UNIT: 1

MANAGEMENT THEORY AND PRACTICE

Introduction:
During the last six-seven decades, management as a discipline has attracted the attention of
academicians and practitioners to a very great extent. The basis reason behind this phenomenon
is the growing importance of management in day-to-day life of people. Today, the society has
large and complex institutions with many people working together. The relationship between
managers and managed has changed as compared to the older master-servant relationship making
it more complex. People have greater expectations from their jobs. In order to make all these
things and function properly, people have been trying to evolve some methods and techniques.
Such attempts have given the birth of management as a separate discipline. It has been grown
over the period of time making itself one of the most respected disciplines. Today, the study of
management has become an important facet of human life.
In order to satisfy his/her wants a person has to perform numerous activities. An
individual alone cannot perform all the necessary activities. Therefore, human beings join or
cooperate together in the form of groups and organizations. Every organization (a church, a
government, an army, a family, a college, a business enterprise) is basically a group of people
seeking to attain some common objectives. A central organ or agency is required to coordinate
the activities and efforts of various individuals working together in an organization so that they
can work collectively as a team. Such an organ is called management.
Concept (Meaning) of Management:The term management conveys different meanings depending upon the context in which it is
used. Being a new discipline, it has drawn concepts and principles form economics, sociology,
psychology, anthropology, history, statistics, and so on. The result is that each group of
contributors has treated management differently. For example, economists see management as a
factor of production; sociologists see it as a class or group of persons; practitioners of
management treat it as a process. Naturally, all these divergent groups view the nature and scope

of management from their own point of view. Thus taking all these points of view together, it
becomes difficult to define management in a comprehensive way.
Definitions:
Harold Koontz: Management is the art of getting things done through and with people in
formally organized groups.
Peter F. Drucker: Management is multipurpose organ that manages a business and manages
managers and manages worker and work.
Koontz and ODonnell: Management is the creation and maintenance of an internal
environment in an enterprise where individuals, working in groups, can perform efficiently and
effectively toward the attainment of group goals.
Salient Features (Nature of Management):1. Management is universal: Management is required in every form of group activity
whether it is a family, a club, a government, an army or a business house. The approach
and style of management may differ from one organization to another. But in each case it
involves marshalling of human and physical resources towards the attainment of common
objectives. The fundamental principles of management are applicable in all areas of
organized effort. Managers at all levels perform the same basic functions.
2. Management is purposeful: Management exists for the achievement of specific
objectives. It is a means towards the accomplishment of predetermined goals. All
activities of management are goal-oriented. The success of management is measured by
the extent to which the desired objectives are attained. Management has no justification
to exist in the absence of objectives. Management is creative-a process of achieving
results. It makes things happen.
3. Management is unifying force: The essence of management lies in the coordination of
individual efforts into a team.

Management reconciles the individual goals with

organizational goals. As a unifying force, management creates a whole that is more than
the sum of individual parts. It integrates human and other resources.
4. Management is a social process: management is done by people through people and for
people. It is a social process because it is concerned with interpersonal relations. Human

factor is the most important element in management.

According to Appley,

Management is the development of people not the direction of things. A good manager
is a leader not a boss.

It is the pervasiveness of the human element which gives

management its special character as a social process.

5. Management is multidisciplinary: Management has to deal with human behavior under
dynamic conditions.

Therefore, it depends upon wide knowledge derived from the

several disciplines like engineering, sociology, psychology, economics, mathematics,

anthropology, etc. The vast body of knowledge in management draws heavily upon other
fields of study.
6. Management is a continuous process: Management is a dynamic and on-going process.
The cycle of management continues to operate so long as there is organized action for the
achievement of group goals.
7. Management is intangible: Management is an unseen or invisible force. It cannot be
seen but its presence can be felt everywhere in the form of results. However, the
managers who perform the functions of management are very much tangible and visible.
8. Management is situational: Efficient management is always situational or contingency
management because there is not one best way of doing things. A successful manager
must take into account situational differences. This is what management is all aboutthe
application of knowledge realities in order to attain desired results.
9. Management is essentially an executive function: It deals with the active direction and
control of the activities of people to attain predetermined objectives. Management is a
technique by means of which the objectives human groups are determined, clarified and
accomplished.
10. Management is an art as well as a science: Management contains a systematic body of
theoretical knowledge as well as the practical application of such knowledge.
Scope of Management (Operative Functions of Management):
The scope of management is very wide. The various functional areas of management may be
classified into the following categories:
1. Production Management: Production or operations management is the management of
production and various operations in the organization so as to produce the right goods, in

right quality and quantity, at the right time and at the right cost. It consists of the
following activities:

a) designing the product, b) location and layout of plant and

buildings, c) operation of purchase and storage of materials, d) planning and control of

factory operations, e) repairs and maintenance, f) inventory control and quality control,
and g) research and development, etc.
2. Marketing Management: Marketing management refers to the identification of
consumers needs and supplying them the goods and services which can satisfy those
wants. It involves the following activities: a) marketing research to determine the needs
and expectations of consumers, b)setting appropriate prices, c) selecting the right
channels of distribution, d) promotional activities like advertising and salesmanship to
communicate with the customers.
3. Financial Management: Financial management seeks to ensure the right amount and
type of funds to business at the right time and at reasonable cost. It comprises the
following activities: a) estimating the volume of funds required for both long-term and
short-term needs of business, b) selecting the appropriate sources of funds, c) raising the
required funds at the right time, d) ensuring proper utilization and allocation of raised
funds so as to maintain safety and liquidity of funds and the creditworthiness and
profitability of business, and e) administration of earnings. Thus financial management
involves the planning, organizing and controlling of the financial resources.
4. Personnel Management:

Personnel management involves planning, organizing,

directing and controlling the procurement, development, compensation, maintenance, etc.

of the human resources in an enterprise.

It consists of the following activities: a)

manpower planning, b) recruitment, and selection, c) training and development, d)

performance appraisal, e) compensation and promotion, f) employee services and
benefits, and g) personnel records and research etc.
Management: Science or Art
The controversy with regard to the nature of management, as to whether it is a science or art, is
very old. This controversy, however, is not very much in the air though the controversy is yet to
be settled. Specification of exact nature of management as science or art or both is necessary to
specify the process of learning of management. It is to be noted that learning process in science

differs from that of art. Learning of science basically involves the assimilation of principles
while learning of art involves its continuous practice. Much of the controversy of management
as science or art is on account of the fact that the earlier captains of the industry and managers
have used intuition, hunches, commonsense, and experience in managing organizations. They
were not trained professional managers, although they were very brilliant and had developed
commonsense through which they managed well.
Management as an Art:
Art involves the practical application of personal skills and knowledge to achieve concrete
results. It is the practical way of doing specific things. The function of the art is to effect change
and to achieve desired results. Art represents how of human behavior or the know-how to do
work. Art is a personalized process and every artist has his own style. Art is essentially creative
and the success of an artist is measured by the results he achieves. Thus the main elements of an
art are: a) personal skills, b) practical know-how, c) result-orientation, d) creativity, and e)
constant practice aimed at perfection.
Management is basically an art because of the following reasons:
a) Like any other artist, a manager applies his knowledge and skills to coordinate the efforts
of his people.
b) Management seeks to achieve concrete practical results, e.g., profits, growth, social
service, etc., in a given situation.
c) Like any other art, management is creative. It brings out new situations and converts
resources into output.
d) Management is personalized process. Every manager adopts his own approach towards
problems depending upon his perception and the environmental condition.
e) Effective management leads to realization of organizational and other goals. The success
of a manager is measured by the results he achieves. Mastery in management requires a
sufficiently long period of experience in managing. The managerial art can be refined
through continuous practice.
Management as a Science:

The essential elements of science are as follows:

a) Science is a systematized body of knowledge pertaining to a particular field of inquiry. It
is systematized in the sense that it establishes cause and effect relationship between
different variables.
b) It contains underlying principles and theories developed through continuous observation,
experimentation and research.
c) The principles have universal applicability.

They can be applied under different

situations barring a few exceptions which can be logically explained. The principles are
verifiable and lead to predictable results.
d) The organized body of knowledge can be taught and learnt in the classroom and outside.
Physics, Chemistry, Mathematics and Economics are some examples of science.
Management is a science because it contains all the essentials of science:
a) There is now a systematized body of knowledge.

Principles and theories are now

available in every area of management.

b) Principles of management have been evolved through practical experience and theoretical
research over several decades.
c) Managerial principles have a wide and repetitive range of application.
d) Management theory and principles can be taught in classrooms and in industry.
Thus, management is neither exclusively an art nor exclusively a science but a combination of
both. According to Koontz and ODonnell, Essentially, managing is the art of doing and
management is the body of knowledge which underlies the art. Science without art is sterile
and art without science is blind. Every art is based on an underlying body of knowledge and
with every advancement in science; art is freed from dependence on intuition and judgment. A
manager without any knowledge of underlying theory has to depend on luck, precedents and
intuition which are highly unreliable. Management theory helps him to understand the problems
correctly. It provides insight to diagnose problems and opportunities. It encourages systematic
thinking and right perspective. Therefore, management theory is a foundation to management
practice.
Management theory cannot by itself lead to success in management.

Acquiring

knowledge and skills in management is not an end in itself. A person with an advanced degree or

diploma in management cannot be an effective manager unless he knows how to apply

management theory in real business situations. The science of management may be learnt in the
classroom but practice is required to make its successful use. The practicing manager is like
goldsmith who has to cut, refashion and give a finish to the gold of principles to meet specific
situations faced by him. If the existing body of knowledge does not provide the solution to his
problem, he will seek new solutions thereby adding to the science of management.
Thus, the theory (science) and practice (art) of management go side by side for the
efficient functioning of an organization.

Management Vs. Administration:

There has been a controversy on the use of the two termsmanagement and administration.
Various authorities have expressed divergent views. Many experts make no distinction between
administration and management and use them as synonyms. Several American writers consider
them as two distinct functions. A few experts treat administration as a part of management.
Then, three points of view are explained here:
1. Administration is above management: According to this viewpoint administration is a toplevel function while management is a lower-level function. Administration is a determinative
(thinking) function concerned with laying down basic objective and broad policies of an
organization. On the other hand, management is an executive (doing) function involving the
direction of human effort towards the realization of such objectives. Therefore, managers are
often called executives. This view is held by eminent American experts on management. Oliver
Sheldon was the first person to make a distinction between management and administration.
According to him, Administration is the function in industry concerned with the determination
of corporate policy, the coordination of finance, production and distribution, the settlement of the
compass (structure of the organization), and ultimate control of the executive. Management, on
the other hand, is the function in industry concerned with the execution of policy within the
limits setup by administration, and the employment of the organization for the particular
objective set before it. Administration defines the goal, management strives toward it. Thus,
this view considers administration as superior to management.

2. Administration is a part of management:

European School of thought holds that

management is a comprehensive term and administration is a part of it According to E.F.L.

Brech, Management is the generic term for the total process of executive control involving
responsibility for effective planning and guidance of the operations of an enterprise.
Administration is that part of management which is concerned with the installation and carrying
out of the procedures by which the program is laid down and communicated and the progress of
activities is regulated and checked against plans. Thus, the European viewpoint is exactly
opposite to the American viewpoint.
3. Administration and management are one: Henry Fayol, Georgy R. Terry, Harold Koontz,
William Newman and many other writers make no distinction between administration and
management. Fayol said, all undertakings require the same functions and all must observe the
same principles. There is one common science which can be applied equally well to public and
private affairs. According to W. H. NewMan, management or administration is the guidance,
leadership and control of the efforts of a group of individuals towards some common goals.
The distinction between administration and management is superfluous and meaningless.
In practice, the two terms are used interchangeably because both involve the same principles and
functions. Somehow, the world management has become popular in business enterprises where
economic performance is of primary importance. On the other hand, the term administration is
preferred in government departments, hospitals, religious trusts, educational institutions, and
other non-business organizations.
Levels of Management:
In every company, there is a managerial hierarchy or chain of command which consists of
several levels of authority. The number of management levels may differ from company to
company. In a big company, the management levels may be classified as follows:
1. Top management
2. Middle management and
3. Supervisory or Operating or First Line management
1. Top management: Top management consists of a Board of Directors and the Chief Executive.
Chief executive may be an individual, e.g., managing director, general manager, chief operating
officer etc. or a group consisting of chairman and functional/executive directors. Board of

directors is accountable to the shareholders in the Annual General Meeting of the company. It is
basically an organ of overall review and control. Chief executive is concerned with the overall
management of the companys operations.

He maintains coordination among different

departments/subsidiaries/units of the company. He also keeps the organization in harmony with

its external environment.
Thus, the main functions of top management are:
a) To analyze and interpret changes in the external environment of the company;
b) To establish long-term corporate plans (goals, policies and strategies) of the company.
c) To formulate and approve the master budget and departmental budgets.
d) To design broad organization structure.
e) To appoint departmental heads and key executives.
f) To coordinate and integrate the activities of different departments and divisions of the
company.
g) To provide overall direction and leadership to the company.
h) To exercise overall review and control of the financial and operating results of the
company.
i) To represent the company to the outside world (public relations), and
j) To decide the distribution of profits, etc.
Intermediate Management: Intermediate or upper middle management comprises departmental or
divisional heads, e.g. works manager, marketing manager, finance and HR managers etc. It is
also known as departmental or functional management. Every divisional or departmental head is
the overall in-charge of one particular division or department.

He is accountable for the

performance of his division or department to the chief executive.

He performs the usual

managerial functions of planning, organizing, staffing, directing and controlling in relation to one
department. He coordinates and controls the activities of all personnel working in different
branches or sections of his particular department.
2. Middle Management: Middle management or lower middle management level consists of
sectional heads, e.g., plant manager, area sales manager, branch manager, office manager, etc.

These executives serve as a link between intermediate or top management and the operating
management. The main functions of middle level managers are:
a) To interpret and explain the plans and policies formulated by top management;
b) To monitor and control the operating performance;
c) To cooperate among themselves so as to integrate the various activities of a department
d) To train, motivate and develop supervisory personnel, and
e) To lay down rules and regulations to be followed by supervisory personnel.
3. Supervisory or Operating Management: This is the lowest or first level of management in
an organization. It consists of supervisors, foremen, sales officers, accounts officers, purchasing
officers etc. The distinguishing feature of supervisory management is that it deals with nonmanagers, i.e., workers, whereas all other levels deal with executives. Supervisors and operating
managers maintain close contacts with the rank and file workers and supervise day-to-day
operations.

They serve as the channel of communication between management and the

workforce. They are concerned with the mechanics of jobs. The functions of supervisory
management are as follows:
a) To plan day-to-day production within the goals laid down by higher authorities.
b) To assign jobs to workers and to make arrangements for their training and development.
c) To issue orders and instructions.
d) To supervise and control workers operations and to maintain personal contacts with them.
e) To arrange materials and tools and to maintain machinery.
f) To advise and assist workers by explaining work procedures, solving their problems etc
g) To maintain discipline and good human relations among workers.
h) To report feedback information and workers problems to the higher authorities.
Skills of a Manager:
The job of a manager has become very challenging. Several skills are required in order to be a
successful manager. The skills of an effective manager may be classified into four categories as
given below:
1. Technical Skills: Technical skills refer to the ability and knowledge in using the equipment,
techniques and procedures involved in performing specific tasks. These skills require specialized

knowledge and proficiency in the mechanics of a particular job. Ability in programming and
operating computer is a technical skill. There are two things a manager should understand about
technical skills. In the first place, he must know which skills should be employed in his
particular enterprise and be familiar enough with their potentiality to ask discerning questions of
his technical advisers.

Secondly, a manager must understand both the role of each skill

employed and the interrelationships between the skills.

2. Human Skills: Human skills consist of the ability to work effectively with other people both
as individuals and as members of a group. These are required to win co-operation of others and
to build effective work teams. Such skills require a sense of feeling for others and capacity to
look at things from others point of view. Human skills are reflected in the way a manager
perceives his superiors, subordinates and peers. An awareness of the importance of human skills
should be part of a managers orientation and such skills should be developed throughout the
career. While technical skills involve mastery of things, human skills are concerned with
understanding of people.

Top Management
Middle Management
Operating Management

Conceptual Skills

Human Skills

Technical Skills

3. Conceptual Skills: Conceptual skills comprise the ability to see the whole organization and
the inter-relationships between its parts. These skills refer to the ability to visualize the entire
picture or to consider a situation in its totality. Such skills help the manager to conceptualize the
environment, to analyze the forces working in a situation and to take a broad and farsighted view
of the organization. Conceptual skills also include the competence to understand a problem in all
its aspects and to use original thinking in solving the problem. Such competence is necessary for

rational decision making. Thus, technical skills deal with jobs, human skills with persons and
conceptual skills with ideas.
4. Diagnostic Skills: Diagnostic skills include the ability to determine, by analysis and
examination, the nature and circumstances of a particular condition. It is not only the ability to
specify why something happened but also the ability to develop certain possible outcomes. It is
the ability to cut through unimportant aspects and quickly get to the heart of the problem, i.e.,
logical thinking, analytical reasoning and creativity. Diagnostic skills are probably the most
difficult ones to develop because they require the proper blend of analytic ability with
commonsense and intelligence to be effective.
Technical skills are most important at the supervisory or operating level where a close
understanding of job techniques is necessary to guide workers. Higher level managers deal with
subordinate managers and specialized technical knowledge is comparatively less important and
human and conceptual skills are more important. Conceptual skills are very important for top
management in formulating long range plans, making broad policy decisions, and relating the
business enterprise to its industry and the economy. Thus, the relative importance of conceptual
skills increases as we move to higher levels of management. Human skills are equally important
at all levels of management. This should be self-evident as management is the process of getting
things done through people.
Roles of a Manager:
The job of a modern manager is very complex and multi-dimensional. Henry Mintzberg has
identified ten roles of a manager which are grouped into three categories. There is some
arbitrariness in this classification but it is a useful framework for analyzing and understanding
the managerial job. These roles are inseparable and should, therefore, be viewed as an integrated
whole. For example, status, as manifested in the interpersonal roles, brings information to the
manager, and it is this information (together with the status) that enables him to perform the
decision-making role effectively.
A brief description of the ten roles is given below:

1. Figurehead: In this role a manager performs symbolic duties required by the status of his
office. Making speeches, bestowing honors, welcoming official visitors, distributing gifts to
retiring employees are examples of such ceremonial and social duties.
2. Leader: This role defines the managers relationship with his own subordinates. The manager
sets an example, legitimizes the power of subordinates and brings their needs in accord with
those of his organization.
3. Liaison: It describes a managers relationships with the outsiders. A manager maintains
mutually beneficial relations with other organizations, governments, industry groups etc.
4. Monitor: It implies seeking and receiving information about his organization and external
events. An example is picking up a rumor about organization.
5. Disseminator: It involves transmitting information and judgments to the members of the
organization. The information relates to internal operations and the external environment. A
manager calling a staff meeting after business trip is an example of such a role.
6. Spokesman: In this role, a manager speaks for his organization lobbies and defends his
enterprise. A manager addressing the trade union is an example.
7. Entrepreneur: It involves initiating change or acting as a change agent. For example, a
manager decides to launch a feasibility study for setting up a new plant.
8. Disturbance Handler: This refers to taking charge when the organization faces a problem or
crisis, e.g., a strike, feud between subordinates, loss of an important customer. A manager
handles conflicts, complaints and competitive actions.
9. Resource Allocator: In this role a manager approves budgets and schedules, sets priorities
and distributes resources.
10. Negotiator: As a negotiator, a manager bargains with suppliers, dealers, trade unions, agents,
etc.
Importance of Management:
The survival and growth of an organization depends largely on the competence and character of
its management. Every organization needs repeated stimulus which only managers can provide.
Management is the dynamic life-giving element in every organization. Without management the
resources of production remain resources and can never become output. Organizations stand or

fall on the quality of their managements because sound management provides the following
benefits:
1. Achievement of group goals: Management enables an enterprise to achieve its desired
objectives through proper planning and control. It decides what should be done and how.
It lays down the long-term and short-term goals keeping in mind the resources of the
enterprise. Management maintains order and coordination and without it there will be
utter chaos.

Management also creates a sound organization structure that prov8des

specialization. Through a well-organized system of direction and control, management

keeps a close watch on the activities of the organization. Thus, management makes an
organization successful through sound resource planning and effective control.
2. Optimum utilization of resources: Materials, machinery, and money are the physical
factors of production. The efficient use of these resources depends upon the efficiency
and motivation of workers. Management makes the workers efficient and motivated
through training, supervision and inspiring leadership. Managers guide and motivate
workers towards best performance. They tell workers what to do and how to do their
jobs. Managers develop a spirit of mutual cooperation and a sense of responsibility
among workers.
3. Fulfillment of social obligations: Sound management monitors the environment of
business and makes necessary changes in business policies and practices so as to keep the
consumers and workers satisfied. In this way, managers help an enterprise to fulfill its
obligations towards different sections of society. Management balances and integrates
various interests in group efforts.
4. Economic growth: Management is the catalyst of economic growth. We no longer talk
of capital and labor but of management and labor. Peter F. Drucker said, Development
is a matter of human energies rather than of economic growth, and the generation of
human energies is the task of management. Management is the mover and development
is the consequence.
5. Stability: Management ensures the survival of an organization in a fast changing
environment. It coordinates the activities of different departments in an organization and
maintains team spirit amongst the personnel. Just as mind controls the body, similarly
management directs and controls the organization to keep it on the right track.

6. Human development: Management is not simply the direction of things but the
development of men. It improves the personality and caliber of people to raise their
efficiency and productivity.

A good manager serves as a friend and guide to his

subordinates.
7. Meets the challenge of change: Management is the catalytic force that enables an
organization to face the challenge of change. The environment of business has become
very turbulent. Managers maintain a dynamic equilibrium between an enterprise and its
environment through innovation and creativity.
Thus, good management achieves both economic and social objectives by making best use of
human and material resources and by providing satisfaction of people. In the words of John
F. Mee, Management is an art of securing maximum results with a minimum of effort so as
to ensure maximum prosperity for the employer and employee and give the public the best
possible service.
In recent years the role of management has increased due to the following challenges:
a) Growing size and complexity of business
b) Changing technology
c) Need for optimum utilization of resources,
d) Cut-throat competition in the market
e) Uncertain business environment
f) Increasing expectations of social groups and
g) Growth of trade union movement.

Management as a Process:
Process means a series of operations or actions necessary to achieve certain results. A process
has a beginning and termination. It consists of some distinct stages or steps which take place in a
sequential manner. As a process management refers to a series of interrelated elements or
functions. These are:
a) Defining the aims or objectives of the organization;
b) Formulating policies, procedures, programs, etc. to attain these objectives efficiently and
economically;

c) Bringing together men, money, materials, machinery and other factors of production;

Organizing
Planning
Controlling d) Assigning
work or duties to people and defining their authority and responsibility;

e) Guiding and inspiring people to perform the assigned tasks planned and
Staffing

f) Exercising control over the performance of people.

Directing

Management Process

Elements of the Management Process.

Nature or Features of the Process of Management:
The process of management is characterized by the following features:
1. Continuity: Management is a continuous process. This process is analyzed into several
elements like planning, organizing, staffing, directing and controlling. But this does not
mean that the process always begins with planning and comes to an end with controlling.
The elements or function are interrelated and interdependent. The functions may be
fused and the sequence may begin with any function and the entire process cycle may be
completed.

It is therefore, undesirable to insist that a manager must perform the

functions always in a definite chronological sequence. The management cycle is never

ending and is repeated over and over again.
2. Circular: The managerial functions are interactive in nature. This means they are
contained within each other. For example, planning, organizing, directing and controlling
all may occur within the planning process. In a way, all functions may be considered as
sub-functions of each other. A preceding element of the management process influences
all the success elements and is in turn influenced by them. Therefore, management is
circular and not a linear process.

3. Social: Management is a human and social process and not a mechanical one.

It

influences significantly the people inside and outside an organization and the society as a
whole. Management has far-reaching social consequences. Therefore, a manager while
taking decision must remember the likely impact of his decision on society. Moreover,
the management process is carried out by people, through people and for people.
4. Composite: All the managerial functions must be considered in the totality because
management process is an organic and integrated whole. Each function makes a distinct
contribution to this process but cannot be considered in isolation. All the functions
contribute to the whole and derive strength from each other. The final outcome is greater
than the aggregate of their individual contributions. A manager performs the various
functions simultaneously in a continuum.
Classification of Management Functions:
The elements of management process are known as functions of management. There is, no
single list of functions acceptable to all.
differently.

Various authors have classified these functions

Henry Fayol has classified them into planning, organizing, commanding,

coordinating and controlling. R.C. Davis identified planning, organizing, and coordination as
parts of control. Luther Gullick has given keyword POSDCORB which stands for Planning,
Organizing, Staffing, Directing, Controlling (Co), Reporting and Budgeting.

Koontz and

ODonnell have suggested planning, organizing, staffing, directing and controlling. Ernest Dale
has in addition mentioned innovation and representation.
Broadly, management functions are two types:
1. Managerial Functions
2. Operative Functions
1. Managerial Functions:

Managements managerial functions are planning, organizing,

staffing, directing, controlling. Though the managerial functions are necessary at all levels of
organization, the relative significance of different functions may not be the same at all levels of
management. The time spent on planning and control is more significant at higher levels of
management. A brief description of different managerial functions of management is given
below:

a) Planning: Planning is the most basic or primary function of management. It precedes other
functions because a manager plans before he acts. Planning involves determining the objectives
and selecting a course of action to achieve them. It implies looking ahead and deciding in
advance what is to be done, when and where it is to be done, how and by whom it is to be done.
Planning is a mental process requiring the use of intellectual faculties, foresight, imagination and
sound judgment. It consists of forecasting, decision-making and problem solving. A plan is a
predetermined future course of action.
b) Organizing: Once plans are formulated, the next step is that of organizing. Organizing is the
process of establishing harmonious authority-responsibility relationships among the members of
the enterprise. It is the function of creating a structure of duties and responsibilities. The
network of authority-responsibility relationships is known as organization structure. According
to Henry Fayol, to organize a business is to provide it with everything useful to its functioning
raw materials, tools, capital and personnel. The process of organizing consists of the following
steps:
i) Determining and defining the activities required for the achievement of planned goals;
ii) Grouping the activities into logical and convenient units;
iii) Assigning the duties and activities to specific positions and people;
iv) Delegating authority to these positions and people;
v) Defining and fixing responsibility for performance; and
vi) Establishing horizontal and vertical authority-responsibility relationships throughout the
organization.
c) Staffing: Staffing is the process of filling all positions in the organization with adequate and
qualified personnel. According to Koontz and ODonnell, The managerial function of staffing
involves manning the organizational structure through proper and effective selection, appraisal
and development of personnel to fill the roles designed into the structure. Staffing consists of
manpower planning, recruitment, selection, training, compensation, integration and maintenance
of employees.

Staffing function has become important with growing size of organization,

technological advancement and recognition of the human factor in industry.

d) Directing: Directing is the managerial function of guiding, supervising, motivating and
leading people towards the attainment of planned targets of performance. In the process of
directing his subordinates, a manager takes active steps to ensure that the employees accomplish

their tasks according to the established plans. Directing is the executive function of management
because it is concerned with the execution of plans and policies. Direction initiates organized
action and sets the whole organizational machinery into action.

It is the life spark of an

organization. Directing function of management embraces the following activities:

i) Issuing orders and instructions,
ii) Supervising people at work,
iii) Motivation i.e. creating the willingness to work for certain objectives,
iv) Communication, i.e. establishing understanding with employees regarding plans and their
implementation, and
v) Leadership or influencing the behavior of employees.
e) Controlling: Controlling is the process of ensuring that the organization is moving in the
desired direction and that progress is being made towards the achievement of goals. The process
of controlling involves the following steps: a) establishing standards for measuring work
performance; b) measurement of actual performance and comparing it with the standards; c)
finding variances between the two and the reasons therefore; and d) taking corrective action for
correcting deviations so as to ensure attainment of objectives.
2. Operative Functions of Management: These are:

Production and Operations Management

Marketing Management

Financial Management

Personnel or Human Resource Management

See for explanation: Scope of Management heading in the previous chapter.

Principles of Management:
A principle is a fundamental statement of truth. It establishes a cause and effect relationship
between two or more variables. The principles of management are the result of managers
experience over a long period of time.

Management theory is a systematic grouping of

interrelated principles of management. Management principles are fundamental truths of general

validity which have value in predicting the results of managerial action. These principles are

helpful in providing the groundwork for a science of management. A management principle

refines and organizes knowledge that has been built through experience and research.
Henry Fayol gave the following general principles of management:
1. Division of Work: The work of every person in the organization should be limited as far
as possible to the performance of a single leading function. This helps to do more and
better work with the same effort.
2. Authority and Responsibility: Responsibility is a natural consequence of and a
corollary to authority.

The two are coextensive and, therefore, parity should be

maintained between them. Authority is not being conceived of apart from responsibility.
Wherever authority is exercised responsibility arises.
3. Discipline: It implies respect for agreements designed to secure obedience. It must
prevail throughout an organization to ensure its smooth functioning. Discipline requires
clear and fair agreements, good supervision and judicious application of penalties.
4. Unity of Command: Every employee must receive orders and be accountable to only
one boss. It is necessary to avoid conflicting orders and to ensure order and stability in
the organization. As soon as two supervisors wield their authority over the same person
uneasiness makes itself felt.
5. Unity of Direction: There should be one head and one plan for a group of activities
having the same objective. This is essential to ensure unity and coordination in the
enterprise. Unity of command cannot exist without unity of direction but does not
necessarily flow from it.
6. Subordination of Individual to General Interest: Efforts should be made to reconcile
individual interests with common interests. When there is conflict between the two, the
interests of the organization should prevail over individual interests.

