CHAPTER 3

THE PLANNING FUNCTION

Learning Objectives

After studying this chapter the student

should be able to:
• Understand the basic concept and the
need/Benefits for planning
• Explain the types of plans
• Discuss the planning process
• Understand the Forecasting techniques
3.1 Definition of
Planning
• Planning is choosing a goal and developing a
strategy to achieve that goal
• Planning is deciding in advance the
objectives of the organization in the short as
well as long run, and the means for attaining
them.
• Planning concerned with ends (what is to be
done) and with means (how it is to be done).
• Planning is critical managerial function that
forms the basis for other managerial
functions.
 Planning (cont’d…)
Planning answers six basic questions .
• What to do - the goal that we want to achieve. It may be
long term and short term.
• When to do - is the question of timing and sequence.
• Where to do - the place at which the plan is put into
practice.
• Who does it - the individual or unit supposed to
undertake specific tasks. It asks which specific people will
perform specific tasks.
• How it is done - the strategy or method for achieving
the goal. It describes what specific steps are to be taken
and in what kind of sequence.
• How much is required to do - concerns with the
resources that are determined to be essential to reach
goals.
3.2 Nature of Planning
 The essential nature of planning are:
– Planning is a continuous process
– Planning concerns all manager
– Plans are arranged in a hierarchy
– Planning commits an organization into the
future, and
– Planning is antithesis of status quo.
Benefits of Planning
Benefit/need for
Planning
A. Intensified Effort- managers and
employees put forth greater effort when
following a plan.
E.G Take two workers. Instruct one to “do your
best” to increase production, and instruct the
other to achieve a 2 percent increase in
production each month. Research shows that
the one with the specific plan will work harder.
B. Persistence- Planning encourages working
hard for long periods. Even when there may be
little chance of short-term success.
Benefit/need for
Planning
C. Direction- Plans encourage managers
and employees to direct their persistent
efforts toward activities that help
accomplish their goals and away from
activities that don’t.
D. Creation of Task Strategies- It
encourages people to think of better ways to
do their jobs
to minimize risk & uncertainly.
 Pitfall/Drawbacks of
Planning
• Despite the significant benefits associated
with planning, planning is not a cure-all.
• Plans won’t fix all organizational problems.
In fact, many management authors and
consultants believe that planning can
harm companies in several ways.
 Pitfall/Drawbacks of
Planning
A. Impedes Change and Adaption-. This
means that companies can become so focused
on achieving their goals or following their plans
that they miss out on opportunities for
improvement or fail to adapt to changing
circumstances.
B. Creates false sense of certainty- Planners
sometimes feel that they know exactly what
the future holds for their competitors, their
suppliers, and their companies. However, all
plans are based on assumptions.
Pitfall/Drawbacks of
Planning
C. Detachment of Planners-Planners
specially at the top can become detached
from the reality of the business, leading
them to plan for things they don't
understand. This might lead to Plans that
are unrealistic or unachievable. Hence
Planners need to make effort to familiarize
themselves with the daily details of the
business in order to produce plans that can
work.
APPROACHES OF
PLANNING
Where does planning start?
• Planning is carried out at the various levels
of the organization.
• There are two basic approaches to planning,
• The Top - down approach and
• The Bottom - up approach.
Approaches to Planning

A. The Top - down approach

• Planning efforts begin at the top level managers.

• Top level managers determine the direction

of the organization and establish a master
plan to achieve over all goals.
• The master plan provides direction within which
departments & work groups develop their plans.
Top Down Approach
E.G A large technology company is planning to launch a
new product to increase its market share by 10% in the
next year. The master plan includes the following Goals.
• Increase brand awareness of the new product by 20%
• Generate 1 million leads for the new product
• Close 100,000 sales of the new product
Departments and work groups develop their own plans
within the framework of the master plan, which is then
submitted to top management for review and approval.
Once approved, the plans are implemented and
monitored to ensure increase in market share of 10%.
 APPROACHES OF
PLANNING
B. The Bottom - up approach
• Planning initiated at the lowest level of the
organizational hierarchy.
• Bottom-up planning is a process where plans are
developed at the operational level and then
combined and integrated by top management
to create a master plan.
 These two planning approaches are not mutually
exclusive and can be used in alternating cycles.
• By being flexible, managers can capitalize on the
benefits of both approaches.
• The current trend is towards integrating the
aspects of both top down & bottom up planning
approaches.
Types of Organizational
Plans
Plans can be classified on different bases or
dimensions. These are:
A. Scope/breadth dimension-> Strategic plan,
Tactical Plan and Operational Plan
B. Time dimension,->long-range plans, medium-
range plans, short-range plans.
C. Use/repetitiveness Dimension-> Standing plans
and Single Use plans
I . Scope/Breadth
Dimension
• Scope refers to the comprehensiveness of
the plan, or it refers to the level of
management where plans are formulated.
• This dimension creates hierarchy of
plans. Based on scope/breadth we can
classify plans into: Strategic, Tactical and
Operational.
 Scope/Breadth
Dimension(Strategic Plan)
A. Strategic Plan: is organization wide plan that is
formulated or developed by top-level management in
consultation with the board of directors and middle level
management. It applies to the entire organization.
• Looks ahead over the next two, three, five or more years.

• Develops the direction for the entire organization.

• Is primarily concerned with solving long-term problems

associated with external environmental influences.
• Establishes overall objectives and positions for an
organization in terms of its environment.
 Scope/Breadth
Dimension(Strategic Plan)
The following are distinguishing characteristics of
strategic plan.
1. It requires looking outside the organization for
threats and opportunities.
2. It requires looking inside the organization for
strengths and weaknesses
3. It takes a longer view, i.e. it covers a relatively
long time horizon > 5 years.
4. It tends to be top management responsibility,
but it reflects a mentality useful at all levels.
5. It is expressed in relatively general non-specific
terms.
 Scope/Breadth
Dimension(Strategic Plan)
Strategic plans address such questions as:

 What business should we be in?

 Where will we be in ten years if we continue doing what we are

now doing?

The difference between firms would like to be and where it will be if

it does nothing is called the Planning gap. Strategic planning is

primarily concerned with closing that gap.

• The success or failure of an organization depends up on the

success or failure of strategic plans. It makes premises for tactical

plans.
 Scope/Breadth
Dimension(Tactical Plan)
B. Tactical Plan: refers to the implementation of
activities and the allocation of resources necessary
for the achievement of the organization’s objectives.
• is an intermediate plan that helps to reduce long
range planning into intermediate one by increasing
the amount of specificity and making the actions goal
oriented.
• Tactical plans are specific and more goal oriented
than strategic plans.
• Middle level management in consultation with lower
level management develops them.
• They are concerned with shorter time frames and
cover a narrower scope (narrower range of activities).
 Scope/Breadth
Dimension(Tactical Plan)
• Structures a firm’s resources to achieve maximum
performance.
 Concerned with what the lower level units within
each division must do, how they must do it, and
who will have the responsibilities for doing it.
• Tactical plans make premises for operational plans.
• is narrower in scope than strategic plan and wider
than operation plan; but more detailed than
strategic plan and less detailed than operational
plan
E.g. what is the best pricing policy?
E.g Which city or town is suitable for marketing our
products?
Scope/Breadth
Dimension(Operational Plan)
C. Operational Plan: is concerned with the day to day activities of the
organization and is made at the lower level management in consultation
with middle level management.
• Operational plans spell out specifically what must be accomplished to
achieve specific/operational goals.
• It is concerned with the efficient, day-to-day use of resources allocated
to a department manager’s area of responsibility.
• Operational plans have relatively short time frame (< 1 yr). It is the most
detailed (more specific) and narrowest plan compared to the above two;
because it is to be implemented day-to-day.

E.g. What production technique is best? What materials are needed for
operation?
 Unless operational goals are achieved in organizations, tactical and
strategic plans will not be successful and goals at those levels will not be
achieved.
 II. Time Dimension

• Time dimension refers to the time periods for which

the planning is intended. Based on the length of
time a plan covers, we do have three types of plans:
• Long-range (five years or more), medium-range
(between one and five years) and short-range plans
(one year or less).
• Time dimension and scope dimension are the same
except the former is about the length of time that
the plan covers and the later about the level of
management where the plan is formulated.
• All strategic plans are long-range plans.
• All tactical plans are medium-range plans.
• All operational plans are short-range plans.
 III. USE DIMENSION

