Principles of Management &

Organizational Behaviour
Unit 1

Basic forms of business ownership = business is of two types: individual and group.
Individual : SOLE PROPRIETOR -SHIP and group: PARTNERSHIP, JOINT HINDU FAMILY,
FIRM COMPANY, and CO-OPERATIVE ORGANISATION.

SOLE PROPRIETOR-SHIP= A Sole proprietorship can be explained as a kind of

business or an organization that is owned, controlled and operated by a single individual
who is the sole beneficiary of all profits or loss, and responsible for all risks. It is a
popular kind of business, especially suitable for small business at least for its initial
years of operation. This type of businesses is usually a specialized service such as hair
salons, beauty parlours, or small retail shops.
The features of Sole Proprietorship are as follows:

1. Formation and Closure of business

This type of business organization is simple to form as no legal formalities are required
to start the business. But, in some cases, a license or certification is required to carry
out the sole proprietor business. The owner can easily close the business anytime at his
own discretion. Thus, it is easy and simple to form and close this kind of business.

2. Unlimited Liability

In a sole proprietorship, the owner has unlimited liability, i.e., the proprietor is personally
responsible to pay all the debts. In other words, if in the business, funds are not
sufficient to pay the debt, then the personal assets of the owner may be used to pay off
all the liabilities.

3. No separate legal entity

A sole proprietorship business has no separate legal entity from that of its owners, like
in partnership and company. In the eyes of law, there is no distinction between the
owner and his business. It means that the owner of the business bears the responsibility
for all the business activities.

4. No sharing of profit or loss

There is no sharing of profit or loss, like partnership and company because the business
is solely run by a single individual, who provides capital in the business, directs its
operation and who alone runs the risk of failure.

5. Risk bearer

All the risk of the firm is borne by a single owner only. The single individual is the sole
beneficiary of all the profits. Likewise, if losses occur in the business, then he alone has
to bear all the risks.

6. Control

The sole proprietor is the only owner of the firm and has full control over its business. All
the rights, responsibilities, and decisions are in the hands of the owner himself. No one
can interfere in the business without the permission of the owner.

7. Lack of Business Continuity

Since business and owner are one and exist together, so in case of death,
imprisonment, insolvency, or bankruptcy of the sole owner, the business can not be
continued and has to shut down.

Advantages of Sole Proprietorship

1. Quick Decision Making
2. Easy to Form and Dissolve

3. Personal Touch

4. Maximum Incentive

In this type of business organization, there is a direct relationship between rewards and
efforts. If the proprietor puts extra effort into the business, then the profits increase and
the proprietor get an extra reward for the efforts. Similarly, the owner gets maximum
incentive, if he/she performs better.
5. Confidentiality of Information

To make the business successful, it is essential for the owner to maintain secrecy within
the organization. The sole proprietor does not have to share the information with others
and can keep it confidential, as he/she has the sole decision-making authority.

Disadvantages of Sole Proprietorship

1. Limited Resources

It is very difficult to raise capital in a sole proprietorship as compared to a partnership

and corporation because a sole proprietor has limited resources to the extent of his
personal assets and borrowings.

2. Unlimited Liability

This is one of the biggest disadvantages of sole proprietorship. The sole proprietor has
unlimited liability, which means the personal assets of the owner can be used to pay the
debts of the business. This puts a financial burden on the owner. If the business does
not have adequate funds to pay for obligations, the personal assets of the owner will be
used to pay off the debts.

3. Lack of Continuity of Business

The life of a business depends on the sole proprietor only because the law considers
the owner and the business as the same (no separate legal entity). Therefore, if the
proprietor falls ill, becomes bankrupt or insolvent, or dies, then the business may come
to an end.

4. Lack of Professional Skills and Expertise

The proprietor may lack professional skills and talent. His knowledge is only limited to
his area of study and may not have the necessary skills to face competition to cope with
changes taking place in the environment, like changes in fashion, technology, etc. For
example, an owner may be a good salesperson, but not a good manager. It is very
difficult to find all the skills in one person. The sole proprietors cannot afford to appoint
expert employees. Thus, the proprietor is burdened with too many tasks.
5. Risk of Wrong Decisions

The sole proprietor is the only owner of the organization, and he has to take every
decision on what to do, when to do it, and how to do it. Also, he does not have experts
in the organization from whom he can take advice. Therefore, there is a possibility that
he will make the wrong decisions, which can lead to problems in the business.

PARTNERSHIP: A partnership is a formal arrangement by two or more parties to

manage and operate a business and share its profits. Section 4 of the Partnership Act,
1932 defines Partnership as “The relation between persons who have agreed to share
profits of a business carried on by all or any of them acting for all.”

Features of Partnership
1) Formation of Partnership
A partnership is an alliance of two or more people created by an agreement or contract.
The agreement (accord) is the basis for the partnership between the parties. This type
of agreement is in writing. An oral agreement is legally binding. To minimise
misunderstandings, it is always preferable if the partners have a copy of the written
agreement
2) Number of Partners for the firm
A partnership must be manifested by at least two people who share a relatively similar
purpose. In other words, the minimum number of partners in a business might be two.
However, there is a limitation to the number of people they can accommodate.

3) Liability

In general partnerships, all partners are personally held accountable. It means that they
are all collectively liable for retrieving all of the firm’s debts, even if it means liquidating
their personal assets. Partners’ firm liability is unlimited like that of a sole proprietor.

4) Risk bearing

The risks that come with operating a firm as a team are shared by the partners. Profits
are divided among the partners in an agreed-upon ratio as the return. They also share
losses in the same ratio if the corporation suffers losses.
5) Decision Making and Control

Every partner has the right to participate in the organization’s management and
decision-making. The partners share responsibility for decision-making and control of
day-to-day operations. Decisions are usually made with mutual consent. As a result, the
operations of a partnership business are managed via the joint efforts of all partners.

Advantages of Partnership Firm

The following are some of the major advantages of a partnership firm:

Easy to Start
Partnership firms are one of the easiest to start. The only requirement for starting a
partnership firm in most cases is a partnership deed. Hence, a partnership can be
started on the same day. On the other hand, an LLP registration would take about 5 to
10 working days, as the digital signatures, DIN, Name Approval and Incorporation must
be obtained from the MCA.

Decision Making
Decision making is the crux of any organization. Decision-making in a partnership firm
could be faster as there is no concept of passing resolutions. The partners in a
partnership firm enjoy a wide range of powers and in most cases can undertake any
transaction on behalf of the partnership firm without the consent of other partners.

Raising of Funds
When compared to a proprietorship firm, a partnership firm can easily raise funds.
Multiple partners make for more feasible contribution among the partners. Moreover,
banks also view a partnership more favourably while sanctioning credit facilities instead
of a proprietorship firm.

Sense of Ownership
Every partner owns and manages the activities of their firm. Their tasks might be varied
in nature but people in a partnership firm are united for a common cause. Ownership
creates a higher sense of accountability, which paves the way for a diligent workforce.

Disadvantages of Partnership Firm

The disadvantages of a partnership firm are as follows:

Unlimited Liability
Every partner is liable personally for the losses of a partnership firm. The liability
created by a partner in the partnership firm will also make each of the partner personally
liable. To limit the liability of partners in a partnership firm, the LLP structure was created
by the Government.

Number of Members
The maximum number of members a partnership firm can have is restricted to 20. In
case of an LLP, there is no restriction on the maximum number of partners.

Lack of a Central Figure

Leadership can both uplift and derail a firm. Combined ownership takes away the
possibility of leadership and lack of leadership leads to directionless operations. On the
other hand, in a partnership firm, certain partners can be given the position of
designated partner with more powers and responsibilities.

Trust of the General Public

A partnership firm is easy to start and does require any registration. A partnership firm
can also operates without much of a structure or regulations. Hence, it often leads to
distrust amongst the general public

JOINT HINDU FAMILY BUSINESS: Known as the Joint Hindu Family Business, it is a
type of organisation that is only found in India. The operation of the law results in the
formation of a Joint Hindu Family Firm. It does not exist as a separate and distinct legal
entity from the members who make up the organisation.

The business of a Joint Hindu Family is governed by Hindu Law, rather than the
Partnership Act, which governs other businesses. It is only through birth or marriage to
a male person who is already a member of the Joint Hindu Family that one can become
a member of this type of business organisation. Business Examples:

●​ Reliance Industries Limited.

●​ Tata Sons Private Limited.
●​ Mahindra & Mahindra Limited.
●​ Haldiram’s Private Limited.

FEATURES:

(1) Formation: Joint Hindu Family cannot be formed or created by any contract or
agreement because this organization came into existence by the operation of the
"Hindu Law". It is not formed by any agreement like partnership firm. Whenever, there is
Hindu Undivided Family, there is the scope for Joint Hindu Family Business.

(2) Registration: It is not at all compulsory to register this organization because it is the
result of Hindu Law.

(3)) Membership: There are two types of members i.e Karta and Co-parceners. Karta is
the elder male member of the family who controls and manages the business. The other
family members are called as the co-parceners. There is no limit on membership
because the membership is by birth.

(4) Management: The head of the family has full responsibility of the management of
Joint Hindu Family Business. He is free to take any decision without any interference of
any co-parceners but he can take advice and help from the family members.
(5) Liability: The liability of Karta is unlimited because he is the only deciding authority
whereas the liability of co-parceners is limited up to their share in the capital of the
family.

ADVANTAGES:

1.Easy to Start:

It is extremely simple to establish a Joint Hindu Family Business. There are no legal formalities
to complete, such as registration, that must be completed. It does not necessitate agreement.

2.Efficient Management:

The management of the Joint Hindu Family Business is centralised in the hands of the family’s
Karta (head). Karta is the decision-maker in this company and is responsible for seeing that all
decisions are carried out with the assistance of the other members. No other team member is
allowed to interfere with his management.

3.Secrecy:

In a Joint Hindu Family Business, all decisions are made by the ‘Karta,’ who is the head of the
organisation. He’s in a position to keep all of the affairs to himself and to maintain complete
secrecy in all of his dealings.

4.Prompt Decision:

The Karta is the only person who has the authority to control and direct the operation. When
making decisions, he is not required to consult with anyone. This ensures that decisions are
made as soon as possible. Because he is the sole master, he is able to make quick decisions
and take advantage of any opportunities that arise.

5.Economy:
Any business’s success is dependent on its ability to operate efficiently. When it comes

to Joint Hindu Family Business, it is well-balanced and well-maintained. The Karta of

the family is extremely frugal and conservative with his spending.

DISADVANTAGES:

1.Limited Membership:

Individuals who are not members of the business’s extended family are not permitted to do so. A
member of the Joint Hindu Family Business cannot be recruited from outside the family.

2.Limited Sources of Capital:

The amount of capital available is only limited by the resources of a single family. The amount of
money available is insufficient to meet the needs of the business in terms of expansion. As a
result, the company’s overall size remains small. Due to a lack of financial resources, the Karta
is unable to take advantage of large-scale economies.

3.Limited Managerial Skill:

The Karta of the family is responsible for all of the managerial functions that are necessary for
the successful operation of a business. Because of limitations in terms of time, energy, and
skills, the Karta may not be able to perform all managerial responsibilities. Because of the small
scale of operations and financial resources available, it may not be possible to secure the
services of experts in a variety of fields such as purchasing, production, marketing, and
distribution.

4.Unlimited Liability:

The liability of the Karta is completely limitless in nature. However, the Karta’s liability does not
end there; his separate property is also attachable, and the amount of debt owed can be
recovered from his separate property as a result. This factor places a cap on the amount of
growth and expansion that the company can experience.

5.Misuse of Power:

An Indian Joint Hindu Family Business is managed centrally by the Karta, who is the family’s
chief executive officer. No other member has the authority to interfere with his management.
This could lead to the abuse of power, with Karta using his position to further his own personal
interests.

COMPANY:

A company is a voluntary association of persons, recognised by law, having a distinctive

name, a common seal, formed to carry on business for profit, with capital divisible into
transferable shares, limited liability, a corporate body and perpetual succession.

FEATURES:

●​ Corporate Body: A company needs to be registered under the Companies Act,

2013. Any other organisation incorporated with the Registrar of Companies, and
subsequently not registered cannot be considered as a company.
●​ Separate Legal Entity: A company exists as a separate legal entity which is
different from its shareholders and members. Due to this feature, shareholders
can enter into a contract with the company and can also sue the company and be
sued by the company.
●​ Limited Liability: As the company exists as a separate entity, members of the
company are not liable for the debts of the company. Liability of members of a
company is limited to the extent of the shares that are held by them or by the
extent of the guarantee amount
●​ Transferability of Shares: Shareholders of a public limited company can
transfer their shares as per the rules laid down in the articles of association.
 However, in case of a private limited company, there might be some restrictions
on the transfer of shares.
●​ Common Seal: The firm is an artificial entity or a person, and therefore cannot
sign its name by itself. It creates the necessity of a common seal that can be
used for representing the decisions made on behalf of the company.
●​ Perpetual Succession: The company being an artificial person established by
law perpetuates to exist regardless of the differences in its membership. In
simple words, a company is an artificial person. Therefore, it does not have any
restrictions on age. The factors like death, insolvency, retirement or the insanity
of one or all of the members do not impact the company status.
●​ Number of Members: As per the Companies Act, 2013, the minimum number of
members required to start a public limited company is seven while for a private
limited company, it is two. The maximum number of members for a public limited
company can be unlimited while it is restricted to 200 for a private limited
company.

ADVANTAGES:

Limited Liability

One of the primary advantages of a company is limited liability. This means that the
shareholders’ assets are safe in case of business debts or legal issues. Shareholders
are only liable for the amount invested in the company’s shares. This provides a
significant level of financial security for investors and encourages entrepreneurship.

Access to Capital

Companies can raise capital more quickly than other forms of businesses, such as sole
proprietorships or partnerships. They can issue stocks or bonds or borrow funds from
banks or other financial institutions to attract investments from a wide range of
investors. This can provide a significant advantage in expanding operations, investing in
new projects or ventures, or acquiring other businesses.

Perpetual Existence

In business law, perpetual succession refers to a company’s ability to continue its

existence indefinitely, regardless of changes in ownership, death, insolvency, or
retirement of its founders or shareholders. A company enjoys a perpetual existence,
meaning it can continue to operate even if its founders or original shareholders pass
away or leave the company. This stability provides confidence to employees, customers,
and investors, making planning for the long term easier.

Centralized Management

Centralized management offers streamlined decision-making and transparent

leadership. It ensures that a central authority or a designated management team makes
key strategic and operational choices, promoting consistency and alignment with the
company’s goals. This centralized approach can enhance efficiency, facilitate uniform
policy implementation, and provide a coherent direction for the organization.

Transferability of Ownership

Shares represent a company's ownership. They can be bought and sold on a stock
exchange or privately. A company or person can transfer the ownership of shares
without affecting the company’s operations or existence. In a company, ownership and
management are separate. Shareholders are the company's owners, but they are
unnecessary to be involved in its day-to-day operations. This allows for a clear division
of responsibilities, leading to better decision-making and accountability.

Brand Recognition
Brand recognition is a significant advantage for a company as it increases consumer
trust and loyalty. When consumers easily recognize and associate a company’s brand
or logo with its products or services, it fosters a sense of familiarity and credibility. This
can result in higher sales, market share, and competitive advantage as customers
choose brands they know and trust when purchasing.

DISADVANTAGES:

Compliance and regulation: It is subject to numerous regulations and compliance

requirements. Such as filing annual reports, holding regular meetings, and maintaining
detailed financial records. Failure to comply with these requirements can result in fines,
penalties, or legal action.

Centralized decision-making: Centralized management can provide efficiency and

clarity. However, it can also lead to a lack of flexibility and responsiveness. The owners
or shareholders may need more involvement in the company’s day-to-day operations,
and decision-making may need to be faster or more bureaucratic.

Double taxation: It is subject to separate taxation. This implies it must pay taxes on its
profits and income, and shareholders must also pay taxes on any dividends they
receive. This can result in double taxation and reduce the amount of income that is
available to the shareholders.

Public scrutiny and accountability: Publicly traded companies are subject to intense
scrutiny and accountability from investors, regulators, and the media. This can result in
pressure to prioritize short-term profits over long-term sustainability or social
responsibility.

CO-OPERATIVE ORGANISATION:

A co-operative organisation is a voluntary association with unrestricted membership,

and collectively owned funds, organised on democratic principle of equality by persons
of moderate means and incomes, who join together to supply their needs and wants
through mutual action, in which the motive of production and distribution is service
rather than profit.

FEATURES:

1. Separate Legal Entity

As registration of a Cooperative Society is compulsory, it has a separate legal entity that
is distinct from its members. After registration, a cooperative society can hold property
in its name and can enter into contracts, can sue, and be sued by others. All the
transactions taking place in a cooperative society will be under the name of the society
and not in the name of its members. As it holds a separate legal identity, it is not
affected by the entry or exit of its members.

2. Democratic
The major decisions of a cooperative society are handled by an elected managing
committee. The members of a cooperative society have the power to choose the
members of the managing committee, which gives rise to the role of democracy. The
members can choose their representatives as they have voting rights.