This requires

continuous and exemplary supervision and fair agreements.

7. Remuneration of Personnel: The amount of remuneration and the methods of payment
should be just and fair and should provide maximum possible satisfaction to both
employees and employers.
8. Centralization: According to Fayol, the question of centralization and decentralization is
a matter of finding the optimum degree for the particular concern.

The degree of

concentration of authority should be based upon optimum utilization of all faculties of the
personnel. It should be determined on the basis of individual circumstances in each case.
9. Scalar Chain: Scalar chain refers to the chain of superiors ranging from the ultimate
authority to the lowest level in the organization. It should be short-circuited and not
carried to the extent it proves detrimental to the organization. To prevent the scalar chain
bogging (unable to move) down action, Fayol gave the concept of gang-plank as shown
in the below figure:
O
P -- -- U
O --R
S

---

--- V
-- W
-- X

T ----------Gang-Plank -----------Y
In the above figure, it is shown that if T wants to communicate with Y, usually the message will
flow from T to O via S, R, Q and P and from O it will come down to Y through U, V, W and X.
But if it is essential to communicate immediately, a gang-plank (dotted line) may be created
between T and Y without weakening the chain of command. This gang-plank allows the two
employees to deal directly with each other. But each must inform his superior of any action
taken by him.
10. Order: This principle is concerned with the arrangement of things and the placement of
people. In material order, there should be a place for everything and everything should
be in its proper place. Similarly in social order, there should be an appointed place for
everyone and everyone should be in his or her appointed place. This kind of order
requires precise knowledge of human requirements and resources of the concern so that a
proper balance may be created between them.
11. Equity: Equity implies that employees should be treated with justice and kindness.
Managers should be fair and impartial in their dealings with subordinates. They should
adopt a sympathetic and unbiased attitude towards workers. Equity helps to create
cordial relations between management and workers which are essential for the successful
functioning of every enterprise.

12. Stability of Tenure of Personnel: Employees cannot work efficiently unless job security
is assured to them. Time is required for an employee to get used to new work and
succeed in doing it well. An employee cannot render worthwhile service if he is removed
from the job before he gets accustomed to it. Therefore, management must strive to
minimize employee turnover.
13. Initiative: Employees at all levels should be given the opportunity to take initiative and
exercise judgment in the formulation and execution of plans. Initiative refers to the
freedom to think for one self and use discretion in doing work. It develops the interest of
employees in their jobs and provides job satisfaction to them.
14. Esprit de Corps: This refers to harmony and mutual understanding among the members
of an organization. Union is strength and unity in the staff is the foundation of success in
any organization. Management shuld not follow the policy of divide and rule. Rather it
should strive to maintain team-spirit and cooperation among employees so that they can
work together as a team for the accomplishment of common objectives. Unity among the
personnel can be developed through proper communication and coordination.

Labor Market

Competitors

Suppliers

Customers

Internal
Environment

Employee
Culture
Manageme

Managing for Competitive Advantage:

CORPORATE SOCIAL RESPONSIBILITY:

In the words of Bowen (1953), Social responsibility refers to the obligations (of businessmen)
to pursue those policies, to make those decisions or to follow those lines of action which are
desirable in terms of the objectives and values of our society.
According to Koontz and ODonnell (1977), the definition of social responsibility is: The
personal obligation of the people as they act in their own interests to assure that the rights and
legitimate interests of others are not infringed.
Corporate social responsibility is a commitment to improve community well-being through
discretionary business practices and contributions of corporate resources (Kotler and Lee,
2005).

Causes of Growing Concern for CSR:

* Growing awareness due to education
* Trade Union Movement
* Media & Consumer Organizations
* Fear of Govt. Interference
* Public Image
* Competitive Market Forces
* Public Relations
* Managerial Skills

Managerial Ethics:
In a general sense, ethics is the code of moral principles and values that governs the behaviors of
a person or group with respect to what is right or wrong. Ethics set standards as to what is good
or bad in conduct and decision making. Ethics deals with internal values that are a part of
corporate culture and shapes decisions concerning social responsibility with respect to the
external environment. An ethical issue is present in a situation when the actions of a person or
organization may harm or benefit others. Ethics can be more clearly understood when compared
with behaviors governed by laws and by free choice.

Managing Company Ethics and Social Responsibility:

Many managers are concerned with improving the ethical climate and social responsiveness of
their companies. As one expert on the topic of ethics said, Management is responsible for
creating and sustaining conditions in which people are likely to behave themselves. Managers
can take active steps to ensure that the company stays on an ethical footing.
The Three Pillars of an Ethical Organization:
1. Ethical Individuals: Managers who are essentially ethical individuals make up the first
pillar.

These individuals possess honesty and integrity, which is reflected in their

behavior and decisions. People inside and outside the organization trust them because
they can be relied upon to follow the standards of fairness, treat people right, and be
ethical in their dealings with others. Ethical individuals strive for a high level of moral
development.
Being a moral person and making ethical decisions is not enough, though. Ethical
managers also encourage the moral development of others. They find ways to focus the
entire organizations attention on ethical values and create an organizational environment
that encourages, guides, and supports and ethical behavior of all employees.

Two

additional pillars are needed to provide a strong foundation for an ethical organization:
2. Ethical Leadership:

In a study of ethics policy and practice in successful ethical

companies, no point emerged more clearly than the crucial role of leadership. A manager
must be a role model, uphold ethical values in the organization, communicate about
ethics and values, and reward ethical behavior, swiftly discipline unethical behavior.
3. Organizational Structures and Systems: The third pillar of ethical organizations is the set
of tools that managers use to shape values and promote ethical behavior throughout the

organization. Three of these tools are codes of ethics, ethical structures, and mechanisms
for supporting whistle-blowers.
a) Code of Ethics:
A code of ethics is a formal statement of the companys values concerning ethics and social
issues. It communicates to employees what the company stands for. Codes of ethics tend to
exist as two types: Principle based ethics and Policy based statements.
Principle-based statements are designed to affect corporate culture; they define fundamental
values and contain general language about the company responsibilities, quality of products, and
treatment of employees. General statements of principle are often called corporate credos.
Policy-based statements generally outline the procedures to be used in specific ethical situations.
These situations include marketing practices, conflicts of interest, observance of laws,
proprietary information, political gifts, and equal opportunities.

Examples of policy-based

statements are Boeings Business Conduct Guidelines, Chemical Banks Code of Ethics, and
Anti-Trust and Conflict of Interest Guidelines, and Nortons Norton Policy on Business
Ethics.
b) Ethical Structures: represent the various systems, positions, and programs a company can
undertake to implement ethical behavior.

An ethics committee is a group of executives

appointed to oversee company ethics. The committee provides rulings on questionable ethical
issues. The ethics committee assumes responsibility for disciplining wrongdoers, which is
essential if the organization is to directly influence employee behavior. Ethics training programs
also help employees deal with ethical questions and translate the values stated in a code of ethics
into everyday behavior.
c) Whistle-Blowing: Employee disclosure of illegal, immoral, or illegitimate practices on the
employers part is called whistle-blowing. No organization can rely exclusively on codes of
conduct and ethical structures to prevent all unethical behavior.
****

UNIT: 2
PERSPECTIVES ON MANAGEMENT
Approaches to Management:
A heterogeneous group of management practitioners, thinkers and social scientists have
contributed to the accumulation of knowledge in management. Therefore, several approaches to
the study of management have emerged over the years. Some of these approaches are described
below:
1. Classical Approach:

This is also known as traditional approach, management process

approach or empirical approach. The main features of this approach are as fallows:
a) Management is viewed as a systematic network (process) of interrelated functions.
b) On the basis of experiences of practicing managers, principles are developed.

These

principles are used as guidelines for the practicing executive.

c) Functions, principles and skills of management are considered universal. They can be applied
in different situations.
d) Formal education and training is emphasized for developing managerial skills in would-be
managers. Case study method is often used for this purpose.
e) Emphasis is placed on economic efficiency and the formal organization structure.
f) People are motivated by economic gains.

Therefore, organizations control economic

incentives.
Uses: a) The observational method of case study is helpful in drawing common principles out of
past experiences with some relevance for future application.
b) This approach focuses attention on what managers actually do.
c) This approach highlights the universal nature of management.
d) It provides scientific basis for management practice.
Limitations: a) It offers a mechanistic framework that undermines the role of human factor.

b) The environmental dynamics and their effect on management have been discontinued.
c) There is a positive danger in relying too much on past experiences because a principle or
technique found effective in the past may not fit a situation of the future.
d) The totality of the real situation can seldom be incorporated in a case study.
2) Behavioral Approach: While the classical approach focused on the jobs, the behavioral
approach stresses the individuals performing these jobs. Here attention is directed towards the
human aspects of management. The neglect of human factor and over-emphasis on machines
and materials led to the development of this approach. Prof. Elton Mayo is considered to be the
founder of the behavioral school of thought.
The behavioral science approach is thus an improved and more modern version of the
human relations approach. It focuses on human behavior in organization and seeks to promote
verifiable propositions for scientific understanding of human behavior in organizations. This
approach draws heavily its concepts from psychology and sociology. Motivation, leadership,
communication, group dynamics and participate management are the core of this approach.
The basic propositions of the behavioral science approach are as follows:
a) An organization is a socio-technical system.
b) A wide range of factors influence interpersonal and group behavior of people in the
organization.
c) There should be a fusion between organizational goals and human needs.
d) Several differences in the attitudes, perceptions and values of employees exist and
influence their behaviors and performance.
e) Some degree of conflict maybe inevitable and even desirable in organization.

3. Quantitative Approach: Also known as management science approach, mathematical

approach, decision theory approach, operations research approach, etc. This approach gained
momentum during and after World War II. During the war, interdisciplinary groups of scientists

were engaged to undertake applied scientific research into strategic and tactical military
operations. These groups were expected to develop optimal decisions about deployment of
military resources. Mathematical model building was sought to be applied to find optimal
solutions to military and logistical problems.
The main postulates of the quantitative approach are as follows:
a) Management is a series of decision-making. The job of a manager is to secure the best
solution out of a series of interrelated variables.
b) These variables can be presented in the form of a mathematical model. The model is a
prototype of the decision situation. It consists of a set of functional equations which set
out the quantitative interrelationship of the variables.
c)

If the model is properly formulated and the equations are corrections solved, one can
secure the best solution to the model.

d) Organizations exist for the achievement of specific and measurable economic goals.
e) In order to achieve these goals, optimal decisions must be made through scientific formal
reasoning backed by quantification.
f) Decision-making models should be evaluated in the light of set criteria like cost
reduction, return on investment, meeting time schedules etc.
g) The quality of management is judged by the quality of decisions made in diverse
situations.
4. Systems Approach:

The General Systems Theory was applied to organization and

management during the fifties. A system is a set of distinguishable and interdependent and
interrelated parts operating in a logical manner or sequence in order to achieve a goal. Each part
affects the others and the system as a whole. Every system operates within a wider system. A
system is goal-oriented and operates in a logical manner in accordance with some plans. Each
system is comprised of interrelated parts. Thus system denotes order and arrangements.
The basic postulates of the systems approach are as follows:
a) An organization is a system consisting of several sub-systems.

For example, in a

business enterprise production, sales and other departments are the sub-systems. All

these sub-systems are functionally interacting and interdependent. They are tied together
into an organic whole through goals, authority flows, resource flows, and so on.
b) The position and function of each sub-system can be analyzed only in relation to other
sub-system and to the organization as a whole rather than in isolation.
c) An organizational system has a boundary which separates it from other systems. The
boundary determines which parts are internal and which are external.
d) An organization is a dynamic system because it is responsive or sensitive to its
environment.
USES: a) The systems approach represents a refreshingly new thinking on organization and
management.
b) It stresses that managers avoid analyzing problems in isolation and should develop the ability
for integrated thinking.
c) It provides a unified focus to organizational efforts.

It stresses the dynamic, multi-

dimensional and adaptive nature of organizations.

d) It provides a strong conceptual framework for meaningful analyses and understanding of
organizations.
e) It recognized the interaction and interdependence among the different variables of the
environment. It provides clues to the complex behavior of an organization.
f) It warns against narrow fragmented and piecemeal approach to problems by stressing
interrelations.
g) It forces the practicing manger to analyze and understand a particular element by taking into
account its interacting consequences with other elements.
h) A wide range of systems concepts and perspectives have been developed for managers.
Limitations: a) The systems approach is often criticized as being too abstract and vague.
b) It cannot directly and easily be applied to practical problems.
c) It does not offer specific tools and techniques for the practicing executive.
d) Moreover, this approach does not recognize differences in systems.
e) It fails to specify the nature of interactions and interdependencies particularly between an
organization and its external environment. It fails to offer a unified body of knowledge.

5. Contingency and Situational Approach: This approach is relatively new approach to

management. It is an extension of systems approach. The basic theme of the contingency
approach is that organizations have to cope with different situations in different ways. There is
no single best way to managing applicable to all situations. In order to be effective, the internal
functioning of an organization must be consistent with the demands of the external environment.
The managers must keep the functioning of an organization in harmony with the needs of its
members and the external forces.
The main features of the contingency approach are as follows:
a) Management is entirely situational. The application and effectiveness of any technique is
contingent on the situation.
b) Management should, therefore, match or fit its approach to the requirements of the
particular situation.
c) Since managements success depends on its ability to cope with its environment. It
should sharpen its diagnostic skills so as to anticipate and understand the environmental
changes.
d) Managers should understand that there is no one best way to manage. They must not
consider management principles and techniques universal.
6. Operational Approach: The operational or universalistic approach to management attempts
to draw together the relevant knowledge of management by relating it to the managerial job.
Management is looked upon as an operational and dynamic process consisting of certain
elements which are common to all organizations.
This approach is an eclectic approach, i.e., it takes the best from what is available in management
thought and integrates it with the central core of process framework to build up a unified theory
of management. It is simple and realistic and deals with the whole subject of management from
the viewpoint of the practicing manager.

Relevant contributions from other thoughts and

disciplines are integrated into the management process.

Thus, despite the multiplicity of

approaches to management analysis, there is some convergence among the various approaches.
Such an integrated approach more adequately clears the nature of modern management.

Role of Communication in Management:

Communication is an indispensable element in human relationships. Human beings interact with
one another through communication. It is the ability to communicate effectively that has enabled
people to build organizations and societies for survival and better living. We communicate when
we speak, write or act. There is communication when we read a book or watch a film or listen to
a piece of music. A large part of the day is spent on communication of one type or the other.
Communication is all the more important in management because the success of an enterprise
depends upon how effectively its employees understand one another. Most of the problems of
business can be attributed to poor communication between management and labor.
Communication is perhaps the number one problem of management today.
The term communication is derived from the Latin word communis which means
common. Thus communication means sharing of ideas in common. Therefore, communication
may be defined as an exchange of facts, ideas, opinions or emotions to create mutual
understanding. Communication is generally understood as spoken or written words.
According to Keith Davis, Communication is the process of passing information and
understanding from one person to another.
According to Koontz and ODonnell, Communication is a way that one organization member
shares meaning and understanding with another.
Nature of Communication:
1. Communication is a pervasive function: It is required not only in direction function but in
all functions of management. Planning requires communication of information. Organization
involves transfer of information about tasks, authority and responsibility. Selection, training,
appraisal etc. (staffing) require interchange of facts and ideas with employees. Controlling
involves feedback about performance. Thus, communication is vital to all managerial functions.
It is a universal element in the management process.
2. Communication is a continuous process: Stop of communication means an end to human
activity. Just as regular circulation of blood is essential for human life, on-going circulation of
information and ideas is essential for organizational activity. Organizations cannot exist without
communication.

3. Communication is a two-way process: It is not complete unless the message has been
correctly understood by the receiver and his response (feed-back) becomes known to the sender.
Communication is not merely the transmission of message but also the correct interpretation and
understanding of the message.
4. The basic purpose of communication is to create mutual understanding and co-operative
human relationships.
Role of Communication in Management:
Communication is the foundation of all group activity. It is the element which sets the enterprise
in motion and provides life to the dead structure. Communication is essential not only in
business but in all types of organizations. In fact, it is difficult to imagine any kind of interpersonal activity without communication. Koontz and ODonnell said, It is no exaggeration to
say that communication is the means by which organization activity is unified. It is the means by
which behavior is modified, change is effected and goals are achieved. To be specific, sound
communication offers the following benefits:
1. Planning and Decision-Making: Communication provides to managers the information
and ideas necessary for sound planning. The widest possible participation in planning is
a precondition for getting the task done. This can be effectively secured only through the
media of communication. Communication enables a manager to diagnose the problem
and to gather information for making sound decisions.
2. Implementation of Plans: Plans and decisions must be effectively conveyed to those
who can translate them into action. Effective communication is the sine qua non (reason)
for quick and successful implementation of the management decisions. Managers issue
specific orders and instructions management decisions. Managers issue specific orders
and instructions through communication.

They inform employees about the goals,

policies, and procedures of the organization as well as about rationale of the job.
Communication is the artery through which decisions and instructions flow downward.
In order to get maximum results from people, correct and detailed instructions must be
given at the right time. Similarly, the difficulties experienced by workers should be
conveyed to the managers so that they can amend or issue new instructions. Without a

rich flow of communication from his boss, the subordinate cannot judge which direction
he should be going and how well he is doing. The subordinate knows his responsibility
and regulates his work from the communications sent by his boss.
3. Motivation and Morale: Managers use communication to secure acceptance of their
ideas and orders. They can improve the job satisfaction of employees by providing
feedback information on their performance. Sound communication facilitates delegation
and decentralization. Communication plays a vital role in building up high morale in the
organization. As an influence process, communication is an essential part of guidance,
motivation and leadership functions of management.
4. Human Relations: In order to secure maximum productivity with the minimum cost,
there must be perfect cooperation and trust among management and labor.

Sound

communication enables workers to express their grievances which reduce tension and
industrial unrest. Most of the conflicts in industry arise due to misunderstood motives
and ignorance of facts.

Proper communications help to minimize friction and to

maximize mutual understanding and cooperation. Management can sell its ideas and
reduce resistance to change through effective communication. Communication inspires
change which is the moving symbol of living organizations.
5. Training and Development: Communication is vital for the orientation and training of
both workers and executives. In modern industry training and development of personnel
is an ongoing process. The degree of learning depends not only on the contents of the
training program but on how effectively the knowledge and skills are transmitted.
Communication is knowledge and without knowledge employees remain ignorant.
6. Coordination: Communication is a bridge of meaning between people. It ties people
and structure together. It links different departments and divisions of the enterprise
together. Need for integrating and unifying human efforts has increased due to growing
specialization. Communication helps to create team work and integration and it serves as
a cementing force. According to Mary Cushing Niles, good communications are essential
to coordination. They are necessary upward, downward and sideways, through all the
levels of authority and a device for the transmission, interpretation, and adoption of
policies, for the sharing of knowledge land information, and for the more subtle needs of
good morale and mutual understanding.

7. Public Relations: A business enterprise comes into contact with several social groups,
e.g., customers, investors, trade unions, government and the local community. It must
maintain cordial relations with these groups in order to develop a favorable image. It
must continuously strive to convince the public that its actions are in the interest of
society. Otherwise the reality becomes whatever customers, employees and government
officials want to believe.
****

UNIT: 3
PLANNING
Meaning and Nature of Planning:
Planning is the most fundamental function of management. It is basic to all other management
functions. It provides the foundation upon which organizing, staffing, directing and controlling
functions can be carried out. Action follows planning and there is nothing to do unless the goals
and ways of achieving them are decided. Whenever a number of individuals join together and
decide to achieve a common goal, planning becomes necessary. Planning has always been a
prerequisite to effective management.

But need for planning has increase due to frequent

changes in technology, tastes and fashions, government policies and competition.

Meaning of Planning:
In simple words, planning is deciding in advance what to do, how to do it, when to do it and who
is to do it. It involves anticipating the future and consciously choosing the future course of
action. A plan is a blueprint for the future course of action. According to Haimann, Planning is
the function that determines in advance what should be done. It consists of selecting the
enterprise objectives, policies, programs, procedures, and other means of achieving these
objectives. In the words of Koontz and ODonnell, Planning involves selecting enterprise
objectives, departmental goals, and programs and determining the ways of reaching them.
Planning thus provides a rational approach.
this process.

Planning is a process and a plan is the outcome of

Nature of Planning:
1. Planning is goal-oriented: Planning is not an end in itself. Rather it is a means towards
the accomplishment of objectives. Planning has no meaning unless it contributes in some
way to the achievement of desired goals. All plans derive from objectives. The goals
may be implicit or explicit but well-defined goals are essential for efficient planning.
Thus, planning is goal oriented.
2. Planning is a primary function: Planning is the basis or foundation of the management
process. All other functions of management are designed to attain the goals set under
planning. Planning provides the basis for efficient organizing, staffing, directing and
controlling. It precedes the execution of all other functions. Without planning there is
nothing to organize, no one to actuate and no need to control.
3. Planning is all-pervasive:

Planning is the function of each and every manager

irrespective of the level and area of his/her operation. It is the job of all managers in all
types of organizations. Planning is an essential ingredient in management at all executive
levels. However, the scope, extent and the nature of a planning tend to decrease as we
descend towards the lower levels of management. Managers at the top level prepare
long-term plans for the company as a whole; middle-level managers formulate
departmental and functional plans for medium term. At the lowest level, managers
prepare operating and short-term plans.
4. Planning is an intellectual or rational process: Planning is a mental exercise involving
imagination, foresight and sound judgment. It is not guesswork or wishful thinking. It
requires a mental disposition of thinking before doing and acting in the light of facts,
rather than guess. Planning is the thinking process, the organized foresight and vision
based on facts and experience that is required for intelligent action.
5. Planning is a continuous process: Planning is an on-going and dynamic exercise. As
the assumptions and events on which plans are based change, old plans have to be revised
or new ones have to be prepared. As a manager carries out his functions, he continues to
plan, revising his old plans and choosing alternative plans as the need arises.
6. Planning is forward-looking: All planning is done with an eye on the future. Planning
involves anticipating the future course of events. Therefore, forecasting is the essence of

planning. Forecasting involves assessing the uncertain future and making provisions for
it. A plan is really a synthesis of various forecasts. No plan can be prepared without
knowledge of future events. Planning is an attempt to see through the uncertain future.
Its essence is futurity and it is anticipatory as it involves forecasting.
7. Planning involves choice: Planning is essentially decision-making of choosing among
alternative courses of action. Planning presupposes the existence of alternatives. There
is no need for planning if there is only one way of doing something. Plans are decisions
made after evaluation of alternative courses of action. A planning problem arises only
when an alternative course of action is discovered.
8. Planning is an integrated process: Planning does not just happen, it has to be initiated.
Planning is a structured process and different plans constitute a hierarchy. Different plans
are interdependent and interrelated. Every lower-level plan serves as a means towards
the need of higher plans. This is known as the ends-means chain. Planning is a timebound concept and every plan has a definite time horizon.
9. Planning is directed towards efficiency: Planning has no relevance if it does not
facilitate the achievement of objectives economically and efficiently. It is a deliberate
and conscious process. The efficiency of plans is measured by how much they contribute
to the objectives.
Principles of Planning:
1. Principle of contribution to objectives: Every major and derivative plan should
contribute positively towards the accomplishment of enterprise objectives.
2. Principle of efficiency of plans: The efficiency of a plan is measured by the amount it
contributes to objectives minus the costs and other undesirable consequences involved in
the formulation and operation of the plans. This principle stresses upon economical use
of individual effort to achieve group goals.
3. Principle of primacy of planning: This principle emphasizes that the manager can
hardly perform other managerial functions without a road map of plans to guide him.
Planning is the primary requisite of other management functions because these functions
are designed to support the accomplishment of enterprise objectives.

4. Principle of planning premises: Perhaps the main deficiency of planning arises from
poorly structured plans. A coordinated structure of plans can be developed only when
managers throughout the organization understand and agree to utilize consistent planning
premises.
5. Principle of policy framework: A consistent and effective framework of enterprise
plans can be developed if the basic policies that guide thinking in decisions are expressed
clearly and are understood by managers who prepare the plans. The decisions which lead
to plans cannot be accurately focused on enterprise objective without a framework of
policies.
6. Principle of timing: When the plans are structured to provide an appropriately timed,
intermeshed network of derivative and supporting programs, the plans can contribute
effectively and efficiently towards the attainment of enterprise objectives. Both premises
and policies are useless without proper timing.
7. Principle of alternatives: In choosing from among alternatives, the best alternative will
be that which contributes most efficiently and effectively to the accomplishment of a
desired goal.
8. Principle of limiting factor: While choosing from among alternatives, the planner
should focus on those factors which are critical to the attainment of the desired goal. This
will help in selecting the most favorable alternative.
9. Principle of commitment: Logical planning should cover a time period necessary to
forecast the fulfillment of commitment involved in a decision. This is necessary to make
reasonably sure of meeting commitments.
10. Principle of flexibility: This principle deals with the ability to change which is build
into plans. The risk of loss due to unexpected events can be reduced by building
flexibility into the plans. However, the cost of flexibility should be weighted against the
dangers of future commitments made.
11. Principle of navigational change: The manager should periodically check on events
and expectations and re-draw plans to maintain a course toward the desired goal. Unless
plans have in-built flexibility, navigational change is difficult or costly. But in-built
flexibility should not be an excuse for periodic revision of plans, if circumstances so
warrant.

12. Principle of competitive strategies: While formulating plans, a manager should take
into account the plans of rivals or competitors. The plans should be chosen in the light of
what a competitor will do in the same situation.
Steps in Corporate Planning Process:
Organizations differ in term of their size and complexity. Therefore, there is no single planning
procedure applicable to all organizations. However, the main steps in planning process are as
follows:
1. Identify Goals: Plans are formulated to achieve certain objectives. Therefore, the first step in
the planning process is to identify the goals of the organization. The objectives fixed must
clearly indicate what is to be achieved, where action should take place and who is to perform it
and when it is to be accomplished. Objectives set must be stated clearly and in measurable
terms. For example, quantity standards, cost targets and quality specifications are measurable
objectives. Objectives should be established in all key areas where performance affects the
health of the organization. Objectives should be laid down after an analysis of the external and
internal environment of the organization.
2. Develop Planning Premises: Planning is done for future which is uncertain. Therefore,
certain assumptions are made about the future environment. These assumptions are known as
planning premises. Planning premises lay down the boundary or limitations within which plans
are to be implemented. In order to develop good planning premises, it is necessary to collect
data on the current status of the organization and to forecast future changes.
Planning premises are of several types. Internal premises refer to the resources of the
enterprise, e.g., sales forecast, capital investment, labor skills, technology etc. On the other
hand, external premises imply the external environment of the organization, e.g., product market
and factor market conditions, government policy, population trends, etc. Controllable premises
are the policies and programs under the control of management. Conditions beyond the control
of management are known as uncontrollable premises. Premises which can be quantified in
terms of money, time and units of output are called tangible premises. Public relations, goodwill,
employee morale and other qualitative factors are known as intangible premises. These factors
are very important in planning process and management should not overlook them just because
they cannot be quantified.

Premising involves assessment of the future which is uncertain. Therefore, premises

should be limited to those aspects which are critical or strategic to plan.

Determine
Alternative Cours
3. Determine Alternative Course of Action: Generally,Develop
there arePlanning
alternativePremises
ways
of achieving
Determine

the same goal. For example, in order

to increase sales of an enterprise may launch advertising
Objectives
campaign or reduce prices or improve the quality of products. Therefore, alternative courses of
action should be determined. This requires imagination, foresight and ingenuity. In determining
alternatives the critical or limiting factors must be kept in view.
4. Evaluate the Alternatives: Once alternative courses of action have been determined, they

must be evaluated. Alternative

courses
of action Plans
can be evaluated
against the
criteria Evaluate
of cost, the Alterna
Formulate
Derivative
Select a Course
of Action
risks, benefit and organizational facilities. The strong and weak points of every alternative
should be analyzed carefully.

Computer-oriented mathematical techniques may be used

wherever necessary.
5. Select a Course of Action: The most appropriate alternative is selected as the plan. This is
the point of decision where a plan is adopted for accomplishing identified goals.
6. Formulate Derivative Plans: The final step in planning process is to develop sub-plans. In
order to given effect to and support and basic plan, several sub-plans are required. Once a choice
is made and the master plan is adopted, functional and tactical plans and action programs are
decided. The breakdown of the master plan into departmental and sectional plans provides a
realistic picture of the actions to be taken in future. A time sequence of activities should also be
decided.
TYPES OF PLANS:
The planning process cannot be effective unless the types of plans are properly understood. It is
easy to see that a major program, such as one to build and equip a new factory, is a plan. But a
number of other courses of future action are also plans. In fact plan can encompass any course
of future action, which clearly shows that plans are varied. Managers use strategic, tactical, and
operational goals to direct employees and resources toward achieving specific outcomes that
enable the organization to perform efficiently and effectively. They take a number of planning
approaches, among the most popular of which are
1) Management by Objectives (MBO)
2) Single-use plans: a) Program

b) Project

3) Standing plans: a) Policy b) Rules c) Procedure

4) Contingency plans.
1. Management by Objectives (MBO):

2. Single-Use Plans: are developed to achieve a set of goals that are not likely to repeat in the
future. Most widely used single-use plans are a) Program b) Project
a) Program:

Plans for attaining a one-time organizational goal

Major undertaking that may take several years to complete

Large in scope; may be associated with several projects

Examples: Building a new headquarters; converting all paper files to digital

b) Project:

Also a set of plans for attaining a onetime goal

Smaller in scope and complexity than a program; shorter in horizon

Often one part of a larger program

Examples: Renovating the office; Setting up a company intranet.