• Use dimension refers to the extent to

which plans will be used on a
recurring basis, i.e. based on how
repeatedly/frequently a given plan is
used.
Based on this dimension we do have
two types of plans: standing plans
and single use plans.
Use dimension(standing
plans)
A. Standing Plans: are plans that provide an ongoing guidance
for performing recurring activities.
• They are plans which are formulated to be used again and
again for the day-to-day operation of the organization.
• Repetitive situations or actions require the development of such
plans. They become necessary when the same kinds of actions
are to be taken over and over again.
• Standing plans become valuable under relatively stable
situations.
• Once established, standing plans allow managers to
conserve time used for planning and decision-making
because similar situations are handled in a
predetermined, consistent manner.
• E.g. A bank can more easily approve or reject loan requests if
criteria are established in advance to evaluate credit ratings,
collateral assets, and related applicant information.
 The major types of standing plans are Policies, Rules and
Procedures.
 Use dimension(standing
plans)
 Policies
• Polices provide guideline to managers who must make decisions
about circumstances.
• policy a standing plan that indicates the general course of action
that should be taken in response to a particular event or situation
• Policies exist at all levels of the organization ranging from major
company policy to minor policies applicable to the smallest
segments of the organization.
E.G Employee code of conduct policy: This policy defines the
expected standards of behavior and performance for employees in
the workplace. It also covers topics such as dress code,
attendance, privacy, confidentiality, communication, and
ethics
E.G Hiring university trained engineers, To promote from within, We
accept returned merchandise
Use dimension(standing
plans)
 Procedures
• Procedures outline chronological sequences of
required actions/ activities.
• They are sequentially arranged rules that need to be
done in orderly manner to complete recurring tasks.
• Procedures are guides to action rather than to thinking
and they detail the exact manner in which certain
activities must be accomplished.
• They are designed to give explicit instructions on how to
complete a frequent task.
• E.g. Human resources SOP for hiring employees: This
procedure describes how to recruit and select new staff
members for an organization. It includes steps such as
posting job ads, screening resumes, conducting
interviews, and making offers.
Use dimension(standing
plans)
 Rules
• Are standing plans that describe how a particular
action should be performed, or what must happen or
not happen in response to a particular event
• Rules are different from policies and procedures.
• Rules also serve as guidelines, but allow no
discretion in their application; allow no deviation
from the stated course of action.
 Use dimension(single
use plans)
b. Single use plans: are plans aimed at achieving a
specific goal that, once reached, will most likely not recur
in the future and dissolved when these have been
accomplished.
Are designed to accomplish a specific objective usually in
a relatively shorter period of time and it is non repetitive.
The major types of single use plans are Programs,
Projects, and Budgets.
E.g. A firm planning to build a new warehouse-location,
construction costs, labor availability, zoning restrictions.
 Use dimension(single
use plans)
Programs
• Programs are a relatively broad set of activities designed
to accomplish a particular set of goals.
• They are complex and encompass goals, policies,
procedures, rules, steps to be taken, resources , and other
elements necessary to carry out a given course of action.
They are supported by budgets.
 Programs are typically larger and more complex than
projects.
• They are also longer in duration and often involve
multiple projects. Programs are typically focused on
achieving a specific strategic goal for the organization.
.
 Use dimension(single
use plans)
 Projects
• Are a part of a program and direct the efforts of
individuals or groups towards the achievement of goals.
• They are typically less comprehensive and narrower in
focus than programs; and usually have predetermined
target dates for completion.
• Project is a subset or a smaller portion of a program, but
a project can be handled by itself.
 Budget- is a financial plan that estimates income and
expenses over a specified period of time. Budgets are
used to plan, track, and control the organization's
financial resources.
Plans from General to
Specific
Planning
Terminology(cont’d…)
 Vision:
• Is directional and motivational guidance for
the entire organization.
• Is an inspirational statement of an organization’s
enduring purpose
• Top managers normally provide a vision for the
business.
E.g Tesla: “to create the most compelling car
company of the 21st century by driving the world’s
transition to electric vehicles.
E.g Bank of Abyssinia: To become the leading
commercial bank in East Africa by the year 2030.
 Planning
Terminology(cont’d…
Mission or purpose:
• Is an organization's reason to exist.
• Purpose or mission indicates the basic function or
task of an enterprise.
• Every organization to be meaningful should have a
purpose/mission.
E.g Tesla: Accelerating the world's transition to
sustainable energy.
E.g Meta: Giving people the power to build community
and bring the world closer together
E.g Bank of Abyssinia: Provide excellent financial
services through competent, motivated employees and
digital technology in order to maximize value to all
stakeholders.
Planning
Terminology(cont’d…)
 Goals
• A goal is an outcome you want to achieve.
• They are expected to be general.
• Some common examples of business goals
include Maximizing profits, Growing
revenues, Increasing efficiency, Providing
excellent customer service, Becoming an
industry leader, Creating a brand,
Becoming carbon-neutral
Planning Terminology(cont’d…)
 Objectives
• They are specific statements of anticipated
results that further define the organization's
goals.
• is a specific and measurable action that can
be reached in a short amount of time, often
related to a goal
• They are expected to be SMART (Specific,
Measurable, Attainable, Relevant, and
Time bounded).
• Both Goals or objectives are the end points
towards which all management functions
aimed.
 S.M.A.R.T GOALS
• Specific: SMART objectives clearly define what you want
to achieve. They avoid vague or general statements.
• Measurable: SMART objectives include specific metrics
that can be used to track progress and measure success.
• Achievable: SMART objectives are challenging but
achievable. They should be based on realistic
assessments of your team's skills, resources, and
capabilities.
• Relevant: SMART objectives are directly aligned with
your organization's overall goals and objectives. They
should be specific to your team or department and
contribute to the overall success of the organization.
• Time-bound: SMART objectives have specific deadlines
for achievement. This helps to keep your team focused
and motivated.
Examples of S.M.A.R.T Goals in an organizational context for a University:

• Specific: To increase the graduation rate of undergraduate students

by 10% in the next five years.

• Measurable: To track the number and percentage of students who

graduate within four, five, and six years of enrollment, and compare

them with the baseline data from the previous five years.

• Achievable: To implement and evaluate various strategies to support

student success, such as academic advising, tutoring, mentoring,

financial aid, and career counseling.

• Relevant: To enhance the academic reputation and ranking of the

university, as well as to improve the employability and satisfaction of

its graduates.

• Time-bound: To achieve this goal by the end of the academic year

2028/2029.
Types of Objectives in the
Organization
 Types of objectives in organizations
can be separated in to two categories:
 Organizational, and
 Individual.
 Organizational objectives
• are the formal targets of the organization and are set
to help the organization accomplish its purpose.
• They concern on organizational
• efficiency,
• productivity, and
• profit maximization.
Objectives in the Organization
(cont’d…)
Individual objectives
• It also exist within the organizations.
• Individual objectives are personal goals where each
member of the organization would like to reach
through activity within the organization.
• These objectives might include
• high salary,
• personal growth and
• development,
• peer recognition, and
• societal recognition.
 Goals and objectives (cont’d…)
Management by objectives (MBO)
• MBO is a system of managing or a special planning
technique.
• It is a comprehensive managerial system that integrate
key managerial activities in a systematic manner
towards the efficient and effective achievement of
organizational and individual objectives.
• MBO is the philosophy of management and an
approach to planning. It emphasizes that the
management and the subordinates work together in
identifying and setting up of objectives and make plans
together in order to achieve these objectives.
Planning Terminology(cont’d…)
 Policies
• Polices provide guideline to managers who must make decisions
about circumstances.
• policy a standing plan that indicates the general course of action
that should be taken in response to a particular event or situation
• Policies exist at all levels of the organization ranging from major
company policy to minor policies applicable to the smallest
segments of the organization.
E.G Employee code of conduct policy: This policy defines the
expected standards of behavior and performance for employees in
the workplace. It also covers topics such as dress code,
attendance, privacy, confidentiality, communication, and
ethics
E.G Hiring university trained engineers, To promote from within, We
accept returned merchandise
Planning
Terminology(cont’d…)
 Strategies
• Strategies are ways or means to
achieve the established Goals objectives.
• They are major courses of action that the
organization plans to take in order to
achieve the objectives. Every objective at
least must have one strategy to
accomplish it.
Planning
Terminology(cont’d…)
• A procedure might be looked upon as of rules but a rule
may or may not be a part of procedure.
• E.g.“No smoking” is a rule unrelated to any procedure.
• They are pre-decided actions by top level managers.
• Employees don't have right to modify or change rules
by themselves.
 The planning process
 There are 10 steps in planning process.
Step 1: Understanding the existing situation
Step 2: Forecasting
Step 3: Establishing objectives
Step 4: Determining the alternative courses of
action
Step 5: Evaluating alternative courses of action
Step 6: Selecting a course of action
Step 7: Formulating derivative plans
Step 8: Numberizing plans by budgeting
Step 9: Implementing the plan
Step 10: Controlling and evaluating the results
 Step 1: Understanding the existing
situation

• This step involves gathering information about the current state of affairs.

• It deals with understanding the internal and external environment of the

organization

• We can analyze the organization environment through P.E.ST.E.L and

S.W.O.T Analysis.

• Internal environment is understood by conducting strength(S) and

weaknesses (W) of the organization.

• External environment understood by conducting opportunities (O) and

threats(T) from out side of the organization. Setting realistic objectives

depends on this awareness.

 The planning
process(cont’d…)
• P.E.S.T.E.L analysis is a tool to identify and analyze the macro-

environmental factors.

• P.E.S.T.E.L stands for Political, Economic, Social, Technological,

Environmental, and Legal factors.

 Political factors- These are factors that are related to the

government and its policies, such as: Tax policies, Trade policies,

Environmental regulations, Labor laws, Political stability.

 Economic factors: These are factors that relate to the economy,

such as interest rates, inflation, unemployment, disposable

income of consumers and projected economic growth.

The planning
process(cont’d…)
 Social factors: These are factors that relate to society,
such as demographics, lifestyle trends, and social values.
It’s sometimes called Socio-cultural factor.
 Technological factors: These are factors that relate to
technology, such as the rate of technological change, the
availability of new technologies, and the diffusion of new
technologies.
 Environmental factors: These are factors that relate to
the environment, such as climate change, pollution, and
resource scarcity.
 Legal factors: These are factors that relate to the law,
such as regulations, legislation, and court rulings.
E.G 1 The restaurant might conduct customer surveys to
gather feedback on their food and service.
E.G 2 They might also analyze sales data to identify trends
and popular menu items.
 The planning
process(cont’d…)
Step 2: Forecasting
• Forecasting is assumption what the future looks like.
• This involves predicting future trends and events that
could impact the Organization.
• To decide where one wants to go, it is necessary to
have information about what the future looks like.
• The future is full of uncertainties hence manager must
make certain assumptions about it in order to plan
properly.
For example, the restaurant might use historical sales
data and industry trends to forecast future revenue
growth.
 Cont’d…
Step 3: Establishing objectives
• This involves setting specific, measurable, achievable,
relevant, and time-bound (SMART) goals for the
organization.
For example, the restaurant might set a goal of
increasing sales by 10% in the next year.
Step 4: Determining the alternative courses of
action
This involves brainstorming a list of possible ways to
achieve the restaurant's objectives or simply searching
for strategies
For example, the restaurant might consider options such
as expanding their menu, adding outdoor seating, or
offering online ordering.
 Cont’d …
Step 5: Evaluating alternative courses of action

This involves assessing each of the potential courses of action in terms of its

feasibility, cost, effectiveness, and potential risks

E.G the restaurant might estimate the cost of adding outdoor seating and weigh

the potential benefits against the cost.

Step 6: Selecting a course of action

• This involves choosing the best course of action based on the evaluation

criteria.

• It is the point at which the plan is adopted. It is the real point of decision

making.

• For example, the restaurant might decide to add outdoor seating if they believe

that it is the most feasible and cost-effective way to achieve their goal of

increasing sales..
The planning
process(cont’d…)
Step 7: Formulating derivative plans
• Derivative plans are the supporting plans
that help to execute the primary plan of an
organization.
• They are formulated after the primary plan
is decided, and they include details such
as policies, procedures, rules, programs,
budgets, schedules, etc.
• Derivative plans help to achieve the main
goals and vision of the organization.
 Cont’d…
Primary Plan: Increase customer satisfaction by 10% in the next year.

