control include the use of international quality standards,
economic value-added (EVA) and market value-added (MVA) systems, and activity-based
costing (ABC). Other important aspects of control in today’s turbulent environment are
open-book management and use of the balanced scorecard. In addition, concerns such as
corporate governance and employee monitoring are significant issues for today’s
managers.

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20.11 SELF ASSESMENT QUESTIONS

1. Explain the role of computers in information systems.

2. What are the symptoms of inadequate information?
3. What is MIS? Explain its significance in managerial decision making process.
4. Explain the types of information system?
5. What is social audit?
6. Explain enterprise audit with relevant example.
7. Examine the trends in quality and financial control.

20.12 REFERENCE

1. Davar. The Management process. Mumbai: Progressive Corporation Pvt. Ltd, 2010.
2. Harold Koontz. Heinze Weihrich. Essentials of management, New York: MacGraw-
Hill,1993
3. J S. Chandan. Management Concepts and Strategies, New Delhi: Vikas Publishing
House PvtLimited,1997.
4. Chauhry Omvir, Prakash Singh. Principles of Management, New Delhi: New Age
International Publishers, 2012.
5. Peter. Drucker. Management of 21st Century, New York: HarperBusiness,2001.
6. Prasad L.M. Principles of Management, New Delhi: Sultan Chand & Sons, 2015.
7. Stoner J.A. and Freeman R.E. Management, New Delhi: Pearson Education
India,1995.
8. Richard L. Daft.Management, Massachusetts, United States: Cengage Learning, 2013.
9. S.K. Mandal. Management: Principles and Practice, Mumbai: Jaico Publishing
House, 2011.

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