3. Standing Plans: are ongoing plans that provide guidance for tasks performed repeatedly
within the organization. These plans generally pertain to matters such as employee illness,
absences, smoking, discipline, hiring, and dismissal.

The primary standing plans are

organizational a) policies, b) rules, and c) procedures.

a) Policies:

Broad in scope-general guide to action

Based on organizations overall goals/strategic plan

Defines boundaries within which to make decisions

Examples: Sexual harassment policies; Internet and e-mail usage policies etc.
b) Rules:

Narrow in scope

Describes how a specific action is to be performed

May apply to specific setting

Examples: No eating rule in areas of company where employees are visible to the public.
c) Procedures:

Sometimes called a standard operating procedure

Defines a precise series of steps to attain certain goals

Examples: Procedures for issuing refunds; Procedures for handling employee grievances
4. Contingency Plans: define company responses to be taken in the case of emergencies,
setbacks, or unexpected conditions. To develop contingency plans, managers identify important
factors in the environment, such as possible economic downturns, declining markets, increases in
cost of supplies, new technological developments, or safety accidents. Managers then forecast a
range of alternative responses to the most likely high-impact contingences, focusing on the worst
case.

According to Harold Koontz, Heinz Weihrich and Ramachandra Aryasri, planning types
are:
1. Purpose or Mission: The mission or purpose identifies the basic function or task of an
enterprise or agency, or of any part of it. Every kind of organized operation has, or at least
should have if it is to be meaningful, purposes or mission. In every social system, enterprises
have a basic function or task, which is assigned to them by society.

The purpose of a business is generally the production and distribution of goods and
services.

The purpose of a state highway department is the design, building and operation of a
system of state highways.

The purpose of the courts is the interpretation of laws and their application.

The purpose of a university is teaching, research, consultancy and training.

Some writers distinguish between purposes and missions. While a business, for example, may
have a social purpose of producing and distributing goods and services, it can accomplish this by
fulfilling a mission of producing certain lines of products.

The mission of Indian Institute of Management, Ahmedabad is to professionalize Indian

management through teaching, research, training, institution building and consulting. It
also aims to professionalize some of the vital sectors of Indias economy, such as
agriculture, education, health, transportation, population control, energy and public
administration.

The mission of Reliance Industries is to search for oil and to produce, refine and market
petroleum and a wide variety of petroleum products, ranging from diesel fuel to
chemicals.

Hallmark, which has expanded its business beyond greeting cards, defines its mission as
the social expression business.

2. Objectives: Objectives or goals are the ends toward which activity is aimed, and every
organization strives hard to achieve them. They represent not only the end point of planning but
the end toward which other functions of management, i.e., organizing, staffing, leading and
controlling are aimed. While enterprise objectives are the basic plan of the firm, a department
may also have its own objectives. Its goals naturally contribute to the attainment of enterprise
objectives. According to Allen, Objectives are goals established to guide the efforts of the
company and each of its components. Objectives indicate the destination of an organization.
The planning process begins with the setting up of objectives. Objectives may be defined as the
ends, purposes or aims which an organization wants to achiever over varying periods of time.
3. Strategy: The concept of strategy in business has been borrowed from military science where
it implies the art of the military general to fight the enemy. The term strategy began to be used
in business with increase in competition and complexity of operations. A strategy may be
defined as a special type of plan prepared for meeting the challenge posed by the activities of
competitors and other environmental forces. Strategy is the complex plan for bringing the
organization from a given posture to a desired position in a future period of time. It is

essentially a response to external environmental forces. In order to formulate an effective

strategy, management must anticipate accurately the plans of competitors and look at them from
the viewpoint of rival firms. The term strategy should be differentiated from tactics. Strategy is
the basic plan chosen to achieve objectives while tactics are the means of implementing the plan.
A strategy is a broad plan of action for the deployment of resources in pursuit of defined
objectives. It is an interpretative plan formulated by the top management to give meaning and
shape to other plans. It reflects the way in which an enterprise will react to its environment. The
long-term success of an enterprise depends largely on how it responds to changes in its
environment. A strategy provides answers to the following questions:
i) What business are we in?

ii) What should be our business?

iii) Who are our customers?

iv) What do they buy and why?

v) Why should society accept us?

The purpose of strategies then, is to determine and communicate, through a system of major
objectives and policies, a picture of the kind of enterprise that is predicted. However, strategies
do not attempt to outline exactly how the enterprise is to accomplish its objectives. This task is
taken care of by several major and minor supporting programs. Instead strategies furnish a
framework for guiding, thinking and action. Their usefulness in practice and their importance in
guiding planning do, however, justify the separation of strategies as a type of plan for the
purpose of analysis.
4. Policies: Policies are also plans in that they are general statements or understandings that
guide or channel thinking in decision making. A policy is a broad statement formulated to
provide guidance in decision-making at lower levels of management. It defines the area or limits
within which decisions can be made.

It does not provide a detailed answer to particular

problems. Rather it provides freedom for judgment. For example, a policy that promotions will
be based on merit only tells that while deciding promotions merit criteria is to be adopted. Thus,
policies are general statements of understandings which guide or channel thinking in decisionmaking of subordinates. According to McFarland, Policies are planned expressions of the
companys official attitudes towards the range of behavior within which it will permit or desire
its employees to act.

Policies are routes to the realization of objectives. While objectives

provide the destination to be reached, policies provide broad paths for reaching them. A policy is

a standing plan that guides people for a long period. It may be written, verbal or implied
statement. Policies are generally broad in scope and flexible. They indicate the direction in
which top management wants to channelize the energies of people in the organization.
5. Procedure: Procedures are plans that establish a required method of handling future activities.
They are guides to action, rather than to thinking, and they detail the exact manner in which
certain activities must be accomplished. They are chronological sequences of required actions.
A procedure is a chronological sequence of steps to be undertaken to enforce a policy and to
achieve an objective. It lays down the specific manner in which a task is to be performed. It is a
planned sequence of steps for performing repetitive activities in a uniform manner. According to
George R. Terry, A procedure is a series of related tasks that make up the chronological
sequence and the established way of performing the work to be accomplished. Procedures are
used in all functional areas of business. They exist throughout an organization. In business
procedures are laid down for purchase of raw materials, processing of orders, selection of
employees, redressal of grievances, etc.

Procedures exist at all levels.

But lower level

procedures are more exacting and numerous because routine jobs are performed at lower levels.
6. Rules: Rules spell out specific required actions or non-actions, allowing no discretion. They
are usually the simplest type of plan. Rules are prescribed guides for conduct or action. They
specify what should be done or not done in given situations. A rule is a rigid and definite plan
leaving no scope for discretion or deviation. Rules are established authoritatively and enforced
rigorously. Rules help to ensure desired behavior on the part of employees and make actions
predictable. Rules also perform the function of communication the obligations of employees.
They facilitate discipline and uniformity of action in the organization. Most organizations,
therefore, have a set of rules. The object of rules is to avoid repeated reference to higher levels
for authorization of routine matters. Rules serve as detailed instructions to regulate day-to-day
conduct of affairs.
A rule is different from procedure though closely related with it.

A set of rules

systematically tied together may constitute a procedure. A rule is related to a procedure in that it
guides action but specifies no time sequence. But a procedure prescribes time sequence of
operation. A rule may or may not be part of a procedure. Rules should be so planned that they do

not stifle (smoother) initiative or add paper work all around. They should smoothen the flow of
work and standardize routines. Rules should not be allowed to degenerate into restricts.
7. Programs: Programs refer to a set of clear instructions in a clear and logical sequence to
perform a particular task. They explain how to carry out a given course of action. They are
ordinarily supported by budgets. A program is a comprehensive plan designed to implement the
policies and accomplish the objectives. It is a combination of goals, policies, task assignments,
resource flows, etc. It is a concrete or well-defined scheme designed to accomplish a specific
objective. It spells out clearly the steps to be taken, resources to be used, and the time period
within which the task is to be completed. It also indicates who should do what and how. In
business programs are used in various areas, e.g., developing a new product, training program,
advertising program, expansion program etc.
8. Budgets: A budget is a plan which states expected results of a given future period in numerical
terms. It is a plan of action or blueprint designed to achieve a specific goal. It may be expressed
in time, money or other units. It is a projection defining the anticipated costs and results and the
allocation of resources. A budget may reflect capital outlay, cash flows, production and sales
targets. It expresses organizational objectives in financial and physical units. A budget is a
statement of expected results expressed in numbers. Budgets may be prepared for production,
sales, materials, cash, capital expenditure, etc. A budget is an instrument of both planning and
control. Budgets serve as standards of performance. A budget is generally prepared for one year.
Hierarchy of Planning:
From the viewpoint of scope, planning can be of the following types:
1. Group or Sectional Planning: This refers to planning for specific groups or sections within a
department or division. Such plans are prepared to implement departmental or divisional plans.
For example, the advertising section may prepare a sectional plan to execute the sales plan of the
company. Similarly, the purchase section may prepare a purchase plan to attain the goals of the
production department. Such planning is also known as unit planning. The focus here is on day
to day work and on meeting schedules and targets. It is action-oriented. Sectional plans are

formulated mainly at the operating level of management. But they have to be approved by
higher authorities.
2. Departmental or Divisional Planning: Such planning includes the plans formulated for
various departments or divisions of an enterprise. It determines the scope, and activities of a
particular department. These plans are formulated at the middle level of management and
approved by the top management. These plans are also known as functional plans because every
department or division is concerned with one particular major function of business. Such
planning is segmental and reactive in nature.
3. Corporate Planning: Planning for the company as a whole is known as corporate planning.
It lays down objectives, strategies and policies for the entire organization. It is less detailed and
specific than sectional planning and divisional planning. It is designed to steer successfully the
enterprise through various contingencies.

Corporate planning is done at the top level of

management. The purpose of corporate planning is to determine the long-term goals of an

enterprise and to generate plans to achieve these goals keeping in view the probable changes in
its environment. It is concerned with long term objectives of the total enterprise. It is planning
for overall organizational performance.

It is proactive planning as it provides for future

contingencies. Thus, corporate planning may be defined as a systematic and comprehensive

process of laying down the objectives, strategies and policies for the organization as a whole in
the light of the capabilities of the organization and its environment.
According to the time span, planning may be divided into the following categories:
1. Long-range Strategic Planning: Long-range or long-term or strategic planning covers a long
period in future. It is prepared for a period of 5, 10, or 15 years or more. It takes into account
the forecasted changes in the environment over the long term. It provides the overall targets
towards which all activities of the organization are to be directed. It results in long-term
commitment of resources. It involves a great deal of uncertainty because the period involved is
several years.
2. Medium-term or Intermediate Planning: Such planning covers a period of more than one
year but less than five years.

It is more detailed and specific than long-range planning.

Intermediate or tactical plans are designed to implant strategic plans by coordinating the work of
different departments. Such planning is coordinative in nature. A tactical plan is drawn up for
short-term moves and exercises within the broader and more stable strategic plans.

3. Short-term Operational Planning: Operational plans are prepared for a period up to one
year. They are generally specific and detailed. These plans provide form and content to longterm plans. Such plans are prepared on the basis of strategic and tactical plans. The main
purpose of operational planning is to maximize efficiency in day to day operations and to ensure
uniformity of action. In the absence of operational plans the broad picture set by strategic plans
would remain a blank outline.
DECISION MAKING
A decision is a course of action which is consciously chosen from among a set of
alternatives to achieve a desired result. It represents a judgment and a commitment to action. It
is the outcome of hunch, intuition, reasoning and planning. Decisions are made to achieve goals.
A decision is an act of choice wherein an executive forms a conclusion about what must or must
not be done in a given situation.
Meaning and Features of Decision Making:
Decision-making is the process of choosing a course of action from among alternatives to
achieve a desired goal. It consists of activities a manager performs to come to a conclusion.
Decision-making is a process of selection and the aim is to select the best alternative. This
process consists of four interrelated phases, explorative (searching for decision occasions),
speculative (identifying the factors affecting the decision problem), evaluative (analyzing and
weighing alternative courses of action), and selective (choice of the best course of action).
According to Haynes and Massie, Decision-making is a process of selection from a set of
alternative courses of action which is thought to fulfill the objective of the decision problem
more satisfactorily that others.
Features of Decision-making:
1. Decision-making is a goal-oriented process: Decisions are made to achieve
some goal or objective. The intention is to move toward some desired state of
affairs. There may just be a decision not to decide.

2. Decision-making implies a set of alternatives. A decision problem arises only

when there are two or more alternatives. If there is only one alternative, there is
no decision to be made.
3. Decision-making is a dynamic process: It involves a time dimension and a time
lag. The techniques used for choice vary with the type of problem involved and
the time available for its solution. It is situational.
4. Decision-making is always related to the environment. A manager may take
one decision in a particular situation and quite another in a different situation.
5. Decision-making implies freedom to the decision maker regarding the final
choice. It also involves commitment of resources in specified ways.
6. Decision-making is a continuous or ongoing process: Managers have to take a
series of decisions and managerial job is continuously a decision-making exercise.
7. Decision-making is an intellectual or rational process:

Decisions are the

products of deliberations, reasoning and evaluation. However, decision-making

cannot be completely quantified. Many decisions are based on intuition and
instincts. Systematic analysis of pertinent facts is not always possible.
Role of Decision making in Management:
Decision-making is the vehicle for carrying managerial work load and discharging
managerial responsibilities.

It is through decision-making that managers strive to achieve

organizational goals. They attempt to bridge the gap between the existing situation and the
desired situation by taking and executing decisions. The quality of judgment in decision making
determines the quality of management.
The life of a manager is a perpetual decision-making activity. The business executive is
by profession a decision-maker and the moment of decision is the most creative event in the life
of the executive. Administration is essentially a decision making process. The task of a manager
is to make decisions and to get these decisions implanted. Decision making (selection of a
suitable course of action) is the heart of planning.
Decision making is ever-present and permeates every step in the management process. It
penetrates all the functions of management. Decision making is a pervasive function because it
is performed by managers at all levels of management and in all functional areas. According to

Peter F. Drucker, Whatever a manager does he does through decision-making. Decision

making is so crucial to the job of managing that it is called the heart of management. However,
decision making is only one of the ways in which managers can influence effective
accomplishment of goals. Thus, decision making is the primary task of management.
Steps in scientific decision making process:
Decision making is a systematic process consisting of the following elements:
1. Identify the Problem: The decision making process begins with the recognition of a
problem that requires a decision. The problem may arise due to gap between present and
desired state of affairs. The threats and opportunities created by environmental changes
may also create decision problems. At this stage, a manager should identify and define
the real problem. A problem well defined is half solved. In order to recognize the
problem quickly, a manager must continuously monitor the decision making
environment.

Imagination, experience and judgment are required for detection of

problems that require managerial decisions.

2. Diagnose the Problem: Diagnosing the real problem implies analyzing it in terms of its
elements, its magnitude, its urgency, its courses, and its relation with other problems. In
order to diagnose the problem correctly, a manager must obtain all pertinent facts and
analyze them careful. The most important part of diagnosing the problem is finding out
the real causes or source of the problem. The problem may be analyzed in terms of the
following: a) nature of the decision-routine or strategic, b) impact of the decision, c)
futurity of the decision, d) periodicity of the decision, and e) limiting or strategic factor
relevant to the decision.
Identify the Problem

Diagnose the Problem

Discuss Alternative Course of Action

Feed Back
Implement & Follow-up

Choose the Best Alternative Evaluate the Alternatives

3. Discover Alternatives: The net step is to search for the various possible alternatives. An
executive should not jump on the first feasible alternative to solve the problem quickly.
The courses of action open to decision-maker are not always evident. A decision maker
has to use his ingenuity and creativity to spot and inter-relate them. A reasonably wide
range of alternative increases the managers freedom of choice.

But it is wise for

management to limit itself to the discovery of those alternatives which are critical or
strategic to the problem. The idea is to keep the range of alternative within a manageable
limit. Time and cost constraints should be kept in mind. Development of alternatives is
a creative process requiring research and imagination. Management must ensure that the
best alternatives are considered before a course of action is selected.

Relevant

information must be collected and analyzed for this purpose.

4. Evaluate Alternatives:

Once the alternatives are discovered, the next stage is to

evaluate or screen each feasible alternative. Evaluation is the process of measuring the
positive and negative consequences of each alternative. Management must balance the
costs against possible benefits. Considerable knowledge and judgment are required to
measure the plus and minus points and to find out the net benefit of each alternative.
Both quantitative and qualitative evaluation is needed to ensure that all tangible and
intangible factors are taken into account. The element of risk involved in each alternative
and the resources available for its implementation should also be considered. Peter F.
Drucker has suggested the following criteria to weigh the alternative courses of action: a)
Risk: Degree of risk involved in each alternative; b) Economy of effort: Cost, time, and
effort involved in each alternative; c) Timing: Whether the problem is urgent; d)
Limitation of resources: Physical, financial and human resources available with the
organization.
5. Select the Best Alternative: After evaluation, the optimum alternative is selected.
Optimum alternative is the alternative that will maximize the results under given
conditions. Choice of the best alternative is the most critical point in decision making.
The ability to select the best course of action from several possible alternatives separates

the successful managers from the unsuccessful ones. Past experience, experimentation,
research and analysis are useful in selecting the best alternative.
6. Implementation and Follow-up: Once a decision is made it needs to be implanted.
Implementation involves several steps. First, the decision should be communicated to
those responsible for its implementation. Secondly, acceptance of the decision should be
obtained.

Thirdly, procedures and time sequence should be established for

implementation. Necessary resources should be allocated and responsibility for specific

tasks should be assigned to individuals.
The implementation of the decision should be constantly monitored. The effects of the decision
should be judged through periodic progress reports. In case the feedback indicates that the
decision is not yielding the desired results, necessary changes should be made in the decision or
in its implementation.

Decision Tree Analysis:

A number of modern techniques improve the quality of decision making under the normal
conditions of uncertainty. Among the most important of these are: 1) risk analysis, 2) decision
trees, 3) preference theory.
Decision Tree is a sophisticated mathematical tool that enables a decision-maker to consider
various alternative courses of action and select the best alternative. It is a graphic representation
of alternative courses of action and the possible outcomes and risks associated with each action.
It allows the decision-maker to trace the optimum path through the tree diagram.
Decision tree depicts in the form of a tree, the decision points, chance events, and probabilities
involved in various courses that might be undertaken. The base of the tree is known as the
decision point represented by a square. Two or more chance events follow from the decision
point. A chance event is represented by a circle and it constitutes the branch of the decision tree.
Every chance event produces two or more possible outcomes leading to subsequent decision
points.

Example: A common problem occurs in business when a new product is introduced. Managers
must decide whether to install expensive permanent equipment to ensure production at the
lowest possible cost or to undertake cheaper, temporary tooling that will involve a higher
manufacturing cost but low capital investments and will result in lower losses if the product does
not sell as well as estimated. In simplest form, a tree showing the decisions a manager faces in
this situation shown below:

The decision tree approach makes it possible to see at least the major alternatives and the fact
that subsequent decisions may depend upon events in the future.

By incorporating the

probabilities of various events into the tree, managers can also understand the true probability of
a decisions leading to the desired results. The best estimate may really turn out to be quite
risky.

One thing is certain; decision trees and similar decision techniques replace broad

judgments with a focus on the important elements in a decision, bring out into the open premises
that are often hidden, and disclose the reasoning process by which decision are made under
uncertainty.

Coordination:
Meaning and Nature of Coordination:
Coordination is the effort to ensure a smooth interplay of the functions and forces of all the
different component parts of an organization so that its purpose will be realized with a minimum
of friction and a maximum of collaborative effectiveness. It makes diverse elements and subsystems of an organization to work harmoniously towards the realization of common objectives.
In the words of Dalton E. McFarland, Coordination is the process whereby an executive
develops an orderly pattern of group effort among his subordinates and secures unity of action in
the pursuit of common purpose.
Coordination is a conscious and rational process of pulling together the different parts of
an organization and unifying them into a team to achieve predetermined goals in an effective
manner. According to Henry Fayol, To coordinate is to harmonize all the activities of a concern
so as to facilitate its working and its success. Ina well coordinated enterprise, each department or
division works in harmony with others and is fully informed of its role in the organization. The
working schedules of various departments are constantly tuned to circumstances.
Coordination consists of three major elements, namely, balancing, timing and integrating.
Balancing means ensuring that enough of one thing is available to support or counter balance
the other.

Timing involves bringing together different activities under a common time

schedule so that they support and reinforce each other. Integrating refers to the unification of
diverse interests under a common purpose.
Nature of Coordination: The distinctive features of coordination are as follows:
a) Coordination is not a distinct function but the very essence of management. It is
inherent in managerial job and embodied in all the functions of management.
b) Coordination is the basic responsibility of management and it can be achieved
through the managerial functions. No manager can evade or avoid responsibility.
c) Coordination does not arise spontaneously or by force.

It is the result of

conscious and concerted action by management. It cannot be left to chance.

d) The heart of coordination is the unity of purpose which involves fixing the time
and manner of performing various activities.
e) Coordination is a continuous or on-going process. It is also a dynamic process
involving give and take.
f) Coordination is required in group efforts, not in individual effort. It involves the
orderly arrangement of group efforts. There is no need for coordination when an
individual works in isolation without affecting anyones functioning.
g) Coordination is a systems concept in the sense that it regards an organization as a
system of cooperative efforts. It recognizes the diversity and interdependence of
organizational system sand the need for fusion and synthesis of efforts.
Principles of Coordination: Mary Parker Follett has given the following principles for
achieving effective coordination.
1. Early beginning: The process of coordination must begin in the early stages of planning
and policy formulation. Early coordination also improves the quality of plans.
2. Direct personal contact: Direct personal touch or inter-personal relationship is the most
effective means of creating mutual understanding and confidence. It helps to clear
misunderstanding and to secure mutual cooperation.

3. Continuity: Coordination is a continuous or never-ending process. Therefore, managers

must never stop to make efforts towards coordination. It must be carried on through the
entire process of management, from planning to control.
4. Reciprocal relations: All factors in a given situation are interdependent and interrelated.
For example, every individual or group affects other individuals and groups and is
affected by them. Therefore, every person must consider the impact of his decision or
action on others before taking such decision or action.
5. Self-coordination: In addition to the above principles, Brown has emphasized the
principle of self-coordination. According to this principle a particular department affects
other departments and is in turn affected by them. Such a department may have no
control over other departments. However, if other departments modify their actions in
such a way that they affect the particular departments favorably, self coordination is
achieved. This requires effective communication across departments so that they are able
to appreciate the functioning of related departments. Thus, self-coordination requires a
favorable climate and voluntary efforts.
****

UNIT: 4
ORGANIZING
Introduction:
Organization is an essential part of human life. We are born in organizations, educated in
organizations, and spend most of our lives working for organizations. It is therefore, natural that
everyone wants to know, what is an organization, how is it designed and what role does it play in
management.
Concept of Organization: The term organization is used in management literature in two
different ways: i) as a structure, and ii) as a process.

i) Organization as a Structure: Organization structure refers to the network of relationships

among individuals and positions in an organization.

It is the skeleton framework of an

enterprise, just like the architectural plan of a building, designed to achieve its common goal.
According to McFarland, organization is an identifiable group of people contributing their
efforts towards the attainment of goals.
It is a group of interacting and interdependent individuals working toward a common goal. Thus,
as a structure organization is the structural framework within which the efforts of different
people are coordinated and related to each other. It is a blue-print of how the management will
like the various activities and functions to be performed. It is a structure manned by group of
individuals who are working together towards a common goal. In this sense, organization is a
static mechanical entity.
ii) Organization as a Process: As a process, organization refers to one of the important
functions of management. It is the process of determining, arranging, grouping and assigning the
activities to be performed for the attainment of objectives.
According to Haimann, Organizing is the process of defining and grouping the activities of the
enterprise and establishing the authority relationships among them. In performing the organizing
function, the manager defines, departmentalizes and assigns activities so that they can be most
effectively executed.
Organizing process involves differentiation and integration of activities. Differentiation
is the segmentation of structure into sub-systems while integration involves creating unity of
effort among the various sub-systems. This is the dynamic and humanistic meaning of the term
organization.
Nature of Organization:
The main characteristics of internal organization are as follows:
1. Common purpose: Every organization exists to accomplish some common goals. The
structure must reflect these objectives as enterprise activities are derived from them. It is
bound by common purpose.
2. Division of labor: The total work of an organization is divided into functions and subfunctions. This is necessary to avoid the waste of time, energy and resources which

arises when people have to constantly change form one work to another. It also provides
benefits of specialization.
3. Authority structure: There is an arrangement of position into a graded series. The
authority of every position is defined. It is subordinate to the position above it and
superior to the one below it. This chain of superior-subordinate relationships is known as
chain of command.
4. People: An organization is basically a group of persons. Therefore, activity groupings
and authority provisions must take into account the limitations and customs of people.
People constitute the dynamic human element of an organization.
5. Communication: Every organization has its own channels of communication. Such
channels are necessary for mutual understanding and cooperation among the members of
an organization.
6. Coordination: There is a mechanism for coordinating different activities and parts of an
organization so that it functions as an integrated whole. Cooperative effort is a basic
feature of organization.
7. Environment:

An organization functions in an environment comprising economic,

social, political, and legal factors. Therefore, the structure must be designed to work
efficiently in a changing environment. It cannot be static or mechanistic.
8. Rules land regulations: Every organization has some rules and regulations for orderly
functioning of people. These rules and regulations may be in writing or implied form
customary behavior.
Parts of Organization or Organizational Configuration:
Various parts of the organization are designed to perform different sub-systems viz. procurement
of all the factors of production, transformation all these into finished products, marketing etc.
One framework proposed by Henry Mintzberg suggests that every organization has five
parts. These parts include:
1. Technical Core
2. Technical Support
3. Administrative Support
4. Top Management
5. Middle Management

Top
Management

Technical
Support
Staf

Middle
Management

Administrative
Support
Staf

Technical Core

The above shown five parts of the organization may vary in size and importance depending on
the organizations environment, technology, and other factors.
1. Technical Core: The technical core includes people who do the basic work of the
organization. It performs the production subsystem function and actually produces the
product and service outputs of the organization. This is where the primary transformation
from inputs to outputs takes place. The technical core is the production department in a
manufacturing firm, the teachers and classes in a university, and the medical activities in
a hospital.
2. Technical Support: The technical support function helps the organization adapt to the
environment. Technical support employees such as engineers and researchers scan the
environment for problems, opportunities and technological developments. Technical
support is responsible for creating innovations in the technical core, helping the
organization change and adapt. Technical support departments are mostly technology,
research and development and marketing research.

3. Administrative Support: The administrative support funct9ion is responsible for the

smooth operation and upkeep of the organization, including its physical and human
elements.

This includes human resource activities such as recruiting and hiring,

establishing compensation and benefits, and employee training and development, as well
as maintenance activities such as cleaning of buildings and service and repairs of
machines.

Administrative support functions in a corporation might include human

resource department, organizational development, the employee cafeteria, and the

maintenance staff.
4. Top Management: Management is a distinct sub-system, responsible for directing and
coordinating other parts of the organization.

Top management provides direction,

strategy, goals, and policies for the entire organization or major divisions.
5. Middle Management:

This management is responsible for implementation and

coordination at the departmental level. In traditional organizations, middle managers are

responsible for mediating between top management and the technical core, such as
implementing rules and passing information up and down the hierarchy.
In real life organizations, the five parts are interrelated and often serve more than one subsystem
function. For example, managers coordinate and direct other parts of the system, but they may
also be involved in administrative and technical support. For example, in the administrative
support realm, human resource departments are responsible for working with the external
environment to find quality employees. Purchasing departments acquire needed materials and
supplies. In the technical support area, research and development departments work directly
with the external environment to learn about new technological developments.
Steps in Designing Organizational Structure:
The process of designing organization structure involves the following steps:
1. Identification of Activities: Organization structure is developed to achieve objectives.
Therefore, first of all, the activities necessary for the accomplishment of objectives are
determined. The total work is classified or divided systematically because no one can
handle the total work along. Identification and classification of work enables managers
to concentrate attention on important activities, to avoid duplication of work and to avoid
overlapping or wastage of effort.

While identifying and classifying activities,

management must ensure that a) all the necessary activities are performed, b) there is no
unnecessary duplication in performing activities and c) the different activities are
performed in a coordinated manner.
2. Grouping of Activities: Closely related and similar activities are grouped together to
form departments, divisions or sections.

Grouping may be done on several bases

depending on the requirements of the situation. Such grouping of activities is called

departmentation.
3. Assignment of Duties: Each group of related activities is assigned a position most suited
for it.

Every position is occupied by an individual.

While assigning duties, the

requirements of the job and the competence of the individual should be properly matched
together. The process of assigning duties goes on till the last level of the organization. It
creates responsibility and ensures certainty of work performance.
4. Delegation of Authority: Appropriate amount of authority is delegated to people to
enable them to perform the assigned duties with confidence. Authority and responsibility
are properly balanced. Delegation of authority creates superior-subordinate relationships
between various positions in the organization.
communication should be clearly defined.

