Iontents in Brief

Preface xu
Achnowledgements xix
Chapter I Nature of Managemenr .............. .................. I

Chapter 2 Managerial Roles, Functions and Skills ......29

Chapter 3 Development of Management Thought ......53
Chapter 4 Coordination ......97
Chapter 5 Planning and Forecasting ...... 111

Chapter 6 Objectives and MBO .......... ..................... l4l

Chapter 7 Types of Plans ....................... t67

Chapter 8 Corporate Planning and Environmental Analysis ......... 185

Chapter 9 Strategic Planning and Management ..................,.........215

Chapter i0 Decision-Making Creativity and MIS..........................253

Chapter I I Fundamentals of Organisirg............... ......291
Chapter l2 Departmentation and Structural Formats .....................325

Chapter 13 Span of Management ............351

Chapter 14 Authoriry Power and Politics ...................365

Chapter 15 Delegation of Authoriry ........395

Chapter l6 Centralisation and Decentralisation .........417
Chapter l7 Line and Staff Relationships............ .........435
Chapter l8 Fundamentals of Staffing ...... 457

Chapter 19 Attracting and Developing Human Resources..............48 I

Chapter 20 Appraising and Maintaining Human Resources........... 509

Chapter 2l Direction and Supervision .............. .........539
Chapter 22 Motivation, Morale and Productivity...........................559
vi r Conlenls in Brief

Chapter 23.

Chapter 24

Chapter 25

Chapter 26

Chapter 27

Chapter-Z8

Chapter 29

Chapter 30.

Chapter 31

Chepter 32

Author Index 955

Subject Index 959
 Jtlotu re of
I
i
b
Monogement
-_*
+:
*
J men, collaborators and people utith right
E
f
!: CONTEXT
ia
Managers are an indispensable part of every
E
organisarion. They achiwe desired results through
€
i local CEOs at well. The job of a CEO
: efficient and effective utilisation of human and
material resources. Inhct, successful managers do
not wait for future; they make the future by
anticipating and adjusting to changing
circumstances in an intelligent manner.
INTE NT
This chapter introducrs a number of important
concepts and principles of management and
describes the changing nature of manag€menr.
The lndion CEO' An
Endongered Species?
In the space of a few years, the corporate
enuironrnent in India has mouedfrom a closed,
planned economl into a global, wired and
turbulent uorld economy. The rules of the game
h aue ch anged sudden ly. Th e license-p ermit-raj
required CEOs to hnou tbe domestic markeL
hnow the gouernment, mahe short-term plans,
be able n handle diuersifed businesses, and
ako irtplement the uision of the Babu. The
family-owned businesses wanted fxers, yes-
connections with gouernment fficiak. Not any
more. As Harsh Mariutala, chairman, Marico
Indusnies remarhed: the Indian CEO is facing
competition not only from MNCs, but fom
has
become more complex. In the current scenario,
according to Tarun Das of CII, industry needs
CEOs u,,ho are technologically proficient,
analytical and willing to face challenges head-
on. Azim Premji [nments that, not mnny Indian
CEOs haue fre in the belly'. Dani,
MD
'4shu.,in
of Asian Paints, feels that the potential
CEO should haue wide project implementation
shilk and international ex?osure to uisualise
the impact of global trends ahead of others.
Since he is the publicface of a compan!, now-
a-days, he needs good comrnunication shilk -
to be able to communicate ffictiuely uith the
employees, with the shareholders, customers and
to lead the ideally flat and fiendly utorhplace.
In AV Birh Group of Companies, led by
the
Kumarmangalam Birla, the emphasis is on
fnding talent in youngpeople at an early stage,
nurture and reward through positiue strohes
and ensure that young talent sta)/s attracted to
the group. Euery attemp'i is to 'mahe the group
a fun pkce to utorh in'. The CEO, therefore,
is expected to befiiendly andflexible, butfrm
and decisiue. As summed up by an expert "the
CEO ir young and restle:s, but unemotional.
He is a hands-on manager, but thinks long-
term. He is a techie, but people-oriented. He
is rnulti-skilled, experienced, a uisionary".
 2 t Monogement Texl ond Coses

Now, CEOs are under pressure to sbow results deiiuer, yu

are not a targetfor the competition.
quic hfi, esp ecially rahen the quarter- to-quarter If yu do n()t,
lou are asked to leaue. Either
performance of a company is X-rayed by way, you go".
anallsts, rertructure operations continually in
Sotrces:
line u.,ith enuironmental changes and improue
opelational and cost fficiencies. The high-tech i. Team CD, The man for the new millennium,
Economic Times, 8-14, Jan., 1999.
enuiro nment, glo b a I c omp eti tio n and wo r hfo rc e
diuersity and a lot of other issues haue begun ii. R.A, Thahur, Reachingfor the sun, EII 29 Dec., - 4

to impact the career-spans of CEOs in India. Jan., 2001.

As a result, 'CEOs tenures are getting iii. G: Cherian, Old before their time, ET 29 Dec., - 4
progressiuely sltorter'. Non- performance is not Jan., 2001.
tolerated any longer in any industry. "If you

I ntrod u ctio n
Organisations have a variety of goals. They usually direct their energies and resources
to achieve
these goals.A profit-oriented business firm, for example, might have a rerurn-on-invesrmenr goal; a
hospital would have goals centred around patient care; and an educational institution
would establish
goals for teaching, research and social service. Organisations possess human as well
as non-human
r€sources (plant, equipment, land, money, etc.) that are put ro use in the service
of specific goals.
Management i: theforce that unifies human as well as non-human resources in tbe seruice
of organisational
goals. It is a process of getting results with and through people.

Manpower

Monq' Materials

{\
Management

\ -1

Figure l. I
Management as a Unifring Force

Management is needed whenever people work together in an organisation. The

managerial
funcrions musr be performed by anyone who manages organised efforrs, whether
it is a business
 [hopler I Nolure ol Monogemenl r 3

enterprise, religious organisation, military outfit or a social institution - I Management: The

such as planning, organising, directing and controlling. These functions are attainment of
organisational goals in an
performed at all levels in an organisation, regardless of its rype or size. The efficient and effbctive
servicesof management are essential in all cooperative endeavours. manner through
planning, organising,
leading and controlling
Whot is Monogement? organisational resources.

Itis not easy to define the term management. There are as many definitions of 'management' as there
are books on the subject. There are certain genuine reasons for this : (i) Management is a vast
subject. It is very extensive. It is, therefore,
Managing People Is Not Easy! not possible to put all the essential features
of management in a single formula. (ii)
Management is concerned with human
ln one of Burma-Shell's up-country divisional
beings, who are behaviourally highly
offices, an expatriate with a military background
was in charge as a divisional manager. One day unpredictable. (iii) Management is a young
he received an anonymous letter that the night developing discipline whose concepts are
watchman at the company's local petroleum continuously changing. It is small wonder,
storage depot in the railway yard was habitually writers like Allen remarked, that 'the rnanager
asleep on duty. He decided to stop at the depot
without notice after a dinner party. Not is one of the great unknowns in the business'.

unexpectedly, he found the watchman fast asleep. Most de finitions of the word
He decided not to create a fuss at that late hour, 'management', emphasise one common idea:
merely picked up the watchman's pugree as proof.
it is concerned with the accomplishment of
He was back at the depot the next morning before objectives through the efforts of the people
the watchman had handed over charge. The performing certain functions. Lett look into
company's depot superintendent conducted an
these definitions:
inquiry on the spot, as required under the law
before disciplinary action could be taken. lt was 1. Management is the accomplishment of
expected that, having been caught red-handed,
the watchman would confess guilty, plead that this
results through the efforts of other
was his first offence (possibly claiming that he had people (Lau'rence A. Apple).
little sleep in the previous couple of days as a result
of sickness in the family or a similar excuse) and
2. Management is the art of getting
seek mercy in the form of a warning rather than a things done through andwith the people
harsh penalty. in formally organised groups.
(Koontz H.)
The watchman came up with an ingenious defence
instead. He told the depot superintendent, keeping
a very straight face, that Sahib was drunk as a lord
3. Management is a process of planning,
organising, actuating and controlling to
when he arrived at the depot and for some reason
demanded his pugree. He could not understand determine and accomplish the
what had caused the strange command but he objectives by the use of people and
decided that it was a harmless order and it would resources. (Tbrry. G.)
be wise under the circumstances to hand over
without much ado. He then persuaded Sahib to 4. Management is the process by which
get intc his car and go home. managers create, direct, maintain and
His interrogators were stunr rcC by this defence and oPerate PurPoslve organlsatlons
acquitted the watchman, for want of corroborative rhrough systematic,,coordinated,
evidence! cooperative human effort. (Mt.
(Source: M.S. Patwardhan, Economic Times, 26.1.93) Farhnd.)
 4 r Monogemenl Texl ond Coses

5' It is the coordination of all resources through rhe proc€ss of planning,

organising, directrng
and controlling in order to attain stated obje-ctirr., (Srrl).
1

rule-making and rule_enforcing body.

g. Orhers .personnel
@ppl"i called it as
we can broadly define rhe term thus :
It is the process of pknning, organising, stffing,
bjectiues through the coordinated use-of human

I MANAGEMENT AS A NOUN
In popular usage, management refers to a group of people who direct the activities of other people
and material resources towards the attainment of predetermined goals. Viewed broadly, managemenr
may be interpreted as e resource, a tlttern of authority or As A class or elite. The economist's view of
management is that, it is a factor of production like capital, labour, etc. The managerial resource
determines the success of an organisation, As a system of authoriry management refers to a team of
manag€rs who make decisions and supervise the work of others. Sociologists, finally, look at
mana$ement as a class and status system. Managers are a distinct class in che sociery having specialised
knowledge and skills.

I MANAGEMENT AS A PROCESS
Management as a process refers to a series of inter-related functions, such as planning, organising,
staffing, leading and controlling. Actually, managers are known by che work rhey do. According to
James Lundy, 'Management is what lnanagement doei. Management process suggests that all managers
perform certain functions iii order ro realise certain goals.

Planning Organising Staffng Directing

o Goods
a Services
o Profir
1 r Productiviry
CONTROLLING I CustomerSatisfaction
I

The Process of Management

Management, it should be noted, is a social process because it is concerned with relarions

among people at work. A manager sets the objectives of an organisation. He provides an environment
that is helpful to group action. He offers incentives to those who show good performance and thus
helps the organisation realise its goals.

I MANAGEMENT AS A GROUP/TEAM
The term 'management' is used to denote the persons who manage the affairs of an organisation.
Broad expressions, such as 'management has declared a lockout', 'management rakes a tough stand
against workers', often hit newspaper headlines. \7hen such statemenrs are made, reference is actually
m:rde to the people who manage the affairs of an organisation. Thus, as a group oFpersons, managemenr
includes all those who are responsible for making decisions and supervising rhe work of orhers.
 Chopbr I l{olure ol llonogemenl r 5

I MANAGEMENT AS A DISCPLINE
As a discipline, management is a specialised branch of knowledge which involves the study of certain
principles and practices. Over the years, management has emerged as a separare field of study. It can
be studied, knowledge about it obtained and skilI in its applications acquired.
The old saying'managers are born, not made'stands depreciated now. People believe that managerial
skills could be acquired through formal education and training. It is smali wonder that many institutes
have been set up in India with a view to impart management education to prospective managers.

I MANAGEMENT AS AN ACTIVITY
Management refers to a separate class of activities which are performed by managers. Managerial
acriviry consists of planning, organising, staffing, directing and controlling. These activities are
performed ro ger rhe work done with and through people. Due to their biological and psychological
limitations, it is difficult for human beings to achieve their objectives all alone. They have to join
organisations and work toward common goals. fu pointed out by D.A. W'ren,'management is an
essenrial activiry which arises as individuals seek to satis$r their needs through group action', Managerial
activiry, it should be remembered, cannot be measured in a precise way (unlike non-managerial
operations like ryping, machine operations, where the output can be measured). A manager directs
the work of others. He contributes indirectly towards the achievement of enterprise objectives. His
work defies precise measurement. Terry, therefore, said that /ndnagement is intangible. The student is
advised nor ro confuse this point (management is an invisible force) with the persons (a team of
managers who are visible) who perform managerial activities. The evidence of good managerial work
in the form of employee satisfaction would only hte seen in results which cannot be quantitatively
measured.

Scope of Monogement
The scope of management is very wide. Basically, it
to three distinct ideas. Accoriing to
refers
Herbison and Myers, management may be understood as (i) an economic resource, (ii) a system of
authoriry and (iii) a class or elite.

T MANAGEMENT AS AN ECONOMIC RESOURCE

Management is one of the Factors of production along with land, labour and capital. In modern
organisations, the effective use of the five Mt of management (money, materials, manpower, machinery
and merhods or ways of doing things) depends to a great extent on the qualiry of management. In
orher words, how effectively and economically the five M's are combined together to produce desired
results. According to NetumAn, management is required to convert the disorganised resources of
men, materials, money and machines into a productive, useful, on-going concern.

T MANAGEMENT AS A SYSTEM OF AUTHORITY

According to Herbison and Myers, management is the rule-making and rule-enforcing body. It is
bound rogerher by a web of relationships berween superiors and subordinates, that is, people are
bound by authority relationships. Managers working at top levels enjoy more authoriry than people
working ar lower levels. Top management determines objectives and provides direction to enterprise
acrivities. Middle managemenr (departmental heads like work manager, finance managet personnel
manager etc.) interprets and explains the policies framed by the top management. They transtnit
 6 t Monogement Texl ond Coses

orders, instructions and decisions downward and carry rhe problems and suggestions upward. Lower
managemenr (fir'sr line supervisors) is concerned wirh routine, day-to-day rnatrers.

I MANAGEMENT AS A CLASS OR ELITE

Sociologists view management as a distinct class in sociery having its own value system. The managerial
class has become very important in modern organisarions owing to its contriburion ro business
success. As a separate grouP, the term management refers to the group of individuals occupying
managerial positions. All the managers from the chief execurive ro rhe first line supervisors are
collectively addressed as 'Management', which refers to the group.

Chorocteristics of Monogement
The various interpretations of management emphasise three things: (i) management is a process and
involves a series of continuing and related activities, (ii) it tries to concenrrate on reaching or:lanisational
goals' (iii) dnd it reaches these goals byworking with and through other people and other orlanisational
feso u [ces.

The important features which reveal the nature of managemenr may be stated thus:
1. Management is intangible: As pointed out by, Terry, managemenr is intangible. It cannot be
seen.It is an unseen force. However, its presence can be felt by the results of its eFforts in rhe
form of production, sales and pr-ofits.
2. Management is goal-oriented: Management seeks to achieve goals. These goals ma1, be economic
or non-economic. In a business organisation, the primar:y goal is ro produce and distribure
goods wid-r a view to earn profit. In a serwice orqanisation, the goal might be customer service
(hospitals, educational instittrtions, etc.).

3- Management is universal: Management is an all-pervasive activiry. It is needed in all

rypes of
organisations,e.g.,universitl,, club, army, governmenr, business. The basic principles oF
management are applicable in business as well as in other organisarions. These principles,
however, need careFul application depending on situational demands.

4- Management is a social process: According to Newman, managemenr is a social process because

it deals with people. To make the best use of human efforts, managers have to creare close
cooperation arnong employees in an organisation. They have to use resources For the benefit of
society as a whole. They have to look after the interests of employees, shareholdersr cusrom€rs,
invesrors and community.

5. Management is a group activityt Management is concerned wirh gerting things done rhrough
people' People join groups in order to achieve results collectivell,. Managemenr h.[ps people in
realising individual as well as group goals in a coordinated way.

6. Management is a system of authority: A manager is supposed to get things done, rather rhan
doing things himself, by using authoriry. Authority is the right ro give orders and the power to
obtain obedience from subordinates. In this sense, managemenr may be r.rndersrood as rhe rule-
making and rule-enforcing body in an organisation. According to Drucker, "management is a
multi'purpose organ that manages a business, manages managers and manages workers and
work." Managers operating at higher levels, o[ course, possess more aurhority than those
working at the lower levels.
 (hopter I Nolure of Monogement t 7

7. Management is an activity:
Management is a distincr activi$, (like
playing, reaching, studying). It can be
studied, knowledge abour it obrained
and skill in its applications acquired.
Further, management is not a one-shot
deal. In the face of continual changes
in nviron menr, te chnology,
e
competition, new problems crop up
displacing old ones. "Old ord.er changeth
yielding place to tlte new!" Management
must, therefo re, address itself to
problems on a continuous basis. The
cycle of management is a never-ending
process and it continues as long as the
organisation continues to operate.
8 Management is dynamic: Management
is a d1'namic and gr:owth-oriented
function. It tries to visualise problems
before they turn into emergencies and
takes suitable steps. It rries to adapt
itself to the e nvironme ntal changes
quickly'. It proposes to take actions to
make the desired results to come to
pass. According to Drucker, 'rnanagers
do not wait for the future; they make
the future'.
Managerial Efficiency and Effectiveness
o Effectiveness: lt involves choosing right
goals. A manager who selects an
inappropriate goal-say, producing mainly
large cars when demand for small cars is
soaring - is an ineffective manager, even if
the large cars are produced with maximum
efficiency. Managers at General Motors
learned this lesson the hard way. When the
demand for fuel-efficient, smaller cars
increased in the 1970s, GM ignored the
tompetition created by the Japanese and
Germans, believing that the trends were an
aberration a.nd that Americans, loyal to
American products, would not continue to buy
foreign cars. As a consequence, they
continued to produce large, fuel-inefficient
cars and in so doing lost enormous competitive
ground to these new rivals.
r Efficiency: lt is the ability to do things right. lt
is an "input-output" concept. An efficient
manager is one who achieves outputs or
results, that measure up to the inputs (labour,
materials and time) used to achieve them.
Managers who are able to minimise the cost
ofthe resources needed to achieve goals, are
acting efficiently.
(Source: Stoner, Management, p.9)

9. Management is a science as well as an art: Management is a r Effectiveness: The

degree to which the
systematised body of knowledge based on certain principles capable of organisation achievers a
general application. The principles underlying time and motion studies, stated goal.
morale, motivation, leadership-can be applied by persons working in
various capacities. Art is the application of knowledge and skills to achieve results. Management
is an art because it involves the use oF knowhow and skills like any other art such as music,
painting, etc. In recent years, management has developed into a separate, distinct discipline,
receiving vital inputs from subjects such as psychology, sociology, anthropology, economics,
etc. Management degr'ees are the hottest selling products in the corporate world now. In the
days ahead, the status of management as a discipline is bound to increase. In fact, management
becomes essential, whenever and wherever people come together to achieve some common
objectives.

10. Management is multidisciplinary: Management has received rich contributions from various
disciplines like psychology, sociology, anrhropology, etc. The insights obtained from these
disciplines greatly help managers in understanding the 'black-box' (human mind) much better.
More importantly, management is a creative activity. Managers utilise the scarce resources at
their: disposal in a rational wa1'. They make things happen in a desired manner. "They convert
8 r Monogement Text ond Coses

the disorganised resources of men, materials and machines into a useful, productive enterprise".
(Neuman) They create a whole that is greater than the sum of its parts. They achieve results in
an efficient and effective manner.

Who ore Effective Monogers?

Based' on the research sponsored by the Centre for Creative Leadership, Robert l{aplan described
effective managers as persons who:

a Have vision, think long-term, set direcrion;

a Are good communicators and good listeners;

a Understand operations;

a Know where to spend time and how to prioritise;

a Do not resist change;

a Delegate well;

a Act confidently;
a Accept responsibility and admit mistakes;

a Are motivating, curious, honest, credible and decisive.

lmportonce of Monogement
According to Drucher, management is the dynamic life-giving element in every organisation. It is the
activating force that gets things done through people. 'l7ithout managemenr, an organisation is
merely a collection of men, machines, money and material. In its absence, the resources of production
remain resources and never become production. The importance of managem€nt can be understood'
from the following points:
(i) Optimum use of resources: Management ensures optimum utilisation of resources by attempting
to avoid wastage of all kinds. It helps in putting the resources to the best advantage within the
limitations set by the organisation and its environment. A right climate is created for workers
to put in their best and show superior performance.
(ii) Effective leadership and motivation: In the abience of management, the working of an enterprise
will become random and haphazard in natuf$ Employees feel a sense of securiry when they
find a body of individuals working day and night for the continued growth of an organisation.
Management makes group effort more effective. It enables ernployees to move cooperatively
and achieve goals in a coordinated manner, Management creates teamwork and motivates
employees to work harder and better by providing necessary guidance, counselling and effective
leadership.

(iii) Establishes sound industrial relations: Management minimises industrial disputes and
contributes to sound industrial relations in an undertaking. Industrial peace is an essential
requirement for increasing productivity. To this end, managers try to strike a happy balance
between the demands of employees and organisational requirements. They initiare prompr
 Chopter I Noture ol Monogement t 9
actions whenever workers express dissatisfaction over organisational
rules, methods, procedures
and reward sysrems.
(i") A^chievement of goals: Management plays an important rble in the achievement of
objectives
of an organisation. objectives can be achieved only when the human
and non-human resources
are combined in a ProPer way. Management is goal-oriented.
\fith a view to realise the
predetermined goals-managers plan carefully, o.g"--rrir. the resources
properly, hire comperent
r Efficiency: Ability to
resources wisely and
a cost-effective

Administration vs. Management: Expert Opinions

1. oliver sheldon, the well-known British management expert, has distinguished

management and administration in the following way:

Ordway leadhas drawn the distinction between these two terms in the following
words:

E.F.L. Brech described ?dministration'as "that part of management which

is concerned
with the installation and carrying out of the procedures oy ir,,nicn a programme
is laid
down and the progress of activities is regulated and checied againsi plins".
William us. He has used the term,
administ He defined administration, in
his book ip and.control of the efforts of
a group
10 I Monogemenl Text ond Coses

(") Change and growth: A business concern operates in a constantly changing environmenr. Changes
in technology, government policy, competition, etc., often rhreaten the survival of a firm.
Failure to take note of customert needs regarding fuel efficiency has spelt doom for 'Ideal
Java
in the rwo-wheeler market in India. An enterprise has to take note of these changes and adapt
itself quickly. Managers help an organisation by anticipating these changes (careful planning,
forecasting combined with efficient use of resources) and taking appropriate steps. Successful
managers are the ones who anticipate and adjust to changing circumsrances rarher than being
passively swept along or caught unprepared. Employers today are hiring managers who can
take unfamiliar situations in their stride. At AT&T, people remark, "If you are hiring people
who do not like surprises, you are probably not hiring the righr people."
(ui) Improves standard of living: Management improves the standard of living of people by (a)
using scarce resources efficiently and turning out profits, (b) ensuring the survival of the firm
in the face of continued changes, (c) exploiting new ideas for the benefit of sociery as a whole,
and (d) developing employee talents and capabilities while at work and prompting rhem ro
show peak performance.
The great economist, Joseph. A Schurnpeter, referred to management and entrepreneurs as rhe
engine of growth. Drucher called management 'the life-blood' of an enterprise. According to him,
management is 'the crucial factor in economic and social development'. Admittedly, firms can fail
because of inadequate funds, improper marketing, incompetent product design and for many other
reasons. They often fail because the basic management functions are performed poorly or not at all.
Management is "the single most critical social activiry in connection with economic progress. Physical,
financial and manpower resources are, by themselves, only passive agents: they must be effectively
combined and coordinated through sound and effective management, if a country is to experience a
substantial level of economic growrh and development."

Monogement vs. Administrotion

r Administration: The
overall determination
of policies, the setting
of major objectives
and the laying out of
broad programmes
(Haimann\.
There has been a controversy over the meaning of the terms 'management'
and 'administration'. Some take managemenr and adminisrration as
one; some consider administration broader than management and
some hold a view that management and administration are different. Lett
examine the opinions of various writers before trying to resolve this
controversy.

T ADMINISTRATION IS BROADER THAN MANAGEMENT

Vriters llke Ordutay Tbad, Oliuer Sheldon, IX/illiam Spriegel, Villiam Schulze maintain rhat,
administration is broader than management. Administration determines rhe specific goals and lays
down the broad areas within which those goals are to be achieved.
IFunction: A type of
work activity than can Administratio,r,r is a policy-making function. Management, on rhe orher
be identified and hand, is concerned with carrying our the broad policies laid down by
distinguished from administration. In the words of Spriegel, 'administration is largely
other work.
determinative, whereas, management is essentially executive'. Thus,
according to this American school of thought administrators think, managers act: administrariorl is
a top level activity and management is a lower level function.
 Chopter I Noture ol Monogement I 11

T ADMINISTRATION IS PART OF MANAGEMENT

According to the English school of thought, represented 6y E.EL Brech, Henry Fayol, Kimball and
Kimball, management is a wider concept than administration. Administration handles the current
problems that may arise in carrying out the policies laid down by managemenr. Managemenr is rhe
rule-making and rule-enforcing body. It is an all-encompassing and .o-p..h..rrire term and
administration is a part of it. Administration is just an implementing agency.

Administration Top Management

Middle Management

Managemenr Lower Management

Figure 1.3
Aciministration and Management

I MANAGEMENT AND ADMINISTRATION ARE IDENTICAL

'Writers like William Neutman,
Harold Koontz, Dalton E. McFarknd, Earnest Dale, hardly maintain
the distinction berween the wo terms. Any attempt to stretch rhe marter roo far may be ,.if-d.f."ti.,g
and thoroughly misleading. The compartmentalisation scheme hardly serves any useful purpose. The
management Process is the same in all organisations and at all levels in the organisarion and there is
hardly any need to appoint rwo individuals to discharge the administrative functions.
All undertakings require planning, organisation, command, coordination and control in order to
"nJ-".r"g.rial
function properly, all must observe the same general principles, Ve are no longer confronted with
several administrative or management sciences, but with one which can be equally applied well
to public and to private affairs. A manager or for that matrer an administrator, has ro wear both the
hats gracefully in order to be effective and successful.

I HO\T TO RESOLVE THE CONTROVERS}?

To resolve the controversy, Drucher suggested that, management is applicable in business enterprises
while administration is applicable in government offices, military organisations, social and cultural
institutions. From a theoretical point of view, writers still continue to maintain distinction berween
the rwo rerms rhus (Thble l.l).
Thble ll
Distinction between nomrnistration and Management
Point ofdistinction Administration Management
o Nature Thinking function (what is to be done Doing function (who should do it and how).
and when).

o Scope Determines broad objectives and policies. Implements plans and aclieves goa.ls through people.
a Level Top level function. Middle and lower level function.
o Skills needed Conceptual and human skills. Technical and human skills.
o Represents Owners who invesr capital and receive profits. Paid individuals who work for remunerarior.r.
o Us€e Mostly in governmenr, military, educational, Mostly in business organisations.
social and cultural organisarions.
L2 I Monogement Texl ond Coses

However, from a practical point of view, the above categorisation seems to be a futile exercise.
Managers or administrators have to perform the thinking and doing functions simultaneously. They
have to wear both the hats gracefully in order to be effective and successful.

Monogement : Science or Art?

I Science: An
organised or
systematised body of
knowledge pertaining
to a specific field of
enqurry.
I Art: lt is the
application of
knowledge and
personal skills to
achieve results.
r Profession: lt is an
(a) occupation for
which specialised
knowledge, skills and
training are required
and (b) these skills are
used for larger interests
of the society and (c)
the success of these
skiils is not measured in
monetary terms always.
The question whether management is a science, art or profession is put to
debate quite frequently. There are arguments on both sides. Lett examine
these in detail.
T PROPERTIES OF SCIENCE
Science is a systematised body of knowledge based on certain principles,
capable of general application. This knowledge is obtained through the
process of observation, experimentation and testing. Science, thus, has
four elements:
a Slntematic body of knowledge: Science is systematised in the sense
that it is based on the cause and effect relationship berween different
variables. Such a knowledge helps in explaining past events and predicts
the outcome of specific actions.
a Scientific inquiry and observation: Scientific inquiry is unaffected by
'When we say that the
the personal likes and dislikes of a scientist.
rotation of earth causes days and nights, we do not exPress the opinion
of just one person. This can be scientifically proved at any time.

Experimentation: The principles of science are derived after repeated chservations and
experiments. The results of each experiment can be verified and outcomes predicted in a
definite way.'S7'hen results get confirmed after repeated experimentation, they become principles.

Universal truths. Scientific principles represent basic truths, they are developed after a series
of experiments. T[ey can be applied in all situations and at all times.

Management is a science because it has all the characteristics of a science, namely:

a Systematised body of knowledge: Management is a distinct discipline. It has a number of
principles which can be studied and put to application. Management offers principles that
could be put to good use while solving problems.
Management is a social science: Management is a social science, as it deals with human
behaviour about which little is known at present. As we all know, it is not possible to study
hurnan bclia-;ieur under controlled laboratory conditions. Human behaviour is unpredictable
and, therefore, defies exp.rimentation. fu a result, the principles of management cannot be
accepted as absolute rrurhs. They are still in a developing stage and evolutionary in nature.
Management, at best, can be called as a sofi science.

Management is an inexact science: Management is not an exact science like physics, chemistry
or biology. It does not offer absolute principles. It can offer only flexible guidelines that would
 Chopter I Noture ol lionogemeni I L3

be of use in solving problems. Management can never be an exact science because business is
highly dynamic and business conditions change continually.

a Manager vs. scientist. A scientist can afford to wait until all the informarion (about a thing) is
available. He can indulge in a series of experiments till the rruth emerges clearly. Howeveq a
manager cannot afford to do like that. He must take decisions based on inadequate information,
insufficient knowledge and resources. He must make decisions today in order to survive in
future.

a Scientific management. !?hen Th/or used the term'scientific managemenr', he was aware of
the fact that experimentation and verification of facts is not possible in managing human
resoutces. He had used the term 'scientific', as an organised body of knowledge as opposed to
traditional rules and empirical dexterity. Over the years, rhe traditional hit-or-miss methods
have yielded place to several systematic methods based on principles. No wonder, management
is known as a 'sophisticated behavioural science' these days. Thus, art and science are
complementary and mutually suppoftive.

I PROPERTIES OF ART
Art is the application of knowledge and personal skills to achieve results. It is a way of living. Art is
based on the knowledge of principles offered by science. A surgeon or a physician without the
knowledge of medical science becomes a witch doctor, with the knowledge of science, an artful
surgeon. Art is basically concerned with application of knowledge, how to do things creatively and
skillfully. It can be improved through constant practice only. Terry has drawn the distinctions between
science and art thus:
Table 1.2
Science vs Art
Science Art
r Advances byknowledge o Advances bypractice

o Proves o Feels

o Predicts a Guesses

o Defines o Describes

o Measures . OPines

. Impresses a Expresses

Management is basically an art as it involves the use of knowhow and skills like any other art such as
music, painting, sculpture, etc, The practical knowledge acquired in the areas of planning, decision-
making and motivating certainly help managers to tackle problems in a berter way. The arguments in
Favour of management as an art run thus:

a Use of knowledge: Just as a doctor uses the science of medicine while diagnosing and treating
the patients, a manager uses the knowledge of management rheory while performing the
managerial functions. He, thus, uses sound knowledge in place of hit-or-miss methods, with a
view to achieve results effectively.
1,4 I Monogemenl Text ond Coses

a Creative art: Management is creative Iike any other art. It combines human and non-human
resources in a useful way so as to achieve results. It tries to produce sweet music by combining
the chords in an effective manner. It makes things happen by changing the behaviour of human
beings.

a Personalised: Like any other art, management is a personaiised activiry. Every manager has his
own way of managing things and people, based on his knowledge and experience. There is no
one way of doing things. As years roll by, managers learn the art of managing through a process
of trial and error.
a Constant practice: Managers learn from mistakes. The application of managerial principles
over a period of time enable them to tackle difficult problems with confidence. In other words,
they develop their skills through constant practice. Just as artistic skills can be developed
through training, so can managerial skills.

I MANAGEMENT SCIENCE AS \rELL AS ART

Management is thus, an art as well as a science. The art of management is as old as civilisation. The
science of management is young and developing. Both are complementary and mutually supportive.
Managers need to acquire the knowledge of management principles and practice in order to be
successful. They need to sharpen this knowledge through constant practice. The theoretical knowledge
in management must be put to good use in a skilful way, while achieving results. As Drucher has
pointed out, every organisation has the same resources to work with. It is the qualiry of management
that spells the difference between success and failure. Managers need to acquire knowledge
systematically and put the same to good use, using intuition, judgement and experience. A successful
manager is one who is able to visualise problems before they turn into emergencies. The abiliry to
meet the problems head-on does not come by chance. It requires sound knowledge and constant
practice. Managers, therefore, have to fruitfully combine their scientific knowledge with artistic
skills in order to emerg€ as the "winners' in a competitive environment.

Monogement os o Profession
The question, "Is management a profession?" is asked quite frequently. Over the last few decades,
factors such as growing size of business units, competition, separation of ownership from management
have led to an increased demand for professionally qualified managers. The tasks of management
have become quite specialised. As a result of these developments, claims are being made that
management has reached a stage where everything has to be managed professionally. Before supporting
this claim, let's state the essential features of a profession and find out how far these features are
Present ln management.

I CHARACTERISTICS OF A PROFESSION
The important features of a profbssion are:

1. t}(i'ell-defined body of knowledge: A profession must have a systematic body of principles,

techniques and skills.

2. Formal education and training: Everybody cannot enter a profession. An individual can enter
a profession only after acquiring knowledge and skills through formal education and training.
 (hopter I Nolure ol Monogement r 15
3. Minimum qualification: An individual can enter a profession after obtaining a degree or diploma
from recognised colleges, universities or institures.
4. Representative body: A representative body of professionals exist to regulate and develop the
professional activities. It (i) tries to regulate the entry ofpeople into the profession (ii) coniucts
the examinations from time to time (iii) issues the certificate of practice and (iv) carries out
other activities (R&D, liaison work, etc.) aimed at developing the profession.

5 Service above selfi According to Edgar Schein, a profession must be committed to service.
Success in work should be more important than financial rewards or political gains. Service
to
sociery should be the ultimare morro.

6. Ethical code of conduct: A strict code of conduct exists in every profession. Members of a
profession are expected to follow the code sincerely and honestly.

Now let's examine whether management meets the above criteria or not:
a W'ell-defined body of knowledge: Management has a well-defined body of knowleclge that is
generally valid in a variety of organisations and situations. Management literature ha, been
continually growing. Many tools and techniques have been perfected over the years. Research
and consultancy firms aid managerial thinking and practise now-a-days. They produce a lot of
data, aimed at improving managerial decision-making.

a Formal education and training: Acquiring management education through training is possible
now. A number of management institutes have been set up in recent years, ro turn out a good
crop of managers throughout the globe. The old saying that managers are born not made stan&
discounted and depreciated now. Business houses also prefer only properly educated and trained
managers while filling their vacancies.
a Representative body: As things stand now, there is no organisation or body of professionals
whose membership is essential to become a manager. There is no organisation whose authority
is recognised as final. In the case of lawyers, it is necessary to become a member of the Bar
Council of India, in the case of doctors, it is the Medical Council of India. Flowever, such
entry requirements do not exist in the field of management. In fact, the entry into the field of
management is not regulated. Further, no minimum qualification has so far been laid down for
managers. There is also no licensing of managers. There are several management associations,
howeve6 offering training and research support to managerial work. But no such association
enjoys the legal sanction to regulate the activities of managers throughout India.

a Code o[ conduct: There is no universal code of conduct. Although, certain trade associations
and management associations (All India Managemenr Association, ior exarnple) have formulated
ethical codes for managers working in particular industries, these have not been accepted
totally.

O Service motto: In the absence of a regulating body (with legal sanction) and code of conduct,
managers often indulge in practises aimed at maximising their personal wealth. The service
motto stands thoroughly neglected. In recent years, however, this view of management is
progressively changing. To survive in a competitive world, managemenr has ro reconcile the
conflicting interests of the shareholders and workers on the one hand and meet the social
76 r Monogemenl Text ond Coses

obligations of business, on rhe other. They have to balance these conflicting inrerests while
making profit.

I PROFESSIONALISATION OF MANAGEMENT
In conclusion, we can say rhar management is not a recognised profession, but it is moving in the
direction of becoming a profession. Factors such as separation of ownership from management'
governmenr regulation of business activities, proliferation of management institutes, growth of trade
unions have led to the increased professionalisation of management in recent years. Increased
professionalisation implies licensing, formal education and degrees, regulatory codes, and so on.
However, writers like Drucker believe that there should be no statutory control over managers. He
firmly argued that managers must be known by their performance, rather than by their degrees.
According to Druckex "no greater damage could be done to economy and society than to attemPt to
professionalise management by licensing managers or by limiting access to management to people
with special academic degree". Lett examine the pros and cons of professionalisation of management
in greater detail in Table 1.3.
I PROFESSIONALISATION OF MANAGEMENT IN INDIA
There are very few success stories that can be told, since the achievement of Indian Independence in
1947.If one among these exceptions is the record of the farmer, another is the story of the manager.
There are many professionally managed companies in India now, Hindustan Lever Limited, TISCO'
TELCO, Indian Oil Corporation, Oil and Natural Gas Commission, Bharat Heavy Electricals Limited,
ITC Limited, Indian Oxygen Limited, LSaT, NTPC, etc. The list of professionally managed companies
is impr-essive and is growing day by day. These companies fill their with the best brains in
vacancies

the industry (qualified management graduates), introduce and experiment with modern concepts of
managemenr (like Theory Z, Quality circles, etc. For example, in Maruti Udyog Limited). Managers
set organisarional objectives keeping the social objectives in mind (e.g., allocation of budget for
pollution control, communiry development, family planning clinics, etc. by Thtas, Birlas, Kirloskars,
etc.) and encourage their personnel to attain a high level of professional comPetence, In order to
develop their human resources, these companies regularly invest heavy amounts in management/
executive development programmes, organised by NPC, AIMA, NIBM, ASCI' NITIE, etc. Some
companies even maintain in-house training departments (Steel Authority of India, LIC, Hindusran
Lever, TELCO, TISCO, ITC Ltd, etc.) for this purpose. Now-a-days, even comparatively smaller
organisations are deputing their managers to attend short-term training courses/management
development programmes. The concept of owner-managers is being increasingly rejected now and
even small-scale units do not hesitate to send their personnel to executive development Programmes
throughout the country. The reasons for this are not far to seek'

a Growing competition of the market'

a Fast changes in technology'

a Divorce between ownership and management.

a The need ro manage large-scate units in an effective way and sh.;w profits (instead of surviving
on government subsidies, Protection, etc').

Thble 1.3
Pros and Cons of Professionalisation of Management
fuguments for Professionalisation of Management
Improves knowledge in a systematic manner. The dap
of trail and error, hit or miss kind of managers are over.
Managing people has become very complex these days.
The business environment hds also become very
turbu.lent and competitive. To face these challenges, we
need managers with minimum educational qudifications
and experience. We need trained and educated managers
in place ofuntrained, uneducated people, to manage the
affairs oFlarge-scale undenakings.
Improves professional status and prestige. Growing
proFessionalisation improves the market standing of
managers. They would be more committed to service
rarher than profit. Any rnisgivings on this matter would
stand clarifi ed auromatically.
Promotes managerial ethics. Absence of
professionalisation would be unhealthy for managers.
They rend to indulge in unscrupulous practices such as
window dressing ofprofits, accepting bribes, speorlative
buying and selling with a view to enhance their personal
wealth, etc. \Tithout staturory control manegers are
tempted to use their freedom for personal ends in an
unethical way. Professionalisation eliminates such
dangers. Managers indulging in such practices may be
debarred from the profession altogether.
Promotes talent. Once the criteria for entry into
managerial berths is laid down clearly, people with
aptitude, skills and competence can go after rhe
management education with confidence. They can be
sure o[getting into the business *rrough formal education
and training. Talented people ger attraded to management
positions quite easily. It is no more a family business.
a Growing professionalisation in the private sector.
a Rapid expansion of management education in recent times and the proliferation of reputed
management schools/ institutes throughout the globe.
Formal education and training have become increasingly important for present-day managers.
They have to manage the show and emerge as winners. Tiaditional mariagement techniques and
practises may not help in delivering the goods in an effective and efficient manner. Under the
circumstances, not surprisingly, the trend towards increased professionalisation of management is
gaining strength and universal acceptance.
Chophr I Nolure of Monogemenl t 17
Arguments against Professionalisation of Management
Formal qualifications difficult to set. Degrees and cenification
alone do not make managers. Moreover, it is difficulr to
evolve a uniform set of qudifications for managers working in
different undenakings, at various levels. Hence, restricting
the entry ofpeople into management career through licensing
would be undesirable. People wirh original ideas, bright
plans and practical solutions find the doors closed
permanendy.
Managers are known byperformance. Managers are known
by their results rather than mere degrees. The abiliry to
manage people, things and ideas do not come by degrees
alone. It requires a creative mind, ready to absorb the business
shod<s quickly and come out with novel solutions. Experienoe
may be the best teacher in most cases. Business empires
throughout the globe have been rreated, organised and
developed - based on Family background and experience
alone.
Managers are responsible to many groups. Evolving a
regulatory code For rnanagers is difficult because they are
answerable to many Broups : shareholders, creditors,
employees, customers, government and sociery at large. A
regulatory code, in such a case, may cunail their freedom
drastically- affecting their performance in a negative lvay.
Competent education and training facilities do not exist.
The qualiry ofeducation and training facilities offered in
mosr academic insrirutes, as things stand now, are far from
satisfadory. Proper exposure to business settings, competent
on-the-job training, exposure to latest thinking in the field
are missing. In the absence ofthese, a management degree
does not seem to equip the prospective candidates in a right
way. Hence, it is not desirable to make a degree or diploma
in management as an essential entry requirement for
managerial positions.
 18 r Monogement Text ond Coses

Principles of Monogement
I Principle: A basic A principle is a basic sraremenr or a fundamenral truth that provides
statement or a
understanding and guidance to thinking and practise. A principle represenrs
fundamental truth that
ides understanding a basic element of knowledge in rhat it explains the relationship and, helps
guidance to in predicting whar would happen if the principles were applied. Over the
inking and practice.
years, a number of principles have been developed in management to aid
executive thinking and action. A group ofconcepts have been developed by experience and responsible
research. These principles, as pointed ot by J.L. Massie, are only 'approximations of generalisations
from experience.' As such, they should not be treated as rigid and inflexible rules to administrative
behaviour. The principles, however convenienr as a shorrened merhod of thinking, are only guides to
action. If they become rules, they lose their utiliry.

I NATURT OF MANAGEMENT PRINCIPLES

Management principles can never be stated as rigorously as that of physical sciences because human
beings behave more erratically than physical phenomena. Management principles have been developed
out of experience and analysis only. The empirical support for most of rhese principles is woefully
inadequate. In the absence of a scientific analysis, these principles must be taken as general ideas on
which sound and effective action can be based. They are, thus, not absolute truth, oi infallible laws.
Managers should not conclude that principles are rigid and thar there is some definite list chiseled in
stone. Moreovet management principles are euer-cbanging. Most of the so called 'go[den' principles
of management (scientific management and bureaucracy especially) have been replaced. Refinements
are taking place continuously. This is made possible by the ever-increasing research activiry in the
field of management. Thus, management principles change with the change in the environment in
which the organisation exists. The principles must be accepted as flexible and dynamic guidelines
and not as rigid and static guidelines. One serious limitation with reference to managemenr principles
should be noticed here. As one writer pointed out, where human beings are concerned, managemenr
principles may be so much of wastepaper. Because oF the unpredictabiliry of human nature, the
principles of managemenr do nor find expression in a universal way.

I WHY MANAGEMENT PRINCIPLES?

According ro Tbrry, 'Principles of management are to a manager as a table of strengths of materials is
to a civil engineer.'The utility of principles lies in the foundation they provide for its efficient
conduct, by making out the basic features that must characterise the practice of management,
irrespective of where it is occurring. By means of principles of management, a manager can avoid
fundamental mistakes in his job and foretell the results of his actions with confidence. According to
Koontz, principles help in rhe following ways:

l. To increase efficiency: Principles aid thinking and action. The need for guesswork, haphazard
activities is reduced. The problems brought out by rapid changes in the environmenr can be
solved easily. For example, the principle of span of control tells a manager that he can manage
only a limited number of subordinates, say 8 to 10, and thereby helps him predict the results i[
the principle is not applied.
2. To crystallise the nature of management: Principles crystallise che ever-increasing knowledge
and thinking in the field of management. \W'irhout principles, it is not possible to impart
knowledge and provide training ro managers.
 ftopter I Noture ol Monogement t 19

3. To improve research in management: Management deals with human beings whose behaviour
is highly unpredictable. Principles provide a canopy of broad generalisations which help
in testing behaviour, understanding it and predicting rhe outcomes for Future. They help
in improving the fund of tested knowledge and promoting further research in human behaviour.
4' To attain social goals: Management principles play an important role in improving the
qualiry of life of people and the standard of living. They bring order our of chaos. Managers are
able to commit resources to the best possible advantage and employ them in a judicious
fashion.

I WHAT ART PRINCIPLES OF MANAGEMENT?

L Fayolt principles: hwas Henry Fayolwho stated a set of l4 principles of management based on
his practical experience as a manager. According to Fayol, these principles can be applied in all
rypes, functions, levels and sizes of organisations. For a long time, Fayol\ list was accepted as
complete and comprehensive. A description of these principles is given below:
Table 1.4
Fayol's Fourteen Universal Principles of Management

l. Division ofwork. Specialisation oflabour is necessary for organisarional success.

2. Authoriry. The right to give orders musr accompany responsibiliry.

3. Discipline. Obedience and respec help an organisation run smoothly.

4. Unity of command. Each employee should receive orders from only one superior.
5 ' Uniry of direction. The efforrs of everyone in the organisation should be coordinated and [ocused in the same
direction.

6. Subordination of individual interests to the general interest. Resolving the tug ofwar berween personal and
organisational interests in favour ofthe organisation is one ofmanagemenr's grearest difficulties.

7. Remuneration. Employees should be paid fairly in accordance wirh their contribution.

8. Centtalisation. The relationship berween centralisation and decentralisation is a mamer oFproponion; rhe optimum
balance musr be found for each organisation.

9. Scalar chain. Subordinates should obserue the formal chain of command unless expressly authorised by their
respective superiors to communicare with each other.

10. Order. Both material things and people should be in their proper places.

I 1. Equity. Fairness that results from a combination ofkindliness and jusrice will lead to devoted and loyal service.
12. Stabiliry and ren ure of personnel. People need rime to learn their jobs.
13. Initiative. One of the grearest sarisfactions is formulating and carrying our a plan. ,

14 Esprit de corps. Harmon ious effort among individuals is the key to organisational success.

2. Mooney and Reileyt staff principle: According to this principle, staff units musr be created in
order to provide service and expert advice to the line managers.

3. Thylort principle of management by exception: Routine work, according to this principle,

must be handled by subordinates and management must concentrate on strategic, key and
important issues.
4. W'ebert principles: Organisation work must be performed according ro rules. All administrative
actions must be recorded in wricing so as to have a ready reference in furure: a hierarchy of'
positions should provide for supervision of each unit by a higher official etc.
20 r Monogement Texl ond Coses

5. Likert's principle of supportive relationship: Accordinq to this principle, managers should

provide social, psychological and moral support to subordinates. The basic purpose should be
to improve the subordinate's sense of personal usefulness and dignity and secure commitment
to organisational goals.

6. Human relations: Human relatitionists (Mayo and Roethlisberger) and behavioural scientists
(McGregor, Bennis, Argyri) have avoided providing prescriptions and have suggested ideas and
concepts to describe some fundamental guides to managerial thought and action. These concepts
are largely aimed at improving the 'qualiry of life' rather than achieving organisational goals.
The importance of human element is recognised and efforts are made to make human life
more interesting, meaningful and challenging in an organisation.

7 . Modern organisation theories and principles of management: Systems and contingency theorists
advocate that, a manager should know and understand the existence of certain fundamental
conceprs advanced by theorists from time to time and use them judiciously. Managers should
understand that there is a way to apply these concepts. The principles must be applied in a
flexible way, keeping the changing circumstances in mind.

Universolity of Msnogemenl Principles

Is the managert job universal? Are the principles of management universally applicable? It has already
been stated that managing is found in all rypes, functions, levels and sizes oForganisations. Manageme nt
can be applied to all organised human efforts, whether they are in business, government, educational,
social, religious or other fields, Universaliry of management suggests that the manager uses the same
managerial skills and principles in each managerial position held in various organisations. Accordingly,
an industrial manager could manage a philanthropic organisation, a retired army general could
manage a universiry a civil servant could manage an industrial organisation, and so on.

Universaliry implies transferability of managerial skills across industries, countries. It means

that management is generic in content and is applicable to all types of organisations. Laurence A.
Ap?lry declared that 'He who can manage, can manage anything.' Let us examine the factors that have
contributed to the universal application of management at every level of organisation.

I ARGUMENTS FOR UNIVERSALIT

l. Same functions: Quite often, ir is erroneously thought that management exists only in a business
and not in other enterprises. The fact is, however, that when acting in their: respective managerial
capacities, not only the company president but also the office supervisor performs the
fundamental functions oF management. The difFerence lies in such things as the breadth of the
objecti*res, the magnirude of the decisions taken, the organisational relationships afFected, and
so on. Managers essentially perform the same functions, irrespective of their level in the
organisation, industry or country.

2. Universal ptinciples: Classical writers (Fayol, Urwich and others) believed that, there are
certain principles in management which are universally applicable. These are the principle
of departmentation, principle of division of labour, principle of span of control, the scalar
principle, principleof uniryof command, etc. Such principles as oneman one boss, division of
work to improve speed and efficiency, limiting the number of persons to be supervised so
that managers can concentrate on exceptional problems, the principles governing motivation
 (hopter I Noture of Monogemenl t 2'1,

theory have certainly proved their worth up to a point, and these principles have been translated
into practise for a long time. These principles have Found universal application in most
organisations.

3. Fundamentals are same, the techniques employed and practices followed are differenu Managing
occurs in parks, ranches, hospitals, farms, universities, cities, police, agencies, churches, airports
and communiry organisations, industries, and so on. The fundamentals governing the management
of a business, a church or a universiry are same: the difference lies in the techniques employed
and practices followed. All managers are accountable for performance of other people: they
plan, make decisions, organise work, motivate people and implement controls and so forth. In
order to accomplish things, the techniques employed might differ depending on situational
- factors like: culture, tradition, attitude, etc. Same is the case with management practises, An
automobile designed for use in deserts or jungles will be markedly different from the one that
is designed for ciry traffic. The design principles governing both models are the same. The
generic content of management fundamentals is such that they can be applied universally.
However, the practises and techniques employed may differ depending on the nature of industry,
the organisational level where these are applied, etc.

4. Practical evidence: Managing is found in all rypes, functions, levels and sizes of organisations.
The fact that managers regularly move from public to private sector organisations bear sample
testimony ro the fact that, management concepts are universal across organisational rypes. For
example, D.D. Eisenhower went from a General in the U.S. Army to President of Columbia
Universiry to finally become President of the United States. Again, Sri PL. tndon, the former
Chairman of Hindustan Lever Ltd, has managed the PNB, STC and the NCAER successfully
during his tenure as the Chairman in these organisations. The basic concepts of management
propagated by American writers have found expression even in communist countries. According
to Drucher, "the rapid development of Brazil, the rapid development of non-communist countries,
that is, oFHongkong, Singapore, andThiwan, the rapid development of so poor and backward
a peasant country, as Iran, are all traceable to the impact of management".

I ARGUMENTS AGAINST UNIVERSALITY

l. Complete substitutability is impossible: It is true that the manage r's job becomes most universal
in conte nt at the upper echelons of organisations. The higher on€ moves in an organisation, the
more he or she performs the ge neric fr.rnctions of management, such as planning, organising,
Ieading and controlling and the less he or she is involved in day-to-day technical matters. The
relationship between performance and firnctions entrusted becomes more intense as one moves
lower down the order. For example, the success of a drilling supervisor of an oil rig depends, to
a large exrenr, on his technical knowledge o[drilling. On the other hand, the presidenr of an oil
company does not need to have much oFthe rechnical intricacies of drilling for oil or how to
refine it. Before tossing the'universality argument', we rnust apply brakes and quali$. the
statement: generic in content does not imply complete substitutabiliry.

2 Organisational philosophies differ: Universaliry presupposes the existence of predictability

regarding the outcome of managerial actions. A manager working in Firm A must be able to
predict the likely consequences of his actions in Firm B, where he is likely to join. He may
have to Face insurmountable difficulties, in case the underlying philosophies of these organisations
 22 I Monogement Text ond Coses

were to differ. For instance, in one organisation rhe emphasis might be on profit
maximisation
and in the other, the emphasis might be on sociai responsibilities. Such conflicting
demands
affect managerial actions and what a manager could apply with success in
one organir"tior,
-"y
not find a meaningful expression in the other organisation where the underlyini philosophy
is
different. fu pointed out by Dale, no individual could be a good administrator in religious,
academic, military and business institutions of both communisr and democratic
countries
because the philosophies that underlie each are drasrically different and
one person may nor be
, able to cover so much ground.
3' Universality of principles: a ridiculous statement? Classical managemenr principles were
written by practitioners in management and were based on personal .*p.ri..r.. li-it.d
observation only. They have only tried to pass on their ideas as universal truths. In "ni
the absence
of a rigorous scientific basis, no wonder, Simon dubbed the principles as proverbs, comparable
to folklore and folk wisdom. Moreover, these principles are vague and too general and as a
result, are very difficrrlt to apply to a specific organisation. They often overlap
somerimes
incompatible with one another. The terminology 'universal principles', 'universal "rrd "r.
truths' is quite
unfortunate.