Derivative Plans for the restaurant:

Policy: All customer complaints must be resolved within 24 hours.

Procedure: Servers must greet customers within 2 minutes of being seated

and check in on them regularly throughout their meal.

Rule: Employees must wear clean and professional attire at all times.

Program: Implement a monthly customer appreciation night with discounts

and special offers.

Budget: Allocate $5,000 for customer satisfaction initiatives, such as new

point-of-sale software and employee training.

Schedule: Conduct quarterly customer satisfaction surveys to track progress

towards the goal.

 Cont’d…

Step 8: Numbering plans by budgeting

• This involves estimating the costs of
implementing the plan.
• For example, the restaurant might create a
budget for adding outdoor seating that
includes the cost of furniture, labor, and
marketing.
The planning
process(cont’d…)
Step 9: Implementing the plan
• This involves putting the plan into action.
E.G The restaurant might start by purchasing
furniture and hiring additional staff. They would then
promote the new outdoor seating area to customers
Step 10: Controlling and evaluating the results
This involves monitoring the progress of the plan
and making adjustments as needed.
E.G The restaurant might track sales and customer
feedback to see if the new outdoor seating area is
having the desired effect
 Forecasting
• Forecasting is one of the tools for planning and decision
making.
• Forecasting is the process of developing assumptions or
premises about the future that managers or/and planners
can use in planning and decision making.
• Forecasting is the process of making predictions about
future events based on historical data and current trends.
Forecasting techniques
• The common Forecasting techniques/models are:
• Quantitative forecasting and
• Qualitative forecasting techniques
.
Quantitative Forecasting

I. Quantitative Forecasting- This type of

forecasting uses mathematical and
statistical methods to make predictions.
It is often used for forecasting trends that
are relatively stable and predictable, such
as sales figures or economic growth.
Some common quantitative forecasting
techniques include: Time series analysis,
Regression Analysis and Exponential
smoothing
 Quantitative
Forecasting(cont’d…)
• Time series analysis: This technique involves
analyzing historical data to identify patterns
and trends. The patterns and trends are then
used to make predictions about future values.
E.g Simple moving average,
• Regression analysis: This technique involves
identifying the relationship between two or
more variables. The relationship is then used to
make predictions about future values of the
dependent variable (the variable that is
being predicted) based on known values of the
independent variable(s).
Simple moving average
Time series diagram
 Regression analysis

• Independent variable: Advertising

spending
• Dependent variable: Sales
• A company may want to use regression
analysis to understand the relationship
between its advertising spending and
sales. This information can be used to
make decisions about how much to spend
on advertising in the future.
 II. Qualitative Forecasting
Techniques

• Qualitative forecasting techniques are based on

expert judgment and intuition.
• These techniques are often used when there is
limited historical data or when the data is not
reliable.
• Some common qualitative forecasting techniques
include Delphi method, Jury of Opinion, Sales
force composite.
 Qualitative Forecasting
Techniques
Delphi method:
This technique involves a group of experts who are
asked to provide their predictions about future events.
It involves a structured communication process in
which a panel of experts anonymously and iteratively
respond to a series of questionnaires or surveys until
they reach a convergence of opinions or a consensus
on the topic being analyzed.
 Qualitative Forecasting
Techniques
Jury of opinion
• A.K.A The jury-of-executive/expert-opinion approach
• This technique involves a group of experts who are
asked to provide their predictions about future
events. The predictions of the experts are then
averaged to produce a final forecast.
Sales force composite
• a method of forecasting future demand for a
product by adding together what each member of
the sales force expects to be able to sell in his or
her territory.
• The predictions of the sales representatives are
then averaged to produce a final forecast.
Chapter Four

Decision
Making
68
Decision Making
 Decision making and problem solving are critically
important skill areas for managers.
 Much of what managers and supervisors do is solve
problems and make decisions.
 As a manager your ability to identify current and
potential problems and to make sound, timely
decisions can literally affect the well-being of many.
 Problem-solving often involves decision-making, and
decision-making is especially important for
management and leadership.
69
Decision Making… Cont’d
 Organizational decision making is the
process of responding to a problem or
opportunity by searching for and
selecting a solution or course of action
that will create value for organizational
stakeholders.

70
Types of Problems and Decisions

Structured problems
 Involved goals that are clear.
 Are familiar (have occurred before)
 Are easily and completely defined- information
about the problem is available and complete.
Programmed decision
 Recurring or routine situations in which the
decision maker should use decision rules or
organizational policies and procedures to make
the decision.
71
Types of… cont’d
Unstructured problems
 Problems that are new or unusual and for
which information is ambiguous or
incomplete.
 Problems that will require custom-made
solutions.
Non-programmed decisions
 Decision that are unique and nonrecurring.
 Decision that generate unique responses.
72
Reflection

What is the relationship

between managerial levels and
types of decisions and
problems?

73
Decision-Making Conditions

 Certainty
 Each alternative’s outcome is known in
advance.
 all the information the decision maker needs
is fully available.
 Risk
 Probabilities can be assigned to each
outcome.
 good information is available.
74
Decision-Making Conditions…
Cont’d
 Uncertainty
 Lack of information or knowledge
makes the outcome of each alternative
unpredictable such that no
probabilities can be determined.
 managers may have to come up with
creative approaches to alternatives.

75
Conditions that Affect the
Possibility of Decision Failure
Organizational
Problem

Low Possibility of Failure

Certainty Risk Uncerta

Programmed Nonprogrammed
Decisions Decisions

Problem
Solution
76
Who Decides?

Whom do you think

should make decisions?
Individual?
Group? Who else?

77
Who Decides?
There are four styles of decision
making based on who makes the
decision.
Individual Decision Making
Decision Making Through
Consultation
Group Decision Making
Delegating the Decision
78
Group Exercise
 What possible advantages and
limitations could be there with
group Decision Making/Problem
Solving?

79
Participative Decision Making/Problem
Solving
Argument for Group Decision Making :
 You get more info. and expertise relevant to t
decision
 You get more good ideas and can generate mo
and better alternatives
 People thinking together can arrive at bet
decisions because of the stimulation a
interplay of different points of view
 Participants are more committed to carrying o
 Coordination and communication are simp
and better because everyone understands
80
Participative Decision Making…
cont’d
Criticism of group decision making:
 It takes longer in a group
 There is usually a dominator in a group
 Group participants get involved in
winning arguments and showing off
 If consensus is required people may
conform to get the meeting over
 Consensus leads to mediocre decisions

81
Group Decision Making
Works Best When:
 Members are accustom to
working together as a team
and having differing
expertise and point of view
but common goals
 The leader is skillful at
keeping the meeting on
target
 The group is rewarded for
making good decisions

82
The Decision Making
Process
What steps do you follow
in making rational
decisions?

83
Step1: Identify the Problem

 Problem identification is undoubtedly

the most important and the most
difficult step in the process.
 All subsequent steps will be based on
how you define and assess the problem
at hand.

84
Step1: Identify the Problem…
Cont’d
Problem or Solution?
 In carrying out Step 1, you must
distinguish between a problem and its
solution. The most common error in
problem solving is defining problems in
terms of their solutions. Sometimes
people think that they are articulating
problems when actually they are stating
a potential solution.
85
Step1: Identify the Problem…
Cont’d
 Here’s an example: Someone might say,
“The problem is that we don’t have
adequate roads.” The problem, however,
is not that there are no adequate roads.
 The problem is really that vehicles are
fully stopped for periods of time in the
roads of Addis.
 Constructing roads is a solution.
86
 Step1: Identify the Problem…Cont’d
In defining the problem ask yourself and others, the fol
questions:
 What can you see that causes you to think there's a pro
 Where is it happening?
 How is it happening?
 When is it happening?
 With whom is it happening? (HINT: Don't jump to "W
causing the problem?" When we're stressed, blamin
often one of our first reactions. To be an effective
manager, you need to address issues more than pe
 Why is it happening?
87
Step1: Identify the Problem…
Cont’d
 Write down a five-sentence description
the problem. As much as possible,
specific in your description, includi
what is happening, where, how, w
whom and why.

88
Group Exercise
 Consider problem that needs yo
attention/decision in a
organization and answer the abov
questions related to the problem

89
Step 2. Explore Alternatives

 The second step in the decision-

making process is to explore
alternative solutions to the problem
identified in Step 1.

90
Reflection
 what process do you use
to generate alternatives
for the problem you have
identified in your previous
exercise?

91
Step 2. Explore Alternatives…Cont’

 Techniques for Generating

Alternatives
At this point, it's useful to keep others involved
(unless you are facing a personal and/or
employee performance problem).
 Brainstorming
 Surveys
 Discussion groups
92
Step 3. Evaluate Alternatives

Criteria for Evaluating Alternatives

 After you have generated alternative
solutions, you must have some means of
evaluating them.
 Basically solutions should be evaluated in
terms of their sufficiency, feasibility and
realistic nature.
 Another part of evaluation is identifying
contingencies—what could go wrong. 93
Step 4. Select an Alternative

 The fourth step in the problem-solving

/decision making model is to select one of the
alternatives explored in Step 2 for
implementation.
 After you have evaluated each alternative, one
should stand out as coming closest to solving
the problem with the most advantages and
fewest disadvantages.