Such relationships and channels of

Each and every individual should know

clearly form whom he is to take orders and to whom he is accountable for his
performance.
Determinant of Organizational Structural Design:
Organizational structure is not a static frame. It undergoes change with changes in the external
environmental and internal conditions. While designing the internal organization structure,
management should consider the following factors:
1. Goals: An organization is a goal-oriented system. Therefore, its goals play a decisive
role in designing its structure. An organization structure should be designed in such a
way that it facilities the achievement of organizational goals in the most efficient and
economical manner. The goals of an organization determine its tasks and activities. The
nature and extent of sub-division of tasks and their grouping depend on what organization
seeks to achieve.

2. Strategy: Strategy is a contingent plan designed to achieve the objectives. It involves

decisions as to what industry the organization will enter, how will it compete and where.
Top managers generally formulate strategy after careful analysis of opportunities in the
environment and the strengths and weakness in the organization. Strategy determines the
specific environment within which the organization will operate.
3. Size: Size of the organization is another factor affecting organizational design. As an
organization grows in size, there is a tendency to greater specialization. The number of
sub-units increases and more levels are created in the hierarchy. Impersonal rules and
procedures increase formalization and the organization becomes more and more
structured.
4. People: Very often, it is taken for granted that people-managers and workers-are to fit
into the structure. But human organization cannot afford to have machine like designs for
long. The organization structure is a major source of satisfaction for the employees.
Therefore, the organization design should reflect the thinking and way of working of the
employees.
5. Technology: Technology is an important variable in the design of organization structure.
It refers to the way in which work is done, i.e., equipment and technical skills used and
the type of work flow in the transformation process. In general, if the technology is
routine and simple a less complex structural design is needed. The technology restricts
the amount of discretion which can be given to subordinates, hence influencing
organization structure.
6. Environment: An organization is an open system which continuously interacts with its
external environment in which it functions. Therefore, forces in the external environment
must be carefully analyzed while designing organization structure.
Thus, organization structure is the result of several operating forces inside and outside the
enterprise. These forces are interrelated and interdependent. They suggest that what might be a
suitable structure for one organization may not be suitable for another organization. There is no
one ideal structure suitable for all organizations.
Need and Significance of Organization:

Organization is the foundation upon which the whole structure of management is built. It is the
backbone of management. Sound organization can contribute greatly to the continuity and
success of an enterprise in the following ways:
1. Facilitates Administration:

A properly designed organization facilitates both

management and operation of the enterprise.

It provides proper division of labor,

consistent delegation of authority and clear authority relationships. Organization is the

mechanism through which managers direct, coordinate and control the business.
2. Facilitates Growth and Diversification: The organization structure is the framework
within which an enterprise grows. Management can anticipate the need for change to
facilitate growth and may suitably adjust the organization structure when the size of
business increases.
3. Permits Optimum Use of Technological Improvements: Sound organization structure
provides for optimum use of technical and human resources.

The high cost of

installation, operation and maintenance of expensive equipment calls for proper

organization. Similarly, sound organization structure helps in optimum use of human
efforts through specialization.
4. Encourages Use of Human Beings:

Proper organization provides psychological

satisfaction to employees. An individual contributes his best when he gets satisfaction

from his job, his working environment and his relationships. In this way organization
structure facilitates intensive use of human capital.

It also creates training and

promotional avenues for people.

5. Stimulates Creativity: Sound organization stimulates creative thinking and initiative by
providing well-defined areas of work with provision for development of new and
improved ways of doing things. It enables managers to turn over routine and repetitive
jobs to supporting positions. A good organization enhances capacity of individuals and
enables them to take advantage of the accumulated knowledge and experience of
preceding generations.
Principles of Organization:

1. Unity of Objective: An organization structure is sound when facilitates the

accomplishment of objectives. Therefore, the organization as whole and every part of it
must be geared to the basic objectives of the enterprise.
2. Specialization or Division of Work: The activities of every member of the organization
should be confined, as far as possible, to the performance of a single function.
3. Span of Control:

Every manager should have a limited number of subordinates

reporting to him directly. Generally, the span should be narrow for complex work and
wide for simple and routine work. Span should be neither too wide nor too narrow.
4. Scalar Principle: There should be a clear chain of command extending from top to the
bottom of the organization. Every subordinate should know who his superior is and who
his subordinates are.
5. Functional Definition: The duties (functions), authority and responsibility of every
position should be clearly defined so as to avoid duplication of work and overlapping of
functions.
6. Exception Principle: Only exceptional matters which are beyond the authority of lower
level persons should be refereed to higher levels. Routine matters should be dealt with by
executives at lower levels. This is also known as authority level principle.
7. Unity of Command: Each subordinate should have only one superior whose command
he has to obey. This is necessary to ensure discipline and to fix responsibility for results.
8. Balance: A proper balance between centralization and decentralization should be kept.
Each function in the organization should be developed to the point at which the value
received is at least equal to costs.
9. Efficiency: The organization structure should facilitate the achievement of objectives at
minimum possible cost. It should permit the optimum use of resources.
10. Flexibility: The organization structure should be adaptable enough to accommodate
technical and other changes in the environment. Therefore, complicated procedures, red
tape and complexity of control should be avoided. At the same time, the organization
structure should be reasonably stable so as to withstand changes.
11. Continuity: Proper arrangements should be made for the training and development of
executives.

12. Facilitation of Leadership: Organization structure should be so devised that there is

enough opportunity for the management to give effective leadership to the enterprise.
13. Parity of Authority and Responsibility:

In every position, the authority and

responsibility should correspond. Adequate authority should be delegated to all levels

and wherever authority is delegated the person should be held responsible.
14. Coordination:

The organization structure should facilitate unity of effort and

coordination among different individuals and groups.

Channels of communication

should be open and clear.

Meaning of Span of Management:
The grouping of activities to create various departments presents another problem, that is, how
many individuals should be placed under one superior. This problem is related to the horizontal
dimension of an organization structure. In management literature, span of management is also
known as span of control and span of supervision. But span of management is a better term
because control and supervision are elements of management. Span of management refers to the
number of subordinates that report directly to a single manager or superior.
In the words of Spriegal, Span of management means the number of people reporting
directly to an authority. The principle of span of management implies that no single executive
should have more people looking to him for guidance and leadership than he can reasonable be
expected to serve.
It is necessary to decide the appropriate span for every executive. If the number of
subordinates reporting directly to a manager is very large, he may not be able to exercise
effective supervision and control. On the other hand, if the number is too small, full use of the
managers abilities may not be made and the subordinates may not get adequate autonomy of
work. There is a limit on the number of subordinates that a manager can effectively supervise.
This limit arises due to limited time, capacity and attention available to a manager. Supervision
is one part of managers job and, therefore, he can devote limited time to supervision. The
capacity or ability of a manager is also limited.
However, it is difficult to decide the appropriate span of management. In actual practice
spans vary widely and there is no best or ideal number that can be applied in all situations.
Different experts have mentioned different numbers of subordinates that should report directly to
a single manager. Classical writers on management suggested three to seven subordinates as the

optimum span. For instance, Lyndall F. Urwick stated that a supervisor can in general supervise
not more than five or six subordinates whose work is interlocking. On the other hand, J.C.
Worthy does not rule out a manager managing effectively twenty to thirty subordinates. Sir
General Hamilton stated that span of control is related to the degree of responsibility exercised
by the group members. The smaller the responsibility of a subordinate, the greater could be the
span of control. Thus, at the bottom of the organization six subordinates is the right number but
at the top three is the most appropriate number.
Factors Determining Span of Management:
The basic idea behind limiting the span of management is to enable a manager to manage his
subordinates effectively.

As such, the important determinant for specifying the span of

management is the managers ability to reduce the frequency and time impact of superiorsubordinate relationships. This ability, in turn, is affected by several factors. Therefore, such
factors are quite important in determining the suitable span of management. These affected
factors are as follows:
1. Nature of work: When the work performed by subordinates is simple and repetitive, they do
not require frequent guidance.

As a result the manager can supervise a large number of

subordinates. But if the work is different or non-identical, span has to be narrow. Similarly, the
rate of change in work also affects the span. When the work is stable or does not change
frequently, standing guidelines can be laid down and wider span of management is possible.
2. Type of technology: Firms using mass production and assembly line technology can have
wider span than those employing batch or process production systems.
3. Ability of the manager: Managers possessing qualities like leadership, communication,
decision-making, and control can manage more subordinates.

Moreover, the attitude and

personality of a manager also determine the span. For instance, an empire builder may have a
greater span than a submissive manager.
4. Capacity of subordinates:

Efficient and trained subordinates may perform their jobs

efficiently without much help from the manager. They need only broad guidelines. In such a
case, less time is needed in managing and the span can be larger. New and inexperienced
employees require more time of a supervisor than experienced and dedicated employees.

5. Degree of Decentralization: When a manager does not delegate adequate authority to

subordinates, they require frequent consultation and the manager has to take many decisions
himself. As a result he can supervise few subordinates. If a manager clearly delegates authority,
subordinates themselves will take many decisions and the manager can effectively supervise a
large number of people.
6. Planning: If policies, procedures and rules are clearly defined-subordinates can direct their
own work on the basis of these guidelines. Standing plans simplify repetitive decisions and
relieve the managers burden. In the absence of clear plans, span has to be narrow, because
subordinates require much consultation and guidance.
7. Staff assistance: Use of staff assistants, like private secretary, can reduce the work load of the
manager, thereby permitting him to handle more subordinates.
8. Communication techniques: Where everything is communicated by face-to-face contact, it
takes much of a managers time and span has to be small. Use of electronic and other devices
speeds up communication thereby increasing the span of management.
9. Time available for supervision: At higher levels top managers have less time for supervision.
They have to devote the major portion of their time in planning and organizing. Therefore, span
has to be narrow.
10. Geographical dispersion of subordinates: When the employees are physically dispersed at
different places, their supervision and control from the headquarters is difficult. Therefore, span
of management is relatively smaller.
Thus, there are too many variables affecting the span of management. We cannot select
the best span on the basis of some formula or set of rules.

DEPARTMENTATION

Departmentation: Meaning of Departmentation Importance of Departmentation Bases or

Types of Departmentation Criteria for Grouping Activities for Departmentation.

Meaning of Departmentation:
Grouping of activities is an essential step in designing an organization structure. Grouping of
activities into departments, divisions or other homogeneous units is known as departmentation.
Departmentation or departmentalization is the process of grouping tasks into jobs, the combining
of jobs into effective work groups and the combining of groups into identifiable segments or
departments. It involves horizontal differentiation of activities in an enterprise. A department is
a division, branch, regiment or some other organizational unit over which a manager has
authority for performance of task. Thus, departmentation is the process of dividing the work of
organization into departments or other manageable units.
Importance of Departmentation:
The basic purpose of departmentation is to make the size of each departmental unit manageable
and to secure advantages of specialization. Departmentation is necessary on account of the
following reasons:
1. Specialization: Departmentation enables an organization to avail of the benefits of
specialization. When every department looks after one major function, expertise is
developed and efficiency of operations increases.
2. Expansion: One manager can supervise and direct only a few subordinates. Grouping
of activities and personnel into departments makes it possible for the enterprise to expand
and grow. If there is no departmentation, the size of the organization will be restricted to
a managers span of control.
3. Autonomy: Departmentation results in the division of the enterprise into semiautonomous units. In these units, every manager is given adequate freedom. The feeling
of autonomy provides job satisfaction and motivation which in turn lead to higher
efficiency of operations.
4. Fixation of responsibility: Departmentation enables each person to know the specific
part he is to play in the total organization. It provides a basis for building up loyalty and

commitment.

The responsibility for results can be defined more precisely and an

individual can be held accountable for performance.

5. Appraisal: Appraisal of managerial performance becomes easier when specific tasks are
assigned to departmental personnel.

The sources of information, the skills and

competence required for total managerial decisions can be located.

6. Management development: Departmentation facilitates communication, coordination
and control. It simplifies the training and development of executives by providing them
opportunity to take independent decisions and to exercise initiative.
7. Administrative control: Departmentation is a means of dividing the large and complex
organization into small and flexible administrative units. Grouping of activities and
personnel into manageable units facilitates administrative control.

Standards of

performance for each and every department fan be precisely determined. Excessive
departmentation may result in several organizational problems such as erosion of the line
of command, multiple accountability, dysfunctional conflicts and difficulty of
coordination and control.
Bases or Types of Departmentation (Patterns of Grouping Activities):
The following patterns are presently practicing for grouping activities into departments by the
world corporate sector:
1. Functional Structure
2. Divisional Structure
3. Geographical Structure
4. Matrix Structure
5. Horizontal Structure
6. Modular Structure
7. Hybrid Structure
1.Functional Structure: In this structure, activities are grouped together by common function
from the bottom to the top of the organization. All engineers are located in the engineering
department, and the vice president of engineering is responsible for all engineering activities.
The same is true in marketing, research and development and manufacturing. With a functional

structure, all human knowledge and skills with respect to specific activities are consolidated,
providing a valuable depth of knowledge for the organization. This structure is most effective
when in-depth expertise is critical to meeting organizational goals, when the organization needs
to be controlled and coordinated through the vertical hierarchy, and when efficiency is important.
The structure can be quite effective if there is little need for horizontal coordination. An example
of the functional organization structure was shown in below exhibit:

Board of Directors

CEO

Marketing

Manufacturing

Human Resource

Strengths and Weaknesses of Functional Organization Structure

Strengths:
a) Allows economies of scale within functional departments
b) Enables in-depth knowledge and skill development
c) Enables organization to accomplish functional goals
d) Producing all products in a single plant.
Weaknesses:
a) Slow response time to environmental changes
b) May cause decisions to pile on top, hierarchy overload
c) Leads to poor horizontal coordination among departments
d) Results in less innovation
e) Involves restricted view of organizational goals
2. Divisional Structure:
The term divisional structure is used here as the generic term for what is sometimes called a
product structure or strategic business units. With this structure, divisions can be organized
according to individual products, services, product groups, major projects or programs, divisions,
businesses, or profit centers. The distinctive feature of a divisional structure is that grouping is
based on organizational outputs. The divisional structure promotes flexibility and changes
because each unit is smaller and can adapt to the needs of its environment. Moreover, the
divisional structure decentralizes decision making, because the lines of authority converge at a
lower level in the hierarchy. Microsoft Corporation uses a divisional structure to focus on
development and marketing different software products. Divisional organization structure has
exhibited in the below figure:
Strengths and Weaknesses of Divisional Organization Structure:
Strengths:
a) Suited to fast change in unstable environment
b) Leads to customer satisfaction because product responsibility and contact points
are clear.
c) Involves high coordination across functions.

d) Allows units to adapt to differences in products, regions, customers.

e) Best in large organizations with several products.
f) Decentralizes decision making
Microsoft
CEO

Business and
Division

R&D

Mfg.

Acc

Home and Retail

Division

Mkt

R&D

Mfg

Consumer Windows Division

Acc

Mkt

Mfg

R&D

Mkt

Weaknesses:
a) Eliminates economies of scale in functional departments
b) Leads to poor coordination across product lines.
c) Eliminates in-depth competence and technical specialization
d) Makes integration and standardization across product lines difficult.
3. Geographical Structure:
Geographical structure is very useful to a large-scale enterprise whose activities are
geographically spread over a world wide or country wide.

Banks, insurance companies,

transport companies are examples of such enterprises. Under geographical departmentation,

activities are divided into zones, divisions and branches. It is obviously not possible for one
functional manager to manage efficiently such widely separated activities.

This makes it

necessary to appoint regional managers for different regions.

Advantages:
a) It helps in achieving the benefits of local operations. The local managers are more conversant
with local customs, preferences, fashions, styles etc. They can adapt and respond to the local

demand situation with speed and accuracy. The enterprise can gain intimate knowledge of
conditions in the local markets.
b) It results in savings in freight, rents and labor costs. There are savings in time and money.
Therefore, economies of localized operations are available.
c) Every regional manager can specialize in the peculiar problems of his region.
d) There is better coordination of activities in a locality through the setting up of regional
divisions. It provides for effective span of control.
e) It facilitates the expansion of business to various regions.
f) It provides opportunity to train managers as they look after the complete operations of a unit.
Each regional manager can be given adequate autonomy.

BOD

CEO

Northern Region

Southern Region

Eastern Region

Western Region

Disadvantages:
a) Due to geographical distance there is problem of communication.
b) Geographical departmentation requires more managers with general managerial abilities who
may not always be available.
c) There may be friction between regional managers.
d) All activities of a firm may not be amenable to territorial specialization.
e) Coordination and control of different branches from the head office become less effective.
f) There is duplication of physical facilities due to which costs of operation may be high. There
is multiplication of personnel, accounting and other services at the regional level.

4. Matrix Structure:
Sometimes, an organizations structure needs to be multi-focused in that both product and
function or product and geography are emphasized at the same time. One way to achieve this is
through the matrix structure. The matrix can be used when both technical expertise and product
innovation and change are important for meeting organizational goals. The matrix structure
often is the answer when organizations find that the functional, divisional, and geographical
structures combined with horizontal linkage mechanisms will not work. The matrix is a strong
form of horizontal linkage. The unique feature of the matrix organization is that both product
division and functional structures (horizontal and vertical) are implemented simultaneously, as
shown in the below Exhibit.

The product managers and functional managers have equal

authority within the organization, and employees report to both of them.

Conditions for the matrix: A dual hierarchy may seem an unusual way to design an
organization, but the matrix is the correct structure when the following conditions are met: A)
Pressure exists to share scarce resources across product lines. The organization is typically
medium sized and has a moderate number of product lines. It feels pressure for the shared and
flexible use of people and equipment across those products. B) Environmental pressure exists for
two or more critical outputs, such as for in-depth technical knowledge (functional structure) and
frequent new products (divisional structure). This dual pressure means a balance of power is
needed between the functional and product sides of the organization, and a dual-authority
structure is needed to maintain that balance. C) The environmental domain of the organization is
both complex and uncertain. Frequent external changes and high interdependence between
departments require a large amount of coordination and information processing in both vertical
and horizontal directions.

CEO

Manufacturing
Vice President

Director
Products

Marketing
Vice President

Procurement
Manager

Design
Vice President

Product
Manager A
Product
Manager B
Product
Manager C

Strengths and Weaknesses of Matrix Organization Structure:

Strengths:
a) Achieves coordination necessary to meet dual demands from customers.
b) Flexible sharing of human resources across products.
c) Suited to complex decisions and frequent changes in unstable environment
d) Provides opportunity for both functional and product skill development
e) Best in medium-sized organizations with multiple products.
Weaknesses:
a) Causes participants to experience dual authority, which can be frustrating and confusing.
b) Means participants need good interpersonal skills and extensive training.
c) It is time consuming and also involves frequent meetings and conflict resolution sessions.
d) Requires great effort to maintain power balance.
e) This will not work unless participants understand it and adopt collegial rather than
vertical type relationships.
5. Horizontal Structure:

A recent approach to organizing is the horizontal structure, which organizes employees around
core process. Organizations typically shift toward a horizontal structure during a procedure
called reengineering. Reengineering, or business process reengineering, basically means the
redesign of a vertical organization along its horizontal workflows and processes.

A process

refers to an organized group of related tasks and activities that work together to transform inputs
into outputs about how work is done. Rather than focusing on narrow jobs structured into
distinct functional departments, they emphasize core process that cut horizontally across the
organization and involve teams of employees working together to serve customers. Examples of
processes include order fulfillment, new product development, and customer service.
Features:
a) Structure is created around cross-functional core processes rather than tasks,
functions, or geography. Thus, boundaries between departments are destroyed.
Ford Motor Companys Customer Service Division, has core process groups for
business development, parts supply and logistics, vehicle service and programs,
and technical support.
b) Self-directed teams, not individuals, are the basis of organizational design and
performance.
c) Process owners have responsibility for each core process in its entirety.
d) People on the team are given the skills, tools, motivation, and authority to make
decisions central to the teams performance. Team members are cross-trained to
perform one anothers jobs, and the combined skills are sufficient to complete a
major organizational task.
e) Teams have the freedom to think creatively and respond flexibly to new
challenges that arise.
f) Customers drive the horizontal corporation. Effectiveness is measured by end-ofprocess performance objectives as well as customer satisfaction, employee
satisfaction, and financial contribution.
g) The culture is one of openness, trust, and collaboration, focused on continuous
improvement. The culture values employee empowerment, responsibility, and
well being

General Electrics Salisbury, North Carolina plant shifted to a horizontal structure to improve
flexibility and customer service. And in Ethiopia, Ethiopian Telecom also has started to efforts
to change its traditional structure with horizontal structure.
Strengths and Weaknesses of Horizontal Organizational Structure:
Strengths:
a) Promotes flexibility and rapid response to changes in customer needs.
b) Directs the attention of everyone toward the production and delivery of value to the
customer.
c) Each employee has a broader view of organizational goals.
d) Promotes a focus on teamwork and collaboration
e) Improves quality of life for employees by offering them the opportunity to share
responsibility, make decisions, and be accountable for outcomes.
Weaknesses:
a) Determining core processes is difficult and time consuming.
b) Requires changes in culture, job design, management philosophy, and information and
reward systems.
c) Traditional managers may back away when they have to give up power and authority.
d) Requires significant training of employees to work effectively in a horizontal team
environment.
e) This will limit in-depth skill development.
6. Modular Structure:
The modular structure extends the concept of horizontal coordination and collaboration
beyond the boundaries of the traditional organization.

With a modular structure, the firm

subcontracts many or most of its major processes to separate companies and coordinates their
activities from a small headquarters organization. This structure may be viewed as a central hub
surrounded by a network of outside specialists. Rather than being housed under one roof or
located within one organization, service such as accounting, design, manufacturing, marketing,
and distribution are outsourced to separate companies that are connected electronically to a

central office. Organizational partners located in different parts of the world may use networked
computers or the Internet to exchange data and information so rapidly and smoothly that a
loosely connected network of suppliers, manufacturers, and distributors can look and act like one
seamless company. The modular form incorporates a free-market style to replace the traditional
vertical hierarchy. Subcontractors may flow into and out of the system as needed to meet
changing needs.
With a modular structure, the hub maintains control over processes in which it has worldclass or difficult-to-imitate capabilities and then transfers other activities-along with the decision
making and control over them-to other organizations. These partner organizations organize and
accomplish their work using their own ideas, assets, and tools. The idea is that a firm can
concentrate on what it does best and contract out everything else to companies with distinctive
competence in those specific areas, enabling the organization to do more with less.
Strawberry Hill
(Editorial Service
Module)

Creative Design
Inc.
(Graphics Module)

Premiere
Plus
Publishing

Target Communications
(Public relations Module)

A-Z Print shops

(Printing Module)

Strengths and Weaknesses of Modular Structure:

Strengths:
a) Enables even small organizations to obtain talent and resources worldwide.
b) Gives a company immediate scale and reach without huge investments in
factories, equipment, or distribution facilities.
c) Enables the organization to be highly flexible and responsive to changing needs.

d) Reduces administrative overhead costs.

Weaknesses:
a) Managers do not have hands-on control over many activities and employees
b) Requires a great deal of time to manage relationships and potential conflicts with contract
partners.
c) There is a risk of organizational failure if a partner fails to deliver or goes out of business.
d) Employee loyalty and corporate culture might be weak because employees feel they can
be replaced by contract services.
7. Hybrid Structure:
As a practical matter, many structures in the real world do not exist in the pure forms we have
outlines in the above. Organizations often use a hybrid structure that combines characteristics of
various approaches tailored to specific strategic needs. Most companies combine characteristic
of functional, divisional, geographical, horizontal, or modular structures to the advantage of the
strengths of various structures and to avoid some of the weaknesses. Hybrid structures tend to be
used in rapidly changing environments because they offer the organization greater flexibility.
Sun Petrochemicals Hybrid structure exhibited below:

President
Sun Petrochemical

Functional Structure

Chief Counsel

HR Director

Technology
Vice President

Finance
Vice President

Product Structure
Fuels
Vice President

Lubricants
Vice President

Chemicals
Vice President

One type of hybrid that is often used is to combine characteristics of the functional and divisional
structures. When a corporation grows large and has several products or markets, it typically is
organized into self-contained divisions of some type. Functions that are important to each
product or market are decentralized to the self-contained units. However, some functions that are
relatively stable and require economies of scale and in-depth specialization are also centralized at
headquarters.
Criteria for Grouping Activities for Departmentation:
Every basis of departmentation has its own advantages and disadvantages. No single basis is the
ideal for all organizations.

Management must be very careful in choosing the basis of

departmentation because once a pattern is chosen it is very difficult and costly to switch over to
another pattern. The following factors should be kept in view while selecting a suitable basis of
departmentation.
1. Specialization: The activities of an organization should be grouped in such a way that it leads
to the specialization of work.
operations.

Specialization helps to improve efficiency and economy of

It enables people to become experts.

However, over-specialization should be

avoided because it results into loss of motivation among the personnel.

2. Coordination: All activities are designed to achieve the organizational objectives.
Coordination in the performance of different activities is necessary so that they contribute

maximum towards the organizational goals. Sometimes dissimilar activities may have to be put
together in one department because close coordination between them is necessary.
3. Control: The departmentation should be such that it facilitates measurement of performance
and timely corrective action. It should enable the management to hold people accountable for
results. Effective control helps to achieve organizational goals efficiently and economically.
4. Cost: Creation of a new department involves extra cost of additional space, equipment and
personnel.

Therefore, the pattern and number of departments should be so decided that

maximum possible economy is achieved in the utilization of physical facilities and personnel.
5. Special Attention: The various activities should be given adequate attention so that each
necessary activity is performed and there is no unnecessary duplication of activities. Proper
weightage should be given to different functions depending upon their significance and the
organizational needs. The future importance of an activity should also be considered. Key areas
should be given special attention.
6. Local Conditions: Local factors should be adequately considered in a scheme of
decentralization. Departmentation should be adjusted according to available resources. Full
utilization of resources should be the aim.
7. Human Consideration: Departmentation should not follow only technical aspects but human
aspects of the organization too. The existence of informal groups, cultural patterns, value
system, attitudes of personnel, etc. should be given due consideration. Attention to the human
factor will make departmentation more efficient and more effective.

LINE AND STAFF RELATIONS

Line and Staff Relations: Meaning of Line and Staff Need for Distinction between line and
staff Line Authority Relationship Staff Authority Relations Line and Staff Conflict
Achieving Co-operation between Line and Staff.
Introduction:

Authority relationship is the cohesive force which integrated different parts of the organization.
In an organization, many types of authority relationships are possible, a condition brought abut
primarily by the use of different types of authority. In turn, different types of authority are
employed to make feasible the functioning of the organization.

Different managers need

different authority for decision making, both in type and amount. Therefore, they may have
different authority relationships in the organization. However, various authority relationships
revolve around the concept of line-staff authority relationships. Therefore, out attempt here is to
examine the various issues in such relationships.
Meaning of Line and Staff:
Line and staff are defined in two different ways. One viewpoint is that these denote two different
functions. Line functions are those responsible for the attainment of organizational objectives
whereas staff functions help the line functions help the line functions in attaining these
objectives. Line are operating departments while staff are auxiliary or service departments.
According to Allen, Line functions are those which have direct responsibility for
accomplishing the objectives of the enterprise and staff refers to those elements of the
organization that help the line to work most effectively in accomplishing the primary objectives
of the enterprise. For example, production and sales are said to be the line functions while
finance, personnel and accounting are staff functions in a manufacturing enterprise. But in a
bank finance is the line function as it is directly related to organizational objectives. Moreover,
there may be a staff function in a line department. For example, repairs and maintenance is a
staff section in the production department which is a line function.
Need for Distinction between line and staff:
Distinction between line and staff is necessary for the following reasons:
1. To provide specialized services: For the successful management of a complex
organization in a turbulent environment wide knowledge and experience are required.
One manager cannot possess all the necessary knowledge and skills.

Therefore, a

manager needs the services of specialists. But a manager utilizing such services must
understand the nature of relationship with the specialists so as to avoid conflicts and to
maximize efficiency.

2. To maintain adequate checks and balances: A system of countervailing forces is

required so that authority delegated to individuals or groups is keep within prescribed
limits by counterbalancing authority. A counterforce is required to check and balance a
force. Such balance of forces helps to regulate the energies of each activity. Appropriate
checks and balances are particularly essential for effective control.

Line and staff

distinction provides a balance between planning and doing.

3. To maintain accountability: An organization is a system of operation between various
persons. Each person is assigned a definite role to play and is responsible for certain
tasks. The responsibility for end results lies with those who exercise authority for end
results. Distinction between line and staff helps to identify the positions which have
ultimate responsibility for end results.
Line Authority Relationship:
Line authority is the direct authority which a superior exercises over his subordinates to carry out
orders and instructions.

Such authority is delegated to those positions or elements of the

organization which have direct responsibility for accomplishing the primary objectives. The
flow of line authority is always downward, that is, from a superior to a subordinate. Line
authority creates a direct relationship between a superior and his subordinates. Such superiorsubordinate relationship is known as line relationship.

Such relationship exists in all

departments.
According to Dalton E. McFarland, Line authority, the basic authority in an
organization, is the ultimate authority to command, act, decide, approve or disapprovedirectly
or indirectlyall the activities of the organization. It is the authority to direct the work of others
and to require them to conform to decisions, plans, policies, systems, procedures and goals. Line
authority is the heart of the relationship between superiors and subordinates.
Staff Authority Relations:
Literally, staff means a stick carried in the hand for support. In management, staff refers to those
elements of the organization which help the line to work most effectively in accomplishing the
primary objectives of the enterprise. The nature of staff relationship is purely advisory. Staff
personnel provide advice, assistance and information to line managers. Staff authority involves

giving advice and service to line managers on the basis of their specialized knowledge and skills.
Staff specialists reduce the burden of line executives. Staff personnel have right to direct or
command subordinates within their own departments. But with respect to line personnel they
play an advisory or auxiliary role of recommending and assisting. In the words of Henry
Fayol, Staff is an adjunct, reinforcement and a sort of extension of the managers personality.
The basis criterion for differentiating between line and staff functions is the degree of closeness
of the function to the primary objectives of the organization.
Line and Staff Conflict:
There is frequent conflict and friction between the line executives and staff personnel. The
causes of such conflict may be divided into three categories:
1. Line managers make the following complaints against staff personnel:
a) Staff oversteps its authority:

Staff officers encroach upon line authority.