4' Management is a product of the culture: Managers have to operare within the broad
constrainrs
operating in an economy: culture, tradition, organisational philosophies, erc. Managerial
behaviour in a deeply traditional, religious economy is bound to be different from the
advanced
and scientificelly-oriented economy. It is futile to search for a common set of 'principles'
or
'absolutes' or 'determinate solutions', where managers have
to operare in highly di,,rers.
"ul.u..r.
A career in management is, by itself, not a prepararion for major political office or for leadership
in the armed forces, the church or a university.
The writers who argue that management principles are cuhure bound seem ro ignore thar
the
fundamenrals governing the management of enterprises in India,
Japan, U.S.A. and Brazil are rhe
same and they are applicable and adaptable in various culrures. Otherwise, it would
not have been
possible for Indian managers doing successful business in Great Britain, Chinese managemenr
thinkers
teaching in America and Japanese managers working successfully in Brazil Fiorrgkong. The
universaliry of management thesis is well supported by several research studies ".,d
by liair,'porter,
Negandhi and Richman, etc' According to these researchers, cuhural and situational
factors may
influence the way in which a manager discharges his functions but the fundamentals
of management
remain unchanged.

Summory
Managernent is the process of planning, organising, sraffing, directing and conrolling
to accomplish
objectives through the coordinated use of human and material resources. Management
thinkers have
tried to interpret the term in multifarious ways: as a noun, as a process, as a ream, as a discipline,
as
an activiry as an economic resource, as a system of authority or as a distinct class in
society having
its own value system.
Management is the life-blood of a business. It ensures oprimum use of scarce resources,
offers
comPetent leadership, ensures peaceful industrial relations, achieves goals, improves standard
of
living and enables a con i;any ro manage change effecrively.
 ftopter I Noture ol Monogement t 23
The terms'management' and'administration' are often interpreted in a loose manner. Some take
management and administration as one. Some consider administration broader than management
and some hold that administration is part of management. To avoid confusion, people like Drucker
suggested that, management is applicable in business utrits while administration is applicable in
government offices, military ourfirs and social and culrural institutions.

Management is being increasingly accepted as a soft science and also as a difficult and complex
art, as it deals with human behaviour which is highly unpredictable. Managemenr, from anorher
standpoint, is also interpreted as a profession having a well-defined set of principles and practices
capable of universal application. Professionalisation, no doubt, helps the discipline to acquire a
distinct character and recognition of its own but trying to link and measure managerial success in
terms of degrees may come in the way of developing creative enrrepreneurs having brilliant ideas but
not professional qualificarions.

Over the years, the subject of management has been written and re-written in terms of certain
well-accepted principles and time-tested practices. These principles are rhe products of years of
experience, research and analysis. They are not to be interpreted as absolute rrurhs. Vhen applied
carefully, using discretion and judgment, they have proved to be quite successful in delivering results
at various poinrs of time all over rhe world.

Review Questions
l. Define management and outline its essential characteristics.

2. Examine the following sratemenrs critically:

o 'Managemenr is regarded as an arr by some and a science by others'.

o 'Management principles are universal in nature.'

. 'Managemenr is the dynamic, life-giving element in every organisation.'

3. List and briefly discuss rhe functions of managemenr.

4. Vhich factor - abiliry motivation to manage or opportunity- should be most heavily weighted
in the basic formula for managerial success?
5. vhat can an individual manager do to meet the challenge to improve productiviry?

6. Distinguish between administration and managemenr.

7. "He who can manage, can manage anyrhing". Critically examine the sratemenr.

8. tVhat do you mean by principles of management? Bring

out the essential featufes of management
principles.

9. Ii/rite a note on professionalisation of management.

l0 How importanr is the managemenr funcrion to individuals and sociery?

1l \7rite short notes on:

o Management as a process.
24 r Monogement Texl ond (oses

o Ma:ragement as a discrplne.

o Management as an activity.

12. 'Management is a sophisticated behavioural science'. Elucidate.

13' 'The word management has several meanings, depending on rhe conrexr and purpose'. Discuss.

14. 'Management is the development of people, not the direction of things'. Discuss.

15. 'Management is to business what the mind is to a human being'. Examine rhe staremenr
critically.

Discussion Questions
l. How important is the managemenr function to individuals and to sociery?

2, The text mentions that management is both a science and an art. Is one of these more important
than the other? Under what circumstances might one ingredient be more important than the
other?

3, "The purpose of a management course is to teach students abour management, not to teach
them to be managers" Do you agree or disagree with this sratemenr? Discuss.
4. Vhat is. the difference between efficiency and effectiveness? What is more important for
perforniance? Can an organisation succeed in bgrh simultaneously?

References
L L.A. Nlen, Management and Oryanitatiaz, McGraw-Hill Book Company, Tokyo, 1958.
2. Theo Haimann, Professional MantgemenL Eurasia Publishing House, 1966.
3. Da.lron McFarland, Management: Found.ation and Practices, Fifth edition, Macmillan, NewYork, 1979.
4. HenryFayol, GeneralandlndustrialManagement, I-ondon, SirlssacPitman&SonsLtd., 1949.
5. George R. Terry, Prineipbs of Management, Homewood, Illinois, Richard D. Irwin, 1968.
6. lawrence A. Appley, "Managcment - The Sinplc Way", Personnel, Vol. 19, No. 4.
7. Peter F. Drucker, Managcment Thshs, Responsibilitics, Practices, london, rWillim Hinemnn Lrd,., 1974.
8. \?lE. Moore, The Professions: Rohs and Ra&s, New York, Basic Bools, 1978.
9. \D(H. Newman, Atiminisnariue Action, Englewood Clitrs, Prentice-Hall, 1950, Ch.l.
10. E.F.L. Brech, hinciphs and Practice of Management, london, Pitman, 1972, Ch. l.
11. Joseph L. Musie, Essentiab of Management, Prentice-Hall of India, New Delhi, 1980.
12. Harold Koonrz and Cyril O'Donnell, Essentiah of Management, Thra McGraw-Hill, New Delhi, 1980.
13. Urwick and Gulick, Papers on the Science of Adminiscration, New York, Institute of Public Administration, 1937.
14. J.D. Mooney and A.C. Reiley, Onuard Industry New York, Harper and Row, 1931
15. Rensis Likert, Thc H*man Organisations, New York McGraw-Hill, 1967.
16. Elton Mayo, The Hrman hobbms of Indusnial Ciuilisation, New York, Macmillm Company, 1933.
17. Douglas McGregor, The Human Sidc of the Enterprise, New York, McGraw-Hill, 1960
18. Chris Arryris, PersonzliE and Organisation, New York, Harper and Brother, 1957.
19. E. Dale, Managemnt: Theorl and hactice, New York, McGraw-Hill, 1978.
20. PL. Thndon, hofcssional Managcment in India, Dcpxtmenr of Busincss Management, PAU, 1974.
21. \0i Oberg, "Crosvcultural PerEcctiucs on Managcment Principhsi'Academy of Management Journal, June, 1963.
22. A.R. Negmdhi and B.D. Esrafcn, .J4 Research Mo&l to Determinc the Applicabiliry of American Managemcnt Knowbou in
Dtfering Cuburet and Enuironmcnts," Academy of Management Journal, Dec., 1967.
 Chopler I lloture of lilonogement t 25

Websites
To learn more about how Bill Gares of Microsoft manages a giant cadre of knowledge workers visit
I w.microsoft.com/billgates.
To know more about best employers in India, visic
O w.business-today.com
Also, visit the two most useful websites for learning more about Indim businesses and their opemtions
t) w.economictimes.com
.) w.thehindubusinessline,com

Skill Building Exercise

I ASSESS YOUR LEADERSHIP POTENTIAL
Read the statements below carefully. After each statement, circle whether you agree or disagree. Do
this for all eleven statements before you look at the answers.
I. Good leaders are born, not made. Agree Disagree

2. I tend to treat my subordinates well as long as they do what I say. Agree Disagree

3. Good leaders depend on their followers as much as they depend on

themselves. Agree Disagree

4. As a leader, I would always include the reasons when asking a

subordinate to perform a task. Agree Disagree

5. A good leader will achieve his or her objectives at any cost. Agree Disagree

6. fu a group manager, I would never entrust an important project to

anyone but myself, even if it means working overtime. Agree Disagree

7. A key to good leadership is being consistent in how one leads. Agree Disagree

8. If justified, I would recommend a subordinate for a promotion to

a position equal to or even higher than my own position. Agree Disagree

9. Some subordinates can participate in the decision-making process

without threatening a leader's position. Agree Disagree

10. If my group failed to achieve an objective because of a group

member's failure, I would explain it as such to my superiors. Agree Disagree

I l. I consider myself indispensable to the company

in my present position. Agree Disagree

Scoring Your Responses

A point value has been assigned to each statement. To determine your score, simply total the values
of your responses.
l. Agree 0 Disagree I
2. Agree 0 Disagree I
26 r Monogemenl Text ond (oses

3. Agree 0 Disagree I
4. Agree 0 Disagree I
5. Agree 0 Disagree I
6. Agree 0 Disagree I
7. Agree 0 Disagree I
8. Agree I Disagree 0

9. Agree I Disagree 0
10. Agree 0 Disagree I
11. Agree 0 Disagree I
To facilitate understanding, the scoring is now briefly explained.

l. Although some leaders are born, for the most part, leadership is an acquired management skill.

2. The thinking expressed in this statement is similar to the Machiavellian concept of the benevolent
dictator. Although, such behaviour can be useful, it tends not to be successful.

3. Mutual dependence is important. The best results cannot be achieved single-handedly.

4. Here "always" is the key word. Subordinates do not always need nor should they always be
given the reasons why. For example, when a company is negotiating to acquire another business,
the confidentialiry of the situation does not allow the leader to give reasons for certain actions.
5 \trhilst achieving one's objectives is important, it should not be done at any cosr. Sometimes,
the costs may outweigh the value of the goal. Also, if a manager achieves a goal at the expense
of his subordinates, it could lead to failure in achieving subsequent objective..
6. A good leader recognises the need to delegate responsibiliry to competent subordinates. \7hen
justified, this should include responsibility for important projects.

7 . There is no one way of being an effective leader. The effective leader is flexible, and changes his
approach to meet the needs of the particular employee and/or situation.

8. A successful leader is also a successful trainer. One result of effective leadership is the abiliry to
promote qualified subordinates to any level.

9. In participative decision-making, by experienced and knowledgeable subordinates, the leader's

role is not usurped.

10. An effective leader always takes responsibitiryfor a subordinate's actions, whether those actions
result in success or failure. The ineffective leader blames everyone and everything except himself.

I 1. No one is or should be indispensable. If you feel that this is the case, you have succeeded in
locking yourself into a situation, from which you cannot progress. Stagnation is the result.
Assessing Your Potential

In assessingyour score, bear in mind that this device is not a test but an indicator of your leadership
potential. If your score was 1l to 9, you have excellent potential; indeed, your leadership ability
is probably already self-evident. A score of 8 to 6 shows good potential but that some thinking
needs to be sharpened or changed. A score of 5 to 0 suggests that, drastic changes are needed and
 Chopter I Noture of Monogemenl t 27
How did you do?

Itis important to recognise that individuals can change

over rime. vhat you scored today is not
necessarily what youwill score tomorrow. It could b. b-.mer, but it could also be worse.
Thar,s why
you need ro moniror periodically your thinking about leadership
sryle.
There are three ways you can manage this monitoring process.
Firstly, you can look at other
supervisors and m u would follow. lwzhi *."ra you folio* ,h.-l
Is their behaviour I I statements discussed? Consider, roo, those
whom you would heir behaviour differ from those individuals whom
you would follow? Answering these questions can provide a
bemer understanding about your own
leadership style because the type of leader you wouldfollow
is the type of leader yo,iwould
to be. -o., *"n,
secondly, you should go back and review the staremenrs. Do
the explanations mal<e sense ro
you? Could you to situations at work? If not, why not? In answering this last
question' try to le. Listing all the negative reasons is a worthwhile exercise,
since these reaso r own behaviour.
Leadership, itself, is a positive force. It's a positive force for
your subordinates and your
organisation' But to be effective, leadership has to be monirored
most benefit-you.
periodically by the one p.r.o., ir *ill
 28 r Monogemenl Text ond Coses
CASE SIUDY
"Leil or Right?"
ajinder Kumar was a
production worker at
Compe tent Motors
Limited (CML), which made
components and accessories for the
automotive industry. He had
worked ar CML for almosr seven
years as a welder, along with fifteen
other men in the plant. All had
received training in welding,
both on the job and through
company-sponsored external
programmes. They had friendly
relacions and got along very
well with one anorher. They
played volleyball in rhe
playground regularly before reriring
to the quarrers allotted
by the company. They ate
together in the company canteen,
cutring jokes on each other and
making fun of anyone who dared
to peep into their privacy during
lunch hour. Mosr of the fellows had
been there for quite some
time, except for two men who had
joined the ranks only rwo months
back.
Rajinder was generally considered
ro be the leader of the group, so it
was no surprise that when the
foreman of the department was
transferred and his vacancy was
announced, Rajinder applied for the
job and gor ic.
There were only four other
applicanrs for rhe job, rwo from
mechanical section and two
from outside. \(hen rhere was
a formal announcement of
the appointmenr on a Friday
afternoon, everyone in the group
congratulated Rajinder. They
literally carried him on their
shoulders and boughr him snacks
and celebrated the evenr
enthusias tically.
On Monday morning, Rajinder
joined dury as Foreman. Ir was
company practice for all foremen
to wear blue jacket and a white
shirt. Each man's coat had his name
badge sewn onto the left side
pocket. The company had given
two pairs to Rajinder. He was
proud to wear the coat to work on
Monday.
People who saw him from a
distance wenr upro him and
admired the new blue coat. There
was a lot of kidding around calling
Rajinder as 'Hero', 'Raja Babu' and
'Officer' etc. One of the guys \,venr
back to his locker and returned
with a long brush and acted as
though he were removing dusr
particles on the new coat. After
about five minures of horseplay,
all of the men wenr back to work.
Rajinder went back ro his office to
get more familiar with his new job
and environment there.
At noon, all the men broke for lunch
and went to the canteen to eat and
enjoy fun as usual. Rajinder was
busy when they left bur followed
after them a few minutes, later. He
bought the food coupon, took the
snacks and teaand rurned to face
the open canreen. Back in the left-
side corner of the room
was his old work group; on the
right-hand side of the canteen sar
all the other foremen in the plant -
all observed in their blue coats.
At that point of time, silence
descended on rhe canreen.
Suddenly both groups looked ar
Rajinder anxiously, waiting to see
which group he would eat with.
Quesllons
I ri(lhom do you rhink Rajinder
will eat wirh? IThy?
r If you were one of the other
foremen, what could you do
to make Rajinder's transition
easier?
r Vhat would you have done if
you were in Rajinder's shoes?
\flhy?
ffionogeriol Roles,
Functions ond Skills
CONTEXT
Managers perfbrm a 'tight rope walk' almost wery
day. They swirch gears, change hars and
undertake a wide variery of activities in the race
to stay ahead of others. Processing bundles of
data, achieving goals, coping wirh changes,
keeping ernployees happy, etc., are all part ofthe
same game.
NTENT
This chapter throws light ou the complex ser of
roles performed by managers in their day-to-day
life and the skills required to perform those roles
efFectively
Advise for oll Young
o Nominate yurself for otlter positions;
Monogers
Remember, good worh that pleases your
superior is tbe basicfoundation ofsuccess, but
abo recognise that not all good performance is
easifi measured. Determine the real oiteria
by which Jtou are being eualuated and be
rigorously honest in eualuating lour otan
performance against these criteria:
O Manage your career; be actiue in
influencing the decisions that will be made
about you, because pure ffirt is not
necessarily reutarded.
Striue for po:itions that haue high
uisibility and cxposure, ultere you can
stand out as a ltero and be obserued by
higher fficials. Chech to see tbat the frm
has a formal system for heeping trach of
loung people. Remember that high-risk
line jobs tend to offer more uisibility than
do staffpositions suclt as tltose in corporate
pknning or personnel, but that uisibility
can sometimes also be achieued by
communitT actiuitics.
ffiob
Deuelop relations uith a mobile senior
executiue who can be lour spontor. Become
a complementary crucial subordinate with
shilk dffirentfiom those ofyour superior.
Learn your job as quickly as possible and
train a replacement so that you can be
auailable to moue and broaden your
background in dffirent functions.
modesty is not necessarily a uirtue.
Houeuer, change jobs for more power and
influence, not primarily for status or pay.
The latter could be a substitute for real
oPportuniry tu mahe things happen.
Before tahing a position rigorously, assess
your strengths and weahnesses, what you
like and don't lihe. Don't accept a
promotion if it exposa your weahnesses
and entaik mainly actiuities thatyou don't
enJoI
30 r Monogement Terl ond Coses

O Leaue the organisation at lour to be. No euidence exists that unethical

conuenience, but on good terrns and managers are Lnore successful than ethical
without ?arting titicism. Do not stay ones, bnt it may wel/ be that those who
under an immobile superior who is not moue up faster are less socialfu conscious.
promoted in fue years. Therefore, from time to time, lou /nast
exartine your perconal ualues and question
O Do not be trapped by formal, nArrou)
how much you are willing to sacrifice
job desuiptionl Moue outside them and for
the company.
probe the limits of your influence.

tr Accept the facts that responsibilhy will

O Do not automatically accept all tlte tales
of managerial peruersity that you hear.
ahtays somewltat exceed authority and
Attributing tlte success of others to
that organisational politics is ineuitable.
unethical behauiour is ofien an excusefor
Establish alliance., and fight necestarl
one's own inadequacies. Most of all, do
battles, Iimiting upward ones to uer!
not comrnit an act lou hnout to be wrong
important issues.
in the hope that your superior will see it
D Get out ofmanagement ifltou cannot stand as loyahy and rewardyoufor it. Sometimes
being dependent on others and hauing he will, but he may also satif ce you wlten
others dependent on )toa. the firm is titicised.

B Recognise that you will face ethical Source : Ross A: Webbet Essentiab ofManagement, Iruin,
dilemmas, no matter hou moral you try r981.

lntrod uction
I Managers: They are
the individuals charged
with rnonitoring the
workflow, integratinS
efforts, nreeting Boals
and providing
leadersh ip.
closer examination (Figure 2.1).
According to Kreitner, management is the process of working wirh and
through others to achieve organisational objectives in a changing
environment. Central to this process is the effective and efficient use of
limited resources. A manager is effective if he reaches a stared objective
and, efficient if the limited resources entrusted to him are nor wasted in the
process. This definition contaifis five importanr componenrs that require a

Achieving organisationd
objectives

V'orkingwith
and through effectiveness and
others efficiency

Figure 2.1
Key Aspects of the Management Process
 Chopler 2 Monogeriol Roles, Fundions ond Skills I 31
(") W'orking with and through others: Managers get results by working with and through others.
Managers who do not get along well with others hamper rheir careers as revealed by a
study of
derailed managers. (Thble 2.1)
Table 2.1
Ten Features of Derailed Managers
(i) Insensirivetoorhers.
I tiil cold,aloofandarroga'r.
(iii) Do not accomplish stared purposes.
I ttrl overly ambirious, play polirics.
(") Over manage, by not effectively delegating thing. to othe.r.
| (ui/ Unable to staffeffectively.
(vii) Unabletothinksrrategically. (uii;) Un"bl"toadaptroabosswithadifferentstyle.
|
(ix) over depeudetrt on a mentor'
I t><f Having specific performance problems with rhe
bus iness.

Sourcc: M.Vl McCall, "Vhar ma|es a rop execurive", psychologyToday, Feb., g3.

(b) Achieving goals: Managers are at the top to Formulare and achieve stated goals. Organisations
ate more successful when their activities are guided by challenging, yet, achievable goals.

(.) Balancing effectiveness and efficiency: As managers use rheir resources, rhey must strive
to be
both effective and efficient. Managerial eFfectiveness is defined in terms of resource utilisation
in relation to organisational goal attainment. Effectiveness entails promprly achieving a stated
objective. If organisations use their resources to achieve their goals, the managers
Efficiency, on the other hand, is rhe achievement oF ends with the least "r.1ff..tirr..
of resources.
"*oun,
The more resources wasted or unused during rhe production process, the more inefficient the
manager.

(d) Making the most of limited resources: Managers have ,.t, use physical, financial and human
resources in a prudent way and achieve stared goals.
(.) Coping with a changing environment: Succcssfirl manasi.i-; rrle the ones who anticipate and
adjust to changing circumstances rarher then bcing plssivel.y sr.vept along or caught ,r.,i..p"..d.
Strccessful managers, according to Petet' t Druckcr, do nor rvait for future; they make
the
future.

Who ore Monogers?

Managers are the 'coordinators' and 'directors' in rhe organisation. They are the individuals charged
with examining the workflow, coordinating efforts, meering goals and providing leadership. In rerms
of authority, managers possess the right to command others in rheir areas oF ...ponribiliry. Each
manager rePofts to someone higher in the organisation in what constirutes a rheoretical chain
of
command from the top to the bottom of the structure. Managers usually do not directly perform
any
of the workflow activities. They are there to direct, coordinate and assist the rank and fiI.
-.mb..s
who handle these functions. They are also the activating elements rhat provide leadership and rewards
to get resulrs.

Whot do Monogers do?

Managers generally work for long hours, their days are broken up into a large number of
brief and
varied activities, they interact with large numbe r of difFerent people, they do little reflecrive
planning
32 r Monogement Texl ond Coses

and spend most of their time engaged in oral communication (Reitz). They spend little time
working alone. Time spent with others includes working with bosses, peers, subordinates, as well
as outsiders, such as cusromers, suppliers and the like. They spend a lot of time getting, giving
and processing information. Higher-level managers spend more time in scheduled meetings than
do lower-level managers. According to Stoner, managerial work is characterised by the following
things:

a Managers work with and through other people: Managers work with internal (subordinates,
supervisors, peers) as well as external groups (customers, clients, suppliers, union representatives
etc.) in order to achieve corporate goals. They integrate individual efForts into teamwork. They
plan th.ings, create a structure, motivate people and achieve goals.

a Managers are mediators: People working in an organisation do not always agree on certain
rhings, say, rhe establishment of goals and the means to achieve them. At the corporate
headquarters of a large bank, managers may think about expanding into merchant banking,
leasing, credit card business, whereas at the branch level, people may focus on expanding
deposits by venturing deep into rural areas. Unless such differences are resolved quickly,
employees find it difficult to think and act like a well-knit group. Their morale, too, may suffer.
Managers often step in to put things in order, clear the paths to goals, clarifr things to people,
put out fires and meet goals.

a Managers are politicians: Managers must develop healthy relationships with various groups in
order to achieve the goals smoothly. They may have ro nurture groups and join certain coalitions
within a company. They oFten draw upon such relationships to win support for their proposals
and decisions.

t Organisation: Two or a Managers are diplomats: Managers serve as official representatives

more persons engaged
in a systematic effort to
produce goods or
of. their work units at organisational meetings. They may
represent the entire organisation as well as a Particular unit in
dealing with external groups (clients, customers, government officials,
etc.).

a Managers are symbols: Managers are symbols of corporate success or failure. They get applause
when they succeed and get depreciated and attacked when they fail. In short, they represent
corporare as well as employee aspirations. They are shown the door when these aspirations do
not materialise.
Managers, obviously, are there to utilise corporate resources in the best possible way. To achieve
results, rhey change hats, shift gears and restructure and reorganise things continually. The diverse
roles played by managers in discharging their duties have been beautifully summarisedby Henry
Mintzberg in the late 1960s, under three broad headings: interpersonal roles, informational roles and
decisional roles.

I RESEARCH EVIDENCE
A recent review research on managerial behaviour, covering 40 books and articles on the
of
subject, drew the following conclusions (Table2.2): (McCall et al, Studies of Managerial\Vorh, 1978,
pp.6-18)
 ftopter 2 Monogeriol Roles, Functions ond Skilk r 33
Table 2.2
Ten Facts of Maaagerial Life

' I Managers work long hours: The number of hours worked tends to increase as one climbs rhe managerial ladder.
2. Manager are busy:A typical manager's day is made up of hundreds oFbrief incidents or episodes. Activiry rates tend
to decrease as rank increases.

3. A manager\ work isfagmnted:Episodes are brief. Given managers' high activiry level, they have limle
time to devote
ro any single activiry. Interruptions and discontinuiry form rhe rule.

4 The manager's job is uaried; Managers engage in a variery of activities (paperwork, phone
calls, scheduled and
unscheduled meetings and inspection tours/visits), inreract with a variery ofpeopl. and ieal with variecyofconrenr
a

5. Managers are 'homebodiei: Managers spend most of cheir time pursuing activities within their
own organisarions.
As managerial rank increases, managers spend proportionately more time outside work areas and
org"nisarions.
6. The nanageri worh is pimarily oral.' Managers at all levels spend the majority of their time
communicating verbally
(by personal contact or telephone).

7 ' Managers ase d ht of contar6.'Consistent with their high level of verbal communicarion, managers continually
exchange inFormation with superiors, peers, subordinates and outsiders on an ongoing basis.
8. Mlnagers ate not reflectiue phnners: The rypical manager is too busy ro 6nd uninrerrupted blocla ofrime
For
reflecrive planning.

9 Information is the basie ingredient ofthe manager's uarA Managers spend mosr of their time obraining, interprering
and giving information.

1 0. Mandgers dan't hnow how. they spendtbeir time: Managers consistently overestimate rhe rime thry
spe nd on production,
reading and writing, phone calls, rhinking and calculating and consistently und.resrimrt the rim. spenr on
meerings and inFormal discussions.

Monogeriol Roles
Henry Mintzberg offered a view of the job of managing that throws considerable light on how managers
perform their work. Managers, according to Mintzberg, must fill many roles ," th.y carry out the
management functions. These roles can be grouped into three categories: int.rper.o.ral, informational
and decisional, as shown in Figure 2.2.

I ' Interpersonal roles: Three interpersonal roles help the manager keep rhe organisation running
smoothly. Managers play the fgurehead role when they perform duties thar are ceremonial and
symbolic in nature. These include greeting the visitors, attending social functions involving
their subordinates (like weddings, funerals), handing out merit certificates ro workers showing
promise etc. The leadership role includes hiring, training, motivating and disciplining employeesl
Managers play the liaison role when they serye as a connecting link berween their organisarion
and others or between their units and other organisational units. Mintzberg d.r.rib.d thi,
activity as contacting outsiders who provide the manager with information. Such activities like
acknowledgements of mail, external board work, etc., are included in this caregory.
2- Informational roles: Mintzberg mentioned that receiuing and comrnunicating ir-tformation are
perhaps the most important aspects of a managert job. In order to make the right decisions,
managers need information from various sources. Typically, this activiry is done through reading
magazines and talking with others to learn about changes in the cusromers' tasres, competitors'
moves and the like. Mintzberg called this the monitor role. In rhe disseminator role, the manager
distributes important information to subordinates that would otherwise be inaccessible to
34 r Monogement Tex[ ond Coses

them. Managers also perform the spohesperson role when they represent the organisarion ro
outsiders.

Managert FormCI
Authoriry

Roles

Figurehead: Represeodng theorganisarion in formal matters; sewingas asymbol

ofthe organisation.
Interpersonal
Roles Liaison: Interacing with peers and people ouside the organisacion; developing
external links.

Leader: Actrvities concerned with subordinares; motivaring, staffing,

communicating and directi ng.

Monitor: Receiving and collecting information; utilising the drannels rhrough

Informadonal which in[ormation comes.
Roles Disseminator: Tiansmitting informadon within rhe organisarion.

Spokesmen:Tiansmitting information to people outside rhe organisation.

Entrepreneur: Introducing change; initiating projects to improve the organisation.

Disturbance Handler: Taking charge when the organisation is rhreatened.

Decisional
ResourceAllocator: Deciding where the organisation will o<pend its effons and
Roles
what resources will be expended.
Negotiator: Involving the orgrnisation with other organisations.

Figure 2.2
Managerial Roles

3. Decisional roles: There are four decision roles that the manager adopts. In the role of
entrePreneur, the manager tries to improve the unit. He iniriates planned changes to adapt to
environmental challenges. As disturbance handlers, managers respond to situations that are
beyond their control such as strikes, shortages of materials, complaints, grievances, etc. In the
role of a resource alhcator, managers are responsible for allocating human, physical and monetary
resources. As negotiators, managers not only mediate in internal conflicts but also carry out
negotiations with other units to gain advantages for their own unir.

Functions of Monogement
lr{anagers are known by the work they do, the functions they perform. According to the functional
approach, originated by Henry Fayol, in every organisation managers perform. certain basic functions
in order to achieve results. These functions may be broadly classified into five categories: planning,
organising, directing, staffing and controlling. Managers perform these functions within the limits
established by the external environment and must consider the interests of such diverse groups as
government, employees, unions, cusqomers, shareholders, competitors and the public. A brief
discussion of the five basic functionS is presented here: (Figure 2.3)
 thopter 2 lrlonogeriol Roles, Fundions ond Skills r 35

Controlling Organising

5 2

Figure 2.3
Functions of Management r Planning: lt is the
T PLANNING
process of deciding in
advance what is to be
done, when and where
Planning is the process of making decisions about future. Ir is the process it is to be done, how it is
of determining enterprise objectives and selecting future courses of to be done and by
whom.
actions necessary for their accomplishment. Ir is the process of deciding in
advance what is to be done, when and where it is to be done, how it is to be
r Organisin$ lt is the
done and by whom. Planning provides direction to enterprise acdvities. It process of creating a
helps managers cope with change. It enables managers to measure structure of relationships
to enable employees to
progress toward the objectives so that correcrive action can be taken carry out management's
if progress is nor satisfactory. Planning is a fundamenial function of plans and meet its goals.
managemenr and all other functions of management are influenced by the
planning process.
t Organisation
structure: The formal
I ORGANISING
pattern of interactions
coordination
gned by
organising is concerned with the arrangement of an organisarion's resources to link the
of individuals and
- people, materials, technology and finance in order to achieve enterprise in achieving
objectives. It involves decisions about the division of work, allocation of
goals.
authoriry and responsibility and the coordination of tasks. The function
increases in importance as a firm grows. A srructure is created to cope with I Organisation design:
The process of
problems created by growth. Through this formal srrucrure, the various
an
work activities are defined, classified, arranged and coordinated. Thus, structu re.
organising refers to certain dynamic aspects: vhat tasks are to be done?
\7ho is to do them? How the tasks are to be grouped? \fho is to report to. I Data: Unanalysed
facs and figures.
whom? Vhere rhe decisions have to be male?

T r Staffing: The process

STAFFING by which organisations
meet their human
staffing is the function of employing suitable persons for the enrerprise. resource needs,
It may be defned as an activity where people are recruired, selected, trained, including forecasting
developed, motivated and compensated for manning various positions. It future requirements,
recruiting and selecting
includes not only rhe movement of individuals into an organisation, but also candidates and orienting
their movement through (promotion, job roration, transfer) and our new employees.
36 r Monogemenl lext ond Coses

(termination, retirement) of the organisation. Staffing involves selection of the right man for the
right job. It has four important elements:
(i) Recruitment may be defined as the process of attracting the maximum number of applications
for a particular job.
(ii) Selection is the process of screening the candidates and choosing the best ones out of them.

(iii) Tiaining involves imparting the necessary knowledge and skills required for the performance
of a particular job.
(i") Compensation is the price paid to the workers for the services rendered to the orgnisation.

I DIRECTING
The function of guiding and supervising the activities of the subordinates is known as directing.
According to Dale, direction is telling people what to do and seeing that
r Directing: lt deals they do it to the best of their abiliry. Acquiring physical and human assets
with the steps a manager will not suffice; what is more important
and suitably placing thern on jobs is
takes (guiding,
supervisi ng, motivating, that people must be directed towards organisational goals. This work involves
etc.) to get subordinates four important elements:
and others to carry out
plans. (i) Leadership: Leadership is the process of influencing the actions of
r Leadership:
a person or a group to attain desired objectives. A manager has to
lnfluencing others to act get the work done with and through people. The success of an
toward the attainment of
organisation depends upon the quality of leadership shown by its
a goal.
managers.

I Motivation: Any
influence that brings
out, directs, or
maintains goal directed
behaviour.
(ii) Motivation: Motivation is the work a manager performs to inspire,
encourage and impel people to take required action. It is the process
of stimulating people to take desired courses of action. In order to
motivate employees, manager must provide a congenial working
atmosphere coupled with attractive incentives.

I Communication: The
(iii)
transfer of information
and undersbanding from
one person to another
through words, symbols
and gestures.
Communication: Communication is the transfer of information and
understanding from one person to another. It is a way of reaching
others with ideas, facts, and thoughts. Significantly, communication
always involves two people: a sender and a receiver. Effective
communication is important in organisations because managers can
accomplish very little without it.

(i") Supervision: In getting the work done it is not enough for mandgers to tell the subordinates
what they are required to do. They have also to watch and control the activities of the
subordinates. Supewision is seeing that subordinates do their work and do it as directed. It
involves overseeing employees at work.

I CONTROLLING
The objective of controlling is to ensure that actions contribute to goal accomplishment. It helps in
keeping rhe organisational activities on the right path and aligned with plans and goals. In controlling,
 Chopter 2 llonogedol Roles, Functions ond Skilk t 37
performances are observed, measured and compared with whar had been I Controlling: The
planned. If the measured performance is found wanring, the manager musr management function
concerned with
find reasons and take corrective actions. If the performance is not found monitoring employees'
wanting, some planning decisions musr be made, altering the original plans. activities, keeping the
organisation on track
If the controlling function is to be effecrive, it must be preceded by proper
toward its goals, and
planning. Thus, controlling includes four things: (i) setting standards of making corrections as
performance, (ii) measuring actual performance (iii) comparing actual req u red. i

performatrce against the standard and (iv) taking corrective actions ro ensure goal accomplishment.

Successful management involves active participation by managers in the above basic managerial
functions. These functions are interrelated and most managers use a combinarion of the four
simultaneously to solve the problems facing their companies. AII management functions are related
and interrelated to each orher as shown below (by the arrows).

Planning

/\
t\
Controllinp
r "R.

\{

Figare 2.4
Managerial Functions: Interrelationship

For theoretical purposes, it may be convenient to separare the managemenr functions and study
them independently but practically speaking, they defr such categorisations. They are highly inseparable.
Each function blends into the other and each can be performed in any order or sequence, nor
necessarily in the order shown above, but tend to be performed (normally) in the planning, organising,
leading and controlling sequence.

Skills of on Effective Monoger

An effective manager must possess certain skills in the areas of planning, organising, leading, controlling
and decision-making in order to process activities thar are presented to him from time to rime.
Ta6le 2.3 provides a summary of the skills required of an effective manager.
38 r Monogemenl Text ond Coses

Table 2.3
Skills of an Effecti ve
Planning skills Organising Skills Leading Skills Controlling Skills Decision-mfing
Skills

Abiliryto think ahead Abiliry to analyse Abiliry to see rhe big Abiliryto keep the Abiliryto make
and describe Plcture. activities on the good and timely
Abilityto forecasr
vartous desired paths. decisions.
future trends. Abiliryto
organisational jobs.
communicate ideas Abilityto initiate Abiliryto devote
Abiliry to stare
Abiliry to selecr, effectively. correcuve stePs at on kry, important
organisadonal
rrain, develop rnd the right rime. and srrategic issues.
objectives clearly and Abiliry to inspire
maintain people in
precisely. people to do better. Abiliry to ensure Abiliryto make
various jobs.
control measures right choices and
Abiliryto make Ability to inculcare a
Abiliryto define without huning pursue acrivities
choices thar help in sense of collectivism in
working the feelings of that enable the
realisrng the employees and
relationships and employees in a organNatron to
predetermined goals. forcing them to work
authority-flow negative manner. accomplish its
as a team.
Abilityto ser properly.
PurPoses.
performance Abiliry to the
assess
Ability to get along Abiliryto commit
standards for siruation and initiate
with changing funds to the best
measuring and the needed behaviour
advantage.
implementing the ln an aPProPrlate
plans. manner.

Levels of Monogement
All managers' positions involve performance of management functions (planning, organising, directing,
staffing and controlling). But there arb differences among managerial jobs. The differences arise
I Levels of because of the existence of various levels of management in a typical
manatement: A line of organisation. The term 'levels of management' refers to a line of demarcarion
demarcation between
between various managerial positions. In a large organisarion, three levels
various managerial
positions. of management are usually identified: (i) Top level managemenr (ii) Middle
level management and (iii) lower level managemenr. The functions performed
I Top managers: by top managers, middle managers, and lower level managers, respectively
Managers who are
responsible for the may be briefly srared rhus:
overall direction and
oPerations of an I TOP MANAGEMENT
organisation.

r Middle managers:
a Determines objectives and policies.
Managers who receive
broad, overall strategies
a Designs the basic operaring and financial strucrure of an organisation.
and polices from top
managers and translate
a Provides guidance and direction.
them into specific goals
and plans for first-line
a Lays down standards of performance.
managers to implement. a Maintains good public relations.
I (Lower level) First-
line managers: I MIDDLE MANAGEMENT
Managers directly
responsible for the a lnterprets and explains the policies framed by the rop.
production of goods and
a Issues detailed instructions.
 [hopter 2 ilonogeriol Roles, Fundions ond Skilk t 39
a Participates in operating decisions.

a Tiains orher managers.

T LOWER MANAGEMENT
a Plans day-to-day operations.

a Assigns jobs to workers.

a Provides supervision and control over work.

a Arranges material tools and equipment.

a Maintains discipline.
Table 2.4
Levels of Management: Differences

Pointof Top Level Middle Level lower l,evel

Distinction Manaqement Management Management
o Action foox A small group of policy Act as a connecting link These managers are in direct
makers deciding the fate between top and lower level contact with employees.
ofan organisation. people and manage acrivities
of ochermanagers.

. Representarion Chief Execurive Offi cer, Functional Heads Section Head, Supervisor,
Presidenr, Chairman, (Marketing Manager, Firsr-L.ine manager, erc.
Managing Director, erc. Personnel Manager, etc.) and
immediate subordinates.

o Nature ofwork Thry generally spend most Middle managers, compared General ly physically active,
of their time with peers, to supervisors, are far less experience frequenr
oursiders and to a lesser phpically acrive and far more interrupdon, often shift back
extent, subordinates. A involved in paper work and and fonh berween tasks and
top manager's schedule is meetings. Their job is less spend most oftheir time with
typically hectic. hectic, more reflecrive and subordinates and peers
more frustrating. caring for monetary
problems.

Monogeriol Skills
In order to be effective, a manager must possess and continuously develop severalessential skills.
Robert L. I{atz has identified three basic rypes of skills
-
technical, human
"rrd "on".p,uat
- which he
says are needed by all managers.

G) Technical skill is the abiliq' to use the rools, procedures or techniques

I Technical skill: The
of a specialised field. Gchnical skill is considered to be very crucial to activity to use specific
rhe effectiveness of lower level managers because they are in direct knowledge, methods,
and techniques in
contact with employees performing work activities within the firm.
performing work.
For instance, the success of a drilling supervisor of an oil rig depends
a great deal on his technical knowledge of drilling. However, as one moves ro higher levels
of
management within the organisation, the importance of rechnical skill diminishes because
the
manager has less direct contact with day-to-day problems and activrtles. fhus, the president
of
an oil company does not need to know much of the technical details of drilling foi oil or
how
to refine it.
40 I Monogement Ten ond Coses

I Human skill: The
ability to understand,
motivate and tet along
with other people.
(b) Human skill is the ability ro work with, understand and motrvare
other people. This skill is essential at every level of managemenr within
the organisation, but it is particularly important at lower levels of
management where rhe supervisor has frequent contact with operating

I Conceptual skill: Key Personnel.

management skill related
G) Conceptual skill is the mental ability to coordinate and integrate the
to the ability to visualise
the organisation as a organisationt interests and activities. It refers to the abiliry ro see rhe
whole, discern 'big picture', to undersrand how a change in any given part can affect
interrelationships among
organisation parts, and
the whole organisation. The relationship between management levels
understand how the and managerial skills is shown in Figure 2.5.
organisation fits into the
wider context of the Technical skill is most important at the lower levels of management; it becomes
industry community and less important as we move up the chain of a command. A production
world-
supervisor in a manufacturing plant, for example, is likely to need more
technical skill than the company president, because he or she will have to deal with the day-to-
day manufacturing problems that arise. On the other hand, the importance of conceptual skill
increases as we rise in the ranks of management. The higher the manager is in the hierarchy,
the more he or she will be involved in the broad, long-term decisions that affect large parts of
the organisation. For top management which is charged with the responsibiliry for overall
performance, conceptual skill is probably the most important skill of all. Human skill is very
important at every level of the organisation. One reason this is so is because ro get rhe work
done through others; high technical or conceptual skills are nor very valuable if rhey cannor be
used to inspire and influence orher organisation members. Supporting Katzls contention that
specific skills are more important at some levels than at others is a study of managerial roles
and behaviour by Jerdee and Caroll. More than four hundred managers from all levels of
management and a variety of types and sizes of business are asked ro estimate how much time
they spent on eight management tasks: planning, investigating, coordinating, evaluating,
supervising, staffing, negotiating and representing. Lower and middle-level managers replied
that supervisingwas their dominant activity, while top managers claimed to spend proporrionately
more time on planning.

Top
Management

Middle
Management

Lower lrvel
Manageqrnt

Figure 2.5
Managerial Skills at Various Levels

(-d) Design skill Koonn and. Veihrich added one more skill to the above list. Design skill is the
abiliry to solve problems in ways that will help the organisarion. At higher levels, managers
should be able to do more than see a problem, to design a workable solution to a problem in
 Chopler 2 Monogeriol Roles, Fundions ond Skilk t 4'1,

the light of realities they face. If managers merely see a problem and become problem watchers
they will fail.

T INSTITUTION BUILDING SKILLS

Top executives are usually thought of as the people who make the major decisions in an organisation.
They often have disjointed and widely varied tasks, ranging from figurehead duties to conducting
meetings. They also have external duties, including such varied ones as testifring at legislative hearings,
greeting impoftant customers, presiding at retirement luncheons and sewing on the board of directors
of agencies, such as a local college. The major duty of the top executive is to deal with broad
organisational matters and major projects, such as long-range planning and the development of
organisation's strategy. Decisions such as expanding a plant, dropping a major product, or purchasing
another company are made at this level. Broadly speaking, they are expected to utilise human and
non-human resources to achieve their organisationt goals, such as making profits for owners, paylng
good wages to employees and produce quality goo& and services with a view to serye customers. In
short, they must build institutions. According to Prof Pareeh (1981), top level executives perform
eight key roles while building institutions of lasting value, as indicated below:

1. Identity creating role: Top level executives must create an identity for their organisations in the
market place. Such an impact can be created by serving employees through excellent welfare
measures, developing enviable marketing skills or fostering technological innovations. In short,
' they must 'carve out a niche' for themselves in the market place.

2. Enabling role: Top level executives must develop their resources (men, materials, equipment
and other facilities) in the service of an organisation. A good work atmosphere must be created
where employees would feel like contributing their best to the organisation.

3. Synergising role: Synergy means that the whole is greater than the sum of the parts. In
organisational terms, synergy means that as separate departments within an organisaticin
cooperate and interact, they become more productive than if each had acted in isolation. For
example, it is more efficient for each department in a small firm to deal with one financing
department than for each department to have a separate financing department of its own. Top
executives must try to combine their human as well as non-human resources in such a way that
the goals of the organisation are met in an effective and efficient manner.

4. Balancing role: The top executive must be able to strike a harmonious balance between conformiry
and creativity within the organisation. Conformity to rules and regulations is required to
ensure consistent and orderly execution of work. Conformiry when carried out in a rigid and
scrupulous manner, may affect employee behaviour in a negative way and destroy the creative
potential of employees. The chief executive, therefore, must encourage his employees to move
in new directions and respond to new chdlenges in a dynamic way instead of merely applyrng
rules and regulations in a mechanical manner.

5. Linkage building role: The chief executive must be able to develop appropriate linkages between
the organisation and outside constituencies such as government, financial institutions, community
'Without
and sociery at large. enlisting support from thcse outside constituencies, it might be
difficult for the organisation to obtain licenses, to ocpand business activity, to carry out research
and to initiate rural development programmes.
42 r Monogement Text ond [oses

6. Futuristic role: The chief executive must prepare the organisation for future challenges. To this
end, the organisation must look into market opportunities and encash these in a prudent way.
The chief executive must be able to steer the ship to safery facing the turbulent environmenrs
in a bold manner.
7. Creating an impact: This means making an impact of one's organisation on others, by way of
superior technology, marketing skills, innovative abilities, etc.
8. Provide superordination: The chief executive must be able to create a sense of pride and
importance in the subordinates - making them feel that they are working in a very important
field of work which is very useful for the society.

How to Become o Successful Monoger?

Successful managers wear many hats. They come from a wide variety of backgrounds and possess an
equallywide variety of traits and skills. To reach the top, there are no short-cuts, but there are atleast
three general pre-conditions for achieving success as a manager (success defined in terms of the
speed of promotion within an organisation).
Ttble 2.5
India's Most Respected Managers
Chief Executive Offi cer or MD Company

o N.R. Narayana Murrhy Infoqn Technologies

o Azim Premji \?ipro
o MukeshAmbani Reliance Industries
o M.S. Banga Hindustan Lever Ltd.
o VijayThadami NIIT
. C. Donati Nestle
r Ratan N. Tata TELCO
o H.R.Khusrokhan Glaxo
r DonddShon CocaCola
o D.S. Brar Ranbaxy
r Y.C. Deveshwar ITC
o S.K Alagh Britannia

Norc: Parrial lisr, nor mkcd hcre

a Education: Recent surveys of CEOs indicate the growing importance of formal education in
preparing managers. Graduate school degrees and engineering qualifications enjoy a premium
value in the job market.

a Experience: Experience is also an important factor in learning to be an effective manager.

Effective managers have typically held some rype of job at college, been in at least one officer
position in a carnpus organisation and worked for nvo or fewer companies other than the one
they head. In addition, they tend to put in long hours. Communication skills and networking
abilities were found to make a big contribution to managerial success, according to a study
conducted by Luthans and his associates.

a Understanding trends: .According to several recent surveys, managerial work in the future is
panicularly likely to be affected by growing intcrnationalisation of business, the increasing use
 Chopter 2 Monogeilol Roles, Functions ond Skilh . 43
of sophisticated information technology to facilitate managerial work, and the expanding public
concern with managerial ethics and values.
Trble 2.6
Activities of Managers : Findings of a survey of 450 Maaagers
a Tiaditional management: Decision-making, planning and controlling.
a Communication: Exchanging nores and processing paper work.
a Human resource management: Motivating, disciplining, managing conflict, sraffing and rraining.
o Networking: Socialising, politicking and interactingwith outsiders.
Sourcc : E Lurhans, "Sucssfirl ud Effeqive Re-l Muagcrs", Acadcmy of Muagcmcnr Excurive, May, 1998

How do Monogers Leorn to Monoge ?

Thanks to the Honeywell Study (of 3600 managers who were asked to state how they learnt the art of
managing), people all over the globe agree that management is a delicate arr and a soft science whose
basics can be studied and learnt through job assignments upro a point (about 50 percent). The
remaining part of management knowledge usually comes from relationships, including bossgs, menrors
and co-workers (30 percent) and formal training and education (20 percent). Learning to manage is
indeed like learning to ride a bike. You get on, you fall off and skin your knee, you ger on a bit
smarter' until you are able to wobble down the road. Most of what managers learn actually on the job
comes from the tchool of hard knocks'. A study of British managers identified the following as hard
knocks faced by managers while at work:
Table 2.7
Hard Knocla Faced by Managers while at'Work
a Making a big mistake. a Being overstretched by a difficult assignment.
o Fee[lng threatened. a Suffcring an injustice at work.
a Losing out to someone else. a Being personally attacked.

Source: Robin Snell, "Gnduating from thc ScJrool of Hud Knocls?" Journal of Mmagcmcnr Dmlopmenr, 1989

In order to learn the an of managing, a student requires a strong conceptual foundation, well-
supported by practical reference, critical observation of events and the ability to converr both into
meaningful actions. (Figure 2.6)

o Concepts a Integrate theoryand e Simulated

o Principles practice into o(Penences

o Gchniques
meaningful and ,r Experientid
useful ways of o<ercises
o Guidelines managing.
I Cases
So*rce Some
I
{ Tixt books * Self
.Role-playing
a Realo<periences
* Classroom instructions .i. Successfirl practising
* Handlinga job.
* Studyaids managerswho
become role * Observing people
models. whileatwork.

Soure : Krcitncr, Mugcmcm, p. 24-27.

Figurc 2.5
Acquiring thc Ability to Manage
44 r Monogement Tert ond Coses

Monogement is on Art of Getling Things Done

Through People
One unfortunate version of management that has gained wide currenry among management thinkers
and practitioners is that management is the art of getting things done through others. On the face of
it, the statement seems to be an apt summation of what a manager does in an organisation. But
underneath this apparent simpliciry the manipulative character of the management functions should
not go unnoticed. If we were to examine the statement from close qua6ers, three things clearly
emerge:

a Management means getting things done: The determination and accomplishment of goals is a
praiseworthy activity of management. Management, in fact, is a purposeful and goal-oriented
activiry. Goal-orientation and action-focus provide the basis for managerial operations. The
question of how managers get things done is totally discounted in the formative stages of
management thinking and development. Imbued with feelings of showing results, managers
often skilfully manipulated human resources in the service of the organisation. Such things as
money is a powerful motivator; the average human being has an inherent dislike of work; the
human element must be coerced, controlled and directed in order to get the work done;
providing carrots for successful workers and employing the stick against those falling behind
work schedules, etc., permeated management thinking. These views have been beautifully
captured by Douglas McGregor in his theory X. The primary focus of classical writers was
clearly on ends rather than means.

a Use authority: Tiaditional writers Iike Fayol viewed authority as the right to give orders and the
power to exact obedience from subordinates. Ends must be achieved through the exercise of
authoriry. The employee must be punished ruthlessly for turning out poor performance, for not
meeting standards, or for going off the mack. Thyhr, in fact, advocated 'differential piece rate
system' to encourage those showing promise and punish those who show lethargy, inefficiency
and poor performance. Severe punishment is meted out even for negligible deviations from
standards. Managers used to breathe so closely down the necks of their subordinates that they
made effective action virtually impossible. Rigorous standards, strict conrrols, severe
punishments, autocratic rules and regulations permeated management thinking and the
atmosphere was too suffocating for subordinates to work effectively toward organisational
goals with zeal and enthusiasm.
a Results through people: Obtaining results through people presents the toughest challenge to all
managers. Inability to obtain results is one of the principal reasons for managerial incompetence
and failure. fu we have seen, in the days gone by, results were obtained through people by
employing carrot and stick policies. Employees were viewed as mere means (economic tools)
to accomplish goals. They were treated as inert instruments in the producrion process labelled
as 'glorified machinc tools'.'The primary job of management is to convert the disorganised
resources of men, machines and materials into an useful enterprise. The focus is on achieving
organisational objectives: the individual objectives are completely ignored and totally discounted.
The whole exercise proved to be self-defeating and frustrating for managers because even after
injecting additional doses of incentives, worker performance remains remarkably consranr
(positive motivation). The use of threats and punishinent (negative motivation) prove to be
 Chopter 2 Monogeriol Roles, Funtlions ond Skilk t 45

rneffective after a point. The Hauthorne Studies have clearly showed the importance of the
human element in the production process, and has led to the development of a new managemenr
philosophy. Theses views have been summed up by McGregor in his theory Y:
Table 2.2
Conclusions of TheoryY

o People are not by nature lazyand unreliable.

o IFp roperly motivated they are capable of exercising self-control and self-direction.

o For continued growth of an enterprise, people must be given meaningful opportunities where thcy can explo.it rheir
potential better. Complete democratisation of an enterprise implies integration of individual goals with organisational
goa.ls.

Thus, in order to accomplish results, management must create opportunities, remove obstacles,
encourage growth and development of employees and provide guidance and assistance wherever
necessary. All this demands skillful application of the basic principles to the science of management.
Managers must have conceptual, technical, administrative and social skills in translating the abstract
organisational philosophy into concrete action. Achieving results implies mobilisation, integration
and judicious employment of resources, human as well as physical and financial, in a disciplined
manner. The results obtained must ultimately be compatible with the demands of the society within
which the organisation operates.
The statement reveals the story partially. Goal-accomplishment through people is only part of the
story. In addition, management is also concerned with development of an operating philosophy that
ensures the organisation's survival within the social system. Formation and accomplishment of goals
must be within the boundaries prescribed by the society. In order to accomplish this, managers musr
evaluate the effectiveness of goal- accomplishment and devise methods for achieving those tasks that
are compatible with individual and social objectives. Thus, management is not only an art bur also a
science containing definite principle and concepts governing the activities of the organisation within
certain limits. Duncaz has summed up the rhinking on rhese points thus:

Goal Accomplishment and

_ _ sdence
Evaluation -

,^an
- -

Biglure 2.7
Understanding Management
46 I Monogement Tert ond Coses

Monogemenl Deols with ldeos, Things ond People

a Management is concerned with ideas, things and people: Management is the dyna.mic life-
giving element in every organisation. It is the activating element that gets things done through
people. It provides the dynamic force necessary to transform the resources of a business
organisation into a productive, operating concern. The primary job of management is ro convert
the disorganised resources of men, machines and materials into a useful, productive organisation
(Newman). No wonder, people call management, rather tritely, as the process of marshalling
resources, ideas and things to obtain results through people.