3. Limited Liability
A cooperative society is a convenient form of association in which the liability of any
member is limited to the extent of capital contributed by them. Therefore, with minimum
risk, any member can protect their economic interest through a cooperative society.

4. Free Entry and Exit

A cooperative society is a voluntary association; therefore, an individual is free to join or
leave the society according to their will. It works according to a democratic society, i.e.,
it is open to all irrespective of their caste religion and gender.

5. Social Welfare
A cooperative society works for the economic welfare of poor or weaker sections of
society. Its main aim is to eliminate middlemen and protect the interest of its members
and society. Hence, it can be said that a cooperative society works for a service motive.
If any surplus is left, then it is distributed amongst its members as a dividend according
to the rules and procedures of the society.

ADVANTAGES:

1. Easy to Form: There are no big formalities for the formation of a Cooperative
Society. Moreover, it is voluntary, so there is no compulsion to any organization person
or business associate to form, and join any cooperative society. A minimum of ten
members can start a cooperative society, and there’s no limit to the maximum number of
members in a cooperative society.

2. Limited Liability: The risk factor of members is limited to the extent of capital
brought by them in the cooperative society. In case of insolvency or dissolution, the
personal assets of the members are not liable for repayment of debts, which makes the
members of a cooperative society feel safe and protects their economic interests.

3. Stability: As the cooperative society holds the position of a separate legal entity, it is
not affected by the death, retirement, or admission of any member. A cooperative
society is not much affected by its members as they have to work on the basis of the
rules and regulations provided in the act. Even though members have a voting right in
choosing the managing committee member, it does not have much effect on the working
of the business.

4. Equality in Voting Right: Each member in a cooperative society has one vote to
elect the member of the managing committee, as it follows the principle of ‘ONE MAN
ONE VOTE’. Every member has an equal voting right, no matter whether they have
contributed less or huge capital to the business. Having a say in the matters of the
business also puts a great emphasis on them. Besides, a cooperative society is a
democratic association, which means that it treats everyone the same irrespective of
their caste, gender, or creed.
5. Support from the Government: As a cooperative society works majorly for the
benefit of poor and weaker sections of the society, it gets great support from the
government in the form of low taxes, subsidies, loans with low rates of interest, etc.

DISADVANTAGES:

1. Conflict and Disputes: As the members of a cooperative society belong to different

cultural and social aspects their thinking varies, which leads to a greater possibility of
conflicts. Members try to make personal gains and keep aside the service motive, which
hampers the working of a cooperative society. In other words, the difference in personal
motive and social motive of the members of the society results in conflicts among them
affecting the overall business.

2. Lack of Privacy: As there are different members in a cooperative society, it is

difficult to maintain a level of secrecy. Every decision is taken in a meeting with an open
discussion, which makes it difficult to maintain confidentiality about the operations of the
business. Besides, a cooperative society has an obligation to disclose the decisions of
the meeting under the Societies Act (7).

3. Lack of Efficiency: It is difficult for the cooperative society to earn and make a profit
on a large scale because it works for welfare motives. The amount of profit earned by
the society is not sufficient to appoint skilled and experienced members for proper
management. Even if any of the members agree to give honorary services to the
cooperative societies, they do not have sufficient means to handle it well.

4. Government Control: When a cooperative society grows and develops into a big
unit, then the government would interfere in its operations. The cooperative society has
to comply with rules and regulations related to auditing of accounts, profit, etc., which
affects the freedom of operations.

5. Limited Resources: Each member brings limited capital and expects a higher return,
which is difficult for a cooperative society to provide at an early stage. Moreover, it is
formed for the welfare of society and its members; therefore, the profit motive is ignored
to some extent.

Special forms of ownership

FRANCHISING:

Franchise is a continuing relationship between the parent company (called the

franchisor) and an individual business unit (called the franchisee); under which the
parent company provides a licensed privilege to the business unit to use its trade mark,
in return for a royalty payment made to the parent company.

FEATURES:

(i) Two Parties – In a franchise there are at least two sides – the franchiser and the
franchisee. There can be more than one franchisee.

(ii) Written Agreement – There is an agreement in writing between the franchiser and
the franchisee.

(iii) Exclusive Right – The franchiser owns a brand or trade mark and allows the
franchisee to use it in a specific area under a license.

(iv) Payment – The franchisee makes an initial payment for the license and becomes a
part of the franchiser’s network. He also pays a regular license fee which may be an
agreed percentage of sales or profits.

(v) Support – The franchiser provides assistance to the franchisee in marketing,

equipment and systems, staff training, record keeping. The franchiser initially sets up
the business to be run by the franchisee.

(vi) Restrictions – The franchisee is required to operate the business in accordance

with the policies and procedures specified by the franchiser. He gives an undertaking
not to carry on any competing business and not to disclose confidential information
regarding the franchise. The franchiser cannot terminate the agreement before its expiry
except for ‘good cause’.

(vii) Specified Period – The agreement is for a specific period e.g., five years. On the
expiry of this period, the agreement may be renewed with the mutual consent of both
the parties.

ADVANTAGES:

●​ Firstly, franchising is a great way to expand a business without incurring

additional costs on expansion. This is because all expenses of selling are
borne by the franchise.
●​ This further also helps in building a brand name, increasing goodwill and
reaching more customers.
●​ A franchise can use franchising to start a business on a pre-established
brand name of the franchisor. As a result, the franchise can predict his
success and reduce risks of failure.
●​ Furthermore, the franchise also does not need to spend money on training
and assistance because the franchisor provides this.
●​ Another advantage is that sometimes a franchisee may get exclusive rights
to sell the franchisor’s products within an area.
●​ Franchisees will get to know business techniques and trade secrets of
brands.

DISADVANATGES

●​ The most basic disadvantage is that the franchise does not possess direct
control over the sale of its products. As a result, its own goodwill can suffer if
the franchisor does not maintain quality standards.
 ●​ Furthermore, the franchisee may even leak the franchisor’s secrets to rivals.
Franchising also involves ongoing costs of providing maintenance,
assistance, and training on the franchisor.
●​ First of all, no franchise has complete control over his business. He always
has to adhere to policies and conditions of the franchisor.
●​ Another disadvantage is that he always has to pay some royalty to the
franchisor on a routine basis. In some cases, he may even have to share his
profits with the franchisor.

Examples of Franchising in India

●​ McDonald’s
●​ Dominos
●​ KFC
●​ Pizza Hut
●​ Subway
●​ Dunkin’ Donuts

LICENSING:

Licensing is a business arrangement where a company (the

licensor) allows another company (the licensee) to use its
intellectual property, such as trademarks, patents, copyrights,
or trade secrets, in exchange for a fee or royalties.

FEATURES:

Licensors Give License for Production

Licensing allows companies (licensors) to grant permission to another party (licensee)

to produce goods or services under specific terms.This can include the use of patents,
trademarks, trade secrets, or copyrighted material. It enables licensors to expand their
product reach without directly managing production.The licensee benefits from an
established brand or technology, reducing time and investment needed for
development.

Gain Access to New Markets

Licensing agreements help businesses enter foreign or restricted markets where direct
investment may be costly or legally challenging. It allows companies to expand globally
by partnering with local firms that understand the market conditions, regulations, and
distribution channels. Reduces risks associated with market entry, such as high capital
investment, cultural barriers, and legal constraints.

Improvements in Product

Licensees may innovate and improve upon the original product, benefiting both parties.
Many licensing agreements include clauses for shared advancements, where the
licensor gains access to the licensee’s modifications or innovations. Helps in continuous
product development without the licensor bearing the R&D costs.

Royalty Income

The licensor earns a steady stream of revenue through royalty payments based on
sales, production volume, or a fixed fee. Provides a passive income source, reducing
dependency on direct manufacturing or service operations.

ADVANTAGES:

1.​ Product Reaches Market Faster – Licensing allows companies to bring products
to market quickly without extensive in-house production.
2.​ R&D Support to Small Companies – Small firms can leverage licensing
agreements to access research and development resources.
3.​ Quick Access to New Technology – Companies can use licensed technology
without spending time and money on innovation.
4.​ Creates New Products & Market Opportunities – Licensing facilitates
expansion into new markets and product categories.
DISADVANTAGES

1.​ Extra Expense Added to the Product – Licensing fees and royalties increase
product costs.
2.​ Dependent on Agreement & Its Renewal – Business operations rely on
contract terms, which may not always be renewed.
3.​ Financial Commitment Even if Market is Not Ready – Companies must pay
licensing fees even if the product does not perform well.

LEASING:

A Lease occurs when an asset owned by one party (the lessor) is rented to another (the
lessee) for a predetermined amount of time. Despite not becoming the owner, the
lessee makes recurring payments to use the asset. Lessees can utilize assets without
having to pay for them upfront when they lease them. Property, machinery, automobiles,
and technology are examples of common leased assets. To give both parties flexibility
based on their needs, leasing agreements might vary in length, conditions, and terms.

FEATURES:

1. Flexibility: Terms and payment schedules for leasing can be adjusted to meet the
specific needs of both lessors and lessees. Conditions can be adjusted to
accommodate funding constraints, project timelines, or equipment lifecycles.

2. Capital Preservation: By avoiding the significant down payments typically needed

when buying items, leasing enables enterprises to save their money. This guarantees
that money will be available for investments or other business endeavours.

3. Access to Cutting-Edge Technology: By removing the obligations linked with

ownership, leasing provides access to the newest machinery and technology. This
eliminates the need for ongoing capital investments and allows enterprises to use
cutting-edge machinery and technologies to stay competitive.
4. Tax Benefits: Depending on the regulations and terms of the lease, there may be tax
benefits associated with leasing. A company's taxable income is reduced by the fact
that lease payments are frequently deductible as operating expenditures.

5. Optimising Balance Sheets: By using operating leases, companies can remove

leased assets from their balance sheets. Financial ratios may be enhanced, and
borrowing may become simpler, as a result.

6. Maintenance and Support: Lease agreements may specify that the lessor will pay
for upkeep, repairs, and other expenses about the leased property. This absolves the
lessee of these additional costs and obligations.

7. Smarter Asset Management: Leasing enables companies to manage their assets

effectively. At the end of the lease, they may simply update, replace, or get rid of them,
saving them the trouble of ownership.

8. Decreased Risks: Leasing helps lower the risks associated with asset ownership,
such as the possibility of depreciation, obsolescence, or changes in the market.
Businesses that lease the assets benefit from more stability because lessors frequently
assume some of these risks.

ADVANTAGES:
1. Save Money: Leasing enables companies to acquire equipment without having to
pay a large sum of money all at once. This implies that they have more money to spend
on other expenses or make investments.
2. Acquire the Best Tools: By leasing, companies may afford to acquire the newest
and greatest tools without having to pay for them upfront. They can outperform the
competitors and operate more effectively as a result.

3. Be Adaptable: Lease agreements can be tailored to a company's exact

requirements, including length of lease, payment schedule, and termination clause.

4. Tax Savings: Since rental charges are typically included in operational expenditures,
they might help reduce a company's taxable income. Certain leasing agreements also
provide tax benefits, such as the ability to remove the financing from the balance sheet
or accelerate depreciation.

5. Lower hazards: Leasing helps lower the hazards that come with owning assets like
value decreases, outmoded technology, and shifts in the market. Some of these
hazards can be assumed by lessors, providing renters with greater security and stability.

6. Asset Management Streamlining: By assigning maintenance, repairs, and

upgrades to the lessor, leasing assists companies in managing their property and
equipment. Businesses can easily return or update the asset after the lease expires,
saving them the trouble of having to dispose of it.

7. Faster Approval Process: Compared to other funding options, lease financing

frequently offers a quicker approval process. This makes it possible for companies to
quickly acquire necessary resources, reducing downtime and increasing output.

8. Protect Against Inflation: Because lease payments are fixed for the duration of the
agreement, leasing provides insurance against growing costs. Because of this stability,
businesses can more readily plan their budgets and maintain financial stability even in
unpredictable economic times.

DISADVANTAGES

1. Concerns On Total Cost: Over time, leasing may prove to be more expensive than
purchasing. This is so that lessees don't acquire ownership or stock in the asset.
Rather, they're only paying to use it for a short time.

2. Lack of Ownership: When lessees lease something, they don't own it. Lessees will
not own the asset at the end of the lease, nor will they receive any financial benefit from
its worth.

3. Payment Obligations: Regardless of whether the leased item is underutilised or

performs poorly, lessees are required by lease agreements to make monthly payments
over the lease term. If the lessee experiences cash flow problems or the asset ages out
of date, this could put pressure on their finances.
4. Limited Adaptability: Restrictions and limitations, such as usage restrictions for
equipment or mileage limits for automobiles, are commonly included in lease
agreements. These limitations may make it more difficult for the lessee to adapt to
changing operational requirements or commercial needs.

5. Hidden Fees in Lease Agreements: In addition to the monthly rent, leases may
contain other costs. These can include upkeep and maintenance payments, insurance
to guard against damage, early termination penalties, and fees for using the rented item
beyond what is permitted. For this reason, it is essential to carefully go over the lease to
identify all possible expenses and obligations.

6. Lessees' Risk of Depreciation: The lessor is often in charge of the asset's

depreciation in finance leases. Lessees may still incur losses, though, if the asset's
value drastically drops over time. Lessee's expectations on using the asset and
receiving a return on investment may be lowered as a result.

7. Return of Leased Asset: Taking into account typical wear and tear, lessees are
required to return leased assets in good condition after the lease. Penalties or additional
costs could result from returning the object outside of the required condition.

8. Restricted Control: Because the lessor retains ownership and decision-making

authority over leased assets, lessees' control over them is restricted. This restricted
power may make it more difficult for the lessee to modify the asset to suit their
requirements or tastes.

Choosing a form of Business ownership

The following are some of the important factors business owners should consider when
selecting a form of ownership.

Cost of Start-up

Setting up a business can involve little more than printing some business cards, or it
may entail hiring a corporate attorney to draft corporate charters, agreements, and
articles of incorporation. As the forms of business ownership become more complex,
the cost associated with establishing the business also increases. Every business
owner must decide how long he/she wants to wait before getting the business up and
running and also how much of his/her own money to invest.

Control vs. Responsibility

One of the primary reasons people give for wanting to start their own business is the
desire to be independent and “be your own boss.” Different legal structures provide the
owner with more or less control and authority. There are trade-offs in each case, though,
because with autonomy and control come responsibility. For instance, if you’re the sole
proprietor of a business with no employees, as a one-person show, you retain all the
control, but you also have all the work and responsibility. Other forms of business (such
as partnerships, for example,) may mean relinquishing some control, but, in return, the
responsibility (and liability) may be spread among several principals. You’ll learn more
about these trade-offs later in the module.

Profits—to Share or Not to Share

Many first-time business owners look to people like Bill Gates, Oprah Winfrey, or Ben &
Jerry and aspire to their level of wealth and success. How a business’s profits are
shared (or not shared) is determined by the legal structure. Some owners are willing to
share the profits in exchange for assistance and support establishing and running the
business. Other business owners make the conscious decision to limit the scope and
nature of the business to avoid having to bring in others, thereby retaining all of the
income themselves.

Taxation
When planning to start a new business, many people instinctively seek the advice of an
attorney as the first step in the process. However, legal advice is not actually what’s
needed initially. Instead, no matter how large or small your business is going to be, it’s
much more important to first get the advice of a seasoned tax professional, such as a
CPA. The reason for this is that each form of business ownership is treated differently
by the IRS and by state and local taxing authorities. Depending on the legal structure of
the business, the owner may be taxed at a lower rate than someone working for a large
company, or the owner might see his or her business income taxed twice, sometimes
with additional speciality taxes imposed by governmental agencies. The time for a
business owner to decide how heavy a tax burden he/she is willing to bear is at the start
of the business, not on April 15 when taxes are due.

Entrepreneurial Ability

At some point you’ve probably known someone with a particular knack for something
(like fixing cars or baking bread) and said, “You should start your own business!” But if
you are a talented cake decorator, say, does that necessarily mean you have the
requisite knowledge, skills, and abilities to open and run a successful commercial or
retail bakery? It’s often easier said than done. Many businesses fail despite the owner’s
enthusiasm and/or talent, because the owner lacks the deep knowledge and expertise
needed to transform an interest or hobby into a commercial enterprise. Performing an
honest and accurate appraisal of one’s skills, background, and entrepreneurial abilities
before launching a business can prevent disappointment and failure later on.

Risk Tolerance

Everyone’s tolerance for risk is different. Some people enjoy the rush of skydiving and
rollercoasters, while others prefer to stick to the carousel or keep their feet on the
ground. In business, one’s degree of risk tolerance should be compatible with the form
of ownership being considered. For example, a forty-five-year old entrepreneur with
dependents might seek to protect her accumulated assets (real estate, savings,
retirement, etc.) and therefore select a legal structure that carries less personal financial
risk. Every prospective business owner must gauge what he or she is willing to risk
losing and choose a form of business accordingly.

Financing

Few business owners start a business with lottery winnings or many years’ worth of
savings. Many seek funding from a bank, venture capitalist, private investor, or credit
union in order to get their businesses off the ground. Lenders may be one of the
greatest influences on the choice of business ownership—even more decisive than the
owner’s preference or ambition. Since there is risk inherent in any business venture,
especially start-ups, lenders often require the business to be structured in a way that
best assures the repayment of funds (whether the business makes it or not). Even
businesses that have been established for a long time may be forced to change their
legal structure when seeking funding to expand their operations. If an owner anticipates
needing funding at any point during the life of the business, selecting a form of
ownership that aligns with lender requirements from the start may be a wise decision.