They

interfere in the work of line managers and attempt to tell them how to do their work. They do
not confine themselves to their advisory role.
b) Staff does not give sound advice: Staff personnel fail to give fully considered, wellbalanced and sound advice. They are academicians and give new ideas that have little practical
application. They are not well-acquainted with the real problems of the enterprise. They often
push untried and untested ideas.
c) Staff steals credit: Staff personnel are not directly accountable for results and are
generally overzealous. They tend to assume credit for success but lay the blame for failure on
line managers.
d) Staff experts fail to see the whole picture objectively: They tend to emphasize their
specialty rather than the interest of the total organization.
e) Staff has a complex: Staff officers tend to impose their superiority on line managers.
Staff personnel are generally more educated and specialists in their areas. Therefore, they
consider themselves superior to line executives.
2. Staff personnel usually make the following complaints against line managers:
a) Line managers often resist new ideas and are not prepared to listen to the arguments of
staff experts.

b) Line executives do not provide sufficient authority: Staff specialists lack authority to
get their useful ideas implemented. As a result they get frustrated.
c) Line managers do not make a proper use of the service of staff specialists: Line
managers consult them only as a last resort. They consider that asking for advice is admitting
defeat. Therefore, staff cannot anticipate problems and recommend precautionary measures.
3. The following weaknesses in the organization structure also lead to line-staff conflict:
a) Lack of well-defined authority: Very often authority relationships between line and
staff are not clearly defined. This results in overlapping and gaps in authority leading to
conflicts.
b) Temperamental differences: There are fundamental differences in the orientation,
viewpoints and perceptions of line and staff. Generally, staff people are relatively young, better
educated and more sophisticated in their outlook. On the other hand, line personnel tend to be
old, less educated and more conservative. Staff feels their advice will produce miracles while
line feels it impracticable. Staff seeks change and experimentation whereas line often desire
status quo and caution.
Achieving Co-operation between Line and Staff:
A certain amount of conflict might be inevitable and even desirable. But extreme and
prolonged line-staff conflict can be very dangerous to the organization. Therefore, it is necessary
that line and staff works together as a team for the smooth working of the enterprise. The
following steps may be taken to improve line-staff relationships:
1. Clarify relationships: The limits of line authority and staff authority should be
defined clearly and precisely.

It should be made clear to all that line has the ultimate

responsibility for results while staff is responsible for providing sound advice and service to the
line executives.
2. Educate line: Line should give due consid4ration to the staff advice and should follow
the recommendations if they are in the best interests of the organization. They should give
reasons for not accepting the staff advice. Line executives should be educated and encouraged to
make proper use of staff.

3. Compulsory staff advice: Line executives should consult and seek staff advice as a
matter of habit. They may be forced to consult staff on regular basis. This will enable line to
make maximum use of staff.
4. Inform staff: Line managers should not take action directly affecting staff without
informing the staff.

They should keep the staff fully informed of their problems and

requirements.
5. Sell advice: Staff specialists should appreciate and understand the problems of line.
They should no make it a prestige issue when their advice is not followed. Rather they should
sell their ideas to line executives.
6. Encourage line: Staff should encourage and educate line managers by letting them
know what they can do for line.
7. Overcome resistance: Staff should try to recognize and overcome resistance to change
on the part of line. They should be convinced and consulted before introducing change and
results of change should be made known to them.
8. Completed staff work: Staff experts should fully consider their suggestions before
putting them before line executives. They should be a problem-solver not a problem creator.
They should make complete recommendation so that line can respond in terms of yes or no. This
is called completed staff work.
9. Orientation: Line and staff should understand the orientations of each other. Line
should recognize the importance of staff and should consider staff as a helper. Similarly, staff
should not encroach upon line authority but persuade line to use their advice. In this way line
and staff can become an organizational way of life.
10. Constitute committees: Committees of line and staff executives should be
constituted. Such committees should meet periodically to discuss all outstanding differences
among line and staff. Such differences should be amicably resolved by unanimous decisions. If
differences still persist an appeal to the common superior may be made.
11. Position rotation: Wherever possible staff specialists should be placed in the position
of line managers. Such position rotation will improve understanding and initial cooperation
among line and staff.

12. Linking pin concept developed by Rensis Likert may be used: Under this concept,
overlapping groups are formed with some individual being members of two or more separate
groups who serve as linking pins between line and staff.

STAFFING
Introduction:
Once the goals are laid down and a suitable organization structure is developed, the next function
of management is staffing. Staffing has come to be recognized as a separate managerial function
after the Industrial Revolution. Earlier, it was considered to be a part of the organizing function
of management. The staffing function assumed great importance due to increasing size of
organizations, rapid advancement of technology and growing complexity of human behavior etc.
In recent years there has been considerable development of knowledge in the field of staffing.
The overwhelming role of human resources in organizations has been recognized. As a result
management of human recourses has become a vital area of management.
Meaning and Features of Staffing:
Staffing is that part of the process of management which is concerned with obtaining, utilizing
and maintaining a satisfactory and satisfied work force. Its purpose is to establish and maintain
sound personnel relations at all levels in the organization so as to make effective use of personnel
to attain the objectives of the organization and to provide personal and social satisfaction which
personnel want. Staffing consists of wide range of interrelated activities.
According to Koontz and ODonnell, The managerial function of staffing involves
manning the organizational structure through proper and effective selection, appraisal and
development of personnel to fill the roles designed into the structure. It is the process of
identifying, assessing, placing, evaluating and developing individuals at work. The staffing
function involves the procurement, development, compensation, integration and maintenance of
personnel in the organization.
The above description reveals the following features of the staffing:

1. Staffing is a universal function. It is the responsibility of every manager. In large

organizations there exists generally a personnel department. But this department only
advises and helps the line managers in performing the staffing function.
2. Every manager is continuously engaged in performing the staffing function to ensure
successful functioning of his department and to develop his successors.
3. Staffing is a dynamic function. It is a never-ending process. Management of human
resources is a delicate task requiring sustained or regular efforts.
4. Staffing cannot be entrusted fully to personnel department or any other service
department. Its scope is very wide.
5. The basic purpose of staffing is the accomplishment of organizational goals through
team-spirit and optimum contribution from every employee.
6. Sometimes a distinction is made between staffing and personnel management. Staffing is
said to be concerned with the management of managers while personnel management
involves plans, policies land procedures for operative positions. But in practice it is not
possible to distinguish between the two. Every manager is concerned with staffing and
the principles underlying managerial and non-managerial staffing are the same.
7. Staffing is a difficult function with extraordinary problems of social, philosophical and
psychological nature. In order to handle these problems certain well-defined principles
have been developed after a great deal of research and experience. Staffing involves
people.
Elements of Staffing or Functions of Personnel Management:
Staffing or human resource process consists of a series of steps which are given below:
1. Procurement: Employment of proper number and kind of personnel is the first function of
staffing. This involves: a) manpower planning, b) recruitment, c) selection and d) placement.
Manpower planning is the process of determining current and future manpower needs in terms of
the number and quality of the personnel. Recruitment implies locating sources of acceptable
candidates. Selection involves choice of right type of people from the available candidates. This
requires evaluating various candidates and selecting those that match the needs of the
organization. Placement means assigning specific jobs to the selecting candidates.

2. Development: After placing the individuals on various jobs, it is necessary to train them so
that they can perform their jobs efficiently. Proper development of personnel is essential to
increase their skill in the proper performance of their jobs. Development involves orientation,
training and counseling of personnel. Training is the process of improving the knowledge and
skills of personnel. Development means preparing the employees for additional responsibility or
advancement.
3. Compensation:

Compensating personnel means determining adequate and equitable

remuneration of personnel for their contributions to the organizational goals. Both monetary and
non-monetary rewards are decided keeping in view human needs, job requirements, wage laws,
prevailing wage levels, organizations capacity to pay, etc.

Compensation involves job

evaluation, performance appraisal, promotion, etc. Job evaluation is the process of determining
the relative worth of different jobs in the organization.

Performance appraisal involves

evaluating the employees performance in relation to certain standards. Promotions, transfers,

etc. are elements of the reward system.
4. Integration: It involves developing a sense of belonging to the enterprise.

Sound

communication system is required to develop harmony and team-spirit among employees. An

effective machinery is required for the quick and satisfactory redressal of all problems and
grievances of employees. It is essential to motivate employees towards the accomplishment of
organizational goals. Discipline and labor relations are important elements of integration.
5. Maintenance: Maintenance involves provision of such facilities and services that are required
to maintain the physical and mental health of employees. These include measures for health,
safety, and comfort of employees. Various welfare services may consist of provision of cafeteria,
restrooms, counseling, group insurance, recreation club, education of children of employees, etc.
Problem of employee turnover due to retirement, discharge, layoff, etc. is also included here.
Need and Importance of Staffing:
Staffing is a very important function of management. No organization can be successful unless it
can fill and keep filled the various positions with the right type of employees. Managers would
be more competent and effective if they are carefully selected and trained. Staffing provides
manpower which is the key input of an organization. Effective staffing provides the following
benefits.

1. It helps in discovering and obtaining competent personnel for various jobs.

2. It makes for higher performance by placing right persons on the right jobs.
3. It improves job satisfaction and morale of employees through objective assessment and
fair compensation of their contribution.
4. It facilitates optimum utilization of human resources and in minimizing costs of
manpower.
5. It ensures the continuity and growth of the organization through the development of
managers.
6. It enables an organization to cope with the shortage of executive talent.
In recent years, the need for staffing has increased due to the following reasons:
1. Increasing size of organizations: In a large organization, there are several positions.
Systematic programs for the selection, training and appraisal of employees are required for
efficient functioning of the enterprise. This has increased the significance of staffing.
2. Advancement of technology: Significant improvements have taken place in technology. In
order to make use of the latest technology, the appointment of right type of persons is necessary.
Right personnel can be procured, developed and maintained for new jobs only if the management
performs its staffing function effectively.
3. Long-range needs for manpower: In order to execute the long-range plans, management
must determine the manpower requirements well in advance. It is also necessary to develop
managers for succession in future. The need for staffing has increased due to shortage of good
managerial talent and high rate of labor turnover.
4. High wage bill: Personnel cost accounts for a major portion of operating costs today.
Efficient performance of the staffing function is essential to make the best use of personnel. For
example, if right type of people are selected and trained, management can obtain optimum results
from the expenses incurred on recruitment, selection and training.
5. Trade unionism: Efficient system for staffing has become necessary to negotiate effectively
with organizations of executives.

With the spread of education, executives have become

increasingly aware of their privileges. Collective bargaining has brought about change in their
attitudes. Separation of ownership from management requires a more professional approach
towards the staffing function.

6. Human relations movement: Enlightened employers have come to recognize the dignity of
labor-increasing awareness of the role of human factor in industry. Now managers can use the
knowledge of behavioral sciences in moulding the behavior of employees in the right direction.
At the executive level, there is greater need for non-financial motivation. By performing the
staffing function well, management can show the significance it attaches to the human resources
in the organization.
Essentials of a good staffing policy:
A good staffing policy should possess the following characteristics:
1. It should take into account the interests of both employer and employees. It should make
explicit what people are expected to do and what they will be offered in reward for doing it.
2. It should be consistent with the basic overall policies of the organization.
3. It should be complete in every respect.
4. It should be simple and precise.
5. It should be flexible, i.e., capable of being adjusted to changes in business environment
6. It should be reasonably stable and permanent.
7. It should be responsive to prevailing trends in industry and society.
8. It should take into account variations in the capabilities, interests and attitudes of employees.
9. It should be properly communicated to those for whom it is intended.
10. It should be uniformly applicable to all members of the organization.
11. It should be acceptable to the employees.

DELEGATION & DECENTRALIZATION

Introduction:
The tasks involved in the management of an enterprise are too big for one individual. No
individual can perform all the activities himself. Therefore, the total work of an organization is
divided among different persons. Every individual is given some authority so that he can

accomplish his task. Every manager shares his authority with his subordinates because he along
cannot exercise all the authority himself.

After assigning duty and granting authority to

subordinates, a manager holds them accountable for proper discharge of duty. This part of the
organizing process is known as delegation of authority.
Meaning and Nature of Delegation of Authority:
According to Louis A. Allen, Delegation of authority is the process a manager follows in
dividing the work assigned to him so that he performs that part which only he, because of his
unique organizational placement, can perform effectively and so that he can get others to help
with what remains.
In simple words, delegation means assigning work to others and giving them authority to
do it. It involves granting the right to decision-making in certain defined areas and charging the
subordinates with responsibility for carrying out the assigned tasks.

Delegation has the

following characteristics:
a) Delegation takes place when a superior grants some discretion to a subordinate.
The subordinate must act within the limits prescribed by the superior. He is not
free to use authority arbitrarily but has to use it subject to the policies and rules of
the organization.
b) A manager cannot delegate the entire authority to his subordinate because if he
delegates all his authority he passes his position to the subordinates.
c) Generally authority regarding routine decisions and for execution of policies is
delegated to subordinates.

A manager retains the authority to take policy

decisions and to exercise control over the activities of subordinates.

d) The extent of authority which is delegated depends upon several factors, e.g., the
ability of the executive to delegate, the ability of the subordinates to accept
delegation, the philosophy of management, the confidence of the superior in his
subordinates, etc.
e) Delegation does not imply reduction in the authority of a manger. A superior
retains authority even after delegation. Delegation does not mean a manager loses
control and power. He can reduce, enhance or take back the delegated authority.

f) Delegation may be specific or general, written or implied, formal or informal.

Delegation does not mean avoiding decisions or abandonment of work.
g) Delegation does not mean resignation of responsibility. No manager can escape
from his obligation by delegating authority to subordinates. Therefore, he must
provide a means of checking upon the work that is done for him to ensure that it is
done as he wishes.
h) Delegation is an art because a) it is creative, b) it is practice based, c) it involves
use of personal skills, d) it is result-oriented and f) it is a personalized process.
Importance of Delegation:
Delegation of authority provides the following advantages:
1. It enables the managers to distribute their workload to others. By reducing the workload
for routine matters, they can concentrate on more important policy matters.
2. Delegation facilitates quick decisions because the authority to make decisions lies near
the point of action. Subordinates need not approach the boss every time need for a
decision arises.
3. Delegation helps to improve the job satisfaction, motivation and morale of subordinates.
It helps to satisfy their needs for recognition, responsibility and freedom.
4. By clearly defining the authority and responsibility of subordinates, a manager can
maintain healthy relationships with them.

Delegation increases interaction and

understanding among managers and subordinates.

5. Delegation binds the formal organization together. It establishes superior-subordinate
relationships and provides a basis for efficient functioning of the organization.
6. Delegation enables a manager to obtain the specialized knowledge and expertise of
subordinates.
7. Delegation helps to ensure continuity in business because managers at lower levels are
enabled to acquire valuable experience in decision-making. They get an opportunity to
develop their abilities and can fill higher positions in case of need. Thus, delegation is an
aid to executive development. It also facilitates the expansion and diversification of
business through a team of competent and contented workers.

Process of Delegation:
The process of delegation involves the following steps:
1. Determination of results expected: First of all, a manager has to define the results he
wants to obtain from his subordinates for achievement of organizational objectives.
2. Assignment of duties:

The manager the assigns specific duties or tasks to each

subordinate. He must clearly define the function of each subordinate. While assigning
duties and responsibilities, he must ensure that the subordinates understand and accept
their duties. Duties should be assigned according to the qualifications, experience and
aptitude of the subordinates.
3. Granting of authority: Assignment of duties is meaningless unless adequate authority is
given to subordinates. They cannot discharge their responsibilities without adequate
authority. Enough authority must be granted so that subordinates can perform their
duties.

By granting authority, subordinates are permitted to use resources, to take

decisions and to exercise discretion.

4. Creating accountability for performance: The subordinates to whom authority is
delegated must be made answerable for the proper performance of assigned duties and for
the exercise of the delegated authority. The extent of accountability depends upon the
extent of delegation of authority and responsibility. A person cannot be held answerable
for the acts not assigned to him by his superior.
Guidelines for Effective Delegation:
Inadequate and ineffective delegation leads to several undesirable consequences, e.g., noncommitment, lack of initiative, frustration, inefficiency, etc. Therefore, it is necessary to make
delegation effective. The following measures may be used for this purpose:
1. Establishment of definite goals: Delegation is a means for efficient accomplishment of
organizational objectives. Therefore, objectives must be clearly defined for meaningful
delegation. Subordinates hesitate to accept delegation when they do not know clearly
what is expected of them. Proper goal setting focuses attention on what authority will be
required to achieve the goals.

2. Clear definition of authority: The authority and responsibility of each subordinate

should be defined in clear terms. This helps to prevent overlapping of authority, avoids
gaps in responsibility and avoids confusion. It enables a manager to know his limits of
authority. The delegation must know what authority is to be delegated and within what
limits.
3. Proper motivation: Subordinates should be given positive incentive for accepting
responsibility. A managers feeling of insecurity should be avoided by providing proper
status symbols. Managers having delegated authority should be suitably rewarded.
4. Appropriate environment: A work climate free form fear and frustration should be
created.

Top management should provide adequate information and support and

resources to subordinates for effective delegation.

5. Proper training: Subordinates should be given adequate training for proper use of
delegated authority. This will also help to develop their self-confidence and morale. The
manager should consider the abilities and limitations of the subordinates to whom
authority is to be delegated.
6. Effective control mechanism: Proper control techniques should be developed to ensure
that authority is properly used by subordinates. However, control system should focus on
major deviations from the standards and should not interfere in the day to day functioning
of subordinates.

The delegation of authority must be in accordance with the

organizational set-up.
7. Proper communication: There should be free and open lines of communication. This
will enable the subordinates to get the help of the manager discharging their duties.
Sound communication will also enable the delegation to be in touch with his
subordinates.
Principles of Delegation:
Delegation of authority cannot be effective unless certain principles are followed in practice.
While delegating authority, a manager should observe the following principles:
1. Functional definition:

Before delegating authority a manger should clearly the

functions to be performed by subordinates. The objectives of each job, the activities

involved init and its relationship with other jobs should be defined.

2. Delegation by results expected: Authority should be delegated only after the results to
be achieved by the subordinates are decided. This will enable them to know by what
standards their performance will be judged.
3. Parity of authority and responsibility: There must be a proper balance between
authority and responsibility of a subordinate. Responsibility without authority will make
a subordinate ineffective as he cannot discharge his duties. Similarly, authority without
responsibility will make the subordinate irresponsible.

Therefore, authority and

responsibility should be co-existed.

4. Absoluteness of responsibility: Responsibility cannot be delegated. No manager can
avoid his responsibility by delegating his authority to subordinates. After delegating
authority he remains accountable for the activities of his subordinates. Similarly, the
subordinates remain accountable to their superior for the performance of assigned duties.
5. Unity of command: At one, time a subordinate should receive command and be
accountable to only one superior. If a person reports to two superiors for the same job,
confusion and conflict will arise. He may receive conflicting orders and his loyally will
be divided. Therefore, dual subordination should be avoided.
6. Well-defined limits of authority: The limits of authority of each subordinate should be
clearly defined. This will avoid overlapping of authority and will allow the subordinate
to exercise initiative. He will refer those matters to the superior which are outside the
limits of his authority.
7. Authority level principle: Managers at each level should make all decisions within their
jurisdiction. They should avoid the temptation to refer to their superiors decisions which
they are authorized to take themselves. Only matters outside the scope of authority
should be referred to superiors.

Meaning of Centralization & Decentralization of Authority:

Centralization and decentralization are opposite terms. They refer to the location of decisionmaking authority in an organization. Centralization implies the concentration of authority at the
top level of the organization while decentralization means dispersal of authority throughout the
organization. According to Allen, Centralization is systematic and consistent reservation of
authority at central points within an organization. Decentralization applies to the systematic
delegation of authority in an organization wide context.

Decentralization refers to the

systematic effort to delegate to the lower levels all authority except that which can only be
exercised at central points. It is the distribution of authority throughout organization.
Centralization and decentralization are relative terms because every organization
structure contains both the features. There cannot be complete centralization or decentralization
in practice. Absolute centralization means each and every decision is to be taken by top
management which is not practicable. Similarly, absolute decentralization implies no control
over the activities of subordinates which cannot be possible.

Therefore, effective

decentralization requires a proper balance between dispersal of authority among lower levels and
adequate control over them.
Measuring the Degree of Decentralization:
There exist varying degrees of decentralization in different organizations. Allen point out that
the degree of decentralization can be judged by three criteria: a) what kind of authority is
delegated? B) How far down in the organization is it delegated? C) How consistently is it
delegated?
Earnest Dale has given four tests to measure the degree of decentralization in an
organization.
1. Number of decisions: The greater the number of decisions made at lower levels, the
greater is the degree of decentralization.
2. Importance of decisions: The more important are the decisions made at lower levels,
higher is the degree of decentralization. The sum of capital that can be sanctioned is one
indicator of the importance of decisions.

3. Effects of decisions: More the functions affected by decisions made at lower levels,
greater is the degree of decentralization. A company which permits both financial and
personnel decisions at lower levels is more decentralized than a company which permits
only operational decisions.
4. Checking of decisions:
decisions made.

Decentralization is greater when there is no checking of

It is comparatively less when superiors have to be informed of

decisions. It is the least when superiors must be consulted before decisions are made.
Advantages and Disadvantages of Decentralization:
Advantages:
1. Relief to top executives: Decentralization helps to reduce the workload of top
executives. They can devote greater time and attention to important policy matters by
decentralizing authority for routine operational decisions.
2. Motivation of subordinates: Decentralization helps to improve the job satisfaction and
morale of lower level managers by satisfying their needs for independence, participation
and status. It also fosters team-spirit and group cohesiveness among the subordinates.
3. Quick decisions: Under decentralization authority to make decisions is placed in the
hands of those who are responsible for executing the decisions. As a result, more
accurate and faster decisions can be taken as the subordinates are well aware of the
realities of the situation. This avoids redtapism (official delay) and delays.
4. Growth and diversification: Decentralization facilitates the growth and diversification
of the enterprise. Each product division is given sufficient autonomy for innovations and
creativity. The top management can extend leadership over a giant enterprise. A sense of
competition can be created among different divisions or departments.
5. Executive development:

When authority is decentralized, subordinates get the

opportunity of exercising their own judgment. They learn how to decide and develop
managerial skills. As a result, the problem of succession overcome and the continuity
and growth of the organization are ensured. There is better utilization of lower level
executives.

6. Effective communication: Under decentralization, the span of management is wider and

there are fewer levels of organization. Therefore, communication system becomes more
effective. Intimate relationships between superiors and subordinates can be developed.
7. Efficient supervision and control: Managers at lower levels have adequate authority to
make changes in work assignments, to change production schedules, to recommend
promotions and to take disciplinary actions. Therefore, more effective supervision can be
exercised.
Disadvantages:
1. Expensive: Decentralization increases the administrative expenses. Each division or
department has to be self-sufficient in terms of physical facilities and trained personnel.
There may be duplication of functions and underutilization of facilities. Therefore, a
decentralized set-up is better suited to large enterprises.
2. Difficulty in coordination: Under decentralization, each department or division enjoys
substantial autonomy. Therefore, coordination among the departments becomes more
difficult.
3. Lack of uniformity: Decentralization may lead to inconsistencies when uniform
procedures are not followed by various departments. Each department may formulate its
own policies and procedures.
4. Narrow product lines: Decentralization requires that product lines should be broad
enough to permit creation of autonomous units. Therefore, is not suitable for small firms
having narrow product lines. Similarly, decentralization may not be possible when there
is lack of competent manager at lower level in the organization.
5. External constraints: Decentralization may not be possible due to external factors like
market uncertainties, trade union movement, government intervention, etc.
Effective Decentralization:
Effective decentralization requires the following:
1. Appropriate Centralization:

Decentralization can be effective when there is a

centralized authority for overall planning and control. The central authority ensures close

coordination between various operating units. Without such a cementing force, the
decentralized organization may fall apart into pieces.
2. Development of Managers: Effective decentralization requires a large number of highly
competent managers who are capable of working independently. In order to develop such
executives, top management must delegate authority and allow the subordinates to learn
through experience in making decisions.
3. Open Communication: A sound communication system should be established to ensure
continuous interaction between superiors and subordinates.

Necessary feedback on

operating results should be made available to superiors. Open communication system

will enable managers to provide advice and guidance to subordinates.
4. Coordination: Decentralization tends to create rivalry and conflict among operating
divisions. Departmental managers compete for scarce resources. Effective coordination
is essential to prevent such disintegrating tendencies. Interdepartmental coordination
helps to prevent the danger of breakup.

Committees, liaison officers and other

mechanisms of coordination may be used to ensure coordination.

5. Adequate Controls: Effective decentralization needs an appropriate control system that
will distribute the resources, lay down standards of performance and exercise control to
ensure that the various operating units are working in the desired direction.

UNIT: 5
LEADING
Introduction:
Leadership is an important element of the directing function of management. Wherever there is
an organized group of people working towards a common goal, some type of leadership becomes
essential. Leadership is the ability to build up confidence and zeal among people and to create
an urge in them to be led. To be a successful leader, a manager must possess the qualities of
foresight, drive, initiative, self-confidence and personal integrity.

Different situations may

demand different types of leadership.

Meaning:
According to Keith Davis and J.W. Newstrom, Leadership is the process of encouraging and
helping others to work enthusiastically towards objectives.
According to Arthur G. Jago, Leadership as a process is the use of non-coercive influence to
direct and coordinate the activities of group members to meet a goal. As a property, leadership is
the set of characteristics attributed to those who are perceived to use such influence
successfully.
Leading vs. Managing:
The managerial function of leading is defined as the process of influencing people so that they
will contribute to organization and group goals.
Managing involves doing careful planning, setting up an organization structure that will aid
people in achieving plans and staffing the organization structure with people who are as
competent as possible.

The measurement and correction of peoples activities through

controlling is also and important function of management.

Characteristics of leadership:

A leader must have followers. Lead whom? Leadership does not exist in vacuum.
Leadership cannot exist without a group of followers.

Leadership is a working relationship between the leader and his followers. This means
that the leader must be an active participant in the activities of the group.

The purpose of leadership is to achieve some common goal or goals.

A leader influences his followers willingly not by force or coercion.

Leadership is exercised in a given situation. It is a function of the leader, the followers

and other situational variables L= f (l, f, s) where l, f, s stand for leader, followers and
situation respectively.

Leadership is a social interaction-influence process between the leader and his followers.
It is an interpersonal process of influencing behavior.

Leadership is a power relationship in which power and influence are unevenly

distributed.

Leadership is a continuous and dynamic process of influencing behavior. It is also a

psychological process. It is complex and multi-dimensional in character.

Importance of Leadership:
The success of a business enterprise is also dependent upon the quality of its leadership.
A weak leader can wreck the morale and destroy efficiency. On the other hand, strong leadership
can transform a lack luster (shine) group into a strong and aggressively successful organization.
Many ailing concerns have achieved superb performance with a change in leadership. Some of
the important functions performed by a leader are given below:
1. Guiding People: The first and foremost job of a leader is to guide and direct the group.
He acts as a friend, philosopher and guide to his followers and takes the lead in all
activities. A leader provides advice and council. He used his power in the best interests
of the group.