Generating ideas: the creative process in management, From the very start of the business,
ideas play a crucial role in deciding the competitive standing and prospects of the business. It
is the working out of new ideas that can keep the business ever growing in stature and importance.
Every organisation gains vitality through new and constructive ideas only. One of the hallmarks
of successful management is the generation of innovative ideas that dramatically change the
course of history. Managers cannot afford to wait for future-they have to make future by their
creative abilities (Drucker). They must provide new ideas, new imaginations and visions to the
group working and integrate its efforts in a fruitful manner leading to better performance. A
single idea-decentralisation-introduced and implemented successfully by Alfred Sloan Jr.
transformed the history of General Motors in USA. The idea that steel provides a basic
framework for indigenous dwelopment of Indian industries by J.R.D. Thta has ultimately led
to the development of steel industry in India. To take another example, the idea rhar consumers
want a detergent powder that is cheap but has got requisite qualiry helped the manuhcturers of
'Nirma' washing powder to capture the market and cut down the influence of a multinational
firm, Hindustan Lever Ltd. (Surf). It is in the realm of ideas that managemenr acrs as a
creative force. Ideas help management in making organisations survive, grow and succeed,
through sheer innovative power. Innovations call for constructive thinking and imaginative
solutions to future problems. Creativity in idea generation spells the difference berween success
and failure in managing a business. The comparative efficiency of different management reams
lies in their abiliry to visualise problems before they turn into emergencies (through crearive
ideas). Managers can weather out the toughest challenges with the help of ideas. After generating
useful ideas, managers must put the entire organisation machinery in motion for working them
out into full-blown plans of action.
Getting things done: managing resources. The primary job of managemenr is to integrate
the productive but passive resources into an useful enterprise. Managemenr of resources implies
managing physical, financial and human resources. To facilitate this process, managers are
expected to perform certain basic functions: planning, organising, leading and controlling. The
planning function encompasses, defining the organisation's objectives, establishing a master
strategy for achieving these objectives and developing a comprehensive set of operational plans
to integrate and coordinate activities. Organising includes the determination oi what tasks are
to be done, who.is to do them, how the tasla are to be grouped, who reports to whom, and
where decisions have to be taken. Leading includes motivating subordinates, directing their
activities, communicating with them through effective communicarion channels and resolving
conflicts, etc. Controlling is the process of monitoring performance by comparing actual resuhs,
with predetermined objectives. Thus, in order to get results managers formulate plans, delineate
 Chopter 2 l4onogeriol Roles, Fundions ond Skilh t 4i
structural arrangements; hire, train and motivate people and monitor perfbrmance by comparing
with previously set goals. The statement that management is concerned with managing 'things'
should be qualified in the light of the above information. Management is actually a process of
efficiently getting activities completed through people. Efficienry is a vital aspecr in managing
things. Efficiency refers to the relationship berween inputs and outputs. If a manager is able
to get more output for a given input, he is said to have achieved things efficiently. Management
is also concerned with getting things completed. In other words, it seeks effectiveness. \fhen
managers achie"c their goals, they are said to be effective.

Managing people: In the early stages of the evolution of management, managers had completely
ignored the importance of managing people effectively in order to achieve results. People were
treated as automatons, machines, economic tools in the production process, People are things
and things can be manipulated to serve the needs of the organisation. fu pointed ouby Dauis,
"organisations are systems of medieval torture which suppress and subjugate their victim, the
individual. He lives in helpless conformity, stripped of his self-esteem, in a phony and artificial
environment. There is no challenge and no chance for psychological fulfilment." The appalling
results of such callous attitudes have been well documented in management history. Thanla
to the human relations movement (explained in chapter 3), present day managers devote a
considerable portion of their organisational lifes in managing people and communicating with
them continually. The individual needs, aspirations and motives are well recognised, cared for
and are integrated into organisational goals. More importantly, human beings are treated as
mature individuals and as creative and innovative persons rather than as passive, lifeless machines.

Monogement is 'The Art 0f Muddling Through

Situotions'
Situations quite often determine managerial actions. Different situations call for different approaches.
There is no single (best) way of solving a problem. Because tasks and people in organisations differ,
modern theorists argue that the method of managing must also differ. The choice of a particular way
of managing largely depends on the nature of the job, the people involved and the situarion. Therefore,
managers should diagnose the situation thoroughly and adapt to meet the conditions presenr.

If a manager wants to increase producdvity, the classical theorist (Th/or, Webber, Fayl) may
prescribe a new work-simplification scheme. The behavioural scientist (MoD may want the work
place to be more stimulating and recommend job enrichment - the combinarion of tasks that are
different in scope and responsibiliry and allow the worker greater autonomy in making decisions.
But the manager trained in the contingency or situational approach may ask, which method will
work best here? If the workers are unskilled and training opportunity and resources are limited,
work simplification would be the best solution. However, with skilled workers driven by pride in
their capabilities, a job-enrichment programme might be more effective. If the manager wants ro
motivate knowledge workers to higher performance levels, he has to invariably use a
multivariate approach (a combination of variables interacts to cause a particular outcome): wherein
he can use financial and non-financial rewards to good effect, keeping factors such as the menral
make-up of people, organisational resources, competitive reactions, existing managerial acrions,
etc., in mind. Depending on situational demands, appropriate managerial actions, erc., in mind. To
be effective, managerial strategies, organisation structure, leadership style, the control points, etc.,
48 I lionogement Text ond Coses

snould always be in rune with situational requirements. Instead of focussing attention on 'one best
way of doing things', managers should actively search For opportunities in each situation and devise
appropriate action plans.

Summory
Management is the process of working with and through others to achieve organisational objectives
in a changing environment. Managers usually do not directly perform any of the workflow activities.
They coordinare, morivate and controf the operations of employees while meeting the day-to-day
challenges. To deliver results, they work for painfully long hours, sift through bundles of data, handle
endless meerings, talk to people at various levels, plan proactively, meet the problems head-on and
get ahead of others using their knowledge, skills and experience to good effect. The various roles
played by them in this regard are broadly grouped into three categories: inter-personal roles,
informational roles and decisional roles.
Managers perform five basic functions in order to achieve results. Planning is the process of
serring enterprise objectives and deciding the future courses of action. Organising is concerned with
the determination of relationships among functions, jobs and personnel. Staffing is the function of
hiring, training and developing suitable persons for the enterprise. Directing tells people what to do
and ensures that they do it to the best of their abiliry. Controlling keeps the enterprise activities on
the right path and aligned with plans and goals.
The nature of work, of course, at various levels of management may differ in terms of complexiry
and variery. At the top level, managers focus attention on overall corporate strategy and policy
formation. At the middle level, managers try to convert corporate strategy into concrete action plans.
At the lower level, managers try to implement the plans using resources judiciously.
possess three important skills. Human skill is the abiliry to get
To be successful managers should
along with orhers smoothly. Conceptual skill reflects the abiliry to see the big picture. Technical skill
is required ro undersrand how the work is designed, planned and executed at the plant level.
Successful managers now-a-days possess good degrees to their credit. They gain knowledge and
hands-on experience through job rotation. They develop their interpersonal skills by interacting with
peers, subordinates and superiors continually. In order to meet the targets, they use resources,
people and facilities to good advantage. There is no one best way of doing this. The choice of a
parricular way of managing largely depends on the nature of the job, the people involved and the
situation.

Review Questions
t. Describe how managerial jobs differ according to hierarchical level. 'What are the implications
for managers?

2 Are managerial effectiveness and managerial efficiency related concepts? If so how?

) According to Karz, whar are the three primary types of skills important to management success?
Define each of these rypes of skills.
4. Comment on the following statements:
o Management is getting things done with and through people.
 Chopbr 2 Monogeriol Roles, Funrtions ond Skills t 49

o Managemenr is concerned with ideas, rhings and people.

o Management is rhe eFfective utilisation of human and marerial resources to achieve the
enterprise objectives.

5. \fho are managers? \What do managers do?

6. Are you at all surprised by the results of The Honeywell study of how managers learn to
manage? '$fhat can an individual manager do to meet the challenge to improve productiviry?

7. 'Management is the art of muddling through situations'. Do you agree? Give reasons.

Discussion Questions
1. tJ/hat are the factors that determine which managerial skills are most important to jobs
with
which your are familiar?
2. 'The fundamental functions of management are universal. They are applicable to all situations'.
Discuss.

3. If managerial work is characterised by variery, fragmentation, and breviry how do managers

perform basic management functions, such as planning which would seem ro require reflection
and analysis?

4. 'In order to be effective, a manager must possess and continuously develop several essential
skills'. Discuss.

References
L J.A. Sroner, Managemen r, Prenrice-Hall of India, New Delhi, 1990.
2. Henry Fayol, General and Industrial Administtdtion, Sir Issac Pitman, 1949.
3. L.A. Alleo, Management and Organisation, Tokyo, McGraw-Hill, 1980.
4. R.L. Katz, Management of tbe Tbtal Enterprise: Cares and Concepts on Snaagl, Englewood Clitrs, NJ, Prentice-Hall, Inc.,
r97 0.
5. J.G. Longnecker, Principles of L'Ianagement and Organisational Behauiour, Charles E. Merrill Publishing Co., Columbus,
Ohio, 1973.
6. Henry Fayol, General and Indusnial Administation, London, Sir Issac Pirman, 1949.
7. L. Uruick, The Elements of Administration, New York, Haper and Row, 1944.
8. Maynard, Handbook of Brcines Adminisnation, Ronald Press, London.
9. Luther Gulick and L. Uruick, Papers on the Science ofAdministration, New York, Instirute of Public Adminisrration, 1937.
10. Newman, Varren and Summer, The Procer of Management, Prentice-Hall of India, New Delhi.
IL Koonrz and O'Donnell, Essentials of Management, Tara McGraw-Hill, New Delhi, 1990.
12. Caroll and Tos\, Management, John \fliley and Sons, New York, 1990.
13. Dalton McFarland, Management, Foud.ations and Practices, fifth edirion, Macmillm, New York, 1979.
14. J. Duncan, Management, Dryden Press, 1975.
15. Robert Albanese, Managing touard Accotntability and Performance, Richard D. Iruin, Homewood, Illinois, I978.
16. S.P Robbins, Managemcnt, Prentice Hall, Englewood Clifls, NJ, 2000
17. Cary Dessler, Management: Fundamentals, Prentice-Hall, Virginia, 1982.
18. Henry Mintzberg, The Nature of Managerial Vork,New York, Harper and Row, 1973.
19 Vre n and Yoisch, Management, lohn Viley and Sons, New York, 1984.
20. R.\?f Griffin, Management, AITBS, New Delhi, 1998
Druelopment of
Monogement Thought
o N
stand now, is being
The classical theory
s,
a structure with well
defined rules, regulations and lines of authoriry.
The behavioural approach shifted the focus ro
human and social needs. Structure has no
meaning unless you sell the idea to employees
and take them along with you. The systems
approach looks at organisations as a series of
inputs, transformation processes and outputs.
is a way oflooking ar dre forest, not the trees. The
situational approach eniourages.managers to use
the concepts and methods of traditional,
behavioural and systems view-points, depending
on the circumsrances they face ar the time .
N T
In this chapter,
a brief inrroduction is givcn ro
influential viewpoints and approaches that
se','eral
have shaped managerial rhinkingduring rhe past
one hundred years.
Success in o Bureoucrotic
0rgonisotion
One of the biggat reasons why some people
inorganisations succeed and others fail is
that theformer hnow what their boss
wants tltem to bnou.,. LVhether it is
explicitly spelled rut or learned through
experience or intuition, successful people
hnotu the things the boss is looking
lor.
Eight of tlte most common include the
following;
I. Do more than uthat is expected: your
boss expects euerJ/one to do his job. ff
you do more, ltou,euer, you taill stand out
as a superior performer.
It 2. Forget about mahing up excuses: Tbe
boss expects you to do things right. rVhen
you do not, it may cause problems but it
will do lou no good to blame someone
eke. Euen if yoa are right, the boss does
not want to hear about it. He or she has
more important thlngs to do than trying
to asstgn btame. ff ii your job n gri th:,
uorh done right the first time. If you
did not, work harder to do so the next
time.
3. Anticipate things going urong If you
do, you utill seldom be disappointed.
Howeuer, you will be prepared to deal
with them before thelt become too serious.
If part job calls for getting
of your
information from other people and
processing it before passing it on to others,
anticipate getting the information late or
fnding that some of it is erroneous. Allout
yourself time to checb the data and get it
corrected.
54r Monogement Text ond Coses

4. Remember that punctualitl and
attendance count: Do not be latefor worh
or meetings. Euen if nothing imPortant
happen$ lou are expected to be on time.
If you are continually tardy or absent,
your boss taill see this as an attitude
problem, and it will count againtt yoa
later on.
5 Get along with yoar fellow iorhers:
Bosses lihe to thinh that eueryone in tbeir
unit is a team pkyer. If therei internal
dissension, the boss will not want to hnout
u.,ho is right or urong. The boss is not
t'here to referee emplq)ee squabbles.
Eueryone inuolued will haue a black marh
against him. Make it a point to tta! on
good terms with eueryone in the unit.
Be protectiae ofthe organisation: Do not
say anything that will negatiuely reflect
on the enterprise or anyone utho worhs
there. Keep organisational politics and
problerns tuithin the enterprise and, f
)/oa rnust do anYthing that reflects on
anotber go out of your wa! to minimise
its negatiue effect.
Learn to read. your boss: Listen chsely
to uthat your boss tells you and learn
to interpret its meaning. If your boss
says, "this really wanants our loohing
into," it /na! mean that you should
drop euerything you are doing and
start worhing on the matter he has
been talhing about. On the other hand,
if he says, "this sounds uery interesting"
itmay mean that the lnatter it a minor
one and should be ignored. Eaery boss
has a specifc utay of comrnunicating.
boss * really talhing
Figure out what your
about.
8 Neaer lie: The biggest problem uith fiing
is that it calk your integ'ity into ques.tion.
V'hat other lies haue you told? \Vhat
exactl! are lou up to? Your boss may be
feeling that you are not as reliable as he
thought. Vhen this happens, your
credibility comes into question, and your
future with the organisation may be
affected. Ifyou cannot tell the nuth, Iimit
utltat you sa)/ can sta.! utithin this
so lou
guideline.

Introd uction
The art of management has ancient roots. It is as old as civilisation. The Egyptian pyramids and the
'Wall
Great of China indicate that large projects requiring managerial skills were undertaken thousands
of years ago. More than 200 years ago Adam Smith described the advantages of division of labour
and specialisation. However, the study of management as a science began recently, especially after
the Industrial Revolution. There has been a deluge of research during the last few decades in the field
of management. It has attracted the attention of psychologists, sociologists, anthropologists,
mathematicians, poltical scientists, economists and so on. Unfortunately, the approaches developed
by these scholars have created chaos and resulted in a 'confused and destructive warfare'. No wonder,
Harold Koontz described the present state of management theory as a'jungle'. According to Koontz,
'Way
O'Donnell and, tVeihrich there are ll approaches for studying management. back in 1966,
Sngdill identified nor less than eighteen approaches for studying management. Hutchinson has given
lrve approaches in his article in theJournal of the Academy of Managementin 1971. Thus, different
writers have provided different categorisation schemes for studying management. In order to facilitate
easy understanding, we can identifr three broad approaches namely, the classical theory neo-classical
theory and modern theory.
 Chopter 3 Developmenl of Monogement Thought r 55

Clossicol Theory
The term 'classical' means something traditionally accepted or long-esrablished. It does not mean
that classical views are static and time bound rhat must be dispensed with. Some of the elements of
classical theory are still with us, in one form or anorher:

a Inter-related functions: Management consists of several inter-related and inter-dependent

functions (planning, organising, staffing, directing and controlling) which are exercised in a
sequential form. This is repeated over and over again to bring order out of chaos.

a Guiding principles: In order to crystallise the ever - increasing I The Classical

Approach: lt emphasises
knowledge and thinking in the field, classical wrirers have developed
organisational efficiency
certain principles (to aid execurive thinking and action) based on to increase
practical experience. organisational success.

(} Bureaucratic structure: Tiaditional theory prescribed rhat organisation be built around the
work to be done. For maximum efficienry, this theory specified that the work must be logically
divided into simple, routine and repetitive tasks. These tasks should then be grouped according
to similar work characteristics and arranged in the form of departments headed by an executive
who has a limited number of subordinates reporting directly to him. AIso, command should
flow from only one individual; everyone should have one and only one boss. 'Work must be
assigned to individuals based on job demands and the individual's abiliry to do the job. The
organisation has 'complex mechanisms, rules, regulations and procedures . Human acrion
within this framework is explained mechanistically by the obligations of position in the hierarchy'.
The threads of control are held by common superiors working at the rop of the hierarchy.
Behaviour is regulated by directives, rules and regulations which speci$r the exact manner in
which the duties are to be performed. The whole structure takes the shape of a pyramid. fu the
organisation grows and develops - operations grow in size; communication becomes complex;
more policies, procedures and further formalisation is demanded; there would be constanr
Pressures for greater departmentation; more staff may be needed to coordinate activiries - ir
would inevitably acquire a bureaucratic, pyramidal srrucure, as shown below:

Elements
o The Hierarchy
o Specialisationand
Division oFLabour
o The Scalar Principle
o UniryofCommand
a Departmenralisation
o SpanofControl
o PariryofAuthoriry
and Responsibility
o Centralisationvs
Decentralisarion
o LineandStaff
Relationship

Pyramid Structure and Elements of Classical Theory

56 I l\ilonogement Texl ond (oses

a Reward-punishment nexus: "Follow the rules, obey the orders, show the results and get the
rewards". More or less, classical theory emphasised the above philosophy. If you lag behind in
the race, you will become a second - class citizen and not entitled to receive extra benefits.
Great emphasis was put on efficient use of resources while producing results.

Bronches of Clossicol Theory

Surprisingly, the classical theory developed in three streams: Bureaucracy (Weber), Administrative
Theory (Fayol), and Scientific Managemenr (Taylor) (see Figure 3.2)

Bureaucracy

Scientific Management

Administrative Theory

Figure 3.2
Classical School and its Branches

Bureoucrocy
Classical organisation, especially as developed by Thylor, which was essentially seen as a development
of industrial engineering, had by 1930 lost most of its dlan, largely because it lacked any scientific

I Bureaucracy: A
structure with highly
routine operating tasks
achieved through
specialisation, very
formalised rules and
regulations, tasks that are
grouped into functional
departments, centralised
authority, narrow spans
of control and decision-
making that follows the
chain of command.
theoretical 6ase. Max rVeber, the German sociologist, tried to fill this vacuuni
through his classic work, The Theory of Social and Econornic Organisation in
t920.
The word bureaucracy implies an organisation characrerised by rules,
procedures, impersonal relations, and elaborate and fairly rigid hierarchy of
authority- responsibility relationships. In simple terms, it implies this
proposition: The organisation has a structure. People work within their
boundaries. The work is processed with the help of rules and regulations.
People follow these rules while processing work. Persons with proper
qualifications are selected so that the work is done efficiently.

I ELEMENTS OF BUREAUCRACY
tVeber has provided a nurirber of features of bureaucratic structure. These are given below:
a Hierarchy: Hierarchy is a way of ranking various positions in descending order from top to
bottom of an organisation. In a bureaucratic structure, each lower office is under the supewision
and control of higher one. Ultimately, no office is left uncontrolled in rhe organisation.

'a Division of work: The total work is divided into specialised jobs. Each persont job is broken
down into simple, routine and well-defined tasks. Each employee knows his boundaries. By
doing the same type of work a number of times, he becomes an expert in course of time.
a Rules, regulations and procedures: The behaviour of employees is regulated through a set of
rules. The emphasis is on consistency. Employees are expected to follow these rules strictly.
They have to be applied in an impersonal, objective manner.
 thopter 3 Developmeni ol Monogemenl Though t 57

a Records: Proper records have to be kept for everything. Files have to be maintained to record
the decisions and activities of the organisation on a day-to-day basis for future use.

a Impersonal relationships: Everlthing should proceed according to rules. There is no room for
pe rsonal involvement, emotions and sentiments. If an employee comes late, whether he is a

manager or a peon, the rule must be same for all. The decisions must be governed by rational
considerations rather than personal factors.

a Administrative class: Bureaucracies generally have administrative class responsible for

coordinating the work. Known as bureaucrats, these officials are selected on the basis of their
competence and skills. They are selected according to merit, receive special training for their
posts, and enjoy corporate tenure. They are paid salary, with increases according to age and
experience, and receive a pension when they retire. Promotion is based on senioriry and
achievement, decided by judgement of supenors.

T ADVANTAGES
Important advantages of a bureaucratic structure may be listed thus:
a Specialisation: Bureaucracy offers a valid basis for dividing work. The organisation is divided
into different functional departments. People can specialise in their respective fields and show
improved performance.

a Rationality: "Bureaucracy brings rationaliry to an organisation. Judgements are made according

to an objective and generally agreed upon criteria. Further, by structuring the duties,
responsibilities and reporting relationships in a command hierarchy, bureaucracy provides
form or substance to an organisation. Such logical structuring of activities brings about orderly
execution of assigned tasks".

a Predictability: The rules, regulations, training, specialisation, structure and other elements of
bureaucracy enable it to provide predictabiliry and stabiliry to an organisation. For example,
bureaucracy enables a fresh student to predict with high confidence that his university will still
be in existence three years later when he expects to receive a degree from it. He is also sure
about the curriculum he will be required to take and he knows much about the universityt
rules and regulations that will govern his behaviour.

a Democracy: In bureaucratic organisations, decisions are arrived at according to an acceptable

criteria. Rules and regulations bring about consistent behaviour within the organisation. Activities
are taken up on a priority basis, according to a time schedule. People are selected on the basis
of merit. Patronage, favouritism and other arbitrary bases are not given weightage. Because the
opportunity to train, apply and be selected for a job is open to every citizen, a significant
degree of democracy is achieved.
T DISADVANTAGES
On the negative side, bureaucracy is criticised on the following grounds:
a Rigidity: Critics of bureaucracy claim that it is rigid, static and inflexible. Strict adherence to
rules produces timidiry, conservatism and technicism. In the name of following rules, people
may even shirk away from their responsibilities.
 58 r Monogement Text ond Coses

a Impersonality: Bureaucracy emphasises mechanical way of doing things. Rules and regulations
are glorified in place of employee needs and emotions. That is why, bureaucrary is l"b.l.d
'an organisation without persons'. ",
a Displacement of objectives: As organisational procedures become more formalised and
individuals more specialised, means often become confused with ends. Specialists, for example,
may concentrate on their own finely tuned goals and forget that their goals are a means for
reaching the broader objectives of the organisation.

a Compartmentalisation of activities: Strict categorisation of work restricrs people from

performing tasks that they are capable of doing. For example, a pipe fitter can install a pump,
but is prohibited by work rules from making the electrical connecrion even if he is totally
qualified to do so. Bureaucracy would also encourage a tendenry ro perperuate existing jobs
even when they become redundant. The rypica1 bureaucracy tries to preserve all the old jobs
and add new ones for new requirements, resulting in wastage of scarce inputs.

a Empire-building: Bureaucracies often turn managers into empire builders. They try ro enhance
their status and power by adding more people, more space, more physical facilities
-whether
'they are required or not. As pointed out by W'eber, once it is fully established, it is hard to
destroy bureaucracy even if it has outlived its usefulness.

a Red tape: Bureaucracies are paper mills. Everything is recorded on paper. Files move through
endless official channels, resulting in inordinate delays. Communication is reduced to a feeble
walk and members while trying to adhere to rules may discount the value of arriving ar prompr
decisions. By encouraging conformity to rules and regulations, bureaucracies leave nothing for
original and innovative behaviour.
These troubling criticisms compelled many a writer to dismiss bureaucracy as a hopelessly
outdated and unwanted creature in the present day world. 'Writers have also Iabelled it as a 'continental
nuisance', a ttructural dinosaur', 'an impersonal monster'. It is said to be an organised. system
for not
getting things done effectively. Bureaucrats are experts in wasting time, money and energy and are
called ' hopeless company men'. Despite these negative pronouncem.rrt., bur.",r..".y ,"g;"irr,
essential feature of modern civilisation. Business organisations, schools, government and other ".,
organisations, largely, are based on bureaucratic conceprs even today. There is no use wishing it
away' Many of the problems of bureaucracies could be avoided if the individual needs and characteristics
of every organisational member are remembered and considered in making managerial decisions.

Scientific Monogement
I \(/HY TAYLOR IS ACCEPTED AS THE FATHER OF SCIENTIFIC
MANAGEMENT ?

r Scientific management arose, in part, from the need to increase productiviry.

Scientific
management: An In the United States, especially, skilled labour was in short- supply at the
approach that beginning of rwentieth century, To expand productiviry ways had to be
emphasises the scientific
study of work in order to
found to increase the efficiency of workers. could some portions of the
improve worker work be eliminated or some parts of the operations combined? could the
efficiency. sequence of these tasks be improved? 'w'as there 'one best way' of doing a
 ftophr 3 Developmenl of Monogement Though I 59

job? In his pursuit of answers to such questions, Frederich W Thylor slowly built the body of principles
that constitute the essence of Scientific Management (1890-1930) . Thylor did most of his work at the
Midvale and Bethlehem Steel Companies in Pennsylvania. His early years at Midvale were particularly
disgusting. He was constantly appalled at the inefficiency of workers. Employees used vastly different
techniques to do the same job. They were prone to 'taking it easy' on rhe job. Taylor firmly believed
that worker did only about one - third of what was possible. There were no effective work standards.
\Torkers had no incentive to produce more because they were paid an hourly rate. \Torkers were
afraid to work fast because they believed their rate of pay would be lowered or rhey would be laid off
if they completed their tasks too quickly. 'Workers were asked to take up jobs unrelated to their
abilities and aptitudes. Management decided things based on hunch and intuition. Most importantly,
management and workers viewed themselves to be in continual conflicr.

T TAYLOR'S MEDICINE
Thylor set out to correct the situation by employing the scientific method to workers on the shop
floor. He emphasised that work would not be taken for granted but should be taken seriously.
Productivity is not harder work, but smarter work, that is an understanding and systematic analysis
of work. Much of Thylor's published work was based on his report on work improvemenr resrs
performed at Bethlehem Steel - emphasising'one best way' philosophy. Th/or reported that the
company had about seventy-five men employed to load pig iron freight cars. He selected a Pennsylvania
Dutchman named Schmidt (real name Henry Nolle) and offered him an increase in pay from $ t. t I
per day to $ 1.85 per day if he would follow his orders with no back aIk. Thylor projected that
following orders would increase Schmidt's productivity from about 12 tons a day to more than 47
tons. Schmidt agreed to rhe proposal. Consequently, on some days he would keep his legs straight
and use his back to lift with. Thylor experimented with rest periods, walking speed, carrying positions,
and other variables. After a long period of scientifically trying various combinations of procedures,
techniques and tools, Ta/or succeeded in finding out 'one best way' to perform the task and realised
the goals set by him. Thylor claimed to have trained the other workers until the entire crew had raised
their productivity in this manner.
Thus, by putting the right person on the job with correct tools and equipment, by having the
workers follow Thylorj' instructions exactly, and by motivating workers through the economic incentives
of a significantly higher daily wage, Thylor achieved significant improvements in productivity. Thylor
explained these ideas and techniques in his two books ( Shop Management and The Principles of
Scientific Management) and these ideas found favour in USA, France, Germany, Russia and Japan,
in course of time.
I BASICS oF SCIENTIFIC MANAGEMENT
The concept of scientific management implies the application of science to management. It is based
on 4 basic principles:
a Each task must be screntifically designed so that it can replace the old, rule-of-rhumb methods.

a Vorkers mrtst be scientifically selected and trained so that they can be more productive on
their jobs.
a Bring the scientifically designed jobs and workers together so that there will be a match between
them.

a There must be division of labour and cooperation between management and workers.
60 r Monogemenl Texl ond Coses

Study the work scientifically

Select workers and train them

Match jobs ahd workers propcrly

Distribute gains berween employees and

employers

Figure 3.3
Basics of Scientific Management

Taylor srressed the importance of employee welfare as well as producrion efficiency. Tb boost up
productivity, wage incentives based on performance (differential piece rare sysrem) were inrroduced.
The emphasis was on maximum output with minimum effort through elimination of waste and
inefficiency at the shop floor level.
Thylor s,,s,mmed up his approach in these rvords (principles):

i. Science, not rule of thumb.

ii. Harmony, not discord.

iii. Cooperation, not individualism.

iv. Maximum ourput in place of restricted output.

v. Developmenr of each man ro his greatest efficiency and prosperiry.

vi. Equitable division of work and responsibiliry berween managemenr and labour.

I KEY CONCEPTS
1. Scientific task planning: Scientific task is the amount of work which an average worker
can Perform during a day under normal working condirions (called as a fair dayt work).
Management should decide in advance as to what work is to be done, how, when, where and by
whom' The ultimate goal is to see that work is done in a logical sequence promoting maximum
efficiency.

2. Time and motion studies: Time and motion studies have been advocated 6y Thylorwith a view
to isolate the wasteful and unproductive motions on rhe job. The time study would indicate the
minimum time required to do a given job. The time taken by workers to do a job is being
recorded first and this information is being used to develop a time standard. Time srandard is
the period of time that an average worker should tak€ to do a job. Motion study is carried out
to find out the best sequence of motions to do a job. The aim is to eliminate unnecessary,
ill-directed and wasteful motions and find out the one best way of doing a job. In this study,
finger movements, hand movements, arm movements and shoulder movements are being
studied, through photographic evidence. In addition, fatigue srudies are also carried out ro
find out the extent of boredom and monotony caused by a job. Thylor and his colleagues
(Gilbreths, Gantr) advocated fatigue studies so as ro find out the best synchronisation berween
time, work and rest pauses needed to do a piece of work. Managers, in the end, are charged
 Chophr 3 Developmenl of Monogement Thought t 6'1,

with the task of planning the work through the above studies and workers are expected to
implement the same.

3. Standardisation: Under scientific management, standards have to be set in advance for the
task, materials, work methods, qualiry time and cost, working conditions, etc. This helps in
simpli$.ing the process of production, reducing wasteful use of resources, improving quality of
work etc.

4. Differential piece rate system: In order to motivate workers, wage incentives were developed
in most scientific management programmes. Tizylor advocated differential piece rate system
based on actual performance of the worker. In this scheme, a worker who completes the
normal work gets wages at higher rate per piece than a worker who fails to complete the same
within the time limit set by management. For example, each worker who produced l0 machine
nuts (normal work) would be paid the standard wage of Rs 2 per piece, and those below the
normal work may get Rs 1.5 per piece. Thus, there is considerable difference in wages berween
those who comp[ete the job and those who do not complete. Each worker is pitted against
every other worker in an unhealthy' competitive scheme to make more and earn more. In the
long-run, this will have a telling effect on the health of the worker. More damagingly, this
scheme would divide the working class permanently. Though the differential piece rate sysrem
is opposed by unions and workers alike, the essential merit in Thylor's suggestion that wages
must have a linkage with performance of employees should not be discounted altogether.

5. Functional foremanship: In order to achieve better production control, Tizylor advocated

functional foremanship where the factory is divided into several components, each in charge of
a specialist, namell', route clerk, instruction card clerk, cost and time clerk, gang boss, speed
boss, inspector, repair boss and shop disciplinarian. These functional specialists perform the
planning function and provide expert advice to workers. They plan the work for employees and
help employees in improving results. The workers are expected to implement the commands of
functional specialists. The idea of a divorce between planning and doing function, unfortunately,
suggests that workers are incapable of thinking independently. Drucher dubbed this principle as
an undemocra;ic one because it overshadows the independence and initiative of worke rs
complerely.

t CONTRIBUTIONS
According rc Gilbreths, the primary benefit of scientific management was 'conservation and saving,
making an adequate use of €very ounce of energy of any type that is expected'. In rhe modern
assembly line, conveyer belts bring to each employee the parts needed to perform one specific job
and they carry the completed work to the next employee on the line. Specialisation and division of
Iabour have brought about the second Industrial Revolution in America and other developing narions.
The American production 'miracle' is said to be the legacy of scientific managemenr. The time and
motion techniques have shown clearly as to how to organise the tasks in a more eFficient and rational
way. The role of scientific selection and development of workers in increasing worker effecriveness is
also recognised. The stress it placed on work design encouraged managers ro pursue the'one bestway'
philosophy and achieve the tasks with the minimum effort and cost. Scienrific management not only
developed a rational approach to solving organisational problems but also pointed the way ro the
professionalisation of managemenr.
62 I Monogemenl Text ond Coses

T LIMITATIONS
Scientific management was criticised on several grounds:
i. Exploitative device: Scientific management had nvo objectives: increasing workers' productiviry
and improving workers' economic welfare. Scientific management helped in realising the first
objective. The second objective was never realised because management did not share the
benefits of increased productivity with workers.

ii. Depersonalised work: Scientific management supplied standarised jobs to workers. Everything
-Workers
was set in a straitjacket. were made to repeat the same operations daily. This produced
'Workers
boredom and monotony. did not like the idea of becoming glorified machine rools.
iii. Unpsychological: Scientific management was dubbed 'unpsychological' because there is no
accurate information as to how the wages are to be given, how the worker's efficiency is to be
measured and so on. Thylor's choice of terminology was also poor. The idea that maximum
productivity could be achieved only by employing 'first class men' was equally deplorable.
iv. Undemocratic: Drucher questioned the idea of managers planning the operations and workers
implementing the same. In other terms, one group always performed challenging, novel tasks
whereas the other one is loaded with boring, routine and standardised jobs. Scientific
management is; thus, undemocratic because it overshadows workers' independence. Ir treats
workers as unthinking animals.

v. Anti-social: Scientific management is regarded anti-social because workers are treared as

glorified economic tools only. They are permitted to participate in matters affecting their lives.
According to Dr. C.S. Myers it is anti-social because it aims at excluding the average workman
from the field of work as far as possible.
vi. Unoriginal: People like Hoaglanl questioned the originaliry of Thylori ideas and felt that his
contribution had been somewhat overrated and overemphasised. Later r,esearch into Bethlehem
records, Thylori published and unpublished revisions of his own work, and orher sources
Stee I's
indicated that Thylori report on Bethlehem Steel was almost completely a lie.
vii. Unrealistic: Thylor 5elieved that employees are motivated by material benefits. He therefore,
concentrated on physical and financial needs, completely ignoring the social and ego needs of
people. As current research indicates, employees do not work for money alone. They seek job
satisfaction, growth opportunities, challenging work, recognition etc aparr from economic
incentives from work.
Despite these limitations, Thylor is still regarded as a heroic figure in the history of management
because of certain genuine reasons: (i) He is the first one to advocate planning of work, scientific
selection of people, putting right man on the job, rewarding the efforts of employee in adequate
measure, waging a war again.st inefficiency etc. (ii) He gave a concrete shape to his ideas and reduced
managerial thinking to a set of principles that have stood the test of time over the years.

Administrotive Theory
I HENRY FAYOL (ts4r-r925)
About the time when EW of scientific management in rhe
Thylor was developing the principles
United States, Henry Fayol was revolutionising managerial thinking in France. Tiained as a mining
 [hopter 3 Development of Monogement Thought . 63
engineer, Fayol made his mark as an industrialist with the French coal and iron combine of Commentry-
Fourchambaulr, wheie he spent his entire working career. He joined the firm as a junior executive in
1860 and rose quickly through the ranks, retiring as a director of the company in 1918. \?hen the
comPany had been near bankruptcy in 1888, he had taken it over and transformed it into a financially
strong organisation. Based on his own experiences as CEO, Fa1.ol developed
the administrative theory, which explained the process of managing an I Administrative
theory: An approach
organisation from the top managerial perspective. Most writers acknowledge
that focuses on
Fayl as founder of the classical management school, nor because he was the principles that can be
first to investigate managerial behaviour but because he was the first to used by managers to
coordinate the internal
systematise ir. Fayol believed that sound managerial practise falls into cerrain
activities of
patterns that can be idenrified and analysed, He believed that management organisations.
can be taught, once its basic principles were understood and a general theory
of management was formulated.
I FAYOTS SIX
In setting out to develop a science of managemenr, Fayol began by classifring business operarions
into six major activities; technical (production) ; commercial (buying and selling);
financial (use of
capiral); security (protection of properry); accounting (keeping financial records); and managerial.
Since tlre first five activities w€re commonly undersrood by many practitioners ar rhat time, Fayol
devoted his attention to the lasr activity.

I MANAGEMENT FUNCTIONS
At the managerial level, Fayol argued that managers should perform five functions:
a Planning: Devising a coutse of action that will help the organisation meet irs objectives.
a Organising: Mobilising the material and human resources of the organisarions to put the plan
into effect.
a Commanding: Giving directions to employees so that they perform the needed tasks.

O Coordination: Making sure that the resources and activities of the organisation are working
harmoniously ro achieve the desired goals.
a Controlling: Monitoring the plans to ensure that they are being carried out properly.
This conception of managing has had, and continues today to have, a decisive impact on managerial
thought, education and practice. Many business organisations even today find the functional view of
managing useful for purposes of in-house managerial training and development.

I PRINCIPLES oF MANAGEMENT
At the operational level, Fayl asserted that managers should apply foulteen principles. According to
him, these principles can be applied in all rypes, functions, levels and sizes of organisarions. This had
earned him the title of uniuersalist. These are given below:

L Division of work: This is the principle of specialisation which applies to all kinds of work. The
more people specialise, the more efficiently they can perform their work. Specialisation increases
output by making employees more efficienr.
2. Authority and responsibility: Authority is the right to give orders and the power ro obtain
obedience. A manager might use both his official authority and personal authoriry while getting
64 I Monogemenl Text ond Coses

things done. Oficial authorit! is derived from the managers position and personal authoriry ts
derived flom personal qualities such as intelligence, experience, pasr sewices, etc. Responsibiliry
arises out of assignment of an activiry. An individual to whom aurhoriry is given to exercise
Powet must also be prepared to bear responsibility to perform the work in a satisfactory
manner.

3. Discipline: Employees must obey and respect the rules that govern rhe enterprise. Good
discipline is the result of effective leadership, a clear understanding berween management and
workers regarding the organisationt rules and the judicious use of penalties for violation of the
rules.

4 Unity of command: An employee should receive commands from only one superior. Dual
command, as advocated by T@lor in his principle of functional foremanship where a worker
receives orders from a nutnber of functional specialists, undermines aurhoriry and puts discipline
in jeopardl'. Fayolbelieved that when an employee reported to more than one superior, conflicts
in instructions and confusion of authoriry would result.
5. Uniry of direction: This principle calls for 'one manager one plan' for all operation.s having the
same objective. For example, the personnel department in a bank should nor have two directions,
each with a different recruitment policy. The unity of direction principle,
when applied properly, ensures uniry of acrion and facilities coordination.

6 Subordination of individual interest to the common good: In any organisation, the interests of
employees should not take precedence over the interests of the organisation as a whole. This
can be achieved when managets set an example through their good conducr and behaviour.
They must be honest and fair in dealing with internal groups. They must be prepared to
sacrifice rheir personal interests whenever such interests are in conflict with organisational
lnterests,

Remuneration of personnel: Compensation for work done should be fair to both employees
and employer s. Fayol did not favour profit-sharing plan for workers but advocated it for managers.

8 Order: Materials and people should be in the right place at the right time. People in parricular,
should be in the jobs most suited for them. The general principle in this respecr should be 'a
place for euerything and euerything in its pkce' and 'a place for euerylne and eueryone in bis pkce.'

c)
Centralisation: Decreasing the role of subordinates in decision-making is cenrtralisation;
increasing their role is decentralisation. lfhether decision making is centralised (to management)
or decentralised (to subordinates) is a matter of proper proportion. Fayol feh that managers
should retain final responsibiliry but also need to give their subordinates enough aurhoriry ro
do their jobs properly.
I0. Scalar chain: The graded chain oF authority from top to bottom through which all
communications flow is termed as 'scalar chain'. However, if following the chain creares
communication delays, ctoss- communication (gangplank principle) can be permitted, if agreed
to by all parties and superiors are kepr informed.
11. Equity: N{anagers should be Fair in dealing with employees. Equity is the combination of
justice and kindness. The application of equity requires good sense, experience, and good
nature for soliciting loyaliry and devotion from subordinates.
 Chopter 3 Development ol Monogement Thought t 65

12. Stability of tenure: Stabiliry of tenure is essential because time is required for an employee to
get used to new work and succeed in doing it well. Management musr, therefore, implemenr
Practises which encourage long-term commitment of employees. Instability of renure can
significantly affect the fortunes of a company.
13. Initiative: Employees must
be encouraged to think through to implement a plan of action, even
though some mistakes may result. The opportunity to perform independently is an essenrial
component of employee growth and development.

14. Esprit de corps: This principle states that 'union

is strength'. Promoting team spirit will give the
organisation a sense of uniry. To Fayol, even small factors could help to develop this spirit. He
suggested, For example, the use of ve rbal communication in place of formal, written
communication wherever possible.

I UNIVERSALITY OF MANAGEMENT PRINCIPLES

Since management is universal among all organisatio ns, Fayol argued that those who acquire a general
knowledge of managerial functions and principles can manage all rypes of organisations. He argued
that anyone interested in managing an enterprise could learn these priniciples and apply successfully.
In order to become a managet however, certain qualities of head and heart are needed (physical
health, mental vigour, character, etc).

I MANAGERIAL SKILLS
Fayol emphasised the need for managers to acquire certain unique skills in order to do their work
properly. He listed the following qualities of a manager:

a Physical (health and vigour).

a Mental (abiliry to understand, learn; apply judgement and adapt to different situations).
a Moral (energy, initiative, firmness, loyalry tact and digniry).
a Educational (acquaintance with matters not related to the function performed).

a Technical (specialised knowledge relating to one's area' of specialisation, especially .about

machines, work processes, etc).

a Experience (relating to the work carried out).

According ro Fayol, there is nothing mystical about managerial skills and knowledge. This can be
acquired through formal study and training.

I CONTRIBUTIONS OF FAYOL'
Fayoli conrrlbution to management is unique and valuable. He provided a conceptual framework for
analvsing the management ptocess. He (i) proposed that all operations in a business can be classified
into 6 major heads where management is the most important one; (ii) listed planning, organising,
commanding, coordinating and controlling as the main elements of management; and (iii) proposed
l4 principles of rnanagement which could be applied universally. A number of currenr ideas and
practices in management can be directly linked to the contributions of Fayol. Till recenrly, many
management textbooks were written along the guidelines provided by Fayol. By emphasising that
management skills are universal, Fayol has done a signal service to the propagation of managemenr
66 I Monogement Texl ond (oses

conceDts. Fayol always believed that managerial abiliry could be applied to the home, the church, the
military, the school, politics as well as to industry. This has ultimately led to the mushrooming growth
of management institutions throughout the globe

T LIMITATIONS
Administrative theory (as propagatedby Fayol, Moonqt and Reiley, Urwich and Barnard), is criticised
on the following grounds:

a Lack of empirical evidence: The theory is not supported by empirical evidence. Some of the
terms and concepts have not been properly explained by Fayol. For example, the principle of
specialisation does not tell us the way to divide the tasks. The so-called principles of management
have been dubbed by critics (Simon, Stephenson) as proverbs' comparable to folklore and folk
wisdom.

a Neglect of human factor: The theory views human being as passive and capable of reacting
only to organisational rules and economic incentives. Human attributes such as emotion,
attitude, creativity have been totally ignored.

a False assumptions: The theory assumes that all organisations can be managed by the same set
of rules and principles. It does not recognise the differences in tasks and problems that confront
organisations. Formal authority, again, is not sufficient for managers to control employees.
They must act differently in different situations, assessing their own strengths, organisational
needs, union pressures, competitive reactions etc from time to time. Rules have to be applied
carefully looking at the internal and external dynamics of the organisations.

a Pro-management bias: It suffers from pro-management bias. It is more concerned with what
mangers should know and do rather than with a more general understanding of managerial
behaviour. It does not offer guidelines as to when, where and how the principles have to be
applied.

a Historical significance: It has only historical significance. It is more appropriate for the
past (where the environment was stable, predictable) than for the present (where the environment
is turbulent, competitive and continually changing). As we all know, getting work from
subordinates through the use of commands, instructions and force is not possible in the modern
world.

Toylor vs. Foyol

ffenry Fayol is known as the father of modern management theory. This title recognises his pioneering
efforts in systematising the management principles. Scientific management was concerned with
increasing the productiviry of shop and individual worker. It was a philosophy concerning the
relationship becween people and work. The activities of management received little attention. As
more and more people were entering the management ranks following increased business acriviry,
the study of management began to receive attention. Questions like what management is, what
organisational principles are, and the methods by which managers could more effectively perform
their jobs have been advanced frequently. Henry Fayl answered these questions. From his practical
 Chopter 3 Development of Monogement Though t 67
experience as the managing director of a large French coal mining firm, he has developed a blue print
for a cohesive doctrine of management - one which retains much of its force to this day. He originated
the symbol of formal organisation, the organisation chart, which, with his organisational manual of
job descriptions, remains the chief instrument of business management. He produced ideas on
human relationships.'Not the least, he was a firm advocate of the view that management can and
should be taught. This was a revolutionary idea when he first pronounced it in 1908.

Fayolwas a contemporary of Thylor. But unlike Thylor, Fayol concentrared on rhe activities of all
managers and produced a book from out of his personal experiences. The works of Ta/or and, Fayol,
however, are essentially complementary, namely:

a Both believed that proper management of personnel and other resources was a key to
organisational success.

a Both applied scientific methods to the problems of managemenr.

a Both had the experience of industry and developed their ideas through practical training and
exPeilence.

The major difference in their approaches centered around their orientation. Tayhrwas a scientist,
came through the ranks and concentrated on the operative level. Fayol was a practitioner. He spenr
most of his time in executive positions and had more of a rop management perspec tive. Taylor paid,
more attention to the technical side of work (job design, standardisation of procedures, proper
placement of people, proper training, etc.) to improve efficiency of work. Fayol placed more emphasis
on the administrative side of work. He laid more emphasis on rhe functions and principles of
management in general.
Thble 3.1
Taylor vs. Fayol
Basis of Comparison Taylor Fayol

o Perspective Operative and shopfloor level. Top level.

o Focus Technical side ofwork. Administrative side of work.
o Anention Increasi ng productivity through work Imprcving overall adminisrration
simplification, time and motion by observing certain principles.
studies.

o Gchniques used Scientifi c measurement of work Personal experiences passed on in

through experimentation and the form ofuniversal principles oI
observarion, management.

o Personality Scientist. Practitioner.

o Major-contribution Provided a major basis for Produced a grstematic theory oF
accomplishmenrs on rhe shop floor. management which can be
studied, anaJysed and applied.

Crilique of Clossicol Theory

The principles around which classical theory was built have been attacked by management thinkers
on various grounds. These have been summarised in table 3.2.
68 r Monogement Text ond [oses
Thble 3.2
Criticism of Classical Theory
1. Static view of organisations. Classical rhcory rakes
static view ofthe organisation. !7hen organisations were
in a relatively stable and predictable environmenr, rhe
classical predictions seemed sound and valid. Today, with
organisarional environments becoming more complex and
turbulent, rhe classical prescriptions seern less appropriate
and out oFdate.
2. Closed system view. Classicists viewed an organisation
as a closed system. A closed system perspectivc is closed-
loop. No internal input is recognised. There is no
environmenr and hence no intcracrion with outside world.
Dehumanisation of organisation. Cllssical organisirtion
theory has been artacked as atr abscraction that overlooks-
hurnan bchaviour, the non-rationll elements in human
conduct and their implications for opcrarives. Sornc even
clainr rhrt thc rheory is incornpatible wirh hulnan narure.
Classical organisation theorl' views workers
autonlatiolls, they rre rnachines. There is oDe bcst way to
do each job, a;rd workers were expected to conform to this
rationalised behaviour in perforuring tasks. Thus, the
rheory ignores man as a very complex hurnan orga.nism.
Most oFthe behaviour:rJ aspecrs have becn ignored except
those relatiri$ to pro6t maximisatiotr. Under such
conditions (boring, dehumrn;siug and authoritariirn),
the workers either protcst or give iu, at sorne cost to their
psychological well being. Anger that does not erupt may
be frozen into schizoid, depressed characters who escape
into generirl ;rlienarion, drugs aud fanrtsies. (Kelly p. 64)
Anti-democratic bias. Classical orgauisation theorystifled
people: it robbed individuals oFthcir selF-respcct, digniry
and personal freedom. lr is assumed that man is wcrik,
sick and incrpable oflooking aFter hiorself(TheoryX).
Essentially he does nor want to flourish but wants ro
dimir,ish. It is for his own good he wants to be controlled.
On the other hand, ihe manager is "unselfish" and acrs
always in tlre-workers inrerest. It is, unfortunarely, a fact
thar "a manager is healthywhilc everybody else is sick. It
assumes that the rnanager is srrong while everybody else
is u,eak. It assumes that the manager knows while
everybody is ignorant. Ir assumes that the nranager is
right, whereas everybody else is srupid" (Druckerp.244)
As poinred out by Mason Haire" rhere are implicit
msuurprions about man on which classical organisarion
theorl' 5ss115 to be based. He is lazy, short sighted,
liable to make mistakes, has poor judgement and may
even be r lirrle dishonest, (p. t78).
a Keith Davis. Classical organisation rheorymaybe compared
to a road map. It gives a staric picture ofan ongoing siruation.
A map does nor rell where road repairs will be, whether a
bridge will be washed out or whether a draw-bridge will be
up or down when you conre to it.
Kae and Kahn. Classical theory "was almost always inadequare
in dealing with the complexities of organisarional $rucrure
and functioning".
Katz and Kahn. Classical theory ncglccted many rypes of
input-ourpur exchanges It restricted inpur ro raw materials
and labour power. (Social supporr ofsurrounding structures
are ignored). On the outprrr side, there was a similar exclusion.
Ofall outcomes besides the physical producr exported. Again
lirtle artention is paid to the sub-sysrem olorganisarion with
rheir differenrial dynanrics and their own interchange within
the organisation.
Keith Davis. Classical organisation rheory is strong in rask
support, it is rveak in psychological support.
Shelly and Carlisle. Classical organisation theory is too
mechanistic and ignores the major lacts of human nature.
as Chris Argyris. The forrnal organisation principles make
demalds ofrclarively healthy individuals rhat are incongruenr
with rheir needs. Frustration, conflicr, lailure and shorr-terrn
perspective are predicted as resuitanrs of rhis basrc
incongruency. (p.74).
PfiFfner and Sherwood. He listed rhe following reasons in
support oFthe anti-democratic vicw ofundemocratic sct up in
a classical organisation structure (p. 99)
a Orders always went down (only managers are capable of
thinking positivell'and deciding on appropriate action
patterns).
o Politics generated at the top (only managels can rhink
creatively and decide on an appropriatc policy to govern
behaviour).
o Comnrunication was one way (rwo-way communicarion
dilutes mar.ragers' authoriry and control). Resistance is
su bversive.
o important. Labour
The task is is a comnrodity. So manager
se lfish,
can dispose ofpeople, he would oFgoods and properry,
as
ifthey lail to rurn out satisfactory task perFormance (workers
mere economic tools?).
Conrd,
 Chopter 3 Development of Monogement Thought t 69
a Unquestioned authoriry is essenrial ro rrample down
resisrance from workers/unions (managem.ni id.ology
au thorirarian, undemocratic?).
5 Classical assumptions and values. 'lhe classical theorisrs
Joe Kelly. Classical values have a cerrain no-nonscnsc
are accused of making too sirnple and rnechanisric
let's get-o ty. There are essenrially
assulfiP ttolts:

a
o
thc baslc unir oForganisatior.r is the position.
organisation is based upon jobs and tasks.
^i;;*
posrpone consumprion, save for a
are essentially doers who find ir hard
iffi:',",ll,1.',;f,::,:
rainy day. Classical managers
to
o workers are autolnations, machines, inert instruments delegate. Over rhe years, managers have not abandoned
in thc production process. these classical values but rather have added some of
the values from the inexisrential system like achievement,
o workers are morivared byrational choice. recognition, visibiliry etc. Further, execurive values vary
o workers are relarively homogeneous and relatively along many differenr dimensions and vary by organisational
unnrod ifiable. level.

a ernpha.sis on detection oferrors and their rectification Classical values are cienryand profir
rftcr rhey have happened. maximisation a defined. No
wonder, menagers when the music
o onebestwayto doeachjob. stopped.
o unharnpered aurhoriry ro superiors to deal with
personnel problems.
a one-way communicarion throrrgh rhe chain of
contm:rnd
o nr;rrrrgement values have leaned heavily toward
financial incenrives as thc major motivation of nrean
ar work.
. organisation (managers) wedded to rhe value sysrem
of productive el{icienry and maximisarion of fi nancial

(Mason Haire pp. 4-5,Dale p. 176, Pfiffner and

Sherwood, pp. 52- 55,96-99)

6. Classical principles. A major criticism is rhat classjcal
organisation principles are too broad, roo general to
provide the supporr for designing an organisarion. At
times, some of the principles contradict orhers as for
example, unity of command is incompatible with the
principle of division of labour. The principles of
centra-lisarion and decentralisarion also offer examples
of
contradicrion. Moreover the so called principles have
uot been viewed under controlled rcpearable scientific
conditions. Irr thc absence oFa rigorous scienrific basis,
no wonder, Simon dubbed rhe principles as provcrbs
comparable to Folldore and folk-wisdom. In the light oF
such blisrering arracks, the clainr of classical wrirers
regarding rhe "universaliry ofprinciples" appears to be
ridiculous. They have only rried ro pass on their ideas
as universal trurhs. The Following objections have been
raised by critics against the classical principles:
Shetty and Carlisle. The classical theory is simplistic. It
contains contradictory principles and is normative, rather
rhan empirical.
Scott and Mitchelland Birnbaum. Clas.sical thcoryhas builr_
in, logical contradictions. For instance, rules are framed to
govern behaviour. However, people Frequenrly seek to get
around rules. To conrrol "deviant behaviour" additional ru-ie.
are formulared and the cycle goes on over and
ovcr. again resulting in a rule-oriented bureaucracy
rhat is counrer productive ro organisariooal efficiency. No
wonder, the classical model breaks down under the r,r"in of
its internal consistencies (p. 39).
Kast and Rosenzrveig. Classical concepts were wrirren by
practrcroners in management and were bxed only on personal
experience and limited observarions (p, 70)

Classical Principles Objections by Critics

(a) Division of labour: The division of labour is rhe
cornersrone among the classical pillars. According
to this principle, work musr be brokerr down ro
Scott, Mirchell and Birnbaurn
r Division oflabour causes great funcrional interdependency
among work activities leading to srress and strain. Empire
Contd.
70r Monogemenl Texl ond [oses
provide clear areas oFspecialisation anci to improve
rhe rcchnical performance of the organisation.
(b) Departmentation. After the work has been divided
into specialised tasks, classicists prescribed rhe
grouping of these rasla according to similar work
characterisrics. This is called the principle of
departmentation. Common basis of departmentatiou
include: function, product, clientele, area (called as
principles of departmentation).
(c) The scalar principle. Classicists prescribed a scalar
chain of hierarchy dicrated by the members of
the organisarion from top to the bottom.
Hierarchical structures demand coordination at the
top. The scalar principle has certain implicit
assumPHons:
r the part at the top can direcr and control the pan at
rhe bottom,
I power centralisarion at thetop level.
a man-ro-man relationships more important than
group-to-group relationships.
I so far as the delegation process is concerned,
the capaciry (abiliry) ofthe individual is equated
to the authoriry of the funcrion (command and
task).
building tendencies develop. Narrow specialisation tends
to divide the organisation into enclaves ofauthoriry and
influence.
o The routine and boring nature of work dampens
enthusiasm, it also depersonalises work as an individual
finds little meaning in standardised tasla.
r Most people are not able to see the big picture and rhe
relationship oftheirjob to it (pp. 35-36)
Rocco Carzo Jr The fragmentarion and routinisation oFwork
(demands compliance to rules from orga.nisational members)
has dire implications for organisarions. The organisation
may suffer because the rewards for submissive compliance
produce apathy, indifference, non-involvement and alienation
on the part of group members.
Rocco CarzoJr
r The grouping of persons according to similarities in
rheir work may be contrary to tle natural development of
human organisations.
r The simplicity and rationaliry of formal structure is open
to doubr. Apart from the form basis suggested by
classicists, other input variables exist which will affect
rhe actual planning of departmentation like culture,
environment, political factors, rype ofpersons, erc.
Gulli&
o The principles ofdepanmenration are prescriptive rather
rhan descriptive. Theysrate how work should be divided
rather than how work is actually divided.
These principles are difficult to apply to a speci0c
organisation since they often overlap, are sometimes
incompatible with one another and are quite vague.
They neirher allow for a realistic analysis ofthe existing
organisation nor do they infact provide workable plans
for improvements.
Aygyris. Hierarchy, like specialisation, is basically
incongruent with the needs ofmature personalities. Such a
structure makes individuals dependent upon and subordinate
to leaders. They have I itrle control over environment, tieir
time perspective is shortened.
Rensis Likert. The man-ro-man set up impairs
communication system. Each member (department) tries
to filter information to obtain a decision favourable to
himsel[.
Pfiffner and Sherwood. The formal authoriry pyrarnid is
influenced by a member of other social processes which
clearly leave their mark in organisational behaviour. The
Iogic of formal relarionships is not the only logic prevailing
in human organisations (pp. 17-32).
Question of unity of command: In reality, multipte
command is the rule not an exceprion.
Contd..
 Chopter 3 Development of Monogement Thought . 71,

(d) The line and staffprinciple. Classical organisation rheory Alien and Melville Dalton. Human behaviour disrespects
points out clear-cut, near division ofauthoriry inro line the best laid organisational plans and the stories ofthe line and
and staffpositions. staff confl icrs are part of folklore.