94
Step 4. Select an Alternative… cont’d

 When selecting an alternative, you will encounter

factors that affect your decision making. These
factors may include:
 Political factors
 Safety factors
 Financial factors
 Environmental considerations
 Ethical factors

95
Step 5. Implement the Solution
Carefully consider:
 What will the situation look like when the problem is
solved?
 What steps should be taken to implement the b
alternative to solving the problem? What systems
processes should be changed in your organization,
example, a new policy or procedure?
 How will you know if the steps are being followed or
not? (these are your indicators of the success of your
plan)
 What resources will you need in terms of people, mon
and facilities?
96
Step 5. Implement the Solution… Cont’d

 How much time will you need to implement

solution? Write a schedule that includes the start a
stop times, and when you expect to see cert
indicators of success.
 Who will primarily be responsible for ensur
implementation of the plan?
 Write down the answers to the above questions a
consider this as your action plan.
 Communicate the plan to those who will involved
implementing it and, at least, to your immedi
supervisor. (An important aspect of this step in
problem-solving process is continually observation a
97
feedback.)
Step 6. Monitor Implementation of the Plan

Monitor the following indicators of success:

 Are you seeing what you would expect from t
indicators?
 Will the plan be done according to schedule?
 Ifthe plan is not being followed as expecte
then consider: Was the plan realistic? Are the
sufficient resources to accomplish the plan
schedule? Should more priority be placed
various aspects of the plan? Should the plan
changed?
98
Step 7. Verify if the problem has
been resolved or not
 One of the best ways to verify if a problem has been solve
or not is to resume normal operations in the organizatio
Still, you should consider the following very important point
 What changes should be made to avoid this type of proble
in the future? Consider changes to policies and procedure
training, etc.
 Lastly, consider "What did you learn from this proble
solving?" Consider new knowledge, understanding and/
skills.
 Consider writing a brief memo that highlights the success
the problem solving effort, and what you learned as a resu
Share it with your supervisor, peers and subordinates.
99
Intuition in Decision Making

Do you use intuition to make

decision?

100
Intuition in Decision Making…
Cont’d
 Intuition plays an important role in
decision making process. However, i
is believed that personal intuition is
normally formed in terms of knowledge
and experience rather than instinct o
speculation.

101
Effective Decision Making

 Think of someone you know wh

seems to be a born decisio
maker.
 What makes him or h
effective?

102
Effective Decision Making… Con

Most likely:
 He or she makes decisions with competenc
and confidence.
 Most of his or her decisions work out right.

103
Attributes of an Effective Decision Mak

Effective decision makers tend to have the following attributes

 Knowledge

 Initiative

 Advice-seeking

 Selectivity

 Comprehensiveness

 Currency

 Flexibility

 Good judgment
 Calculated risk-taking
 Self-knowledge
104
 Chapter Five
The Organizing Function

105
Organizing
 In planning, managers set their objectives
and determine exactly what to do to attain
these objectives.
 Of course, no one person can implement all
the plans of a modern organization or one
person can not do everything necessary to
meet the goals set forth in those plans.
 Planning, consequently, requires organizing
the efforts of many people.
106
Organizing…Cont’d

 Organizing, thus is, the process of

arranging people and other resources to
work together to accomplish a goal.

107
Organizing… Cont’d
As one of the basic functions of management,
organizing overall forces us to address several basic
questions such as the following:
 What specific tasks are required to implement our
plans?
 How many organizational positions are needed to
perform all the required tasks?
 How should these positions be grouped?
 How many layers of management (Organizational
levels) are needed to coordinate them?
 How many people should a manager supervise 108

directly?
Reflection
Whatbenefits do you
expect from organizing?

109
Benefits of Organizing
 Clarity of individual performance expectations
and specialized tasks.
 Division of work that avoids duplication, conflict,
and misuse of resources, both material and
human.
 A logical flow of work activities that can be
comfortably performed by individuals or groups.
 Established channels of communication that
enhance decision making and control.
110
Benefits of Organizing

 Coordinating mechanisms that ensure harmo

among organization members engaged in
diversified activities.
 Focused efforts that relate to objectives
logically and efficiently.
 Appropriate authority structures with
accountability to enhance planning and
controlling throughout the organization.
111
Steps in Organizing
The following points represents the multi-step process
of organizing.
1. Detailing all the work that must be done to attain
the goals of the organization
2. Dividing the total workload into activities that can
logically and comfortably be performed by one
person or by a group of individuals
3. Combining the work of the organization members in
a logical and efficient manner
4. Setting up a mechanism to co-ordinate the work of
organization members into a unified, harmonious
whole 112
Basic Elements of
Organizing
1. Division of Work/labor
2. Grouping Jobs/Departmentalization
3. Establishing reporting relationships between jobs
4. Distributing authority among jobs
5. Coordinating activities among jobs

113
1. Division of Work/labor

 Tasks are broken down and divided into

smaller parts
 Itis the process by which tasks and
responsibilities are allocated
 Itis essential for greater efficiency and
higher productivity

114
Division of … Cont’d

Benefits of Division of Labor:

 Workers performing small, simple tasks will become
very proficient at each task.
 Transfer time between tasks decreases
 The more narrowly defined a job is, the easier it is
to develop specialized equipment to assist with that
job.
 When an employee who performs a highly
specialized job is absent or resigns, the manager is
able to train someone new at relatively low cost.
115
Division of … Cont’d
Limitations of Division of Labor:
 Workers who perform highly specialized jobs may become
bored and dissatisfied.
 The job may be so specialized that it offers no challenge or
stimulation.
 If boredom and monotony set in, absenteeism rises and the
quality of work may suffer.
 The anticipated benefits of job specialization do not always
occur.

Although some degree of specialization is necessary, it

should not be carried to extremes because of the possible
negative consequences
116
2. Grouping Jobs:
Departmentalization
 All organizations, regardless of their size or mission,
divide their overall operations into sub-activities and
then combine these sub-activities into working groups.
 This process of grouping specialized activities in a
logical manner is called departmentalization .
 In smaller organizations, the owner-manager/partner
may be able to personally oversee everyone who works
there.
 As an organization grows, new managerial positions are
created to supervise work of others grouped according
to some plan which leads to the creation of
departments.
117
Basis of Departmentalization
 Since organizations are different in their
activities, objectives and areas in which they
operate, there are different bases for
departmentalization.
 The most common bases of departmentalization
are:
 Functional
 Product
 Territory
 Customer
 Process
118
Functional
Departmentalization
 It is the grouping together of activities in
accordance with the functions of an
organization- on the basis of similarity of
expertise, skills or work activities.
 Jobs that call for certain skills or the use of
similar working methods will be put together.
 Most common in smaller organizations.

119
Functional …Cont’d
• Each department can be staffed by
experts in that functional area.
• Supervision is also facilitated beca
an individual manager needs to be
Advantages: familiar with only a relatively narro
set of skills.
• Coordinating activities inside each
•
department is easier.
De-emphasis of overall company
objectives.
• Over specializes and narrow viewpoin
key personnel.
Disadvantag • Reduce coordination and communicat
es: between (among) functions.
• Decisions are concentrated at the top
management, creating delay.
• Limits development of general manag
120
Product Departmentalization
 It is the grouping and arrangement of activities
around products or product groups.
 Departmentalization by product should be considered
when attention, energy and efforts need to be
focused on an organization’s particular products.
 This approach works well for an enterprise which
engaged in very different types of products.
 E.g. Textile products - Nylon products, woolen products, silk
products, cotton products
 Petroleum refining - kerosene, diesel,
 Electronics - Radios, TVs, Computers
121
 Product… Cont’d
• All activities associated with on
product group can be easily int
coordinated.
• The speed and effectiveness of
making are enhanced.
• The performance of individual p
Advantages: product groups can be assessed
and objectively, thereby improv
accountability of departments f
results of their activities.
• Furnishes measurable training g
• Managersmanagers
general in each department may
own product or product group to th
the rest of the organization.
Disadvantag • Administrative costs may rise becau
department must have its own func
es: specialists for areas such as market
financial analysis.
• Requires more persons with genera
abilities. 122
Territory/Location
Departmentalization
 Groups activities on the basis of geographic region or territory.
 Is common in enterprises that operate over wide geograph
areas i.e. it is attractive to large-scale firms or other enterprise
whose activities are physically or geographically dispersed.
 The logic is that all activities in a particular area or region shou
be assigned to a manager. This individual would be in charge
all operations in that geographic area.
 Geographic departmentalization works best when different law
currencies, languages and traditions exist and have a dire
impact on the ways in which business activities must b
conducted.

123
Territory/Location… Cont’d
• Places emphasis on local markets
problems; Encourages local
participation in decision-making
• Improves coordination of activities
Advantages region
• Furnishes measurable training gro
for general managers.
• Encourages decentralized decision
making.
• Requires more persons with gener
manager abilities
• Duplicates staffs, services, or effo
Disadvanta • Tends to make maintenance of
ges economical central services difficu
may require services such as pers
or purchasing at the regional leve
124
Customer Departmentalization
 occurs when the organization structures its
activities to respond to and interact with specific
customers or customer groups.
 Major advantage is that the organization is able to
use skilled specialists to deal with unique customers
or customer groups.
 A disadvantage is that a fairly large administrative
staff is required to integrate various departments’
activities to make sure the organization does not
overcommit itself in any one area.

125
Process Departmentalization

 Manufacturing firms often group activities around a

process or type of equipment.
 This is when special skill is needed to operate
different machines.
 Making plywood, for example, involves several
sequential processes: poling (removing bark from
logs); sawing logs in to 8’ lengths, heating; veneer
stripping and stamping veneer sheets in to 4'
segments; drying and grading according to quality;
gluing plies together; finishing and bundling.
126
Process… Cont’d

• Achieves economic advan

Advantages • Uses specialized technolo
• Simplifies training

• Coordination of departme
difficult
Disadvanta • Responsibility for profit is
ges the top
• Is unsuitable for developin
general mangers
127
3. Establishing Reporting Relationships

 Chain of Command is a clear and distinct line of

authority among the positions in an organization that
two components:
 Unity of Command: The unity of command principl
suggests that an employee should have one boss to who
he/she is directly responsible. It refers to the reporting
relationship in which an employee should receive orders
and reports to only one boss.
 The Scalar principle: The scalar principle establishe
authority and responsibility flow from the top managem
the lowest level in an organization.
 Here, there is no ambiguity about who should report to
whom, since an employee reports to his/her immediate128
who also in turn reports to his/her immediate boss.
 3. Establishing Reporting…
 Cont’d
Span of Management: The term span of managemen
also referred to as a span of control, span of supervisio
span of authority or span of responsibility.
 Span of management refers to the number of subord
who report directly to a manger, or the number of
subordinates who will be directly supervised by a mana
 There is no magical number for the span of manageme
 There are various factors affecting the span of manage
 Based on the number of subordinates who should repo
manager or the number of subordinates that a superio
should supervise, we can have Wide span of managem
and Narrow span of management.
129
Group Discussion

Discuss and Identify the

possible factors affecting the
span of management in an
organization.