Continuity and Transferability

Finally, business owners need to consider if they want their business to outlive them (or
carry on after they leave). If an owner is looking to start a business that can be passed
on to his or her children or other family members, then the legal structure of the
business is extremely important. Certain organizational types “die” with the owner, so it’s
crucial for the owner to decide how and whether a business will persist and/or be sold to
new ownership.

Corporate expansion:
"Corporate expansion" refers to a company's strategic move to increase its operations,
market reach, and overall size by acquiring new assets, entering new markets, or
merging with another company, essentially growing its business beyond its current
capacity.

Mergers and acquisitions: Mergers and acquisitions (M&As) are the different ways
companies are combined. Entire companies or their major business assets are
consolidated through financial transactions between two or more companies. A
company may:

●​ Purchase and absorb another company outright

●​ Merge with it to create a new company
●​ Acquire some or all of its major assets
●​ Make a tender offer for its stock
●​ Stage a hostile takeover

Mergers and Acquisitions (M&A) refer to the consolidation of companies through various
financial transactions, such as mergers, acquisitions, consolidations, tender offers,
asset purchases, and management acquisitions. These transactions are typically driven
by strategic, financial, or competitive reasons.

Difference Between Mergers and Acquisitions

Aspect Merger Acquisition

Definition A merger occurs when two An acquisition occurs when one

companies combine to form a company takes over another and
new entity. becomes its owner.
 Company Both companies cease to exist The acquired company may
Status as separate entities and form a continue to operate under its own
new entity. name or be absorbed.

Size of Usually, companies of similar One company (larger) acquires

Companies size merge. another (smaller).

Example Vodafone and Idea merged to Facebook acquired WhatsApp.

form Vodafone Idea Ltd.

A merger is a corporate strategy where two or more companies combine to form a

single entity. This is usually done to expand market reach, increase efficiencies, or
achieve synergies. In a merger, both companies may cease to exist independently and
operate under a new name or structure.

✅ Example: Vodafone and Idea merged to form Vodafone Idea Ltd.

Types of Mergers

1.​ Horizontal Merger – When two companies in the same industry and market
merge (e.g., two automobile manufacturers).
2.​ Vertical Merger – When a company merges with its supplier or distributor (e.g.,
a car manufacturer merging with a tire supplier).
3.​ Conglomerate Merger – When two unrelated businesses merge (e.g., Amazon
acquiring Whole Foods).
4.​ Market-Extension Merger – When two companies in the same industry but
different markets merge to expand their customer base.
5.​ Product-Extension Merger – When two companies selling related products
merge to expand their product offerings.
An acquisition is when one company takes over another company and establishes itself
as the new owner. The acquired company may continue to operate under its existing
name, or it may be absorbed into the acquiring company. Acquisitions can be friendly
(agreed upon by both parties) or hostile (against the will of the target company).

✅ Example: Facebook acquired WhatsApp in 2014, but WhatsApp retained its brand
identity.

Types of Acquisitions

1.​ Friendly Acquisition – The target company agrees to be acquired.

2.​ Hostile Takeover – The acquiring company forcibly takes over the target
company, often against its will.
3.​ Reverse Merger – A private company acquires a public company to bypass the
IPO process.

Reasons for Mergers and Acquisitions

1.​ Expansion and Growth – Companies merge to enter new markets and increase
market share.
2.​ Synergy – Cost savings and revenue benefits arise from economies of scale.
3.​ Diversification – Reduces risk by entering different industries or markets.
4.​ Eliminating Competition – Reduces competition by acquiring rival firms.
5.​ Financial Benefits – Tax advantages, better access to capital, and increased
profitability.
. Challenges in M&A

1.​ Cultural Differences – Merging companies often have different corporate

cultures.
2.​ Regulatory Hurdles – Government approvals and antitrust laws can pose
challenges.
3.​ Integration Issues – Combining operations, employees, and technologies is
complex.
4.​ High Costs and Debt – Acquisitions often require significant financial
investment.
5.​ Employee Layoffs and Restructuring – Workforce reductions and
organizational changes may cause instability.

DIVERSIFICATION:

Business diversification refers to the strategic expansion of a company into new products,
services, or markets to reduce risk, capture new opportunities, and enhance overall business
resilience. The goal of diversification is often to reduce the overall risk of the business

and to generate new sources of revenue. A good diversification strategy can kick-start a
struggling business. It can also extend the success of already profitable companies.

there are four key reasons why businesses adopt a diversification strategy:

1.​ The company wants more revenue

2.​ The company wants less economic risk
3.​ The company’s core business is in decline
4.​ The company wants to exploit potential synergies

Diversification is important because it helps a business spread its risk across different
areas, reducing dependency on a single market or product. It can also lead to increased
revenue streams and improved long-term sustainability.
BENEFITS OF DIVERSIFICATION:

1. More customers

2. Greater income security

3. More customer demand.

4. Lower production cost.

5. Broader brand recognition.

BACKWARD AND FORWARD INTEGRATION:

Forward integration - Forward integration is a business strategy that involves a form of

downstream vertical integration whereby the company owns and controls business
activities that are ahead in the value chain of its industry, this might include among
others direct distribution or supply of the company's products. This type of vertical
integration is conducted by a company advancing along the supply chain.Often referred
to as "cutting out the middleman," forward integration is an operational strategy
implemented by a company that wants to increase control over its suppliers,
manufacturers, or distributors, so it can increase its market power. For a forward
integration to be successful, a company needs to gain ownership over other companies
that were once customers. A good example of forward integration would be a farmer
who directly sells his crops at a local grocery store rather than to a distribution center
that controls the placement of foodstuffs to various supermarkets. Or, a clothing label
that opens up its own boutiques, selling its designs directly to customers instead of or in
addition to selling them through department stores.

Benefits of Forward Integration

Generally, forward integration allows companies to sustain profits while minimizing profit
losses to intermediate entities. The strategy can be implemented for different reasons,
including:

1. Increase the company’s market share

A company may increase its market share by implementing a forward integration
strategy. Generally, the strategy eliminates various transaction and transportation costs.
This subsequently results in a lower final price for the company’s product. Thus, a
company can achieve greater market share through lower product prices.

2. Gain control over distribution channels

A company employs the strategy if it wishes to obtain control over distribution channels
in its industry. Control is crucial for companies that operate in industries that lack
qualified distributors or in situations where distributors charge significant costs. The
control over distribution channels ensures the strategic independence of a company
from third parties.

3. Competitive advantage

Successful implementation of the strategy may provide a company with a competitive

advantage over its competitors. Lower costs and more control over industry distribution
channels can become key factors in achieving a competitive advantage.

4. Create barriers to potential competitors

The integration of entities forward of the company’s production vertically strengthens its
position in the industry and establishes obstacles for potential rivals. For example, if a
company integrates a large industry retailer, probable competitors could face limited
access to distribution channels.

Risks

Despite its benefits, forward integration can still involve certain risks to a company that
wants to adopt the strategy. Some of the risks associated with the strategy include the
following:

1. Bureaucratic inefficiencies
Merger and acquisition deals related to forward integration may create various
inefficiencies as a result of the enlarged bureaucratic apparatus of the new business
entity.

2. Failure to realize synergies between the companies

In the forward integration strategy, a company may fail to realize synergies between the
involved entities. Improper implementation of the strategy can be one of the reasons for
the unrealized synergy potential.

3. High costs

Mergers or acquisitions necessary for undertaking forward integration may require

substantial funds to execute. A company must be certain that the benefits from the
implementation of the strategy will exceed its costs.

BACKWARD INTEGRATION - Backward integration is a form of vertical integration in

which a company expands its role to fulfill tasks formerly completed by businesses up
the supply chain. In other words, backward integration is when a company buys another
company that supplies the products or services needed for production. For example, a
company might buy their supplier of inventory or raw materials. Companies often
complete backward integration by acquiring or merging with these other businesses, but
they can also establish their own subsidiary to accomplish the task. Complete vertical
integration occurs when a company owns every stage of the production process, from
raw materials to finished goods/services. Backward integration is a strategy that uses
vertical integration to boost efficiency. Vertical integration is when a company
encompasses multiple segments of the supply chain with the goal of controlling a
portion, or all, of their production process. Vertical integration might lead a company to
control its distributors that ship their product, the retail locations that sell their product, or
in the case of backward integration, their suppliers of inventory and raw materials. In
short, backward integration occurs when a company initiates a vertical integration by
moving backward in its industry's supply chain.
Advantages of Backward Integration

The following are some of the benefits that companies enjoy when they implement
backward integration:

1. Better control

By acquiring the manufacturers of raw material, a company exercises greater control

over the supply chain process from the production of raw materials to the production of
the end product. First, the company will gain control over the quality of raw materials
that are used in the production of the end product. Also, by acquiring the supplier of raw
materials, the manufacturer will achieve greater control over the quantity and delivery of
the raw materials to its warehouse.

2. Cost control

The supply chain process comprises many middlemen, which means that each phase in
the supply chain includes a mark-up to allow the middleman to earn a profit. Thus, by
the time the product gets to the company’s warehouse, the price will have doubled or
tripled. This will make the finished product more expensive for the consumer.

3. Competitive advantage

Companies also use backward integration as a way to gain a competitive advantage

over their competitors. For example, in the technology industry, companies integrate
backward as a way of gaining access to patents, trademarks, and proprietary
technology owned by other companies in the industry.

Disadvantages of Backward Integration

1. Inefficiencies

Implementing backward integration can result in inefficiencies. By acquiring the supplier

of raw materials required in the production process, the company will limit competition,
resulting in sluggishness and lack of innovation. The company will be less motivated to
spend money on research and development. As a result, the quality of the company’s
end product(s) may decline, and the costs of managing customer complaints will
increase.

2. Substantial investment

Another disadvantage of backward integration is the substantial investment that will be

needed to finance the acquisition. The company may be forced to utilize all its cash
reserves and even take up more debts to finance the acquisition. If the company is
unable to repay the debts or enjoy the benefits of the acquisition, it will face the risk of
default and even liquidation.

JOINT VENTURES:

A joint venture (JV) is a commercial enterprise in which two or more organizations

combine their resources to gain a tactical and strategic edge in the market. Companies
often enter into a joint venture to pursue specific projects. The JV may be a new project
with similar products or services, or it may involve creating an entirely new firm with
different core business activities.

Features:

A joint venture typically has the following features.

1. Specific Purposes

Parties create joint ventures keeping pre-determined purposes in mind. They generally
state this purpose clearly in their agreement.

2. Agreement

The parties to a joint venture, i.e. the co-venturers, generally execute a written
agreement between them. This agreement states details like their obligations, profit/loss
sharing ratios, their rights and liabilities, etc.
3. Specific Duration

Since all joint ventures are created for a specific purpose, they generally come to an
end once that purpose is fulfilled. The parties can, however, continue working together
as well if they mutually agree to do so.

4. Structure of the Venture

Parties can create a joint venture by exercising control on any of the following aspects:

●​ Assets,
●​ Operations, or
●​ Entity itself.

5. Profit Sharing

The parties always agree on the ratio in which they will share their profits and losses. If
there is no agreement to this effect, they have to share profits equally or according to
the contribution they made during their admission into the joint venture.

Advantages:

1. Increased Resources and Capacity

By collaborating or teaming up, one can increase capacity and resources, which helps
joint venture companies grow and expand more quickly and efficiently. Joint venture
results in the pooling of financial, physical, and human resources of two or more firms.
With this, companies take advantage of new opportunities and face new challenges in
the market.

2. Economies of Scale:
In joint venture strength of one organization can be utilized by the other. It helps
businesses to expand despite their limited resources. In a joint venture, the businesses
split operating costs, labour costs, advertising, marketing, and promotion expenses. The
organization can reduce its cost and maximize its profits. This gives a competitive
advantage to both organizations to produce economies of scale.

3. Innovation
Today’s market is demanding new and innovative products. Joint venture proves to be
useful in providing new and innovative products. It provides the benefits of updated
technology for goods and services. Advanced technology helps make high-quality
goods at low costs. Moreover, international partners in a joint venture often generate
new ideas, which can help to produce innovative products in our country.

4. Gaining Access to New Markets and Distribution Networks

When a company forms a joint venture with the other, it unlocks a vast market with the
potential for growth and development. For example, when a firm from the United States
of America forms a joint venture with an Indian company, the joint venture gives the
American company access to a huge Indian market. It is simple for them to sell their
products in new areas after they have attained saturation in their original markets.

5. Brand Exposure
When two or more parties form a joint venture, the established brand name of one
company can be used by another organization to acquire a competitive gain over the
other traders. It saves a lot of investment in developing a brand name for the products
as there is a ready market waiting for the product to be launched. For example, if an
Indian company enters into a joint venture with a foreign company, the Indian company
can get the benefit of goodwill and the brand name of the foreign company in the
market.

Diasdvanatges:

1. Clash of Culture
A joint venture brings in people with different cultures to work together. Although it has
the potential to provide innovative solutions to the workplace, it has some drawbacks.
Some employees are not willing to compromise and resistant to change. As a result,
there may be cultural differences among the organizations.
2. Trade disclosure
In joint ventures, foreign firms agree with local firms and share trade secrets. Thus,
there is always a risk of trade secrets and technology being disclosed to others.

3. Conflict of Control
In a joint venture, both parties share ownership and management. The dual ownership
arrangement results in conflicts, leading to a battle of control between the businesses.

4. Lack of Coordination
The functioning of the business can be affected if there is a lack of coordination among
the partners.

STRATEGIC ALLIANCE:

A strategic alliance is an arrangement between two companies to undertake a mutually

beneficial project while each retains its independence. A company may enter into a
strategic alliance to expand into a new market, enlarge its product line, or develop an
edge over competitors. In some cases, strategic alliances can involve more than two
companies.

ADVANATGES:

1. Earn new clients

Joining a strategic alliance may lead a company to expand its clientele if they earn a
high return on investment (ROI). If both parties gain a high ROI, the company can trust
each other to produce similar results.

2. Expand business opportunities and revenue

3. Attain different sources of income

4. Limit risk
A strategic alliance may limit company risks because of the high-quality service
delivered while working with another company. If companies join an alliance and
specialise in two areas, like marketing and public relations, they can create a final
product that creates a positive impact on the target consumer. The mutual return allows
them to focus on how to grow the companies and the impact of the brands.

5. Gain new resources

Working in a strategic alliance permits your creation to plan for training and developing
your employees using new resources.

DISADVANATGES:

1. Experience communication challenges

A disadvantage of strategic alliances a company may experience is communication
challenges. This may happen because a company may have challenges sharing
information with its alliances or it may communicate differently than how the other
company communicates.

2. Earn unequal benefits

In a strategic alliance, the company you work for can experience unequal benefits.

3. Risk a company's reputation

Similar to how you may improve a company's reputation through a strategic alliance,
you may risk decreasing a company's public perception.

4. Encounter conflicts
In a strategic alliance, you may encounter conflicts with the other companies in the
agreement. Challenges may occur because you are combining two or more different
work cultures with various personalities and workflows, which may cause disruptions or
frustrations for the team members.

5. Face culture or language barriers

Collaborating with two or more companies may provide culture or language barriers as
a disadvantage for a strategic alliance. For example, this may happen if you connect
with a company in another country in the same industry. The company may have
different workweeks or cultures that may make the goals challenging to reach by your
deadline.
EVOLUTION OF MANAGEMENT THEORY:
The Evolution of Management Thought has a rich history, shaping the way
organisations and people are managed over time. Management has always been a
crucial part of human economic life, evolving alongside changes in society, culture,
economics, and science. It began in ancient times and grew with the development of
socio-economic systems. Contributions to modern management come from
philosophers, practitioners, and scholars who laid a strong foundation for today’s
practices. Management thought refers to ideas and theories that guide the management
of people and processes in organisations. Initially, these theories emerged from
managers' practical experiences in industrial settings. Over time, they incorporated
insights from fields like science, sociology, and anthropology, making them more refined
and effective. Early management theories were rooted in a system of rewards and
punishments, where success received recognition and failure led to reprimands. These
theories have been widely adopted by business leaders to manage their employees’
performances.

Here are the three most commonly used theories in business management today:

1.​ Classical management theory is based on an employee’s physical and

economic needs. It advocates for labor specialization, centralized leadership and

maximized profit.

2.​ Behavioral management theory, or the human relations movement,

emphasizes understanding human behavior at work for enhanced productivity. It

focuses on motivational factors like conflict resolution, expectations and group

dynamics.

3.​ Modern management theory uses techniques in math, such as the quantitative

approach, system approach and contingency approach, to analyze

manager-employee relationships.
Here are six of the most popular management theories that still exist today:

1. Scientific theory by Frederick W. Taylor

This one is a classic. Frederick W. Taylor’s scientific theory poses some fascinating
questions by diving deeper into the efficiency of work processes. Taylor was an
engineer, and he experimented to determine the most efficient and effective ways to get
tasks done.