Hicks and Gullets (p. 39). The division creares srarus

problems. Line managers are viewed as first-class members
and staff officers are viewed as being subsidiary/overhead,
second class members.

(e) The span of conrrol principle. The principle
oF span oF control sripulates that the number of
subordinates supervised direcrly by one execurive be
limited. Writers like Graicuans, Urwick tried ro resrrict
the principle to a marhemarical expression.
Mason Haire (p. 295), Critics like Haire are too quick
to point out rhat mathematically possible relationships
among people are rhe Ieasr imporrant determinares ofspan. He
calls Garicuna's analpis of social relariooships Just plain silly'.
Herbert A. Simon (pp. 20-36). Simon points out
that adherence ro rhe principle of span of control
conflicts with the principle rhat demands a ,ninimum number
of organisational levels. Limired spans widen the administrative
distance berween individuals, increase the number ofscalar
levels leading to excessive red tape, wasre oftime and effort.

\?'aino'W Soiyanen (p. 5). Span is a fable not a fact.

Neo-Clossicol Theory
In the 1920s and 1930s, observers of business managemenr began ro feel the incomplereness and
shortsightedness in the scientific as well as administrative managemenr movements. The scientific
management mov€ment analysed the activities of workers whereas administrative management wrirers
focussed attention on the activities of managers. The importance of the man behind the machine, the
importance of individual as well as group relationships in the workplace was never recognised. The
social aspects of a worker's job were totally ignored; the emphasis was clearly on discipline and
control rather than morale. The human relations theory (also called neo- r Human relations
classical theory) tried to compensare for the deficiencies in classical theory theory: A movement in
(scientific management and administrarive managemenr) modifring it with manaSement thinking
and practise that
insights from behavioural sciences like psychology, sociolugy and emphasised satisfaction
anthropology. This rheory gained populariry after the famous studies of human of emplovees bqsic
needs as rhe key to
behaviour in work situations conducted at the \Y/esresn Electric Company
incroased worker
from 1924 rc 1933. These studies eventually became known as rhe productivity.
'Hawthorne Studies' because many of them were conducted at 'Wesre^rr
Electrict Hawthorne plant near Chicago. I Hawthorne studies:
T HA\TTHORNE EXPERIMENTS
A group of studies
conducted at the
Hawthorne plant of the
The Hawthorne researchers began with illumination experirnents with various Western Electric
groups of workers. This experiment involved prolonged observation of rwo company during the late
1920s and early 1930s
groups of employees making telephone relays. The purpose was to determine
whose results ultimately
the effects of different levels of illumination on workers' productiviry. The led to the human
intensity of light under which one group was sysremarically varied (test group) relations view of
management.
while the light was held constant (control group) for the second group. The
productivity oF the test group increased each time the intensiry of the light increased. However,
productiviry also increased in the control group which received no added light. The researchers felt
that something besides lighting was influencing the workers' performance.
 72 r Monogement Text ond Coses

In a new set of experiments, a small group of workers were p[aced in a separate room and a
number of things were changed; wages were increased, rest periods of varying length were introduced.;
the workday and worh,veek were shortened. The researchers, who now acted as friendly supervisors,
allowed the group to choose their own rest periods and to have a say in other suggested changes.
'Workers in the
test room were offered financial incentives for increased production. Over the two
year period, outPut went up'in both the test and control rooms (surprisingly, since the control group
was kept on the same payment schedule) steadily regardless of changes in working conditions. \7hy?

Part of the answer may be attributed to what has come to be called the 'Hawthorne Effect'. The
I Hawthorne effect: workers knew they were part of an experiment. They were being given
The possibility that special attention and treatment because of the experiment. They were
individuals singled out
for a study may improve
consulted about work changes and were not subject to the usual restrictions
their performance imposed from above. The result of this special arrenrion and recognition
simply because of the caused them to catry a stimulating feeling of group pride and belongingness.
added attention they
receive from the Also, the symparheric supervision received by the members might have
researchers, rather than brought about improved attitudes toward their jobs and job performance.
because of any specific At this stage, the researchers were interested in finding out clear answers to
factors being tested.
the question: 'Why the aftitudes of the employees had become better after
participation in the test room?

T INTERVIE$rING PROGRAMME
Mayo iniriated a three year long interview programme in 1928 covering more than 21,000 employees
to find out the reasons for increased productiviry. Employees were allowed to talk freely (non-directive
interviewing) and air their opinions in a friendly atmosphere. The point demonstrated by this
interviewing programme is central to the human relations movement. If people are permirred to talk
about things that are important to them, they may come up with issues that are at first sight
unconnected with their work. These issues may be, how their children are doing at school, how the
family is going to meet the ration expenses, what their friends think of their jobs, and so on. Gking
about such mattets to a sympathetic listener who does nor inrerprer is therapeutic. '!?hen researchers
began to examine the complaints made by the employees they found most of complaints to be
baseless. Many times nothing was done about the complaint, yet, after an interview the complaint
was not made once again. It became apparent that often workers really did nor want changes made;
they mainly wanted to talk to an understanding person who did not criticise or advise about their
troubles. Thus, for the first time, the importance of informal work groups is recognised. To find out
more about how the informal groups operated, the bank wiring room experiment was ser up.

In this experiment, 14 male workers were formed into a small work group and intensively observed
for seven months in the bank wiring room. The men were engaged in the assembly of terminal banks
for the use in telephone exchanges. The employees in the group were paid in the regular way depending
on ,the efficiency rating plus a bonus based on average group effort. Thus, under rhis system, an
individualt pay was affected by the output of the entire group and by his own individual ourpur. Ir
was expected that highly efficient workers would bring pressure to bear on less efficient workers in
an attemPt to increase output and thus take advantage of the group incentive plan. However, these
 Chopter 3 Development ol Mon-gemenl Thought t 73
expected results did not corne about. The researchers found that the group had established its own
standard of output and this was enforced by various merhods of social pressure. Output was not only
being restricted but individual workers were giving erroneous reporrs. The group *", op..",i.,g *.il
below its capability and was leveling output in order ro prorect itself. Thus, *o.k grorrp norms,
beliefs, sentiments had a greater impact in influencing individual behaviour than did the economic
incentives offered by management.
Thble 3.3
Pros and Cons of Hawthorne Experiments

Pros C,ons

a Man is not motivated by money alone; ro motivate o Mayo overstressed er<per.imentation and drew condusions
people, a healrhysocial climate is necessary. on the strengrh ofobservations about a small sample oI
employees.
r Iftreated well, human beings can expand their energies
and show good results. o The experimenrs lacked a scientifi c basis. The choice of
work, the employees, the work environmenr etc., was
o Groups have more influence on workers than
not scientific.
organisation rules.

o a The conclusions of Howthorne experiments were open

Friendly superuision ensures good results, better morale
ro doubt as the sample was not sufficiendy representative.
and healthy inrerpersonal relarions.
o Mayo exhibited pro-management bias by rhinking that
management knows what is best for workers (who are
mostly driven by emotions, sentiments etc),

o Mayo wanted ro humanise the workplace by keeping

workers in good humour always. However, there is no
guarantee that happy workers will be producrive.

I HUMAN RELATIONS: KEY CONCEPTS

The Hawthorne experiments, thus, indicated that employees were not only economi.c beings, but
social and psychological beings as well. The man at work is motivated by more than the sarisfaction
of economic needs. The main emphasis should be on creating a humanistic or informal organisation
in place oF a mechanistic or formal organisation. The organisarion musr be democratised and people
working therein must become part of 'one big happy family'. In the words of Keitb Dauis, "Human
relations is motivating people in organisations in order to develop teamwork which effecrively fulfils
their needs and achieves organisational goals." The whole philosophy of human relations is built
around the following ideas:
Table 3.4
Features of Human Relations
Human relarions strives to create a positive work environment in which people can simultaneously fulfil their own needs as
as those ofthe organisation. The goals ofproductiviry and employee satisfacrion are inextricably inrerwoven.
well

The focus is on people. \7'hen people management stimulates more ard better work, we have sound human relarions in the
organlsatlon.

The ultimate goal of creating sound human relations is to help make workers more productive, not just happier. Human
relations is essentially concerned with motivating people ro peak performance.

a The individual: According to human relationists, each person is unique. Each is bringing to
the job situation certain attitudes, beliefs and ways of life as well as certain skills-technical,
social and logical. Hence, the individual is not only motivated by economic factors, but is
motivated by multifarious social and psychological factors.
74 r Monogement Text ond Coses

The'Work Environment

Figure 3.4
Human Relations in Action
a The work group: Work is a social experience and most workers find satisfaction in membership
social groups. Unless managers recognise this, human relations at work will not improve. Good
interpersonal and intergroup relationships among people need to be maintained to obtain
productivity gains.

a The work environment: Managers have to create positive work environment where the employee
finds it easy to achiele organisational goals as well as his own personal goals. Positive work
environments ar€ those where: (i) the goals are clearly defined, (ii) incentives are properlT used
to improve performance, (iii) decisions are timely and participative, (iv) conflict is confqonted
openly and squarely, and (v) the work is interesting and growth-oriented.

a The leader: The leader must behavc in a way that generates respect. He must be able to adjust
to various personalities and situations. He mupt offer a pleasant work climate where bossism is
totally absent and where members are allowed to have a say in the decision-making process.

T PARTICIPATIVE CLIMATE
Participative $ranagemenr or decision-rnaking in which workers discuss with supervisors and influence
decisions that affect them - is a maior aspect gf human relations theory. As Mayo observed, "Before
every change of programme, the group is consulted (Illumination Experiments). Their comments are
listened to and discussedr sometimes 'their objections are allowed to negate a suggestion. The group
unquestionably develops a sense of participation." Researchers interpreted that participation resdlts
in higher productivity: "the girls have ceased to regard the man-in-charge as a boss........ they have
a feeling that their increased production is in someway related to the distinctly freer, happier, and
more pleasant work environment." The experiment showed that a supervisor can contlibute
significantly in increasing productivity by providing a free, happy and pleasant work environment
where bossism to totally and where members are allowed ,o p"rii"ip",. in decision-making
"Lr.n,
policies. Authoritarian tendencies mgst give way to democratic values. Instruction and coaching
must replace browbeating and dnvihg.

T REFINEMENTS IN NEO-CLASSICAL THEORY

The neo-classical theory attempted creation of workforce with high morale by using democratic
means. The focus was on people, incentives, democratisation of workplace, and social interactions
in direct contrast to what the classical theory emphasised i.e. order, rationaliry strucrure, rules and
regulations, specialisation, economic tools etc. Lett look into these differences more closely in table
3.5 and 3.6.
 Chopter 3 Development ol Monogement Thoughl t 75

Table 3.5
Refinements in Neo-classical Theory

Basis Classica.l Theory Neo-classiel Theory

Strucrure Impersonal, mechanical. Organisation is a social qntem.

Behaviour Organisational behaviour is a product Behaviour is a product offeelings, sentiments

of rules and regulations. and atdtudes.

Focus Primary focus is on work and the Primary focus is on small groups, on emotional
economic needs ofworkers. and human qualities of employees.

Emphasis People try to maximise rewards. Emphasises personaJ, security aod social needs
Emphasis is on order and rationaliry. of workers while achieving organisational goals.

Practices Authoritarian practices, elaborate rules Democratic practises, participation to

and regulations employed to obtain employees in decision-making in order to
results. improve morale and happiness ofemployees.
It recognises the importance ofhuman dignity
and values.
'Work Happyemployeer trying to produce more.
Results alienation, dissatisfaction.

Table 3.6

Focus People, groups. Machines, rules.

Philosophy Make workers happy. One best way of doing things.

Motivation Man wants company; loves interaction Mal is an economic animal.

and is guided by group goals.

Basis Inputs drawn from behaviourai sciences. Inputs drawn from phpical sciences.

Principles Groups dominate workplace; To bring order and achieve results, everyone
individuals invariably follow must adhere to a set of universal principa.ls
groups norms irrespective of rn every organ$ailon.
what management states.

Vorklife and Mayo wanted to keep workers in good The emphasis on standardisation, specialisation,
envlronment humour; emphasised friendly supervision rules, regulations make work life quite dull
and monitoring of group notms so as to and monotonous.
piovide a positive work climate.

T CRITICISMS
The Hawthorne srudies and the human relations school they spawned have been severely criticised,
and-our discussion would be incomplete without a brief discussion of these criticisms.

a Philosophy: Several economists claimed that by encouraging workers to develop loyalties to

anyrhing but their own self-interests, and by preaching collaboration instead of competition,
human relarrons would ultimately lead to reduced efficiency. No wonder trade unions ridiculed
it as a form of 'cota psychologt', which transformed factories into unthinking places of'comfort.
Inrerest in human relations is equated with tender-mindedness, sentimentality and unrealistic
desire io make everyone happy. Critics also charged that the human-relations movement, built
as ir is on a philosophy of worker-management harmony, is not only antithetical to a viable
capitalistic system but impractical as well.
76 r Monogement Text ond Coses

a Scientific validiry: The research carried out by Mayo and his associates had many weaknesses
of design, analysis, and interpretation. \fhether the researchers' conclusions are consisrent
with their data is still a subject of lively debate and considerable confusion. \7ith respecr to rhe
relay assembly test room srudies, for example, Ahx Carey pointed our rhar rhere was no arrempr
to establish sample groups representative of any larger population than the groups themselves,
and that no generalisation is therefore legitimate'.

a Short-sighted: The very fact that the human relations research is concerned with operative
employees bears ample testimony to the short-sightedness of the research findings. Further, the
approach lacks adequate focus on work. It tends to overemphasise the psychological aspects at
the cost of structural and technical aspects. It tends to neglect the economic dimensions of
work satisfaction. But as we all know, economic motivation is exceedingly strong and quite
often, economic explanations are appropriate for understanding human behaviour. It is small
wonder, it is labelled as a short-sighted ventilation therapy.

a Over concern with happiness: The Hawthorne studies suggested thar happy employees will be
productive employees. This, of course, is a native and simplistic version of the nature of man.
Studies have failed to show a consistent relationship berween happiness and productiviry. It is
quite possible to have a lot of happy but unproductive employees.

C Anti-individualist: The human relations movement is anti-individualist. Here the discipline of

the boss is simply replaced by the discipline oF the group forcing the individual to sacrifice his
personal identity and digniry. The individual may not find his true self and gain a stimulating
feeling of personal freedom by completely losing himself in a group. Further, there is no
guarantee that groups will always be instrumental in delivering satisfaction to members.

I CONTRIBUTIONS
Criticisms like these are not without merit, and it is probably rrue rhar the Hawthorne researchers
and their critics overstated their case. Yet, it would be a mistake to disregard the Hawthorne findings
as scientifically worthless. By stressing social needs, the human relationists improved on rhe classical
theory, which treated productivity almost exclusively as an engineering problem. They introduced
the idea of the organisation as an open system in which the technical and human elements are closely
interrelated. They emphasised the importance of employee attitudes in an era when wage incentives
and physical work conditions were often viewed as the only requirements for high productiviry. They
spotlighted the importance of a manager's style and thereby revolutionised managemenr training.
More and more attention was focused on teaching people managemenr skills as opposed to technical
skills. Their work led to a new interest in the dynamics of groups. Managers began thinking in terms
of group Processes and group rewards to supplement their former concenrrarion on rhe individual
worker.
Much of the aforesaid criticisms can be effectively countered by emphasising the fact that man
is a social being. Human relations philosophy as such is not the culprit. A humanistic approach to
organisational problems does not imply total negation of performance requirements of work place. It
is the use and practise to which it is put that accounts for most of its serious limitations. From a
Practical point of view, it really is of little importance whether the studies were academically sound or
their conclusions justified. What is more important is that they were significant in stimulating an
interest in human factors. As luanceuich et al., pointed cut, "if it did nothing else, it stimulated an
 [hopler 3 Development ol Monogement Thought t 77
interest in the human problems on managem€nt and thereby provided the I Behavioral sciences
necessary impetus for the presenr day behavioural sciences emphasis in approach: lt emphasises
managemenr theory." scientific research (into
various disciplines such
as psychology,
Behoviourol Sciences Approoch sociology, anthropology,
economics) as the basis
for developing theories
The behavioural sciences approach developed as a narural evolution from about human behaviour
the Hawthorne experiments. The Hawthorne researchers (Elton Mayo and in organisations that can
be used to develop
his Harvard c6lleagues) stressed the importance of emotional elements such
practical guidelines for
as feelings and sentiments to explain human behaviour and performance in manaSers.
organisations. The behavioural approach applies the knowledge of the
behavioural sciences-psychology, sociology and anthropology-to managing I Human resources
people. 'We have seen that the human relarionists believed that people are approach: lt suggests
that jobs should be
social beings who are morivared by social inreractions and that their job designed to meet
performance will increase when the job gives them opportunities to socialise. higher-level needs by
allowing workers to use
Behavioural scientists felt this to be an oversimplified model of human
their full potential.
motivation and began to undertake serious investigations.

T KEY IDEAS Basic Philosophy of Human

A number of behavioural scientists have
contributed ro rhe development of thi
approach- Among the front-runners was
Abraham Maslow, who developed a hierarchy
of human needs which became the basis for
explaining work motivation in organisations.
According ro Maslota, people generally have
five basic needs (physiological, safery social,
self-esteem and self-actualisation) and they
satisfy these needs in their order of
importance. For most people in our sociery
the lolver-order needs (physiological, safety
and social needs) are reasonablywell satisfied.
Therefore, they seek ro satisry socialisation
needs by interactingwith friends. Once these
needs are reasonably met, they seek to satis$,
higher-order needs, such as self-esteem and
self-actualisation, by using their energies,
talents and resources productively.
Behavioural scientists believed that people
be productive if they are given opportunities
to use their abilities and creative skills.
Building on Maslowi theory of human
needs, many behavioural scientists (C/rzi
Argyris, Douglas McGregor, Rensis Lihert)
argued that existing jobs and managerial
Resources Approach
i. People do not inherently dislike work. lf they
have helped establish objectives, they will
want to achieve them.
ii. Most people can exercise a great deal more
self-direction, self-control and creativity than
required in their current jobs (Theory y).
iii. The manager's basic job is to use the
untapped human potential in the service of
the organisations.
iv. The mdnager should create a healthy
environment wherein all subordinates can
contribute to the best of their capacities. The
environment should provide a healthful, safe,
comfortable and convenient place to work.
v. The manager should provide for self-direction
by the subordinates and they must be
encouraged to participate fully in all important
matters.
will
vi. Expanding subordinate influence, self-
direction and self-control will lead to direct
improvements in operating efficiency.
vii. Work satisfaction may improve as a 'by-
product' of subordinates making full use of
their potential.
Source: Fl.E. Miles: Theories ol Management
78 r Monogemenl Text ond Coses

Practises should be redesigned and restructured to give employees an opporrunity to satis$' their
higher-order needs. Although working independently, they proposed a common theme: People are
basically good, and, in order to stimulate their performance, management should humanise work.
People must be treated as assets (hence the name, human resources approach). They argued, for
instance, for increased participation by employees in those decisions that affected them; demonstration
by management of greater trust and confidence in people; increased emphasis to be given to integrating
individual and organisational goals, and allowing employees to self-monitor their own activiries in
place of external control measures. These behavioural writers argued for a strong humanist organisation
and suggested that managers shoulC deal with 'complex human beings' in different ways. The aim
should be to use the untapped human potential in the service of organisations by emphasising things
such as self-direction, self- control and creativity.
Table 3.7
Human Relations vs. Human Resources Approach

People need to be liked, to be respected, and to
belong.
The manager's basic job is to make each employee
believe that he or she is part oi the deparrmental
The manager should be willing to explain his or
her plans to the subordinates and discuss any
objections they might have. On routine marters, he
or she should encourage participation by them in
the planning and decision-making process.
'W'ithin narrow limits,
individuals and groups
should be permitted to exercise self-direction and
self-control in carrying out plans.
Involving subordinates in the communication and
decision-making process will help thern in satisfring
their needs for belonging and individual
recognrtron.
High morale and reduced resistance to Formal
authority maylead to improved performance. They
should, at least, reduce intradepartment friction arrd
In addition to wanting to be liked, respected, and needed
most people want to contribute ro the accomplishmenr
of worthwhile objectives.
The mangert basic job is to creare an environment in
which su r full range of
talensto gods.Indoing
nd taP theii
:l;i;.':oou,..,
The manager should allow participation in important
matters as well as routine ones. In fact, the more
important the decision, the more vigorously he or she
should artempr to involve the subordinates.
The manager should continually try to expand the
subordinates' use oF self-control and self-direction,
especially as they develop and demonstrate increased
insight and ability.
5 As the manger makes use of the subordinates'
experiences, insighrs, and creative abilities, the overall
quality of decision-making and performance will
lmProve.
Employee satisfaction is brought about by improved
performance and the chance to contribute creatively to
this improvement.

Source : R E. Miles, Managemenr

I CONTRIBUTIONS
Behavioural scientists have made significant contributions to our understanding of individual
motivation, group behaviour, inter-personal relationships at work, and the importance of work ro
human beings. They have virtually laid the foundation for the emergence of an exciting discipline,
human resource management, which emphasises the effective utilisation of human resources in
organisations.
The concepts of job enrichment (making jobs interesting and challenging), management by
objectives (a goal-setting process conducted jointly by employees and their superiors) and positive
reinforcement (rewarding good performance) were results of the behavioural science approach.
 Chopler 3 Devilopmenl of Monogement Thought t 79

I LIMITATIONS
The behavioural science approach, however, has several limitarions. First, the self-actualising view
(realising onet potential by using onet talents fully) assumes that all employees will seek self-actualisation
at work. Although some professional and managerial personnel may want self-actualisation, certainly
not every employee has the same desire. People have diverse needs; we cannor assume that everyone
is motivated by the same need in the same manner. Second, the behavioural scientists assume a grear
deal of compatibiliry between individual and organisational goals. But in realiry an individualt
desire to be autonomous and creative can be at odds with the organisationt need to be efficient,
orderly and predictable. Third, this approach discounted the non-human aspecrs of an organisation
such as task, technology and manufacturing. Fourthly, the behavioural approach fell into the same
traP as earlier approaches that searched for the one best way of managing. It assumed that the one
best way of managing is humanising organisations. In the words of Prof Stoner,'The models and
theories proposed by behavioural scientists to use jargon rather than every day language in
communicating their findings has also inhibiteo understanding and acceptance of their ideas. Finally,
because human behaviour is so complex, behavioural scientists often differ in their recommendarions
for a particular problem, making it difficult for managers to decide whose advice to follow'.

Quontitotive Approoch
Quantitative, scientific and systematic explanations gained populariry during Vorld Var II. The
sheer magnitude of the war effort caused the British and then the U.S. military services to look for
quantitative approaches for help in deploying resources in the most effective I Manatement
manner. The quantitative viewpoint focuses on the use of mathematics, science approach: lt
statistics, and information aids to support managerial decision-making and tries to increase
decision-effectiveness
organisational effectiveness. Three main branches have evolved over rhe through the use of
years: management science, operations management and management sophisticated
information mathematical models
systems.
and statistical methods.
a Management science: This approach aims ar increasing decision I Management
effectiveness th the use of advanced mathemarical models and information systems: lf
focuses on designing
statistical methods. and implementing
Features of Quantitative Approach
This approach, computer-based
uses on solving information systems for
use by management.
o Offers quantitative aids to decision-making; technical rather
develops quantitative tools to assist in than human behaviour problems. The
providing products and services. computer has been oF great help to this
o The primary focus is on decision-making. approach because it has enabled analyses of
Managerial choices in any situation depend problems that would otherwise be too
on criteria such as costs, revenues, return on complex.
investment, impact on other areas etc.
o Heavy elnphasis is put on computers and their
a Operations management: It is the
processing capabilities. Final solutions to function that is responsible for
problems are reduced to mathematical managing the production and delivery
formulae and these are subjected to further of an organisation's products and
analysis and processing to find viable services. It
includes fields such as
alternatives.
lnventory management, production
80 I Monogement Text ond [oses

planning, design and location, work scheduling and qualiry assurance. Operations managemenr
is often applied to manufacturing settings in which various aspects of production need to be
managed, including designing the production process, purchasing raw materials, scheduling
employees to work and storing and shipping the final products. Linear programming\assists in
input-output analysis. Queueing theory helps in inventory control; sampling theory helps in
profit planning, manpower forecasting; information theory helps in system design and data
Processlng.
a Management information systems: MIS is the name given to the field of managemenr rhar
focuses on designing and implementing computer-based information systems for use by
management. Such systems turn raw data into information that is put ro use at various levels of
management.
, BENEFITS AND LIMITATIONS
The assets and liabilities of the quanrirarive school may be summarised thus:
Thble 3.8
Assets and Liabilities of Quantitative Theory

Assets Liabilities
o Easy to define problems; identif' the variables o It erroneousl
impacting the same and pin point possible ways could be ide
of solvihg it. vital pieces
-oicrqg_---managers quanti6able
oPromotesdisciplinedthinking,f
establish fu nctional relationship berween idenrified variables.
to take a holistic view of multifarious faciors
influencing a decision situarion. o It is overly concerned with decisions; identification of
variables, collection ofdata; processing ofdata etc. There is
. in decision_ making
oo importance given to human relationships and individual
etween influencing needs and aspirations.
same ro definite
mathematical formulae. It oFfers valuable o Inputs For decision-making are not, often, readily available.
luantitative rools and techniques for making At the same time, managers cant postpone decisions for want
'rbjectively rational decisions. oIsuFGcienr data.

o Decision qualirydependson rhedatarhar isbeing (fed into

the computer) used. ]fthe data is not accurare and up-to-
date, it does nor serve any useful purpose.

Systems Approoch
I INTRODUCTION
The decisions taken by managers have wide ranging impacts. They affect the internal as well
as external grouPs in a significant way. The decision to shift the location of a plant, to close down
a centre' to throw off workers, to promote employees on the basis of 6E111-ry[alever may be
ths 6x5s-61eates a ripple effect. It is like throwing a rock into a quiet pond, creating ripples for
a long time. A simple instance of throwing'off alazy worker may invire trouble from unions and
even lead to an unexpected strike. So, when a manager takes a decision, he must understand
and anticipate its repercussions on the entire organisation and the environmenr. He must
aPpreciate the fact that his organisation is a totaliry of many inter-related, inter-dependenr parrs,
Put together for achieving cirtain objectives. This, in a nutshell, is the very essence of the
systems concePt.
 Chopter 3 Development ol Monogemeil Thought r 81

I THE CONCEPT
Systems theory is the 'big-picture' approach that overcomes rhe common t Systems theory: lt
weakness of viewing things in roo narrow a perspective. It attempts to view tries to solve problems
the organisation as a single unified, purposeful entiry composed of interrelated by diagnosing them
within a framework of
parts. Rather than dealing separately with the various parts of an organisation, inputs, transformation
the systems theory gives managers a way of looking at an organisarion as a Processes, outPuts and
whole and as a part of the larger, external environment. In so doing, sysrem feed back.
theory tells us that the activiryof an organisation affects the activiryof everyorher part. The job of a
manager is to ensure that all parts of the organisation are coordinated internally so rhar the goals can
be achieved. A systems view of management, for instance, would recognise that, regardless of how
efficient the production department might be, if the marketing .Iepartment do.s not anricipate
changes in consumer tastes and work with the product development department in creating what
consumers wanr, rhe organisationt overall performance will be hampered.
T SYSTEMS VOCABULARY
Over the years, the following terms have found their way into the language of management:
a System: A set of inter-related parts (sub-systems). Each part may have various sub-parts. These
Parts are mutually related to each other. Usudly a change in one part would lead to a change in
other parts.

a Sub-slntem: The parts that make up the whole of a sysrem are called sub-systems. And each
system may, in turn, be a sub-system of a still larger whole. Thus, a department may be a sub-
system of a plant, which may be a sub-sytem of a company, which may be a sub-system of an
industry, etc. There are five sub-systems within an organisation: (l) goal sub-system (individual
and group goals); (2) technical sub-system (tools, equipment, employee skills, knowledge); (3)
structural sub-system (authority layers and reladonships): (4) managerial sub-system (managers
who plan, lead and control); (5) psychosocial sub-system (psychological and social factors
influencing people at work).

a Synergn Synergy means that the whole is greater than the sum of its parts. A watch thar is
disassembled has the same number of parts as one that is properly assembled. However, the
assembled watch has a phenomenon that the disassembled watch lacks-it keeps time (rynergy):
Vhen the parts of an organisation are properly interrelated (such as an assembly line), the
outPut is much greater than it would otherwise be. Synergy represenrs one of the basic challenges
of management, getting all of the elements of an organisation functioning rogether so that
output is optimal.
a Open and closed system: A system is considered an open system if it interacts with its
environment; it is considered a closed system if it does not. An organisation that is not adaptive
and responsive to its environment would not survive or grow in any extended period of time.
It has to be responsive to demands placed on it by both its internal and external environments.
a System boundary: Each system has a boundary that separares it from its environment. In a
closed system, the system boundary is rigid; in an open system, the boundary is more flexible.
The system boundaries of many companies have become more flexible in recent times. For
example, oil companies wishing to engage in offshore drilling have increasingly had to consider
public reaction to rhe porential environmenral harm.
 82 r Monogemenl Text ond Coses

a Flow: An open system receives inputs from its environment which are transformed into ourpurs
in interaction with environmental variables. For a business firm, inputs would be material,
labour and capital. The transformation process would turn these inputs into finished products
or services. The systemt success depends on successful interactions with its environment; that
is, those groups or institutions upon which it is dependent. These might include suppliers,
unions, financial institutions, government agencies and customers. The sale of outputs generates
revenue, which can be used rc p^y wages and taxes, buy inputs, repay loans, and generate
profits for shareholders. If revenues are nor large enough to satis$' environmenral demands,
the organisation shrinks or dies. Thus, a system has flows of information, materials and energy.
These enter the system as inputs, undergo transformation processes within the system and exit
the system as ourpur as shown in Figure 3.5.

ENVIRONMENT

E INPUTS
t
PROCESSES
PROCESSES OUTPUTS E
N N

I I
R R
o o
N N
M M
E E
N N
T Feedback T

ENVIR NT
Figure 3.5
An Open Sptem

a Feedback: Feedback is central to system controls. As operations of the sysrem proceed,

information is fed back to the appropriate people or perhaps ro a computer so rhat the work
can be assessed, and if needed, corrected. Feedback provides warning signals regarding impending
dangers. For example, customer complaints may demand attention to product improvement,
customer service, etc.

I RELEVANCE AND USEFULNESS oF SYsTEMS THEoRY

Systems theory makes organisation'theorists search for integrative models rarher rhan be satisfied
with making lists of unrelated principles (Fayol, Tayh). It also emphasises looking at the'forest rather
than the trees. It uses a way of thinking that highlights underlying relationships. The practical
implications of systems theory for managers are enormous. Most effective managers operare with a
systems mentality even though they may not be consciously aware of it. As a marrer of course,
executives ask what effects a decision will have on others. They think before they act, implying a
 Chopter 3 Development ol Monogement Thought I 83
process of evaluating the impact of their actions will have. A conscious commitmenr ro sysrems
thinking requires explicit responsibiliry for forming decisions in rerms of the
entire organisation.
Instead of merely looking at the technical side (scientific managemenr)
or activities side (administrative
managemenr) or even the human side (human relations), execurives are now
forced to look at the
totaliry of the situation and arrive at decisions. They can now easily maintain a good
balance berween
the needs of the various parts of the enterprise and goals of th. fir-
*hoL. They can respond,
in short, to situational requirements in an effective way. ", "
T LIMIThTIONS
It is true that systems theory, provides a broad philosophical perspective that bridges academic
disciplines and mounts integrated attack on a variery of problems. It is objective and. is n"ot
influenced
by catch phrases like, 'one best way' and simplistic prescriptions like, 'a manager decides things
for
others'. However, the conceptual framework for understanding organisations provided by the
sysrems
theory, is too abstract. It does nor arrempr to identi$, siruational differences and factors.
Also, it
tends to overemphasise 'oneness', coordination and harmony when, in fact, organisations
have many,
natural' in-built conflicts, such as the supervisor as the man-in-the-middle. Providing more
specificiry
in terms of variables and'if-then'relationships in a situational conto<t is Ieft to the evaluation of the
situational or concingency approach.

Contingency (Situotion0l) Appr00ch

I INTRODUCTION
The problem with universal principles of management, as advocated by early theorists, is that few
principles are universal. Research has shown that management methods used in one circumstance
seldom work the same way in others. Parents find this out quickly when they realise that spanking
one child may yield good results while spanking another can be emotionally disturbing and disastrous.
Some employees are most often motivated by econornic gains while others have grearer need for
challenging work. Sdll others care only about protecting their egos. The same individual may be
motivated by different things in a variety of situations.

I THE APPROACH
contingency theory is based on the premise that situations dicrate managerial t Contingency theory:
action; that is, different situations call for different approaches. No single It argues that
way of solving problems is best for all situations. Because tasks and people appropriate managerial
action depends on the
in organisations differ, the contingency theorists (selznih, Burns and stalkex particular parameters of
woodutard, Lawrence and Lorsch, Jarnes Thompson andothers) argue that the the situation.
method of managing them must also differ. The choice of a particular method of managing largely
depends on the narure of the job, the people involved and the situation.

According to contingency theory, effective management varies with the organisation and. its
environment. Contingency theory attempts to analyse and understand these interrelationships with a
view towards taking the specific managerial actions necessary to deal with the issue. This approach
is both analytical and situational, with the purpose of developing a practical answer to th. q,r.riior,
hand. ",
84 r Monogement Texl ond Coses

T IMPORTANT ELEMENTS OF CONTINGENCY THEORY

Contingency theory has the following features:
l. Managerial actions are contingent on certain actions outside the system or sub-sysrem as rhe
case may be.

2. Organisational efforts should be based on the behaviour of actions outside the system so that
the organisation gets smoothly integrated with the environment.

3. Managerial actions and organisational design must be appropriare ro the given situation. A
particular action is valid only under certain conditions. There is no one best approach to
management, It varies from situation to situarion.

I IMPLICATIONS OF CONTINGENCY APPROACH

According to the contingency approach, there are no plans, organisation structures, leadership styles,
or controls that will fit all situations. There are few, if any, universal truths, concepts, and principles
that can be applied under all conditions. Instead, every management situation musr be approached
with the 'it all depends' attitude. Managers must find different ways rhat fit different situations. They
must continually address themselves with the question: which ethod will work best here? For
example, in order to improve productivity, classical theorisi may prescribe work simplification and
additionai incentives; the behavioural scientist may ricommend job enrichment and democratic
participation of the employees in the decision- making process. Instead, a manager trained in the
contingency approach may offer a solution that is responsive to the characteristics of the total situation
being faced. Organisations characterised by limited resources, unskilled labour force, limited training
opportunities, limited products offered to local mx1ks15-!vqrk simplification would be the ideal
solution. Job enrichment programme would work better if the organisation employs skilled labour
force. Managerial action, thus, depends upon circumstances within a given situation. No one best
approach will work in all situations. Applying a contingency/situational approach requires that managers
diagnose a given situation and adapt to meer the conditions presenr.

According to Robert Albanese, the sffength of contingency approach rests on two points; (i) First,
it focuses attention on specific situational factors that influence the appropriateness of one managerial
strategy over another, (ii) Second, it highlights the importance to managers of developing skills in
situational analysis. Such skills will help managers find out important contingency factors that influence
their approach to managing.
The major implications of contingency theory may be summarised thus: managemenr is enrirely
situational; managerial actions are contingent on internal and external factors; managerial actions
must be consistent with the requirements of internal as well as external factors.

T EVALUATION
The contingency approach is a useful instructional device in the sense that it compels us to be aware
of the complexity in every situation and forces us to take an active and dynamic role in trying to
determine that would work best in each case. Combining the mechanisric (Tafur) and humanistic
approaches (Mayo) the contingency theory suggests that different conditions and situarions require
the application of different management techniques. It helps in fitting the classical and behavioural
theories in a proper framework. It is an improvement over the systems theory in the sense that it
only examines the relationships between sub-systems of a specific organisation in a given environmenr,
 Chopler 3 Developmenl ol Monogement Thought I 85

but also offers solutions to particular organisational problems. The systems approach takes a general
view of organisational variables, i.e., technical, social, personal, structural and external variables.
The contingency theory, on the other hand, is concerned with achieving a 'fit' between organisation
and its environment. Practising managers, however, seem to find this theory tenuous because it does
not provide any specific set of principles to use.
Thble 3.9
Systems vs. Contingency Theory

Systems Theory C-ontingency Theory

a Organisation-environmenr relationship not explained r Spells out the relationship of organiation to its
dearly. environment dearly.

o Thkes a general view oforganisational variables (tedrnical, o Takes a specific view oFhow rhe organisation adjusts
social, personaJ, structural, external). to its environmentd demands. Mainlyconcerned wirh
of organisation to its rask
::T::ffi*:"rtations
o Considers all organisations to be similar. o Each organisarion is unique.

. V€ue and complex. o More pratmatic and action-oriented.

a Emphasises the synergistic effect of organisations and a Relates environment to specific organisation structure
recognises the external inputs. and design. It inregrates theory with practise in a
systems Famework.

Merely outlines interdependencies among systems and r Tiies ro identifr nature ofinrer-dependencies between
sub-systems. various parts ofan organisation, and their impact on
various other things.

Contingency theory is attacked by several theorists on rhe following grounds:

l. Paucity of literature: Contingency theory suffers from inadequacy of literature. It has not
developed to such an extent where it can offer meaningful solutions to different managerial
problems in a specific way. It is too simplistic to say thar 'managerial actions depend on
situations'. Instead, it must offer, in precise terms, what a manager should do in a given
situation,
2. Complex Contingency theory is theoretically complex. Even a simple problem involves analysing
a number of organisational components, each of which have innumerable dimensions. Often,
managers may find this to be a difficult and taxing exercise.

3. Defies empirical testing: The precepts advanced by contingency theorists cannot be put to
empirical testing in a concrete way. There are multifarious situarional factors to be taken into
account while testing the contingency theory. For example, a proposition that unless the various
parts in an organisation move in close coordination, the behaviour at various organisational
levels would not be effective-seems to be a sound one. But when put to empirlal testing,
several problems crop up almost instantaneously.

4. Reactive not proactive: Contingency theory is also criticised on the ground that it suggests a
reactive strategy in coping with environmental complexity. Instead, a proacrive strategy is
needed where managers would be able to steer the organisation through complex environments
with their creative and innovative efforts.
5. Incomplete: Critics argue that the contingency approach does not incorporare dl aspects of
systems theory and they hold that it has yet not developed to the point at which it can be
 86 r Monogement Text ond [oses

considered a true theory. Further, the goal of integrating functional, quanritarive, behavioural,
and systems approaches in the form of a contingency model may prove to be too difficult ro
realise because of the incomplete development of the earlier approaches. Critics also argue that
there is really not much that is new about the contingency approach. For example, they point
out that even classical theorists hke Fayol cautioned that management principles require flexible
application.
In spite of these valid critical expressions, contingency theory holds good at the micro-level,
where managers are forced to look into internal as well as external requiremenrs while managing
their organisations. It is small wonder, contingency theory is welcomed as a 'refreshing breeze in
management literature that clears away the humanistic and general sysrems 'fog'. The systems theory
takes a general view of organisation variables, i.e., technical, sclcial, personal, srructural and external
variables. The contingency theory, on the other hand, is concerned with achieving a 'fit' between
organisation and its environment. Kastand Rosenzweig have, therefore, rightly pointed our thar rhe
contingency theory'falls somewhere between simplistic, specific principles and complex, vague norions'.
The contingency theory, like the systems theory recognises that an organisation is the product of
interactions berween its various constituent parts (sub-systems) and the environment. In addition, as
a sort of refinement, it seeks to identifu the exact nature of interrelationships and interactions. In
contrast to the vague systems terminology and perspective, the contingency approach allows us to
specifically identi$' the internal and external variables that rypically influence managerial actions and
I organisational performance. Accordingly, what consrirutes effective managemenr varies with the
organisationt internal as well as external environment and the make-up of the organisational sub-
. systems. Thus, the contingency approach falls somewhere berween simplistic, specific principles
(classical theory) and complex, vague notions (systems theory). This approach provides a long sought
synthesis and brings together the best of all segments of what Prof Koontz has termed'managemenr
theory jungle'. The classical ideas and behavioural modifications are nor rejected, but they are viewed
as incomplete and not suited for all organisations. Similarly, the ideas of systems theory that emphasise
the interrelationship between parts also have not been rejected bur they are viewed as vague and
unspecific. fu a way of correction, the contingency approach provides a pragrnatic method of analysing
organisation sub-systems and tries to integrate these with the environment. Contingency views are
ultimately directed towards-suggesting organisational designs and managerial actions more suitable
for specific situations.

Modern Monogement Thought

Modern management thought (MMT) is an integrative theory in the sense that it combines the
valuable concepts of classical theory with the social and natural sciences. The source of inspiration
for the modern management theory is the systems analysis. Modern managemenr theorists pick up
where the Hawthorne researchers left off. MMT is characterised by the following (Hichs and Gullett):

a Open-system view: Modern management thought treats the organisation as an open system. It
interacts with the environment continually, in order to survive and flourish. It receives inputs
from the environment, processes them into meaningful products/services and offers them to
the environment. In this process, the organisation tries to adapt itself to the changing requirements
of environment continually.
o Dynamic and adaptive: Modern theory is dynamic. In line with changes in the outside
environment, it tries to adapt itself consrantly.
 Chopbr 3 Development ol Monogement Thought z 87
a Multilevel and multidimensional: MMT is both micro and macro in its approach. Ir is not a
paradox. Ir is macro when considered with respect to the entire narion or industry; ir is micro
with respect to internal parts of the organisation.
a Multimotivated and multidisplinary: MMT recognises the fact that behaviour is the product
of multifarious factors. In contrast to the classical view of the worker as an economic man
(motivated primarily by money), MMT views the individual as a complex being who can be
motivated in several ways (economic as well as non-economic incentives are important). MMT
is multidisciplinary in the sense that it heavily draws its conceprs from various disciplines.
Modern theory embraces economics, sociology, engineering, psychology, anthropology and
social psychology. Problem-solving and decision-making are the focal points for study and
research, drawing on numerous disciplines.

a Descriptive and probabilistic: MMT is descriptive rather than prescriptive or normative. It

does not tell how to handle things, it simply tells how the things are handled. It is a way of
describing an organisation and its Functioning. MMT is also probabilistic,
not deterministic. Deterministic system is one where the outcome is predictable and certain.
For instance, if you want to know the total of 420 and, 11, you press the buttons in rhe
calculator and the result will 6e 431, and not any other answer. It is a deterministic system.
However, probabilistic system is one where no uniquely determined outcomes exist. For example,
if you flip a coin into air, there is a chance of 0.5 of a head, but the outcome cannor be
obtained with cent percent certainity at the tim€ of tossing the coin. Organisations also fall into
this probabilistic system category. According ro Scott and Mitchell, "the modernists see the
organisation as a probabilistic system... there is a high degree of uncertainty in these systems."

a Integrative: The classical theory (consisting of scientific management, administrative management

and bureaucracy) focuses attention on the technical side of work whereas the neo-classical
theory (human relations r-heory) on the human side ofwork. Both theories discount the importance
of taking an integrated approach to minagement giving weightage to both economic as well as
social variables at work. MMT tries to correct these deficiencies by aggregating the classicai
components with the neoclassical band wagon.

Moior Contributions of Leoding Monogement Thinkers

I MARY PARKER FOLLETT (1868 - 1933)
M.P Follex was a social philosopher. She studied political science, history, law and economics at
Harvard and Cambridge. As a political scientist, she examined the activities of many organisations
in England and the United States. Though she did not manage any organisation, her ideas had clear
implications for management practice. Important contributions of Follett to management thought
may be summarised thus:

a Constructive conflict: According to Follett, conflict can be constructive. Conflict provides new
challenges to employees, brings out their abilities and talents and gives them activities interest
of and zesr. The best way to resolve a conflict is to integrate the parties involved in the conflict
and examine the ways of resolving the conflict in a cooperative manner.

a Law of the situation: One person should not give orders to another person but should agree to
take the orders from the situation. The head of the production department does not give orders
88 r lilonogemenl Texl ond (oses

to the head of the marketing department, or vice versa. Each studies the market and the final
decision is arrived at depending on market reQuirements.

a Group ethic importaltt Follett thought organisations should be based on group ethic rather
than individualism. Groups provide meaningful avenues for individuals to release their abilities
' in the service of the organisation. For managers, this means that their job is to harmonise and
coordinate group efforts. Managers and workers should view themselves as partners in the
production process.
a Leadership: For achieving best results, management should not be autocratic. lraders should
understand the importance of group activity and integrate the efforts of all to serve a common
PurPose.
a Authority and responsibiliry Follett argued that the concept of final authority residing in the
position of the chief executive should be replaced by the authority of function in which an
individual has final authority for allotted tasks. She pointed out that authority belongs to the
job and stays with the job.

a Coordination principles: According to Follett, coordination should be a continuous process; it

should start at an early stage. In other words, coordination should precede all other functions,
it should start before formulating plans and policies.
I RENSTS LTKERT (1903 - 1972)
Rensis Lihert, Director of the Institute of Social Research, University of Michigan, wrote two famous
books; New Patterns of Management and Hunun Organisation. According to Lihert, the traditional
job-centered supervision is mainly responsible for low productivity and poor morale of employees.
He, therefore, advocated the employee-centered approach where maximum participation would be
given to operatives while setting goals and making decisions. Lihert is best known for his classification
of management styles into four categories:

a System I (exploitative autocratic): Leaders have no confidence or trust in subordinates.

Subordinates are deprived of panicipation in decision-making.

a Sptem 2 (benevolent autocratic): Management has condescending confidence in subordinates

just as a master has towards a servant.

a S1rctem 3 (participative): but not total confidence in subordinates.

Leaders have substantial
Participation is meaningful and employees are permitted to participate in decisions affecting
their lives.
a Syntem 4 (democratic): Participation is meaningful, as leaders have complete confidence and
trust in subordinates.
According to Lihert, system 4 is an ideal management sryle and is associated with high productiviry
low costs and good labour relations. In an attempt to integrate individual and organisational goals,
Lihert developed the concept of 'linking pin'. In this approach, each work group is integrated with
the rest of the organisation by means of persons who are members of more than one group. Members
with such overlapping membership are known as 'linking pin. Accordingly, every employee acts as a
linking pin for the units above and below him. He is the leader for the lower level unit and is member
in the upper level unit.
 Chopter 3 Development ol filonogement Thought I 89

t ETTON MAYO ( 1830-1949)

Classical writers Iike Thllor, Faltol and \Y/eber viewed organisation as a machine, subject to certain
principles and laws in its design and management. They assumed that people and they
could be motivated by financial incentives alone. They emphasised 'rationality, ".. -".irirro
predictability,
impersonaliry technical competence, and authoritarianism'. The behavioural aspects have been tot"liy
ignored. On May, 8, L927 Elton Mayo and others initiated experiments at the Hawthorne plant of
'Western Electric
Company focussing attention on the human dimensions of organisation. Th.y
began to assesses the adequacy of the simplistic, machine-model in various organisations. The most
important findings of the Hawthorne studies may be concluded thus:
a Organisation is a social sysrem.
a The human factor is the mosr important element in organisations.
a Behaviour and sentiments are closely related and the group influences affect individual behaviour
in a significant way.
a Group standards are highly effective in establishing individual worker ourput.
a Money is not so important in determining output when compared tir group standards, group
sentimenrs and security.

a H"ppy employees are productive workers.

a Special attention causes people to increase their effons (known as the Harthorne effect).

T PETER F. DRUCKER
Peter Drucher had revolutionalised management thinking in early 50t with his path breaking books,
articles and presentations. He came into prominence with the publication oi "Th. New lociety-'
which presented a brief account of how the American industrial giants influence the world economy.
Prior to this, he wrote, 'The End of Economic Man' and 'The Future of Industrial Man. His other
works include The Practice of Management (1954), Managing for Results (1964), The Effective
Executive (1967), The Age of Discontinuiry (1969) and Management: Tasks, Responsibilities and
Practices ( 1974). Druchl is often hailed as a genius who had pioneered several modern menagemenr
concePts in the fields of innovation, creativity, problem solving, organisation design, MBO etc. His
chief contributions include:
a Nature of Management
a Management is a dynamic, life-giving element in an organisation.
o Management is a distinct, discipline and a social function.
o Managers should be creative and innovative in order to produce results. He opined that
managemenr is a great profession full of challenges.

a Manager's Job

o Managers are known by their performance. They must set meaningful goals for the entire
organisation.

Business is inextricably interwoven with society. It has certain social obligations. Managers
' impact society through their actions. It is their dury to meet social expectarions ,.g"rdirrg
qualiry service, erc.
90 I Monogemenl Text ond (oses

o Drucher wanted business communiry to stand on their own. Profit per se is not the villain
of the piece. He knew that 'a healthy business cannot exist in a sick society'. Managers
should realise that businesses survive and flourish only through the blessings of society.
'ttr7hile
o meering social expectations and enterprise objectives managers need to strike a
fine balance. He stressed the importance of setting goals, defining problems correctly and
motivating people.
a He wanted businesses to deliver want-satis$/ing goods and services. The purpose of an
enterprise is to create a customer.

o He wanted managers to set meaningful objectives in eight key areas of business. Market-
standing, innovauon, productiviry, physical and financial resources, profitabiliry manager
performance and development, worker performance and social responsibiliry.

O MBO: Drucher stressed the importance of joint goal-setting through a novel concept called-
Management By Objectives ( MBO). He emphasised the importance of participatively set
goals that are tangible, verifiable and measurable. He wanted managers to focus on what must
be accomplished (goals) rather than how it was to be accomplished (methods).

a Decentralisation: Drucher vehemently criticised the functional focus of managers, confining

their work to their own narrow specialised fields of study (such as marketing manager,.finance
manager, production managet etc.). He wanted managers to create autonomous, self-contained,
independent product divisions within a large undertaking, giving adequate and proportionate
emphasis to various products. In place of task specialisation, he advocated federal
decentralisation. The federal structure, he felt, would make managers accountable for results
and allow them to grow steadily.

a Srructure: Drucker wanted managers to reduce the number of layers within the organisation.
The organisarion structure should be dynamic in nature. To realise this, he suggested three
concrete steps: activity analysis, decision analysis and relations analysis.

o Actiuity anafisis: Vhat is to be done, how it should be put together, how much emphasis
to be put on each activiry.
o Decision analysis: The degree of futurity in the decision, the impact of a decision on other
activities, the various qualitative elements that enter the decision-making process, whether
the decision is a recurring phenomenon or a rare onc, etc.
o Rehtions analysis: Helps in providing a concrete shape to the structure and manning the
structure properly.

a Decision-making: Accordingto Drucher, the life of a manager is a perpetual choice-making

activiry. Management is nothing but decision-making only. He wanted managers to define
problems correcrly before trying to find solutions. He wanted managers to look into the following
questions carefully:

o -What is the problem?

o Vhich problem to solve?
o Vhat is the real cause of the problem? (According to Drucher, critical factor analysis helps
in identi$'ing the causes properly)
 Oopter 3 Development of Monogement Thought t 91
Managers must spend great deal of time in developing
and evaluating alternative ways oFdoing
tlings.' \rhile selecting a solution, he wanted managers
to (a) evaluate the risks of each course
of action against expected gains (b) put emphasis o--.r ..ono-y
of effort (c) give weightage to
timing and (d) limitations of physical, financi"l and human ,.rou.".r.
a Executive development: He said that successful malagers
did not wait for furure, they made
the future' He wanted managers to be fully prepared fo-r
all future challenges by upd"ti,{g rh.i,
skills, knowledge and competencies.