130
Factors Determining an Effective Span of
Management
 Type/nature of work
 The availability of information and control
systems
 Ability of the manger
 Manager’s personality
 The abilities of subordinates
 Motivation and commitment
 Need for autonomy
 Geographic dispersion of subordinates
 Levels of management
131
 3. Establishing Reporting…
Cont’d
Narrow Span of Management
• This means superior controls few numbers of subordin
few subordinates report to a superior.
• When there is narrow span of management in an
organization, we get:
• Tall organization structure with many levels of superv
between top management and the lowest organizatio
level.
• More communication between superiors and subordin
• Managers may be underutilized and their subordinate
be over controlled
• More trained managerial personnel and centralized
authority 132
Group Discussion

What advantages and

disadvantages may be there
with narrow span of
management?

133
3. Establishing Reporting…
Cont’d
Wide Span of Management
• This means many subordinates report to a superio
a superior supervises many subordinates.
• If the span of management is wide, we get:
• A flat organization structure with fewer managem
levels between top and lower level
• Many number of subordinates and decentralized
authority
• Managers may be overstrained and their
subordinates may receive too little guidance and
control 134

• Fewer hierarchal level

Group Discussion

What advantages and

disadvantages may be there
with wide span of
management?

135
Tall Versus Flat Organizations

136
 4. Distributing Authority
 Responsibility and authority mean that the responsibilit
each individual in the organization are clearly defined.
 Each individual is also given the authority needed to m
these responsibilities and is held accountable for meeti
them.
 Responsibility is the obligation to achieve objectives
performing required activities.
 Authority is the right to make decisions, issue orders,
use resources.
 Accountability is the evaluation of how well individua
their respon­sibility.
 All members of the organization should be evaluated
periodically and held accountable for achieving their
137

objectives.
Delegation of Authority
 Delegation is an organizational process whereby as many
people as possible are directly and personally involved in
decision making, directing the work and doing the work.
 Delegation is a process of sharing ones authority and
responsibility with others.
 Delegation is an act of entrusting others with authority
and responsibility, and at the same time creating obligation
and accountability for results.

138
Steps in the Delegation
Process
Group Discussion

What are the possible

advantages of delegation of
authority?

140
 Advantages in Delegation
 It eases the burden on management and creates time for import
tasks.
 It helps to exploit the specialized knowledge and experience of t
employees
 It helps promote and develop the abilities, initiative, self - relian
and competence of employees.
 It has a positive effect on the motivation and job satisfaction of
employees.
 Delegation contributes to subordinates growth and development
 Delegation ensures the maximum utilization of the skills and ab
of subordinates.
 Delegation increases motivation and job satisfaction.
 Delegation creates a climate in which subordinates can become
involved in decision-making and planning processes within an
organization.
141
Obstacles to Effective
Delegation
Superior-related Subordinate-related
Reasons of Inadequate Factors
Delegation

 Belief that He can make  Lack of self-confidence in

Better Decisions their Abilities
 Fear of Losing Importance  Fear of Making Mistakes
 Fear of Loss of Control  Dependent Personality
 Fear of Being Exposed  Unclear Delegation
 Unwillingness to take  Lack of Motivation
Calculated Risk
 Tendency to be Authoritarian
 Environment of Mutual
Distrust 142
Principles of Effective Delegation
 Define authority and responsibility
 Involve subordinates
 Require completed work
 Provide training
 Interference should be minimum
 Tolerance of mistakes
 Adequate controls should be established
 Goals should be predetermined
 Policies, rules and procedures should be established to
guide decisions
 Delegation should be rewarded
 Unity of command
 Principle of communications
 Principle of management by exception
143
Centralization and decentralization of authority

 Centralization and decentralization of authority are basi

overall management philosophies of delegation, of wher
decisions are to be made.
 Centralization of authority is characterized by authority
concentrated at the top of an organization or departmen
 Decentralization of authority is characterized by a high
degree of delegated authority throughout an organizatio
or department.
 Decentralization is an approach that requires managers
decide what and when to delegate, to carefully select an
train personnel, and to formulate adequate controls.

144
Centralization and … Cont’d
 Neither centralization nor decentralization is absolute
 No one manager makes all the decisions, even in a
centralized setting.
 And total delegation would end the need for top leve
managers.
 Thus there are only degrees of centralization and
decentralization.
 In most organizations some tasks are relatively
centralized (for example, payroll system, purchasing
and personnel policies), and others are relatively
decentralized.
145
Factors Affecting Centralization and
Decentralization

 Costliness of decisions
 Uniformity of policy
 Corporate culture
 Availability of managers
 Control mechanisms
 Environmental influences

146
Factors Affecting… Cont’d
 Time frame of decisions
 Adequacy of communication system
 Types of tasks
 Existence of standing plans
 Size and Complexity of the organization
 Locations of target market

147
5. Coordinating Activities

Coordination is the process of linking

the activities of the various
departments of the organization.
Primary reason for coordination is that departments
and work groups are interdependent – they depend on
each other for information and resources to perform
their respective activities.
The greater the interdependence between
departments, the more coordination the organization
requires so departments are able to perform effectively.
5. Coordinating Activities

Pooled interdependence
exists when units operate with
little interaction; their output is
simply pooled.
Each unit has its own budget, staff, etc., and their profits/losses are added
together at the organizational level. They do not interact on a day-to-day
basis. [Debenham's, Marks & Spenser, etc.]
5. Coordinating Activities

Sequential interdependence
occurs when the output of one unit
becomes the input for another in
sequential fashion.
Level of interdependence is generally
one way.
Nissan has one plant which assembles
engines and then ships them to another
plant where the cars are completed.
5. Coordinating Activities

Reciprocal interdependence occurs when

activities flow both ways between units.

This form of interdependence is the most

complex.
Within any hotel, the reservations department,
front-desk check-in and housekeeping are all
‘reciprocally interdependent’.
Reservations has to provide front-desk employees with information about how
many guests to expect each day, and housekeeping needs to know which rooms
need ‘priority cleaning’. If any of the three units does not do its job properly, all
will be affected.
5. Coordinating Activities

Structural Coordination Techniques

These techniques were designed to achieve and maintain

coordination among interdependent units. They include:
The managerial hierarchy
Rules and procedures
Liaison roles
Task forces
Integrating departments
5. Coordinating Activities

The Managerial Hierarchy

One manager is placed in charge of

interdependent departments or units.
Wal-Mart’s distribution center places one manager
in charge of both receiving and unloading
shipments from railroad cards and loading other
shipments onto trucks for distribution to retail
outlets.
Both departments are interdependent because they
share the same loading docks.
5. Coordinating Activities

Rules and Procedures

Routine coordination activities may be
handled by rules and standard procedures.
However, complex or unusual problems may
have to be handled independently.
Wal-Mart has a rule that an outgoing truck has
priority over an incoming rail shipment. So all
forklifts and related equipment are available to
loading outgoing trucks first.
5. Coordinating Activities

Liaison Roles
A manager acts as a common point of
contact but has no formal authority over the
interdependent groups.
He/she simply serves as a facilitator of
information flow between the units.
He/she maintains familiarity with each unit
and can answer questions and otherwise
serve to integrate the activities. [engineering groups
working on a large project may interact through a liaison]
5. Coordinating Activities

Task Forces
A task force may be needed when interdependence is complex and several
interdependent units are involved.
It is created by drawing one representative from each unit.
Coordination function is then spread across several individuals, each of whom
has special information about one of the units involved.
When coordination of project is completed, the task force is dissolved.
5. Coordinating Activities

Integrated Departments

 Similar to a task force but is more permanent.

 Usually has more authority than a task force and may even be given some
budgetary control.
 Generally has some permanent members as well as members who are assigned
temporarily from units that are particularly in need of coordination.
 Firms characterized by complex and dynamic environments tend to use
integrated departments to maintain internal integration and coordination.
5. Coordinating Activities

Electronic Coordination

E-mail makes it easier for people to communicate at all levels.

Electronic scheduling is used and makes it easier for individuals’ schedules to be
coordinated to set meetings and know when individuals are otherwise available.
Some organizations require project contractors, subcontractors and suppliers to
use a common web-based communication/reporting system to make
coordination easier among the units.
6. Differentiating Between
Positions
Line position is in the direct
chain of command that is
responsible for achieving an
organization’s goals.
Staff position is one intended to
provide expertise, advice and
support for line positions.
6. Differentiating Between
Positions
Differences between Line and Staff
Line managers work toward organizational goals; staff
managers advise and assist.
Line managers have formal and legitimate authority;
staff authority is less concrete and may take a variety of
forms:
Compulsory authority – line manager must listen to advice of
staff manager, but can choose to take it or ignore it. [Finance Manager
must listen to advice of auditor, but may take it or leave it]

Functional authority – formal or legitimate authority given to

staff managers over activities related to their specialties. [HR
specialist who is expert in discrimination or Labor Law]
6. Differentiating Between
Positions
Administrative Intensity
Administrative intensity is the degree to which managerial
positions are concentrated in staff positions.
An organization with ‘high’ administrative intensity is one with
many staff positions relative to the number of line positions.
Relative ‘low’ administrative intensity reflects more line
positions relative to staff positions.
Organizations would generally like to devote most of their HR
investment to line managers because they contribute directly
to the organization’s basic goals.
Practice today is leading toward reducing staff positions.
 CHAPTER 6
THE STAFFING FUNCTION
 Learning objectives

After completing this chapter you will be able to:

• Define staffing management function,
• Know the process of staffing,
• Recognize human resource planning,
• Know the importance and sources of recruitment,
• Know the selection process,
• Identify the purpose and types of training and
development,
• Know what performance appraisal is, and
• Recognize the difference between promotion,
demotion and lateral transfer.
6.1 DEFINATION OF
STAFFING

• Staffing is another name for managerial

function of human resource management.
• The managerial function of staffing is defined
as filling, and keeping filled, positions in the
organization structure.
• Human resource management (HRM) is
the process of finding, developing, and
keeping the right people to form a
qualified work force.
 The
HRM
PROCE
SS
 6.2 HUMAN RESOURCE
PLANNING
• Human resource planning (HRP) is the process of using an

organization’s goals and strategy to forecast the

organization’s human resource needs in terms of

attracting, developing, and keeping a qualified work

force.

• Importantly, companies that don’t use HRP or that do it poorly

may end up with either a surplus of employees that has to

be corrected with layoffs or a shortage of employees that

leads to increased overtime costs and an inability to

meet demand for the company’s product or service.