On the surface, this theory held great value. The scientific theory aimed to make work
more efficient. Unfortunately, it had some major flaws as well.

Taylor created four principles of his scientific management theory.

●​ Each task should be studied to determine the most efficient way to complete it.

This disrupts traditional work processes.

●​ Workers should be matched to jobs that align with both their abilities and

motivation.

●​ Workers should be monitored closely to ensure they only follow best working

practices.

●​ Managers should spend time training employees and planning for future needs.

Pros and Cons

There are a few positives of this theory. Maximizing efficiency is a great idea. Assigning
workers to jobs based on their abilities and motivation levels can also have beneficial
effects in some areas.

Major flaws in the theory include the de-emphasis on teamwork. An incredible focus on
specific and individualized tasks eliminates creative problem-solving and makes
teamwork obsolete. The scientific management theory also encourages
micromanagement that could drive today’s employees up the wall.

2. Administrative theory by Henri Fayol

Fayol developed six functions of management that work in conjunction with 14

management principles. This theory has a few core ideas that live on today, but you’ll
rarely find a workplace swearing by Henri Fayol’s 14 principles.

The six functions are as follows:

●​ Forecasting

●​ Planning

●​ Organizing

●​ Commanding

●​ Coordinating

●​ Controlling

Some people combine forecasting and planning into one function, simplifying the theory
down to five functions. The functions are straightforward: Fayol said managers need to
plan for the future, organize necessary resources, direct employees, work
collaboratively, and control employees to make sure everyone follows necessary
commands.

The 14 principles are outlined below.

1.​ Division of work: Employees should have complementary skill sets that allow

them to specialize in certain areas.

2.​ Authority: Management needs authority to give employees orders. This

authority must be agreed upon.

3.​ Discipline: This gets to the idea of employees listening to commands and being

disciplined in getting work done. If a manager sets a deadline, an employee

should have the discipline to meet it.

4.​ Unity of command: Employees answer to their managers, and there aren’t a

bunch of unnecessary people involved with the process. Going over your

manager’s head would be an example of breaking this principle.

5.​ Unity of direction: Teams should be striving for common goals.

6.​ Subordination of individual interests: The team comes before the individual.

7.​ Remuneration: There are monetary and nonmonetary versions of remuneration.

Both are needed to motivate employees.

8.​ Centralization: There should be a balance between decision-making powers.

For example, a company’s board of directors should have a say, but the mid-level

managers shouldn’t be overpowered.

9.​ Scalar chain: Each company should have clear hierarchical structures.

10.​Order: This refers mostly to cleanliness and organization within a workplace. An

office shouldn’t be disgustingly messy.

11.​ Equity: Employees should be treated well.

12.​Stability of tenure of personnel: This principle suggests that businesses should

try to limit turnover and keep employees around as they accumulate knowledge

and improve.

13.​Initiative: Employees should share ideas and be rewarded for innovative

thinking and taking on new tasks.

 14.​Esprit de corps: Employee morale matters. This principle suggests that

managers should work to keep employees engaged and interested.

Pros and Cons

There are quality aspects of this theory. Remembering all 14 principles can be
challenging and makes more sense for a test on management than an entrepreneur
running their business.

However, the principles apply in today’s workforce. Concepts like equity and
remuneration are important aspects of management. Other principles, like the scalar
chain, aren’t always necessary. Some businesses find success without clear
hierarchies, and the organizational setup depends largely on the business and the size
of the company.

3. Bureaucratic theory by Max Weber

Max Weber created the bureaucratic theory, which says an organization will be most
efficient if it uses a bureaucratic structure. Weber’s ideal business uses standard rules
and procedures to organize itself. He believed this strategy was especially effective for
large operations.

The theory includes the five principles described below.

1.​ Task specialization: Weber stressed the importance of each employee fulfilling

a specific role within a company.

2.​ Hierarchy: Weber wanted each company to have a clear hierarchy within the

organization.

3.​ Formal selection: When selecting leaders, businesses consider a person’s

qualifications. They should be appointed to certain roles based on those

qualifications, which means they won’t be elected by vote.

 4.​ Rules and requirements: These ensure everyone knows what’s expected of

them. Weber wanted business to have uniform standards, and rules are essential

to achieving this goal.

5.​ Impersonality: The rules and regulations make a business structure impersonal.

Promotions aren’t about emotions or personal ties but rather performance.

Pros and Cons

Elements of this theory make sense. Some rules and standards are certainly necessary
within every organization. On the other hand, it’s not easy to implement many of these
ideas. The theory and practice don’t line up. It’s almost impossible to keep emotions out
of business decisions, and sometimes emotions are needed.

If your company offers three months of parental leave, but a new mother has
complications with her baby near the end of those three months, some managers might
offer another few weeks at home to care for the child. With Weber’s mindset, a manager
would coldly ask her to return to work after three months like everyone else. Emotions
shouldn’t always dictate decisions, but the best managers can relate to their employees
on a personal level.

4. Human relations theory by Elton Mayo

In stark contrast to Weber’s bureaucratic theory of management, Elton Mayo’s human

relations theory emphasizes relationships. Mayo believed that productivity increases
when people feel like they are part of a team and feel valued by their co-workers.

Pros and Cons

The human relations theory emphasizes praise and teamwork as motivational factors.
This is basically the opposite of the bureaucratic theory. While emphasizing personal
factors is a good idea, there can be too much of a good thing. Valuing relationships
above all else can lead to tricky situations like office romances and promotions based
on personality rather than job accomplishments.

A happy medium between bureaucratic theory and human relations theory might be a
better goal for managers. Some rules are necessary, but you shouldn’t dehumanize
employees either.

5. Systems theory by Ludwig von Bertalanffy

The systems theory of management believes that each business is a system, much like
a living organism, with numerous activities going on to keep the operation rolling along.
A business isn’t just its CEO, and a person isn’t just a brain. A person needs their other
organs and other key features to live. A business needs more than just a CEO to
survive.

While the organism idea is a little extreme (most business operations aren’t life-or-death
endeavors), the analogy applies. The systems theory says everything needs to work
together for a business to succeed.

Pros and Cons

There is some truth to this theory, as businesses can benefit from keeping different
departments on the same page. If a business’s sales team is struggling, it can hurt the
whole operation. On the other hand, a sales team struggling doesn’t necessarily hurt the
accounting department. Many businesses have separate entities within their
organization, so this theory isn’t completely accurate.

6. X & Y theory by Douglas McGregor

The X & Y theory of management assumes there are two different types of workers.
Theory X workers lack ambition and drive and need to be ordered around by bosses to
do anything. Theory Y workers, on the other hand, enjoy work and strive for
self-fulfillment.
Pros and Cons

Both views of employees are extreme, as most workers fall somewhere between X and
Y. Employees don’t need to be ordered to do every task, but most have some need for
discipline and rules. Many employees do enjoy work, but it doesn’t always come
naturally and requires some encouragement at times. There should be a middle ground
for implementing this theory.

“This theory is largely considered to be obsolete today, as few managers begin from a
starting position of being highly polar or binary in terms of their management style being
just one of two options at opposing ends of a spectrum,” said Polly Kay, copywriter and
marketing consultant.

MANAGEMENT FUNCTIONS AND ROLES:

Management is the process of planning, organising, staffing, directing, and controlling

the available resources effectively and efficiently for achieving the goals of the
organisation. These interrelated elements of the management process are called
functions of management. Functions of management are differentiated into two parts
managerial function (i.e., planning, organising, staffing, directing, and controlling )
and operative function (i.e., production, marketing, purchasing, financing, and
personnel). Managerial functions are common to all enterprises because it does not
vary from one organisation to another.

Planning

A plan is a future series of actions decided beforehand. It specifies the objective to be

achieved in the future and the steps required to achieve them. Planning is the most
essential function of management. It is concerned with thinking in advance about what
to do and who is going to do it. It is concerned with the certain determination of a future
course of action to achieve the desired result. Planning bridges the gap between the
initial point to the destination to reach. Selection of objectives, policies, and procedures
are involved in planning. The essential elements of planning are decision-making and
problem-solving.

For example, in Ram’s organisation, the objective is the production and sale of shoes.
He has to decide quantities, variety, and colour, and then allocate resources for their
purchase from different suppliers. Planning cannot avoid or stop problems, but it can
anticipate them and prepare emergency plans to deal with them if and when they occur.

Organising

Organising is the management function of allotting duties, grouping various

activities, establishing authority, and allocating resources necessary to attain the
specific plan. Once the plans are formulated, the organising function reviews the
activities and resources needed to be applied to the plan. It resolves the activities and
resources needed. Organising decides who will perform a particular task, and
where and when it will be done. It affects the grouping of the necessary tasks into
departments or work units so that they can be managed well. Therefore there is an
organisational hierarchy so that reporting is smooth within the organisation. The
efficiency of operations and the effectiveness of results can be achieved only if there is
a proper organisational technique. The nature and type of organisation structure depend
upon the size and nature of the enterprise.

For example, In Ram’s enterprise of shoes, there are many duties to be performed. So,
he allocates the duties within the organisation forming various groups to attain the plan.
He decides who will perform which task as preparation of accounts, making sales,
record keeping, quality control, and inventory control are the tasks to be performed.
There is an organisational hierarchy so that reporting is easy and there is a smooth flow
within the enterprise.

Staffing

Staffing refers to the process of hiring and developing the required personnel to fill
in various positions in the organisation. It is that part of the management process,
which is concerned with recruitment, selection, placement, allocation, conservation, and
development of human resources. It is a very important aspect of management as it
ensures that the organisation has the right number and right kind of people, with
the right qualification at the right places, at the right times and that they are
performing the right thing. It is also known as the human resource function.

For example, when Ram is hiring personnel for his enterprise, he will recruit different
people for different tasks. He has to ensure that he is hiring the right people with the
right qualification for the right job. For this process, Ram will need an HR manager who
will be performing this task for the organisation. This will be a very important part of the
management function for his organisation, as it will affect his enterprise in many ways if
he selects the wrong people for the job.

Directing

Directing is that component of the management process which ensures that the
members of an organisation work efficiently and effectively for achieving the
desired objective. It involves leading, influencing, instructing, guiding, and
inspiring employees to perform and achieve the predetermined objectives. The
two important components of directing are motivation and leadership. Communicating
effectively and clearly with supervising employees at work is also a part of directing. It
involves issuing orders and instructions to subordinates, overseeing people at work, and
creating a work environment wherein the employees may perform to the best of their
abilities. To bring out the best from the employees, a manager needs to direct them
through praise and humbly criticize them.

For example, in Ram’s enterprise, the employees are having some doubts and
difficulties. If the supervisor guides his subordinates and clarifies their doubts in
performing a task, it will help the employees and the workers to perform the activities
correctly and on time. When the employees are motivated and supervised properly, it
leads the organisation toward its goal.

Controlling
When the plans are put into operation from directing, it becomes essential to judge
regularly whether the actual results are consistent with the planned results. It monitors
the organisational performance towards the fulfilment of organisational goals. It
enables the manager to detect errors and defects in the course of work and to take
corrective actions whenever needed. It also provides proper direction to work in
conformity with the plan of action or pre-determined standards. Controlling serves the
purpose of finding out deficiencies in performance and rectifying them so that the
organisation can prevent their recurrence.

For example, Ram expected to sell 1,000 pairs of shoes per week. This is the standard
against which his actual performance will be judged at the end of the week. If his actual
performance at the end of the week falls short of the standard, reasons for the shortfall
would be ascertained by his superior. Corrective actions will be taken to help the
workers so that Ram’s enterprise can achieve the standard performance of 1,000 pairs
of shoes in the future by controlling the deficiencies and rectifying the mistake.

MANEGERIAL ROLES:

Henry Mintzberg has categorized the multifaceted roles of managers into three essential
dimensions: interpersonal, informational, and decisional roles. These classifications
serve as a valuable framework for comprehending the wide-ranging tasks and
responsibilities inherent in managerial positions.

1. Interpersonal Roles
These roles revolve around a manager’s interactions and relationships, both within and
beyond the organization. Within this category, managers undertake three primary roles:

●​ Figurehead: Managers serve as symbolic leaders, representing their

organization through ceremonial duties and the embodiment of its values.
●​ Leader: Managers assume the vital responsibility of guiding and motivating
their teams, making pivotal decisions, and providing support to their staff.
●​ Liaison: Managers establish and nurture networks and relationships,
fostering connections within and outside their organization to gather crucial
information and access valuable resources.
2. Informational Roles
Within this sphere, managers act as conduits of information, adept at collecting,
processing, and disseminating vital data that facilitates informed decision-making. This
category encompasses three primary informational roles:

●​ Monitor: Managers diligently observe their environment, staying attuned to

internal and external developments that may impact their organization.
●​ Disseminator: Managers share pertinent information with their teams and
other stakeholders, ensuring that everyone possesses the essential
knowledge required for their roles.
●​ Spokesperson: Managers represent their organization by communicating its
goals, policies, and actions to external parties, such as the media,
government entities, and the public.

3. Decisional Roles
In this domain, managers engage in the critical process of making choices and resolving
issues within the organization. Four primary decisional roles encompass this dimension:

●​ Entrepreneur: Managers identify opportunities and champion innovative

projects or improvements within their organization.
●​ Disturbance Handler: When conflicts or crises emerge, managers adeptly
address them to maintain organizational stability and harmony.
●​ Resource Allocator: Managers allocate resources, including budgets, time,
and personnel, strategically to various projects and initiatives, aligning them
with organizational objectives.
●​ Negotiator: Managers skillfully navigate negotiations, whether internally, with
employees or departments, or externally, with other organizations or
stakeholders, to secure agreements and resolve conflicts.

UNIT-2
PLANNING: Planning is the process of setting objectives for a given period and
formulating various courses of action to achieve them and selecting the best possible
alternatives from the various courses of action available there. According to this
application, planning is a choice-making activity because it involves setting up
objectives and deciding the appropriate course of action to achieve the objective. It
must be remembered that plans are always developed for a given period.

PRINCIPLES OF PLANNING

The principles of planning provide a set of guidelines or fundamental concepts that help
in the effective development and implementation of plans. Here are some key principles
of planning:

1. Clarity: Plans should have clear and well-defined objectives, strategies, and actions.
Ambiguity or vagueness can lead to confusion and hinder effective implementation.

2. Simplicity: Keep plans as simple as possible. Complex plans can be difficult to

understand and execute. Simplicity enhances clarity and improves the chances of
successful implementation.

3. Alignment: Ensure that plans align with the overall mission, vision, and goals of the
organization. They should support and contribute to the broader strategic direction.

4. Consistency: Plans should be consistent with each other and avoid conflicting
objectives or strategies. Consistency facilitates coordination and integration across
different levels and functions.

5. Time-bound: Establish clear timelines and deadlines for the execution of the plan.
Time-bound plans create a sense of urgency, promote accountability, and help in
monitoring progress.
6. Resource consideration: Take into account the availability of resources such as
finances, personnel, and equipment when developing plans. Plans should be realistic &
achievable within the allocated resources.

7. Risk management: Identify potential risks and uncertainties associated with the plan
and develop strategies to mitigate them. Risk management ensures that plans are
robust & resilient to unforeseen events.

8. Stakeholder involvement: Involve relevant stakeholders in the planning process to

gather diverse perspectives and foster ownership. Stakeholder input enhances the
quality and acceptance of the plan.

9. Continuous learning: Embrace a learning mindset throughout the planning process.

Continuously gather feedback, evaluate outcomes, and incorporate lessons learned to
improve future planning efforts.

10. Adaptability: Plans should be adaptable to changing circumstances, market

conditions, or emerging opportunities. Flexibility allows for adjustments and course
corrections as needed.

11. Measurability: Establish clear metrics and indicators to measure progress and
success. Measurable plans enable tracking, evaluation, and informed decision-making.

12. Ethical considerations: Integrate ethical considerations into the planning process.
Ensure that plans align with ethical standards, respect legal requirements, and promote
social responsibility.