Summory
Management can be studied from various angles._The classical
theory has three important branches.
'Bureaucracy' prescribed that an organisation
be built around th. *ork to be done. The work must
be logically divided and assigned to iubordinates, who are
expected ro report the progress to superiors
at various levels' The whole system should have some well-defined
,u1., .o that results"can be obtained
hasised the importance of work design and
with minimu-.ffor, and cost. Administrative
management which can be studied and put into
sed artention on the technical and administrative
an beings completely.

"J,U:,::il:H::;:#::j
e focus was on people, incentives,
s. The human resources rheory went a srep
further by su t valuable assets in every organisation. Every
attemPt must potential of human ,.rou..., by emphasising
things such a rrvrry.
improve the qualiry of decision-making, t
.To advocated the use of
mathematics, statistiis and computers extensivel
ch problem must be
identified and measured in a definite way. This
an Lbyectirr. manner,
eliminating rhe subjective elemenr in decision-

e organisation as a unified, purposeful entity, consisting of

inte gs, executives must look at the totaliry of the situation anJthe
resu must strike a fine balance between the needs of various parts
of the enterprise and the goals of the firm as a whole.
According to the contingency approach
styles, or controls that will fit all situations.
principles that can be applied under all conditions.
situations. Their actions, in the final analysisr musr
well as external factors.

Review Questions
l. Discuss briefly various schools of management thought.
') Vhat is bureaucrary? Outline the features of a bureaucratic form of organisation. point our its
merits and demerits.
92 r MonogemenlTen ond Coses

3. Explain the principal contributions of F.\tr7. Thylor to the development of management thought.

4. List the Fayols principles of management.

5. Distinguish between Human Relations Theory and Scientific Management.

6. '!V'hat are the major findings of Hawthorne Experiments? Examine their significance for the
practising manager.

7. The neo-classical approach to the management has not provided any such thing as to replace
the classical management theory. Do you agree with this statement?

8. 'W'hat are the major contributions of the Hawthorne experiments to the present day organisations?

9. Distinguish between human relations approach and human resources approach to organisations.

10. 'What are the major limitations of the neo-classical theory of management? Also point out its
superiority over the classical management theory.

Il. 'What is the systems approach to management? Examine the salient features of this approach.
12. Explain the importance of the systems approach to the study of management. Vhat are the
limitations of this approach?

13. 'Write an explanatory nore on the contributions of Peter Drucker to management thought.
14. What is the contingency approach to the study of management? Do you think it is an improvement
over the systems approach? Explain.

15. "The contingency approach to management is a common sense approach". Comment.

16. Outline the major contributions of the following thinkers:
?. Mary Parker Folett
b. Rensis Likert

c. Elton Mayo

d. Henry Fayol

17. Explain the major characteristics of modern management thought.

Discussion Questions
l. Explain how a manager can use tools and techniques from each of the major management
PersPectlves ln a contemPorary manner.

2. Vhy is it important ro understand the different perspectives and approaches to management

theory that irave evolved throughout the history of organisations?

3. Do you think management theory will ever be as precise as theories in the fields of physics,
chemistry or experimental psychology? Vhy or why not?

4. 'S7hy is it important for every manager to understand the many different management theories
that have been developed?
 Chopter 3 Development ol Monogement Thought . 93

References
I. Harold Koontz, The Managemenr Theory Jungle, Journal of the Academl of Managenent, 4th Mxch, 196g.
2. A Handbook of Leadership: A Suuey of Theory and fusearch, New York, The Free press, 1974.
Stogdill Ralph M',
3. Hutchinson, Management Straregy and ractics, Journal of the Academy of Management, 1971.
4 ' Mry 'Weber, The Theory of Social and Economic Organisation, ttins.t by A.M. Henderson and fUcott parsons, New york,
Free Press, 1947.
5. Henry Fayol, General and Industial Managemezr, Sir Issac pirman and sons Ltd., 1949.
6. F.\?l Tayloa Principles of Scientifc Management, New york, Harper and Row 1947.
7. ri?iJ. Duncan, Essentials of Management,
Illinois,The Dryden press, 1975.
8. Varren G. Bennis, Science and Management: Two Cultures, Journal ofApplied Behauioural Sciences, 4, lantarylFebruary,
I 968.

9. Dalron McFarland,' Management: Foundations and Practices, Macmillan, NewYork, 1979. Tosi, Management, John \7iley
and Sons, New York.
10. J. Stoner, Management, Prentice-Hall of India, New Delhi, 1990.
I l. E.F.L. Brech, Management: Irs Narure nd Signifcance, 1948.
12. Peter Drucker, The Practice of Management, New york, Harper, 1954
13. Longnecker, Principlts of Management and Organiational Behauioun Charles E. Merrill publishing Company, Columbu,
Ohio, 1973.
14. Theo Haimann, Profesional lulanag(nant, Bosron, Houghton Mifflins, 19g0.
15. Herbert Simon, Adminitratiue Behauioul New york, Macmillan, 1961.
16. Elton Mayo, The Hrman Problems of an Indrctrial Ciuilisation, New York, Macmillan Company, 1933.
17. F.J. Roethlisberger and \(J. Diclson, M,lndgement andWorker, Camhridge, Harvard Universiry press, 1946.
18. Keith Davis, Human Behauiotr at Vorh, New Delhi Thta McGraw-Htll, 1975.
19. J. Halloran, Applied Hrman Rektions. Prentice-Hall of India, New Delhi, 1990.
20. S. Deep, Humrn Rclations in Managetnenr, california, Glencoe publishing company, 1990.
21. \(H. Knowles, Human Relations in Indusrry. Research and Concepts, California Management Reuiew, Fall 195g.
M. McNair, Vhar Price Human Rclations, HBR 1957.
A carey, The Hawthorne Srudies: A Radical Criricism, American sociohgy Rcaiew,
ltne, 1967,
\flG. Scort, Modern Human Relations in Perspective, PersonnelAdministration, Nov-Dec., 1959.
D.R. Schoen, Human Relations: Boon or Bogie? HBR, Nov-Dec., 1957.
J.M. Schepard, On Carey's Radical Criticism of Hawthorne Srudies, lournal, of the Aeafumy of Management, March, 1971.
22' D. Ashton, Elton Mayo and Empirical Study of Social Group, in Managcment Thinhers (ed.) A. Tilletr, T. Kempner,
Penguin Books, 1970.
23. \(G. Scott, Organisation Theory: An Overview and Appraisal, Journal of the Academy of Management, April, 1961.
24. WF. Dowlings, Hawthorne Revisited: The tegend and the Legacy, Organisation Drynamics, rVinrer, 1975.
25. Massie, Esentiah of Management, Prentice-Hall of India, New Delhi.
26. A.G. Beddian and wiF. Gluek, Managemezr, New york, The Dryden press, 19g3.
27. H.L. Tosi and S.J. Carroll, Management, New york, \Ziley 19g2.
28. R.E. Miles, Theories of Managenczr, New york, McGmw-Hill, 1975.
29. Katz and Kahn' The social Psychohgy oforganisations, John \7iley and Sons, 193g.
30. Herbert G. Hicls and C. Ray Gullert, Organisttion Theory and Behauiour McGnw-Hill Book Company, New york, 1975.
31. Tom Burns and G.M. Stalker, The Management of Innouation, London, tvistock publicarions, 1961.
32. Joan voodwrd, Management end richnobgr, London, H.M. starionery office, 195g.
33' Paul R' Lawrence and Jay \igl Lorsch, 'organisation md Environment', Managing Differentiation and inregration, Bosron,
Haryard Universiry Graduate School of Business Administration, Division if i.esearch, 1967.
34' F.E. Kasr and J.E. Rosenzweig, Organisation and Managemenr.'A Systems Approach, New york, Mccmw-Hill, 1974.
35' Robert J. Thieraff Robert C. Klekamp md Danial \9i Greeding, Management: Principhs and, practices, Wiley and John
Sons, New York, 1977.
94 r Monogement Texl ond Coses

Websites
See the online edition of Business Today for various acrivities on management thinkers and practitioners. All parts of the site can
be viewed however, by the subscribers only.
o www.business-today.com
To get industry relared information visit the following:
I w.corporateinformation.com
a w.companiesonline.com

Skill Building Exercise

T \(/HAT MOTIVATES YOUR EMPLOYEES?
Think of yourself as a manager. (Use your part-time or full-time job as a point of reference.) If you
were the manager, would you know what your employees really want? Their an$rvers could surprise
you. A r,r*.y of 2,000 workers and their immediate supervisors found that what managers think
employees want and what employees really want are often at opposite ends of the spectrum.
Rank the following mosr common motivators in terms of how effective theywould be for motivating
you and your employees:
RankingforYou Ranking forYour Employees

Motivator
Money

Job securiry
Promotion

Persond dwelopment
'Working conditions

Interesting work

Loyalry from the company

Tactful discipline

Appreciation
Flexibility about personal needs
Feeling informed

In responding ro rhe survey, managers consistently saw themselves as being motivated by different
factors than their employees. They felt that the best ways to motivale employees were the traditional
trio of morivators: job securiry financial rewards and job advancement.
The problem is that the traditional motivators are scarce resources for a company- There is not
an unlimited amount of these ro pass around. They cannot always be provided. So the majoriry of
employees would remain unsarisfied if these were the supervisor's primary means of motivation.

Everyone Can Be a\IIP: There is some good news, however. The survey.also asked all the employees
in the company ro say *-hat really motivated them. They picked a very different set of motivators as
bottom three of their list, The
-ort "ff..tiu..'In fact, the traditional trio of motivators were thethe VIP motivators:
primary morivators of the empowered workplace are what we call
Validation: Respect for employees as people; Flexibiliry to meet personal needs; Encouragement of
learning, growth, and new skills'
 up. That's when I hnow I was in really deep
CONTEXT trouble.

I'd call in a guy from engineering, and he'd

To achieve goals, rnanagers have to combine stand there lost, wlten I'd expkin to him that
human as well as material resources in an effecdve we had a design problem or some other hitch
manner. Coordination pulls all the functions and in th e engineering-manufacturing relations h ip.
activities rogether. It brings unity of acrion and He might haue the abiliqt to inuent a brilliant
direction. In short, it is crucial to the success of piece of engineering that would saue us a lot of
any organisation. monqt He might come up with a nrrific new
drsign. There utas only one problem: he didn't
hnow that the manufacturing people couldn't
INTENT build it. Why? Because he had rteuer talhed to
them about it. Nobody at Chrysler seemed tu
This chapter underscores the importance of understand that interaction among the
coordination in achieving resulrs. dffirent functions in a compan)i is absolutely
critical. People in engineering and
manufacturing almost ltaue to be sleeping
together. These guys weren't euen
flirting!
Ch rysler's Coordinotion If at Chrysler in the year
one thing changed
before lacocca retired, it was improued
Problem coordination. Cooperation among engineering,
marheting and manufacturing enabled the
Without a major ffirt at coordination, an design and production of the stunning tine of
organisation tnay be lihe Chrysler Corporation neut LH automobiles in only three years, in
when Lee lacocca tooh ouer. comparison to years of deuelopment,
fue
preuiously reqttired.
What I found at Chrysler were 35
u,ith his own turf....I
uice presidents, each In recent times, just-in-time thinhing and
couldn't belieue, for example, that the practice (aim to reduce to amount qf ,ffirt
guy running engineering departments wasn't and resources, allocated to managing inuentory
in constant toucb with his counterpart and worh in progress) helped Chrysler (now
in manufacturing. But that's hota it part of Daimhr Chrysler) reengineer many of
was. Euerybody tuorhed independently. I its oPerationr to become competitiuely leaner
tooh one look at that tlstem and I a/most threw in the uahe of seuere Japanese competition.
98 t Monogement Texl ond Coses

lntroduction
All organisations establish a variety of goals and direct their energies and resources to achieve them.
The human as well as,,non-human resources (materials, machines and money) have to be combined
properly so as ro achieve the goals of an organisation. The various activities and efforts must be
planned, organised and carried out in a systematic manner. Each department must be informed
abour the activities of other departments, so that all of them work together smoothly. Coordination is
the process of integrating the objectiues and actiuities of separate units of an organisation, to achieue
organisational goak.

Meoning
In every organisation, the total work is divided into convenient parts. Different departments are
created ro process the work quickly and efficiently. \Tithin each department again, there is division
and sub-division of operations according to
Nike Coordinates to Capitalise on Tiend
Lack of effective coordination among Nike's
departments had affected the quality of Nike
products and they began to yield ground to Reebok,
Nike's principal competitor. The CEO (Chief
Executive Officer) identified this problem and tried
to rectify mistakes quickly. ln the early 1980s, Nike
was run primarily by former athletes, some of whom
often tended to change jobs. Such turnover in key
positions resulted in poor coordination among
design, marketing and manufacturing departments
at Nike. Recognising this, the CEO moved in to
reduce executive turnover and tuned designs in
line with changing tastes of customers. Managers
were actively involved and encouraged to take
decisions independently. Nike began to focus on
design and marketing and, turned over the job of
manufacturing to outside suppliers. Things
improved dramatically, thereafter and Nike
regained its market share quickly.
Source: Business Week April 18, 1 994
the nature of tasks involved. Individuals
working therein are, thus, related with others
and their functions affect others. In order to
ensure a smooth flow of work, it is, therefore,
necessary to synchronise the efforts. of
individuals and groups, in a systematic way.
The process by which a manager brings unity
of action in an organisation is coordination.
According to Moonel and Reiley,
'Coordination is the orderly arrangement of
group efforts to provide unity of action in
the pursuit of a common purpose.' In the
words of Henry Fayol, "To coordinate, means
to unite and correlate all activities". To quote
McFarland, "Coordination is the process
whereby an executive develops an orderly
pattern of group efforts among his
subordinates and secures unity of action in
the pursuit of common purpose." On the
basis of these definitions, we can state the
basic features of coordination, thus:

a Deliberate action: Coordination implies deliberate efforts to bring unity of purpose. It is

achieved by conscious managerial action; it is not automatic.

a Group effort: Coordination applies to the group efiFort; not individual effort. It involves the
orderly arrangement of group efforts. Thus, there is no need for coordination, when an individual
worls in isolation without affecting anyone's functioning. Coordination lays emphasis on uniry
of effort and unity of action.
a Continuous activityz Coordination is not an one-shot deal. It stans with the very first action,
the process of establishment of business and runs through until its closure. It is a never-ending
process of ensuring the achievement of objectives.
 Chopter4 Coordinqfion t 99
a Permeates all management funcdons: Coordination permeates the entire process of management.
It is a common thfead running through all the management functions. lf pkns are nor properly
coordinated, the scarce resources are put to inefiFective use. In organiing work, managers musr
seethat no activiry remains unassigned. In stafing managers musr ensure the availability of
comPetent people to handle assigned duties. The organisation should not suffer because of
inadequate or excess staff. In directing organisational activities, managers must synchronise
the efforts of subordinates and motivate them'through adequate rewards. In controlling
organisational activities, managers must see that activities are on the right path, doing right
things, at the right time and in the right manner. Thus, coordination rranscends all managerial
functions. That is, why, writers Iike Koontz, Teny called coordination x the "quintessence of
management."

Coordinotion vs. Cooperotion

Cooperation is voluntary in narure. It refers to the willingness of people to I Cooperation: The
help each other. Coordination, on the other hand, is a deliberate effort of a voluntary effort of
manager to put things in order and achiwe common objectives. For instance, individuals to work
together and to help
take the case of a group of people trying to move a heavy object. They have each other.
enough strength to carry our rhe task, willing to pur in their best and are
fully conscious of their common goal. AII these things will not bear fruir I Coordination:
unless someone takes charge and directs the mbmbers to apply the right Orderly arrangement of
amount of effort, at the right place, at the right time. Coordinarion refers to group efforts to provide
unity of action in the
such conscious and deliberate blending oforganisational activities to achieve pursuit of a common
uniry of action. purpose. ul

I DIFFERTNCES BET\rEEN
COOPERATION AND
COORDINATION
The chief distinctions between these conce
are summarised hereunder:
(i) Status: Coordination is a necessary
function of management. It is actually,
the epitome of all management
functions. It is vital ro carry out all the
managerial functions successfully.
Cooperation, on the other hand, does
not enjoy the status of a function of
management. Cooperation is more of
an attitude of an individual and group
than anything else. Cooperation,
however, is essential for successful
coordination.
(ii) Deliberate: Coordination is the
deliberate and intentional effort of the
manager. Cooperation, on rhe other
hand, is voluntary, Management can
E-p.y Envelope to the
First Governor - General of India
After lndependence, exactly at midnight, a special
meeting was arranged with Lord Mountbatten
wherein Rajendra Prasad and Nehru would
announce the names of new ministers. Lord
Mountbatten was waiting for the guests of honour
at the midnight hour. At a simple ceremony, all the
formalities were completed and Lord Mountbatten
accepted the invitation to be the Governor-General.
Nehru, then handed over to him a large and
carefully addressed envelope saying, "May I
submit to you the portfolios of the new cabinet."
After Prasad and Nehru left, Lord Mountbatten
opened the envelope with great curiosity to see
the names of the new ministers. To his surprise, the
envelope was empty! A clear case of lack of
coordination between people who superuised the
whole thing?
(Source: C N Parkinson et al. How to Enjoy your Work
and Succeed, Vision Books, New Delhi, 1996.
p. 13 - 14)
100 r Monogement Teri ond [oses

function, even without cooperation, but cannot function without coordination. Coordinarion,
therefore, is a contrived process whereas cooperation is voluntary and natural process.
(iii) Nature of work: The nature of work in evelv organisation is such, that it needs ro be divided,
and then integrated. Coordination of all independent acrivities is utmosr essenrial. Cooperation
does not arise out of any limitations of structure and organisation. It is required all the time.
The individuals learn to cooperate with each other even though their activiries are least related.
(it) Broad: Cooperation is necessarl' for coordination. But coordination is necessary for an
organisation. Coordination therefore, is broader of these two conceprs. Even when cooperation
exists if there is no proper coordination, the organisation fails to deliver goods required in
time ,

Need for Coordinotion

The need for coordination arises whenever and wherever, a group of persons work togerher to
achieve common objeccive. Coordination is the basic cementing force in an organisation. The need
for coordination mainly arises because of the following disintegrating forces:
(i) Increase in size and complexityof opemtions: Growth in the number and coorplexity of activities
is a major factor requiring coordination. In a large organisation, a large number of people
Process the work at various levels, These people may work at cross purposes if their efforts and
, activities are not properly coordinated. Size brings about the problen'rs of communicatioo as
well. It may be difficult to communicate the policies, orders and managerial acrions on a face-
to-face basis. Personal contact is, rather, impossible and formal methods of coordination become
essential. If the operations of an organisation are multiple, complex and diversified, the need
of coordination is ftlt everywhere.
(ii) Specialisation: Usually, in an organisation, work is divided along functional lines. ThLrs, rve
have specialistsnking care of manufacturing, financing, personnel, marketing functions. Over
a period of time, these specialists develop 'tunnel visions' (inabiliry to look beyond their own
nartow speciality). They are more interested in developing their own deparrments and theret-,y
increase their sphere of influence, in the organisation. For example, production execurives
mighc be more interested in producing high-qualiry high-priced items. In the words of Stoner
end Freeman, "'Without coordination, people and departmenrs would lose sight of their roles,
within the organisation. They would pursue their own special inrerests, ofren, ar che expense of
organisational goals."

(iii) Clash of interests: People join an organisation to fulfil rheir personal goals, i.e., the ir physiological
(Food, shelter, clothing, entertainment) and psychological (economic securiry recognition for
good work, freedom to do work independently, etc.) needs. Often individuals fail to appreciate
how the achievement of organisational goals will satisfr their own goals. The environment in
the organisation, organisational rules and regulations may also frusrrate their attempts to realise
rheir personal goals. As a result, they are forced to pursue theii narrow personal inreresrs
sacrificing organisational interests. They tend to work at cross purposes. Coordinarion helps to
avoid conflict between individual and organisational goals. Managers can bring about harmony
berween individual and organisational goals by developing a closer conracr with subordinates,
by evolving attractive incentive schemes, recognising good work and by explaining how
subordinates can achieve their own personal goals, by achieving organisational goals.
 Chopter4 Coordinotion r 10L
(i") Difference in attitudes and working sryle: According to Lautrence and. Lorsch, the need for
coordination, basically, arises owing to the differences in attitudes and different working sryles
of people in an organisation. Every individual has his own way of dealing with problerns. ihe
specific orientation towards particular goals might be different. To sales people, variery
f.oduct
may take precedence over product quality. Accountants may see cost control, as most important
to the organisation's success, while marketing managers may regard product design rnor,
essential. Further, there are differences in time orienration of people. For example, ",
lroduction
manager may be more concerned with problems that have to be solved immediarely. Others,
like the members of a research and development tearn, may be preoccupied with problems that
will take years to solve. Again, there may be differences in formaliry of srructure. Each type of
unit in the organisation, may have different methods and standards for evaluating progress,
towards objectives and for rewarding employees. In a production deparrment, for example, the
standards may be quite clearly defined in terms of cost, qualiry and schedule, and a control
system may exist for precise measurement of these criterions, In the personnel department,
howwer, standards of performance may be quite broadly defined, such as 'upgrading the skills
of field personnel'.
Thus, the capaciry talent and speed of people differ widely. It is, therefore, essential to reconcile
differences in approach, timing and effort of various departments, with a view ro secure uniry
of action.
(") Independence of units: \7hen a department depends on rhe acrivities of other departments (or
units) to carry its own activity, units are said to be inter-dependent. In an organisation, various
units depend upon one another for their successful functioning. In a resrauranr, for example,
the waiters, cooks, supervisors and cashiers are independenr. To serve the customers, each
must make his own contribution, in an orderly manner. The chef musr cook the meal, the
waiters must serve the items, the supervisors must greet the visitors in a systematic manner. All
must move in unison, so that customers are satisfied, The need for coordination increases with
an increase in the interdependence berween organisational units.

Significonce of Coordinotion
Coordination is the epitome of management. It is important to the success of any enrerprise. It helps
an organisation in the following ways:

I ' Incteases efficiency: Coordination pulls all the functions and activities together. The human as
well as non-human resources are utilised in a right manner. Activiries follow a specific direction.
'Waste
motions, overlapping and duplication of efforts, misuse of resources are, thus, prevented.
Coordination, enables an organisation to use its resources in an optimum way. The resources
flow through productive channels, paving the way for required qualiry and quantity of output.
Efficiency is thus improved.
2. Improves human relations: Coordination brings unity of action and direction. Members begin
to work in an orderly manner, appreciating the work put in by others. They understand and
adjust with each other by developing mutual trust, cooperation and understanding. They move
closer to each other. In short, it improves human relations.

3. Interdepartmental harmony According to Fayol, where activities are well-coordinated, each

department works in harmony with the rest. Production knows its target; maintenance keeps
702 I Monogemenl Text ond Coses

equipment and tools in good order; Finance procures necessary funds; Security sees to the
protection of goods and service personnel and all these activities are carried out in a smooth
and systematic manner. Coordination, thus, creates a harmonious balance benveen departments,
persons and facilities. This in turn, helps in meeting goals efficiently and effectively.

4. Key to other functions: The importance of coordinatior, i".g.ly lies in the fact that it is the key
to other functions of management like planning, organising, staffing, directing and controlling.
The different elements of a plan, the various parts of an organisation and phases of a controlling
operation must all be coordinated. Coordinating makes planning more purposeful, organisation
more well-knit, and control more regulative and effective.

Pri nciples of Coordinotion

Coordination is crucial to the success of any organisation. 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 a common purpose. Coordination is a continuous and dynamic process
which emphasises unity of efforts to achieve the desired results. Coordination is essentially a managerial
responsibility. Mary Parher Follet has spelt various principles of coordination in the following fashion.

(i) Principle of direct contactr In the first principle, Mary Parher Follet stetes that coordination can
be achieved by direct contact among the responsible people concerned. She believes, that
coordination can be easily obtained by direct interpersonal relationships and direct personal
communications. Such personal contacts bring about agreement on methods, actions, and
ultimate achievement of objectives. Direct contacts also help wither away the controversies
and misunderstandings. It is based on the principle, that coordination is better achieved through
understanding, not by force, order and coercion.

(ii) Early stage: Coordination should start from the very beginning of planning process. At the
time of policy formulation and objective setting, coordination can be sought from organisational
participants. Obviously, when members are involved in goal-setting, coordination problem is
ninety percent solved. It is because participative goal-setting enables agreement and commitment
to organisational goals and there is no question ofconflict and incongruenry ofgoals ofindividuals
and organisations. Coordination, if not initiated in the early stages of planning and policy
formulation, becomes difficult to exercise in the later stages of execution of plans.
(iii) Reciprocal relationship: As the third principle, Mary Follet states, that all factors in a situation
are reciprocally related. In other words, all the parts influence and are influenced by other
parts. For example, when A works with B and he in turn, works with C and D, each of the four,
find themselves influenced by others that is influenced by all the people in the total situation.
Folht contends that this sort ofreciprocal relation and this sort ofinterpenetration ofevery pan
by every other part, and again by every other part, as it has been permeated by all, should be
the goal of all attempts at coordination.

(rv) Principle of continuity The fourth principle, advocated by Follet, is that coordination is a
continuous and never-ending process. It is something which must go on all the times in the
organisation. Further, coordination is involved in every managerial function.
(v) Principle of self-coordination: In addition to the four principles listed by Follet above, Brown
has emphasised the principle of self-coordination. According to this principle, when a particular
 Chopler4 Coordinotion I 103

department affects other function or depanment, lt is in turn, afFected by the other department
or function. This particular department may not be having control over the other departments.
However, if other departments are modified in such a fashion, that it affects the parricular
department favourably, then self-coordination is said to be achieved. For instance, as we know
there must be coordination benveen the level of production and sales. When the production
department altem its total production in such a way, so as to suit the sales capacity of the
marketing department (even before the marketing department makes request to cur down
production or to increase production), then self-coordination is said to have taken place. This,
of course, r:quires effective communication across the departments. This principle is rarely
practised in day-to-day life.

Coordinotion Process
Coordination cannot be achieved by force or imposed by authoriry. Achieving coordination through
executive orders is a futile exercise. It can be achieved through person-to-person, side-by-side
relationships. Achiwing efFective coordination is a sequential process. It is possible only when the
following conditions are fulfi lled.

l. Clearly defined and understood objectives: Every individual and each departmenr must
understand what is expected of them by the organisation. Top management must clearly state
the objectives for the enterprise, as a whole. As pointed <iut by Terry, " there must be commonness
of purpose, in order to unifr efforts". The various plans formulated in the enterprise musr be
interrelated and designed to fit together.

2. Proper division of work: The total work must be divided and assigned to individuals in a
proper way. Here,it is worth noting the principle, 'a place for everything and everyrhing in its
place'.

3. Good organisation structu.re: The various departments in the organisarion musr be grouped in
such a way that work moves smoothly from one phase to another. Too much specialisation mav
complicate the coordination work.

Clear lines of authority Authority must be delegated in a clear way. The individual must
know, what is expected of him by his superior(s). Once authority is accepted, the subordinate
must be made accountable for results, in his work area. There should be no room for overlapping
of authority and wastage of effort(s).

5. Regular and timely communication: Personal contact is generally considered to be the most
effective means of communication for achieving coordination. Other means of communication
such as records, reports, may also be used in order to supply timely and accurare information
to various groups in an organisation. fu far as possible, common nomenclature may be used so
that individuals communicate in the 'same language'.

6. Sound leadership: According to M-cFarknd, real coordination can be achiwed only through
effective leadership. Top management, to this end, must be able ro provide (i) a conducive
work environment, (ii) proper allocation of work, (iii) incentives for good work, etc. It must
persuade subordinates, to have identity of interests and to adopt a common outlook.
 104 r Monogemenl Text ond Coses

Techniques of Coordinotion
Managers use a variety of techniques for achieving coordination. The main ones include, the following:

l. Sound planning: Planning is the ideal stage for coordination. Eve,y member in the organisarion
must understand fully how his job contributes ro the overall objectives. To rhis end, objectives
must be clearly defined. Policies, rules, procedures must be siated in precise terms, so that
members are able to ensute uniformiry of action. The various plans must be integrated ultimately,
pavrng the way for coordination.

2' Sound and simple organisation: A sound and sirnple organisation is an essential condition of
coordination. The lines of authority and responsibility of each individual must also be spelt
out. This helps in avoiding inter-personal conflicts. Related activities must be grouped together
and, departments created, carefully. These steps will go a long way in facilitating coordination.

3' Chain of command: The chain of command states the relationship between a superior and a
subordinate. Exercise of authoriry through the chain of command or hierarchy is a traditional
means of securing coordination. The various activities are brought under the control of one
boss, who has the authority to issue orders, instructions and secure compliance. He can resolve
conflicts by exercising his authority. By virtue of his position, a superior is able to resolve
differences and achieve coordination.

4. Effective communication: Open and regular interchange of information facilitates understanding

between individuals and groups among whom coordination is to be achieved. Through effective
communication, each and every person understands his scope of activiry and limits of functioning.
fu a result ofsuch understanding, one can ensure both horizontal as well as vertical coordination.
Modern communication systems, such as computers, data-processing equipment, facilitate the
flow of communication across various individuals and departments quickly. This helps managers
in coordinating various activities, smoothly.
5' Special coordinators: In an organisation, lvhere an execurive finds little time to solve the
problems of coordination, he can hire a specialist for doing this task. Such a person is called
'special coordinator or independent integrator'. His main task is to collect informarion
regarding
problems, analyse the same, list the various options and suggest remedial steps. He th,r,
shape executive rhinking and action along desired lines. "*,
6. Sound leadership: Leadership is the abiliry of a manager to induce subordinates to work with
zeal z;nd commitment. Effective leadership ensures coordination of efforts, both at the planning
and implementation stage. A good leader puts activities on the right track, and inspires
subordinates to pull together for the accomplishment of common objectives. He can persuade
them to adjust their behaviour voluntarily, according to the needs ofthe situation (voluntary or
self-coordination). Through personal contact, he can bring about an atmosphere of mutual
trust and cooPeration within the organisation. \Thenever required, he can offer incenrives to
members and thereby reduce conflicts. For instance, profit-sharing is helpful in promoting
team-spirit and cooperation berween employers and employees.

Types of Coordinotion
On the basis of scope and flow in an organisation, coordinarion may be classified as internal and
external; vertical and horizontal.
 Choplel4 Coordinotion r 105
t. Internal and external coordination: Coordination between the different r lnternal
units of an organisation is called 'internal coordination'. It involves coordination:
synchronisation of the activities a'd efforts of individuals, in various Coordination between
different departments
departments, plants and offices of an organisation. The coordination and persons within the
bewveen an organisation and its external environment, consisting of organisation.
government, customers, investors, suppliers, competitors, etc., is
knolvn as 'external coordination'. No organisation operates in isolation, I External
In order to survive and succeed, it must set its house in order, and coordination:
Coordination between
interact with outside forces in a friendly way. an organisation and its
external environment.
2 Vertical and horizontal coordination: Coordination between different
levels of an organisation is called 'vertical coordination'. It is achieved
'$7hen
I Vertical
by top management, through delegation of authority. coordination:
coordination is brought benveen various positions, at the same level lntegration of effort
between superiors and
in the organisation (i.e., between production, sales, finance, personnel, subordinates working at
etc.) it is called 'horizontal coordination'. Horizontal coordination is different levels in an
achieved through mutual consultations and cooperation. organisation.

I Horizontal
Systems Approoch to Coordinotion coordination:
Coordination between
The primary reason for coordination is that departments and workgroups departments or positions
or persons at the same
are interdependent. They depend on each other for informarion and re,sources
level of an organisation.
to carry out their respective activities. The greater the interdependence
between departments, the more coordination, the organisation demands, if departments are ro be
able to perform effectively. According to Thompson, there are rhree major forms of interdependence;
pooled, sequential and reciprocal. Pooled interdependence means that each I Pooled
department is part of the organisation and contributes to the common good, i nterdependence:

but each department is relatively independent because work does not flow When units operate
with litde interaction,
between units. State Bank of India branches or 'Wimpy's resraurants are their output is simply
examples of pooled inrerdependence. They share financial resources from a pooled.
common pool but do not interact with each other. In sequential
interdependence, rhe ourpur of one unir becomes the input for another, in a I Sequential
interdependence:
sequential manner, The first department must perform correctly, so that the
When the output of one
second department can perform correctly. Coordinating long-linked units unit becomes the input
requires careful planning by the manager. It may be necessary ro promote of another in a
sequential manner.
day-rc-day communication among plants, so as ro identi$r trouble spots and
prevent interdepartmental conflicts. Reciprocd interdependence exists when
I Reciprocal
activities flow both ways between units. This form is clearly the most complex. interdependence:
For example, hospitals employ resources from several departments (e.g.., x- When activities flow
both ways beMeen
ray, nursing, surgery physiotherapy, etc.) ro resrore a patient's health. Each
u nits.
specialist and department, supplies some of rhe resources required to help
the patient. Doctors and professionals from each specialised area meer to discuss the patient's recovery.
The method of coordination is mental adjustment, achieved through group meetings. Designing an
organisation to take care of reciprocal interdependence, is not an easy task, Open communication
and careful planning are essential. As Hellriegel et a.1., remarked, "Because managemenr cannot easily
anticiPate all customer demands or solve all the problems that arise, managers musr conrinually
1,06 r Monogement Text ond Coses

communicate face to face, to be sure that

Promoting Coordination
they understand the narure and scope ofthe
issues and problems and to devise solutions".
Vertical Coordination One useful way ro integrate various
o Plan work. departments in an organisation, is to view
them as interrelated and interconnected parts
o Delegate properly.
of an open 'system'. The systems approach
o Motivate people. ensures better coordination by considering
o Monitor performance. an organisation as a system, consisting of
o Earmark funds. different sub-systems. The output will be
o Ensure discipline. satisfactory and effective, when the
differentiated sub-systems are integrated
r Stick to a plan and ensure conformity. properly through coordination. Because all
o Use manuals, orders, reports and the parts are interdependenr, just like parts
standardised procedures, wherever required. in the human body, the performance of
. Communicate openly. organisation requires proper functioning
Horizontal Coordination of all the sub-systems. '!7hen any of the parts
is not in order, then the total output is
r Periodic meetings.
affected. Systems approach thus enables
o Exchange information, on a face-to-face basis. management to find our rhe loopholes in the
o Underscore the importance of work at various system and instantaneously rectify the
levels. particular sub-part, which is not in order.
Use task forces, project managers to integrate Through feedback and feed-forward control
work. system, an organisation is in a position to
Use standardised procedures, rules, check the functioning of various parts in the
regulations. organisation. Systems approach, thus ensures
Create liaison roles. better coordination.

Summory
To achieve results, managers have to combine physical, financial and human resources in an effective
and efficient way. Coordination is a conscious and deliberate blending of activities to achieve uniry
of action. Cooperation is necessary to achieve coordination. Cooperation refers ro the willingness of
people to help each orher voluntarily.

Coordination is important to the success of any enterprise. It pulls all the functions and activities
together, improves human relations and increases inter-departmental harmony.
Coordination is built around certain time-tested principles. Coordination is easy to achieve
through direct interpersonal relationships and communications. It should be initiated in tle early
stages of planning. All departments and units must realise the inter-relatedness of their work, as in
the case of an open system, and act cooperatively. Coordination is a continuous process and is
involved in every managemenr function.
The process of coordination involves a series of steps: clear goals, proper allocation of work,
sound organisation structure, clear reporting relationships, proper communication and sound
leadership. Special coordinators could also come in to fill the gaps, if rop management finds it
difficult to solve the problems of coordination.
 Chopter4 Coordinotion t 107

Review Questions
' Define coordihation. Explain the important ftatures of coordination.
l

2' \rhat is coordination? Briefly state the principles and techniques of coordination.
3' Briefly, outline the different types of coordinarion that exist in an organisation.
4. \7rite short nores on:
o Coordination vs. Cooperation
I Principles of Coordination
o Techniques of Coordination
o Systems approach to Coordination
5. Explain, how coordination helps ro increase the effectiveness
of managemenr.

Discussion Questions
l ' "Management involves coordination and integration
of all resources, to accomplish specific
results". Explain.

2. 'coordination is the very essence of managemenr'. Do

you agree? Give reasons.
3' 'coordination is rhe outcome of information and
cooperation,. Discuss.

References
l. G.R. Terry Principbs of Management, R. D. Iruin, Ny, 1960.
2. C.I. Banard, The Fancions of an Executiue, HUB Cambridge, 193g.
3. J. B. Thompson, Organisations in Action, McGraw Hill, Ny, 1967.
4. Gary Desslea Management, Reston, Virginia, 19g2.
5. D. Hellriegel et,al,, Managemczr, South rVestern, Cincinnati, 1999.
6' lre Iacocca with \Tilliam Novak, kcocca, An Aunbiograpb\, phantom york, 19g4.
^gaafs, New

Websites
o Saturn Vehicle: See how the vehicle is rnanuEctured in a coordinated
manner ar
www. gm.com/about/info/overview/gmnao. html
The video you view at this sire, requires rhe real (player) plug-in,
which is free and can be accessed from this site,

Skill Building Exercise

just landed a job, as the Administrative ofiicer to
Ial""t
(VTL), a rapidly
rhe cEo of Vision soft Technologies Ltd
growing technology firm. You joined the organisation with an
intention to know
more about how high-tech firms are managed.

vrl had tremendous success w.ith its new product raunches, in recenr times, ,Banksoft,,
for
banking firms and 'trade uision' for broking firms. vrl has
also come our, recently with a high-
108 r Monogemenl Tert ond Coses

resolution video screen for selling with personal compurers, that is selling
better than etpected. In a
rapldly changing firm is growing very fast, the CEO is finding it
difficult to divide i.
For exampre, in ^1"--;* ^-.r

"..*T::r"ilt*r,::il"#;:'#,:l;:ilT:
receivables side. In another case, although production was expanded to
meet ih. gro*irrg demand,
no one alerted the department to hunt for talent in IITs. The CEO's ofifice, in
lott failed to
coordinate the various parts in time. To compound the problems further, ""ro
the CEO is also particularly
concerned about the over dependence of the firm on just two products.
He wants to develop new
products quickly, before others move in to fill the gaps, especially for retailing,
insurance and health
care industries.

The CEO asks you to develop some ideas about how to achieve bemer coordination
of the
comPany's various activities, (both verdcally and horizontally) and also foster innovation.
VTL is
currently organised into a functional structure with major departments in the following
areas:
manufacturing, sales, human resources, finance, accounting and engineering. VTL
.,r.r.ri6y h",
about 750 employees.
Plonning ond
Forecosting
o N T rural households of Thmilnadu. Volumes
Planning is central to r}re surcess of any company.
To be useful, plans must be formulated,
interpreted and implemented in a proper lr/ay,
keeping the internal and excernal factors in mind,
INTE
The chapter presents an overview of planning,
outlining the pay offs and limitarions of planning
and forecasting in a changingworld.
Re. I Sochet Story
In 1983, a 2)+omething chemiltry student,
Ranganathan set out to sell shatnpoos with
Rr 15,000 in h* pochet. It was a rnarhet with
200 brands, lorded ouer by the'big dnddi of
them all, Hindustan Leuer Ltd. Frorn the
beginning, Ranganathan knew that millions
of peopk outside the great Indian middle-class
could not ffird a Rs 6a shampoo, but tbey
could ffird a Re I sachet. After clearly
uisualising this gap, he oeated the 'Chih' sachet
and began selling the sAme on bicycle. To boost
up salcs, lte came out with a brilliant idea
that "Rerurn
fiue shampoo sacltets and get cne
Chih free". The idea cliched in frugal
tripled, tlte reuenues tooh care of distribution
and the brand name stuch. The liberalisation
medsures of 1990s helped him grab euery
opportunity to expand his marhet to euer!
nook and corner of India. He began aduertising
first un regional satellite channels and
couolidated his brands - Chih, NTle (herbal
shampoo) Faireuer fuirness cream - in the
Southern marhets before launching them
nationally. His company Cauinhare (a synonym
of beauty and grace in Thmil literature) is
now a k 205 crore group with a personal
products diuision, a polytner diuision and an
export diuision. In a market dominated by
multinationals, Ranganathan created his own
space through careful, elaborate planning of
what prompts buyers to go afer a proCuct. In
a capital - hungry, labour - surplus market he
found thc rlnswer. Find a nouel cost-ffictiue
product and position it in such a way that
cannot be easily chellenged. The chemistry
student has alread_y taugltt some great
marketing lessons to rnrltinationak and is
currently busy deueloping a perfume for
euerlone at as lou a price as Rs 5! As
Ranganathan has proued, euen sma/lfrrnt cAn
grow and prosper in a totgh enuironment if
they are able to exploit tbeir unique ideas
(strengths?) through proactiue thinhing and
careful planning.
L12 I Monogement Text ond Coses

lntrod uction
I Planning: Deciding in The necessity for planning arises because of the fact thar business
advance what to do, how organisations have to operare, survive and progress in a highly dynamic
to do it, when to do it
and who is to do it.
economy where change is the rule, not the exceprion. The change may be
sudden and extensive, or it may be slow and almost imperceptible. Some of
the important forces of change may be: changes in technology, changes in population and income
distribution, changes in the tastes of consumers, changes in competition, changes in government
policies etc. These changes often give rise to innumerable problems and throw countless challenges.
Most of these changes are thrust on managers thus, managers are forced to adjusr rheir activicies in
order to take full advantage of favourable developments or to minimise the adverse effects of
unfavourable ones. Successful managers try to visualise the problems before they turn into emergencies.
As pointed out by Terry, "stccessful managers deal with foreseen problems, and unsuccessful managers
struggle with unforeseen problems. The difference lies in planning." Managers charged with the
responsibility of achieving definite targets, do not wait for future. They make the future. They
introduce original action by removing present difficulties, anticipating future problems, changing
the goals to suit the internal and external changes, experiment with creative ideas and take the
initiative, attempting to shape the future and create a more desirable environmenr.

T MEANING
A plan is a forecast for accomplishment. It is a predetermined course of action. It is today's projection
for tomorrow's activiry. In other words, to plan is to produce a scheme for future action, to bring
about specified results at a specified cost, in a specified period of time. Managemenr thinkers have
defined the term, basically, in wo lvays:

a Based on futurity: "Planning is a trap laid down ro caprure the future" (Allen). "Planning is ,

deciding in advance what is to be done in future" (Koontz). "Planning is informed anticipation

of furure" (Haimann). "Planning is 'anricipatory' decision-making" (R.L. Achoft).
a As a thinking function: "Planning is a thinking process, an organised foresight, a vision based
on fact and experience that is required for intelligent acrion" (Alford and Beatty)
"Planning is deciding in advance what to do, how to do it, when to do it and who is to do it."
(Koontz and O'Donnell)

It is deciding in the present, what is to be done in future. It is the process of thinking before
doing. A plan is a specific, documented intention consisting of an objective and an action sraremenr.
The objecdve portion is the end, and the action statemenr represenrs rhe means ro that end. Stated
another way, objectives give management targets to shoot at, whereas action statements provide the
attows for hitting the targets. Properly conceived plans tell what, where and how something is to be
done.

Feotures of Plonning
Planning has a number of characteristics:
(i) Planning is goal-oriented: All plans arise from objectives. Objectives provide the basic guidelines
for planning activities. Planning has no meaning unless it contributes in some positive manner
to the achievement of predetermined goals.
 Chopter 5 Plonning ond Forerosting I 1L3
(ii) Planning is a primary function: Planning is the foundation of management. It is a parenr
exercise in management process. It is a preface to business activities. According to Koontz,
"Planning provides the basic foundation from which all future managemenr functions arise".
Tbrry also supported the view, that "without planning there is nothing ro organise, no one ro
motivate and no need to control". The idea of primacy of planning emphasises the fact that
planning takes precedence over other managerial functions like organising, directing and
controlling because none of these functions can come into being until there is a plan.
(iii) Planning is all-pewasive: Planning is a function of all managers. It is needed and practised at
all managerial levels. Planning is inherent in everyrhing a manager does. Managers have ro
plan before launching a new business. They have to plan whenever things change. Even when
they decide to close down a plant, they have to plan meticulously to avoid problems from
employees. The scope of planning, however, differs at different levels and among different
de partments.

(i") Planning is a mental exercise: Planning is a mental process involving imagination, foresight
and sound judgment. Planning compels rrranagers to abandon guesswork and wishful thinking.
It makes them think in a logical and systematic manner. Plans are based on a careful study of
internal and external factors influencing business activities.
(") Planning is a continuous process: Planning is continuous. It is a never-ending activiry. Once
plans for a specific period are prepared, they are translated into action. At the end of that
period, there is a need for a new plan to be drawn based on new situations and conditions.
Planning, is thus, an ongoing process of adjustment to change. There is always need for a new
plan to be drawn on the basis of new demands and changes in the circumsrances.
("i) Planning involves choice: Planning essendally involves choice among various alternative courses
of action. If there is one way of doing something, there is no need for planning. Thc need for
planning arises only when alternatives are available. Planning presupposes the existence of
alternatives. From out of these alternatives, a manager would select the best alternative, after
careful analysis and evaluation.

(vii) Planning is forward looking: Planning means looking ahead and preparing for the future. It
means peeping into the future, analysing it and preparing for it. Managers plan today with a
view to flourish tomorrow. Vithout planning, business becomes random in nature and decisions
would become meaningless, adhoc
choices. Features of a Good Plan

(viii) Planning is flexible: Planning is based

on a forecast of future events. Since According lo L.E Urwick, a good plan should:
future is uncertain, pl4ns should be o have a clear goal.
reasonably flexible. The onset of colour
television sers forced many o be simple.
^ o be amenable for proper analysis and
manufacturer in the'West to abandon
production of black and white television classification of actions.
se ts long back. 'S7hen market o be flexible.
conditions change, planners have to o be balanced.
make necessary changes in the exisring
plans. According to Koontz and
r provide for optimum use of resources.
11,4 r Monogement Text ond Coses

O'Donnell, "effective planning requires continual checking on events and forecasts and the
redrawing of plans to maintain a course towards a designed goal".

(i") Planning is an integrated process: Plans are structured in a logical way wherein every lower-
level plan serves as a means to accomplish higher level plans. They are highly interdependent
and mutually suppoft ive.

(") Planning includes efficiency and effectiveness dimensions: Plans aim at deploying resources
economically and efficiently. They also try to accomplish what has been actually targeted. The
effectiveness of plans is usually dependent on how much it can contribute to the predetermined
objectives.

Plonning Questions
Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. It bridges
the gap from where we are to where we want to go. It is the function that answers four basic
questions, as shown in Figure 5.1.

3. Gap?

(Currenr Status) (Future Image)

'\?here
1. we are now? 2. Mrere we want ro be?

Figure 5.1
Planning Questions
l. Vhere are we now?: This question is concerned with making a realistic assessmenr of the
current situation and forecasting how the picture may change in the future.
2. 'Where
do we want to be?: This is concerned with finding out the desirable objectives, keeping
the present as well as future requirements in mind.

3. Gap?: \7hat is the amount of difference between where we are now and where we want to be?

4. How can lve get there from hete?: This is a question of deciding in the present what has to be
done in future. Planning is concerned with future implications of current decisions, not with
decisions to be made in the future.

Steps in the Plonning Process

Planning is a vital managerial function. It is intellectually demanding. It requires a lot of time and
effort on the part of planners. They must adopt a systematic approach so as ro avoid pitfalls, errors
 Chopftr 5 Plonning ond Forerosting r 115

and costly mistakes which may upset the whole business later on. Such a sysremarlc approach may
consist of the following steps:

(i) Establishing objectives: The first srep in the planning process is to identi$' the goals of
the organisation. The internal as well as external conditions affecting the organisation must
be thoroughly examined before setting objectives. The objectives so derived musr clearly
indicate what is to be achieved, where action should take place, who is to perform it, how it
is to be undertaken and when is it to be accomplished. In other words, managers must
provide clear guidelines for organisational efforts, so that acrivities can be kept on the right
track.
(ii) Developing premises: After setting objectives, it is necessary ro ourline planning premises.
Premises are assumptions about the environment in which plans are made and implemented.
Thus, assumptions about the likely impact of important environmental factors such as market
demand for goods, cost of raw materials, technology to be used, population growrh, governmenr
policy, etc. on the future plans are made. The demand for fuel efficient vehicles in the late
1980s has compelled virtually all automobile manufacturers in India to go in search of collaborative
agreements with foreign manufacturers from Japan, Germany, USA, etc. Plans should be
formulated by the management, keeping the constraints imposed by internal as well as external
conditions in mind.
(iii) Evaluating alternatives and selection: After establishing the objectives and planning premises,
the alternative courses of action have to be considered. Liberalisation of imports and the use of
high technology in recent times has encouraged manufacturers ro produce colour television
sets, electronic sets, electronic equipments, videos, computers, fuel-efficient vehicles, etc. Thus,
changes in government poliry, technology, competition, etc. pose several alternatives before
manufacturers, from time to time, regarding the product they should manufacture. Such
alternatives have to be carefully evaluated against factors like costs, associated risks involved,
benefits likely to arise, availabiliry of spare capacity, etc. The pros and cons as well as the
consequences of each alternative course of action must be examined thoroughly before a choice
is made.
(i") Formulating derivative plans: After selecting the best course of action, rhe management has to
formulate the secondary plans to support the basic plan. The plans derived for various
departments, units, activities, etc., in a detailed manner are known as 'derivative plans'. For
example, the basic production plan requires a number of things such as availability of plant and
machinery, training of employees, provision of adequate finance, etc. To ensure the success of
a basic plan, the derivative plans must indicate the time schedule and sequence of performing
various tasks.
(") Securing cooperation and participation: The successful implementation of a plan depends, to a
large extent, on the whole-hearted cooperation of the employees. In view of this, management
should involve operations people in the planning activities. Suggestions, complaints and criticisms
from operating personnel help management rectifr the defects in plans and set things right in
the beginning itself. Involvement of subordinates in planning has the unique advanrage of
getting a practical view of those closer to the scene of operations. According to Koontz, 'plan:
have to be set in an atmosphere of close participation and a high degree of concurrence'.
Participation enables employees to give their best to plans. They are also motivated ro carry oui
the plan to rhe best of rheir abiliry.
176 I Monogemenl Texl ond Coses

(,ni) Providing for follow-up: Plans have to be reviewed continually to ensure their relevance and
effectiveness. In the course of implementing plans, certain facts may come to light that were
nor even thought of earlier. In the light of these changed conditions, plans have to be revised'
Vithout such a regular follow-up, plans may become out-of-date and useless. N4oreover, such
a srep ensures rhe implementation plans along right lines. Management can notice shortcornings
in time and initiate suitable remedial steps. A continuous evaluation of plans also helps to
develop sound plans in furure, avoiding mistakes that have surfaced while inrplementing the
previous plans.

Approoches to Plsnning
Managers follow various approaches to planning based on the extent of participation, authority
delegation and competency level of managers working at various levels, namely:

I . Top-down approach: In most family-owned enterprises, authoriry and responsibiliry for planning
is centralised at the top. The top management defines the mission, lays down strategies, specifies
action plans to achieve rhe stated goals. The blueprint is then passed on to the people working
at lower levels, who have very little to contribute to the process of planning. The success of this
approach is wholly dependent on the qualifications, experience and capabilities of people working
at the top level.

2. Bottom-up approach: Thinking and doing in the planning process are two sides of the
aspects
same coin. So, if lower level managers are drawn into the preParation and implementation of
plans, their loyalry and commitment would go up automatically. Participation enables them to
give their best to the plan document.

3. Composite approach: I_n this approach, a middle path is chosen to facilitate the smooth
implementatior, of th. pi".rr. H.r. the top management offers guidelines, sets boundaries and
encourages the middle and lower level executives to come out with tentative plans. These are
put to discussion and debate. Once approved, such plans gain accePtance readily since everyone
has been drawn into the exercise.

4. Team approach: fhe ream approach is slightly different from the composite approach. In this,
the job of planning is assigned to a team of managers having requisite experience in various
functional areas. They prepare the draft plans, taking internal as well as external factors into
account. The tentative plans are forwarded to the top management for approval. The expertise,
experience, and capabilities of functional heads is executed into action in such a participative
climate.

Principles of Plonning
To be useful, planning should try to incorporate some of the time-tested and inter-related principles,
beautifully summed rp by Koontz thw:
l. Principle of contribution to objectives: Every plan should help in the achievement of
organisational obj ectives.

2. Principle of primacy of planning: Planning precedes all other managerial functions. It is the
first and the foremost function to be followed in the Process of management.
 Chopter 5 Plonriing ond Forerosting t 117
4 Principle of pervasiveness of planning: Planning is an all-pervasive function. It is important to
all managers regardless of their level in the organisation.
4. Principle of flexibiliry: By flexibility of a plan is meant its ability to switch gears, change
direction to adapt to changing situations without unnecessary cost (abiliry to vary product mix,
shift marketing effort geographically, raise additional funds on favourable terms, reshuffle and
relocate personnel quickly, change organisation structure etc.).