 Cont’d…
• HRP or Employment planning is the
process by which managers ensure that they
have the right number and kinds of people
in the right places at the right times, people
who are capable of effectively and efficiently
completing those tasks that will help the
organization achieve its goals.
• Human resource planning translates the
organization’s mission and goals into an HR
plan that will allow the organization to
achieve those goals.
 HRM PLANNING

• Human resource planning translates

the organization’s mission and goals into
an HR plan that will allow the organization
to achieve those goals.
• Human resource planning is the process
an organization uses to ensure that it has
the right amount and the right kinds of
people to deliver a particular level of
output or services in the future.
RECRUITMENT AND
SOURCES OF RECRUITMENT
• Recruitment is the process of locating,
identifying, and attracting capable
applicants.
 Recruitment
• In general, the sources of employment can be
classified into the following two types: Internal and
External.
a. Internal source of Recruitment:- It involves Filling
a job opening from within the organization.
Job posting and career paths are two methods of
internal recruiting.
Job posting is a procedure for advertising job openings
within the company to existing employees. A job
description and requirements are typically posted on a
bulletin board, in a company newsletter, or in an
internal computerized job bank that is accessible only to
employees.
 Internal sources of
recruitment
• A career path is a planned sequence of
jobs through which employees may
advance within an organization.
• For example, a person who starts as a
sales representative may move up to sales
manager and then to district or regional
sales manager. Career paths help
employees focus on long-term goals and
development while also helping companies
increase employee retention.
 Internal recruitment

• The advantages of internal recruitment include:

 Individuals recruited from within are already familiar
with the organization and its members and this
knowledge increases the likelihood they will success
 A promotion from within fosters loyalty and inspires
greater effort among organization members
 It is usually less expensive to recruit or promote from
within than to hire from outside the organization
 CONT’D…
Merits of Internal Sources of Recruitment:
• The following are the advantages of recruiting
employees by the internal source:
• This improves their morale and induces them to
constantly update their knowledge.
• As the management already knows the employee,
there is no risk involved in appointing
• him to some other post in the organization.
• As the employee is already familiar with the
organizational policies, rules and regulations,
• these need not be explained to him.
• Internal source of recruitment also saves lot of
time and money for the management.
 CONT’D…

Disadvantages:
• The following are the demerits of internal
source of recruitment:
• It restricts choice. The idea should be to
appoint the fittest person for a job and not a
• known person.
• It denies opportunities for capable outsiders.
• As an existing employee is accustomed to
the organizational routine, he lacks the
capacity to think originally.
 Recruitment
• External sources of recruitment- are channels
that companies use to find and attract job
candidates from outside the organization.
• External recruitment methods include advertising
(newspapers, magazines, direct mail, radio, or
television), employee referrals (asking current
employees to recommend possible job applicants),
walk-ins (people who apply on their own), outside
organizations (universities, technical/trade schools,
professional societies), employment services (state
or private employment agencies, temporary help
agencies, and professional search firms), special
events (career conferences or job fairs), and Internet
job sites.
•
 SELECTION PROCESS
• It seeks to predict which applicants will be
“successful” if hired; that is, who will perform well
on the criteria the organization uses to evaluate
its employees.
• Selection is the process of deciding which
candidate out of the pool of applicants possesses
the qualifications for the job to be filled.
• Selection is the process of gathering information
about job applicants to decide
who should be offered a job.
 Common steps of the
selection process
• The common steps of the selection process are:
• Preliminary interview: by which the obvious
unqualified are screened out and observable factors
and preliminary checks are made easy, on expectations
and interests.
• Filing application form: by which factual information
is obtained with carefully designed questions including
identification information, personal information,
physical characteristics, education, experience, etc.
• Reference letters: which can be specifically
addressed or written in a “to whom it may concern”
form, confidential or non confidential, and refer to
character, experience and other elements.
 Common steps of the
selection process
• Employment interview: which is most of the time
used as a single screening mechanism provides an
opportunity to have face to face contact, serves to
verify information acquired through other methods, and
enables the employer to investigate the candidate’s
ability in work related areas.
• Employment tests: are practical examination of the
candidate’s abilities and knowledge in the areas of the
future job assignments. They may include intelligence
tests,Personality tests, etc.
• Physical examination: is carried out to check the
physical fitness of the candidates, to prevent existing
employees from the communicable disease and from
unwanted claims in the form of medical and insurance
expenses.
 Training and
development
• Training means providing opportunities for
employees to develop the job-specific skills,
experience, and knowledge they need to do their
jobs or improve their performance
• Training supplies the skills and knowledge needed
by the individual to perform their present job
• Development is training at present offered for
future upgrading to higher level positions.
• Developmental programs seek to develop skills
for future jobs.
• Steps in training include determine specific
training needs, selecting appropriate
training methods, and evaluating training.
 Training Needs
assessment
• Needs assessment is the process of identifying and
prioritizing the learning needs of employees.
• Needs assessments can be conducted by identifying
performance deficiencies, listening to customer
complaints, surveying employees and managers,
or formally testing employees’ skills and knowledge.
• Many organizations require all employees to attend
training, regardless of their individual needs. This can
lead to negative reactions from employees, both those
who don't need the training and those who should
have received it.
• A needs assessment is an important tool for
determining who should attend training, ensuring
that training resources are used effectively.
 Training Methods

• To choose the best method of training you

should consider a number of factors, such
as the number of people to be trained, the
cost of training, and the objectives of the
training.
 Training methods can be
classified as On the Job and Off
the job training
On the job training examples - Job rotation, coaching, and internship are some of the on
the job techniques
Off the Job training examples - Simulation, role playing, Class room & online lecture,
 Evaluating Training
• After selecting a training method and conducting
the training, the last step is to evaluate the
training.
• Training can be evaluated in four ways:
 Reactions- how satisfied trainees were with the
program;
 Learning- how much employees improved their
knowledge or skills;
 Behavior- how much employees actually changed
their on-the-job behavior because of training;
 Results- how much training improved job
performance, such as increased sales or quality, or
decreased costs.
Performance Appraisal
• Performance appraisal is the process of assessing
how well employees are doing their jobs.
• Some of Benefits of Performance Appraisal include:
 Making administrative decisions (such as pay
increase, promotion, retention);
 To Identify training and development needs:
Helps to identify where employees need additional
training or development.
 To provide feedback for employee development
(performance feedback)
 To set goals and expectations: Performance
appraisals can be used to set clear goals and
expectations for employees.
 Compensation
• Compensation includes both the financial and
the nonfinancial rewards that organizations
give employees in exchange for their work.
 There are four basic kinds of compensation
decisions: pay level, pay variability, pay structure,
and employment benefits.
 Pay-level decisions determine whether workers will
receive wages below, above, or at current market levels.
 Pay-variability decisions concern the extent to which
pay varies with individual and organizational
performance.
E.g Piecework, sales commissions, profit sharing, employee
stock ownership plans, and stock options are common pay-
variability options.
 Cont’d…
• Piecework pay plans employees are paid a set rate
for each item produced up to some standard. Once
productivity exceeds the standard, employees are
paid a set amount for each unit of output over the
standard.
• E.g 35 cents per item produced for output up to 100
units per day and 45 cents for each unit above 100 units)
• Commission is a compensation system in which
employees earn a percentage of each sale they make.
• Piecework and Commission are payments based on
individual performance they can reduce collaboration
hence companies also use group incentives and
organizational incentives, such as profit sharing,
employee stock ownership plans, and stock
options, to encourage teamwork and cooperation.
Group and organzitional
Incentives
• profit sharing a compensation system in which a
company pays a percentage of its profits to
employees in addition to their regular compensation.
• Employee stock ownership plan (ESOP) a
compensation system that awards employees shares
of company stock in addition o their regular
compensation
• Stock options- Provides employees the right to
purchase shares of stock at a set price, even if the
value of the stock increases above that price.
E.G Awarded the right (or option) to buy 100 shares of
stock from the company for $5 a share(Payment to
company is 500). If the stock rises to $ 15 you can sell
it for($1500) and earn 1000$.
Compensation decisions
cont’d…
• Pay-structure decisions concern the extent
to which people in the company receive very
different levels of pay. It could be Hierarchical
or compressed structure.
• Hierarchical pay structures, there are big
differences from one pay level to another.
The highest pay levels are for people near
the top of the pay distribution.
• The assumption is it should motivate people
to work hard to obtain those higher-paying
jobs.
 CONT’D…
• Compressed pay structures typically
have fewer pay levels and smaller
differences in pay between levels. Pay is
less dispersed and more similar across jobs
in the company
• The basic idea behind compressed pay
structures is that similar pay levels should
lead to higher levels of cooperation, feelings
of fairness and a common purpose, and
better group and team performance.
• Employment benefits a method of
rewarding employees that includes
virtually any kind of compensation other
than wages or salaries
E.G Health insurance, Paid time off (PTO),
Flexible work arrangements, Wellness
programs, Childcare assistance, Eldercare
assistance, Employee discounts,
Transportation benefits
Factors affecting compensation policies of the
organization

• Organizational ability to Pay:- The organization

should have enough funds to pay enough salary or
wage to the employee.
• Supply and demand of labor:- If the supply of
labor is more than the requirement then the
management can pay less wages and salaries to
its employee and reverse in case of less supply
• Prevailing market rate: - The going wage rate or
salary in the industry also influences the wage and
salary policy of the organization. An organization
cannot give less salary/wage than the average
salary of the industry.
 Factors affecting compensation
policies of the organization
• Cost of living:- The cost of living differs in different cities
• Productivity:- The level of productivity of the workers also
has an impact on the kind of wage/salaries they get; more
productive workers get more salaries.
• Bargaining Power of the worker’s unions:- Powerful
workers union generally have a lot of influence on kinds of
wages and salaries given by the organization
• Job requirement: - Some jobs are more hazardous and
dangerous than others and the employees understating them
would get more pay than others who are in relatively safer
positions.
• Managerial attitude: - The top management has a lot of
influence on the wage and salary administration because they
can choose whether to pay the industry average salary, above
or below the average salary, the kind of working conditions to
be provided to the employees, the length of work hour etc.
 Summary of
Compensation decision
There are four basic kinds of compensation decisions: pay level,
pay variability, pay structure, and employment benefits.
 Pay-level decisions determine whether workers will receive
wages below, above, or at current market levels.
• Pay-variability decisions concern the extent to which pay
varies with individual and organizational performance.
Piecework, sales commissions, profit sharing, employee stock
ownership plans, and stock options are common pay-
variability options.
• Pay-structure decisions concern the extent to which people
in the company receive very different levels of pay.
• Hierarchical pay structures work best for independent
work, while compressed pay structures work best for
interdependent work.
 SEPARATION
• Employee separation is a broad term
covering the loss of an employee for any
reason.
• Separation can be initiated by
• The employers like- mandatory retirement;
dismissal; layoff
• The employees like - resignation; voluntary
retirement; quitting the agreement,
termination of contract
• They can also be caused by things outside the
will of both the employer & the employee
(accidents, death)
 Cont’d…
• Mandatory retirement is a policy that
requires employees to retire at a certain age,
regardless of their performance or health.
Mandatory retirement is often seen as a way to
make room for younger, more qualified
workers. However, it can also be seen as unfair
and age-discriminatory.
• Dismissal is the termination of employment by
an employer for cause. Cause can include poor
performance, misconduct, or violation of
company policy. Dismissal can be a formal or
informal process, and it can be with or without
notice.
 Cont’d…