The planning process: Following are the steps in the planning process:

1.​ Setting Objectives: The idea behind planning is to achieve desired

objectives. Therefore, the first step is to clearly define and describe the
 objectives of the organization. Firstly, the major objectives should be
specified, and then they should be broken down into individual, sectional and
departmental objectives. Objectives serve as guidelines for
discussion-making in terms of resource allocation. Work schedule, nature of
actions, etc., are kept in mind while setting objectives. All efforts must be
made to anticipate the problems and relevant opportunities that are likely to
arise in the future.
2.​ Developing Planning Premises: The next step in planning is to establish

premises. Planning premises are the anticipated environment in which the

plans are expected to operate. These include assumptions and forecasts in
the future and knowing conditions that will affect the course of the plan. In
short, these provide the environment and the boundaries within which the
plans will be executed. Planning premises may be classified as internal and
external premises, controllable, semi-controllable, and uncontrollable
premises, tangible and intangible premises, and the last foreseeable and
unenforceable premises.
3.​ Identifying alternative courses of action: After setting the objectives and

making assumptions about the future. The next step is to determine

alternative courses of action through which the organization can achieve its
objectives. In order to identify the various alternative courses of action, it is
required to collect all necessary information from primary and secondary
sources. The information collected must be correct and believable. The only
information which is directly and strategically related to the achievement of
the desired objective should be considered. For every plan, there are several
options. All the alternative courses of action should be identified.
4.​ Evaluating alternative courses: After identifying different alternatives the

next step is to evaluate each alternative. Evaluation means the study of the
performance of various actions. All the possible alternatives should be
evaluated keeping in mind their expected cost and benefit to the organization.
 Comparison among the alternatives should be made in terms of factors, such
as the risk involved, planning premises, goals to be achieved, etc. The
positive and negative points of each alternative must be thoroughly examined,
and thereafter planner should make a choice.
5.​ Selecting an alternative: After evaluating various alternatives, the next step

is to select the most suitable force of action. The basic, detailed, and
derivative plans, such as policies, rules, programs, and budgets should be
formulated. This is because the derivative plans help in the implementation of
the basic plans. Most of the plans may not always be subjected to
mathematical analysis. In these cases, the subject and the management
experience, judgment, and at times institute play an important role in setting
the most suitable alternative. Many times combination of plans is also
selected instead of selecting one best course.
6.​ Implementing the plan: This step is concerned with transforming the plan

into action. The plan must be communicated to the employees in detail. This,
in turn, will help to secure cooperation from them. Useful suggestions from
employees must be considered, and they should be motivated to execute the
plan to the fullest of their abilities. The plan has to be effectively implemented
by the real executor. This step would also involve organizing labour and
purchasing machinery.
7.​ Follow-up- action: After implementing the plan, the last step is to periodically

review the existing plan to ensure that the plan is effective. The plan must be
consistently monitored, and in case of any deficiency, it should be modified
and adjusted. Actual customer response, revenue collection, employee
response, etc., are very important for the company.

Types of plan-
1.STRATEGIC PLANNING:The concept of strategic planning is a management process
that involves setting long-term goals, determining the best course of action, and
allocating resources to achieve those goals. It is a systematic approach that helps
organizations align their internal capabilities with external opportunities and challenges.

Strategic planning focuses on the big picture and involves making decisions that have a
significant impact on the organization's future. It goes beyond day-to-day operations and
takes into account the organization's mission, vision, values, and competitive
positioning.

Here are some key elements that define the concept of strategic planning:

1. Long-Term Perspective: Strategic planning looks ahead to the future, typically

spanning three to five years or even longer. It involves anticipating changes and trends
in the external environment and planning for the organization's growth and
sustainability.

2. Goal-Driven: Strategic planning is driven by the organization's overall goals and

objectives. It involves defining clear and specific goals that align with the organization's
mission and vision.

3. External and Internal Analysis: Strategic planning involves analyzing the external
environment,

such as market trends, competition, and regulatory factors, as well as conducting an

internal analysis of the organization's strengths, weaknesses, opportunities, and threats
(SWOT analysis).

4. Strategy Development: Based on the analysis, strategic planning involves developing

strategies
to achieve the organization's goals. These strategies outline the broad approaches and
actions that will be undertaken to gain a competitive advantage and achieve desired
outcomes.

5. Resource Allocation: Strategic planning involves allocating resources, including

financial, human, and technological resources, to support the implementation of the
strategies. This ensures that the necessary resources are available to execute the
strategic plans effectively.

6. Performance Measurement: Strategic planning includes establishing key

performance indicators

(KPIs) and metrics to track progress and measure success. Regular monitoring and
evaluation help assess the effectiveness of the strategies and make adjustments as
needed.

7. Cross-Functional Collaboration: Strategic planning requires collaboration and

coordination

among different departments and stakeholders within the organization. It encourages

input and involvement from various levels and functions to ensure a comprehensive and
integrated approach.

8. Flexibility and Adaptability: Strategic planning recognizes the need for flexibility and
adaptability

in a dynamic business environment. It allows for adjustments and revisions to the plans
as new information emerges or changes occur in the external or internal landscape.

9. Communication and Implementation: Strategic planning involves effective

communication
of the strategic objectives and plans throughout the organization. It requires clear
communication channels, stakeholder engagement, and a well-defined implementation
process to ensure alignment and commitment.

10. Continuous Improvement: Strategic planning is an ongoing process that requires

continuous monitoring, evaluation, and learning. Organizations should regularly review
and revise their strategic plans to stay relevant and responsive to changing conditions.

Advantages:

●​ Clarity and Direction: Helps communicate direction of the organization and

how this is going to be realised, hence facilitating organisational
cohesiveness.
●​ Resource Allocation: Facilitates in identification of special resources to
focus on for financial, human and other resource needs to support strategic
initiatives.
●​ Competitive Advantage: Allows an organization to know the business
strengths to build on while having an insight of the weaknesses to counter in
the market.
●​ Long-term Sustainability: Provides a sure bet to sustainable revenues that
negate risks associated with the future by taking time to analyze the market
and its trends.

Disadvantages:

●​ Time-consuming: Thus, strategic planning may take a considerable amount

of time because of the need to collect, sift through, and synthesize large
amounts of information, as well as to negotiate among the numerous
interested parties.
 ●​ Resistance to Change: Success of strategic plans to be implemented may
be an issue of concern in an organization since it may be met with little or lot
of resistance depending on the changes that are involved.

2. Tactical Planning

Features:

●​ Shorter-term Focus: Tactical planning focuses on the formulation of

short-term to the medium-term goals that help in the attainment of the
strategic goals of an organization.
●​ Specific Goals: In operation, It turns strategic goals into tangible activities
and projects on the ground.
●​ Departmental or Functional Focus: Usually it is done at the departmental or
at the functional level in a given organization.
●​ Flexible: This in turn, enables one to make flexible decisions based on the
realities of the information and events happening in the field.

Advantages:

●​ Alignment with Strategy: common employee ensures that all daily

operations and decisions made by the organization corresponds to the
organizations’ strategic plan.
●​ Enhanced Efficiency: Summaries the plan that needs to be implemented
alongside achievable targets and the time that is required to complete them.
●​ Coordination: It helps in organizing the functioning between one department
or a team and another department or a team with a view to achieve goals that
are common or mutual.
●​ Quick Response: Allows the organization to respond to new opportunities or
threats in the market environment as and when they arise.
Disadvantages:

●​ Narrow Focus: May be more short term oriented and thus may not fully
appreciated strategic consequences of short term decisions.
●​ Risk of Inflexibility: The strong-form means that some certain plans may
close off chances for responding to change or shift of market.
●​ Dependency on Strategic Alignment: Consequently, the notion of tactical
planning is strongly associated with the quality and fit of strategic plans
accomplished to drive it.

3. Operational Planning

Features:

●​ Detailed and Specific: This type of planning looks at the daily, weekly and
the actual activities necessary for organizational effectiveness in the
achievement of the specific operations goals.
●​ Short-term Focus: In general, it deals with periods that include days, weeks
or months to enhance the working of each day.
●​ Functional Scope: It is developed for certain organizational activities or a
certain division of the organization like production, sales or customer service.
●​ Integration with Tactical Plans: They are also drawn from the tactical plans
and play a central role of ensuring the strategy formulated is implemented.

Advantages:

●​ Enhanced Efficiency: Cuts costs of operation since it organizes the

executing processes and properly allocates the resources that are available.
●​ Clear Direction: Major organizational advantage – organisational objectives
and expectations are clearly stated and communicated to all employees, thus
everyone is aware of what is expected of him/her.
 ●​ Resource Optimization: Economical in the control of resources be it human
resources, materials and other equipments.
●​ Continuous Improvement: This enables constant assessment and
optimization of the organizational procedures for higher efficiency and
effectiveness.

Disadvantages:

●​ Potential Rigidity: May be set in concrete and do not take alterations even if
new information or conditions are introduced in the organization.
●​ Limited Strategic Focus: Tends to concentrate more on the technical
activities where it may be blind to the strategic consequences.
●​ Time and Resource Intensive: Preparation of operational strategies is also
quite exhaustive in terms of time and other resources that are required to
prepare them.

4. Contingency Planning

Features:

●​ Preparation for Uncertainty: Contingency planning mostly refers to

identifying and coming up with a plan to deal with an eventuality that is likely
to cause disturbance to the normal proceeding.
●​ Risk Assessment: It encompasses recognition of risk and opportunities that
are likely to threaten the organization.
●​ Alternative Strategies: Aims at creating new methods of action and a
backup plan for coping with interruptions.
●​ Cross-functional Collaboration: Usual it is a teamwork that aims to cover
all the aspects of preparation.

Advantages:
 ●​ Enhanced Resilience: Enhances the extent to which the organisation can
quickly control for incidents that occur and prevent negativity arising out of
such events from having a disruptive effect.
●​ Risk Mitigation: Prevents adversity situations from emerging, and has a
positive impact on the company’s financial and organizational losses.
●​ Maintains Reputation: It is an important tool in protecting the organization’s
reputation through showing that the organization constantly actively work on
crisis management and continuity plans.
●​ Regulatory Compliance: Safeguards against noncompliance with the legal
and/or organizational regulatory standards for disaster preparedness and
business continuity in an organization.

Disadvantages:

●​ Resource Intensive: It is not rare to hear that carrying out and preserving
detailed contingency plans may be time-consuming and costly, as well as
needing considerable staff effort.
●​ Complexity: Making and updating contingency management for different
contingencies can prove to be difficult and needs constant check up and
changes.
●​ Over-preparation: It is possible to see companies over planning for
contingencies which they are very unlikely to face, in turn the resources that
could be used to fund operations are lock up.

5. Financial Planning

Features:
 ●​ Goal-Oriented: Budgeting involves identification of appropriate goals towards
which the finance should be worked in the shortest time and the farthest
future.
●​ Comprehensive: Topics that fall under personal finance include; budgeting,
saving, investment, planning for retirement and managing for risks.
●​ Data-Driven: Depends on the figures, estimations, and evaluations to make
right decisions regarding the objects’ monetary assets.
●​ Continuous Process: It is a complex and gradual process of evaluation and
decision making that needs to be constantly revised depending on the
circumstances that exist at a given time.

Advantages:

●​ Goal Achievement: Supports specific objectives related to money, for

instance, saving a particular amount, required rate of investment returns, or
payoff of a certain amount of loan balances.
●​ Financial Security: Helps to attain and improve the overall financial stability
including the funds for the emergency, the retirement, and other unforeseen
situations.
●​ Risk Management: Reduces the possibility of exposure to potential risks in
the financial department by means of, for instance, investing in other
industries and when taking risks ensuring that they take insurance for this
purpose.
●​ Improved Decision-Making: It offers a basis for the sound management of
financial relations taking into account the analysis and prognosis.

Disadvantages:

●​ Time-Consuming: Creating and updating the well-coordinated budgetary

plan can take much time and needs comprehensive analyzing and control.
 ●​ Complexity: Personal and business finance can be involving due to the clash
of various requirements and objectives in most cases.
●​ Uncertainty: Fluctuations in the markets and conditions in the economy pose
some drawbacks when preparing the financial plans.
●​ Costly: If further specifications are outlined, it can be said that acquiring
independent financial consulting or employing the help of financial planning
software might be costly.

DECISION-MAKING: Decision-making is the process of selecting the best course of

action from a set of alternative options to achieve a desired goal or objective. It involves

four interrelated phases: explorative (searching for potential alternatives), speculative

(identifying the factors that influence the decision problem), evaluative (analyzing and

comparing the alternative courses of action), and selective (making the final choice of

the best course of action). The ultimate aim of decision-making is to find the option that

is believed to fulfil the objective of the decision problem most satisfactorily compared to

other alternatives.

DECISION-MAKING PROCESS-

Step 1: Identify the decision

You realize that you need to make a decision. Try to clearly define the nature of the
decision you must make. This first step is very important.

Step 2: Gather relevant information

Collect some pertinent information before you make your decision: what information is
needed, the best sources of information, and how to get it. This step involves both
internal and external “work.” Some information is internal: you’ll seek it through a
process of self-assessment. Other information is external: you’ll find it online, in books,
from other people, and from other sources.

Step 3: Identify the alternatives

As you collect information, you will probably identify several possible paths of action, or
alternatives. You can also use your imagination and additional information to construct
new alternatives. In this step, you will list all possible and desirable alternatives.

Step 4: Weigh the evidence

Draw on your information and emotions to imagine what it would be like if you carried
out each of the alternatives to the end. Evaluate whether the need identified in Step 1
would be met or resolved through the use of each alternative. As you go through this
difficult internal process, you’ll begin to favor certain alternatives: those that seem to
have a higher potential for reaching your goal. Finally, place the alternatives in a priority
order, based upon your own value system.

Step 5: Choose among alternatives

Once you have weighed all the evidence, you are ready to select the alternative that
seems to be best one for you. You may even choose a combination of alternatives. Your
choice in Step 5 may very likely be the same or similar to the alternative you placed at
the top of your list at the end of Step 4.

Step 6: Take action

You’re now ready to take some positive action by beginning to implement the alternative
you chose in Step 5.

Step 7: Review your decision & its consequences

In this final step, consider the results of your decision and evaluate whether or not it has
resolved the need you identified in Step 1. If the decision has not met the identified
need, you may want to repeat certain steps of the process to make a new decision. For
example, you might want to gather more detailed or somewhat different information or
explore additional alternatives.

Types of Decision-making
Managerial decisions may be classified into the following categories:

1. Programmed and Non-programmed Decisions

According to Herbert Simon, programmed decisions are related to routine and repetitive
problems. Information about these problems is readily available and can be processed
using pre-established methods. These decisions have a short-term impact and are
relatively simple, typically made at lower management levels. Decision rules and
procedures are in place to streamline the decision-making process and save time. Little
thought and judgment are required, as the decision-maker follows predetermined
solutions. For instance, dealing with a consistently late employee can be addressed
through established procedures.

On the other hand, non-programmed decisions tackle unique or unusual problems that
demand a high level of executive judgment and consideration. There are no
ready-made solutions for such problems, as they require creative and thoughtful
approaches. Examples of non-programmed decisions include introducing a new product
or determining the location of a plant. These decisions are usually made by higher-level
managers.​

2. Routine and Strategic Decisions

There are two types of decisions in an organization: routine (or operating) decisions and
strategic (or policy) decisions. Routine Decisions are repetitive in nature and have a
short-term impact, mainly concerning day-to-day operations. They are typically made at
lower levels of management, using established procedures to ensure quick and efficient
handling. For example, a supervisor may make routine decisions regarding employee
overtime pay.

On the other hand, strategic decisions involve long-term commitments and significant
investments, influencing the entire organisation’s future. These decisions require careful
deliberation and judgment and are usually made at higher levels of management.
Examples of strategic decisions include launching a new product, selecting the location
for a new plant, or implementing major organisational changes.​

3. Organisational and Personal Decisions

Organisational Decisions are made by officials in their capacity as resource allocators
for the organisation. These decisions rely on sound judgment and experience and can
be delegated to other individuals within the organisation. Organisational decisions have
a direct impact on the functioning of the organisation and its outcomes.

On the other hand, personal decisions are made by managers as individuals and cannot
be delegated. These decisions pertain to matters that directly affect their personal lives,
such as decisions to marry or enroll children in a boarding school. While personal
decisions may have implications for the individual manager, they may also indirectly
affect the organisation. For instance, the decision of a chief executive to retire early
could have a direct effect on the company’s future.​

4. Individual and Group Decisions

Individual Decisions are made by an individual based on the information available to
them. These decisions may involve analyzing various variables, but they are often
straightforward. However, in certain situations, significant decisions may be made
collectively by a group.

Group Decisions are taken by a team of individuals formed for this purpose, such as the
decisions made by a Board of Directors or a committee. These decisions are typically
crucial for the organisation. Group decision-making often leads to more realistic and
well-balanced outcomes, as different perspectives are considered. Encouraging
participative decision-making can be a positive organisational approach, but it may
result in delays and can make fixing responsibility for such decisions more complex.

5. Tactical and Operational Decisions

Tactical Decisions focus on how things will be done to achieve strategic goals. They are
short-term and usually involve specific actions that help meet the broader objectives set
by higher management. For example, a company deciding on a marketing campaign to
boost sales in the next quarter is making a tactical decision. These decisions are usually
made by middle managers and are meant to ensure that day-to-day operations align
with the overall strategy.

On the other hand, operational decisions deal with the routine activities necessary for
running an organization. They are very short-term, often made on a daily or weekly
basis, and involve specific processes and procedures. For example, a manager
deciding on the daily work schedule for employees or handling customer complaints is
making operational decisions. These decisions are typically made by lower-level
managers or supervisors who ensure that everything runs smoothly and efficiently on a
daily basis.

6. Major and Minor Decisions:

Major Decisions are significant choices that can have a long-lasting impact on our lives.
For example, deciding on a career path, choosing a life partner, or buying a house are
major decisions. These decisions often require careful thought, research, and
sometimes advice from others because they can affect our future in profound ways.

On the other hand, minor decisions are smaller choices that we make more frequently
and with less deliberation. Examples include what to eat for dinner, which clothes to
wear, or what movie to watch. These decisions usually have a short-term impact and
can often be changed without much consequence.

For major decisions, it is wise to take time, gather information, and consider the
long-term implications. For minor decisions, it’s often better to make a quick choice and
move on, saving mental energy for the more important decisions in life.