5 Principle of periodicity: Plans should be integrated and interconnected in such a way as ro

achieve the stated objectives economically and efficiently. A manager should review events and
expectations regularly; refine and redraw the plan and keep it on track.
6. Principle of planning prernises: Every plan is based on carefully considered assumptions, known
as planning premises. "The more the individuals charged with planning, understand and agree
ro utilise consistent planning premises, the more coordinated enterprise planning will be".
7. Principle of limiting factor: '\?hile choosing an appropriate course of action among different
alternatives, the limiting or critical factor (such as money, manpower, machinery, materials,
management) should be recoginised and given due weightage. When ignored, rhe critical factor
would seriously impact the process of planning and make it impossible to achieve goals.

lmportonce of Plonning
Planning is an essential activity carried out in all organisations in the modern world. No organisation
can achieve its goals without planning. Planning helps in determining the goals of an organisation
and the activities needed to satisfr these goals. If organisations are operaring on a day-to-day basis
with no feel of where they are heading, the results will be haphazard. It is like sailors lost ar sea in a
rowboat. They feel helpless just sitting there, so they row, not having any idea where their rowing will
take them. Planning helps an organisation in the folowing ways:

(i) Planning provides direction: Planning provides direction and a sense of purpose for the
organisation. \(/ithout plans and goals, organisations merely react to daily occurrences without
considering what will happen in the long-run. Plans avoid this drift situation and ensure that
short-range efforts will support and harmonise with future goals. It helps an organisation decide
what to do and when to do it. It reduces aimless activiry and makes acrion more meaningful.

(ii) Planning provides a unifring framework: Planning forces people to continually address their
efforts to the most important work rath.er than the least important. In the absence of a plan,
unifring focus on company objectives may be missing. A plan tells everyone what the organisation
hopes to achieve and what the contribution of each department musr be, and who is to utilise
resources to achieve the goals. Plans serve as the basis of coordinating the efforts of different
divisions, departments and people. In the absence of a plan, the organisation would be pullsd
in different directions, creating confusicn and misundersLanding at various levels.
(iii) ?lanning is economical: Effective plans coordinate organisarional work and eliminate
unproductive effort. Guess work is banished. Facilities are employed to the best advantage.
'Waste motions and
idle facilities are removed. In the words of Koontz and, O'Donnell, "Planning
substitutes jointly directed efiForts against uncoordinated, piecemeal activiry an even flow of
work for an uneven flow, and deliberate decisions for snap judgements". By focusing atrention
118 r l,lonogement Text ond Coses

on what is to be done, how and when it is to be done, plans helps an organisation to utilise irs
physical and human resources in an economical way. This, ultimately, leads to efficiency of
oPerations.

(i") Planning reduces the risks of uncertainty: Planning helps an organisation ro cope with an
uncertain future. It helps management to anticipate the future and prepare for the risks by
making necessary provisions to meet the unexpected turn of events. Planning enables a manager,
in the words of Drucher to affect rather than accept the future. In the absence of a plan, the
organisation is much more likely to sit back and let things happen and then react ro rhese
happenings in a crisis mode. Planning minimises the chances of mistakes and unpleasant
surprises because objectives, policies and strategies are formulated after a careful scrutiny of
internal as well as external environment. Planning, thus, seeks to minimise risk while taking
advantage of opportunities. It keeps management alert to environmental changes, and manage
the uncertain future in a useful way.

f Decision-making: (") Planning facilitates decision making: Decision-making involves

The process of searching of various alternative courses of action, evaluating them
identifuing problems and
opportunities and then and selecting the best one. Planned rargets serve as the criteria for the
resolving them. evaluation of different alternatives so thar the best one may be chosen.
If there are no plans for rhe future, there are few guidelines for making
current decisions. For. example, decisions have to be made in present for a product to be
introduced three years in the future. $7hen future plans exist, decisions consistent with the
future plans are made. Further, without plans, people will make decisions according to their
own preference rather than those of the organisation.
I lnnovation: The
("i) Planning encourages innovation and creativity: Planning involves
managed effort of an
organisation to develop looking ahead and preparing for the future. The process of looking
new products or services ahead, forces an organisation to be alert of opportunities and threats
or new uses for existing
products or services.
in the environment. It forces managers to find our new and improved
ways of doing things in order to remain competirive and avoid the
r Creativi9: The threats in the environment. It compels the managers to be creative
generation of novel and innovative all the time. Planning helps managers to visualise
ideas that may meet
perceived needs or offer
problems early and take suitable remedial steps. It helps them encash
opportunities for the opportunities and come out as 'winners' in a comperirive world.
organisation.
(vii)
Planning improves morale: Once members know what is expected of
I Morale: A them, they can contribure betrer. \7hen goals are properly defined,
combination of factors work assignments can be fixed and everyone can begin to contribute
which collectively
produce a healthy to the achievement of these goals. This produces improvemenrs in
situation in which morale. Further, planning permits employees ro participare in the
people work with self-
respect and find
thinking process. This helps them develop a broad mentaliry. AIso,
opportunity for when the plan is actually translated into action, they feel that it is their
individual growth. own plan. Positive attributes are, thus, developed. There is less friction
between departments and there is greater personal involvement and
commitment to the plan. Planning improves the behavioural climate in the organisation.
ii) Planning facilities control: Planning and controlling functions are said to be 'siamese rwins'
(inseparable wins). There is nothing to control without planning and without proper conrrol,
 Chopter 5 Plonning ond Forecosting . 179
planning Proves to be a wasteful and an unproductive exercise. Plans
serve as yardsticks for
measuring performance. They help in chanellising behaviour
in the right direction. They help
in preventing mistakes, over-sights and deviations.

Plonning in o Chonging Scenorio

The topic questions the validiry of planning in a fast changing environmenr.
The utility of planning in
the face of continual change (political, economic, social, religtus,
cultural, competitive, technological)
is open to doubt' In view ofsuch changes, the plans, policies and
procedur., h^r. to be revised from
time to time' If we do not move along with the times, and p.rp.,u",.
the status quo arrangemenrs,
we might miss the bus, History is replete with examples where L,rrin.rr..
th"r h"r,. refused io fall in
line have had to bite the dust, and face the prospect of extinction. Failure
to take note of cusromert
expectations regarding fuel efficiency has sounded the death knell of 'Ideal
Java' in the rwo-wheeler
models in the recent past. Inability to ward off threats initiated by the
public sector, private secror
and foreign banks compelled the once market leader Diners Club India ro
go out of the credit card
business (sold to Citibank now) completely. At the same time, in an atrempr
to get along with the
tide, if we keep on changing the contents of plans, time and again, the .*...ir.
Irigh, plo,,'r. ,o b.
counter-productive. \7e are neither here nor there. So, we are caught berween
two extremes, rigidity
at one end, flexibility at the other. Vhich way to go?

T OBJECTIoNS AND ANS\rERS

Let's examine the arguments on both sides and provide answers:
Thble 5.1
Planning in a Changing Environment

Planning is not useful in a fast Planning is beneficial even when the environmental
changing environment changes do take place

The future is uncertain. V'e do not know what lies
ahead. Even when we carefully plan, we do not
know whether we are right or wrong.
Agreed that furure is uncertain but planning ensures
informed anticipation oF future. Moior Car
manufacrurers who have anticipated the future
expectations ofcustomers well in advance are still the
market leaders. Plans help us take calculated risks and
chdlenge the fiuture ourcomes.

Planning is not a sure bet. It does nor guarantee

success. So why spend money and energies
unnecessarilyi If we go offthe track, planning might
prove to be a costly exercise.

we can make the firture all by ourselves in course of

time. The captain of aship does nor leave the instruments
of navigation, in case of a storm. The instrumencs are
rendered ineFfecrive temporarily. They can be pressed
into service once the storm is over.
It is better to react to evens rather thal take proactive
steps. It is better to have a feel ofthe market firsr
rather than trying to enter the same with untried
and untesred idea^s. Planning is a rislry affair.

a In emergenry situarions, we all know, planning is

useless.
720 r Monogement Text ond Coses

I PAYOFFS OF PIANNING IS AN UNCERTAIN CORPOMTE \TORLD

The payoffs oi planning are real and genuine. Consider the following:

l. Ithelps managers to think about rhe future seriously. It forces planners to look into the fucure,
evaluare the impact of various tactors on enterprise functioning and profitabiliry The planners
then develop a plan containing inbuilt escape routes in case of trouble.
2. Planning helps managers in minimising the risks, arising out of an uncertain future event. It
helps rnanagers to ward off the threats by venturing into new areas. The recent policy changes,
in respect of dury structure relaring to metal scrap has changed the fortunes of sponge iron
mannfacturers in India. Some were caught napping; while others (especially the market leader
Essar Gujarat) have quickly initiated steps to reduce the damage (effecting cost reduction
drives, changing their corporate plans). The receding fortunes of fertiliser industries has forced
many a player to venture into areas such as chemicals, cement, etc.

Environmental uncertainty makes planners more cautious. They keep everything ready, so that
in case their plans do not succeed or go off track, they are ready with alternative plans, or
courses of action. Planning helps managers face all future challenges with determination and
courage.

3. Proactive planning pays in the long-run. Environmental engineering firms, oil drilling and
rigging units (Essar Oil, EPIL) fuel-efficient motor carlscooter manufacturers (Maruti Udyog,
Hero Honda), offer us endless success stories as to how their proactive planning helped them
reap a rich harvest even in hard times. Planning helps managers to take advantage of opportunities
quickly. An uncertain future has both a positive and negative side. On the positive side, if we
are ready with a plan anticipating future events, we can exploit the idea fully and emerge as
market leaders. On the negative side, if events do not go as we visualised, w-e can switch gears
without losing much in the process.
Planners, no doubt, cannot control the future. But chey should attempt to identifr and isolate
presenr actions and their results, that can be expected to influence the future. Instead ofmeeting
each crisis as ir arises, they must try to find out the threats and opportunities in the environment
and prepare for rhem in a systematic way. Planning, thus, is not simply an attempt to predict
the future, it is also an attempt to control it. As rightly pointed out by a writer "Planning is a
deliberate artempr to influence, exploit, bring about and control the nature, direction, extent,
speed and effect of change".

Primocy of Plonning
Planning is the foundation of management.Planning provides the basis from which alI future
managemenr functions arise. Vithout the activities determined by planning, there would be nothing
to organise, no one ro motivate and no need to control. Planning logically, precedes the execution of
all other managerial functions. It is the means for organised action, an essential prerequisite for
success in other areas, especially, control. lJnplanned actions cannot be controlled or any attempt to
control without a plan is meaningless. Planning process must be conducted in direct relation to the
needs of control.

According to Koontz, planning has an unique role to play in the performance of other functions.
OF course, it should be noted that the various functions of management are interconnected so, that
 (hopter 5 plonning ond Forecosfing
t I2I
no one tunctlon can exist without the others. Moreover, if we take the
control function, the data
in subsequent planning. The idea of primacy of
all other managerial activities such as organising,
because none of these functions can come into
rpose and incentive ro rhe efforts of those in the
organisation' vithout it, work becomes aimless and wasted, and morale decays.
This reasoning suPPorts the view that planning is relatively more important
^
functions for the successful functioning of the organisation. Although poor
than other managerial
performance in area
is undesirable, planning errors in go to the very heart of th. or!"nisation. ^ny
Serious mistakes or
omissions in planning can never be rectified by effective organising or controlling.
According to
Tbrry "No manager can organise, actuate, and control ,rr....rf,rlly ove. a period oiti^., unless he
has planned."

Limitotions of Plonning
Planning is not always on the credit side of the ledger. It is nor a panacea for all
organisational ills.
Mere planning does not guarantee success because it is not a substitute for human
action and
judgement. The limitations of planning can be examined urrder the following
headings:
G) Rigidiry: Plans put the activities of an enterprise in a rigid framervork. Every thing is spelr out
in detail and deviations are not permitted. New opportunities are ofren ignor.j o, ,.j..t.d
becattse of the commitment to existing plans. Once established, policies and proceclures
become
ingrained in an enterprise and changing them may become an impossible task. Events may
change but plans ma1' remain fixed. Managers, too, would be reluctant ro reorient their plans
suitably. Planning, after all, is hard mental work and no executive would like to discard the old
plans in favour of new ones, even when circumstances demand. So, a mindset has already been
established, and maintaining a fresh and objective viewpoint is difficult.

(b) Costly and time consuming: Planning is cosdy. It is expensive in rerms of time spenr ro formulate
the plans, the manpower required to do the planning and resources needed ro execure the plan.
The collection of information, evaluation of alternatives, selection of a suitable course of action,
etc., may consume lot of executive time and organisational resources.

G) Employee resistance: For any plan to succeed, you need operating people ro undersrand ir,
embrace it, and make it happen. One of the frequent complaints made agaiirsr the planning
Process is that it is done by specialists who are not in touch with operarions. As a result,
oPerating people who are not involved in planning tend ro resist the planning process. Planning
'imposed from above' ofren leads to resentment and resistance from
those forced to execure.
(d) False sense of security: Elaborate planning may creare a false sense of securiry in the organisation.
Managers may begin to feel that everything is well taken care oF. They begin ro assume that as
long as plans are adhered to, there will not be any problems. As a result, they fail, to take nore
of environmental changes and the need to review, restructure and reorienr the old plans in an
aPproPnare way.

(.) Managerial deficiencies: Planning is an intellectually demanding function. Since managers are
assessed on the basis of results, they begin to discount long-range plans, and adopt short-ra.rge
plans which would put them in a comforrable position. This may harm organis"tio.,"l interests
122 r Monogement Text ond Coses

in the long-run. Planning involves lot of paper work and hard mental labour. Most managers
may not like to undergo such a painful process which, ultimately may nor produce results.
Further, planners may be lacking in specific skills in a right w^y, yet inspiring and enthusing
people all along' In such cases also, the utility of planning is seriously ,.d,r..d. plans, as we
know, can be only as good as the planners. Managerial deficiencies, often come in the way of
formulating appropriate plans and developing the right climate.
(f) Planning prevents innovation: Planning demands commitment ro written policies, procedures
and rules etc. It restricts a manager unnecessarily to defined areas, The .*..,rtir,. is p.errent.d
from experimenting with novel ideas, venturing into rislcy but profitable areas and e*ploring
the untested y€t lucrative grounds. The answer given by Allen to this objectio.r
interesting reading. "To require a manager to avoid overlapping the responsibilities of^"k., "r,
another,
no matter how innovating his ideas may be, is not more than asking the violinist in the orchestra
to stick to his music while the pianist confines himself ro rhat of his own instrument. This can
hardly be said to hamper the desirable creativity of either."
(g) External Limitations: It is quite often remarked that 'planning is a ritual in a fmt changing
environment'. This statement subscribes to the fact that planning is an empty academic exercise
in the face of a highly competirive and turbulenr environmenr.
Difrcult to It is difficult for planners to forecast economic conditions, governmenr
' Predict:
policies, competitive manoeuvers or human behaviour with any degree of accuracy.
Planning, basically depends on a whole set of assumed conditions. Only when these
assumPtions are substantially correct, planning produces fruitful results.

. Proiected too far into the future: Moreover, the reliabiliry of planning efforts is open to
doubt since they are projected farther into the future, where the manager has no control
over environmental forces.
o Enuironmental turbulence: Future is a moving targer. Ir may nor be possible ro anricipare
future changes accurately and provide for them in plans. Uncertainry and unpredictabiliry
the hallmarks of business environment-reduce the usefulness of planning and forecasting.
Competition turns the best laid human plans into wasre paper. Economic, political and
technological revolutions force corporate planners to revise the plans day in and day out.
Sometimes, there is a revision in plans even before their implemenrarion. In the face of a
highly volatile and turbulent environment, plans become obsolete documenrs and fail to
guide the destinies of the organisation. And, it is extremely difficult for the organisations
to buffer themselves against environmental instabiliry no marter how carefully and effectively
the planning exercises are done.
o Emergency situations:The utiliry of planning is further discounted, in the face of emergencies
like strikes, lockouts, industrial disasters like the one rhar recenrly took place in Chemical
Plant in Bhopal, Madhya Pradesh (India). In such instances, plans are completely upset,
decisions made hand-to-mourh,

It is true that planning is not a sure bet. It is not a palliative for all organisational ills. A
fast changing environment reduces the accuracy of planning efforts and forces their revision
even before their implementation. But one should remember that it is only difficult but
not impossible, to forecast future changes. Once you are able to plan for contingencies,
necessary stePs can be taken to minimise the impact of unfavourable market conditions.
 (hopter 5 Plonning ond Forero$ing : 123
It is no use reacting to the crisis as and when they arise. \7hen evenrs are left to chance,
there is no room for an organisation to survive in a competitive world. Any good plan has
built-in-contingencies and several alternatives. The real pay-off in planning arises from the
search and identification of contingencies only. The search causes planners to consider
the impact of non-recurring events and evaluate their potential influence on rhe organisarion.
As and when such events take place, the organisation is happily placed to face the challenges,
Instead of steering a blind course, the planners have something to fall back upon and
weather out the storm. One of the great pay-offs of planning is that it helps a manager
command the future rarher rhan being commanded by it.

Effective Plonning
According to Koontz and O'Donnell, the following steps have to be taken in order to make planning
eftective:

(i) Climate: Planning must not be left to chance. Additionally, conducive climate must be provided
so that activities proceed smoothly and s1's1s111"1ically. Top managers should remove obstacles
to planning, by establishing clear cut goals, realistic planning premises and offering required
information and appropriate staff assistance at various levels.
(ii) Top management support: Planning must start at the top. It must receive arrenrion of the top
management continually. They must be willing to extend a helping hand, whenever required.

(iii) Participation: Plans are implemented by people. So, it is necessary to secure acceptance and
commitment from them. One way to increase commitment is to solicit subordinates'
participation in the planning process. Planning comes alive when employees are involved in
seiting goals and determining the means to reach them.
(1") Communication: Goals, premises and policies must be properly communicated to people.
People must know what they are supposed to do, when, how and where. The time limits must
also be communicated in advance.

(") Integration: Different plans must be properly balanced and integrated. They must support each
other and should not work at cross purpos€s. Every attempt should be made to ensure that the
pay'offs of planning ate more than the costs involved.

("i) Monitoring: Plans must be subjected to regular appraisal and review, so as to take note of
internal as well as external changes. Better to keep the plan flexible to the extent possible.

I SIX RULES OF PLANNING IN LEARNING ORGANISATIONS

Learning organisations, now-a-days, follow six rules of planning. A learning organisation is one in
which everybody is engaged in identi$'ing and solving problems, enabling the organisation to
continuously experiment, change and improve. Thus, increasing its capacity to grow learn, and
achieve its purpose. The essential idea is problem solving as opposed to the traditional organisation
designed for efficienry.

a Strong mission: Employee commitment and involvement are critical in helping companies
compete in today's rapidly changing world. A compelling mission (a broadly stated definition
of the organisation's basic business scope and operations that distinguish it from similar types
124 I MonogementTextondCoses

of organisations) often serves to increase employee commitment and motivarion as well as

offer a guide for planning and decision making. Most successful companies ('Wal-Mart, 3M,
General Electric, Johnson & Johnson, Infosys, Hindustan Lever) are guided by a 'core ideology'
- values and a sense of purpose that go beyond just making money and also provide a guide for
appropriate behaviour.
a Stretch goals: Stretch goals are highly ambitious goals that are clear, compelling and imaginative
in concept and functionally fuel progress. Stretch goals compel everyone to think in new ways.
For example, Motorola used stretch goals to improve qualiry. Leaders firsr set a goal oF a
tenfold increase in quality over a rwo-year period. Once this goal was mer, they ser a new
stretch goal of a hundred-fold improvement in qualiry over four years.

I Learning a Learning environment: In all learning organisations, employees do

organisation: An not rest on past laurels. They quesrion the status quo. Constant
organisation in which questioning opens the gates to creativity and learning.
everyone is identifying
and solving problenrs,
enabling the organisation
O Vital information: In a learning organisation, planning experrs should
to continuously focus more on gathering vital pieces of information from different
experiment, improve quarters. Rather than simply looking for the 'right answers', they should
and increase its offer information with a view to broaden the consideration of issues
capa bility.
and support strategic thinking.

a Improvement; a way of life: Participation in planning effort encourages employees to

continuously learn and grow, thus helping the organisation improve its capabiliry

a Planning still starts and stops at the top: Top management shows the way, clarifies goals, clears
the paths and implements certain plans. It takes the final responsibiliry for success or failure.

Forms of Plonning
Even though the basic process of planning is the same for every manager, planning can take many
forms and styles in practice. Planning may be undertaken in an elaborate way or done in a limited
manner. It may be done by a gelary of intellectuals using modern forecasting techniques or it may be
undertaken in a 'seat-of-the-pants' manner by a number of executives sharing their thoughts over a
cup of rea. Planning may begin at the top with executives deciding on targets and passing them down
for implementation; or it ma1' be undertaken in a participative manner, inviting people designated at
various levels to come forward with constructive ideas and useful suggestions. Thus, there are many
forms and rarieties of planning. The planning practices, further, are likely to differ from organisation
to organisation. One useful way of looking at the whole aspect is to distinguish between long-range
planning and short-range planning or strategic planning and operational planning. Other forms of
distinction, that follow are outlined for academic purpose only. In actual practise, the distinctions
suggested may not surface in such a neat and clearcut manner.

I LONG-RANGE PLq.NNING (LRP) vs. SHORT-RANGE PLANNING (SRP)

Long-range planning covers a relatively long period of time (anything over a five-year period), and
affects many departments/divisions of the organisation. It includes the formulation of overall broad
objectives and the selection of appropriate means by which the objectives are to be achieved. LRP is
quite common in stable industries such as steel, public- utilities and automobiles. In India, public
 Chopter 5 Plonning ond Foreco$ing t 725
sector companies generally adopt the narional
Features of a Long-Range Plan
planning period of five years. LRP is the result
of a series of interrelared steps: (i) The
basic step is the estimarion of the o Covers a time period of 5 years or more.
international, national and local situation. The
possible future changes rhar might take place,
. States what the organisation wants to become
in the long run.
in areas external to an organisation are
examined. (ii) The second step of LRP is r Tries to focus on organisation's linkage with
defining the goals to be pursued by the the external environment.
organisation and the philosophy to be o Defines the mission of the organisation,
adopted. (iii) The third step in LRP answers outlines major strategies and specifies action
plans to realise targets.
the simple question: where are we now? For
this, an objective assessment of the degree o lnvolves a great deal of uncertainty.
of success in accomplishing goals, on a day e Developed by top management.
to day basis, is made. (iv) In the fourth step,
an attemPt is made to find out the strong or weak spots in the company's programmes rill date in the
light of addicional information on sales, selling expenses, production targers, capital inflow, etc. The
deficiencies are rectified promptly. (v) Noq a full blown programme of longer range planning is
developed and approval is sought for its adoption. (vi) The last srep is concerned with placing
LRP into work, to reduce ambiguiry and achieve some measure of specificiry. LRP is divided into
action plans, that is, intermediate and short-term plans for the sake of convenience and easy
implementation.

Long-range planning is necessary precisely because we cannot forecast the I Long-range planning:
uncertain future. It is essential even rhough the eventualiry for which plans A plan that covers many
years and affects many
are prepared is not likely to occur. Is it not foolhardy to stop milirary planning
departments or divisions
simply because the planner must operate under conditions of uncertainry? of an organisation in a
This is doubly true in the case of business organisations, for a failure to plan malor way.
may have serious consequences on its survival and growth in future. The
business executives should not always sit back and wait for lightning to strike. Even in times of
emergency and adversity, long-range planning is important. It is importanr because a planned
contraction of operations is less costly and disruptive than a make-shift contraction. It is true, that
accurate planning beyond one year is difficult and long-range plans are very likely to be changed
before completion. Nevertheless, they definitely serve a purpose in setting up an orderly approach to
the problems of long-range growth of the company. The consequences of taking a short-rerm perspective
can be severe. The US automobile industry lost a large share of rhe market (28o/o 6y 1980) to
imported cars because of an earlier failure to focus on the long-term need to develop fuel-efficienr
vehicles. Long-range planning helps in preparing in an orderly manner fbr future events. It opens up
new avenues, new ways of doing things and reveals specific opportunities, previously unknown to the
planner. It helps in seeking new opportunities actively, instead of merely reacring defensively to
competition. In fact, a study byAnsol clearly shows that strategically planned companies outperfbrmed
the non-planners. Stagner studied 109 firms and found that those companies that used their rop
managers in long-range planning consistently obtained better results than those thar did nor have a
strong planning activiry. The evidence furnished in other studies is equally strong. There is a good
reason fbr confidence in long range planning. Attd there is no ,ubrt"rr.. in the argum.nt th"t L-orrg-
range planning is useless in the face of uncertaintres.
726 r Monogement Text ond Loses

Long-range planning is not tbrecasting. Forecasting is of little use to planners who seek to direct their
organisations to the future. It is does not provide an adequate basis even for purely adaptive behaviour.
The answer for this dilemma lies in long-range planning. Long range planning is much more rhan a
mere projection of trends. It is that activity in a company which sets long-range goals for the firm
and then proceeds to formulate specific plans for attaining these goals. Long-range planning arremprs
typically to grapple with the quesrion "what must our company do, today to be ready for the
uncertainties of tomorrow." It does not deal with future decisions. It deals with the futuriry of
Present decisions. Vhat an organisation should do tomorrow is not importanr or relevant. \7hat is
more important is an answet to the question: '!?hat do we have to do today to be ready for an
uncertain tomorrow? Thus, long-range planning is a risk-taking decision-making. There is no arrempr
to mastermind the future.
T SHORT-RANGE PLANNING OR OPERATIONAL PLANNING
Short-range planning covers a period of one to twelve months, depending on the nature of business
and the traditions prevailing in the industry. Short-range plans are otherwise
I Short-range
planning: A plan that (is called operational plans. They are usually made in a specific and detailed
specific and detailed) manner. The emphasis is on flexible budgets, on goals and targets, expressed
generally covers a span
in a clear and precise language. The primary concern is efficiency (doing
of one year or less.
things right) rather than effectiveness (doing the right things). To this end,
short range plans gather information, evaluate alternatives and select the most suitable course of
action. Operative plans provide content and form to long-range plans. In fact, short-range planning
is an extension of long-range corporate plans. Market plans, production plans and financial plans are

rypical examples of operational planning.

Table 5.2
Long-Range Planning vs. Short-Range Planning

l,ong-range Planning Point ofI)istinction Short Range Meaning

5 Years or more. Time factor Upto oneyear.

Mission, Long-term goals and strategies. Deals with Current operatio ns of an organisation.

Organisation's linkage with external factors. Primary Focus Linkage wirh various parts ofan organisation.

Demands changes in the structure, resource Impacr Operares within the existing srructure and
allocation. tesources.

Ir goes too far into rhe fi.rture; the risk and Uncenainty The time horizon is limited and the risk
uncertainty level is high. associated with uncertainry level is low

Top Management. Prepared by Lower level executives.

Long-range planning and short-range planning are expressions ofthe breadth ofplanning periods.
The terms, short term and long term, sometimes present an erroneous picture because people generally
associate short term with a narrow perspective and long term with a broad view

The time dimension of planning cannot be reduced to simplified expressions such as short term
or long term. The time span varies usually depending on the factors like industry characteristics,
market demand, availability of resources and skills, environmental complexities, etc.
\7hat may appear to be long-range planning, in the case of one company may turn out to be shorr-
range planning in the cases of other companies.
 Chopter 5 Plonning ond Forerosting . 127

I OPERATIONAL PLANNING vs. STRATEGIC PLANNING

Strategy refers to the ideas, plans and support that firms employ ro compete successfully against their
rivals' Strategy is meant to help firms achieve competitive advantage. Broadly speaking, competirive
advantage is what allows a firm to gain an edge over its rivals (superior design skills, qualiry, distribution
network, after sales service, low cost manufacturing etc.).
Unlike short-term planning, strategic planning involves an extended tirne frame, the deployment
of a substantial percentage of organisational resources, a wide spectrum of activities, and a major
eventual impact. Basically, strategic planning is planning that is conceptually I Strategic plan: A
and functionally long-term, wide ranging and critical to organisational success, general plan outlining
decisions of resource
in terms of costs of the resources it affects and of the outcomes it envisions.
allocation, priorities and
The important features of operational and strategic plans are summarised action steps necessary to
reach strategic goals.
through the following table.
Table 5.3
Characteristics of and al Plans
Feature Strategic (Long-range) Operational (Short-range)

Time horizon 5 years or more Under I year

Purpose Adapt to exrernal environmenr Implement internal goa.ls
based on internal strengths

Activity controlled Total institutional performmce ]nrernal tasks and operations

Decision range Relatively enduring Shorr-term

C)rganisarional level involved Top management Middle and lower management

Basis lor planning Primarily judgmental Exact data and standards used

Predictability Uncertain Highly certain

Anticipated accurary Vithin 25 per cent Vithin 2 or 3 per cent ,
Managemen t frrnctions involved Planning and forecasting dominanr Control primarily
Management control of outcomes SIight; contingency plans required AJmost complete; single-option plans used

T TACTICAL OR COORDINATIVE (INTERMEDIATE) r Contingency

planning: The
PLANNING determination of
alternative courses of
Tactical plans are less detailed than the short-range plans. They are concerned
action to be taken if an
with implementation of strategic plans by coordinating the work of different intended plan is
departments in the organisation. They try to integrate various organisational unexpected ly d isru pted
or rendered
units and ensure commitment to strategic plans. Based on the results obtained
inappropriate
by implementing short-range plans, a mid-term review is undertaken. A
moving average is usually obtained and the success or failure of operational plans is assessed and the
need for readjustment is indicated. Coordinative planning, thus, helps in shifting the gears, whenever
pitfalls occur while implementing the short-range or long-range plans.

I FORMAL AND INFORMAL PIANNING

A formal plan is a well documented plan. It is a written record of what the I Formal plan: A
written record to what
organisation intends to do within a time frame. The record is made after a the organisation intends
careful evaluation ofall relevant factors that have a bearing on organisational to do, within a time
frame.
functioning. Managers at various levels are deliberately involved in the
728 r Monogement Texl ond Coses

formulation and implementation processes. It is systematic and rational. Informal planning does nor
offer a written record. It is carried out without any direction. Managerial thoughrs which d"o not find
expression on PaPer are informal plans. It encourages managers ro evade responsibiliry. Unhealthy
tendencies like carelessness in planning and irnplementation, haphazard. actions, loss of memory and
direction might creep in. It should be followed as an exception rather than a rule.

T FUNCTIONAL AND CORPORATE PLANNING

Functional planning is 'unit planning'. It deals with parts such as production, marketing, finance,
manufacturing in an isolated mannet. There is no unified focus. As a resuk, functiona'i planners
develop a 'parts mentality.'They, often, fail to see the total big picture. The impact of inte.nal as well
as external factors may not be fully taken care of, in respect of functional planning. Corporare

I t
r Corporate
c"tp-"t" plan:
pl*- Aplanning outlines the broad objectives of the company as a whole and develops
A I
plans designed to meet those objectives. It has both the micro-as well as-
comprehensive plan thal
outlines the broad macro focus. The various functional plans are integrated so as ro meet the
objectives of a company
broad objectives of rhe organisation. It is integrative in narure. It takes a
as a whole and develops
long-term vielv. It tries to strike a balance between organisational resources
plans to achieve those
objectives. and environmental challenges. In rhe process, tendencies like adhocism,
parts-mentality, narrow funcrional ourlook, fricrion berween units are kept
under constant control. The focus is always on overall organisational performance

I PROACTIVE AND REACTIVE PLANNING

I Proactive planning: ln Proactive planning is a way.of thinking about managing the future risks and
proactive planning, challenges. It tries co take care of all future contingencies and changes.
managers challenge the Plans are often tied to a time-frame. \iTithin this period (say2year period),
future, anticipating
many changes may occur and upset all projections and calculations. Proactive
future contin8encies and
get ready with planning makes managers alert and sensitive to all such changes. They are
forced to be dynamic, active and creative. Instead of reacting to evenrs
alternative routes for
u nforeseen
passively, managers are ready with alternate plans and actions, redefining
circumstances
and reshaping the future. It helps managers to challenge the future rather
than accept the same meekly. It is chiefly concerned with initiating actions today so as to survive and
grow tomorrow.
I Reactive planning: In reactive planning, the organisation merely reacts ro externai events.
The organisation merely
The organisation is left to the vagaries of environmental forces. Automobile
reacts to events as and
companies that found that fuel efficiency is going to be the most imporranr
when they arise.
demand of customers in eighties have registered consistent growth all these
yeas whereas those companies that did not visualise rhis in advance are no more in existence in the
market now (remember Fiat, Ambassador cars?). In a fast changing world, reactive planning may
prove to be costly. Before we realise what has happened, we might be shown the door. Managers, as
rightly pointed out by Drucher, should not wait for future. They have to make future by initiating
original actions.
r Controlling: lt is
concerned with
monitoring employees' Plonning 0nd Controlling: Relotionship
activities, keeping the
organisaqion on track Planning involves selecting enterprise objectives and then finding ways ro
towards is goals, and achieve them. Controlling is the process of assuring rhar actions are in line
making corrections as
required. with planned results. The relationship berween the rwo terms could be smted
thus:
 Chopter 5 plonning ond Forecosting t 729
Plans are the directiotts in which managers intend to lead
the organisation in order to achieve
' its objectives. Controls are needed to ensure that results are consisrent
with plans.
t Planning prescribes described behaviours and results. Controls can
maintain or redirect actual
behaviours and results.

Managers cannot effectively plan without information about the

past and currenr status of each
' department, product, etc.. Much of this essenrial information is obtained
through the control
Process' It
provides valuable information derived from past experience and allows managers
ro
plan effectively in future' It helps managers to learn fro- p"ri mistakes and
plan well.
Managers cannot effectively control the organisation unless there are plans to
indicate the
' PurPose to be served by the control process. Thus, the planning and control pro...r., complement
and support one another.

T MISCONCEPTION
One of the glaring misconceptions in management stares that futuriry is the essence of planning and
controlling is nothing but a postmortem examination of past evenrs. Admittedly, planning is deciding
in advance what is to be done in future. It is today's projection of tomorrow's a.tiviry. it provides a
scheme for future action, to bring about specified results at specified cost, in a specified-period
of
time' Instead of meeting each crisis when it arises, planners actually try to fi.rJ out threats and
ooportunities in the environment and prepare the organisarions ro face the challenges with confidence .
Planning, thus, is not simply an attempt to predict the future, it is also an arrempr to control it. As
Drucher pointed out, managers do not wait for future, they make the future though intelligent
anticipation and careful planning.
Controlling, on the other hand, is not an examination of past evenrs. It is rightly said that tfie
starting point of planning is control. Controlling helps in the adoption of new plans and revision of
existing plans on the basis of actual performance against standards. It provides information about
past and current status of each department, product, etc. in the organisation and enables managers ro
plan the future changes. Managers, thus, learn through past misrakes and plan effectively. Controlling
aids in future planning. Like planning, controlling is also forward looking.

Forecosting : lntroduction
Business forecasting is a systematic attempt to probe the future, so as ro I Forecasting: lt is a
recognise problems and opporrunities and turn them into plans of action. planning tool used to
predict future
Business forecasting helps in analysing the economic, political and market
environ mental
information ro reduce the risks involved in making business decisions and happenings that will
long-range plans. Forecasts make managements think ahead and give influence the operations
of an organisation.
singularity ofpurpose to planning by concentrating attention on the future.
Business forecasting involves a 'look ahead' approach in business. A systemaric arrempr is made to
look into all the influential factors (p"rt present), affecting the working of the organisations.
".td
Based on the analysis of these factors, through sophisricated statistical and econometric techniques,
a reliable calculation of probabilities about the future is made.

a Essential elerrtenLs rn business forecasting: Redfield, in a famous article in Harvard Business

Review, identified four essential elements in business forecasting.
130 I iilonogemenl Text ond Cose.

a Developing the groundwork The known and available infbrmation regarding the growth of the
company, the industry in which the company is positioned, the growth of the prociuct lines of
the company, etc., is put to investigation in the first stage. The basic purpose is to prepare a
ground work on which future predictions can be based.

a Estimating future business: Against the backdrop of the information collected, an estimate of
future prospects of business is made by management. The trends are projected by management
after a step-by-step procedure where the information is put to close scrutiny and analysis.
These probable trends should not be taken as absolute guides to executive action, they can be
taken as intelligent guesses at this stage.

a Compiring the actual with estimated rcsults: To ward off dangers arising from wrong anticipation,
a periodic comparison of actuals with estimated results is made at this stage. The forecast
provides the measurement apparatus and helps in tracking dorvn reasons for major differences
resulting in unanticipated gains/losses.

a Refining the forecast process: The above three-step process helps executives in gaining proficienry
in constructing dependable forecasts. As time progresses they are able to refine, sharpen and
adjust the forecasting techniques to meet the changing needs of business.

I RTIATIONSHIP, BET\rEEN PLANNING AND FORECASTING

Planning and forecasting are closely related to each other. Planning is deciding in advance what is to
be done in future. Futuriry is in its essence. But, future is uncertain and rislcy. Planners, in majority
of cases, do not know with certainty the conditions which will exist in the future, when activities will
take place etc. As a result, they are forced to make certain assumptions regarding future. This is
forecasting. Forecasting provides pertinent information for successful planning. Planning without
forecasting proves ro be wasteful and useless. Fayol rytly remarked that "the plan is synthesis of the
various forecasts: annual, long-term, short-term, special etc." Forecasting is the essence of planning.
In fact, forecasting is so essential to sound planning that it would not be an exaggeration to state that
the success of the plan depends, in large measure, upon the validiry and accuracy of the forecast.

Forecasting plays an important role in managerial planning. Unfortunately, the importance of forecasting
efforts is rarely recognised. It is frequently pointed out that "the only certain thing about a forecast
is that it will be wrong." It is true that no forecast can be so reliable that it can tell the future.

Forecasting is nothing but a prophesy to the future, the future which is highly volatile and
uncertain. The element of error and risk is inevitable. But, there is no way of escaping this. The best
alternative would be to make use of the existing forecasting instruments in a judicious manner, in a
discriminating way allowing for the risk factor involved and plan accordingly. In our daily actions,
some amount of forecasting is inevitable. The man who starts a business makes an assessment of a
future demand for its products. The man who determines a production programme for the next six
months or rwelve months is usually also basing it on some calculation of future demand. The man
who engagel stafl and particularly young staff, usually has an eye to future organisational requirements.
The very fact that so many people (meteorologists, politicians, managers) employ this instrument
bears ample testimonyto the fact that it is an invaluable guide to steer people to suitable actions.
not have to be 'right' to be useful. In spite of all its limitations, business forecasting is
Forecasts do
immensely useful and therefore unavoidable. Vithout business forecasting, individuals as well as
 Chopter 5 Plonning ond Forecosling r 13L

organisations pre at the mercy of future events. Forecasts are key aids to planning in th'e following
ways:

a Forecasts offer pertinent information regarding future.

a Forecasting helps in bringing a singleness of purpose to planning, that cannot exist eaiily
otherwise.

a Forecasting improves the qualiry of managerial planning. For example, if a company is able to
anticipare the future requirements of customers, it can plan and develop new products in an
appropriate way. Forecasting helps in minimising the costly planning errors. Forecasting also
helps in preparing the organisation for future crisis and emergencies. The orgnisation, through
adequate planning measures, can buffer itself against many, if not all, of these unexpected
changes. It may be as a impossible to evolve necessary shock absorbers completely guard
against business cycles but at least their impact can be fairly assessed, and the unfavourable
consequences can be minimised.

o Forecasting supplies vital information regarding the weak spots in the organisation thereby
paving the way to appropriate control. Once such areas are spotted, it is easy for managers to
establish checkposts for effective control and sound planning thereafter.

Advontoges of Forecosting
Although business decision-makers should neither accept any forecast as infallible nor rely exclusively
on it, they would be well advised to give forecasts a significant weight in their own planning due to
the following reasons:
1. Forecasting is the essence of planning. or basic assumPtions uPon
Forecasts are the premises
which the manager's planning and decision-making are based. They supply vital facts and
perrinenr information for successful planning. Planning without forecasting is an impossibiliry.
1 Forecasting forces executives to look ahead, think through the future and improve their mental
faculties.

3. Forecasting helps in achieving better coordination by focussing attention on the future. It helps
in ensuring a singleness of purpose to planning and objectives'
4. Forecasting, by revealing the weak spots in the organisation, helps in ensuring control wherever
it is lacking and thereby improves performance'

5. Effective forecasting helps in identifting the environmental forces and assists in providing for
'Without business forecasting, individuals as well
th... .Ldl.rrges, though in an imperfect way.
as organisations are at the mercy of future events'

Limitotions
Forecasts are only estimares of future conditions and not indicators of actual position. Future rs
shrouded by shadows of uncertainty. It is quite possible that, becartse of ur.certainty, the best possible
plan may result in losses and a bad plan in profits. Obviousf, forecasting for evenFalities that do not
occur is inefficient. Moreover, it is extremely diffic;rlt to map out all the future possibilities and
1,32 r Monogemenl Text ond Coses

several burning issues may still be hanging in the fire. Uncertainty always places severe limitations on
the efficacy of foretasting. Forecasting suffers from the following limitations :
I . Rule of thumb forecasts only A successful forecast is something of a miracle and often occurs
for wrong reasons. Prophesies of future events is hazardous and in the case of business
undertakings operating in highly volatile and turbulent environments, forecasting is meaningless.
Uncertainty always places severe limitations on forecabting.
2. Unreliable: Forecasting is based largely on predictions and assumptions. Guesswork, however
perfectly made, cannot eliminate the margin of error, the possibiliry of mistakes. Thar is why,
it is frequently remarked, "The only certain thing about a forecast is that it will be wrong."
'
The primary problem with forecasting, is that too much is expected of forecasting. People want
more precise answers, foolproof evidence than are possible in an environment characterised by
uncertainty. fu things stand now, the forecasting techniques too, have not been fully developed,
and there is no fool proof method of predicting the future. Forecasting is more of an art than
a science. Its success largely depends on how skilfully it is put into practice, how effectively the
forecasting techniques have been made, etc. A forecast, to be effective, should consist of much
more than a fanciful guess at a magic figure.

Techniques of Forecosting
According to L.S. Silh, three techniques are commonly employed in business forecasting: deterministic
techniques, symptomatic techniques and systematic techniques.

a Deterministic techniques: Deterministic techniques assume that there is a close causal connection
or a rough idendty berween present and future. These techniques are employed to forecast
particular elements such as capital spending, consumer expenditure, general business conditions,
etc. The principal deterministic techniques are:

(") Latest information: According to this method, based on the very latest information, it is
assumed that the existing conditions or trends will continue for sorne time into the future.
Obviously, it is a naive method, lacking in sound theoretical basis. There is no guarantee
that the present is a copy of the past. Such forecasts are made for very short periods.
(b) Knowhdge of prograrnm, r limits: In this method, a number of important factors having
a bearing on the economic future are determined in advance. It is assumed, after a careful
analysis, that these factors either remain stable or change at a foreseeable rate in the
forecast period, e.g., capital budgets of large organisations, government expenditures on
goods and services, tax provisions, indpstrial capacities, minimum wage legislation, etc.
(c) Spotting tbe beginning of a lengthy process: In this method,. the close relationship between
initial and later stages of an economic process is examined. In several cases, the trends in
the economy which have started at a particular point of time will continue for a long
period.. For example, contracts for constructing residential houses precede actual
construction, new orders or unfilled orders of manufacturers largely determine production.
In these cases, there is no perfect relationship between initial and later stages of the
process (as, for example, construction work may be deleted or contracts may be cancelled)
but a close relationship certainly exists which allows forecasting to be done with a reasonable
degree of success.
 Chopler 5 Plonning ond Forerosting r 133

(d) Diagnosing peopk's expectations: Here, the present customers and potential customers are
asked to project their buying intentions in a coming period. Based on the total market
share expected, management can then estimate future sales.

a Symptomatic techniques: Symptomatic techniques are based on the assumption that turning
points in economic activity are spotted out from the information collected on national and
industrial indices. Based on these significant changes in business activity over a period of time
and based on the information collected, the future trends are predicted.

a Systematic techniques: Systematic techi'riques of forecasting are derived from the classical
approach of economic theory. The cause and effect relations among different economic factor,
which hold relevance for past, present and future, are ascertained and forecasts are then
constructed. This method calls for theoretical training, knowledge of institutional and statistical
facts, technical skill and social and political insight. Generally, rwo approaches are employed in
this rype of forecasting:
(") Intuitiue approach: In this method, the information regarding various economic factors is
collected and put to analysis. The analyst by using his judgement and experience, summarises
the main factors, draws inferences and then constructs various forecasts. The forecasting
job is done continuously and forecasts revised as and when necessary. (on the basis of
fresh information). Forecasts, thus, are not produced by exact mathematical techniqubs
but are based on the analyst's conclusions. Success in this method largely depends on the
analyst's skill, patience, insight, forecasting talent and information.

(b) The econometric approach: Econometric models are more rigorous and scientific in tackling
the forecasting problem. They reflect the wisdom contained in the disciplines of economics,
marhematics, sraristics and accounting. These models express the relationship among a
number of variables associated with changes in sales volume, in mathematical terms.
Through a compuret a predicdve model is developed from a theory or a set of theories
that will determine general business activity. The descriptive model is turned into a predictive
model by independent regtession equations. The demand for new cars in a coming
year might, for example, be a function of current year income levels, development of new
cars in the previous years, rhe cost of the existing models during the last rwo or three
years, rhe duty structure etc. If such a relationship exists, and can be stated in mathematical
terms, a sales forecast for demand for new cars can be made. Econometric models are as
effective as rheir assumptions because this technique demands the services of forecasting
experts with sufficient background in quantitative techniques, especially in computer
technology.

I ECONOMIC FORECASTING METHODS

Economic forecasting is one of the common rypes of external forecasting. The basic aim of economic
forecasting is to predict business fluctuations, i.e., fluctuations in general economic activity. Depending
on rhe narure of the business, these fluctuations affect the success or failure of business in various
ways. The same trend which depresses one organisation might make another flourish.

How to conduct economic forecasting? There are numerous factors known as indicators such as
inrerest rates, stock prices, Ievel of employment, and many others which are frequently employed to
measure the extent of economic activity in a nation. However, the singlemost important indicator is
the gross narional product (GNP). GNP is the value of goods and services produced in the country
134 I ilonogemenl Text ond Coses

in ayear. The following methods are commonly employed to forecast rhe future of GNB which vitally
affects the conditions of many organisations in an economy:

l. Extrapolation: The simplest form of economic forecast is that of extrapolation, which is simply
a projection of the current trend into the future. It merely projects the trend of the past. If a
comPany is able to sell Rs 1,00,000 wonh of goods in 1990, Rs 2lakhs in 1991, 3lakhs in
1992, Rs 4 lakhs in 1993, It can safely estimate that growth increments of Rs I lakh per annum
will continue for the rest of the decade. Extrapolation is generally used to forecast such things
as industry growth, population trends, national income, etc., where changes take place slbwly.
However, where the fluctuations are intense and abrupt, extrapolation may be of little use.
Further, extrapolation ignores the influence of such facrors while presenting the trend forecast
like sudden changes in consumer tastes and preferences, e.g., (the demand for ready made
gannents) technical innovations (e.g., the demand for fuel-efficienr cars, scoor€rs etc.), changes
in political climate, etc.
2' Lead and lag method: In this method, the historic behaviour of various indicators is studied.
The purpose is to find out whether the indicating factor has regularly moved in advance of the
general business trend (lead group), or has moved simultaneously with it (coincident group) or
has lagged behind it (a lag group). On the basis of the major turning points in economic
activity, the forecasts are developed.

3. Econometrics: This is a mathematical approach in which the main variables are joined rogether
in a series of equations. It can then be forecasted on the basis of the assumptions dweloped
from these equations.

I SALES FORECASTING METHODS

of the expected sales. Sales forecasting supplies vital facts and crucial
Sales forecast is a projection
information necessary for constructing other plans in the organisation. Questions like how many
goods an industry should sell, to whom, at which place, and by what methods, can be answered by
means of a sales forecast. A survey of the company's sales records indicates the 'best sellers' of the
comPany so far, the profitable areas where the product is readily accepted, the type of cusromers
preferring the products of the company, etc. Various methods are employed in sales forecasting:

l. Jury of *ecutive opinion method: In this approach, the views and opinions of top executives
are brought together for the purpose of constructing the sales forecast. This is a method based
on opinion rather than on facts. Forecasts are only intelligent guesstimates about the future
under this method.

2. Grasstoots method: In this method a survey of the salesforce is undertaken, their own assessmenr
of sales effected and pooled together by the company are put to analysis on the basis of which
the sales forecasts are developed later on. The estimates of company salesforce regarding the
future prospects of company products are taken into account while construcring the sales
forecasts. The basis of assumption is that because of their intimate connection with the marker,
sales people are in a better position to assess the performance of the company and its products
in the market. Every salesman is required to furnish the forecasts of sales in his area for the
coming year to the company's regional or head office. These estimates are pooled rogether and
compared with the forecast constructed by the home ofiice staff. Allowance is also made for
the impact of changes in managerial policies regarding advertising, price, erc., on general sales.
 Chopter 5 Plonning ond Foreco$ing I 135

The result is a composite forecast. The information obtained from salesmen operating at the
grassroots level is more reliable. Ivory tower estimates may not be as accurate as the estimates
made by persons who have a berter insight of the market.

3. (Jser expectation survey method: In this method, sample surveys of customer's expecrations
are conducted in selected market areas by sales people in order to determine the sales forecast
for the product. However, this is not a reliable method because quite often consumers contradict
themselves, and to remove these limitations if a large sample is selected thd benefits may nor be
commensurate with the costs involved.

4. Quantitative method: Methods like trend projections (based on past information, present
trends are outlined), econometric models (a predictive model expressing the relationships among
a number of various variables associated with changes in sales volume in mathematical terms)
are also used to construct sales forecasts these days.

Selecting the Forecosting Method

The basic point to be observed while selecting a forecasting method is the cost of using the method
versus the value of information to be obtained from the method. Apart from this, two other points
must be observed: First, the person doing the selection must be fully conversant with the available
methods; and second, some systematic procedure should be adopted to evaluate various methods.
Vheelwright and Chrhe have offered certain guidelines in this respect (Table 5.4).
Thble 5.4
Criteria for Selecting a Forecasting Method

Factor I
Manager's technical abiliry | o tevel of forecasting sophistication. I o Undersranding of the method.

o Formal trainingin forecasting.

Factor II
Cost lo Manager'stime. lo Timespentincollectionandprocessingofdata.

o Forecaster's time
Factor III
Problem - peculiar features I o forecast. I o Amount ofsupport from top manatement
Tirne horizon of the

o kngth of each time period. I o Manager-forecaster reladonship.

o Functional area to be covered.

Factor fV
Method-charactedsticc desired I o Accurary

o Statisticsavailable

The Nolion of Premises in Forecosling?

Premises are assumptions about the future. Premises provide the basic I Premises: Premises
framework for forecasting and planning activities. fu pointed out by Koontz are assumptions about
future.
and O'Donnal, 'premises guide planning. They spell out the stage of the
expected future event which is believed will exist when plans operate. They are the expected environment
1,36 r Monogement Text ond Coses

of plans.' A manager makes assumptions, when he tries to define what will be the future of his
product. These premises become guides for his planning. If some of his assumprions prove to be
wrong' he will have to change his plans. Developing sound premises is vital for successful planning.
In order to be effective, premises should be based on systematic forecasting. However, forecasting
business conditions is a difficult exercise and hence a number of factors musr be taken into accounr
to understand complex interrelationships. It is an extremely tough task to fit all the future complexities
together to make a forecast. A manager should have some framework to use for analysing the future.
He has to identi$, certain forecasting 'targets' such as: (1) general economic premises, (2) industry
premises, and (3) company premises. General economic premises are assumptions abcut the level of
activity in the total economic system. Generally, gross national product (GNP) is accepted as an
indicator of general business activity. If the GNP forecast shows a high level of activity and growth
for the coming year, the manager can safely assume that he can get his share of this activity. If GNP
forecast presents a gloomy picture, he has to shift his gears accordingly. Industry premises are the
assumptions a manager makes about the probability of occurrences in his industry. Demand in some
industries like electronics, cement, plastics may be growing quite rapidly whereas in other industries
like man-made fibres, cotton textiles it may be declining. Unless a manager is in touch with these
changes, he may not be able to shift his 'resource efForts' to profitable projects. Company premises
should start with a comprehensive suwey of the company in relation to its environment. Against this
background, the balance sheet i.e., the assets and liabilities of the company must be prepared.
Knowledge regarding the resources, the position of the company in the market, the viabiliry of goals
in a changing environment certainly helps a manager plan his activities well. Generally, the manager
should be able to classifr the information collected into three categories:

G) Uncontrollable premises: Factors that are fixed and cannot be controlled by the organisation,
such as taxation policies, political developments, population growth etc.

(b) Semicontrollable premises: Factors that are somewhat amenable to control, such as competition
from new materials, product or seryices, price policies, labour policies etc.
(.) Controllable premises: Factors under direct management control such as the company's policies,
programmes, strategies etc.

fupointed out by'Wren andVoisch,'such a classification enables the manager to identi$' those
factors that he must make the best use of, those that he can capitalise on, and those that he must
avoid'. Managers can also classifr premises into other categories like (a) tangible and intangible
premises; (b) internal and external premises for decision-making purposes. Thngible premises are
those that can be stated in physical and monetary units like labour hours, production units. Intangible
premises defr quantification. They cannot be expressed definitely. For example, company's prestige
and reputation, competitive strength, value of its human assets etc. Internal premises are concerned
with the firm's own environment such as cash flows and capital budgeting, advertising expenditures,
technology, product structure etc. In other wor&, they are assumptions regarding the company in
relation to its environment. External premises are concetned with the general business climate and
include general economic premises and industry premises, as well. All political, economic, social and-
technological conditions are included in the category.