2. Developing Teamwork: A leader acts as the captain of his team in order to win the
confidence and cooperation of his followers. He convinces people about the goals and
policies of the group. A leader secures cooperation and coordination by setting a good
example through his own conduct. He is always in touch with the people to nurture team
work. He reconciles differences among people and inculcates a sense of collectivism and
responsibility.
3. Maintaining Discipline: Discipline is the force that prompts individuals to observe rules,
regulations and procedures which are necessary for the attainment of objectives. It
restraints chaos and destructive activities. A leader depends more on consistency of
behavior and impartial treatment to enforce discipline. He makes less use of penalties for
the violation of regulations and focuses more on self-discipline or voluntary restraint.
4. Building Morale: In order to develop high morale among people the leader governs his
own actions. He creates confidence in his followers in the purpose of the group, and in
the plan of action designed for the purpose. He strives to build constant loyalty and
devotion to the group. Good leadership is a strong motivating force in an organization.
5. Representing the Group: A leader is the true representative of his followers both to
those working for the group as well as the outside world. He serves as their spokesman
and guardian. He carries the voice of his people to various authorities. According to
Rensis Likert, leaders act as linking pins between the work group and the forces outside
it.
To sum up, leadership is a cohesive force which holds the group intact, the disciplinary power
that keeps the group working, the electric current that energizes human action, the insight that
converts despair into hope. In fact there is no substitute for effective leadership.
Approaches or Theories of Leadership:
Researches on leadership have identified the following four main approaches or theories of
leadership viz.
1. Traditional Theories:

* Trait Theory
* Group and Exchange Theory
2. Behavioral Theories
* Ohio State Studies
* University of Michigan Studies
* Scandinavian Studies
* Continuous Theory
* Likerts Four Systems
* Managerial Grid
* Leader-Participation Model
3. Contingency / Situational Theories
* Tannenbaum and Schmidts Leadership Pattern
* Fiedlers Contingency Theory
* Path-Goal Theory
* Hersey and Blanchards Life cycle/Situational Approach
4. Modern Theories
* Charismatic Leadership Theory
* Transformational Leadership Theory
1. Traditional Theories:
a) Trait Theory: Trait means quality. According to this theory, leadership behavior is influenced
by certain qualities of a person (leader). This theory has also been called the Great Man
Theory because it is based on the set of traits which are common to great man. Researchers
have identified the following traits of leaders:
i) Physical qualities: Sound health, vitality (liveliness), endurance (patience), physical and
nervous energy, enthusiasm, forcefulness (dynamism).
ii) Intellectual qualities: high intelligence, sound judgment, ability to search scientific approach,
decisiveness, self understanding.

iii) Moral qualities: integrity (honesty), fair play, moral courage, will power, sense of purpose,
achievement drive, objectivity.
iv) Social qualities: ability to inspire, tact, persuasiveness (expressiveness), self-confidence,
empathy (understanding), initiative, knowledge of human nature, human relations attitude.
In the initial stages it was thought these traits are inborn and, therefore, leaders are born, not
made. Later on, the experts revised their opinion and agreed that these qualities can also be
developed through education, training and experience.
Trait theory is quite simple. It helps to separate leaders from followers. It is also useful in
developing training program for managers at a various levels. This theory is criticized on several
grounds. 1) There is no universal list of traits of successful leaders. 2) It is often difficult to
measure traits. It is not clear how high a score a person must achieve on a given trait to make it
effective. 3) Effective leadership is not a function of traits alone. It is the leadership situation
that determines what traits are essential for effective leadership. 4) The theory does not offer any
guidance for developing these qualities and is, therefore, of little use in the business world. 5)
There is no direct correlation between the level of traits and level of success.
b) Group and Exchange Theory:

Social psychology is the basis for group theories of

leadership. Social exchange view of leadership indicates that, exchange theories propose that
group members make contributions at a cost to themselves and receive benefits at a cost to the
group or other members. Interaction continues because members find the social exchange
mutually rewarding. Social exchange indicates that leadership is an exchange process between
the leaders and followers. This theory indicates that there are three domains of leadership, viz.,
leader-based domain, follower-based domain and relationship-based domain.
II. Behavioral Theories: Behavioral theories of leadership propose that specific behaviors
differentiate leaders from non-leaders. These theories opine that leaders style is oriented either
an employee-centered or a job centered emphasis. These theories attempt to explain leadership
in terms of the behavior that the leader exhibits.

a) Ohio State Studies: The research that was conducted at Ohio State University, USA in the
late 1940s provides the basis for behavioral theories. These research studies concluded that
leaders behavior can be categorized into two dimensions, viz., initiating structure and
consideration.
Initiating Structure: refers to the extent to which a leader is likely to define and structure
his/her role and those of subordinates in the search for goal attainment. The leaders behavior
include job/work design, work relationships, assigning the work groups and individual workers,
establishing the work standards, performance, goals, indicate the groups and individuals to
achieve the goals, meet the benchmarks/ standards and deadlines.
Consideration: is the extent to which a person is likely to have job relationships that are
characterized by mutual trust, respect for subordinates ideas and regard for their feelings.
He/she has concern for followers comfort, well-being, status and satisfaction.
b) University of Michigan Studies: Survey Research Centre of University of Michigan
conducted leadership studies in the late 1940s. The objective of the study was to find behavioral
characteristics of leaders that appeared to be related to measures of performance effectiveness.
The Michigan group concluded that there are 2 dimensions of leadership behavior, viz.,
employee-oriented and production-oriented. Employee-oriented leaders emphasize interpersonal
relations, whereas production-oriented leaders emphasize technical or task aspects of the job.
The goal of both employee and production-oriented leaders is to accomplish and get the things
done by the group members.
Michigan studies also concluded that employee-oriented leadership results in high productivity
and higher job satisfaction. And vice versa is true in case of production-oriented leadership.
Hence, the Michigan studies favored employee-oriented leadership to achieve the goals of both
higher productivity and higher job satisfaction.
c) Scandinavian Studies: The researchers in Finland and Sweden felt that the Ohio and
Michigan studies were conducted during 1940s and 1960s when the world economies were more
or less stable. Therefore, these studies may not be applicable when the world economies are
developing. According to them, the leaders should exhibit development-oriented behavior in a

developing world. These leaders value innovation or creation, seek new and challenging ideas,
experimentation, generate and implement change.
The Scandinavian studies were conducted by including the third dimension, i.e., development
orientation for the effective leadership. The preliminary results of the Scandinavian studies
show that the leaders of 1990s support development-oriented behavior.

Leaders who

demonstrate development-oriented behavior, developed more competent and satisfied

subordinates.
d) Continuous Theory of Leadership: Lewin, Lippitt and White suggested a continuous theory
of leadership which identified three basic styles of leadership, i.e., autocrat, democrat and laissez
faire. Robert McMurree suggested the benevolent autocrat between autocrat and democrat
leadership. Bank managers in India used to adopt autocratic style before 1969. But, this style
proved to be ineffective after 1969 in vie of new values, expectations, desires, culture, etc.,
inducted in banks with the massive entrance of new employees with massive branch expansion.
However, the back managers feel that even the democratic style has not proved effective, leading
to indiscipline in most situations. In view of this it is suggested that the back managers may
adopt a benevolent autocratic style.
e) Likerts Four Systems: Rensis Likert suggests that managers operate under four different
systems. In system-I, the leader behave like an exploitative authoritative way and exploits the
subordinates.

In system-2, leader takes a paternalistic approach and in system-3, he uses

democratic approach, where he consults subordinates in decision-making. In system-4, the

leader allows his subordinates to participate in decision-making process and the decisions are
taken by the leader and subordinates.
f) The Managerial Grid: Industrial psychologists Blake and Mouton developed the Managerial
Grid basing on the Ohio State Study to explain leader behavior. They point out that leadership
style is a blend or matrix wherein task-oriented and relations-oriented behaviors mix in different
degrees to evolve the composite style. In the managerial grid, the X-axis represents the concern
for production while Y-axis represents the concern for people.

Concern for production

implies the managerial attitudes about volume of output, work procedures, work efficiency etc.
Concern for people means degree of personal commitment, self-esteem of workers,
responsibilities based on trust and satisfying inter-personal relations. A manager has to get things
done through people and, therefore, he is concerned with both the task and the people. The
managerial grid identifies five discrete combinations of these two factors. These five styles of
the grid are as follows:
i) Impoverished (1,1): The manager has low concern for both production and people. Under it,
exertion of minimum effort is required to get work done and sustain organization membership.
The leader avoids controversy and confrontation.
ii) Country club (1, 9): Thoughtful attention to needs of people for satisfying the relationship
leads to a comfortable friendly organization atmosphere and work tempo.
iii) Middle of the road (5, 5): Adequate organization performance is possible through balancing
the necessity to get out work while maintaining morale of people at a satisfactory level. The
leader balances tasks with concern for people through compromise. He has moderate concern
for both production and people.

High

Concern for People

1, 9
(Country Club)

9, 9
(Team)

5, 5
(Middle Road)
1, 1
(Impoverished)

Low

9, 1
(Task)

High
Concern for Production

iv) Task Management (9, 1): Efficiency in operations results form arranging conditions of work
in such a way that human elements interfere to a minimum degree. The task is well-planned and
authority is well-defined. This is the task-oriented or authoritarian style involving suppression of
conflicts. The leader is mainly concerned with production and has little concern for people.
v) Team Management (9, 9): Work accomplishment is from committed people, and
interdependence through a common stake in organization purpose that leads to relationships of
trust and respect. This is team leader style in which the leader consults his team and harmonizes
goals. The leader has maximum concern for both production and people. It is considered as the
best leadership style. Rensis Likert has also concluded that people-centered leaders are more
successful than job-centered leaders.
Managerial grid approach has a common sense appeal and it helps managers to identify their
own leadership styles.

It serves as a useful framework for assessing leadership style.

Managerial grid is more than just a theory of human behavior. It is also a technique of
organization development. It has been sued successfully in improving the attitudes and behavior
of people throughout an organization.
g) Leader Participation Model: Victor Vroom and Philip Yetton developed a leaderparticipation model. Leader-participation is a leadership theory that provides a set of rules to
determine the form and amount of participative decision-making in different situations. This
model is a normative and it provides a sequential set of rules that should be followed for
determining the form and amount of participation desirable in a decision-making as determined
by different situation.
This model assumes that any of five behaviors may be feasible in a given situation. These five
behaviors are:
i)

Autocratic I: Leader solves the problem or make a decision by himself using whatever
facts you have at hand.

ii)

Autocratic II: Leader obtains the necessary information from subordinates and decides
on the solution to the problem by himself. He may or may not tell the subordinates
about the nature of the situation. He seeks only relevant facts from them, but not their
advice or counsel.

iii)

Consultative I: Leader shares the problem with relevant subordinates one-on-one

getting their ideas and suggestions. However, leader makes the final decision.

iv)

Consultative II: Leader shares the problem with his subordinates as a group collectively
obtaining their ideas and suggestions. Then he makes the decision that may or may
not reflect the subordinates influence.

v)

Group: Leader shares the problem with his subordinates as a group. Leaders goal is to
help the group in making a decision. His ideas are not given any greater weight than
those of his subordinates.

3. Contingency / Situational Theories: These approaches or theories to leadership take the

position that there is no one best way to lead in all situations. Effective leadership styles vary
from situation to situation depending on several factors like personality pre-dispositions of the
leaders, the characteristics of the followers, the nature of task being done and other situational
factors.
a) Tannenbaum and Schmidts Leadership Pattern:

Tannenbaum and Schmidt used a

contingency framework to discuss effective leadership patterns taking a situational approach.

They suggested that the use of authority by the manager or the area of freedom given to the
subordinates is a function of the i) Forces of the manager, (ii) Forces in the subordinate; and (iii)
Forces in the situation. They concluded that a successful leader is one who can accurately assess
the forces that determine what behaviors would be most appropriate in any given situation and is
able to be flexible enough to adopt the most functional leadership style.
EMBED PowerPoint.Slide.8

b) Fiedlers Contingency Theory: Fiedler developed a model to predict work group

effectiveness by taking into consideration the fit or match amongi) The leaders style
(task/relationship-oriented); (ii) The leader-member relations; (iii) Task-structure; and (iv) The

position power of the leader. Certain combinations of the last three factors are considered to be
situations where the leader finds himself / herself to be in either a high degree of control or low
control over the situation one finds oneself in.
c) Path Goal Theory of Leadership: This theory of leadership is developed by Martin Evans
and Robert House using contingency approach based on the expectancy theory of motivation.
This theory states that leaders can exercise four different kinds of styles viz., directive (giving
directions), supportive (friendly and approachable), participative and achievement-oriented
(setting challenging goals) leadership. It also states that the leader can use any of these styles
depending on situational factors like subordinate characteristics (ability, internal locus of control)
and attributes in the work-setting (task characteristics, formal authority system and primary work
groups). A good fit between leadership style and situational factors will result in job satisfaction
of subordinates and they accept and value the leader as a dispenser and will engage in motivated
behavior.
d) Hersey and Blanchards Life Cycle (or) Situational Approach: It is an extension of the
managerial grid approach. Hersey and Blanchards approach identifies two major styles, viz.,
task style and relationship style.

Hersey and Blanchard incorporated the maturity of the

followers into their model taking the lead from some of Fiedlers work on situational variables.
The level of maturity is defined by these criteria, viz., degree of achievement, motivation,
willingness to take on responsibility and amount of education and/or experience. The key for
leadership effectiveness in this model is to match up the situation with the appropriate style. The
four styles are:
(i)

Telling Style: This is a high task, low relationship style. It is effective when followers
are at a very low level of maturity.

(ii)

Selling Style: This is a high task, high relationship style. It is effective when followers
are on the low side of maturity.

(iii) Participating Style: This is a low task, high relationship style. It is effective when
followers are on the high side of maturity.
(iv) Delegating Style: This is a low task, low relationship style. It is effective when
followers are at a very high level of maturity.

4. Modern Theories of Leadership:

a) Charismatic Leadership Theory: According to Robert House, the characters of the
charismatic leaders include: self-confidence, confidence in subordinates, high expectations for
subordinates, ideological vision, and use of personal example. The characters of the followers of
the charismatic leader include: identification with the leaders mission, exhibit extreme loyalty to
and confidence in leader, imitate the leaders values, behaviors and derive self-esteem from their
relationship with the leader. Mahatma Gandhis characters of self-confidence, ideological vision
and personal example made him as a charismatic leader.

Mr. Dhirubhai Ambanis self-

confidence forecasting the things, estimating the market requirements also made him sensational
business in the world. Similarly, Mr. V.J. Kurians ideological vision resulted in the success of
white revolution. Dr. NTRs unconventional behavior made him Chief Minister of Andhra
Pradesh. Thus, charismatic leaders attract and motivate the subordinates towards performance
beyond expectations, innovations, creations, and create the work culture among the followers.
These leaders tend to be portrayed as wonderful heroes. Charismatic leaders include Mother
Theresa, Adolf Hitler, Sam Walton, Alexander the Great, Martin Luther King Jr., Osama Bin
Laden. Charisma can be used for positive outcomes that benefit the group, but it can also be
used for self-serving purposes that lead to deception, manipulation, and exploitation of others.
b) Transformational Leadership Theory: Mr. Jack Welch of General Electric of USA, Mr.
K.C. Kamat of ICICI Bank, Mr. Krishna Kumar of Tata Tea, Mr. Ravi Kanth of Tata Motors and
Prof. Rama Mohana Rao of IIM, Bangalore transformed their organizations from loss-making /
less performed into highly profit making/ highly performed companies/ organizations. Mr. Anji
reddy of Dr. Reddys Labs made his company as one of the leading Pharma Company in the
world with R & D base.
Two types of political leadership, viz., Transactional and Transformational are identified.
Transactional leadership involves an exchange relationship between leaders and followers
whereas; transformational leadership is based on leaders shifting the values, beliefs and needs of
the followers. The characteristics of transformational leaders include:

Identify themselves as change agents

Courageous

Believe in people

Value-driven

Life-long learners

Have the ability to deal with complexity, ambiguity or uncertainty

Visionaries.

Styles of Leadership:
The behavior pattern exhibited by a leader while influencing the followers is known as
leadership style. On the basis of how leaders use their power, leadership styles can be classified
into 3 broad categories: autocratic, consultative and free-rein.
1. Autocratic or Authoritarian Leadership: An autocratic leader exercises complete control
over the subordinates. He centralizes power in himself and takes all decisions without consulting
the subordinates. He dominates and drives his group through coercion and command. He loves
power and never delegates authority. The leader gives orders and expects and subordinates to
follow them willingly and unquestioningly. He uses rewards and holds threat of penalties to
direct the subordinates.
Advantages: a) Autocratic leadership style permits quick decision-making; b) It provides strong
motivation and satisfaction to the leader who dictates terms; c) Less competent subordinates are
needed at lower levels; d) This style may yield positive results when great speed is required.
Disadvantages: a) Autocratic style leads to frustration, low morale and conflict among
subordinates; b) Subordinates tend to shirk (avoid doing work thro laziness) and initiative; c)
Full potential of subordinates and their creative ideas are not utilized; d) Organizational
continuity is threatened in the absence of the leader because subordinates get no opportunity for
development.
These days autocratic style is becoming less desirable as employees are becoming more educated
and well-organized.

2. Democratic or Participative Leadership: A consultative or democratic leader takes decisions

in consultation and participation with the subordinates. He decentralizes authority and allows the
subordinates to share his power. The leader does what the group wants and follows the majority
opinion. A democratic leader provides freedom of thinking and expression. He listens to the
suggestions, grievances and opinions of the subordinates.
Advantages: a) Consultative leadership improves the job satisfaction and morale of subordinates;
b) It makes the decision-making ability of subordinates; c) The leader multiplies his abilities
through the contribution of his followers; d) It develops positive attitudes and reduces resistance
to change; e) The quality of decisions is improved; f) Labor absenteeism and labor turnover are
reduced.
Disadvantages: a) Democratic style is time-consuming and may result in delays in decisionmaking; b) It may not yield positive results when subordinates prefer minimum interaction with
the leader; c) Over a period of time subordinates may develop the habit of expecting to be
consulted on every issue and they may feel frustrated when they are not consulted; d)
Consultation may be interpreted as a sign of incompetence n the part of the leader to deal with
problems; e) It may be used as a means of passing the buck to others and of convincing
responsibility; f) It requires considerable communicating and persuasive skills on the part of
leader.
3. Free-rein or Laissez-faire Leadership: Free-rein leadership involves complete delegation of
authority so that subordinates themselves take decisions. The free-rein leader avoids power and
give-up the leadership position. He serves only as a contact to bring the information and
resources needed by the subordinates.
Advantages: a) Positive effect on job satisfaction and morale of subordinates; b) Maximum
possible scope for development of subordinates; c) Full utilization of the potential of
subordinates.
Disadvantages: a) Subordinates do not get the guidance and support of the leader; b) It ignores
the leaders contribution just as autocratic style ignores the contribution of the subordinates; c)
Subordinates may move in different directions and may work at cross purposes which may
degenerate into chaos.

Free-rein style may be appropriate when the subordinates are well-trained, highly
knowledgeable, self-motivated and ready to assume responsibility.
Leadership Skills: A leader should have some leadership qualities in order to provide effective
leadership. According to Henry Fayol, a leader should have the skills of:

Health and physical fitness

Mental vigor (strength)

Courage to accept responsibility

Steady persistent thoughtful determination

Sound general education, and

Management ability acceptance foresight and the art of handling men

Leadership in Cross-Cultural Environment:

Cross-cultural environment includes employees from different cultural backgrounds, beliefs,
capabilities, gender, values, geographical region, religions, ethnic groups, age, veteran status,
expectations, lifestyle, skill level, education level, economic status, work style, social status and
position in a company. Thus, cross-cultural environment includes a variety of variant aspects of
people in an organization. Leadership activities under cross cultural environment includes:

Commitment: The leader has to commit towards diversity and communicate the same to
all employees as well as to the external stakeholders. The leader has to incorporate the
organizations attitude into the mission statement, objectives and strategies. Employee
remuneration should be based on performances. Leader should get feedback from all
diversified groups about the companys treatment.

Assessment: The leader has to assess the on-going cultural policies and practices and
their impact on recruitment, promotions, benefits and remunerations. So that the leader
can initiate corrective measures, wherever necessary.

Attracting Employees: The leader can attract a diverse workforce, just based on their
suitability by accommodating their work, family, social and psychological needs.

Diversity Training: Leader should initiate diversity training programs in order to

identify and reduce hidden biases and develop the skills to adjust with others and work
along with others efficiently.

Retaining Employees: Leaders should take steps to retain employees by encouraging the
formation of support groups, mentoring, career development and promotion,
accommodating the needs of different groups of emplo9yees based on their cultural
background and requirements.

Styles: Leaders have to adopt participative and democratic leadership styles while
dealing with the employees of different cultures so as to get their ideas based on
background and make a decision, rather than take a decision and force the followers to
follow it.

Women and Corporate Leadership:

The focus on minimizing personal ambition and developing others is also a hallmark of
interactive leadership, which has been found to be common among female leaders. Research
indicates that womens style of leadership is typically different from most mens and is
particularly suited to todays organizations. Using data from actual performance evaluations, one
study found that when rated by peers, subordinates, and bosses, female managers score
significantly higher than men on abilities such as motivating others, fostering communication,
and listening.
Interactive leadership means that the leader favors a consensual and collaborative process, and
influence derives from relationships rather than position power and formal authority. The
characteristics associated with interactive leadership are emerging as valuable qualities for both
male and female leaders in todays workplace. Values associated with interactive leadership
include personal humility, inclusion, relationship building and caring.
Evaluating Leader:
Leaders can be evaluated based on the effectiveness and efficiency of their styles. Leaders
activities include task performance and group maintenance. Checklist to evaluate the leader in
these two areas is as follows (Responses are from the followers):
The following statements help in evaluating leaders.

Nil

Greatest

Extent

Extent

1. Leader is strict about observing regulations.

2. Leader instructs and issues orders to subordinates.
3. Leader is strict about the amount of work to be done.
4. Leader is particular in completing the work in the specified time.
5. Leader inspires the followers to do the work to the maximum capacity of the followers.
6. Leader identifies the groups in the work completed.
7. Leader seeks the followers to report about the work completed.
8. Leader plans for work to be done.
9. Leader is pleasant in performing work.
10. Leader is friendly with followers.
11. Leader accepts the followers.
12. Leader helps the followers.
13. Leader is enthusiastic.
14. Leader is relaxed even during critical incidents.
15. Leader is physically and psychologically close to the followers.
16. Leader is cooperative with the followers.
17. Leader supports the followers.
18. Leader actions are interesting.
19. Leader maintains harmonious relations.
20. Leader is efficient in performing tasks.
21. Leader is cheerful mostly.
22. Leader is open in approach.
23. Leader is concerned with personal problems of followers.
24. Leader trusts the followers.
25. Leader seeks the suggestions and opinions of subordinates.
26. Leader is concerned of the career of followers.
27. Leader treats the followers fairly.

28. Leader nominates followers for training and development programs.

29. Leader coaches the followers.
30. Leader counsels and mentors the followers.
Note: Add the scores of all the 30 students and evaluate the leader as indicates hereunder:
30= Most inefficient leader.
60= Inefficient leader.
90= Efficient leader.
120= Efficient leader to greater extent.
150= Most efficient leader.

MOTIVATION
Introduction:
Motivation is an important factor which encourages persons to give their best performance and
help in reaching enterprise goals. The job of a manager is to get work done through others. In
order to perform this job, a manager has to modify the behavior of his subordinates so as to
direct it towards enterprise goals. Human behavior is the outcome of motives. Every human
being has certain needs. These needs prompt him into action which is observed in his behavior.
A strong positive motivation will enable the increased output of employee but a negative
motivate will reduce their performance.
Meaning of Motivation: The term motivation has been derived from the word motive. Motive is
anything that initiates or sustains activity. It is an inner state that energizes, activates or moves
and that directs or channels behavior towards goals. Motive is a psychological force within an
individual that sets him in motion. Behind every human action there is a motive.
According to Stephen P. Robbins, Motivation as the willingness to exert high levels of effort
toward organizational goals, conditioned by the efforts ability to satisfy some individual need.

According to Fred Luthans, Motivation is a process that starts with a physiological or

psychological deficiency or need that activates behavior or a drive that is aimed at a goal or
incentive.
Nature of Motivation:
(i)

Motivation is a personal and internal feeling.

Motivation is a psychological

phenomenon which generates within an individual. Motives are the energetic forces
within a person that drive him to action.
(ii)

Motivation produces goal-directed behavior. Motivation is a behavioral concept that

directs human behavior towards certain goals.

(iii) Motivation is a continuous process.

Human needs are unlimited.

Therefore,

motivation is an ongoing process.

(iv) Motivation is complex. Individuals differ in their motivation. Different people seek
different things or they work for different reasons.
(v)

Motivation is system-oriented. Motivation is the result of interplay among three groups

of factors: a) influences operating within an individual e.g. his goals, needs and
values, b) influences operating within the organization e.g. organization structure,
technology, physical facilities and nature of the job, etc. and c) forces operating in the
external environment, e.g. culture, customs, norms, etc, of the society.

(vi) A person cannot be partly motivated as he is a self-contained and inseparable unit.

Motivation creates goal directed behavior.
(vii) Motivation can be either positive or negative. Positive motivation implies use of pay,
incentives, etc. to satisfy human needs while negative motivation emphasizes
penalties, e.g. reprimands, threat of demotion, fear of loss of job etc.
(viii) Motivation is different from job satisfaction. Motivation is the drive to satisfy a want
and it is concerned with goal-directed behavior. Satisfaction refers to contentment
experienced after the satisfaction of a want.
satisfaction is the outcome or consequence.

Motivation is the process while

Importance of Motivation:
1. Higher Performance: Motivated employees will put maximum efforts for achieving
organizational goals. The untapped physical and mental abilities are taped to the maximum.
Better performance will also result in higher productivity. The cost of production can also be
brought down if productivity is raised. The employees should be offered more incentives for
increasing their performance. Motivation will act as a stimulant for improving the performance
of employees.
2. Low Employee Turnover and Absenteeism: When the employees are not satisfied with their
job then they will leave it whenever they get an alternative offer. The dissatisfaction among
employees also increases absenteeism. The employment training of new employees costs dearly
to the organization.

When the employees are satisfied with their jobs and they are well

motivated by offering them financial and non-financial incentives then they will not leave the
job. The rate of absenteeism will also be low because they will try to increase their output.
3. Better Organizational Image: Those enterprises which offer better monetary and nonmonetary facilities to their employees have a better image among them. Such concerns are
successful in attracting better qualified and experienced persons. Since there is a better manpower to development program; the employees will like to join such organizations. Motivational
efforts will simplify personnel function also.
4. Better Industrial Relations: A good motivational system will create job satisfaction among
employees.

The employment will offer those better service conditions and various other

incentives. There will be an atmosphere of confidence among employers and employees. There
will be no reason for conflict and cordial relations among both sides will create a healthy
atmosphere. So motivation among employees will lead to better industrial relations.
5. Acceptability to Change: The changing social and industrial situations will require changes
and improvements in the working of enterprises. There will be a need to introduce new and
better methods of work from time to time. Generally, employees resist changes for fear of an
adverse effect on their employment. When the employees are given various opportunities of
development then they can easily adapt to new situations. They will think of positive side of
new changes and will co-operate with the management. If the employees are satisfied with their
work and are not offered better avenues then they will oppose everything suggested by the
management. Motivation will ensure the acceptability of new changes by the employees.

Theories of Motivation:
1. Hierarchy of Needs Theory:
Abraham H. Maslow, an eminent American Psychologist, developed a general theory of
motivation, known as the Need Hierarchy Theory. He hypothesized that within every human
being there exists a hierarchy of five needs. These needs are:
Diagram:

1. Physiological Needs: These are biological needs required to preserve human life. Therefore,
these needs are also known as survival needs. They include needs for food, drink, clothing, sleep
etc. These needs must be satisfied first of all and therefore, they are a powerful motivating force
when frustrated.
2. Safety Needs: Once physiological needs are reasonably satisfied, a person wants protection
from physical dangers and economic security. Safety needs are thus concerned with protection
from danger, deprivation and threat. Organizations can influence these needs through pension
schemes, insurance plans, fear of dismissal etc.

3. Social Needs: These needs refer to need for belonging, need for acceptance, need for love, and
affection, etc. Organizations can influence these needs through supervision, communication
system, work groups, etc.
4. Esteem Needs: These needs are of two types: self-esteem and esteem of others. Self-esteem
needs include self respect, self-confidence, competence, achievement, knowledge and
independence. Esteem of others includes reputation, status, and recognition. These needs are
infinite and thwarting them results in feelings of inferiority, weakness and helplessness.
5. Self-actualization Needs: These are the needs for realizing ones full potential, for continued
self-development, for being creative. It is the desire of becoming what one is capable of
becoming. It is an infinite and growth need. The condition of modern industrial life provides
limited opportunity for the satisfaction of self-actualization.
2. MOTIVATION-HYGIENE THEORY:
This theory was proposed by psychologist Frederick Hertzberg. In the late 1950s, Hertzberg and
his associates conducted interviews of 200 engineers and accountants in the Pittsburgh area of
the United States. These persons were asked to relate elements of their jobs which made them
happy or unhappy.

An analysis of their answers revealed that feeling of unhappiness of

dissatisfaction was related to the environment in which people were working. On the contrary,
feelings of happiness or satisfaction were related to their jobs.
According to Hertzberg, maintenance or hygiene factors are necessary to maintain a reasonable
level of satisfaction among employees.

These factors do not provide satisfaction to the

employees but their absence will dissatisfy them. Therefore, these factors are called dissatisfiers.
These are not intrinsic parts of a job but they are related to conditions under which a job is
performed.
On the other hand, motivational factors are intrinsic parts of the job. Any increase in these
factors will satisfy the employees and help to improve performance. But a decrease in these
factors will not cause dissatisfaction. Both these maintenance and motivational factors are given
in the following:
Maintenance Factors
1. Company Policy & Administration

Motivating Factors
1. Achievement

2. Technical Supervision
3. Inter-Personal Relations with Peers

2. Recognition
3. Advancement

4. Inter-Personal Relations with Supervisors

5. Inter-Personal Relations with Subordinates

4. Opportunity for Growth

5. Responsibility

6. Salary

6. Work itself

7. Job Security
8. Personal Life
9. Working Conditions
10. Status
Hertzberg noted that the two sets of factors are one-dimensional, i.e. their effect can be seen in
one direction only. A motivation seeker is motivated primarily by the nature of the task and has
high tolerance for poor environmental factors.

On the other hand, maintenance seeker is

motivated primarily by the nature of his environment and tends to avoid motivation
opportunities. He is dissatisfied with maintenance factors surrounding the job. He shows little
interest in the kind and quality of work.
3. THEORY X AND THEORY Y:
Douglas McGregor proposed two distinct views of human beings: one basically negative,
labeled Theory X, and the other basically positive, labeled Theory Y. After viewing the way in
which managers dealt with employees, McGregor concluded that a managers view of the nature
of human beings is based on a certain grouping of assumptions and that he or she tends to mould
his or her behavior toward subordinates according to these assumptions.
Under Theory X, the four assumptions held by managers are:
1. Employees inherently dislike work and, whenever possible, will attempt to avoid it.
2. Since employees dislike work, they must be coerced, controlled, or threatened with
punishment to achieve goals.
3. Employees will avoid responsibilities and seek formal direction whenever possible.
4. Most workers place security above all other factors associated with work and will
display little ambition.