CONTROL:’’Managerial Control implies the measurement of accomplishment against

the standard and the correction of deviations to assure attainment of objectives
according to plans.”Koontz and O'Donnell. Controlling is a process that entails
comparing actual performance to the desired outcome, to ensure the achievement of
objectives. Setting standards, measuring actual performance, and taking corrective
action in case of deviations are all part of the managerial role of controlling function.

Controlling means comparing the actual performance of an organisation with the

planned performance and taking corrective actions if the actual performance does not
match the planned performance.

Process of Controlling
Different steps involved in the process of controlling are as follows:

1. Setting Performance Standards

The first step of the process of controlling is to establish standards of performance

against which the actual performance of the organisation is measured. An organisation
should clearly define its standards to the employees and must establish attainable,
understandable, and realistic standards to be achieved. Standards can be set in
quantitative terms as well as qualitative terms. Under quantitative terms, the standards
of an organisation are expressed in quantitative terms like units of the product to be
produced and sold, revenue to be earned, the cost to be incurred, etc. While setting the
quantitative standards an organisation should keep them precise so as to easily
compare the actual performance with the standards. However, under qualitative terms,
the standards of an organisation are expressed in qualitative terms like time taken to
serve a customer, motivation level of employees, etc. The qualitative standards should
also be set in a way that makes the measurement easy.

2. Measurement of Actual Performance

Once the organisation has established the standards, the second step of the process of
controlling is to measure the actual performance in a reliable and objective manner. The
actual performance of an organisation can be measured through different techniques
such as sample checking, personal observation, etc., and should be measured in the
same units in which the standards are fixed to make the comparison easy. Usually, the
actual performance is measured at the end of the performance. However, in some
cases, organisations measure performance throughout the performance. For example,
an electrical appliance organisation can check the parts before assembling them
together to ensure the final product is not defective.

3. Comparison of Actual Performance with Standards

The third step of the process of controlling is to compare the actual performance of the
organisation with the established standards (in the first step). By comparing the actual
performance with the standards, an organisation can determine the deviation between
them. When the standards are expressed in quantitative terms, it becomes easy for the
organisation to make comparisons as there is no subjective evaluation required. For
example, it is easy for an organisation to compare the number of units sold in a month
against the set standard. However, the comparison between the set standard for the
motivation of employees with its actual performance is difficult.

4. Analysing Deviations

The actual performance and set standards of an organisation rarely match with each
other. Usually, there is always some variation between the expected and actual
performance. Therefore, the fourth step of the process of controlling is to analyse the
deviations. To do so, an organisation must fix an acceptable range of deviation in
performance. Besides, an organisation should focus more on the significant deviation
and less on the minor deviations.

5. Taking Corrective Action

The last and final step of the process of controlling is to take corrective action. If the
deviations are within the acceptable limits set by the managers, then there is no need to
take corrective action. However, if the deviations go beyond the set acceptable limit in
the key areas, then proper and immediate managerial actions are required. An
organisation can easily rectify the defects in the actual performance through the
corrective steps.

Types of control:

Controls Based on Timing

On the basis of timing or stage in the production process, controls can be classified as
feedforward control, concurrent control, and feedback control.

Feedforward control

In feedforward control, inputs are monitored to ensure that they meet the standards
necessary for the transformation process. Inputs in the production process may include
materials, people, finances, time and other resources used by an organization. For
effective control, managers need a system that warns them well in time of the need to
take corrective action and informs them of the problems that could arise if they failed to
do so. Feedforward control enables managers to prevent serious difficulties from
arising in the production process. Since feedforward control is future oriented, it is
sometimes referred to as precontrol, preaction or preliminary control. Feedforward
controls use policies, procedures, and rules to limit activities in advance and minimize
the likelihood of significant deviations requiring corrective measures.

Concurrent control

Concurrent control regulates ongoing activities that are a part of the transformation
process to ensure that they conform to organizational standards. Such controls are also
known as "steering controls." They are used during the implementation of plans (i.e..
during the performance of an activity), and are perhaps the most frequently used
controls. Concurrent control techniques help managers identify deviations from
predetermined standards and allow remedial measures to be taken while the activity is
being performed.

Since concurrent controls involve checkpoints at which decisions are made regarding
the continuance of a process, they are sometimes referred to as screening or yes-no
controls. Quality control inspections, approval of requisitions, safety checks and legal
approval of contracts are common examples of yes-no controls.

Feedback control

Feedback control measures the results and compares them against the predetermined
standards. This form of control is exercised after a product or service has been
produced to ensure that the final output meets quality standards and goals. The aim of
feedback control is to identify deviations that went undetected earlier. A major benefit
of feedback control is that it provides information that facilitates the planning process.
Data provided by this type of control helps managers revise existing plans and
formulate new ones. Feedback control is also useful for rewarding employee
performance by providing information about the output produced by the employee. Final
inspections, summary of activity reports, and balance sheets are examples of feedback
control.

ORGANIZING:

Organizing is the process of identifying 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.’

The organizing process can be done efficiently if the managers have certain guidelines so
that they can take decisions and can act. To organize in an effective manner, the following
principles of organization can be used by a manager.

1.​ Principle of Specialization​

According to the principle, the whole work of a concern should be divided amongst
the subordinates on the basis of qualifications, abilities and skills. It is through
division of work specialization can be achieved which results in effective
organization.
2.​ Principle of Functional Definition​
According to this principle, all the functions in a concern should be completely and
 clearly defined to the managers and subordinates. This can be done by clearly
defining the duties, responsibilities, authority and relationships of people towards
each other.​
Clarifications in authority-responsibility relationships helps in achieving co-ordination
and thereby organization can take place effectively.​
For example, the primary functions of production, marketing and finance and the
authority responsibility relationships in these departments shouldbe clearly defined to
every person attached to that department. Clarification in the authority-responsibility
relationship helps in efficient organization.
3.​ Principles of Span of Control/Supervision​
According to this principle, span of control is a span of supervision which depicts the
number of employees that can be handled and controlled effectively by a single
manager.​
According to this principle, a manager should be able to handle what number of
employees under him should be decided. This decision can be taken by choosing
either froma wide or narrow span. There are two types of span of control:-
1.​ Wide span of control- It is one in which a manager can supervise and
control effectively a large group of persons at one time. The features of this
span are:-
1.​ Less overhead cost of supervision
2.​ Prompt response from the employees
3.​ Better communication
4.​ Better supervision
5.​ Better co-ordination
6.​ Suitable for repetitive jobs
2.​ According to this span, one manager can effectively and efficiently handle a
large number of subordinates at one time.
3.​ Narrow span of control- According to this span, the work and authority is
divided amongst many subordinates and a manager doesn't supervises and
control a very big group of people under him.​
The manager according to a narrow span supervises a selected number of
employees at one time. The features are:-
 1.​ Work which requires tight control and supervision, for example,
handicrafts, ivory work, etc. which requires craftsmanship, there
narrow span is more helpful.
2.​ Co-ordination is difficult to be achieved.
3.​ Communication gaps can come.
4.​ Messages can be distorted.
5.​ Specialization work can be achieved.
4.​ Factors influencing Span of Control
1.​ Managerial abilities- In the concerns where managers are capable, qualified
and experienced, wide span of control is always helpful.
2.​ Competence of subordinates- Where the subordinates are capable and
competent and their understanding levels are proper, the subordinates tend to
very frequently visit the superiors for solving their problems. In such cases,
the manager can handle large number of employees. Hence wide span is
suitable.
3.​ Nature of work- If the work is of repetitive nature, wide span of supervision is
more helpful. On the other hand, if work requires mental skill or
craftsmanship, tight control and supervision is required in which narrow span
is more helpful.
4.​ Delegation of authority- When the work is delegated to lower levels in an
efficient and proper way, confusions are less and congeniality of the
environment can be maintained. In such cases, wide span of control is
suitable and the supervisors can manage and control large number of sub-
ordinates at one time.
5.​ Degree of decentralization- Decentralization is done in order to achieve
specialization in which authority is shared by many people and managers at
different levels. In such cases, a tall structure is helpful.​
There are certain concerns where decentralization is done in very effective
way which results in direct and personal communication between superiors
and sub- ordinates and there the superiors can manage large number of
subordinates very easily. In such cases, wide span again helps.
 5.​ Principle of Scalar Chain​
Scalar chain is a chain of command or authority which flows from top to bottom. With
a chain of authority available, wastages of resources are minimized, communication
is affected, overlapping of work is avoided and easy organization takes place.​
A scalar chain of command facilitates work flow in an organization which helps in
achievement of effective results. As the authority flows from top to bottom, it clarifies
the authority positions to managers at all level and that facilitates effective
organization.
6.​ Principle of Unity of Command​
It implies one subordinate-one superior relationship. Every subordinate is answerable and
accountable to one boss at one time. This helps in avoiding communication gaps and
feedback and response is prompt.​
Unity of command also helps in effective combination of resources, that is, physical,
financial resources which helps in easy co-ordination and, therefore, effective organization.

Authority Flows from Top to Bottom

Managing Director

Marketing Manager
 ↓

Sales/ Media Manager

Salesmen

7.​ According to the above diagram, the Managing Director has got the highest level of
authority. This authority is shared by the Marketing Manager who shares his
authority with the Sales Manager.​
From this chain of hierarchy, the official chain of communication becomes clear
which is helpful in achievement of results and which provides stability to a concern.​
This scalar chain of command always flow from top to bottom and it defines the
authority positions of different managers at different levels.

COMMON ORGANIZATIONAL STRUCTURES:

Let’s look at seven common types of enterprise organizational structures:

Functional organizational structure

A functional structure is one of the most common types of organizational structures.

Here, the organization is divided based on the functions they perform. Departments like
marketing, finance, human resources, and operations each become their separate
entities. For beginners, think of this as organizing a school where departments are
divided into subjects like mathematics, history, or science.
The functional approach offers clear delineation of roles, allowing expertise to be
concentrated. It promotes efficiency within each department. However, it might also
lead to a silo mentality where departments work in isolation, possibly hindering
cross-departmental collaboration.

Divisional structure

In a divisional structure, the organization is divided into multiple divisions, each

responsible for its own set of tasks. These divisions can be based on products,
geographic areas, or customer segments. It's like a conglomerate of "mini-companies"
within a bigger entity, each serving a specific market or product.

The structure’s primary strength is its focus; each division can respond quickly to its
market conditions without being weighed down by the broader organizational
bureaucracy. Yet, this can also lead to duplication of resources if multiple divisions
perform similar functions.

Matrix organizational structure

Combining the elements of both functional and divisional structures, the matrix
structure places employees under multiple supervisors. Picture a grid (or 'matrix');
vertically, you might have functional roles and horizontally, project or product teams. An
employee could report to both a functional manager and a project manager.

The dual-reporting relationship intends to optimize resource utilization and flexibility. It

promotes adaptability in the face of complex tasks. However, it's not without its pitfalls,
as the dual chains of command can sometimes lead to confusion or even conflicts of
interest.

Hierarchical organizational structure

Resembling a pyramid, the hierarchical structure has the most employees at the base
and fewer as one moves upwards, with top management at the pinnacle. Each level
controls the level directly beneath it. For those new to this concept, envision a military
ranking system, from generals down to privates.

This method offers clear roles and responsibilities, ensuring everyone knows their
position in the pecking order. Yet, the structure's rigidity can sometimes slow down
decision-making, with each decision potentially needing to pass through various layers.

Flat structure

Contrary to the hierarchical model, a flat structure has minimal levels of middle
management, if any. Essentially, it's a “flatter” system where a larger number of
employees report to a small number of managers. For those outside the organizational
world, think of a startup environment where roles are fluid, and there's a direct line to the
CEO. With fewer layers, decision-making can be quicker, and employees might feel more
involved in the company’s direction. However, as a company grows, this structure can
become unsustainable, potentially leading to managerial burdens on a few individuals.

Network organizational structure

The network structure is more of a decentralized approach wherein specific functions or

services are outsourced to other organizations, creating a network of interdependent
entities. This structure offers organizations significant flexibility and scalability, allowing
them to tap into global talents and resources. On the downside, managing and
monitoring external partnerships can sometimes be challenging.

Team-based organizational structure

Here, the organization is divided into teams that are responsible for specific tasks or
projects. These teams operate relatively autonomously, often setting their own goals
and workflows. Team-based structures can boost collaboration and innovation, with
members bringing diverse perspectives to the table. However, care must be taken to
ensure inter-team coordination and alignment with the broader organizational goals.

Hybrid structure
The hybrid structure combines elements from different types of organizational
structures, catering to the unique needs of the business. It offers a balance, ensuring
functional efficiencies while allowing for specialization or decentralization where
needed. Adopting a hybrid structure allows businesses to enjoy the benefits of multiple
structures while mitigating their individual drawbacks. The challenge lies in ensuring
seamless integration and preventing any potential conflicts or overlaps.

DELEGATION: Delegation is the process of assigning authority, responsibility, and tasks

to individuals or teams within an organization. It involves transferring decision-making
authority from managers to their subordinates, empowering them to make decisions
and take action within their assigned roles. By delegating tasks, managers can focus on
higher-level responsibilities and strategic decision-making while their subordinates
handle operational or specialized tasks. Delegation includes elements, such as
authority, responsibility, accountability, and effective communication. It brings several
benefits, including increased productivity, skill development, empowerment, improved
decision-making, and succession planning. Effective delegation requires considering
factors, like employee competence, workload capacity, and task complexity, along with
providing adequate support and feedback for successful task completion.

DECENTRALIZATION: Decentralization refers to a specific form of organizational

structure where the top management delegates decision-making responsibilities and
daily operations to middle and lower subordinates. The top management can thus
concentrate on making major decisions with greater time abundance. Businesses often
feel the requirement of decentralization to continue efficiency in their operation.

Decentralization in management can be understood as the orderly assignment of

authority, throughout the levels of management, in an organisation. It describes the way
in which power to take decisions is allocated among various levels in the organisational
hierarchy. In other words, it refers to the dissemination of powers, functions and
responsibility, away from the central location.
FACTORS AFFECTING THE EXTENT OF DECENTRALIZATION:-

Size of Organization and its Complexity

If the organization is large and complex, then it has a greater need for decentralization.
However, if the organization is relatively simpler and smaller, then creating autonomous
units is usually costly. Therefore, the top management makes most of the decisions.

Degree of Diversification

In the case of companies having multiple diverse product lines, decentralization is

necessary as well as beneficial. On the other hand, if the organization desires high
standards of standardization, then it needs centralization.

Number of competent personnel in the organization

An organization can successfully decentralize authority only if it has competent and

experienced managers at lower levels. If there is a dearth of such employees in the
organization, then decentralization will function in a restricted manner.

Top Management’s Outlook

If the top management is conservative and believes in control in the hands of a limited
number of people, then it is likely to centralize authority. On the other hand, if it believes
in individual freedom and is comfortable with the authority not being confined to a
limited few, then the organization will have a high degree of centralization.

Nature of Functions

Usually, some basic functions in an organization like sales, production, etc. have a
higher degree of decentralization. In comparison, staff functions like personnel,
research and development, finance, etc. are less decentralized or even majorly
centralized.
Communication System in the Organization

If an organization decides to decentralize authority, then it must ensure that an effective

communication system exists. This is necessary for coordinating and controlling the
activities of the operational units. On the other hand, if an organization has an
ineffective communications system, then it should opt for centralization. Further,
computerized management information systems have enabled centralized
decision-making.

Planning and Control Procedures in the Organization?

If an organization is clear about its objectives and policies, then seniors are more willing
to allow their subordinates to make independent decisions. Remember, decentralization
is successful only when there is a good control system in the organization. This is
because the top management can use this system to assess the effectiveness of the
decisions that the subordinates make.

Environmental Factors

The environmental factors play a major role in determining the degree of

decentralization in an organization. To give an example, if the business environment of
an organization is highly uncertain, the organization might not give a high degree of
freedom to operating units. This is because, in uncertain conditions, this might
endanger the existence of the organization itself.

PROCESS OF DELEGATION: The process of delegation involves the following steps:

1. Determination of Results Expected: Managers begin by clearly defining the desired

outcomes and objectives that need to be achieved through delegation. This step
involves setting specific and measurable targets aligned with the organization’s goals. It
provides a clear focus for the delegation process and ensures everyone understands
the expected results.
2. Assignment of Duties: Once the results are determined, managers identify specific
tasks and responsibilities to be delegated. It is important to match the duties with the
skills, capabilities, and interests of the individuals or teams involved. Clear instructions
and guidelines should be provided to ensure a shared understanding of the assigned
duties and expectations.

3. Granting of Authority: Delegation goes beyond task assignment; it also involves

granting the necessary authority to carry out the assigned tasks effectively. This
includes decision-making power, access to resources, and the ability to take necessary
actions within defined limits. Granting authority empowers individuals or teams to make
decisions and exercise discretion in fulfilling their responsibilities.

4. Creating Accountability for Performance: To ensure accountability, managers

establish clear lines of responsibility and hold individuals or teams accountable for the
proper performance of their delegated duties. This includes setting performance
standards and metrics, regularly monitoring progress, providing feedback and guidance,
and evaluating outcomes. Accountability fosters a sense of ownership and motivates
individuals to perform at their best.