Thus, premises supply basic information necessary for effecdve planning. fu such managers
must be careful in formulating premises. Managers must be able to analyse and assess their environment
thoroughly using systematic forecasting techniques.
 Chopter 5 Plonning ond Forecosting t I37
Summory
Planning is essential to survive and grow in a fmt changing environmenr.
A plan helps a firm take an
advantageous position in the market, in line with its int.r-"al capabilities.
To be usefirl. nlennino h,"
to be carried out in a systematic way outlining objectives, d.n.loping premise
formulating derivative plans, securing commitment from people and"ensurirrg
Vhile doing so, one can adopt a top-down approach, Lo,.-_,rp
both. " "pp.o""h

.Planning
helps a firm achieve its goals. It
reduces the risks of uncertainry and improves the
quality of decisions. Ithas a healthy impact on people, too. On the negative side, planning purs
enterprise activities in a rigid framework. It may prove ro be a costly anJtim.
exercise.
To be effective, plans must receive support from people at all levels. ihey should"on.u-i.rg
knoJ the pay-
"lso
offs from planning well in advance. Learning organisations offer a stimuiating environment,
for even
ordinary people to work with zeal and enthusiasm and come our with extra ord.inary
results.
Planning can take many forms and sryles in practice. Both long-range and short-range
plans have
to be combined effectively to produce results. Also, there must be .ff..,irr. monitoring
tJ r.. *h.th..
everything is on track or nor.

Forecasting is used to predict future environmental happenings that will influence

the operations
of an organisation. Forecasting improves the qualiry of planning by supplying vital facts
and ie.tinent
information about major environmental factors. Several deterministl, sympromaric and
sysrematic
techniques are pressed into service in order to collect data in an objective manner.

Review Questions
l. Define planning. '!?hat is the necessiry of planning in modern, complex organisations?
2. 'Future is a moving target. It may not be possible to anticipate future changes accurately
and
provide for them in plans'. Discuss.

3. "Planning is an all-pervasive and continuous function of management".

Discuss the performance,
role and importance of planning in the light of the foregoing staremenr. Vhat rh. limitations
of planning? Suggest remedies. "..
4. Vhy is planning regarded as a primary function of management? Discuss the important features
of planning and point our its internal and external limitation:.
5. lVrite short notes on:

. Long-range planning and short-range planning.

o Strategic planning and operational planning.

o .b'ormal and informal planning.

c Proactive and reactive planning.

o Functional and corporare planning.

6. Elaborately explain the planning process in modern organisations.
138 r llonogement lexl ond (oses

7. 'What are the essential features of a good plan?

8. \U7hat is planning? State the nature and benefits of planning.

9. 'Long-range planning is not masterminding the future; any attempt to do so is foolish; human
beings can neither predict not control the future' Examine the statement, critically.

10. '!(zhich kind of plan - tactical or operational, should an organisation dwelop first? Vhy?
'What
I t. do.you mean by forecasting? Vhy is forecasting important?
12. Vhat are the elements of business forecasting?
13. Elaborately, explain the various techniques used in business forecasting.
14. Vrite short notes on:
(") Economicforecasting.
(b) Sales forecasting.
(.) Deterministic forecasting methods.
(d) Systematic forecasting methods.

Discussion Questions
1. 'Planning is deciding in advance, what is to be done in future'. Comment.

2. 'Planning is a mere ritual in a fast changing environment'. Discuss.

3. 'Planning is looking ahead and controlling is looking back'. Do you agree? \7hy and \U(/hy not?

4. 'Planning and forecasting are inextricably intertwined'. Comment.

5. .Almost by definition, organisations cannot accomplish all of their goals' \7hy?

6. Think of examples of each type of operational plan you have used at work, in your college work
or even in your personal life.
7. A new business venrure (Information Technology) has to develop a comprehensive business
plan to borrow money to get started. Companies such as Satyam Computers, Polaris, Hughes
Software Systems say they did not follow the original plan very closely. Does that mean that
developing the plan was a rvaste of time for these eventually successful companies?

References
l. Haynes and Massie, Esentiak of Management, Prentice-Hall International Englewood Clitrs, NJ, 1973.

2. L.A. Allen, M4ndgement and Organintion, McGraw-Hill Book Company, NewYork, 1990.
3. Harold Koonz and Cyril O'Donnel, Essentiak of Management, Tata McGraw Hill' 2000.
4. Theo Haimann, \Tillim G. Scorr and Patrick E. Connor, Management, Fourth edition, Houghton Mifflin Co., 1990.
5. Rusell Ackoff, A Mley, 1970, Ch. l.
Concept of Corporate Phnning, New York,
6. Roben Albanese, Managcment touard Accorntability and Performance, Richard D, Iruin, Homewood, Illinois, 1990.

7. Edgar F. Huse, Managemtrt, West Publishing Company, Minnesota, 1995'

8. Richard M. Hodgetrs, Management,3'd ed., The Dryden Press, 2000.
 Chophr 5 plonning ond Forerosling
t 139
9' David Hampton, contemporary Managcment, McGraw-Hil Book compary, Newyork,
1990.
10. R. vl Mondy, Robert Holmes and E. B. Frippo, Managemcnt, Nrynand Bacon Inc., tondon,
1993.
11. Lesile \7i Rue, Lloyd L. Byers, Managemenr, Richard D. Iryin Inc., Illinois, 199g.
12' S. Thune and R. House, rvhere long-range pranning pays off, Business Horizons, 13, August 1970.
13. Mervin Kohn, Dlnamic Managing, Cummings publishing Co., California, 1977.
14. LA. Allen, Professional Ma.nugemmt, Tata McGraw-Hill, 19g0.
l5' Gary Dessler, Managment Fundamcntals, Reston Publishing Company, Prentice HaJl, Virginia,
2000.
16. D.A. Vren and D. Voisch Jr., Management, New york, John Mley and Son, 1994.
17. Redfield, Elements of forecasting, Harrerd Business Revieq yol.29, No.6, Nov. 1953.
I8'
l:t"tl 9..%.:lwright and DarralG. Clarke, Corporate Forecasting: Promise md Realiry Hmard Business Review, 54,
No. 6, November-December 1976.
L9. urwick ird Metcalfe, Dynamic Adminisnation, New york, Harper md Row Brothers, 1941.
20. L.A. Allen, The Managenent profrsion, McGmw-Hill, New york, 1964.
21. R.L. Dafr, Management, The Drydem press. Orlando,2000.
22. KM. Bantol md D.C. Marrin, Management, McGrtw Hill, Newyork, 1991.

Website
Proctor & Gamble: For knowing how srmtegic planning is carried out, visit www.pt.com.
'

Skill Building Exercise

I ARE YOU A GOOD PI.ANNER? .

Planning is an important skill for managers. The following assessment should

h.lp ).i, understand
y'our planning skills. (Answer in Yes or No, to each of the following eighr
quertiorrsj
Questions Yes No
I . My persond objecrives are dearly spelled out in writing.

2. Mosr oF my da;rs are hectic and disorderly.

3. I seldom make any snap decisions and usuajly study a probrem careftrlly before acting.
4. I keep a desk calendar or appointment book as an aid.

5. I make use of'action' and 'deferred action' files.

6. I generally esrablish starting dates and deadlines for all my pro.;ects.

7 . I often ask others for advice.

8. I believe that all problems have to be solved immediately.

Solution:
According to Robbins, the 'perfect' planner would have answered
(l) Yes @ No (3) yes (4) yes

6) Yes (6) Yes (7) yes and (8) No.

Qbiectives ond MBO
CONTEXT
Objectives are the end points, towards which
activities are aimed. MBO is the philosophy of
management that emphasises the development
of mutual objectives by managers and their
subordinaces and the use ofthese objecrives as
the primary bases of motivation, evaluation, and
control efforcs.
N T E N r1
The primary focus of rhis ch'iprer is on verifiable
objectives, that is, at rhe end of the period, it
should be possible to verifr whether or not the
objectives have been achieved.
Potel's Vision ond
Fo resig ht
Circa 1976: A Young chemist worhing u.,ith
the Municipal Corporation of Ahemdabad
responded to an aduertisement in the local
daily. The Indian Petrochemical Corporation
Ltd (IPCL) was inuiting entrepreneurs to set
up small scale business. All they had to do was
mix linear alhaline benzene with soda ash to
mahe detergents. Almost 40 people attended
the worhshop conducted fu IPCL One of the
students, ulto set to u.,orh immediately was
Karsanbhai Patel. Conuerting his bacbyard
into a mini factory, he soon began pedalling a
detergent pached in polythene bags. Riding his
biclcle, he personally went and sold it in the
local marketl Branding it afier his fauourite
daughter, he started a new pattern in
marheting and distribution. His primary goal
was to attack Hindustan Leuer Ltd's Surf
(priced at Rs 15 a Kg) with a lota priced brand
(Nirma was kunched at Rs 3.50 a Kg). Tb
this end, he opted Jbr a semimanual process,
with uery low initial inuestment and giuing
jobs to unshilled workers in the Ahmedabad
region. Polyethylene pachaging was used in place
of aesthetic paper pachaging. To saue
distribution costs, he initially concentrated
ffirts in tlteWestern zone only, (ffired Nirma
initially on credit also) and afier tasting success
-
rhere extended tlte
ffirts North
to South and
zone. Radio aduertising through Viuidh
Bharati was pre,ferred to send the message ltcross
to millions of houseutiues. He emploled
only less educated personnel for marheting
the prodact. All these factors helped in
creat;ng a low priced brand during the 'license
raj' (HLL did not haue any such brand in its
product portfolio in the detergent business at
thrit time). Afier consolidating its position in
the lower end of detergent marhet, Patel
introduced Nirme uariants for medium and
premium segments slowly. lhe same theme of
'ualue
for money' was extended n toilet soaps
as well.
Circa 2002: Tbday, Nirma is the leader in
detergents. It has the second position in toilet
142 r Monogemenl Text ond Coses

soap. Nirrna and Nirma brands generate an
annual turnouer of Rs 2,400 uore. Tltere are
32 product uariants in Nirma brand and 15
product uariants in Nirma brend. Vhat began
as a mini scale production unit, in early 1970t
fro* o 100 sq yard room near Ahmedabad,
has nou grown into a mubi-product, muhi-
pknt formidzbh manufacturing giant - beaing
ample testimony to Karsanbhai s uision and
foresight.

Introd uction
The management process begins with a mission statement and setting up of organisational objectives.
Objectives give meaning and purpose ro the organisation. \fithout objectives, without something ro
achieve, organisation would be purposeless and chaotic. Good management, therefore, is always
management by objectives. Objectives determine the scope of future events. They provide the spotlight
on the routes over which activities are organised. They serve as reference points to concentrate
resources and efforts. They determine what action to take today to obtain results tomorrow.

Mission
I Mission: The A mission is the very reason and justification for the existence of a firm. It
organisation's purpose or is usually expressed in terms of the benefits the firm provides to its cusromers.
fqndamental reason for An organisation's mission statement states what it is, why it exists and the
existence.
unique contribution it can make. Mission statemenrs are characterised by
the following:
1. Customer-oriehted: The purpose of a business, according to Drucher, is to create a customer.
Mission statements, therefore, are directed at serving the customers in useful way.
2. Future-orierra"d, tutir.ion.,"*.rr,. must be indicative of whar the business is going to do in
the years ahead. The statement must remain valid for at least some years to come.

3. Dynamic The concept of mission is dynamic and not a static one. It must strike a happy
balance berween the narrow and broad ways of doing things in the years ahead; berween the
present requirements and future expectations. It is worth remembering that the future of a
business is usually determined by the way it defines its business today. For a painfully long
time, people in the film industry thought that they were in the movie business and not in the
entertainment business. Had they defined their mission in a broad way, i.e. entertainment of
customers, they would have certainly visualised the threat from video business and initiared
appropriate remedial measures. Thus, where the mission statement is defined in a narrow way,
new opportunities and threats from competitive businesses may be lost sight of. On the other
hand, where the mission is defined in a broad and general way, the exercise might prove to self-
defeadng. The business might not be able to concentrate on anyworkable opportunity. Therefore,
mission statements must be defined in such a way where it would be possible for the firm to
take care of new opportunities and also concentrate on some specific areas, where it has some
competitive edge over others.

I MISSION STATEMENTS
l. The Tata Group: "At the Thta Group, our purpose is to improve the qualiry of life of the
communities we serve. 'We do this through leadership, in sectors of leadership, in sectors of
 .1,43
Choprer6 0biecivesondllB0 .
national economic signiticance to which the group brings
a unique set of capabilities. This
requires us ro grow aggressively in focused of busin=ess,,.
"r.",
"our heritage of returning to sociery what we earn
evokes trust
shareholdersl and the .o.i-u.,ity. Thi, h..i."g. will
be .""r,",r1Tr1f-Jffi:Til;Hliil:;
the high standards of behaviour expected from .mployees and
companies.
"The Thta name is a unique asset representing leadership with
trust. Leveraging this asser to
enhance grouP synergy and becoming globally competitive
is rhe route to sustained growth and
long-term success."
2' Godrej Consumer Products:'We shall op€rate in existing and new
businesses which profitably
capitalise on our corporare image of qualiry and integriry.

"Our objective is to delight, both in India and abroad.

"'$7'e shall achieve this objective by re-engineering
our business and through continuous
improvement in qualiry cost and cusromer service.
"Ve shall strive for excellence by nurturing, developing,
and empowering our employees and
suppliers' Ve shall encourage an open atmosphere condtrcirre to learnint
".,d
t."-*ork.
3. The Aditya Birla Group:

our aision: To be a premium conglomerate with a focus at wery I Vision: A widely

' business level. descriptive image of
what a company wants
o Our mission: To pursue the creation of ralue. to be or wants to be
known for.
a Our aim: To deliver value for our customers, shareholders,
investors, employees, and society at large. IValue: The set of
cherished notions and
Management ethot: Focus on value-added growth through: beliefs that guides every
move that a company
O Strategic thrast: Fundamental value-creation and sharper makes.
business focus.

D snucturul initiatiues: Internalising the concept of value-creation.

A mission statement has meaning only if it acts as a uni$ing and driving force
for guiding
strategic decisions and achieving organisation's long-rerm objectives. It
should ,ti-ul"t. thoi i.,
organisation to think and act strategically - not just once a year but every "r,
&y!
I OBJECTTVES AND GOATS
The terms 'objective' and 'goal' indicate an end result to be sought and
r Objective: End point
accomplished. Goals and objecdves borh have value orientations and indicate of a management
conditions considered necessary to improve the overall performance of the proSramme.
organisation. Three widely quoted definitions of objectives are given below:
I Goal: A future target
a objectives are goals established to guide the efforts of the company or end result that an
organisation wishes to
and each of its components.
achieve.
a An organisational goal is a desired state of affairs which the organisation attempts to
realise.
a Objectives indicate the 'end point of a management programme'.
I44 I Monogemenl Texl ond Coses
Semantic Confusion!
Mission: lt describes the crganisation's
values, aspirations and reason for being. lt is
the basis for development of all subsequent
goals and plans.
Goal: A desired state of affairs which an
organisation wants to realise.
Target : A specific, quantitative goal expressed
in concrete, unambiguous words.
Standard: A norm or criteria against which
per-formance can be compared and evaluated.
Quota: A target which is set in quantitative
terms. Generally implies a restriction on the
quantity of a country's imports (or sornetimes
on its reports).
Vision: An organisation's fundamental
aspirations and purpose that usually appeals
to its member's hearts and minds (for eg. 3M :
'To solve unsolved problems innovatively;
Wat-Mart'To give ordinary folk the chance to
buy the same things as rich people'; Merck'To
preserue and improve human life'. Other vision
statements of lndian comPanies:
o Bata:'To achieve success and become the
biggest and most skilful multiple retailing
and distribution organisation with
dynamic, flexible, and market responsive
approach'.
o BIue Star: 'To provide world-class
engineering products and services'.
a McKinsey and Co.: 'fo helP leading
corporations and governments be more
successful'.
a HCL COMNET:'Changing the way lndia
communicates'.
Strategy: The plan of action that prescribes
resource allocation and other activities for
dealing with the environment and helping the
organisation attain its goals.
Value: A fairly permanent beliel about what is
appropriate and what is not, that guides the
actions and behaviour of employees in fulfilling
the organisation's aims.
performance. Identifying objectives is like idef,?i$,ing the North Star in the sky at night to locate the
direction.
-
Goals are the objectives towards
which organisations direct their energies
i concerns. Ifan organisation is a means
of accomplishing ends beyond rhe capacities
of individuals, goals are the collective
into socially meaningful
ends translated
terms. Thus, an ob.jective indicates the
result that an organisation expects to
achieve in the long run. It is the end
result, the end point, something that you
aim for, and try to reach. It is a desired
result towards which behaviour is directed
in the organisation. The organisation may
or may not reach the desired state, but the
chances of doing so ate greater if the
objectives are framed and understood
properly. Objectives are the products of
specific, concrete thinking. They commit
persons and organisations to verifiable
accomplishments. In fact, the concept of
goal has acquired a variety of meanings,
depending on the perspective of the writer.
It is sometimes used to legitimise the role
of the organisation in society (the goal
of General Motors is to make automobiles)
a or to provide a motive for organisation's
activity (General Motors' goal is to make
a profit). A goal may also be a specific
accomplishment such as manufacturing a
particular quantity of automobiles during
a given time period. In another sense, goals
may be considered as the set of constraints
that the organisation must satisfr, i.e., making
profits for the sharehoIders, meeting
the governmental safety standards, paci$'ing
the environmentalists, and satisfying
custome rs.
Mission is a broad term and it
reflects considerable idealism. Objectives,
on the other hand, are action
oriented. They form the basis for work and
provide a yardstick for measuring
 Chophr6 ObiedivesondMBO t 145

Cho rocleristics of 0biectives

Objectives have the following fearures:

I ' Objectives form a hiearchy: In many organisations, objectives are strucrured in a hierarchy of
importance. There are objectives within objectives. They all require painstaking definition and
close analysis, if they are to be useful separately and profitable as a whole. The hierarchy of
objectives is a graded series in which organisation's goals are supported by each succeeding
managerial level down to the level of the individual. The objectives of each unit contribute to
the objectives of the next higher unit. Each operation has a simple objective which must fit in
and add to the final objective. Hence, no work should be undertaken unless it contribures to
the overall goal. Usually, the hierarchy or objectives in an organisation is described through
means-ends chain. Understanding the means-ends chain helps us ro see how broad goals are
translated into operational objectives. In the organisation the relationship berween means and
ends in hierarchial goals established at one level require certain means for their accomplishment.
These means then become the subgoals for the next level, and more specific operational objectives
are developed as we move down the hierarchy.

Means Ends

'Overall
Objectives

/ Divisional
/ objectives

Departmental
Objectives

Individual \
/ Objectives \

Figure 6.1
Hierarchy of Objectives in the Form of a Mean-Ends Chain
In the goal hierarchy, the objectives of each lower level become means ro the ends (objectives)
of the next higher level in the organisation. The goals at the second level are the means used for
achieving the ends set at the top level. Thus, each level of objectives stands as ends relative to
the levels below it and as a means relative to the levels above it. For example, the broad
objective of customer oriented profitable growth can be achieved if the two divisions, plastics
and metal products, work out their individual goals (for example, turning out qualiry products
and developing new products) effectively. And if the production, marketing, and other deparrmenrs
accomplish their departmental objectives, they contribute to the achieveinent of divisional
goals. Thus, the means-ends chain directs the behaviour of every individual and every deparrmenr
towards the highest objective of the organisation. If we observe the. hierarchy of objectives
146 I Monogement Teil ond Coses

ranging from top management to individual objectives, rwo things clearly emerge: the objectives
at the lower level are more specific and they are tied to a time capsule.

2. Objectives form a network: Objectives interlock in a network fashion. They are inter-related
and'inter-dependent. The concept of network of objectives implies that once objectives are
established for every department and every individual in an organisation, these subsidiary
objectives should conrribute to meet the basic objectives of the cotal organisation. If the various
objectives in an organisation do not support one another, people may pursue goals that may be
good for their own function but may be detrimental to the company as a whole. Managers have
to trade off among the conflicting objectives and see that the components of the network fit
one anorher. As rightly pointed out by Koontz et al., "It is bad enough when goals do not
support and interlock with one another. It may be catastrophic when they interfere with one
another"

3. Multiplicity of objectives: Organisations pursue multifarious objectives. At every level in the

hierarchy, goals are likely to be multiple. For example, the marketing division may have the
objective of sale and Jistribution of products. This objective can be broken down into a grouP
of objectives for managers of functional departments like product, advertising, research,
promorion. The advertising manager's goals may include: designing product messages carefully,
creare a favourable image of the product in the market, etc. Similar goals can be set for others
marketing managers. To describe the single, specific goal of an organisation is to say very little
about it. It turns our that there are several goals involved. This may be due to the fact that the
enterprise has to meet internal as well as externd challenges effectively. Internal problems may
hover around profitabiliry survival, growth, and so on. External problems may be posed by
government, sociery stockholders, customers, etc. In order to meet the conflicting demands
from various internal and external groups, organisations generally Pursue multiple obiectives'
Moreover, no single objective would place the organisation on the path of prosperity and
progress in the long run. Accordingrc Drucher, "To emphasise profit, for instance, misdirects
managers to the point where they may endanger the survival of the business. To obtain profit
'Where
today, they tend to undermine the future." several goals are involved, maximising one
goal would usually be at the cost of another. Managers have to see that various goals exist in
harmony and for this purpose they must assign a definite prioriry of l, 2 or 3 depending on the
importance of each objective. Such assignment of priorities helps to keep a PersPective, especially
when there are many goals for one position.

4. Long and short-tange objectives: Organisational objectives are usually related to time. Long-
range objectives extending over five or more years are the ultimate or 'dream' objectives for
the organisation. They are abstractions of the entire hierarchy of objectives of the organisation'
For example, planning in India has got objectives like eradication of poverty, checking population
growth through birth control etc., rcflect certain 'ideals' which the government wishes to
accomplish in the long run. Short-range objectives (one year goals) and medium-range objectives
(rwo to four-year period goals) reflect immediate, attainable goals. The short-range and medium-
range objectives are rhe means for achieving long tcrm goals and the long term goals supply a
frameworkwithin which the kr.r-:r level goals are designed. Thus, all these goals reinforce each
other in such a way that the total result is greater than the sum of the effects taken individually.
That is why goal serring is called a'synergistic process'. In order to remain viable, every
organisation needs to set goals in all three time periods.
 Chopter6 0bleclivesondMBO t '1.47

lmportonce of 0biectives
Objectives are essential to organisations. organisations produce and marker economic
products and
services, universities provide teaching and research, governments provide welfare
and securiry and
I Purpose: An
articulation of the
functions that a company
intends to fulfil through
its businesses.
and they are important in motivating and directing personnel. objectives
serve the following functions:

l. Legitimacy: Objectives describe the purpose of the organisarion, so that people know what it
stands for and will accept its existence and continuance. Thus, Ford 'sells American
transportation', Chrysler 'sells knowhow'and Godrej 'sells qualiry products'. Objectives help to
legitimise the presence of the organisation in its environmenr. The organisarion can, then
emphasise its uniqueness, identity and its raison d'€tre.

2. Direction: Objectives provide guidelines for organisational efforts. They keep attenrion focused
on the common PurPose. Once objectives are formulated, they become the Polar Star by which
the voyage is navigated. Every activity is directed towards the objectives, every individual
contributes to meet the goals. ''Without seeing the targer, a manager would be like a blindfolded
archer-expending useless effort and creating havoc.'

3. Coordination: Objectives keep activities on the right track. They -make behaviour in organisations
more rational, more coordinated and thus more effective, because everyone knows the accepted
goals to work towards. In setting effective goals managers help members at all levels of the
organisation to understand how they can 'best achieve their own goals by directrng their behaviour
toward the goals of the organisarion.'
4. Benchmarks for success: Objectives serve as performance standards against which actual
performance may be checked. They provide a benchmark for assessment. They help in the
control of human effort in an organisation.

5. Motivation: Goals are motivators. The setting of a goal, thar is both specific and challenging,
leads to an increase in performance because it makes it cleai to rhe individual what he is
supposed to do. He can compare how well he is doing now versus how well he has done,in the
past and .in some instances how well he is perforr-ning in comparison ro others.

Areos Needing 0biectives

Peter Drucher, while working as a consultant for General Electric, identified eight key areas in which
fu shown in Figrrre 6.2, these areas were: (l) market standing, (2)
organisations establish objectives.
productivity, (3) physical and financial resources, (4) profitabilit;., (J) innovarion,
(6) managerial performance and development, (/) worker performance and attitudes, and (8) public
and social responsibiliry.
l. Market standing: Market standing and innovation are the foundation areas in management.
Essentially, an organisation exists to obtain r:sults in rhese areas only. Market standing is an
148 r Monogemenl Text ond Coses

answer ro the question regarding optimum market share which the firm should try to capture
ultimately. This requires a careful analysis of (i) customers and products or services; (ii) market
segments (what groups are buying the product or service); and (iii) distribution channels (who
is getting the product to the customers).

2. Innovation: In every business, there are three kinds of innovations: Innovation in product or
service; innovation in market place, consumer behaviour and value; and innovation in the
various skills and activities needed to make the products and services and to bring them to the
market. The chief problem in setting innovation objectives is the difficulry of measuring the
importance of various innovations. Management must, first of all, anticipate the innovation
goals needed to reach marketing goals. It must also find out the technological developments in
all areas of business. For example, the survival of an insurance company depends on: the
development of new forms of insurance, the modification oF existing policies, finding out
cheaper ways of selling policies and settling claims etc. Operating in a competitive world forces
business firms to place emphasis on innovation goals.

Figure 6.2
fueas that Need Objectives

3. Productivity: Productiviry is the ratio of an organisation's inputs to its outputs. All business
have the same resources to work with; it is the qualiry of management that differentiates one
business from another. It must decides as to what inputs of labour, equipment and finances are
necessary to produce the firm's outPuts.
4. Physical and financial resources: Every business m,ust be able to attract resources-physical,
financial and human - and put them to productive use for effective performance. Resource
mobilisation is a rwo-srep prucess: anticipating the needs of the business and planning to
obtain the resources in an economical fashion. After mobilising resources, one also has to say
"This is what is available; what do we have to be, how we have to behave to get the fullest
benefit? "
 Chopbr6 0biectivesondMBO t 149
5. order to 'stay in' and remain profitable, every
it is highly important, especially in the case of
o the qualiry of management performance, rhe
he organisation.
6.
'Worker
performance and attitudes: Organisations musr provide tangible benefirs
ro rhe
individuals working for its continued growth. Thus, worker, *".r, *"g..,
managers wanr salaries,
owners want profits. These are rhe inducements that an organisatior,
-ur, provide, in order to
obtain performance (contributions) from various groups. Most of the routine
or normal work
is performed by operative level employees in every organisation. Unless
goals are established in
terms of outPut per employee, quality of producr erc. rhe organisational activities
may be
disrupted by labour strife, union problems etc.

7. Ptofitability: (i) Profit objectives are important for accomplishing other objectives like covering
risks in the business; (ii) ensuring supply of future capital for Lodernisation
and expansion;
and (iii) satisfring customer needs. "A fundamental objective of the business firm is
to produce
and distribute products and services that the customer is willing to buy. fts reason
for ieing is
to create value. Utiliry must be created or consumers will spend their money elsewhere. p.Jt.
are essential for the survival and growth of the firm." They are the rewards for the
effective
utilisation of resources in creating value for consumers. Instead of trying to maximise profits,
the firm musr rry to creare utilities for consumers.
How to strike a happy balance between multiple and sometimes, conflicting As rightly
goals?
pointed out by Drucher, 'to manage a business is to balance a variety of needs go"lr'. ilort
organisations have a set of 'multiple' goals. In order to accomplish these multiple,".rd .o-etim.s
conflicting 3oals, it is necessary to strike a happy balance berween them. Accoidingto"rrJ
Haimann,
'the real difficulry is not so much in determining the goals and the
objectives; the real difficulry
is in deciding how to balance the various objectives.' How to achieve the trade-off? First of ali,
management musr derermine the Aptimum balance or mix of the objectives. For example,
shareholders may demand larger dividends, customers may clamour for better quality prod,r.t,
at cheaper prices, workers may demand higher wages, society may expect hifh standards of
social conduct, government may seek compliance with tax policies and industiial regulations.
lVhile formulating overall goals, the business must
do well ro protecr the interests of each
grouP reasonably. This requires judgment. And, there is no magic fornrula to replace intuition
and judgment. Managers have to achieve the equilibrium by assigning priorities and by
differentiating berween long-term goals and short-term goals. To ward off inieinal conflicts, it is
necessary to clearly communicate the objectives of each department ro orher departments. If
all the departments in the organisation are able ro see rhe big picture and their role in it,
misunderstandings and conflicts can be minimised. The fundamental objective of the firm is to
create value, and profit is the result of meeting thar objective effectively. It must be understood.
that profit is to our private enterprise system as breathing is to life, but it is nor rhe purpose of
existence any more than breathing is the purpose of life. The term 'profit' as is used in business
should be taken as a 'catafittic agent' in chemistry; it is the actuaror and not the goal or end
result.

8. Public and social responsibility: To achieve the economic objective, a firm must produce the
goods the consumer wants. If a firm is not able to create economic value forco.i.ry, it may not
stay in business long enough to make a profit. In recenr years, social responsibility of busin.ss
150 r irlonogement Text ond Coses

has become a matter of concern for many business undertakings. Here 'responsibility' implies
a sense of obligation on the part of the business towards the general public.

Estoblishing 0biectives: Two Approoches

I GOAL-SETTING PROCESS: TRADITIONAL VTE\T
The cenrral theme in traditional goal-setting is that goals are to be set by the top management, that is,
it is one-way process. It is believed, that top management knows what is best, because only they
can see rhe 'big picture'. This group formulates goals for middle management which, in turn
provides the necessary platform for the development of subsidiary goals at lower levels. In order
to achieve results, there must be multiple goals in the form of a means-ends chain. The organisation
srrucrure should be carefully selected from the available alternatives. To be effective, goals should
be clear and should be prescribed at the beginning of organisational activity. The pr;thary role
of goals is to control the behaviour of organisational members. Goal-setting process is perfectly
rational and there is no need to accouni: for the differences berween stated and operationai goals. The
traditional goal setting process suffers from rriany limitations: (i) Goal-setting may not always precede
organisational activiry. Quite often, organisations start not with goals but with resources, that are
readily available. (ii) The goals of many orf;pnisations are ambiguous, and it is very difficult to reduce
everything in writing and interpret the same uniformly. (iii) Goals are rarely integrated into a hierarchy,
in the form of a means-ends chain. There are bound to be differences between stated and operational
goals.

Stated or official goals are simply statements about desired results. They r€flect what the organisation
should be doing. They are normally expressed in writing and communicated to all employees by the
top management through formal documents, news releases etc. Operational goals are the real goals of
an organisation. They tell us what the organisation is trying to do, irrespective of what the official
goals say are the aims. Official goals generally reflect the basic philosophy of the company and are
expressed in abstract phraseology. Goals like achieving 'sufficient profits' and 'market leadership' are
very ambiguous and not digested at the lower level hierarchy. As goals filter down through the
organisation, people assign 'real' meaning to these terms. Thus, operational goais specifr the way in
which certain formal goals are to be achieved. For example, profit goals can be met through the
pursuit of operative goals, such as market penetration, emphasis on quality, employee morale,
comperitive pricing etc. Operative goals indicate alternative means of achieving formal goals. According
rc Charles Perrow, the following are the important oPerative goals:

1. Environmental goals: Thcse goals satisfr the people and organisations in the external environment
of the organisation. For example, in profit making organisations, goals like customer satisfaction,
social responsibiliry may be important environmental goals.

2. Output goals: Output goals are related to the identification of customer needs. Questions like
what marker should be entered, which product lines must be emphasised or lopped off, are
looked into while formulating output goals.

3. System goals: These are concerned with the maintenance of the organisation itself. Features
like growth, profitabiliry stabiliry and efficiency are included in this category.
 (hophr6 0bjecivesondMB() r 151
4 Product goals: Product goals emphasise the nature of the product delivered to cusromers. They
define quantiry qualiry variery sryling, availabiliry or innovariveness of products.
5 goals: These goals refer to the utilisation of an organisation's power in secondary or
lerived
derived areas like contribution to political activities, recruiting handicapped persons, pro-oii.rg
social service institutions etc.

I GOAL-SETTING PROCESS: MODERN VIE\fl (MBO)

organisational goal-setting process is not a perfect rational activiry. Perfect rationaliry implies
ft_r;
full knowledge of opportunities, constraints, capacityandwillingness to focus amention o., th..rrti..
goal-setting Process, These conditions are rarely satisfied and in most organisations, goals are mere
compromises. Actual goals are products of a series of negotiations berween internai and external
gjou.ds. Each group will try to influence the goals. This leads to coalition (groups) formation and
thes6'coalitions ultimately decide the goals for the organisation. Instead of trying to maximise
perfb'rmance' the organisations try to accomplish goals in a 'satisficing' manner. Sat"isficing
means
that organisations would accept a 'satisfactory' rather than a maximum level of performanJ,e. Cyert
and March provided this line of reasoning to the goal serring process in the 50s and is called 'The
behavioural theory of organisational objectives'. Even this theory failed to take note of the influence
of environmental factors on organisational goals in a satisfactory manner. ln 1954, Peter Drucherhad,
provided a more sophisticated approach to goal setting in organisations known as Management by
Objectives (MBO).

I MANAGEMENT BY OBJECTIVES
MBO (also called 'appraisal by result', 'planning by objectives, 'goal r MBO: A process
managemenr', 'work planning and review', 'joint rarget setring' erc.) is an through which specific
overall philosophy of managemenr rhat concentrares on measurable goals goals are set
collaboratively for the
and end results. Ir provides a sysremaric and rational approach ro managemenr
organisation as a whole
and helps prevent managemenr by crisis. MBo is based on the assumption and every unit and
that people perform berrer when they know what is expected of them and individual within it; the
goals are then used as a
can relate their personal goals to the organisational objectives. It also assumes
basis for planning,
that people are inreresred in the goal-setring process and in evaluating their managing organisational
performances against the target. In the words of Odiorne, MBO is a 'process activities and assessing
whereby the superior and subordinare managers of an organisation jointly and rewarding
contributions.
identify its commoq goals, define each individual's major areas of
responsibility in terms of results expected of him, and use these measures as guides for operating the
unit and assessing the contribution of each of its members'.

a MBO emphasises participation in setting goals that are tangible, verifiable and measurable.
a MBO focuses attention on what must be accomplished (goals) rather than how it is to be
accomplished (methods).

o MBO' by concentrating on key result areas translates theabsrract philosophy of managemenr

into concrete phraseology. The technique can be pur ro general use (non-specialist technique).
Further, it is 'a dynamic system which seeks to integrate the company's need to achieve its
profit and sales growth with the manager's need to clarify and achieve its profir and sales
growth with the manager's need to contribute and develop himself.'
1,52 r Monogemenl Text ond Coses

a MBO is a systematic and rational technique that allows management to attain maxirri,um results
from available resources by focusing on achievable goals. It allows the subordinate with plenry
of room to make creative decisions on his own,

The Process
The process of MBO consists of the following steps (Figure 6.3):
l. Goal-setting: Any MBO programme must start with an absolute enthusiastic support of top
management. It must be consistent with the philosophy of the managemenr. The long-term
goals of the organisation must be outlined initially, like: lVhat is the basic purpose of the
'!fl'hat
organisation? business are we in and why? \fhat are the long-term prospecrs in other
areas? After these long-term goals are established, management must be concerned with
determining specific objectives to be achieved within a given time capsule.

External Environment

Top Management Philosophy Continued Support and Commitmenr

ate

Externa.l Environment
Figure 6.3
The MBO Process

Setting specific performance objecdves is a multistep process, MBO is based on rwo conceprs:
(i) let people know what is expected of them and (ii) allow employee in participation setting
goals. It is believed that participation in the goal-setting process is needed to strike a happy
balance berween individual and organisational goals. MBO gives the subordinates, a voice in
what goes on in the organisation. It emphasises the 'jointness' of the objectives and indicates
that both superiors and subordinates can play a dynamic role. Accordingly, MBO starts with
 (hopter6 0bieclivesondMB() r 153

the establishment of clear and concise goals of performance, which are understood and accepted
by both superior and subordinate. Accordingto Robert Albanese a useful approach to setting
goals may involve the following steps:

l. Knout your own goak: Before meeting the subordinates, the superior should identi$' his
own objectives, the relevant group goals and the performance goals which must be achieved.
He must report back to his immediate superior to ensure congruencc the goals of your
immediate superior.
2. Meeting with your subordinates: In this meeting, the superior meets his immediate
subordinates and explains his objectives and plans for the group. The focus is on transmitting
information, only.

3. Climate for goal-setting Once the subordinate understands what is expected of him by his
superior, a proper climate for goal-setting develops. It provides an authentic opportuniry
to the subordinate to check the goals and question them against certain criteria, like
measurability etc. Now, the subordinate can schedule a meeting with his operating and
staff personnel. He can inform the group about the goals and the action plans that he has
formalised with his superior.

4. Second meeting utith subordinates: The superior now holds another meeting with
subordinates, to arrive at a set of actual goals that are mutually acceptable. The emphasis
is on arriving at measurable goals. For example, goals might be defined in terms of specific
increase in rupee sales volume, production output or qualiry improvement. According to
George Odiorne, successful MBO programme must establish two rypes of goals: performance
goals converting organisational objectives into specific objectives for organisational units
and individual members (production quotas, sales volume) and personal development
goals allowing the individuals to develop their knowledge, skills, potential etc. and prepare
,them for future.

In order to improve the qualiry of objectives, in the joint goal-setting sessions, Tbsi and Carroll
have suggested the following steps:

o The superior must participate in the discussion. He must be a good listener and also a
good contributor to help the subordinate.

o Irrelevant discussions should be avoided.

o Identifr the obstacles that may stand in the way of achieving the goal. Once obstacles are
identified, it is easy to find out the solution,

o Alternatives should be Iooked into only after clearly identifring the obstacles.

o Setting goals is a tough exercise. The goals planned ultimately should satisfy several
conditions. They must be (i) clear, concise and unambiguous; (ii) accurare, in terms of the
true end state or condition sought; (iii) consistent with policies, procedures and plans, as
they apply to the unit; (iv) within the competence of the man; and (v) interesting, motivating
or challenging wherever possible. "Setting goals is too important.an activiry to hurry
through. There should be adequate time given to allow for discussion and evaluation."
o The superior should refrain from making suggestions. He should not try to impose goals
on subordinates by dominating the goal-setting sessions.
154 t MonogementTextsndCoses

o Once an objecrive has been set, think about it and talk about it again. Research evidence
points out that people who have solved a problem start again and try to reach a second
solution, the second solution is better than the first.
The most important factor in determining the success of the mutual goal-setting process lies in
the abiliry and willingness of the superior to allow true participation by the subordinate. 'It
requires intelligent coaching by the superior and extensive practice by the subordinate.'It
requires a genuine commitment to an interactive relationship between managers and their
subordinates.

2. Action plan: The action plan is the means by which an objective is achieved. The action plan
gives direction and ensures uniry of purpose to organisational activities. It will state in detail,
exactly what is to be done, how the subordinate will proceed, what steps will
r Action planning: The
establishment of be taken, and what activities will be engaged in as the subordinate progresses.
performance objectives It provides a specific answer to the question: 'What is to be done?' Questions
and standards for
like who is responsible for each activity, what resources are needed, what
individ uals.
the time requirements are would also be answered. For example, Pankaj
Roy and his sales manager might agree upon the following standards of performance for Roy:
(a) increase sales of ColourTVs in the Southern region by 10 percent by the end of the current
year; and (b) reduce travelling expenses during the above period.

There are rwo ways of developing specific action plans: they may be developed by both manager
and subordinate or by the subordinate alone. To ensure success, the superior must be willing to
sit with each subordinate and review the action plan (such as the above one), once it has been
developed. The periodic review process helps the superior to monitor progress towards goal
achievement. It helps in finding out better and more efficient methods of accomplishing goals,
in finding our rhe feasibility of implementing the earlier goals uncovering barriers to
accomplishmenr etc. If the subordinate does not appealto be on the right course, the performance
objective can be modified or the subordinate can be redirected into more productive behaviours.
The emphasis in periodic review sessions should be on checking the progress toward goal
achievement. If the performance is not satisfactory, the superior must try to isolate the causes
of lack of progress without criticising the subordinate and indicate specific steps, as to how to
proceed in future so as to achieve the goals. The emphasis should be on improving performance
rather than degrading subordinates.

3. Appraising performance (Final Review): This is the last phase of the MBO programme. In this
srep, rhe actual results are measured against predetermined standards. Mutually agreed-on
'While appraising the performance of
objectives provide basis for reviewing the progress.
subordinates, the manager should sit with his subordinates and find out the problems encountered
while accomplishing the goals. The subordinate, as in the periodic sessions, should not be
criticised for failure to make sufficient progress; the atmosphere should not be hostile or
threatening. A give-and-take atmosphere should prevail and the appraisal should be based on
mutual trust and confidence between managers and subordinates. In actual practice, this rype
of give-and-take session is extremely difficult to achieve and rarely reaches its potential value,
unless managers are gifted with necessary interpersonal skills. Often, appraisal takes place for
the purpose of determining rewards and punishments; judging the personal worth oFsubordinates
and not the job performance. As a result, appraisal sessions become awkward and uncomfortable
to the participants and intensifu the pressure on subordinates while giving them a limited
 Chopbr 6 Objecives ond MBO I 155

choice of objectives. Insecure subordinates may come to 'dread' rhe sessions and they may nor
feel free to communicate honestly and openly, without fear of retaliation. Appraisals can bc
-really useful, if the person being evaluated knows and accepts in advance the grounds upon
which he is being appraised.

MBO Benefits
MBO is hailed as the greatest innovation in years. Advocates argue that "it is the successor to Thylor's
'mental revolution'-a new way of thinking about, and engaging in, collective effort". Ir is claimed that
when an organisation is managed by objectives, it becomes performance-oriented, it grows, develops
and becomes socially useful in many ways:

1. Clear goals: MBO produces clear and measurable performance goals. Goals are ser in an
atmosphere of participation, mutual trust and confidence. There is a meering of minds berween
the superior and the subordinates, where the latter will be shooting for right goals. Participarion
increases commitment, additionally it also results in setting better goals. Research experience
also indicates that individuals are more likely to be highly committed to objectives when they
share a hand in setting. Joint goal-setting sessions enhance team spirit and intergroup
communication.
2' Better planning: MBO programmes sharpen the planning process. Specific goals are products
of concrete thinking. They tend to force specific planning into setting highly specific, challenging
and attainable goals; developing action programmes tied to a definite schedule; providing
resources for goal accomplishment; discussing and removing obstacles to performance-all these
activities demand careful advance planning. Passiviry gives way to activiry.

3. Facilitates control: MBO helps in developing controls. A clear set of verifiable goals provides
an outstanding guarantee for exercising better control,

4. Objective appraisal: MBO provides a basis for evaluating a person's performance since goals
arejointiy set by superior and subordinates. By setting specific goals, MBO allows persons to
better control their own performance. The individual is given the freedom to
police his own activities. A pleasant and stimulating organisational climate prevails where
individuals are not subjected to domination and control from 'upstairs', and where they are
rained to exercise discipline and self-control. Management by self-control replaces managemenr
by domination. Appraisals would be more objective and impartial since employee performance
is evaluated against, verifiable objectives.

5. Motivational force: Both appraiser and appraisee are commitred to the same objective. It
forces managers to think of result oriented planning rather than planning for activities or work.
It compels forward planning and living life in an anticipatory mode rather than responding to
events. Clarifi'd roles reduce ambiguiry and employee anxiety. It allolvs managers increased
opportunities to provide subordinates with a better fix on the job and clarify the path to
personal rewards.

6. Better motale: MBO encourages commitment rather than rote compliance, It is at functional
in terms of what top management demands and developmental in terms of people at work. The
rwo techniques, participative decision-making and two-way communication, encourage the
subordinates to communicate freely and honestly. It qinimises the possible misundersranding
156 r Monogement Text ond Coses

about what is expected of each individual and organisational subunit. Particrpation, clarified
goals, improved communication - all together have a tonic effect on rhe psychology of
subordinates.

7. Result-oriented philosophy: MBO is a result-oriented, practical and rational managemem

philosophy. Managers are forced to develop specific individual and group goals, develop
appropriate action plans, marshall the resources properly and establish needed control standards.
It helps manager to avoid management by crisis and 'fire-fighdng'.

MB0 Limitotions
MBO is not a panacea, a cure for all organisational problems. Quite often, many organisations look
at MBO as an instant solution to their problems. They fail to recognise that MBO demands careful
planning and implementation to be successful. This technique, like all orhers, can be no better than
the people who try to apply it. Some of the problems preventing MBO from achieving its best results
may be catalogued thus:

l. Pressure-oriented: MBO may prove to be self-defeating in the long run since it is tied.with a
reward-punishme nt psychology. It is a clear violation of the integriry of subordinate's personaliry.
MBO programmes sometimes, discriminate against superior performers. It rries to
indiscriminately force improvement on all employees and at times, may penalise the very
people who are most productive in the organisation.
2. Time consuming: MBO demands a great deal of time to carefullyset objectives, at all levels of
the organisation. Initially to instil confidence in subordinates in the 'new sysrem', superiors
may have to hold many meetings. The formal, periodic progress and final revic'v sessions also
consume time.

3. Increases paperwork: MBO programmes introduce a tidal wave of newsletters, instruction

booklets, training manuals, questionnaires, performance data, reporrs into the organisation.
To stay abreast of what is going on in the organisation, managers may demand regular reports
and data in writing, resulting in 'gruelling exercise in filling out forms'. It has created one more
'paper mill'. According to Houell, MBO's effectiveness is inversely related to the number of
MBO forms,
4. Goal-setting problems: MBO works effectively when important measurable objectives are jointly
agreed upon. It works less, when: (i) Verifiable goals are difficult to set. (ii) Goals tend to take
precedence over the people who use it. MBO focuses on end results and ir may foster an
attitude, that any action is acceptable as long as it helps to achieve the goals. Consequently,
unwise decisions are made that would ultin^*tely harm the organisation. (iii) Goals are
inflexible and rigid. (iv) There is overemphasis on quantifiable and easily measurable results
instead of imgiortant results. Many important qualitative goals like job satisfaction, employee
attitudes are lost sight of (attempts to set measurable goals force managers to search for a magic
figure for each area). (v) Overemphasis on short-term goals at the expense of long-term goals.
Attempts to show results force managers to curtail costs, in areas where a long-term perspecrive
would be more fruitful to the organisation.

5. Organisational problems: MBO is not a palliative tbr all organisational ills. It is not for everybody.
MBO creates more problems than it solves when:
 Chophr6 0biecivesondMBO t 757
There is failure to teach the philosophy to all parricipants. Too often
MBO is introduced
across the organisation with little explanation, training or help.
There is failure to limit objectives. Too many objectives obscure
priorities and creare a
sense of fear and panic among subordinates.
It is inconsisrenr with managemenr philosophies. Under MBO programmes, managers
are forced to take a 180" turnfrom their present ways of thinking Inst."j of
planning and deciding thingsfor others, they are advised to invitJ ".ri "..ing.
subordinaies and plan
for work in an atmosphere of participation, much to their dislike.

The programme is used as a 'whip' to control employee performance.

It leads to a tug-of-war in which the subordinate tries to set the lowest possible
target a,rd
superior the highest.

Manager turn MBO into a sham and start 'playing games'.

Suggestions for lmproving the Effectiveness of MBO

One of the reasons, for the failure of MBo in many organisarions
is that those in charge fail to
recognise the potential character of the implemenration process.
The fault is not in th. syrrel- brrt i.,
its use' As with any technique, there is a right and a wrong way
ro implement MBO pr:ogrammes.
The following suggestions would help in making ,r.e of Mio
programmes properly.
1. to implement MBO is to allow the top
programme. \Tithout top managemenr
ed properly. MBO presents a challenging
gramme is important and will bring in results. The
shift from planning to accomplishment of specific goals i. nor easy.
fu rightly pointed out by
Hampton, "more often than not, probably, MBO is tried and sooner
or later allowed ro slip into
disuse' Initial .enthusiasm and good faith wane as difficulties
develop." Joint goal-setting,
participation in planning and decision-making processes, objective
p.rfor-"r1. sessions
pose several problems to managers who are wedded to old "pp.""i."1
ways of ,hirrki.rg aJ action. These
problems should not be allowed to kill MBo, without everything -openly
being confronted.
Managers must believe that MBo would work and musr accept
it as a way of thinking. As
Koontz pointed out, it
is essenrial that'an effective programme oi^".r"gi.rg by objectives
must
be woven into an entire pattern and sryle of managing. It
cannot work as a separare technique
standing alone '. MBo should not be used as a decorative piece.
If it does ,ro, h"rr. the active
suPPort, involvement and commitment of top managers, it
should not be installed at all.
2' Training: MBo is not a superfluous ritual which should be finished ofl as quickly as possible.
It calls For precise, concrete thinking. Managers should be given
adequate trai.ri.rg in fuIoo
fore the system is installed. They must be in a position ,"o in..g."..
mpany philosophy. Under an authoritarian, threatening, mistrustful
fruitless exercise. 'A plant musr lr"ve rhe right soil and climate
if
it is to thrive'' similarly, MBo demands a healthy atmosphere where its
philosophy is understood
and the techniques are properly applied. Drawing the curtain
berween i,rrry *irh., and specific
objectives, arranging practice sessions *here p.iformance objectives
are evaluated,
^."r.rri.rg
158 I Mcnogemenl Text ond Coses

performance and checking deviations-all these activities do not come by easily. The subordinates
as well as the superiors must be taught how to set realistic goals and familiarised with the
results, for which they are to be held responsible.

3. Adequate time and resources: A well-conceived MBO programme cannot be installed overnight.
It may take three to five years of operation before the MBO programme yields fruitful results.
Implementing an MBO programme, is quite often a time consuming process and manager
must have the necessary time and resources to utilise it. They must allocate adequate time and
resources to educate each person in the organisation about the nature and philosophy of the
system. It is no use looking to MBO for instant solutions.

4. Take care of the necessary mechanics: One reason, why MBO programmes fail is that they are
not integrated or institutionalised into the real planning and control activities. Setting goals is
only a part of the story, goals must be supported by control activities, also. It is important to
assign authoriry responsibiliry for initiating and overseeing the MBO programme. The persons
who administer the programme must be endowed with sufficient power not only to punish but
also to reward people promptly. It is always better to clarifr responsibility and authority
relationships, so that everyone in the organisation understands what is expected in the MBO
system. A guideline manual of procedures may be adopted, so as to ensure clariry and facilitate
the goal-setting and performance appraisal activities.

5. Timely feedback Monitor MBO, as it is put to use. This process reveals opportunities for
feedback, counselling and encouragement to subordinates other than the regular performance
appraisal sessions. In many cases, as Koontz pointed out, the superior simply sits back and
forgets that periodic review, counsel and control are mandatory to the programme's success.
The subordinate, Iacking in such direction, often, turns in a mediocre performer. Congratulations
and encouragement from superiors, who back up their words with pay raises and'promotions
would motivate subordinates to peak performance. Again, while comparing the actual progress
of MBO with the planned progress, the managet should avoid the tendenry of being overly
critical, with those subordinates who are lower in abiliry lack confidence or are less motivated.
6. Politics: Be sensitive to the policies of implementing MBO. MBO redistributes power and not
all managers welcome this. If MBO is seen as a significant change, it will generate hostile
reaction in the form of jokes, infighting and overt conflict. MBO can also alter the status of an
organisation, can influence decisions, can affect budgets and can promore creation of coalitions
to fight with it. MBO, as Odiorne pointed out, has failed in many organisations because
managers quite often ignored these political considerations in the process of implementation.

Chonges in 0biectives
Organisational objectives are not inflexible guides to behaviour. Although, organisations tend towards
stabiliry goals change over time; and infact they change continuously. Goal changes mean that goal
priorities are periodically re-evaluated in the light of changes in the external environment of the
organisation. The reasons why goals change are not far to seek. Basically, 'an organisation is not
static, and a set of objectives cannot be static, if it is to succeed.' Managers may feel that there is
scope for further expansion and instead of concentrating only on audio,sets (as in the case of Phillips
India Ltd.), the production of .rideo sets may also be undertaken. Or, they may look at what competitors
or other organisations have achieved and decide to match or exceed these levels. Many investment
companies and chit fund organisations have, nowadays, turned their attention ro rhe leasing business,
 Chopter 6 0biectives ond l/lB0 r 159

so as to make a fmt buck.'At times, demands from coalition groups that make up the enterprise may
change and the organisation may be forced to change its goals. New government or labour leaders,
for example, may force a change in the way a business sets its goal priorities. The mission can also
change in a crisis. For example, the Foundation for Infantile Paralysis was committed ro the objective
of developing a cure for polio and it succeeded. It no longer had a legitimate goal for its operations.
Now, the efforts of the Foundation were directed towards a new goal, fighting birth defects and
arthritis. Finally, as organisations progress and undergo cyclical changes, objectives also change.
Normally, goal changes are expressed in two forms: (i) goal displacement, and (ii) goal succession.
Goal displacernent, genenlly takes place when goals are expressed in an ambiguous manner. The
official goals are ignored; an inversion of means and ends chain takes place. In a hospital, for
example, Patient-care may be the official goal. Because of space consrrainr, lack of resources and
adequate suPPort from the government, the official goal may be sacrificed in favour of the real goal,
that is taking care of rich and influential patients only. \7hen old goals have been achieved or
discarded, goal successioz takes place. Allowing old goals ro outlive their udliry will be disastrous for
organisations. '!?hen the organisation is confronted with receding sales, cut-rhroat competition,
shortage of funds, the only way to survive is to find out new goals which can inject a fresh lease of life
to an otherwise decaying instirution.
T wHY GOAL DISTOMIONS OCCUR?
'What are the
reasons for goals incongruence? How to account for the I Goal incongruence:
differences beween official and real goals? Even the most successful people A condition in which
and organisations do not accomplish all their goals, all the time because of there are major
incom patibilities
several reasons. The stated goals may be in conflict with one another. They between the goals of an
might be intangible, idealistic or even ambiguous and there is the likelihood organisation member
of generating expecrarions that cannot be achieved, leading to frustration and those of the
organisation.
and disillusionmenr, crearing anxiery and stress because of contradictory
demands and so on' In order to reddce the ambiguiry participants at each level supply operarional
meaning to goals. Clariry and specificity is accomplished by each managet applying his own set of
interpretations and biases leading to goal distortions. Goal distortion results, when there is a
misunderstanding and misapplication of stated goals. 'When goals are distorted ro an extreme level,
the organisation is forced to displace them. The reasons for goal distortion may be:
(") Organisational distance: People at lower levels cannot see rhe 'big picture'; every piece of
information has to travel a distance in most of the present day organisarions. As a result,
participants at each level indulge in filtering, shon circuiring and window dressing of messages
received, depending on their personal preferences.