• Layoff is the termination of employment by an employer for

reasons beyond the employee's control. This can include
economic downturn, restructuring, or downsizing. Layoffs are
typically temporary, and employees who are laid off may be
eligible for severance pay and unemployment benefits.
• Resignation is the termination of employment by an employee.
Employees may resign for a variety of reasons, such as to take
another job, to pursue a different career path, or to spend more
time with family. Resignation is typically voluntary, but it can also
be forced in some cases, such as when an employee is unable to
meet the demands of their job.
 Cont’d…
• Voluntary retirement is the termination of
employment by an employee who has reached
retirement age. Its typically choice from
employees but could be encouraged by
employers.
• Quitting - refers to the voluntary termination of
one's position.
• Termination of contract is the formal end of an
employment contract. This can occur for a variety
of reasons, including the end of the contract
term, breach of contract by either party, or
mutual agreement.
Promotion, Demotion and Lateral
Transfer

Promotion is movement of employee to a

higher level position that has more prestige,
higher status, pay and greater responsibility
based on good performance.
Promotion is job changes that lead to higher
pay and greater authority and that reward
devoted, outstanding effort.
It serves as incentive as well, offering the
promise of greater personal growth and
challenges to those who seek them.
Transfer
• Transfer is the movement of an employee
from one job to another on the same
occupational level of wage/ salary. No
appreciable increase or decrease in duties
and responsibilities involved but there may
be a change in their specific nature and in
working conditions.
• Some transfers entail a decrease in job duties
and especially in pay, and called
downgrading or bumping.
• Demotion: is a reassignment to a lower
rank in an organization’s hierarchy. In
today’s business climate, demotions are
rarely used as punishment for ineffective
performers are fired, not retained.
 Chapter 7
THE DIRECTING /
LEADING FUNCTION

203
Definitions
 “Leadership is a process whereby an individual influe
a group of individuals to achieve a common goal”.
(Northouse, 2004)
 “Leadership is the influencing process of leaders and
followers to achieve organizational objectives throug
changes”. (Lussier & Achua, 2004)
 “Leadership is about articulating visions, embodying
values, and creating the environment within which th
can be accomplished” (Richards & Engle, 1986)
 “Leadership is the ability of an individual to influence
motivate, and enable others to contribute toward the
effectiveness and success of the organization…” (Ho
204
et al., 1999)
Definition… Cont’d
 Therefore, Leadership is the function
of
The Leader
 The Follower and
 The Situation
 L= f(L,F,S)

205
Leadership Vs Management
 Management and Leadership are not the same
 In deed, managers and leaders share a number of traits.
 Leadership and management are two distinctive and comple
systems of action…… Both are necessary for success in an incr
complex and volatile business environment.
 Strong leadership with weak management is no better, and is so
actually worse, than the reverse.
 Management is about coping with complexity….. Withou
management, complex enterprises tend to become chaotic…
management brings a degree of order and consistency….

206
 Leadership Vs. Management…Cont’d
 Leadership,by contrast, is about coping with change…. M
change always demands more leadership.
 Companies manage complexity by planning and budgetin
organizing and staffing, and by controlling and pro
solving. By contrast, leading an organization to constru
change involves setting a direction (developing a vision o
future and strategies to achieve the vision), aligning pe
and motivating and inspiring them to keep moving in the
direction.
207
Power and Influence
 To fully understand leadership, it is necessary to
understand power.
 Power is the ability to affect the behavior of others.
 In organizational settings, there are usually five
kinds of powers: legitimate, reward, coercive,
referent, and expert power and these powers
usually classified into position power and personal
power.
 Accordingly, legitimate, reward and coercive power
are related to positional power and referent and
expert power are related to personal power. 208
 Power and … Cont’d
1. Referent power: based on followers’ identificati
and liking for the leader.
2. Expert Power: based on the followers’ perceptio
of the leader’s competence and expertise skill.
3. Legitimate Power: associated with having stat
of formal job authority.
4. Reward Power: Derived from having the capac
to provide rewards to others.
5. Coercive Power: Derived from having the capac
to penalize or punish others.
209
Leadership Styles
 There are a number of different 'styles'
leadership that are based on different assumptio
and theories.
 The style that individuals use will be based on
combination of their beliefs, values an
preferences, as well as the organizational cultu
and norms which will encourage some styles an
discourage others.

210
Leadership Styles…Cont’d
Some of these Styles are:
Autocratic/Authoritarian
Democratic/Participative Leadership Style
Laissez-fair/Free-Rein Leadership Style

211
Leadership Styles…Cont’d
Autocratic Leadership Style
 In the autocratic style, the leader takes decisions
without consulting with others.
 An autocratic style works when:
 There is no need for input on the decision
 where the motivation of people to carry out
subsequent actions would not be affected whether
they were or were not involved in the decision-
making.

212
Leadership Styles…Cont’d
Democratic Leadership Style
 In the democratic style, the leader involves the
people in the decision-making, although the
process for the final decision may vary from the
leader having the final say to them facilitating
consensus in the group.
 Democratic decision-making is usually appreciated
by the people, especially if they have been used to
autocratic decisions with which they disagreed.
 It can be problematic when there are a wide range
of opinions and there is no clear way of reaching an
equitable final decision.
213
Leadership Styles…Cont’d
Laissez-Faire Leadership Style
The laissez-faire style is to minimize the leader's
involvement in decision-making, and hence allowing
people to make their own decisions, although they
may still be responsible for the outcome.
Laissez-faire works best when people are:
 capable and motivated in making their own decisions
 where there is no requirement for a centra
coordination
 Highly skilled
214
Theories of Leadership
Trait Theory
Assumptions
• People are born with inherited traits.
• Some traits are particularly suited to leadership.
• People who make good leaders have the righ
sufficient) combination of traits.
Description
• Early research on leadership was based on
psychological focus of the day, which was of people h
inherited characteristics or traits.
• Attention was thus put on discovering these traits, 215

by studying successful leaders,

 Theories of Leadership…Cont’d
Behavioral Theory
Assumptions
 Leaders can be made, rather than are born.
 Successful leadership is based in definable, learnable
behavior.
Description
 Behavioral theories of leadership do not seek inborn traits o
capabilities. Rather, they look at what leaders actually do.
 Ifsuccess can be defined in terms of describable actions,
then it should be relatively easy for other people to act in
the same way. This is easier to teach and learn then to
adopt the more ephemeral (short-lived) 'traits' or
'capabilities'. 216
Theories of Leadership…Cont’d
Situational Leadership Theory
Assumptions
 The best action of the leader depends on
a range of situational factors.
 Situational leadership has many variants
as discussed in the following slides.

217
Motivation
 Motivation is the willingness to do something an
conditioned by this action’s ability to satisfy some n
for the individual.
 Need is a physiological or psychological deficiency
makes certain outcomes appear attractive.
 Motivated employees are in a state of tension. In orde
relieve this tension, they engage in activity. The gre
the tension is the greater the activity.
 When employees are working hard at some activity
can conclude they are driven by a desire to ach
Something (i.e., a goal) they value.
 Remember motivation theories are culture-bound.
218
Motivation…Cont’d
To improve motivation:
• Leaders should recognize individual differences
among employees
• Match people to jobs and responsibilities
• Use goals
• Individualize rewards whenever possible
• Link rewards to performance
• Check the system for equity

219
 Theories of Motivation
 Content theory focuses on human needs
desires that are internalized and give impetus
individual behavior.
 Processtheory examines employee behavior
terms of job satisfaction related to percei
rewards (or lack of rewards) that instig
behavior.
 Reinforcement theory explains behavior in ter
of consequences learned from past experien
that teach individuals what to do to avoid p
and to gain pleasure. 220
The Content Theories of Moti
 The content theories of motivation help us t
understand human needs and how people
with different needs may respond to differen
work situations
 Needs are the unfulfilled physiological or
psychological desire of an individual.
 Content theories of motivation use individu
needs to explain the behaviors and attitude
of people at work.
 Also called intrinsic
221
Maslow’s Theory of Motiva
 In1943, Maslow wrote five fundamental
human needs and their hierarchical natur
 Maslow stated that individuals have five need
which he arranged in a hierarchy from the mo
basic level to the highest: physiological,
safety, belongingness and love, esteem,
and self-actualization.
 The lower the needs in the hierarchy, the
more fundamental they are and the more a
person will tend to abandon the higher needs
order to pay attention to sufficiently meet the
lower needs. 222
Maslow’s Hierarchy of Nee

223
Explanations
 Physiological needs are to do with the maintenanc
the human body.
 Safety needs are about putting a roof over our head
and keeping us from harm.
 Belonging needs introduce our tribal nature. If we a
helpful and kind, others want us as friends.
 Esteem needs are for a higher position within a grou
people respect us, we have greater power.
 Self-actualization needs are our greatest achievem
224
Explanations…cont’d
 Lower order needs:
 Includephysiological, safety, and social
concerns
 Are desires for social and physical well-being

 Higher order needs:

 Esteem and self-actualization
 Representa person’s desires for psychological
development and growth
225
How do these needs affect
human behavior?
 Two principles:
The deficit principle holds that a
need is not a motivator of behavior
The progression principle holds th
at one level does not become activ
the next lower level need is already s