Principles of Delegation
To make delegation of authority effective, managers need to follow certain principles.
These are some principles of delegation;

1.​ Functional Definition: Before delegating authority, managers should clearly

define the tasks and responsibilities of subordinates. This means specifying

what needs to be achieved, the activities involved, and how it connects to
other roles in the organization.
2.​ Delegation by Results Expected: Authority should be delegated based on the

desired results. Managers should decide what outcomes they expect from
subordinates and communicate those expectations. This helps subordinates
understand what they need to achieve and how their performance will be
measured.
 3.​ Balance of Authority and Responsibility: It’s important to have a fair balance

between authority and responsibility given to someone. They should have the
necessary authority to carry out their responsibilities effectively.
4.​ Clear Accountability: Each person should have complete responsibility for

their assigned tasks. They cannot pass on their responsibilities to others.

5.​ Single Chain of Command: Everyone should report to and be accountable to a

single superior. This avoids confusion and conflicts that can arise when
multiple people have authority over the same tasks.
6.​ Clearly Defined Authority Limits: Each person should have clear boundaries

for their authority. This prevents overlapping of authority and allows

individuals to take initiative within their designated areas.
7.​ Decision-Making at Appropriate Levels: Managers at each level should make

decisions within their authority. They shouldn’t unnecessarily pass decisions

to higher levels when they have the necessary authority. Only matters beyond
their authority should be escalated.

COORDINATION: Coordination is very important in management. The business has

multiple functions. These functions are performed by different people. In addition,
performing these functions requires division of labour and grouping activities and
decision-making at different levels. These need to be coordinated to achieve the desired
goals. Coordination involves synchronizing, integrating, or unifying the actions of all
groups in the enterprise to achieve its goals. It is a process in which managers balance
the activities of different individuals and individual groups, reconcile their differences in
interests or methods, to achieve a common goal, achieving a harmonious group effort
and unity of action.Defined by Mcfarland, “Coordination is the process whereby an
executive develops an orderly pattern of group efforts among his subordinates and
secures the unity of actions in pursuing a common purpose.”
PRINCIPLES OF COORDINATION: There are different stages to achieve effective
coordination:

Early Stage Principle

This principle states that coordination must start at a very early stage. So, in the
management process, this is very vital. Thus, it can be said that this should start at the
planning stage. So, this will ensure that the best plans are made. Also, it is necessary to
implement these plans successfully.

Continuity Principle

According to the second principle, coordination is a process that requires continuity.

Thus, it means that the process should not be only a one-time process. So, the process
of coordination should begin at the time the organization starts. This shall also continue
until an organization exists.

Direct contact Principle

This principle believes in direct contact. It states that managers should directly contact
their subordinates. Thus, it will help in building good relations for managers with their
subordinates. Also, because of this principle, any misunderstanding will be avoided.
Along with this, misinterpretations and disputes will be avoided between the
subordinates and the managers.

Reciprocal relation Principle

The actions and decisions of the people working in the organization and their
departments are inter-related. Thus, the actions and decisions of one department or the
person will affect other departments and people in the organization. So, before taking
any decision every manager must find out the effect of that decision on the other
departments. This is the principle of reciprocal relations. Thus, the coordination in the
organization will be followed properly only if the principles are followed.
Clarity of objective Principle

Coordination in an organization is possible only when there are clear objectives set in
the organization. Everyone working in the organization should be clear about the
objectives. Thus, there should not be any doubt regarding the objectives of the
organization. Thus, the objective of the organization is can be achieved quickly and
easily.

Effective communication Principle

Coordination in the organization will be achieved only if there is a presence of effective

communication. So, there should be good communication present between all the
different departments in an organization. Furthermore, effective communication should
also be present between the manager and their subordinates as well as within the
employees.

Principles of Communication Following principles of communication make it more

effective:

1. Principle of Clarity: The idea or message to be communicated should be clearly

spelt out. It should be worded in such a way that the receiver understands the same
thing which the sender wants to convey. There should be no ambiguity in the message.
It should be kept in mind that the words do not speak themselves but the speaker gives
them the meaning. A clear message will evoke the same response from the other party.
It is also essential that the receiver is conversant with the language, inherent
assumptions, and the mechanics of communication.

2. Principle of Attention: In order to make communication effective, the receiver’s

attention should be drawn towards message. People are different in behaviour,
attention, emotions etc. so they may respond differently to the message. Subordinates
should act similarly as per the contents of the message. The acts of a superior also
draw the attention of subordinates and they may follow what they observe. For example,
if a superior is very punctual in coming to the office then subordinates will also develop
such habits. It is said that ‘actions speak louder than words.

3. Principle of Feedback: The principle of feedback is very important to make the

communication effective. There should be a feedback information from the recipient to
know whether he has understood the message in the same sense in which the sender
has meant it.

4. Principle of Informality: Formal communication is generally used for transmitting

messages and other information. Sometimes formal communication may not achieve
the desired results, informal communication may prove effective in such situations.
Management should use informal communication for assessing the reaction of
employees towards various policies. Senior management may informally convey certain
decisions to the employees for getting their feedback. So this principle states that
informal communication is as important as formal communication.

5. Principle of Consistency: This principle states that communication should always be

consistent with the policies, plans, programmes and objectives of the organization and
not in conflict with them. If the messages and communications are in conflict with the
policies and programmes then there will be confusion in the minds of subordinates and
they may not implement them properly. Such a situation will be detrimental to the
interests of the organization.

6. Principle of Timeliness: This principle states that communication should be done at

proper time so that it helps in implementing plans. Any delay in communication may not
serve any purpose rather decisions become of historical importance only.

7. Principle of Adequacy: The information communicated should be adequate and

complete in all respects. Inadequate information may delay action and create
confusion. Inadequate information also affects efficiency of the receiver. So adequate
information is essential for taking proper decisions and making action plans.

Different functional areas of Management, Teams & Groups:

Nhi mila.kisi se maang le.

UNIT-3

Importance of organizational Behaviour:

Organisational Behaviour (OB) studies how individuals and groups behave within
organisations. It analyses individual traits, group dynamics, organisational structure,
culture, leadership styles, and HRM practices. Understanding OB aids in optimising
employee performance, team dynamics, and organisational culture. It addresses
challenges like diversity, globalisation, and Change Management. By applying OB
insights, organisations can foster engagement, satisfaction, and productivity, ensuring
sustained success in the dynamic workplace.

The following points are the Importance of Organisational Behaviour:

Improving skills
Skill development is of paramount importance in terms of Organisational Behaviour.
These skills can be improved via strengthening communication, teamwork, leadership
and problem-solving among the staff members. Through the recognition of divergent
competencies and skills, plus identification of training gaps, companies can give
personalised training and development activities, with a view to improving employees
performance thus contributing to an organisation's success.
Understanding the nature of employees
Knowledge of personality traits is the foundation of Organisational Behaviour. It
represents introducing yourself to your employees’ varying motives, attitudes, and
patterns within the workplace. Identifying the special areas of concern and individual
differences and needs enables organisations to provide relevant support and work on
the development of environment that encourages worker engagement, satisfaction and
productivity.

Anticipating organisational events

Organisational Behaviour prepares the business leadership to be proactive in
addressing the internal workplace issues that may come up as opportunities or threats.
Through analysing trends of behaviour and organisational dynamics, managers get a
keener grasp of their environment and plan to deal with emerging changes rapidly and
efficiently. This forward-thinking plan makes the organisation able to respond to risks
faster and take advantage of new conditions for success.

Enhancing efficiency & effectiveness

Enhancing effectiveness and efficiency is the backbone of any Organisational
Behaviour. It involves making processes more efficient, minimising the time required for
the activities, and making sure that the organisational goals set relate to the individual,
team and Organisational Behaviours.

Through the analysis of the inefficiencies and their correction, the enterprises can
increase productiveness, make their work better and reach the objectives that the
organisation is focused on in the competitive environment more efficiently.

Fostering a better organisational environment

Constructing a supported working atmosphere is an intrinsic aspect of Organisational
Behaviour. It is built on the principles of loyalty, trust, respect, and teamwork. Through
such activities as communication openness, teamwork, and employee welfare,
companies cultivate a hospitable environment that ensures staff morale, engagement,
and productivity are in place, culminating in growth and sustainability.

Maximising resource utilisation

Reducing the use of precious resources, which is crucial to Organisational Behaviour,
should be done. It is all about the way resources are efficiently allocated between the
human, financial, and technological resources to achieve organisation's goals. By
identifying useful resources and making use of them effectively, organisations can save
costs, increase production efficiency, and have a competitive edge.

Enhancing organisational goodwill

Enhancing organisational goodwill is a key focus of Organisational Behaviour. It entails
building positive relationships with stakeholders, including customers, employees, and
the community. By delivering exceptional products and services, demonstrating
corporate social responsibility, and maintaining transparency, organisations cultivate
trust and loyalty, enhancing their reputation and long-term success.

Establishing improved communication channels and protocols

Establishing improved communication channels and protocols is pivotal in
Organisational Behaviour. It involves implementing clear and efficient methods for
information dissemination and feedback exchange within the organisation. By
promoting open communication, active listening, and transparency, organisations foster
collaboration, minimise misunderstandings, and facilitate informed decision-making,
ultimately enhancing overall productivity and success.
Creating a comfortable work environment
Creating a comfortable work environment is paramount in Organisational Behaviour. It
encompasses designing physical spaces and fostering a supportive culture that
promotes employee well-being and satisfaction. By prioritising factors like work-life
balance, ergonomics, and psychological safety, organisations nurture a positive
atmosphere where employees can thrive, innovate, and contribute effectively.

Influencing management style

Influencing management style is a crucial aspect of Organisational Behaviour. It
involves shaping leadership approaches to align with organisational goals and
employee needs. By promoting inclusive, adaptive, and empowering leadership
practices, organisations can inspire motivation, foster innovation, and cultivate a
positive work culture conducive to achieving long-term success and growth.

Developing a strategy for engaging people successfully

Developing a strategy for engaging people successfully is essential in Organisational
Behaviour. It entails understanding employee motivations, values, and aspirations to
create meaningful connections. By fostering open communication, providing
opportunities for growth and recognition, and promoting a supportive work
environment, organisations can cultivate a motivated and committed workforce.

Influencing human resource strategies

Influencing human resource strategies is pivotal in Organisational Behaviour. It involves
aligning HR practices with organisational objectives and employee needs. By
implementing effective recruitment, training, performance management, and talent
retention initiatives, organisations can attract, develop, and retain top talent, ensuring
sustained success and competitiveness in the marketplace.
Resolving conflicts
Realising conflicts in any organisation, resolution of conflicts is perhaps one of the
most important elements of Organisational Behaviour. That is resolving the employees'
conflicts with the highest speed in a positive manner. Through the promotion of open
communication, empathy, and problem-solving skills, conflicts are prevented from
occurring, peace and stability are brought back, and a congenial workplace that
supports collaboration and productivity is preserved.

Motivating employees
Inspiring employees is crucial for business behaviour. It encompasses the abilities of
empathising with employees on personalistic level, providing incentives, recognition and
chances for personal development. Through the successful establishment of a
supportive work culture as well as the setting of clear goals and rewarding employees
with sufficiently meaningful recognition, organisations can promote the willingness of
their workforce to become creative, committed and productive, thus driving overall
organisational success and growth.

Increasing productivity
Increasingly productivity is the key goal of Organisational Behaviour. It entails the use of
process optimisation, one of the main innovations, technology and empowering
employees to get more done with the limited resources available.

Through that culture’s promotion of efficiency and provision of the necessary equipment
and training, along with the alignment of the objectives with the ones of both employees
and organisation, organisations can strengthen their performance and competitiveness.

Enhancing employee satisfaction and retention

Employee satisfaction and retention are key factors in the humanisation of
Organisational Behaviour. It is a process of creating a favourable work atmosphere,
offering competitive salaries and benefits, and providing advancement prospects for a
better career growth. Through the adoption of such strategies as employees' well-being
enhancement and cultivation of corporate culture based on appreciation and support,
the businesses can increase employee retention as well as ensure long-term success.

Demonstrating effective leadership

The ability to lead well is one of the key elements of Organisational Behaviour. It entails
leading through inspiration and guidance by communicating a shared direction,
developing trust, and acting as a role model. Through being examples of such attributes
as honesty, empathy and flexibility the leaders can become able to inspire, empower
and lead the people, resulting in the great success of the organisation and development
of a good workplace environment across the organisation.

Promoting diversity and inclusion

The integral component of Organisational Behaviour is the emphasis on diversity and
inclusion. It is built on bringing the culture that values and respects people of the
diverse backgrounds. By promoting a culture of belonging, valuing diversity and offering
equal opportunity, companies can fully unchain the talents of those they employ leading
them to progress and competitiveness.

Transactional LeadershipTransactional leadership is a leadership style focused on

maintaining the existing structures and processes within an organization. It operates on
a system of rewards and punishments, where leaders establish clear expectations and
provide rewards or corrective actions based on performance. Transactional leaders
primarily use contingent rewards, such as bonuses or recognition, to motivate
employees and ensure task completion. This leadership style is often effective in stable
environments or situations that require specific tasks to be accomplished efficiently.

Advantages of Transactional Leadership

●​ Clear Expectations: Transactional leadership provides clear expectations and
guidelines, ensuring that employees understand their roles and responsibilities.
●​ Efficient Task Completion: By emphasizing rewards and punishments,
transactional leaders promote efficient task completion and adherence to
established processes.
●​ Motivational Incentives: The use of contingent rewards motivates employees to
meet performance expectations and achieve set targets.
●​ Structured Work Environment: Transactional leadership creates a structured work
environment, reducing ambiguity and increasing productivity.
●​ Immediate Feedback: Leaders in a transactional style provide immediate
feedback and recognition, reinforcing positive behavior and correcting
deficiencies promptly.
●​ Goal Alignment: Transactional leadership helps align individual goals with
organizational objectives, ensuring a cohesive work environment.
●​ Risk Mitigation: The transactional approach can mitigate risks by focusing on
established processes and quality control measures.
●​ Accountability: Transactional leaders hold employees accountable for their
performance and take corrective actions when necessary.
●​ Suitability for Routine Tasks: This leadership style is particularly effective in
environments that require routine tasks or well-defined processes.
●​ Established Hierarchy: Transactional leadership maintains a clear hierarchy,
providing a sense of structure and stability within the organization.
Disadvantages of Transactional Leadership
●​ Limited Employee Autonomy: Transactional leadership limits employee
autonomy and involvement in decision-making processes.
●​ Lack of Innovation: The focus on maintaining existing systems may stifle
creativity and limit innovation within the organization.
●​ Reduced Job Satisfaction: Transactional leadership's reliance on rewards and
punishments may lead to reduced job satisfaction among employees.
●​ Short-Term Orientation: This leadership style often focuses on short-term goals
and immediate outcomes rather than long-term strategic planning.
●​ Resistance to Change: Transactional leaders may encounter resistance when
implementing change or introducing new ideas.
 ●​ Dependency on Rewards: Over time, employees may become overly dependent
on rewards, diminishing intrinsic motivation and personal growth.
●​ Limited Employee Development: Transactional leadership places less emphasis
on the personal and professional development of employees.
●​ Narrow Focus: The focus on specific tasks and outcomes may overlook broader
organizational and employee development needs.
●​ Lack of Employee Engagement: Transactional leadership may result in lower
levels of employee engagement and active involvement in decision-making.
●​ Limited Leadership Succession: The transactional leadership style may face
challenges in nurturing future leaders and building a pipeline for leadership
succession.

Transformational Leadership
Transformational leadership is a leadership style that inspires and motivates followers
to achieve extraordinary results. It focuses on creating a shared vision, fostering trust,
and empowering employees to reach their full potential. Transformational leaders
inspire and influence their followers through charisma, emotional intelligence, and by
challenging existing norms. They encourage innovation, promote personal growth, and
create a positive organizational culture.