In contrast to these negative views about the nature of human beings, McGregor listed the four
positive assumptions that he called Theory Y:
1. Employees can view work as being as natural as rest or play.
2. People will exercise self-direction and self-control if they are committed to the
objectives.
3. The average person can learn to accept, even seek, responsibility.
4. The ability to make innovative decisions is widely dispersed throughout the population
and is not necessarily the sole province of those in management position.
Theory X assumes that lower-order needs dominate individuals. Theory Y assumes that higherorder needs dominate individuals.

McGregor himself held to the belief that Theory Y

assumptions were more valid than Theory X. Therefore, he proposed such ideas as participative
decision making, responsible and challenging jobs, and good group relations as approaches that
would maximize an employees job motivation.
MOTIVATIONAL TECHNIQUES:
Every management tries to spacing certain motivational techniques which can be employed for
improving performance of its employees. The techniques may be suitable employed in one
concern, others maybe useful in another concern and so on. Motivational techniques may be
classified into two categories i.e., financial and non-financial. Both the categories of motivators
are explained as under:

A. Financial Motivators:
Financial motivators may be in the form of more wages and salaries, bonuses, profit-sharing,
leave with pay, medical reimbursements, and company paid insurance or any of the other things
that may be given to employees for performance. The economists and most managers consider
money and financial incentives as important motivators.
B. Non-Financial Motivators:

These motivators are in the nature of better status, recognition, participation, job security etc.
Some of these motivators are explained here:
a) Recognition: Every person wants his work to be recognized by his superiors. When he
knows that his performance is known to his boss then he will try to improve it more and more.
The recognition maybe in the form of a word of praise, a pat on the back, a word of praise, a
letter of appreciation, entry in annual confidential report etc.

There may also be awards,

certificates etc. These types of recognitions will act as motivator. If the performance of persons
is not recognized and everybody treated on the same footing then good persons will not like to
put their best efforts.
b) Participation: Participation has been considered a good technique for motivation. It implies
physical and mental involvement of people in decision-making process. It satisfies ego and selfesteem of persons. They feel important when asked to made suggestions in their field of activity.
Participation results in motivation and knowledge valuable for the enterprise success.
Participation gives a sense of affiliation and accomplishment. It certainly acts as motivator.
c) Status: It refers to a social status of a person and it satisfies egoistic needs. A management
may create some status symbols in the organization. This can be done by way of giving various
facilities to the persons. These may be superior furniture, carpets on the floor, attachment of
peons, personal assistant etc. To get these facilities a person will have to show a certain amount
of performance. When a person achieves certain facilities then he tries to get better status by
working more. In this way status needs act as motivator.
d) Competition: In some organizations competition is used as a motivator. Various persons are
given certain objectives and everybody tries to achieve them ahead of others. There may be
praises, appreciation letters, and financial incentives to those who reach the goals first. The
competitions encourage persons to improve their performance.
e) Job Enrichment: This has been recognized as an important motivator by various researches.
The job is made more important and challenging for the workers, may be given wide latitude in
deciding about their work methods. The employees will also perform the management functions
of planning and control so far as the work is concerned. Job enrichment would provide an
opportunity for the employees psychological growth. The employee is given the dealings and
quality standards he must meet. Within a framework he is given a free-hand to decide and

perform the work. It brings more job satisfaction and high morale. So it is a recognized device
of motivation.
Group Dynamics: Forces operating within groups can be used to overcome resistance to
change. A group can be very effective in changing members attitudes, values and behaviors
especially in those areas are related to the purpose of the group. In a group where members
share perception that change is required, change can be easily implemented. The source of
pressure for change lies within the group. Likewise, open communication with group members
helps in resolving knotty issues amicably and implement the change smoothly.
GROUP BEHAVIOR
Defining and Classifying Groups:
Groups can be defined in terms of perceptions, motivation, organization, interdependencies, and
interactions.

From the organizational point of view a group has a different meaning and

definition. In the broad sense, a group is any collection of individuals who have mutually
dependent relationships.
According to Stephen P. Robbins, A group is defined as two or more individuals, interacting
and interdependent, who have come together to achieve particular objectives.
A simple and comprehensive definition has been offered by Marvin Shaw: A group is two or
more persons who interact with one another such that each person influences and is influenced
by each other person.
Classifying Groups: Groups may be categorized according to their degrees of formalization
(formal or informal) and permanence (relatively permanent or relatively temporary).
1. Formal Groups: A formal group is formed by an organization to do its work. Formal groups
include a) command or functional groups b) task groups, and c) affinity groups

a) Command Group: A command group is a relatively permanent, formal group with functional
reporting relationships and is usually included in the organization chart.
b) Task Group: It is relatively temporary, formal group established to do a specific task.
c) Affinity Group: These are collections of employees from the same level in the organization
who meet a regular basis to share information, capture emerging opportunities, and solve
problems.
2. Informal Groups: Where as formal groups are established by an organization, informal
groups are formed by their members and consist of friendship groups, which are relatively
permanent, and interest groups, who may be shorter, lived. These groups are natural formations
in the work environment that appear in response to the need for social contact. Three employees
from different departments who regularly eat lunch together are an example of an informal
group.
a) Friendship Groups: This is relatively permanent and informal and draws its benefits from the
social relationships among its members.
b) Interest Groups: An interest group is relatively temporary and informal and is organized
around a common activity or interest of its members.
STAGES OF GROUP DEVELOPMENT:
According to B.W. Tuck man, from the mid-1960s, it was believed that groups passed through a
standard sequence of five stages. These five stages have been labeled forming, storming,
norming, performing, and adjourning.
1. Forming: the first stage, forming, is characterized by a great deal of uncertainty about the
groups purpose, structure, and leadership. Members are testing the waters to determine what
types of behavior are acceptable. This stage is complete when members have begun to think of
themselves as part of a group.
2. Storming: This stage is one of intra-group conflict. Members accept the existence of the
group, but there is resistance to the constraints that the group imposes on individuality.

Furthermore, there is conflict over who will control the group, when this stage is compete, there
will be a relatively clear hierarchy of leadership within the group.
3. Norming: The third stage is one in which close relationships develop and the group
demonstrates cohesiveness. There is now a strong sense of group identity and mutual trust and
friendship. This norming stage is complete when the group structure makes and the group has
assimilated a common set of expectations of what defines correct member behavior.
4. Performing: The forth stage is performing. The structure at this point is fully functional and
accepted.

Group energy has moved from getting to know and understand each other to

performing the task at hand.

5. Adjourning: For permanent work groups, performing is the last stage in their development.
However, for temporary committees, teams, task forces, and similar groups that have a limited
task to perform, there is an adjourning stage in this stage, the group prepares for its disbandment.
In this stage group members attention is directed toward wrapping up activities.
Conditions Imposed on the Group:
1. External:

Organizational Structure

Formal Regulations

Organizational Resources

Human Resources Selection Process

Performance Evaluation and Reward System

Organizational Culture

Physical work Settings

2. Group Member Resources:

Abilities

Personality Characteristics

3. Group Structure:

Formal Leadership

Roles

Authority Structures

Norms

Status

Size

Composition

Cohesiveness

Advantages of Group Decision Making:

1. Greater Knowledge Base: Groups tend to have a greater knowledge base, since these involve
more than one person and two heads are always considered better than one. All the members of
the group have their own specialties and they contribute lots of information and knowledge to the
knowledge base of the group. Thus, the decisions where knowledge is of paramount importance
can be effectively taken only at group levels.
2. Greater Number of Alternatives: More the amount of knowledge and information, greater
will be the number of alternatives available for the solution of a problem. Greater number of
alternatives offers more perspective on a problem as compared to the narrow vision of a single
perspective.
3. Effective Implementation of Decisions: The implementation of decisions will be more
effective as the people who are going to implement the decisions are the people who also
participated in decision making. People are more committed to the implementation of the
decisions which they themselves have participated in making. In such a case, acceptance of the
decisions will also be more, which is a very important consideration because a decision which
has more acceptances will be more effective.
4. Elimination of Personal Biases: As a number of people are involved in the decision making,
the biases that are introduced due to individual decision making are eliminated. The decisions
become more reliable and dependable as compared to individual decisions.
5. Participative Decisions: Group decision making increases participation of members in
decision making. Although the participation does not necessarily mean a high quality decision, it
increases member satisfaction. The subordinates develop the skills of objective analysis of
information and deriving of conclusions.

6. Better Understanding of Final Decision: The comprehension of final outcome is high. As

all the members are involved in the decision making and implementation, there is better
understanding of final decision.
7. Democratic in Nature: Group decisions are considered to be more democratic in nature, as
compared to individual decisions which are more autocratic in nature. Democratic decisions are
more easily acceptable and go well with the democratic ideas of our society.
Disadvantages of Group Decision Making:
1. More Time Consuming: Groups are generally slower to reach decisions than are individuals
acting alone. A lot of time is consumed in terms of assembling the group and then the group
takes a lot of time in reaching the consensus. The time problem further increases with the
increase in the size of the group.
2. Social Pressures: Most of the times, the participative decision making is not in reality so
participative. Some of the members do not actually participate but simply agree with the others
for the sake of agreement since there are social pressures to conform. Everybody wants to be a
good member and to go along with the group can lead people to conform prematurely to poor
decisions. Sometimes, the social pressures are so strong that they induce people to change their
attitudes, perceptions, and behaviors.
3. Interpersonal Conflicts: Sometimes, the group members have their own personal interests to
protect. These personal and self centered interest lead to personality clashes that may create inter
personal conflicts. Such conflicts can diminish the efficiency as well as quality of decision
making processes.
4. Group Goals Vs. Organizational Goals: Sometimes, the decisions made by the group are
not in accord with the goals and objective of the organization. This will cause a conflict in group
goals and organizational goals which can be very detrimental to the organizational benefits.
5. Dominance: Group decisions are not always democratic. A dominant individual may emerge
and control the groups decisions. The view point of a dominant leader may dominate the group
discussion and in such a case there will not be much difference between individual decision and
group decision.

6. Focus Effect: Another drawback of group decisions is the focus point. This means that the
group will focus on one or few suggested alternatives and spend all the time in evaluating these.
In such cases, the choices will be limited and other new ideas will never come up.
7. Inclination towards Initial Decisions: Groups are generally inclined to stress more and more
on their initial decisions, simply to justify having made these in the first place. The first solution
arrived at by consensus is generally the final solution even if it is not the optimum solution.
Once a compromise is reached, even a high quality alternative will have little or no chance of
serious consideration.
8. Groupthink: Groupthink means that the more friendly and cooperative the members of a
group, the greater the likelihood that independent critical thinking and objective moral judgment
will be suspended in deference to group norms and in observance of group cohesiveness. All the
cohesive groups do not have group think characteristics, but those who do have will have to face
a number of unfavorable consequences. It should be avoided as much as possible otherwise poor
quality decisions will be reached.
TECHNIQUES OF GROUP DECISION MAKING:
Some of the techniques employed to make the group decision making process more effective and
decision making more efficient are as explained below:
1. Interacting Groups: The most common form of group decision-making takes place in
interacting groups. In these groups, members meet face-to-face and rely on both verbal and
nonverbal interaction to communicate with each other. But as our discussion of groupthink
demonstrated, interacting groups often censor themselves and pressure individual members
toward conformity of opinion.
2. Brain Storming: It was originally developed by a prominent advertising executive Alex F.
Osborn. According to him, this is meant to overcome pressures for conformity in the interacting
group that retard the development of creative alternatives. This is an idea-generation process that
specifically encourages any and all alternatives, while withholding any criticism of those
alternatives.
In a typical brainstorming session, a half-dozen to a dozen people sit around a table. The group
leader states the problem in a clear manner so that it is understood by all participants. Members

then free-wheel as many alternatives as they can in a given length of time. No criticism is
allowed, and all the alternatives are recorded for later discussion and analysis. That one idea
stimulates others and that judgments of even the most bizarre suggestions are withheld until later
encourage group members to think the unusual. However, brainstorming is merely a process
for generating ideas. The two techniques nominal group technique and electronic meeting
techniques go further by offering methods of actually arriving at a preferred solution.
3. Nominal Group Technique: This technique restricts discussion or interpersonal
communication during the decision-making process, hence, the term nominal. Group members
are all physically present, as in a traditional committee meeting, but members operate
independently. Specifically, a problem is presented and then the following steps take place:

Members meet as a group but, before any discussion takes place, each member
independently writes down his or her ideas on the problem.

After this silent period, each member presents one idea to the group. Each member takes
his or her turn, presenting a single idea until all ideas have been presented and recorded.
No discussion takes place until all ideas have been recorded.

The group now discusses the ideas for clarity and evaluates them.

Each group member silently and independently rank-orders the ideas. The idea with the
highest aggregate ranking determines the final decision.

The chief advantage of the nominal group technique is that it permits the group to meet formally
but does not restrict independent thinking.
4. Electronic Meeting: The most recent approach to group decision making blends the nominal
group technique with sophisticated computer technology. Its called the electronic meeting. In
this technique issues are presented to participants and they type their responses onto their
computer screen. Individual comments, as well as aggregate
****

WORK TEAMS
Group vs. Team:
A work group is a group that interacts primarily to share information and to make decisions to
help each member perform within his or her area of responsibility.
A work team generates positive synergy through coordinated effort. Their individual efforts
results in a level of performance that is greater than the sum of those individual inputs.
TYPES OF TEAMS:
Many different types of teams exist in organizations today. The most common type of teams are
quality circles, work teams, and problem-solving teams; management teams; product
development teams and virtual teams.
1. Quality Circles: According to Nigel Nicholson, Quality circles are small groups of
employees from the same work area who meet regularly to discuss and recommend solutions to
workplace problems. QCs were the first type of team created in U.S. organizations, becoming
most popular during the 1980s in response to growing Japanese competition.
2. Work Teams: According to Brian Dumaine, work teams tend to be permanent, like QCs, but
they are the teams that do the daily work, rather than auxiliary committee. A team of nurses,
orderlies, and various technicians responsible for all patients on a floor or wing in a hospital is a
work team. Rather than investigate a specific problem, evaluate alternatives, and recommend a
solution or change, a work team does the actual daily work of the unit. The difference between a
traditional work group of nurses and the patient care team is that the latter has the authority to
decide how the work is done, in what order, and by whom; the entire team is responsible for all
patient care.
3. Problem-Solving Teams: These are temporary teams established to attack specific problems
in the workplace. Teams can use any number of methods to solve the problem. After solving the
problem, the team is usually disbanded.

4. Management Teams: These teams consist of managers from various areas and coordinate
work teams. They are relatively permanent because their work does not end with the completion
of a particular project or the resolution of a problem. Management teams must concentrate on
the teams that have the most impact on overall corporate performance. The primary job of
management teams is to coach and counsel other teams to be self-managing by making decisions
within the team. The second most important task of management teams is to coordinate work
between work teams that are interdependent in some manner.
5. Product Development Teams: These teams are combinations of work teams and problemsolving teams that create new designs for products or services that will satisfy customer needs.
These are similar to problem-solving teams because when the product is fully developed and in
production, the team may be disbanded.
6. Virtual Teams: These are teams that may never actually meet together in the same room-their
activities take place on the computer via teleconferencing and other electronic information
systems.
POINTS TO BE CONSIDERED TO CREATE HIGH-PERFORMANCE TEAMS:
a) Size of Work Teams: The size of the work team affects the performance of the teams to a
larger extent as the best work tams tend to be small in size. As a group members have to share
the ideas and information, interact with each other and take the decisions, it will become difficult
if the group is very large. Larger groups generally lack commitment, cohesiveness and mutual
accountability, which are very essential for achieving high performance. The optimum number
of members in a group should be from 10-15. If the group is larger, manager should try to break
it into sub groups.
b) Abilities of Members: The wise manager will choose people for both their existing skills and
their potential to improve existing skills and learn new ones. No team succeeds without all the
skills needed to meet its purpose and performance goals. To perform effectively, generally a
team requires three different types of skills: i) Technical skills, ii) Problem solving and decision
making skills, so that the employees are able to identify problems, generate alternatives, evaluate
those alternatives and make competent choices; iii) Interpersonal skills e.g. good listening,
feedback, conflict resolution etc. The right mix of all the three skills is essential for the teams for
achieving their performance potential.

c) Allocating Roles and Promoting Diversity: Effective teams are those which properly match
people to various roles. The principle of Right man for the right Job should be followed by the
team. Teams have different needs and people should be selected in the teams on the basis of
their personalities and preferences.
d) Having a Commitment to a Common Purpose: Every team should have a meaningful
purpose towards which all the members should be committed. This common and meaningful
purpose, which is generally broader than the specific goals, provides direction, momentum and
aspiration for members. Every team should have a common purpose which is acceptable to the
whole team. Members of successful teams spend a tremendous amount of time and efforts into
discussing shaping and agreeing upon a common purpose. This purpose should be such which is
acceptable to them as individuals as well as collectively as a team.
e) Establish Urgency, Demanding Performance Standards and Direction: Teams work best
in a compelling context. All team members need to believe that the team has urgent and worth
while purposes. They should know what the expectations from team are. The more urgent and
meaningful the objectives, the more likely it is, that the team will live up to its performance
potential. Because of this reason, teams are formed readily in those companies which have
strong performance ethics.
f) Paying Particular Attention to Initial Impressions: Particular attention should be paid to the
first meetings and actions as the initial impressions always mean a great deal. When potential
teams come together for the first time, everyone monitors the signals given by others to make
their own assumptions or if they already have some information they confirm, suspend or dispel
such assumptions. Particular attention is paid to what, the team leaders or the executives, who
otherwise influence the team, do or how they behave. Initial impressions always carry weights.
g) Establishing Performance Oriented Specific Goals: The common purpose of the successful
team is translated into specific, measurable and realistic performance goals. The success of most
of the teams can be traced back to key performance oriented events. Such events can be set in
motion by establishing the performance goals. Teams cannot exist without performance results.
Specific goals help teams maintain their focus on getting results.

h) Appropriate Performance Evaluation & Reward Systems: As the individuals are

accountable both the individuals as well as the team levels, the traditional methods of evaluating
individual performance will not be consistent with the development of high performance team.
Thus, the management should consider group based performance appraisals along with
individual performance evaluations.
Positive reinforcement can improve teams effort and commitment. There are many ways to
recognize and reward team performance beyond direct compensation like profit sharing, small
group incentives etc. Suitable awards can be given to the members to recognize contributions.
Ultimately, however, the satisfaction shared by a team in its own performance becomes the most
cherished award.
i) Developing High Mutual Trust: There should be high level of mutual trust among members.
They should believe in the integrity, character, competence, consistency loyalty and openness of
each other. Building up and maintaining trust requires a careful attention by the management as
it takes a lot of time to build but can be easily destroyed and is hard to regain. Moreover, trust
begets trust and distrust begets distrust. Thus, for high performance teams, it is a must that there
should be high degree of mutual trust among the team members.
****

CONFLICT
An organization is more stable if members have the right to express their differences and solve
their conflicts within it.

---Machiavelli

Conflict is an integral part of every day life of an individual or of an organization. Conflict has
considerable influence on the behavior, performance and satisfaction of employees. A manager
often faces his most uncomfortable events when he has to deal with conflicts or differences
among people or groups of people at work. Presence of conflicts complicates his job in so many
ways. Therefore, it is very important that the manager should understand the concept of conflict
fully and try to handle it effectively.
According to Follett, Conflict is the appearance of difference, difference of opinions, of
interests.

According to David L. Austin, Conflict can be defined as a disagreement between two or

more individuals or groups, with each individual or group trying to gain acceptance of its view
or objectives over others.
Features of Conflict:

Conflict occurs when individuals are not able to choose among the available alternative
courses of action.

Conflict between two individuals implies that they have conflicting perceptions, values
and goals.

Conflict is a dynamic process as it indicates a series of events. Each conflict is made up

of a series of interlocking conflict episodes.

Conflict must be perceived by the parties to it. If no one is aware of a conflict, then it is
generally agreed that no conflict exists.

THE CONFLICT PROCESS:

The conflict process can be seen as comprising five stages: a) potential opposition or
incompatibility; b) cognition and personalization; c) intensions; d) behavior and; e) outcomes.
Stage I: Potential Opposition or Incompatibility:
The first step in the conflict process is the presence of conditions that create opportunities for
conflict to arise. They need not lead directly to conflict, but one of these conditions is necessary
if conflict is to arise. For simplicitys sake, these conditions have been condensed into three
general categories: communication, structure and personal variables.
Stage II: Cognition and Personalization:
If the conditions cited in Stage I negatively affect something that one party cares about, and then
the potential for opposition or incompatibility becomes actualized in the second stage. The
preceding event conditions can only lead to conflict when one or more of the parties are affected
by and aware of, the conflict. In this stage two points must be keen in mind: first, stage II is
important because its where conflict issues tend to be defined. This is the place in the process
where the parties decide what the conflict is about. Second point is that emotions play a major
role in shaping perceptions.

For example, negative emotions have been found to produce

oversimplification of issues, reductions in trust, and negative interpretations of the other partys

behavior. In contrast, positive feelings have been found to increase the tendency to see potential
relationships among the elements of a problem, to take a broader view of the situation, and to
develop more innovative solutions.
Stage III: Intentions
Intentions intervene between peoples perceptions and emotions and their overt (openly done)
behavior. These intentions are decisions to act in a given way. K.W. Thomas identifies five
primary conflict-handling intentions by using two dimensionscooperativeness (the degree to
which one party attempts to satisfy other partys concern) and assertiveness (the degree to which
one party attempts to satisfy his or her own concerns)five conflict-handling intentions can be
identified: competing (assertive and uncooperative), collaborating (assertive and cooperative),
avoiding (unassertive and uncooperative), accommodating (unassertive and cooperative), and
compromising (midrange on both assertiveness and cooperativeness).
Stage IV: Behavior
When most people think of conflict situations, they tend to focus on Stage IV. Why? Because,
this is where conflicts become visible. The behavior stage includes the statements, actions, and
reactions made by the conflicting parties. These conflict behaviors are usually overt attempts to
implement each partys intentions. But these behaviors have a stimulus quality that is separate
from intentions.

As a result of miscalculations or unskilled enactments, overt behaviors

sometimes deviate from original intentions. Thats why this 4th stage considered as a dynamic
process of interaction.
Stage V: Outcomes
The action-reaction interplay between the conflicting parties results in consequences. These
outcomes maybe functional in that the conflict results in an improvement in the groups
performance, or dysfunctional in that it hinders group performance.
Functional and Dysfunctional Conflict: Conflicts which support the goals of the group and
improve its performance are known as functional conflicts. On the other hand, there are
conflicts that hinder group performance; these are dysfunctional or destructive form of conflict.

Functional Conflicts:
Release of Tension: Conflict when expressed can clear the air and reduce the tension which
might otherwise remain suppressed. Suppression of tension can lead to imaginative distortion of
truth, sense of frustration and tension, high mental exaggerations and biased opinions resulting in
fear and distrust. When members express themselves, they get some psychological satisfaction.
This also leads to reduction of stress among the involved members.
Analytical Thinking: When a group is faced with a conflict, the members display analytical
thinking in identifying various alternatives. In absence of conflict, they might not have been
creative or even might have been lethargic. The conflicts may induce challenge to such views,
opinions, rules, policies, goals and plans which would require a critical analysis in order to
justify these as they are or make such changes that may be required.
Group Cohesiveness: Inter group conflict brings about closeness and solidarity among the
group members. It develops group loyalty and greater sense of group identity in order to
compete with the outsiders. This increases the degree of group cohesiveness which can be
utilized by the management for the attainment of organizational goals in an effective manner. As
cohesiveness increases, differences are forgotten.
Competition: Conflicts promote competition and hence it results in increased efforts. Some
persons are highly motivated by conflict and severe competition. Such conflict and competition,
thus, lead to high level of effort and output.
Challenge: Conflicts test the abilities and capacities of the individuals and groups. It creates
challenges fro them for which they have to be dynamic and creative. If they are able to
overcome the challenge, it will lead to search for alternatives to existing patterns which leads to
organizational change and development.
Stimulation for Change: Sometimes, conflict stimulates change among the people. When they
are faced with a conflict, they might change their attitudes and be ready to change themselves to
meet the requirements of the situation.
Identification of Weaknesses: When a conflict arises, it may help in identifying the weaknesses
in the system. Once the management comes to know about the weaknesses, it can always take
the steps to remove them.

Awareness: Conflict creates awareness of what problems exist, who is involved and how to
solve the problem. Taking cue from this, management can take the necessary action.
High Quality Decisions: When conflicting, persons express their opposing views and
perspectives, high quality decisions result. The people share their information and check each
others reasoning to develop new decisions.
Enjoyment: Conflict adds to the fun of working with others when not taken seriously. Many
people find conflict enjoyable to competitive sports, games, movies, plays, and books.
Dysfunctional Conflicts:
High Employee Turnover: In case of intro-individual and inter-individual conflicts particularly,
some dynamic personnel may leave the organization, if they fail to resolve the conflict in their
favor. In this case, organization will be the sufferer in the long run due to the loss of key people.
Tensions: Sometimes, conflict can cause high level of tensions among the individuals and
groups and a stage may come when it becomes difficult for the management to resolve the
conflicts. This will result in anxiety, frustration, uncertainty and hostility among the members.
Dissatisfaction: Conflict will result in discontentment to the losing party, who will wait for an
opportunity to settle the score with the winning party. This entire tussle will result in less
concentration on the job and as a result, the productivity will suffer.
Climate of Distrust: conflicts often create a climate of distrust and suspicion among the
members of the group as well the organization. The degree of cohesiveness will be less as the
discords will be more. The concerned people will have negative feelings towards each other and
try to avoid interaction with each other.
Personal Vs. Organizational Goals: Conflicts may distract the attention of the members of the
organization from organizational goals. They may waste their time and energy in finding ways
and tactics to come out as winners in the conflict. Personal victory becomes more important than
the organizational goals.
Conflict as a Cost: Conflict is not necessarily a cost for the individuals. But the conflicts may
weaken the organization as a whole, if the management is not able to handle them properly. If
the management tries to suppress conflicts, they may acquire gigantic proportions in the later
stages. And if the management does not interfere in the earlier stages, unnecessary troubles may
be invited at he later stages. It is a cost to the organization, because resignations of personnel

weaken the organization, feeling of distrust among members have negative impact on
productivity and so on.

CONFLICTS MANAGEMENT
Conflicts can be effectively managed in three steps:
1. Define conflict and get concerned about it when it is at latent or felt stage.
2. Identify the root causes behind conflict by diagnosis and analysis
3. Work out an implementable and acceptable management strategy through negotiations.
1. Define Conflict: The first step in managing conflict is to identify its causes. This requires a
thorough analysis of its nature by asking open-ended or close-ended questions relevant to the
issue. The answers to the specific questions may come from experience, partners, or the local
media. It is important at this stage to identify the groups involved by posing questions such as:
Who are the groups involved?
Whom do they represent?
How strong are they in their organization?
What is their strength and power base?
Are the groups capable of working together?
What are the historical relationships among the groups?
2. Identifying Causes: The basis of a conflict can be diagnosed by posing questions such as:
What has led to conflict?
What are the main and secondary issues related to conflict?
Is it possible to reframe the issues positively?
Are the issues negotiable?
Are there any common interests among involved parties in the conflict?
What information is available and what other information would be required to
understand problem situation?
Are there any values or interests of involved group, which are challenged?
3. Strategy Formulation: Once you have a general understanding of the conflict, the groups
involved will need to analyses and select the most appropriate strategy. In some cases it maybe
necessary to have a third party or a neutral facilitator to help the groups arrive at a consensus.

After having defined and understood the conflict, one has to workout strategies that can help in
resolving it. While working out the strategies to manage conflict, the following aspects need to
be looked into:

Would consensus help in taking care of all interests?

Are there any outside influences and external constraints that must be accommodated or
taken care of?

Have the groups worked together in the past?

What is the time frame for arriving at a decision?

How would the involved groups be informed in case of further developments?

Will an external negotiator be needed?

4. Managerial Actions to Manage Conflict: Some of the commonly used tactics by managers
to manage and handle conflict are as under:

Review job descriptions and seek employees inputs about them;

Build relationships with all subordinates; get involved with their accomplishments,
challenges, and issues;

Receive regular written reports from various departments covering current issues, needs
and expectations from management, and future plans;

Conduct trainings on how to have effective interpersonal communication, management of

conflict, etc.;

Standardize the procedures for routine tasks with employees involvement;

Hold regular meetings to communicate new initiatives and status of current programs;
and

Use a suggestion scheme to involve people in problem solving.

Conflict Management Strategies:

Individuals manage and handle conflict in different styles. These styles have been categorized
based on two prominent factors that an individual considers while dealing with any conflicting
situation-concern for self and concern for others. Based on these two dimensions, five different
styles that emerge are given below:

1. Collaboration: When the group has a high level of concern for its own interests and matches
it with a high concern for the interests of its other partners, it tries to resolve conflict through
collaboration. This method involves strong co-operative and assertive behaviors. It has a winwin approach towards resolving interpersonal conflict.

Individuals and groups using this

method view conflict as natural, helpful, and a source of arriving at creative solutions to the
problem. The greatest advantage of this method is that it develops mutual trust amongst the
individuals and groups involved. Conflict is recognized transparently and evaluated by all
concerned.