226
Herzberg’s Two Factor The
Two factors:
 The satisfier factors
(Motivators) - things relating to
the nature of the job itself
 The hygiene (dis-satisfiers)
factors - things relating more to
the work setting
227
Herzberg’s…cont’d
Job dissatisfaction Job satisfaction
Influenced by job context, or Influenced by job content
hygiene factors motivator factors
 Working conditions  Sense of achievement
 Interpersonal relations  Feelings of recognition
 Organizational policies  Sense of responsibility
 Quality of supervision  Opportunity for advance
 Base wage or salary  Feelings of personal grow

Rule: Poor job context increases Rule: Good job content

dissatisfaction increases satisfaction
Herzberg’s…cont’d
 The two factor theory remains a useful reminder tha
two important aspects of all jobs:
 Job content (intrinsic)-what people do in terms
and
 Job context (extrinsic)- the work setting in whic
 Herzberg’s advice to leaders are:
 Always correct poor context to eliminate actual
sources of job dissatisfaction, and
 Be sure to build satisfier factors into job conten
maximize opportunities for job satisfaction.
229
 Theory X and Theory Y

 McGregor described Theory X

and Theory Y

 Theory X and theory Y each

represent different ways in which
leaders view employees
230
Theory X
 Theory X believes that employees are lazy,
uncooperative
 The average human being has an inherent dislike
work, wishes to avoid responsibility
 Have relatively little ambition, and wants secu
above all.
 Most people must be controlled, directed,
threatened with punishment
 Matches with the traditional view
231
Theory Y
 Theory Y believes that subordinates work
hard, are cooperative, and have positive
attitudes.
 Individual and organizational goals can be
integrated.
 Expenditure of physical and mental effort in
work is as natural as play or rest.
 Control and the threat of punishment are not
the only means for bringing out effort toward232

organizational objectives.
Theory Y…Cont’d
 Commitment is a function of rewards
associated with achievement
 The average human being learns, under prop
conditions, not only to accept but also to see
responsibility
 Theory Y's purpose is to encourage
integration, to create a situation in which a
employee can achieve his or her own goals b
by directing his or her efforts toward the
objectives of the organization.
233
Process Theories of Moti
 Content Theories emphasize people’s percei
needs. In contrast, process theories emphas
that employees make decisions about how t
will perform at work.
 They are viewed as making conscious a
subconscious evaluations of contempla
actions and the consequences of those actio
few of the process theories of motivation
presented below.

234
 Equity Theory
The essence of the theory is that perce
inequity is a motivating state
Inequities occur whenever people feel that
rewards received for their work are un
compared with the rewards other persons app
to be getting.
The comparison points may be coworkers in
group, workers elsewhere in the organization,
even persons employed by other organizations
235
Equity Theory…Cont’d
 Theways people deal with perceived
inequity include the following:
 Change their work inputs by putting less
effort into their jobs.
 Change the rewards received by asking for
better treatment.
 Change the comparison points by finding
ways to make things seen better.
 Change the situation by transferring or
quitting the job.
236
Equity Theory…Cont’d
 Peoplewho feel underpaid and perce
negative inequity tend to reduce t
work efforts to compensate for
missing rewards
 People who feel overpaid and perce
positive inequity by contrast, have b
found to increase the quantity or qua
of their work.
237
Expectancy Theory
The expectancy theory of
motivation asks a central
question:
what determines the
willingness of an individual to
work hard at tasks important
to the organization? 238
Expectancy Theory…Cont’d
 Inresponse to this question, expectancy theo
suggests that “people will do what they can d
when they want to do it.”
 More specifically, the theory suggests that th
motivation to work depends on th
relationships between the three expectan
factors.

239
 Expectancy Theory…Cont’d
The three expectancy factors are:
Expectancy: A person’s belief that working h
will result in a desired level of task performa
being achieved
Instrumentality: A person’s belief that succes
performance will be followed by rewards
other potential outcomes
Valence: The value a person assigns to
possible rewards and other work rela
outcomes.

240
Expectancy Theory…
Cont’d
 Expectancy theory posits that
motivation (M), expectancy (E),
instrumentality (I), and valence
(V) are related to one another in a
multiplicative fashion:

M=E x I x V
241
Goal Setting Theory

This theory’s basis premise is that task g

can be highly motivating-if they are prop
set and if they are well managed.
Goals give direction to people in their wo
Goals clarify the performance expecta
between a leader and followers, betw
coworkers, and across subunits in
organization.
242
Goal Setting
Theory….Cont’d
The key issues and principles in managi
this goals-setting process are:
 Setspecific goals: They lead to high
performance than more generally stat
ones, such as “Do your best.”
 Set challenging goals: As long as they a
viewed as realistic and attainable, mo
difficult goals lead to higher performan
than do easy goals.
243
Goal Setting Theory….Cont’d
 Build goal acceptance and commitme
People work harder for goals that th
accept and believe in; they tend to res
goals forced on them.
 Clarifygoals priorities: Make sure th
expectations are clear as to which goa
should be accomplished first and why.
 Reward goals accomplishment: Don’t
positive accomplishments pass unnotice
reward people for doing what they set o
to do. 244
Reinforcement Theory of Motivatio
 Reinforcement theory views hum
behavior as determined by
environmental consequences.
 Instead of looking within the individual
explain motivation and behavior,
focuses on the external environment a
the consequences it holds for t
individual.
245
 Reinforcement …
Cont’d
 The basic premises of the theory are
based on the law of effect: Behavior
that results in a pleasant outcome is
likely to be repeated; behavior that
results in an unpleasant outcome is not
likely to be repeated.

246
Reinforcement Strategies

 Reinforcement is the process by which

certain types of behaviors are
strengthened. Thus a ‘reinforcer’ is any
stimuli that causes certain behavior to
be repeated or inhibited.

247
Reinforcement Stra…Cont’d
There are four reinforcement strateg
they are:
 Positive reinforcement: A posi
reinforcement is a reward for a des
behavior.
 Negative Reinforcement: Nega
reinforcement is the removal of
unpleasant consequence following
desired behavior.
248
Reinforcement Stra…
Cont’d
Extinction: Extinction is the withdrawal
of positive reward and removal of all
reinforcements following an
undesirable behavior.
 Punishment: punishment is the
administration of negative
consequences following an undesirable
behavior.

249
Meaning of communicatio
Communication is a share
meaning among two or mor
people through verbal an
nonverbal transaction.
Communication in management is th
sharing, receiving and understanding o
instructions, concepts, opinions an
information about company affairs an
reacting to such activities in one way o
another.
250
Formal Communication

 It occurs through official channels.

 Memos, policies, procedures, and reports of
committee meetings are the example of formal
communication.
 In the formal communication we find:
 vertical - upward and downward Communication
 horizontal Communication
 diagonal communication

251
Formal Communication
Flow

252
Informal Communication
 Informal channel consists of the communication
chain and networks created by friendship and social
association within the work environment.
 Informal communication grows out of the social
interaction among people who work together.

253
Communication Barriers
Common Barriers Include:
 Distractions
 Lack of knowledge
 Emotional or psychological Barriers
 Inadequate listening
 Inappropriate channel
 Differences in perception
 Disorganization
 Information overload
254
Chapter Eight
THE CONTROLLIGN
FUNCTION

255
 Definition of Control
 Controlling
 The process of measuring performance and taking action to e
desired results.
 Has a positive and necessary role in the management proces

 Ensures that the right things happen, in the right way, at the
time.
 Importance of Controlling
 Adapting to changing conditions
 Limiting the magnification of errors

256
Yohannes Neda
The Controlling Process

257
Yohannes Neda
 Controlling Process… Cont’d

 Step 1 — establishing objectives and standards

 Output standards
Measure performance results in terms of
quantity, quality, cost, or time.
 Input standards
Measure effort in terms of amount of work
expended in task performance.

258
Yohannes Neda
Controlling Process… Cont’d

 Step 2 — measuring actual performance

 Goal is accurate measurement of actual

performance results and/or performance
efforts.
 Must identify significant differences betwe
actual results and original plan.
 Effective control requires measurement. 259
Yohannes Neda
The controlling process…

 Step 3 — comparing results with objectives

and standards
 Need for action reflects the difference
between desired performance and actual
performance
 Comparison methods:
Historical comparison
Relative comparison
Engineering comparison
260
Yohannes Neda
Controlling Process… Cont’d
 Step 4 — taking corrective action
Taking action when a discrepancy exists
between desired and actual performance.
 Management by exception
Giving attention to situations showing th
greatest need for action.
Types of exceptions
Problem situation
Opportunity situation
261
Yohannes Neda
Types of Controlling
 Feed forward controls/Preventive/Steering/
Preliminary
 Employed before a work activity begins.

 Ensures that:
Objectives are clear.
Proper directions are established.
Right resources are available.
 Focuses on quality of resources.
262
Yohannes Neda
Types of Controlling… Cont’d

 Concurrent controls …

 Focus on what happens during work

process.
 Monitor ongoing operations to make sure
they are being done according to plan.
 Can reduce waste in unacceptable finished
products or services.
263
Yohannes Neda
Types of Controlling…
Cont’d
 Feedback controls/Post-Action/ Output Control

 Take place after work is completed.

 Focus on quality of end results.

 Provide useful information for improving future

operations.

264
Yohannes Neda
Types of Controlling… Cont’d

265
Yohannes Neda
Types of Controlling…
Cont’d
 Cybernetic and Non-cybernetic Controls
 A cybernetic control system is a self-regulating
control system that, once it is put into operation,
can automatically monitor the situation and take
corrective action when necessary
 A non-cybernetic control system is a control system
that relies on human discretion as a basic part of its
process.

Yohannes Neda 266

Characteristics of an
Effective Control System
  Organizationally
Future–Oriented
Realistic
 Multidimensional
 Flexible
 Economically
 Focus on Critical
Realistic/ Cost
Effective Control Points
 Easy to Understand
 Accurate
 Emphasis on Excepti
 Acceptable to
Organization Members  Reliability and Validi
 Timely  Monitorable
Yohannes Neda 267
Assignment Two
1.
A.Take the case any organization you
familiar with and write a brief essay on
planning practice of the organization.
B.Write your comment on the plann
practice of the organization
2. Take the case any organization you a
familiar with and write a brief essay on t
structure of the organization.
Yohannes Neda 268