Advantages of Transformational Leadership

●​ Inspiration and Motivation: Transformational leaders inspire and motivate

employees by articulating a compelling vision and fostering a sense of purpose.
●​ Employee Empowerment: Transformational leadership empowers employees by
involving them in decision-making processes and encouraging their input.
●​ Promotion of Innovation: This leadership style promotes a culture of innovation
by encouraging creativity, challenging the status quo, and supporting new ideas.
●​ Enhanced Organizational Culture: Transformational leaders cultivate a positive
organizational culture based on trust, collaboration, and open communication.
●​ Individual Growth and Development: Transformational leaders focus on the
personal and professional growth of their employees, supporting their career
advancement and skill development.
●​ High Levels of Employee Engagement: Transformational leadership fosters high
levels of employee engagement and commitment to organizational goals.
●​ Change Management: Transformational leaders excel in leading organizational
change and navigating through transitions effectively.
 ●​ Building Strong Teams: This leadership style emphasizes teamwork and
collaboration, leading to the formation of strong and cohesive teams.
●​ Long-Term Success: Transformational leadership focuses on long-term
organizational success by creating a shared vision and inspiring continuous
improvement.
●​ Enhanced Leadership Pipeline: Transformational leaders invest in developing
future leaders, ensuring a robust leadership pipeline within the organization.
Disadvantages of Transformational Leadership

●​ Time and Energy Demands: Transformational leadership requires significant time

and energy investment from leaders to inspire and engage employees effectively.
●​ High Expectations: Followers may develop high expectations of transformational
leaders, which can be challenging to meet consistently.
●​ Resistance to Change: Transformational leaders may face resistance from
individuals resistant to change or unfamiliar with a collaborative leadership style.
●​ Dependency on Leader: Followers may become overly reliant on the
transformational leader for guidance and decision-making.
●​ Perceived Inconsistencies: Inconsistencies in a transformational leader's
behavior or vision may lead to confusion and skepticism among followers.
●​ Not Suitable for Crisis Management: In crisis situations requiring immediate and
directive action, the transformational leadership style may be less effective.
●​ Emotional Exhaustion: The emotional demands of transformational leadership
can lead to burnout and emotional exhaustion for both leaders and followers.
●​ Risk of Overconfidence: Transformational leaders' confidence and charisma may
sometimes lead to overconfidence or overlooking potential risks and challenges.
●​ Misalignment with Organizational Culture: In certain organizational cultures or
contexts, the transformational leadership style may clash with existing norms or
expectations.
●​ Dependency on Leader Presence: The absence of a transformational leader may
impact the level of motivation and engagement among followers.

PERCEPTION:
Perception can be defined as a process by which individuals select, organize and
interpret their sensory impressions, in order to give meaning to their environment.
Perception is a complex cognitive process and differs from person to person. People's
behavior is influenced by their perception of reality, rather than the actual reality.
MOTIVATION: Motivation means inducement to act or move. In the context of an
organisation, it means the process of making subordinates to act in a desired manner to
achieve certain organisational goals. Employees are the key resource in the business.
Motivation is a force that drives a person to action. In the context of business it means
inspiring workers to perform tasks that lead to goals accomplishment. Motivation
creates willingness to perform tasks that lead to accomplishment of goals. The term
motivation is derived from the Latin word “Mover” which means “To Move”. Motivation
process explains why and how human behaviour is activated. Motivation is the ability to
change the behavior of a person. It is drive that complies a person to act because
human behaviours is directed towards some goals.

Nature of Motivation
●​ Motivation is an internal force. It can not be measured in quantitative terms. It
can only be observed through actions and performance.
●​ Motivation is an ongoing process, observing human needs, behaviour and action
is continuously followed by managers.
●​ Motivation is required to all level of management.
●​ Motivation can be either positive or negative.
●​ Motivation is a complicated task because understanding human need is difficult.

Application of Motivation Theories

●​ A manager is interested in motivating his employees effectively. He needs
specific recommendations that can be applied in practice. The following
suggestion can be given on the basis of the theories:-
●​ All motivation theories recognize that employees are not identical. They have
different needs and personality
●​ Managers should ensure the employees have specific goals and feedback on
how well they are doing in achieving those goals.
●​ The motivational benefits should be aligned carefully to match people with their
jobs. Managers need to make rewards contingent on performance. Important
rewards such as pay increases and promotions, should be given for the
attainment of specific goals. Furthermore, managers should look for ways to
increase the visibility if rewards, making them potentially more motivating.
●​ Employees should perceive that rewords or outcomes are equal to the inputs.
Employees perform better for managers who care about them.
Importance of motivation
●​ Motivation Increase work efficiency satisfied workers work to satisfy the
organisational need.
●​ Managers find prime need of the employees physiological or psychological and
try to fulfill those needs through motivation.
●​ Motivation helps managers ascertain the need of employees.
●​ Motivation reduces the rate of labor absenteeism and turnover.
●​ Motivation develops leaders.

Process of Motivation

1.​ Unsatisfied need. Motivation process begins when there is an unsatisfied need in
a human being.
2.​ Tension. The presence of unsatisfied need gives him tension.
3.​ Drive. This tension creates an urge of drive in the human being an he starts
looking for various alternatives to satisfy the drive.
4.​ Search Behavior. After searching for alternatives the human being starts
behaving according to chosen option.
5.​ Satisfied need. After behaving in a particular manner for a long time then he
evaluates that whether the need is satisfied or not.
6.​ Reduction of tension. After fulfilling the need the human being gets satisfied and
his tension gets reduced.

For example, if an employee develops a need to earn more, this need will make him
restless and he will start thinking how to satisfy his need. To satisfy his need he may
think of working hard in organization and get promotion so he will start working hard.
After sometime he will get incentives or increments or promotion which will satisfy his
need.

But motivation process does not end by satisfaction of one need. After fulfilling one
need another need develops and the same process continues till needs keep emerging
in human beings.

1. Maslow’s Need Hierarchy Theory

The earliest and most widespread version of Maslow's Hierarchy of Needs includes five

motivational needs, often depicted as hierarchical levels within a pyramid.

Maslow separated the five needs into higher and lower orders. Physiological and Safety

needs were lower-order needs and Social, Esteem, and Self-Actualization were

higher-order needs.

One must satisfy lower level basic needs before progressing on to meet higher level
growth needs.

Self Actualization

Self-actualization is the hierarchy that tells us about the desire of an individual to grow
and develop to his/her full potential. This hierarchy falls in the category of
self-fulfillment needs.

Esteem Needs
Esteem is the second level hierarchy of Maslow’s motivation theories, which tells us
about the desire of a person for the need of respect. The meaning of Esteem is to be
valued, respected, and appreciated by others. This hierarchy falls in the category of
psychological needs.

Belongingness and love needs

Belongingness and love is the third level of hierarchy which tells us about the need of a
person to integrate into social groups, feel part of a community, and be loved. It is
believed that people need to belong and be accepted among their social groups. This
hierarchy falls in the category of psychological needs.

Safety and Security

This hierarchy of safety and security tells us about the basic needs of a human which
are a secure source of income, a place to live, health, and well-being. There is the most
basic motivation for a human to be motivated therefore, falls in the category of basic
needs. And once these needs of a human being are fulfilled then only a person can think
about the other two needs: Self-fulfillment and Psychological Needs.

Physiological Needs

This hierarchy level of physiological needs is the most basic needs for humans to
survive, such as air, water, and food. Without all of the three basic physiological needs,
our body and mind cannot function well, therefore, this level of hierarchy also falls in the
category of basic needs.

2. McGregor’s Theory X and Theory Y

•Douglas McGregor proposed two distinct views of human beings; one is negative,
known as Theory X and the other one is positive, known as Theory Y.
After viewing the way in which managers dealt with employees, McGregor concluded
that, managers’ views of the nature of human being are based on a certain grouping of
assumptions, and managers tend to mould their behaviour towards employees
according to these assumptions.

THEORY X:

•People have an inherent dislike for work and will avoid it whenever possible.

•People must be coerced, controlled, directed, or threatened with punishment in order to

get them to achieve the organizational objectives.

•People prefer to be directed, do not want responsibility, and have little or no ambition.

•People seek security above everything else.

THEORY Y:

•Work is as natural as play and rest.

•People will exercise self-direction if they are committed to the objectives.

•Commitment to objectives is a function of the rewards associated with their

achievement.

•People learn to accept and seek responsibility.

People are capable of using creativity and imagination to solve an organizational

problem.

3. WILLIAM OUCHI’S THEORY Z

•Theory Z stresses the need to help workers become generalists, rather than specialists.

It views job rotations and continual training as a means of increasing employees’

knowledge of the company and its processes while building a variety of skills and

abilities.

•Since workers are given much more time to receive training, rotate through jobs, and

master the intricacies of the company’s operations, promotions tend to be slower.

•The rationale for the drawn-out time frame is that it helps develop a more dedicated,

loyal, and permanent workforce, which benefits the company; the employees,

meanwhile, have the opportunity to fully develop their careers at one company.

•When employees rise to a higher level of management, it is expected that they will use

Theory Z to “bring up,” train, and develop other employees in a similar fashion.

•Ouchi’s Theory Z makes certain assumptions about workers. One assumption is that

they seek to build cooperative and intimate working relationships with their co-workers.

In other words, employees have a strong desire for affiliation. Another assumption is

that workers expect reciprocity and support from the company.

•According to Theory Z, people want to maintain a work-life balance, and they value a

working environment in which things like family, culture, and traditions are considered to

be just as important as the work itself.

•Under Theory Z management, not only do workers have a sense of cohesion with their

fellow workers, they also develop a sense of order, discipline, and a moral obligation to

work hard.

•Finally, Theory Z assumes that given the right management support, workers can be

trusted to do their jobs to their utmost ability and look after for their own and others’

well-being.

Theory Z also makes assumptions about company culture. If a company wants to

realize the benefits described above, it need to have the following:

•A strong company philosophy and culture: The company philosophy and culture need

to be understood and embodied by all employees, and employees need to believe in the

work they’re doing.

•Long-term staff development and employment: The organization and management

team need to have measures and programs in place to develop employees. Employment

is usually long-term, and promotion is steady and measured. This leads to loyalty from

team members.

•Consensus in decisions: Employees are encouraged and expected to take part in

organizational decisions.

•Generalist employees: Because employees have a greater responsibility in making

decisions and understand all aspects of the organization, they ought to be generalists.

However, employees are still expected to have specialized career responsibilities.

•Concern for the happiness and well-being of workers: The organization shows sincere

concern for the health and happiness of its employees and their families. It takes

measures and creates programs to help foster this happiness and well-being.

•Informal control with formalized measures: Employees are empowered to perform

tasks the way they see fit, and management is quite hands-off. However, there should

be formalized measures in place to assess work quality and performance.

•Individual responsibility: The organization recognizes the individual contributions but

always within the context of the team as a whole.

•Theory Z is not the last word on management, however, as it does have its limitations.

It can be difficult for organizations and employees to make life-time employment

commitments.

•Participative decision-making may not always be feasible or successful due to the

nature of the work or the willingness of the workers.

•Slow promotions, group decision-making, and life-time employment may not be a good

fit with companies operating in cultural, social, and economic environments where

those work practices are not the norm.

4. Herzberg’s Two-Factor Theory

•Frederick Herzberg proposed the Two-Factor Theory, also called Motivation-Hygiene

Theory.

•A research study conducted by Herzberg suggested that, there are some job conditions

which operate primarily to dissatisfy employees, when the conditions are absent.

However, their presence does not motivate them in a strong way.

•Another set of job conditions operate primarily to build strong motivation and high job

satisfaction. But their absence rarely proves to be strongly dissatisfying.

•The first set of job conditions has been referred to as Hygiene Factors and second set

of job conditions as Motivational Factors.

HYGIENE FACTORS:

•Pay - The pay or salary structure should be appropriate and reasonable. It must be
equal and competitive to those in the same industry in the same domain.

•Company Policies and Administrative Policies - The company policies should not be too
rigid. They should be fair and clear. It should include flexible working hours, dress code,
breaks, vacation, etc.

•Fringe Benefits - The employees should be offered health care plans (mediclaim),
benefits for the family members.

•Physical Working Conditions - The working conditions should be safe, clean and

hygienic. The work equipments should be updated and well-maintained.

•Status - The employees’ status within the organization should be widely known.
•Interpersonal Relations - The relationship of the employees with his peers, superiors

and subordinates should be appropriate and acceptable. There should be no conflict or

humiliation element present.

•Job Security - The organization must provide job security to the employees.

MOTIVATIONAL FACTORS:

•Recognition - The employees should be praised and recognized for their

accomplishments by the managers.

•Sense of Achievement - The employees must have a sense of achievement. This will
motivate them to perform even better.

•Growth and Promotional Opportunities - There must be growth and advancement

opportunities in an organization to motivate the employees to perform well.

•Responsibility - The employees must hold themselves responsible for the work. The
managers should give them ownership of the work. They should minimize control but
retain accountability.

•Meaningfulness of the Work - The work itself should be meaningful, interesting and
challenging for the employee to perform and to get motivated.

CHARISMATIC LEADERSHIP:

•Charismatic leaders are individuals who use their personality and communication style
to gain the admiration of followers.

Typically, they can communicate effectively, possess emotional sensitivity, put a

considerable emphasis on social ties, and can maintain emotional control in numerous
situations, that may cause stress or troubling emotions.

A CHARISMATIC LEADER MUST HAVE THE FOLLOWING QUALITIES:

•Presence
•Create meaningful connections

•Emotional Control

•Generosity

•Master Communicators

•Self-Awareness

•Creativity and Innovation

•Tenacity and Determination

•Humility

ADVANTAGES:

•Increased Employee Loyalty: As charismatic leaders are proficient in motivating and

inspiring the employees, it is likely that leaders can encourage an increased employee

loyalty and commitment. Their goal is to make employees feel that their work and

talents matter. Therefore, it is likely that employee engagement will increase and

turnover could decrease.

•Leader Creation: Charismatic leaders and managers have compelling personality, that

can motivate the employees to become leaders eventually. The qualities of these

leaders can take on a trickle-down effect and become a part of an employee’s eventual

management style.

•Higher Productivity: These leaders are exceptionally skilled at gaining the trust and

respect of those who they manage. Employees are more likely to adhere to the high

expectations of charismatic leaders. As a result, there is a high probability of

stimulating increased productivity and better quality work.

•A move towards Innovation: Charismatic leaders are driven toward change and

innovation. Therefore, these individuals will always look for opportunities to enhance
organizational performance. This means the company can always stay up-to-date on

the latest trends and organizational practices.

•Establish a Learning Culture: Major qualities of charismatic leadership are humility,

effective communication, and improvement. Since these leaders have focused more on

growth than punishment, mistakes are treated as learning opportunities. Employees are

encouraged to find another solution to problems, when the original plan does not work.

This could create a setting, where employees feel more comfortable taking a risk and

finding better solutions.

LEADERSHIP ISSUES:

1: Poor Communication

Poor communication is a common leadership issue. Leaders who are ineffective at

communicating with their team can result in a number of problems. First, the team may
not feel as connected to the leader and may become disgruntled. Second, the team may
not be able to effectively execute its missions because it does not have clear
instructions from the leader. Poor communication can also lead to confusion and
conflict among team members, which can ultimately damage relationships. To improve
communication within your team, take some tips from these experts:

✔️Listen carefully: One of the most important things leaders can do is listen carefully to
what their team is saying. It is important to really hear what people are saying and not
just focus on what you want to say next. This will help you build trust with your team
and allow them to open up more freely.

✔️Be clear: When you are speaking with your team, be as clear as possible about what
you want them to do and why it is important. This will help your team members
understand your goals and objectives and help them work more efficiently together.
✔️Establish ground rules: It is also important that leaders establish ground rules for
communications so

2: Lack of Trust with the team

Leadership issues can arise when individuals do not trust one another. When people do
not trust each other, it can lead to a lack of cooperation and progress. It is important for
leaders to build trust with their team in order to achieve success. There are several ways
that leaders can build trust with their team. Leaders can show trust by being open and
honest, setting clear expectations, and demonstrating respect for others. Leaders
should also make sure that they are available to help the team when needed, and
provide support when needed.

3: Inability to Lead by Example

A common issue that leaders face is their inability to lead by example. This can be due
to a range of reasons, such as a lack of confidence or experience, or simply not knowing
how to set the right example for others. If a leader is unable to set an appropriate
example for their team, it can have a negative impact on morale and cooperation. In
order to overcome this problem, leaders should focus on developing specific skills and
techniques for leading by example. Additionally, they should be aware of the cues their
team members are likely responding to and make sure their actions reflect these cues in
a positive way.

4: Lack of Motivation to each other

Leadership issues can arise from a lack of motivation among team members. If team
members are not motivated to work together, they will not be able to meet the goals of
the organisation. There are a few ways to address this issue. First, leaders can set clear
expectations for team members and make sure that their goals are aligned with the
organisation's objectives. Second, leaders can provide incentives for team members to
stay motivated and focused on their tasks. Finally, leaders can create a supportive
environment where team members feel comfortable voicing their concerns and sharing
ideas.

5: No Vision or Mission

Leadership issues can arise when there is no clear vision or mission for a company or
organisation. Without a focus, employees may feel lost and not know what they are
working towards. It can also be difficult to motivate employees when there is no goal to
strive for. Leaders must be able to articulate the company's goals and expectations so
that everyone is on the same page, and then provide guidance and support to ensure
that these goals are met.

6: Not Enough Leadership Experience

There are many possible reasons why someone might not have enough leadership
experience. Maybe they have only been in a few positions of leadership, or maybe they
haven't had a chance to lead teams on a larger scale. Regardless of the reason,
inexperience can be a major obstacle to success as a leader.

One way to overcome this obstacle is to learn from others who have already achieved
success in leadership roles. This can be done by reading books, attending seminars, or
networking with other leaders. Additionally, leaders should make sure that they are
constantly growing and learning new things. This can be done through attending
training sessions and workshops, taking on new challenges outside of work, and staying
up-to-date on the latest trends in leadership theory and practice.

7: Not Having the Right Tools

Leadership issues can arise when a leader does not have the right tools to help them
lead effectively. This can be due to a lack of experience, training, or resources. A leader
who does not have the proper tools may not be able to make good decisions or
understand complex situations. In some cases, these issues may be difficult to rectify
without outside assistance. Leaders who are struggling may need help finding the right
resources and developing the skills they need to succeed.