Sharing, examining, and assessing the reasons for the conflict should lead to

development of an alternative that effectively resolves it and is fully acceptable to everyone

involved. This strategy is generally adopted when concern for others is important to resolve the
issue. It is also generally the best strategy to manage conflict and more so when the societys
interests are at risk. This approach helps build trust between the groups and commitment on the
part of involved individuals in the groups. A major drawback of this strategy is that it is time,
effort, and energy consuming. In addition, some partners may take advantage of others trust and
openness.
2. Compromise: When there is a high level of concern for a groups own interests along with a
moderate concern for the interests of other partners, conflict resolution is approached through
compromise. This method involves an intermediate level of co-operation and assertiveness. The
approach involves give and take so that a series of concessions for each party is worked out.
This style, as against a collaborative style, does not maximize mutual satisfaction. The outcome
is winsome/ lose some. This strategy is generally used to achieve temporary solutions, to avoid
destructive power struggles, particularly in time-pressure situations. One of the drawbacks of
this strategy is that partners may lose sight of important values and long-term objectives. This
approach can also distract the partners from the merits of an issue and create a suspicious
climate.
3. Avoidance: This style involves neither assertive nor nor-cooperative behavior. In fact, the
employees try to remain away from conflict by not caring for disagreements. As ignoring
important issues often frustrates others, the consistent use of the avoidance style usually results
in unfavorable evaluations by others. In case unresolved conflicts have a direct bearing on
organizational goals, the avoidance style would negatively affect the achievement of

organizational goals.

This style may be effective when an issue has minor bearing on

organizational goals and is not worth worrying about. The outcome is lose-lose. It may be a
desirable strategy when the decision-maker does not have adequate information to effectively
deal with the problem situation. Employees adopt the avoidance method when they have less
concern for the groups interests, coupled with a disregard for the interests of others. This
strategy is generally used when the issue is insignificant (trivial) or other issues are more
pressing. It is also used when the confrontation is potentially damaging or more information is
needed. Its drawbacks are that important decisions may be made by default.
4. Assertion (Allegation)/dominance: This strategy results from a high concern for your groups
own interests while having less concern for other groups. It refers to assertive and uncooperative
behavior. The concern for achievement of self-goals dominates this style, which includes aspects
of coercive power and dominance. This method presumes that only one person/party has to win
and the other must lose; an attitude that creates an atmosphere of fear and subordinates work
more out of compulsion than with willing involvement and commitment. The outcome is winlose. This strategy includes bargaining and is generally used when basic rights are at risk or to
set a guide so that a similar situation does not recur.
5. Accommodation / Obliging (Helpful, Kind, and Considerate): It is an approach that results
from less concern for an individuals own groups interests combined with a high concern for the
interests of other partners. This is also referred to as co-operative and unassertive behavior. A
co-operative approach towards others may seem purely unselfish, but when used to elicit support
from others due to incompetence and non-assertive behavior, then individuals are perceived as
weak and submissive. This style is also known as buying peace in an organization by showing
concern about the feelings of others at the cost of organizational goals. This style is futile or
useless when used as a dominant style and its outcome is lose-win. This strategy is generally
used when the issue is more important to others than to the self. It should be used as a goodwill
gesture. It is also an appropriate style that can be adopted when individuals recognize that they
are wrong and want to accept their mistakes. The drawbacks of this style are that an individuals
own ideas and concerns do not get the required attention.

The individual may also lose

credibility and future influence. It is generally ineffective when used as a dominant style in
managing conflicts.

****

NEGOTIATION
Negotiation is the process in which two or more parties (people or groups) reach agreement even
though they have different preferences.

Negotiation penetrates the interaction of almost

everyone in groups and organizations. Labor bargains with management, managers negotiate
with subordinates, peers, and bosses; sales people negotiate with customers. In todays team
based organizations, where members are increasingly finding themselves having to work with
colleagues over whom they have no direct authority and with whom they may not even share a
common boss, negotiation skills become critical. We use the terms negotiation and bargaining
interchangeably.
According to J.A. Wall Jr., Negotiation is a process in which two or more parties exchange
goods or services and attempt to agree upon the exchange rate for them.
NEGOTIATION STRATEGIES:
There are two general approaches or strategies to negotiationdistributive bargaining and
integrative bargaining.
1. Distributive Bargaining: You see a used car advertised for sale in the newspaper. It appears
to be just what youve been looking for. You go out to see the car. Its great and you want it.
The owner tells you the asking price. You dont want to pay that much. The two of you then
negotiate over the price. The negotiating strategy youre engaging in is called distributive
bargaining. Its most identifying feature is that it operates under zero-sum conditions. Probably
the most widely cited example of distributive bargaining is in labor-management negotiations
over wages. Typically, labors representatives come to the bargaining table determined to get as
much money as possible out of management. Since every cent more that labor negotiates
increases managements costs, each party bargains aggressively and treats the other as an
opponent who must be defeated.
2. Integrative Bargaining: Negotiations that seeks one or more settlements that can create a
win-win solution. The sales-credit negotiation is an example of integrative bargaining. In

contrast to distributive bargaining, integrative problem solving operates under the assumption
that there exist one or more settlements that can create a win-win solution.
PROCESS OF NEGOTIATION:
According to R.J. Lewicki, the negotiation process consists of the following five steps:
1. Preparation and planning;
2. Definition of ground rules;
3. Clarification and justification;
4. Bargaining and problem solving and
5. Closure and implementation.
1. Preparation and Planning: Before you start negotiation, you need to do your homework.
Whats the nature of the conflict? Whats the history leading up to this negotiation? Whos
involved and what are their perceptions of the conflict? What do you want from the negotiation?
What are your goals?
You also want to prepare an assessment of what you think the other parties to your negotiations
goals are. What are they likely to ask for? How established are they likely to be in their
position? What intangible or hidden interests maybe important to them? What might they be
willing to settle on? When you can anticipate your opponents position, you are better equipped
to counter his or her arguments with the facts and figures that support your position. Use the
information you have gathered to develop a strategy. As part of your strategy, you should
determine yours and the other sides Best Alternative To a Negotiated Agreement (BATNA).
2. Definition of Ground Rules: Once you have done your planning and developed a strategy,
you are ready to begin defining the ground rules and procedures with the other party over the
negotiation itself. Who will do the negotiating? Where will it take place? What time constraints,
if any, will apply? To what issues will negotiation be limited? Will there be a specific procedure
to follow if a deadlock is reached? During this phase, the parties will also exchange their initial
proposals or demands.
3. Clarification and Justification: When initial positions have been exchanged, both you and
the other party will explain, amplify, clarify, bolster, and justify your original demands. This
need not be confrontational. Rather, it is an opportunity for educating and informing each other
on the issues, why they are important, and how each arrived at their initial demands. This is the

point where you might want to provide the other party with any documentation that helps support
your position.
4. Bargaining and Problem Solving: The essence of the negotiation process is the actual give
and takes in trying to hash out an agreement. Concessions will undoubtedly need to be made by
both parties. The From Concepts to Skills box on negotiating directly addresses some of the
actions you should take to improve the likelihood that you can achieve a good agreement.
5. Closure and Implementation: The final step in the negotiation process is formalizing the
agreement that has been worked out and developing any procedures that are necessary for
implementation and monitoring. For major negotiations which would include everything from
labor-management negotiations, to bargaining over lease terms, to buying a piece of real estate,
to negotiating a job offer for a senior-management position-this will require hammering out the
specifics in a formal contract. For most cases, closure of the negotiation process is nothing more
formal than a handshake.
****

UNIT: 6
CONTROLLING
Introduction:
Management seeks to achieve organizational goals through people in a dynamic environment and
with constrained resources. After the plans are put into action, there can be several hurdles in the
achievement of goals.

Results may fall short of targets.

Direction may be faulty or

environmental conditions may bring surprises. Therefore, management must find out what is
going wrong, what changes in plans and directions are required and what must be done to set
things right. This is the function of control. Controlling is a continuous process of measuring
the actual results of the operations of an organization in relation to the planned results and of
minimizing the gap between the two.

Concept of Managerial Control:

Controlling may be defined as the process of ensuring that activities are producing the desired
results. It involves guiding and regulating operations towards some pre-determined goals.
According to Koontz and ODonnell, Managerial control implies the measurement of
accomplishment against the standard and the correction of deviations to assure attainment of
objectives according to plans.
In the words of Robert N. Anthony, Management control is the process by which managers
that resources are obtained and used effectively in the accomplishment of an organizations
objectives.
Thus, control may be defined as the continuous process of verifying whether actions are
being taken as planned and taking corrective action to ensure that events conform to plans as
closely as possible.
Nature of Control:
The main characteristics of managerial control are given below:
1. Control process is universal: Control process consists of the same elements irrespective
of the type of organization or function to be controlled. It is the responsibility of every
manager to regulate on-going activity and to keep the operations focused towards goal
attainment.
2. Control is a continuous process: As long as an organization exists some sort of control
is required. Koontz and ODonnell said Just as the navigator continually takes reading
to ascertain whether he is relative to a planned course, so should the business manager
continually take reading to assure himself that his enterprise or department is on course.
Control is dynamic not static.
3. Control is forward looking: Control aims at future because one can control future
events and not the past. However, control is in the nature of follow-up to other functions
of management. It involves review of past performance and one cannot measure the
outcome of an event which has not taken place. But the corrective action decided on the
basis of past experience is taken for future.

4. Control involves measurement: To control means to check or monitor actual

performance, to keep a watch on activities. It requires measuring results against preestablished targets and review of the outcome of activities. But control not only involves
checking current performance. It also suggests guidelines for future course of action. It
helps to steer events towards targets so as to make things happen. Evaluation and
measurement is the heart of control process.
5. Control is an influence process: Control seeks to structure events and to condition
behavior. It is designed to curb undesirable trends and to shape the pattern of future
events. It induces people to conform to certain norms and standards.
6. Management control is a system: Control is often considered a watchdog, a judgment
on behavior and performance. Management control is in fact a system consisting of
certain interdependent elements, e.g., goal or standard, sensory device to monitor events,
mechanism to detect and analyze deviations, and adjustment or corrective element.
Need for Control:
A sound control system is needed for the following purposes:
1. To measure progress: Under the planning process, the fundamental goals and objectives of
the organization are established. The control process is necessary to measure progress towards
these goals. According to Henry Fayol, control consists in verifying whether everything occurs
in conformity with the plan adopted, the instructions issued and the principles established. As
the navigator continually takes readings to ascertain whether he is relative to a planned course, so
does the manager take readings to see whether his enterprise or department is on the
predetermined course. He needs a control system to take such readings.
2. To uncover deviations: Several forces pull off the enterprise from its charted course. An
efficient control system is required to detect these deviations before they become serious. The
main forces due to which an organization may go off target are as follows:
a) Change: Change is an integral part of business environment. Markets shift, new products
emerge, new materials are discovered and new government policies are introduced. The control
system enables a manager to detect changes that are affecting his organization. He can then take
action to face the threats and exploit the opportunities which these changes create.

b) Delegation: When a manager delegates authority, his responsibility to his own superior is not
reduced.

A manager needs a control system to determine whether his subordinates are

accomplishing the tasks delegated to them. In the absence of a control system, he will not be
able to check on the subordinates progress and corrective action cannot be taken until after a
failure has occurred.
c) Mistakes: Employees very often commit mistakes. Problems may be diagnosed in-correctly,
pricing decisions may be faulty, wrong parts may be ordered, etc. Managers require a control
system to detect and rectify these mistakes before they become serious.
d) Complexity: Large organizations are complex due to decentralized and geographically
scattered operations. For example, sales at different retail stores/branches need to be recorded
and analyzed accurately. Close monitoring of diversified product lines is needed to ensure that
quality and profitability are being maintained. Such monitoring is impossible without a control
system.
3. To indicate corrective action: Controls are required to suggest the remedial actions. A
control system may, for example, reveal that goals should be modified, tasks should be
reassigned, staff should be trained further, etc. A sound control system not only reveals
deviations but suggests the corrective actions required to overcome the deficiencies.
Importance of Control:
A good control system offers the following benefits:
1. Guide to operations: Like a traffic signal control guides the organization and keeps it on the
right track. It measures progress towards the goal and brings to light the adjustments, if any,
required in day-to-day operations. A sound control system is needed to measure progress, to
uncover deviations and to indicate corrective action.
2. Policy verification: Control enables management to verify the quality of various plans. It
may reveal that plans need to be redrawn or goals need to be modified. Changes in the
environment may render the original plans non-workable or deficient. Control helps to review,
revise and update the plans.
3. Managerial accountability: When a manager assigns some activities and delegates authority
to his subordinates, he remains responsible for ultimate performance. Therefore, a manager
should check up the performance of subordinates to ensure that they are utilizing the delegated

authority in the desired manner.

In this way control enables managers to discharge their

responsibilities.
4. Employee morale: Control creates an atmosphere of order and discipline in the organization.
Absence of control leads to a lowering of morale among employees because they cannot predict
what will happen to them. They become the victims of the bias and domination of the superior.
5. Psychological pressure: The existence of a sound control system inspires employees to work
hard and give better performance. When they know that their performance is being judged and
their rewards are linked to such appraisal, they try to contribute their best effort.
6. Coordination in action: Control helps to maintain equilibrium between ends and means.
According to Terry, Controlling helps ensure that actions proceed according to plans, that
proper direction is taken, and that the various factors are maintained in their correct interrelationships, so that adequate coordination is attained.
Limitations of Control:
A control system may be faced with the following limitations:
a) An enterprise cannot control the external factors such as government policies, technological
changes, social changes, changes in fashion, etc.
b) Employees often resist controls and as a result the effectiveness of control is reduced. Control
also loses its effectiveness when it is not possible to fix the responsibility on specific individuals.
c) Control is an expensive process.

Sufficient attention has to be paid to observe the

performance of subordinates. This requires a lot of time and effort.

d) Control system loses its effectiveness when standards of performance cannot be defined in
quantitative terms. For instance, it is very difficult to measure human behavior and employee
morale.
Areas of Control:
For effective control, it is important to know what the critical areas and where control would be
exercised. The identification of these areas of control enhances the management to i) delegate
authority and fixing up of responsibility, ii) reduce burden of supervising each activity in detail,
and iii) have means of securing satisfactory results. Though controls are needed in every area
where performance and results directly and vitally affect the survival and prosperity of the

organization, these areas need to be specifically spelled out. Peter F. Drucker, has identified
eight key result areas where objective should be set and controls should be exercised. These are:
market standing, innovation, productivity, physical and financial resources, profitability, manager
performance and attitude, development, worker performance and attitude, and public
responsibility.

The following discussion points out the different areas of control in an

organization:
1. Control over Policies: Policies are formulated to govern the behavior and action of personnel
in the organization. These may be written or otherwise. Policies are generally controlled
through policy manuals which are generally prepared by top management. Each individual in
the organization is expected to function according to policy manuals.
2. Control over Organization: Organization charts and manuals are used to keep control over
organization structure. Organization manuals attempt at solving organizational problems and
conflicts, making long-range organizational planning possible, enabling rationalization of the
organization structure, helping in proper designing and clarification of each part of the
organization, and conducting periodic check of facts about organization practice.
3. Control over Personnel: Generally, personnel manager or head of the personnel department,
whatever his designation may be, keeps control over personnel in the organization. Sometimes, a
personnel committee is constituted to act as an instrument of control over key personnel.
4. Control on Wages and Salaries: Control over wages and salaries are done by having
program of job evaluation and wage and salary analysis. The functions are carried on by
personnel and industrial engineering departments.

Often wage and salary committee is

constituted to provide help to these departments.

5. Control over Costs: Control over costs is exercised through making comparison between
standard costs and actual costs. Standard costs are set in respect of different elements of costs.
Cost control is also supplemented by budgetary control system which includes different types of
budgets. Controllers department provides information for setting standard costs, calculating
actual costs, and pointing out differences between these two.
6. Control over Methods and Manpower: Control over methods and manpower is keep to
ensure that each individual is working properly and timely. For this purpose, periodic analysis of
activities of each department is conducted. The functions performed, methods adopted, and
times consumed by every individual are studied to eliminate non-essential functions, methods,

and time. Many organizations create separate department or section known as organization and
methods to keep control over methods and manpower.
7. Control over Capital Expenditure: Control over capital expenditure is exercised through the
system of evaluation of projects, ranking of projects on the basis of their importance, generally
on the basis of their earning capacity. A capital budget is prepared for the business as a whole.
The budget is reviewed by the budget committee or appropriation committee. For effective
control over capital expenditure, these should be a plan to identify the realization of benefits
form capital expenditure and to make comparison with anticipated results. Such comparison is
important in the sense that it serves as an important guide for future capital budgeting activities.
8. Control over Service Departments: Control over service departments is effected either a)
through budgetary control within operating departments, or b) through putting the limits upon the
amount of service an individual department can ask, or c) through authorizing the head of service
department to evaluate the request for service made by other departments and to use his
discretion about the quantum of service to be rendered to a particular department. Sometimes, a
combination of these methods may be used.
9. Control over Line of Products: Control over line of products is exercised by a committee
whose members are drawn from production, sales, and research departments. The committee
controls through studies about market needs. Efforts are made to simplify and rationalize the
line of products.
10. Control over Research and Development: Control over research and development is
exercised in two ways: by providing a budget for research and development and by evaluating
each project keeping in view savings, sales, or profit potentialities. Research and development
being a highly technical activity is also controlled indirectly. This is done by improving the
ability and judgment of the research staff through training programs and other devices.
11. Control over Foreign Operations: Foreign operations are controlled in the same way as
domestic ones. The tools and techniques applied are the same. The only difference is that the
chief executive of foreign operations has relatively greater amount of authority.
12. Control over External Relations: External relations are regulated by the public relations
department.

This department may prescribe certain measures to be followed by other

departments while dealing with external parties.

13. Overall Control: Control over each segment of the organization contributes to overall
organizational control. However, some special measures are devised to exercise overall control.
This is done through budgetary control, project profit and lost account and balance sheet. A
master budget is prepared by integrating and coordinating budgets prepared by each segment.
The budget committee reviews such budget. This budget acts as an instrument for overall
control. Profit and loss account and balance sheet are also used to measure the overall results.
Steps in Control Process or Elements of Control:
Basic steps in the process of control are as follows:
1. Establishment of Standards: The first step in control process is the setting up of control
standards.

Standards represent the criteria against which actual performance is measured.

Standards serve as the benchmarks because they reflect the desired results or acceptable level of
performance. Control standards may be of the following kinds:
a) Quantitative Standards:

These standards are set in physical or monetary terms.

Such

standards are set up in production, sales, finance and other areas where results can be measured
in precise quantitative terms. Quantitative standards may be further classified as follows: i) Cost
which specify the cost limits within which results should be achieved; ii) Revenue
Performancestandards
with Standards
standards which represent the desired level of profits; iii) Time standards, e.g., quantity of
output, units of sales, number of customers, etc.
b) Qualitative Standards: There are certain areas in which it is not possible to set standards in

Measurement
quantitative
terms. Goodwill, employee morale, motivation, industrial relations, etc. are such
Of
Performance
areas.
In these areas standards are laid down in intangible terms.

Analysis
Of
Deviations

Establishment
Of
Standards

Taking Corrective
Action

2. Measurement of Performance: After performance standards are established, the next step is
the measurement of actual performance. Measurement of performance should be accurate and
reliable. It should be clear, simple and objective. Where quantitative standards are established,
performance should be measured in quantitative terms. This will make evaluation easy and
reliable. In other cases performance may be measured in terms of opinion surveys and other
qualitative terms. Wherever possible measurement should be done during performance. For
example, each part is checked while assembling the product. There are several techniques for
measurement of performance, e.g., personal observation, sample checking, performance report,
etc. A sound management information system should be developed for accurate and timely
measurement of performance.
3. Comparing Performance with Standards: The third major step in the control process
involves the comparison of actual performance with standard performance. Such comparison
will reveal the deviation between actual and desired results. Comparison is easy where standards
have been set in quantitative terms. In other cases where results are intangible direct personal
observation and reports may be used to identify defects or deficiencies in performance.
According to Ernest Dale, Control reports must satisfy three criteria. First, control reports must
produce figures that are truly comparable from one period to another and from one section of the
business to another. Secondly, they must be coordinated so that they not only portray the results
in different sections of the business but also indicate the reasons for the results. Thirdly, control
reports must be presented in such form that the manager can get the birds-eye view.
4. Analysis of Deviations: All deviations need not be brought to the notice of top management.
A range of deviations should be established and only cases beyond this range should be reported.
This is known as control by exception.

When the deviation between standard and actual

performance is beyond the prescribed limit, an analysis of deviations is made to identify the
causes of deviations. Then the deviations and causes are reported to the managers who are
authorized to take action.
5. Taking Corrective Action: The final step in the control process is taking corrective action so
that deviations may not occur again and the objectives are achieved. Corrective action may be a)
revision of standards, b) change in the assignment of task, c) training of employees, d)
improvement in the techniques of direction, etc. At this stage a manager should avoid two types
of mistakes. First, taking corrective action when no action is required and, secondly, not taking

action when action is required. The real test of a good control system is whether right action is
taken at the right time.
Essentials of an Effective Control System:
The main requirements of an efficient control system are as follows:
1. Focus on Objectives and Needs: The control system should aim at accomplishing the
organizational goals. It should be tailored to fit the needs of the organization. For
example, the flow of information regarding actual performance should correspond with
the organizational structure. The technique of control employed should be appropriate to
the work being controlled.
2. Forward Looking: The control system should be directed towards future. It must focus
attention on how future actions can be conformed to plans. It should identify situations
where new plans are needed and should provide data upon which future plans can be
based.
3. Prompt: An effective control system should detect and report deviations promptly so that
necessary corrective action may be taken in time. A good appraisal and management
information system is required for this purpose.
4. Strategic Point Control: Some deviations from standards have little impact while others
have serious impact. Control system should direct attention on strategic or critical
deviations. Only exceptional deviations require managements attention. This is known
as the principle of control by exception. The more a manager concentrates his control
efforts on exceptions, the more efficient will be the result of his control.
5. Flexibility: Control system must keep pace with changing conditions of the business
world. It should be adaptable to new developments including the failure of the control
system itself. Flexibility in control system can be introduced by preparing alternative
plans (e.g., flexible budgets) for various probable situations.
6. Objectivity: Standards of performance should as far as possible, be objective and specific.
They should be quantified or verifiable. They should be based on facts and participation
so that control is acceptable and workable. Measurement of actual performance should
also be objective and accurate.

7. Economical: The control system must be worth its costs. It must justify the expenses
involved. In other words, the savings anticipated from it should be greater than the
expected costs on its working.

A small enterprise cannot afford the elaborate and

expensive control systems employed in large concerns.

8. Motivating: An effective control system should pay due attention to human factor. It
should be designed to secure positive reactions from people. It should focus on work not
on workers. It should free rather than restrict action and should prevent mistakes rather
than punish individuals. Self-control tends to be motivating. Direct contact between the
controller and the controlled is also helpful in making the control system motivational.
9. Suggestive: Merely pointing out deviations is not enough in a good control system. It
must lead to corrective action that can check undesirable deviations from standards. The
control system should lead to the attainment of objectives with minimum of unsought
consequences.
10. Simple: A good control system must be simple and easily understandable so that all
managers can use it effectively. Complicated control techniques, e.g., mathematical
formulae fail to communicate the meaning of control data to the managers who use them.
Control As A Feedback System:
Managerial control is essentially the same basic control process as that found in physical,
biological, and social systems. Many systems control themselves through information feedback,
which shows deviations from standards and initiates changes. In other words, systems use some
of their energy to feed back information that compares performance with a standard and initiates
corrective action. A simple feedback system was shown in the below figure:

Desired
Performance

Actual
Performance

Measurement of
actual
performance

Comparison of
actual performance
against standards

Implementation
of corrections

Program of
corrective
action

Analysis of causes
of
Deviations

Comparison of
actual performance
against standards

Management control is usually perceived as a feedback system similar to that which operates in
the usual household thermostat. This can be seen clearly by looking at the feedback process in
management control shown in the above figure. This system places control in a more complex
and realistic light than would regarding it merely as a matter of establishing standards, measuring
performance, and correcting for deviations. Managers do measure actual performance compare
this measurement against standards, and identify and analyze deviations. But then, to make the
necessary corrections, they must develop a program for corrective action and implement this
program in order to arrive at the performance desired.
Modern Techniques of Control:

UNIT: 7
TOTAL QUALITY MANAGEMENT (TQM)
Evolution of TQM:

TQM is a concept that originated in the 1950s.

It is practiced by

companies to improve organizational effectiveness to meet and even exceed customer

satisfaction levels. The strategic implementation of TQM involves the continuous improvement
of a quality, reducing costs, and delivering goods in time as well as pushing for innovation,
strengthening the competitive edge in the process.

It encompasses all aspects of the

organizational and production processes. From choosing the right production equipment, to the

right personnel, and the right strategy of marketing and customer service, the principles of TQM
were developed over the past few years by management gurus such as Deming, Juran, and
Crosby and Japanese pioneers such as Ishikawa, Shigeo Shingo, and Yoshio Kondo.
TQM became attractive to US managers in the 1980s because it had been successfully
implemented by Japanese companies, such as Toyota, Canon, and Honda, which were gaining
market share and an international reputation for high quality. The Japanese system was based on
the work of such US researchers and consultants as Deming, Juran, and Feigenbaum, whose
ideas attracted US executives after the methods were tested overseas.
Let us understand the different elements in TQM:
TOTAL: It refers to everything, including human resources and equipment, associated with the
company that is involved in continuous improvement.
QUALITY: It refers to the expressed and implied requirements of the customers that are met
fully, i.e., based on the customers perceptions of a products design and how well the design
matches the original specifications as well as the stated or implied needs of the customers.
According to ISO 1994, Quality means the totality of features and characteristics of a product or
service that bears on its ability to meet a stated or implied need. Quality means Fitness for use
(Juran, 1988); and conformance to requirement (Crosby, 1979).
MANAGEMENT: It means that top management and executives are fully committed to the
philosophy of TQM. Satisfying the consumers needs and expectations implies that a company
needs to define accurately, early in its product/ service development cycle, various attributes
related to design, performance, price, safety, and delivery specifications from the consumers
perspective.
What is TQM?
ISO 8402, 1994 defines total quality management (TQM) as a management approach of an
organizations control on quality, based on the participation of all its members and aiming at

long-term success. This is achieved through customer satisfaction and benefits to all members of
the organization and to society.
In other words, TQM is a philosophy for managing an organization in a way which enables it to
meet stakeholder needs and expectations efficiently and effectively, without compromising
ethical values. TQM is a way of thinking about goals, organizations, processes and people to
ensure that the right things are done right the first time. This thought process can change
attitudes, behavior and hence results for the better. So TQM is concept that fosters continuous
improvement in all aspects of an organization, including human resources and equipment.
Importance of TQM:
Although the indicators of business results differ from industry to industry and from company to
company, the following seven business performance areas that are related to both short-term and
long-term results need to be considered while implementing TQM:

Customer satisfaction

Employee motivation

Market share and growth rate

Return on total assets

Revenue growth

Total asset turnover rate

Cash flow

Philosophy of TQM:

The TQM philosophy focuses on team work, increasing customer

satisfaction and lowering costs. The total in TQM applies to the whole organization. Therefore,
unlike an ISO 9000 initiative which may be limited to the processes producing delivery products,
TQM applies to every activity in the organization. Also, unlike ISO9000, TQM covers the soft
issues such as ethics, cultures, and attitudes. Business excellence is the result of adopting a TQM
philosophy and realigning the organization towards satisfying all stakeholders (customers,
owners, shareholders, suppliers, employees and society.) Adopting the TQM philosophy will:

Make an organization more competitive

Establish a new culture, which will enable growth and longevity

Provide a working environment in which everyone can succeed

Reduce stress, waste, and friction

Build teams, partnership and cooperation.

TQM Techniques:
The implementation of TQM involves the use of many techniques, including

Quality circles: A quality circle is a group of 6 to 12 volunteer employees who meet

regularly to discuss and solve problems affecting the quality of their work. At a set time
during the workweek, the members of the quality circle meet, identify problems, and try
to find solutions. Circle members are free to collect data and take surveys.

Benchmarking: Introduced by Xerox in 1979, benchmarking is now a major TQM

component. Benchmarking is defined as the continuous process of measuring products,
services, and practices against the toughest competitors or those companies recognized as
industry leaders to identify areas for improvement.

Six-Sigma principles: were first introduced by Motorola in the 1980s and were later
popularized by General Electirc, where former CEO Jack Welch praised Six Sigma for
quality and efficiency gains that saved the company billions of dollars. Based on the
Greek letter sigma, which statisticians use to measure how far something deviates from
perfection, Six Sigma is a highly ambitious quality standard that specifies a goal of no
more than 3.4 defects per million parts. That essentially means being defect-free 99.9997
% of the time.

Reduced cycle time: Cycle time refers to the steps taken to complete a company
process, such as producing a product, providing a service, teaching a class, publishing a
text book, or designing a new car. The simplification of work cycles, including dropping
barriers between work steps and among departments and removing worthless steps in
process, enables a TQM program to succeed.

Continuous improvement: Japanese companies have realized extraordinary success

from making a series of mostly small improvements. This approach, called continuous
improvement, or Kaizen, is the implementation of a large number of small, incremental
improvements in all areas of the organization on an ongoing basis. In a successful TQM
program, all employees learn that they are expected to contribute by initiating changes in
their own job activities. The basic philosophy is that improving things a little bit at a
time, all the time, has the highest probability of success. Innovations can start simple,
and employees can build on their success in this unending process.
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