(b) Sub-unit goal internalisation: Departments consrantly jockey for power and influence in the
organisation. The long run interests of the organisation are sacrificed in an attempt ro build
empires, create enclaves of power and influence, and thus, sub-unit goals take precedence over
organisational goals.
(.) Overcommitment: It is possible for managers to be overcommitted ro a parricular goal or set
of goals, seriously hampering the performance in other areas. Overcommirmenr blinds managers
to the need for new goals. Non-performance or insufficient performance frustrates managers
and they either turn apathetic toward old goals or they ffy ro rwisr so as ro suit rheir short run
personal interests.
1,60 I Monogemenl Text bnd Coses

Guidelines for Setting 0biectives

Setting objectives is indeed a difficult task. It requires intelligent coaching by the superior and
extensive practice by the subordinate. The guidelines shown in the following table will help managers
in setting their objectives (Koontz)
Thble 6.1
Checklist for Manager Objectives
If the objectives meet the criteria, mark "+" in the box at the tight of the statement. If theydo not, mark "-" in the box.

I . Do the objectives cover the main features of my job?

tr
2. Is the lisr ofobjectives, too long? IFso, can I combine some objectives?
tr
3. Are the objectives verifiable; i.e., will I know ar the end ofthe period whether or not they have been achieved?
TJ
4. Do the objectives indicate:

a. Quantiry (how much)? tr

b. Qualiry(howwell, orspecificcharacteristics)? tr
c. Time (when)i
n
d . Cost (at what cost) ?
tr
t. Are theobjectives challengingyet reasonable?
n
6.
7.
fue priorities assigned to the objecrives (ranking, weighing, etc.)?

Does the set ofobjectives also indude:

tr
a. Improvementobjectives?
tr
b. tr
rtr
Personaldevelopmentobjectives?

8. Are the objectives coordinated with those of odrer maragers and organisational units?

Are they consistent with the objectives oFmy superior, my department, the company?

9. Have I communicated the objectives to all who need to be informed?

u
I 0. Are rhe short-term objectives consistent with long-term aims?
tr
II . Are the assumptions underlying the objectives clearly identified?
tr
12. Are the objectives expressed dearly and are they in writing?
n
13. Dotheobjectivesprovidefortimelyfeedbacksothatlcantakeanynecessarycorrectivesteps?
u
14. Are my resources and authority sufficient for achieving the objectives?
tr
I 5. Have I given the individuals who are expected to accomplish objectives, a chance to suggest their objectives?
T
16. Domysubordinateshavecontroloveraspectsforwhichtheyareassignedresponsibility?
T
 Chopter 6 Obiedives ond MBO . 161,

Summory
The management Process begins with a mission staremenr and serting organisational objectives.
Mission is nothing but a statement of intent regarding what a firm wanrs ro creare and through which
lines of business. Objectives are the results that a firm expects to achieve in rhe long-run.
Objectives are generally structured in a hierarchy of importance. They are inter-related, inter-
dependent and inter-locking in nature. Organisations, ar any point of rime, are committed to a
number of objections - both long term as well as short term.
Objectives are important for a variety of reasons. They give meaning to organisational work.
They keep the attention of everyone focused on a common purpose. They keep on the right
track, and serve as benchmarks for measuring success. ".ti.rriti.,

Objectives have to be set in key areas in every organisation, such as market standing, innovation,
productiviry resources, performance etc. To be useful, these must be set in of close
participation, mutual trust and confidence. "., "t-orph.re
MBO is one such technique, which has become very popular due to its focus on participatively
set, measurable goals in key areas affecting organisational performance. The process of MBO involves
three steps: (i) setting goals jointly, taking the commitment and rr'tppo.i from subordinates (ii)
developing a concrete action plan and (iii) appraising performance *ith view to improve resulrs
constantly. "
MBO, however, is not always on the credit side of the ledger. It increases paper work, creates lot
of pressure for participants and is a very time consuming exercise. It is not ."ry io ,., clear, measurable
goals. \0ith adequate training, proper support from management and people working ar various
levels most of rhese problems can be solved.

Finally, objectives are not to be taken as inflexible guides to behaviour. They do change over
time for a variety of reasons; resulting in either goal displacemenr or goal succession. \When goals
ate set ambiguously, goal displacement occurs. Official goals are replaced by certain other
loah
favoured by people. lVhen old goals stand achieved or discarded, goal succession takes place.

Review Questions
l. Define 'objectives' and mention the important characteristics of objectives of an organisation.
'What
2. is a means-ends chain? Explain the hierarchy of objectives through this chain.

3. Vhat is the importance of setting organisational objectives in a modern complex organisation?

4.
'!7hat
are the eight key areas where the organisation should establish objectives?

5. \[rhat do you mean by management by objecdves? Explain the goal-setting process through
MBO.
6. Explain the traditional way of goal-setting.
7. Almost bv definition, organisaiions cannor accomplish all of their goals. \fhy?
8. To what extent, do you believe that managers you have known, in business or elsewhere have a
clear understanding of their obje"tives? If, in your opinion, they do nor, how would you suggesr
that they go about setdng them?
162 r Monogement Text ond Coses

9. Some people object to defining long-term goals because they think it is impossible to
know what will happen over a long period. Do you believe this is an intelligent position ro
take?

Discussion Questions
I. 'The purpose of a business is to create a cusromer'. Discuss.

2. Organisations generally pursue multifarious objectives. '\(hy?'What are the consequences of

concentrating energies on a narrow set of objectives?

3. MBO is hailed as the grearest innovation in years.

'S7hy?

4. List the reasons ior possible goal incongruence in organisations operating in a turbulent
envlronment.

References
t. L.A. Allen, Muagement and Orgailsation, Mccraw-Hill Book Company, Nerv york, 1990.
2. Harold Koontz and Cyril O'Donnel, Esentials of Management, Tata McGraw Hill, 1995.
3. Theo Heimann, Villiam G. Scott and Patrick E. Connor, Management, Fourth edirion, Houghron Mifflin Co.
4. Russell Ackoff, A Concept of Corporate Planning, New York, Vile,v, 1970, Ch. l.
5. Robert Albanese, JVanagement toward Actountability and Perfonnanc4 Richard D. Invin, Llomewood, Illinois, 1990.
6. Cyril L. Hudson. Business Organisation and Operatiott, Sraple Press, London, 1970.
7. Edgar F. Hrse , Managemezr, Vesr Publishing Companv, Minnesora, 1995.
8. Richard M. Hodgerts, ManagernenL3t ed., The Dryden Press, 2000.
9. rVilliam L. Dejon, Principles of .lvfanagement: Text and Cases,The Benjamin/Cummings
Publishing Co, California,
r97 8.
i 0. David Hempton, Contemporary Management, McGraw-Hill Book Company, New york.
ll. R.rM lvlondyl Roberr Holmes and E.B. Flippo, Management, Allyn and Bacon Inc., London, 1990.
12' Hofer and Schendel, Research on strategic planning: a suryey of pmr studies and suggcsrions for future efforts,
Journal of
Economics and Business 28 (Spring/Summer, 1976).
13. Lesite V Rue, Lloyd L. Byeis, Management, Richard D. Irwin Inc., Illinois, 1998.
14. Z.A. Malik and D.\[i Karger, Does long-range planning improve company performance? Managenrcnt Reuiew, Sep, 1975.
'1,5. S. Thune anJ R. Houe, \{tere long-range planning pays off, Basiness Horimns, 13, Augusr 1970.
16. L'C. Megginson, D.C. Moslev and PH. Pietri Jr., Management, New York, Harper and Row Publishers, 1996.
17. Charles Perrow, 'The ana.llsis of goals in complex organisarions', American Sociological Reaieu,26, 1961.
18. R.M.CyertandJ.G.March,Abehaviouraltheoryoforganisationalobjecrives,inMasonHaire(ed.) MotlentOrganisation
Theory, New York, John \Viley and Sons, 1959.

19' E.G. Schusrer and A.F. Kinddl Management by Objectiues: \Vhere tae Snnd? A Surueybf Forrune 500: Human Resource
Managemenr, Spring 1974.
20- RoberrL.Forderal.,TenquestionsaboutMBO, CaliforniaManagementReuiew,V,nter 1980.AIsoseeB.L.Maheswari,
Management by Objecrives. New Delhi, Tara McGraw-Hill Book Company, 1980.
21. Gcorge S Odiorne,MtnagenenrblOb-iectiues:AslstemofManagerialLeadership,NewYork,PirmanPublishingCompany,
1965.
22. H.L. Tosi, J R. Rizzo and SJ. Carroll, Setring goals in Managemenr by Objectives, California Management Reuieu, Sept.
1970, YoI. 12
23 N'1. McConkie , A clarificatic.n of rhe goal setting and appraisal process in MBO, Acdemy of Management Reuiew,
Jamary
1979.

CONTEXT
There are manyqpes of plarrs. Once aware of an
opportuniry. a managerplans r.ationallv h)'sctting
objectives, making asstunptiirns irtrout
tle
and funrre cnvironmenr, finding and er.,alrrating
alteruative courses ofac[ion, anC choosinga course
to follow.
INT'ENT
The chapter rrics ro take a snapshot of various
plans thar ,,rc gcnerally pur rr) use in modern
organisadons. \/arious plans arc drawn up to help
managers grap.ple x'irh dav-ro-day problems.
They help in requlating bchaviour and
channel ising rcsu u rc(-.s along ciesi rcd I ines.
"Romoii Roo's Eye for
Deto il"
'Ramoji Rao, known as the King of Fantasl
\Vorld, has created an empire of ouer Rs 2,500
crore, in just under 25 years' time. People say
hit greatest strength lies in his 'clesite to do
things dffirently. He decidel n breah ataay
fiom the Communist parlt, tuhere h, was an
actiue member afler graduating
-from Andhra
(/niuersity. At around the same time, ha sold
and sturted
lturnble way.
az,ing 2 lahh
an annual turnouer o-f cuer Rs J,500 crore.
A nagazine forfarmers, Anndciata, too, prouerl
presenr
to be a graat hit ,tnd nou, boast: of 2 labh
English His bigest contribution came in the
post-production facilitias, a giant t'turser!,
luxury l1ss6l and some 40 studio Jloors. It has
the capacity to flm 100 mouies at a time and
create an! locationji.om aJapanes.e tea garden
to a complete Indian railwal staiion. IIis other
notable uentures includt the immensely popular
EW (that broad casrs in Tbluga, Bengali,
Marathi, Kannada and LIrdu) teleuision
softutare, .film mahing and distribution
uenhret; hotek, retailing and euen pichles!
People wonder how, in an age tuhere companies
are relentlessly pursuing 'core compercnce' as
their ntain suruiual theme, Ramoji is able n
create an empire. Part of the ansaer, perhaps
Iies in his simpliciq, Qluay wears white dress
and white shoes), down-to-earth habits and
mlre im?ortantly, a critical eye for detail. Ouer
70 nout, Rao still utorhs 19 hours a day!
168 r ilonogement Text ond Coses

Sto nding ond Single Use Plons

I Standing plans:
Developed for activities
that recur regularly over
a period of time.
rSingle use plans:
Developed to carry out a
course of action that is
not likely to be repeated
in the future.
Plans may be classified into two categories, i.e. standing plans and single
use plans. Standing plans are put ro use, again and agairi, over a long period
of time. Once established, they conrinue to apply until they are modified or
abandoned. Standing plans help managers in dealing with routine matters
in a pre-determined and consistent manner. Single use plans are non-
recurring in nature and deal with problems that probablywill not be repeated
in the same form in future.

r Policy: A basic Policies

statement that guides
decision-making. lt A policy is a basic statement that guides decision-making. It rells people
provides a standing
answer to recurring
what they may or may not do. It directs the way in which activities are to be
questions. achieved. It is concerned with 'how' of administrative action.

Plans

Single-Use Plans

o Objectives a Programmes
o PoliciesdcSrrategies o Schedules
o Procedures o Projects
o Methods o Budget.
o Rules

Figure 7.1
Types of Plans
Policies set behavioural limits. They channel behaviour towards organisationil objectives by
limiting what manageis can and cannot do. They are restrictive in the sense that they define the
boundaries within which decisions ought to be made. At the same time, they give enough room for
subordinates to use their discretion. For example, a policy like fromotions based on merit'does not
only dictate promotional choices. It simply eliminates one factor (say, experience) as an element rn
the choice. Unlike procedures and rules, policies are broad guides to thinking and action. As
pointed out by Koontz,'policy is a means of encouraging discretion and initiative but within limits'.
A policy may be specific in its instruction. For example,
Policies are useful instructional devices.
a company's advertisement for recruiting executive trainees may state.'preference will be given to
those having MBA'. This does not provide explicit guidance to recruiting office but indicates intent
and leaves the officer (recruiting) to exercise discretion. In statements, like 'We sell only for cash',
'cnstomer is always right' some important aspects of a recurring problem have been isolated and a
broad guide established for dealing with them quickly. Policies provide standing answers to recurring
questions and specifr the steps to be taken in making a decision. Policies reduce chances of
misinterpretation, misrepresentation and friction. Managers and subordinates can act with confidence.
By adopting policies, a manager can provide guidance to his subordinates. The routine, standard
problems can be disposed of by lower level people quickly. Thus, policies permit managers to transfer

some of the recurring problems
subordinates. In a way, policies are important
management tools that facilitate
transfer of decision making to lower levels of
the organisation.
r IS IT NECESSARY TO
EXPRTSS POLICIES IN
WRITING?
Although it
is customary to view policies as
written documenrs, this is not necessarily the
case. Sometimes, policies are not directly
voiced. In the case of small firms, policies
may nor be stated in writing. Policies lie
within the established pattern of decisions.
Action speaks louder than words and
observing the boss while he handles a
consumer complaint may pave the way for
subordinates to dispose of complains in future
in a similar fashion. As rightly pointed out
by R.D. Harnpton,'Policies may also remain
implied because managers are ashamed of
them or because they are illegal or reflect
questionable ethics.' Howwer, in the case of
large scale organisations, policies are usually
expressed in writing, stuffed with information
that helps decision makers choose among
alternatives. Policy formulation becomes an
increasingly important activity as rhe
organisation balloons to gigantic proportions.
In fact, there is a direct relationship between
organisational srrucrure and policies. The
larger the organisarion, the more elaborate
its policies. Table 7.1 summarises how an
organisation can derive certain advantages through writren policies:
Ta:ble 7.1
Advantages through rD(ritten Policies
Unwritten, implied policies
o Deeisive actions impossible
o Unfair to partlcipanrs; constanr threat, doubt and
anxiery prwails in subordinate's mind.
o Erratic, unpredicable behavioi.rr pitterns with
disastrous corsequences.
ftopbr / Types of Plons t 169
ro
Benefits of Policies
so
When policies are stated clearly, supported by
su.itable explanatory information, they offer great
advantages to management.
o They allow a more refined and flexible
approach to recurring problems.
o They convert objectives into a workable form.
o They allow more decisions to be taken at lower
levels of the hierarchy.
o "ln the absence of a policy, similar questions
must be considered time after time. Lack of
policy means that the organisation has
established no continuing position."
o Policies can speed decision-making by
providing a blanket framework within which
the decisions can be made. They summarise
past experience.
o "They tend to serve as precedents and thus
reduce the repetitive thinking of all the factors
in individual decisions; they save time. They
help managers as well as subordinates to
dispose of repetitive problems in a consistent
manner without 'getting into trouble'."
o Policies are one of the important means for
building predictable patterns of behaviour in
an organisation. They ensure a steady course
of action and prevent unwarranted deviations
from planned operations.
o Policies help in achieving coordination. lf
organisational members are guided by the
same policies, 'they can predict more
accurately the actions and decisions of others'.
o Clear, precise, authoritative guides for decision-
making.
o Uniform, consistent actions possible.
o Permits discrerion. Judgement within limits can be
exercised. Members can act with confidence.
o Consistent, dependable behavioural panerns
leading io improved performance.
770 I Manogement Text ond Coses

Policies, if they are well made and expressed in concrete terms, sharply diminish the hazard of
conflicting verdicts and incompatible, ill-asserted ventutes which result from inadequate information
and guidance. They simplifr the decision-making process throughout the organisation and rhis naturally
releases much management time and effort for new challenges and opportunities. That is why in
most of the organisations, policies are formal documents, only expressed in writing. They are either
formulated by the chief executive or the executive committee consisting of all the divisional/
departmental hea& of the company. Typical matrers that might be the subjects of formulated poliry
are: comPany-wide personnel practices, pricing, the nature of product lines, investments in fixed
assets, research and development tactics, marketing activities etc. \7hile formulating policies,
management should consider the impact of external forces like legal standards, union pressures,
competitor's strategies etc, on organisational activities. Other groups like trade associations, Chambers
of Commerce also exert considerable influence on enterprise policies and it is 'ofren customary ro go
along with programmes advocated by such groups'.

T PHASES oF PoLICY MAKING AND PoLICY USE

(") Policy formulation: Policies provide a continuous framework for the conduct of individuals in
a business. They are expressions of a company's official attitude towards types of behaviour
within which it will permit, or desire, employees to act. They are the means to convert company's
objectives into a workable form. Policies indicate management thinking on importanr marrers
and inform those interested in the activities of the company about the company's intentions
regarding them. To persons outside the company-its suppliers, its customers and the public in
general-an organisation becomes known mainly as a result of its general and operating policies.
The reputation that a company enjoys, often is a result of, how outside groups perceive the
company through its policy sttucture. A well-formulated poliry not only helps a manager in
carrying out his work but also helps him in creating a better image of the company in the
market. As such, it is mandatory and highly important to consider all the contingencies of a
policy before it is presented in black and white. Hastily conceived policies are open invitations
to troubles.
Policies are formulated, generally, by top management. Such policies arise out of broad, basic
needs perceived and defined by top management.
'\Tithin the framework
of a broad policy,
several supporting policies are also developed. A policy of growth through increased sales, for
instance, causes marketing managers to devise necessary policies covering advertising, sales
promotion efforts, distribution channels, etc. Sometimes policies may also originate at or near
the lower levels of an organisation. Policies adopted at lower levels are generally narrower, and
generally deal with operational aspects.

Before a specific policy is formulated, it is necessary to undertake a background study to

consider the 'wisdom of the policy and to determine its exact n4ture'. Facts must be gathered
and analysed. Members in the organisation should be consulted. Now, it may be easy to
identi$, an area which poses repetitive problems of similar nature. Individuals, out of personal
experience and involvement, identifi the problem areas quite easily. For example, a policy of
filling up departmental vacancies might be drafted by the departmental managers/heads who
have the requisite experience (instead of, by a top management member) in the line. In general,
as rightly pointed out 6y Merain Kohn, " policies should be formulated by those in the organisation
who have the responsibiliry for accomplishing the particular objecrives to which the policies
relate." At this stag€, it might be useful to prepare tentative drafts of a policy (of recruitment in
 ChoprerZ Typesofplons t I7I
the above case) and circulate among members of a department
or division for comment. The
individual proposals from departmental/divisional heads
must be subjected to careful irru.rtig"tion
and analysis' Before finalising the policy, due consideration
most be given to exrernal factors
also iike changing public opinion, community cusroms,
governmenral regulations,
etc' The individual proposals must also be evaluated against
.rrJh f".,o^ as: contribution to
overall goals, degree of difficulty in implementarion, .-proy..
attitudes, etc.
(b) Policy communication: once a policy is formulated, it must
be communicated to those who
are ultimately responsible for its application. Formal announcemenrs
from 'headquarters, may
not produce the desired effect and bring all employees to one line
of action. policy manuals,
company handbooks, written memorandums, board ietters and
announcemenrs erc. are ge nerally
pressed into service in order to disseminate the policy. The
basic idea should be to ed,icate the
members regarding the need for adopting the policy, how to put
the same ro use, how much
discretion is allowed etc. To secure commitment, it would b. b.tter
to involve non-managemenr
employees also in the policy formulation process. Such a participatory
approach giies th.
workers an oPPortuniry to gratif, deep-seated needs For r.coinition
,hJ group,,
Functioning. "nd'i.rfin.r..
G) Policy application: Policy decisions rest basically_ on human judgment
and intuition. For example,
the-official policy may speci$, that sales should be made on'cash basis
only. But, a peculiar
situation may arise where an influential and powerful cusromer has
placed
"n
ord.. *i.h ,h.
departmental store for a substantial amounr and is making the payment
through the cheque.
The sales manager should decide whether the policy .hoJd be sirictly applieJ
o. ,ho,rlj b.
modified in the light of a novel situation. However, rhis does nor mean th"i
policies should be
interpreted in a subjective way. Consistency in applying the policy is very
essential, and at t5e
same time, some flexibiliry is necessary in day-to-day affairs. "Flexibiliry and
consisren cy may
aPPear irreconcilable, but careful administration can recognise the unique
elements in each
situation without eroding the basic policy position."
(d) Policy review and appraisal: In a fast changing environmenr, characrerised by
rapid changes in
technology, products, strategy of competitors, labour conrracrs, public expectations
erc., poli.i..
easiiy become obsolete. In order to cope with these .hrng.r, periodic review
of policies is
necessary. It would be meaningless to accept outmoded policies because
they were fo.-rrl"t.d
by the founding fathers and acce pted by succeeding generarions of managers.
Again, profitability
and the flourishing nature of the company products should not
-"k.1h. -i'.r"g... posrpone
policy reviews to a later date. Satisfaction with srarus quo arrangemenrs is most
unfortunate, in
that, it leads to rejection of desirable policy changes. As pointeJ our by Meluin Anshen", ,social
customs and morals, even business policies, adhered to through th. y."r,
and not subjecred to
review, can become intellectually untouchable, the most vicious kinj of ritual'. periodi.
,.r,i.*
of policies is imperative if organisational complacency or managerial stagnation is
to be avoided.
It is part and parcel of the means of keeping an organisation 'vibrant' and 'on
its toes'.
Management requires a tough and aggressive artitude to inquire into the wisdom
of exisring
policies and scrap them, if they are found to be outmoded or obsolete. The
usefulness or
obsolescence of existing policies may be appraised in the light of information
collected on
comPany rePutatlon' customet accePtance, comPetitlve strength of the producrs
erc. It is true
that the evaluation Process is difficult and calls for a considerable degree of subjective judgment
but an alert management should be willing to establish standards .id
such intangible areas.
-."rrr. p..formaice in
172 I Monogement Text ond Coses

I DIFFICUITIES IN POLICY MAKING AND IMPLEMENTATION

All organisations are not equally skillful in their use of policies. To establish successful policies in a
fast changing environment is a tough exercise. 'Executives need to acquire skill in sensing the
obsolescence of a policy and recognising when a policy is out of date. The question of adopting a
right policy is largely a matter of subjective opinion and differences of opinion are bound ro arise,
within the firm and within the industry. It is small wonder that company poliry is viewed as one of
the bamlefields in the competitive struggle for survival and success. Some of the factors contriburing
to the confusion may be catalogued thus:
t. Policies are not easy to er(pFess: For policies to work, they have to be understood by all. The
choice of terminology and sryle of writing must be understandable to the members. This is not
an easy task. \7ords are ambiguous, and quite often they mean different things to different
people. 'Anyone who has ever tried to state a policy, so that it is neither an oprimistic, vague
statement of aspiration nor an inflexible, dogmatic directive, can attest to that difficulry.'

2. Conflicts between implied and expressed policy statements: Sometimes expressed policies
may be in conflict with implied policies. For example, a company's.expressed policy might
emphasise fair treatment to customers but the implied policy may try to overemphasise product
features through misleading and highly aggressive advertising programmes aimed at winning
the customers at any cost. Costs of controlling pollution through installation of sophisticated
pollution control devices may be so high that (expressed policy) managers worried about meeting
the budget may refrain from buying such devices altogether (implied). A policy oF promoting
employees on the basis of merit only (expressed) may be sabotaged by unscrupulous managers
by promoting 'yes men' (implied). In sum, as pointed out by Harnpton, "the vicissitudes of day-
to-day operations and the foibles of managers and others can displace expressed policy with
implied and contradictory policy."

3. Inconsistenry: Policies should reflect the philosophy of the organisation as a whole. They
should also be consistent with short run-long run objectives, supported by explanatory information
in the form of procedures, directives etc. Policies should also take into account the external
constraints and be consistent. with the laws and regulations of the State, with the standards set
by professional associations like Chambers of Commerce etc. This demands constant revision,
modification and restructuring. However, company policies are characterised by considerable
inertia. Once established, they persist and become unalterable. They are rarely evaluated. In
the absence of review and appraisal it would be difficult to break the cake of custom and effect
desirable poliry changes. Inconsistencies among them and even-within them encourage friction
and promote conflicts at various organisational levels.
4. Communication bottlenecls: Policies are difficult to communicate. From the time policies are
initiated to the time they are used, there is always the danger of falling into 'generalities and
pleasantircs'. Tc be effective, policies should be stated in understandable words and placed in
writing. Unless all the cor'pany personnel understand the policy implications clearly, it would
be difficult to secure commitment and support. The best of policies can fail unless they are
properly communicated. To ayoid communication problems, if participation is given to
subordinates in policy formulation, it proves to be time consuming and tedious.

5. Costly: Policies grant freedom to managers as to what is to be done in a particular situation. As

a result, there is always the danger that a manager may be more liberal than was originally
 ChopterZ Typesolplons t L73
intended' In general, 'the extra margin
of liberaliry may or may nor prove ro
in rhe long-run'. be an investment

6. Failure to interpret correctly using sou

needed for applying policies in a flexible
of a policy
division or
policies mi
instances, it would be difficult to change
more futile than a dormant, unused, or
policies. To be effective, rhey musr be inr
various levels in the organisation. '\7hene
it when it is needed, he distorts and dilutes rop managemenr
purpose'.
T CHARACTERISTICS OF AN EFFECTIVE POLICY
Developing effective policles a top managemenr responsibility.
.is \fhile developing such policies
management should observe the following rhings:
l' Related to objectiv-es:.The use of a policyshould
help in achieving rhe enterprise objectives.
must be capable of relating objectives ro functions, It
phyric"l factors and company personnel.
2' Easy to understand: Policies should be srated in definire, positive, clear and understandable
language. It should not defr easy interpretation and tr"rrrl"tio' into practice.
3' It should be sufficiently comprehen,sive and prescribe limits and yardsticks for future
T-::*t'
actlon.
4' stable well as flexible: It shoulci be stable and amenable ro change. ,It
as
should be stable
enough to assure people that there will not be drastic
overnight changes. It should be flexible
enough to keep the organisation in tune with the
times.,
5' Based on facts: Policies should be consrructed
on the basis of facts and sound judgment and
nor on personal feelings or opportunistic decisions.
6' Number: There should be as many policies as necessary
to cover condicions that can be
anticipated, but not so many policies as ro become
.onf,rri.rg or meaningless,.
7 ' Thorough knowledge of internal as well as external factors: policies
shou[d supporr each other
and must be supplementary to superior policies. Every
policy musr be ,h. ,..,rli of a thorough
knowledge of operations and practices .o,r...d, and
the-effecr of the policy on .-ploy.., i.,
departments' They should also recognise economic "ll
principles, be in line with laws of rhe srate
and be compatible with the public interesr.

8 ' Just' fair and equitable: Policies should be just, fair and equitable to in rernal
as well as exrernal
ies to brighr
promotional
rhe policies
crimination.
of relieion.
race, sex, etc.
774 r Monogemenl Text ond Coses

9. Reasonable: Policies must be reasonable and capable of being accomplished. To gain acceprance
and commitment, the policy should be 'conditioned by the suggestions and reacrions of those
who will be affected by the policy'. Policies should also permit interpretation so that they can
be applied with success depending on the situations.
10. Review: Policy making is not a one shot deal. Once policies are formulated, it is the dury of
managers to scrutinise them at regular intervals to find out their relevance in the face of
continuous changes. Periodic review of policies is essential to avoid organisational complacency
or managerial stagnation.
T DIFFERINCES BET\TEEN POLICIES AND OBJECTIVES
Objectives are the ends toward which organisations direct their energies and concerns. They are the
reference points for the efforts of the organisation. A policy, on the other hand, is a guide to the
actions or decisions of people. It provides a standing answer to recurring questions. Table 7.2
summarises the difTerences between objectives and policies:
Trble 7.2
Objectives vs. Policies
Objectives Policies

Objectives are basic to rhe exisrence of an organisation.
$Tithout some purpose, there is no need lor the
organisation. Organisations produce and market economic
goods and services, universities provide teaching and
research, governmenrs providing welfare and securiry
and so on.
Policies are not basic to the existence ofan organisation.
Organisational existence and survival is not interlinked
with policies. However, without certain general policies ro
guide executive rhinking, organisational actions are bound
to be less optimal.

Objectives are the local points for rhe efForts of
organisation. They are the ends toward which organisrional
effons ar. e directed. They commit persons and organisadons
ro verifi able accomplishments.
Set by top management.
rhe Policies are the routes or means for the accomplishment of
goals. Objecrives provide the broad framework for
policies help anain the objectives in
Hitilli':'f":g;
Formulated at top and middle levels.

Determinc what is to be done. Determine how the work is to be done.

Objectives are reflective of pious inrenrions, vague Policies provide meaning to objectives. They translate the
generalisations and absrract ideas of managemenr expressed abstract phraseology of objectives into a concrete
in a broad manner. terminology which can be readily pressed into seruice
wherever necessary. A policy is a predetermined, general
course or guide established to provide direction in decision-
making.

Objectives are single-use plans. 'fh"v outline

a course of Policies are standing plans designed to be used by operating
action to fit a specific situation and are finished rvhen the personnel over and over again.
goal is reached.

Proced u res

I Procedures: Describe A procedure is a well thought out course of action. It prescribes the specific
what action-steps need way in which a piece of work is to be done. Procedures are called 'action
to be taken in a -Where
guidelines'. They are generally derived from policies. policies define
chronological sequence,
in a specific situation. a broad field, procedurcs show a sequence of activities within that area. The
emphasis is on chronological, step-by-step sequence of required actions.
For example, a student is required to complete several itemised steps in order to register himself for
 ChopterT TypesofPlons t 175
courses.in a universiry' The basic purpose of a procedure is to spell out clearly, the
way one is to go
about doing something.
Procedures are used in all major functional areas. They exisr throughour rhe
organisation. They
exisc in a hierarchy of importance. They ate more exacting, of course, at lower
levels leaving no
scope for interpretations. All routine tasks can be performed efficiently, if unnecessary
steps are
elim_inated and one procedure is laid down. For most policies, rhere is an accompanying
procedure
to show how rhat policy should be carried our. For example, the policy '.rr,o-.. is".ight' may
demand a procedure like: where the customer is expected to .o^pl"i.r, in case of rrouble, whether
the complaint should be made orally or in writing, who would pro..rs th. complaints - the departmental
heads ot divisional heads, when is it necessary for the General Manager to tok irrto .o-il"inrs
and
take appropriate action and so on.

I ROLE oF PROCEDURES IN ORGANISATIONS

Procedures play a vital rolein an organisation's daily operarions; they "relieve rhe manager of much
of the detail in directing subordinates. They indicate the steps ro be accomplished as well as rhe
required time and order of preference." Members need not invent original solutions in order to
solve repetitive problems, a staridard procedure can be pressed inro service readily and time
and energy can be saved. By prescribing a series of interlinking sreps of acrions which are more
or less standardised, procedures reduce the need for further decision-making. Procedures co
dispose of routine problems facilitate members to develop more efficient
-.thod, of operation.
Again, procedures provide a basis for uniform performance as well as a standard against which we
can measure such performance. Procedures are basically formulated by management ro ensure
consistent action for routine work. Procedures help in integrating organisational efforts and facilitate
control Process. However, procedures tend to become complex and rigid for various reasons. If
procedures are rigorously applied by various departments at various levels in the organisation, the
administrative process is seriously hampered. Members begin to feel the checking effecr of
overelaborate procedures. Standard forms and rulings acquire a sratus that the few dare to
challenge. Often, there is duplication of effort caused by the desire for secrecy or total ignorance of I

what others are actually doing.

I REQUIREMENTS FOR EFFECTIVE PROCEDURES

a Procedures should be based on adequate facts of the particular situation, nor guesses or. wishes.

a Procedures should focus on a desired objective.

a They should be standardised so that responsibiliry can be easily fixed.

a They should be stable and the need for changing them should arise only in case of novel
situations or it is felt that rhe costs of the procedures ourweigh the benefits.

a They should be subjected to periodic review to ascertain if they are needed under changed
conditions.

a Other important questions like -How many steps in the procedure? How to improve
procedure to utilise firm's resources fully? How much paper work? Can the procedure be
performed in a faster and economical manner? Is there duplication of effort? How to simplifi
the steps and achieve the results? - should also be looked into carefully before developing new
procedures.
176 r Monogement Text ond Coses

The following table summarises the differences benveen policies and procedures:
Table 7.3
Policies vs. Procedures

Policies Procedures

o Guides to decision-making; guides ro thinking and action. o Guides to acrion only.

o Indicate the broad area ofaction. A company may have a policy of o Procedures specifr a roure through the broad area
promoting people from within. To meet *ris, detailed procedures of policy, a roure which will rake us between the
maybe prescribed: likehow the employees are going to be assessed, guideposts ofpolicies and finally to the goal.
poinr values for honesry sinceriry originaliry erc.

o More flexible dran a procedure. o Procedures are constraints on executive action.

They alwal's specifr a rigid course of action.

Policies are formuiated at the top. o Procedures are derived from policies and
subservient to them, in rhe sense that they are
formulated at a relatively low lwel of management.

Methods
I Methods: lndicate the Methods are sub-units of a procedure; rhey show clearly as ro how a step of
simplified and
procedure should be performed. They indicate the techniques ro be
standardised techniques
to be employed (to find employed to make the procedure effective. The primary focus is on
the best way of doing a finding out the best way of doing a piece of work. Methods cover
piece of work) to carry
out (one step of a
limited territory normally one departmenr, and are ried to the efforts of one
procedure) a task. employee doing a piece of work. They are more limited in scope than
Procedures.
Tiadition hvours establishment of detailed methods so that an operation can be guided properly
to its logical conclusion. Employees should be aware of what should be done, and rry ro find our 'the
best way'. Franh Gilbreth, F.\X/ Ta/or and other pioneers of Scientific management believed thar job
performance can be improved by controlling the conditions influencing a job. In order to control
raw materials, machine maintenance, tools, work flow and other factors, standard methods are
essential. The more completely a method is planned, the more efficient it will be. Achieving standard
tasks would be difficult without standard methods. In for intense standardisation like
areas calling
electronic computer, motor assembiy, standard tasks cannot be completed without the aid of standard
methods.

Standard methods can be applied successfully where the tasks are carefully defined, performed
in a specific way and tied to a definite time schedule. On the other hand, standard methods are
more difficult to apply to intangible areas like sales, customer relations etc. where acriviries rend
to be varied and behaviour patterns tend to be complex and unpredictable. At times, standard
metho& are not products of deliberate thinking. They just grow, become accepted behaviour and
then become highly inflexible. Managers must guard themselves against the choking effect of detailed
methods covering every aspect of an activity. The costs involved in finding out 'the one best way'
should be weighed carefully against the possible benefits. A.ny srandard method developed ultimately
'must apply to a large volume of work so that cost can be recovered by more efficiency in doing the
work.'
 ChopterZ TypesofPlons t 777

Rules
A rule is a very specific and detailed guide to action. It is established to I Rule: Describes
direct or restrict action in a fairly narrow manner. There is no scope for exactly how specific
activities are to be
discretion or judgment. Rules must be followed precisely and observed strictly.
carried out, leaving no
Some rules are couched in positive terminology like: "Hard hats must be scope for individual
worn in the plant at all times, welding machines should be operared by discretion and
judgement.
wearing safety glasses only". Others may be expressed in a negative way:
employees are not permitted to leave before five o' clock; passengers are nor allowed on lift equipment.
Some rules are rather complex and detailed in content: 'Horse play, practical jokes, wresding, throwing
things, running in the plant strictly prohibited'. Others may be posred in simple terms such as 'No
smoking', 'Stop when the red light is on'. One important advantage with rules is that they permit
managers to simpli$' the decision-making process. For exarnple, rules about absenteeism, late reporting,
in-fighting, permit managers to resort to disciplinary measures quickly. Rules help in regulating
behaviour in a fairly consistent manner.

However, as rightly pointed 6y Dauis, letter perfect obedience to organisational rules may be
organisational sabotage.If rules are followed blindly, the organisation loses direction. Rules are often
followed by penalties for non-compliance. To avoid the unpleasanrness, members would follow the
rules and do what only 'the book' requires instead of resorting ro more fruitful ways. Rules tend to
limit flexibiliry and initiative. They introduce rigidiry, ingrained attirudes and habitual behaviour.
Spontaneity disappears. People fail to recognise the importance of avoiding mistakes. They are only
interested in meeting the rules rather than achieving goals. Rules tend to become an end in themselves.
And, when members do not demonstrate spontaneiry, apathy would be the result. "People may
conform to rules without thought as to their contribution to goals so rhat the firm loses direction."
The following table 7.4 summarises the differences between methods and rules:
Table 7.4
Methods vs. Rules

Methods Rules

o One best way of doing things. o Govern behaviour.

o Cdl for standardisation, simplification of motions in o Call for strict adherence, to be effecdve.
order to achieve efficiency.

o Methods are products of research, experimentation o Rules are products ofmanagerial rhinking regarding
and carefirl analysis. what is good and what is bad for an employee/
organlsatron.

o Tolerance limits are generally established in case of o Violation/short circuiting ofrules is viewed seriously
any deviation from the standard methods. and penalties are imposed for deviations.

o Are part ofprocedures. o Are not part ofprocedures. For example, 'no smoking'
not related to any procedure.
is a rule

The principal differences between policies, procedures, methods and rules may De summarised
ln table /.).
t78 I Monogement lexi ond Coses

Table 7.5
Policies, Procedures, Methods and Rules: Distinguished

Point of Policies Procedutes Methods RuIes

distinction

t. Definirion Guides to decision Guides to action. One best way o€ Govern behaviour.
making. doing things.
2 Nature Indicate the broad SpeciS a route through It is one step ofa Define what should and
area oFaction. the broad area ofpoliry procedure. Limired in should not be done.
More detailed than a scoPe.
polig.

3 Relarionship Provide standing 'f ime sequence is Concerned with a Specifr no time
wirh rime answer to recurflng indicated given piece ofwork to sequence.
sequence questions. Can be be hnished by an
applied under diFferent individual within a
sltuaflons. specihc time period.

4 Formulation Generally formulated Formulated at a \{ethods are Rules are formulated by

at the top. relatively lou' level oF Formulated after managers after finding
management. They are carefi-ll research, our u,hat is good or what
derived lrom policies. experimentation and is bad for an employee/
analysis. organ$atron.

5 Discretion Requirejudgement and Tell the subordinate Tell the subordinate Require action or non-
lnterpretauon. exactlywhat ro do in a how one step ofa action in a rigid or
particular situation; procedure should be infl exible manner. There
used only when we do lormulated; used only is no room for discretion
notwant peoplero use when we do nor wani or lnterPrerailon.
discrerion. people to use
discretion.

6 Example 'We
encourage Promotion procedure '!7hat is rhe best way No discriminationon
promotion from within. may indicate the basis to measure the the basis ofcaste, sex or
for promotion in the employee's skills or religion, etc.
form ofqualifications, competence?
exPeflence,
specialisarion,
comPetenc€, erc.

Progrommes ond Schedules

I Programme: An
aggregate of several
related action plans
(goals, procedures, rules,
etc.) that have been
designed to accomplish a
mission within a
specified time period.
r Schedule: lt is a kind
of time table of work,
specifying the
date when a task is to
begin and the time
needed to complete
each task.
A programme is a comprehensive plan that includes a complex set of goals,
procedures, rules, work assignments resource flow and generally covers a
large 'territory'. It is an aggregate of several related action plans that have
been designed to accomplish a mission within a specified time period. A
well designed programme covers all actions that are necessary to achieve a
mission, and indicates who should do what and at what time. fu a single-
purpose 'metaplan', it shows the major steps needed to achieve an obiective,
who will be responsible for each step and the approximate time for carrying
out each step. Then, it provides a timetable of needed action to achieve a
specific objective.
Schedules are often combined with programmes to ensure a
chronological sequence of activities. Scheduling implies fixing of time to
 (hoplerT TypesolPlons t 179
commence the work, reaching through the different processes and finishing the
task. Schedules
translate Programmes into action in an orderly fashion. In all of organisations,
rypes scheduling is
necessary to provide for a systematic and even flow of operations. For example, in
f^.tory
recruitment, selection, rraining and placement activities are sequenced. ^

I BASIC STEPS IN PROGRAMMING

Newrnan and Logan have advocated a six-step process for effective programming:

I Step-wise division of work: Before developing a programme, a manager is expected ro wrire

down the series of steps to be followed to achieve the objective. He must clearly define the
PurPose of each steP, the qualiry and quantiry of effort expected at each srep, so as to facilitate
planning, organising and controlling acriviries.
2. Relationship and sequence between steps: A programme, seldom stands by itself. Division of
work into different elements create the problem of achieving coordination beween different
activities. Assigning prioriry to diFferent steps and providing a chronological sequence should
also be looked into.

1 Fixing responsibility: After the manager is satisfied with the division of work, assignment of
prior:iry and the flow of u'ork, he must speciS' accountabiliry for the programme as a whole.
Careful attention should be paid to the question of fixing responsibiliry on subordinares at each
and every step. In order to carry out the programme, a special team of comperenr persons may
be created.

4. Arranging for resources: The success of a programme is largely dependent on the availabiliry of
resourc€s (physical, financial and human). If any one of them is not available, he should design
another plan to obtain rhis resource.

5 Scheduling:'Ihe manager would decide on two things at this stage: (1) the date when a srep can
begin; (2) the time needed to complete an operarion once ir is started.

6. Data sheets for each task To facilitate the control process, it is essential to establish a definite
time schedule for each part of the programme, the starting date and the completion date
separately. The final schedule should be as realistic as possible.

Effective programming is a challenging task and every manager is expecred to bring new thinking
and innovation into his work. He must look into comp€tirive merhods, external changes, research
findings, available alternatives and try to 'build an improvemenr factor into each programme srepr.
He should also encourage subordinates to develop a broad perspective so rhar the overall interests of
the organisation are not sacrificed in trying ro meer the schedules,

Proiects
Quite often, the individual portions of a general programme are relatively distinct and planned and
executed as projects. A project is a small programme. Quite often, individual
parts of a general programme are clear-cur and relatively distinct, so they r Project: lt is a small
protramme.
can be planned and executed as separare projecrs. \7hen the operations of a
Programme can be easily divided into separate parts with a clear end point, project structure is
preferred. Each project has definite goals concerning task assignments and rime. The project itself
180 r Monogement Tert ond Coses

may consist of several sub-plans. For example, new product development project may be a complex
one including sub-plans like developing and exploring new markets for existing products, selling
existing products more intensively in present markets, marketing a new product altogether and so
on. Accordingto J.M. Steuart a project has the following features:

a The activiry has a clear objective.

a Somewhat unique and unfamiliar to the existing organisation.

a The activity is complex and critical to the organisarion,

a The activity is temporary with respect ro duration of need.

One advantage with the project form of organisation is that it allows the project srrucrure ro be
phased out. The best available talent can be pooled to accomplish a specific and complex activiry
within time, cost and/or qualiry paramerers.

Budgets
I Budget: A numerised Budget is a numerised programme designed primarily to allocate rhe resources
programme designed (personnel, materials, tools, and facilities) of an organisation. It is rhe blueprint
primarily to allocate the
resources of an
of a future course of action, an estimate that indicates the future, usually in
organisation. monetary terms sometimes expressed in time, man-hours, etc., a projection
that defines the anticipated cost of'attaining an objective. The basic features
of a budget may be stated thus:
'a It is a statement in terms of money or quantity or both,
a It is prepared for a definite future period,

a It is prepared in advance, and

a It aims at achieving a given objective.

The use of a budget to monitor and regulate the operational work of an organisation in a
systematic way is called 'budgetary control'.

Summory
To process work in a systematic and methodical way, standing plans and single use plans are used in
every organisation. Policies guide executive thinking and action by setting certain broad behavioural
limits. They, infact, convert objectives into a workable form. To avoid loose interprerarion, policies
need to be expressed in writing.

Policy formulation requires foresight, imagination and a careful evaluation of all relevant factors
impacting organisational work. Once a policy is formulated, it must be communicated to lower level
people in a proper way. Everyone should be motivated to apply the policies in a consistent manner.
'$?'hen
circumstances change, of course, one should not hesitate to change the policies.

Establishing successful policies in a fast changing environment is a tough job. First, it is not
easy to express policies in a simple language. Second, expressed policies may come in the way of
implied policies. Third, policies may not be consistent with the overall philosophy of an organisation.
 ChopterT TypesofPlons r 181

Fourth, there is the danger of not communicating the policies in a understandable format. Finally, it
may be difficult to interpret policies correctly using sound judgment. To overcome these difficulties,
policies musr be formulated and implemented with utmosr care and caurion.
Apart from policies, other standing pland such as procedures, methods and rules are designed to
carry out a course of action that is likely to be repeated several times. Single use plans such as
Programmes, schedules, projects and budgets are non-recurring in nature and deal with problems
that probably will not be repeated in the same form in future.

Review Questions
1. Discuss elaborately various rypes of plans.
2. Vhat do you mean by poliry? lVhar policies can do?
3. Discuss the different phases of policy making and poliry implementation and use.
4. Briefly mention the difficulties in policy making and their implementation.
5. \7hat are the characteristics of an effective policy?
6. Distinguish between policies and objectives.
7. Vhat do you mean by procedure? Mention the requirements for efFective procedures?
8. \7rite short notes on:
G) Methods
(b) Rules

(") Procedures

(-d) Projects

(.) Budgets.

9. 'What are the principles of formulating policies in modern organisations? Explain

the essentials
of formulating policies briefly.
10. "Policies are guideposts for managerial action". Discuss. 'What factors would you take into
account while formulating policies for a business?

I 1. 'STrite an explanatory note on policy formulation process and principles.

Discussion Questions
1. 'Policies are guide posts for managerial action'. Critically examine the statemenr, quoting
relevant examples in support of your arguments.

2. Interview a college or universiry official to determine the use of single use and standing plans at
your institution. How were these plans developed?

3. Interview a small business manager ahout the time frame for planning that he uies. How do
your results compare with what you might have expected from the presentation in the text
book?
 782 r Monogement Text ond (oses

References
l \(H. Newnran, Adminis,atiue Action, Englewood Cliffs, NJ, prenticc Hall, 1963
)
J.G. Loneneck€r, Principles of Management and Organisational Behatiour Colurnbus, C)hio, Charlcs F,. Merrill publishing
Company, 197-3.

3' Harold Koonz and Cyril O'Donnell, Bsenrials of Management, Tasa McGraw-Hill
Book Cornpany, 1999, New Delhi
4. J.L. Mrsie and J. Douglas, Managmg, Nerv Delhi, prenrice Hall of India, 1975.
5. R.D. Hampton, Contemporary Managemertt, New York, McGraw-Hill, 1990.
6' Theo Haimann, Villim G. Scott and E. Connor, Managenrent, Bosron, Houghton-Mifflin
Compan1,, 1990.
7. R.C. Applely, Modern Busiies Administration, New Delhi, Arnold-Heinemtnn, r97.).
8. Dalcon McFarland,, Management, New York, Macmillu, 1979.
9. M. Kohn, Dynamic Managing, California, Cummings publishing Compny, 1g77.
10. M' Arshen, Price tags for business policies, Haruard Business Reuiew, Vot. 38, January-February, 1960.
ll. H.E. Vrapp, Good Managers Dont Make policy Decisions,,F/BR, Sept.-Oct., 1967.
Also see Dale Yoder, Management Policy and Manager Dissidencc, PersonnelAdntinir*at;on, March-April, 196g.
12' M.V Higginson, 'Management bv rule and bv policy, in Managenent: A Booh of Realing; by Koontz and O'Donnell,
New
York, McGraw-Hill, 1968.
13. R'c. Davis, The Fundamental of Tbp Managenezt N.v york, Harper and Brorher, 195r.

J.G. Glover' Mmagement poliq (Aduanccd Management, March, 1953) in llanagennnt by Haynes and Massie, Englewood
Cliffs, Prentice Ha.ll Internationd, 1961.
H.B. Maynard (ed), Handbooh oJ'Business Administration, New york, McGraw_Hill, 1970.
G.R. Terry Principhs of Maruqement, Hornewood, Illinois, Richard D. Iruin, 196g.
R.E. Boynton, Policics of rhe successful mmaget caffirnia Managennnt Reuieu, Fdr 1970.
14. 1..A. Allen, Management and Organisation, McGraw-Hill, New york, 1975.
l5' R.J. Thierauf' R.C. Kekamp and D.V Creedirrg, ,\[at,,:genent-?rinci1le; and Pracrice:, Nerv York, John Wtley and Sons,
I 980.

16. WH' Newmm and E.K Warren, Tlrc Proeets of Management,New Delhi, Prentice Hall of India, 1980.
17. Keith Davis, Human Behauiont at lvorh, Nerv Delhi, Tata McGraw.Hili, 1995.
18. R.A. \(ebber, ManagemenS Homewood, Illinois, Richard D. Iruin, 1975.
19- l$(H' Newman and J.P Logan, Strategl, PoliE and Cennal Mandge/nent, Cincinnari, South-Wester1, 1990.
20. L.A. Allen, Profesiondl Management, New Delhi, Thra McGraw-Hill, 19g0.

Websites
Scheduhs:To know more about online calendars for improving managerid effectiveness, by the Following:
O www.when.com
O w.digital.daytimer.com
t) w.anyday,com

Skill Building Exercise

R4u was the maintenance supervisor for Hyderabad Producrs Company (HPC), producer of plastic
pipe and fittings. In early December, 2000, he was told by rhe plant manag€r ro make plans ro
refurbish the number 4 extruding machine. This was to be done before
January 13 and ia. fl.
extruding machine was an important part of HPC. Raju had been keeping a checklist of needed
repairs. But, carrying out repairs had not been possible because rhe machine had not been shut down
 ChopuT TypesofPlons r 183

for a single day since August. Raju stayed on the job late drat wening to inspect the machine and to
update his checklist. He checked the stores section to see whether all the spares are readily available
or not. The next day, Raju held a meeting with his maintenance workers so that they would get ready.
Over the nort several days, he looked at each repair item and prepared a written task assignment
schedule. He assigned each task to the worker, he considered most competent to do it. Ra;'u knew
that after the machine was shur down, he would encounter some unexpected defects. After all,
werything does not go o€ctly as planned. So, he picked up his best worker, Babu LaI, to handle the
unexpected repairs and help the other workers when needed.
'!(/hen
the workers returned from t}re Pongd holidays, Raju handed over each person a list of
that person's repair task for the machine. On January 16, he held a final meeting to prepare for the
shutdown. R4u worked some extra hours that weekend. But because werything had been planned
well, the machine was back on line in good condition on Monday morning. In you"r view, was R4u
an effective planner?
[orporote Plonning ond
Envi ron mento I Ano lysis
CONTEXT
The managers who think and act straregically
would rnanage the world of diminishing
resources, rising costs, growing competition,
escalaring conflict and unstructured
environmental changes. Comperent managers, in
any case, do not wait for future; they make r}le
future.
NTENT
1'his chapter focuses attention on corporate
planning and discuses how organisations manage
their environrnents thtough strategic initiatives.
Strotegic Leodership
ond Competitive
Advo nto ge
Snategic leaders haue tbe ability to anticipate
euents, enuision possibilities, maintain
flexibiliry, and empouter otlters to bring about
rtrategic change. Their decisions and actions
influence the destinies of millions of people in
and around their companies. If thq, are able
to deliuer results cotuistently and earn aboue
auerage returns, they are treated. as inualuable
corPorate assets and branded ofeil as important
sources
if a
of competitiue aduantage. For exantple,
leader has ardent loue for RdD and is
highb qua|ferl in a spectJic area, tltat could
enhance the firm s effectiuenest in the
implementation of growth strategies G g , Anji
Reddy of Dr Reddy Laboratories; D V S Raju
of Visual Sof). Afrmi iu.ccess, in real terms,
is nothing but a CEO's dream turned into a
concrete realitl. He decides the strategic
direction of the fnn, pichs up the right people,
explains their core ideas clearly and emPotrers
them to do things on their own. For, e.g., Azim
Premji, of \Vipro is hnown for such an
elnPowerment strateg!. Usually, heads of
diuisions and companies - Wipro Ltd., Vipro
Infotec, Vipro Systems, Wipro-GE and Vipro
Financial - prepare their own business plans.
Premji has ahuays loohad for people who can
pich up the ball and run with it (turnouer of
\Vipro rose frorn Rs 4 crore in 1966 to ouer Rs
4,000 crore in 2001). Apartfom entpowering
people, effectiue CEOs are charged with the
responsibiliry of shaping the cubure of afrm.
Snategic leaders, thus, play a crucial roh in
the as well as implementation of
formuktion
ttrategy. Their leadership styk, personal ualues
and uisionary ideas are all part and parcel of
the strategic ma/tagement procest. To suruiue
and flourish in a corporate jungle, we need
uisionary leaders wlto are willing to tahe rishs,
experiment uith their ideas and conuince
people tbat their dreams can be conuerted into
resuhs successfully.And there are hx of people
in India who fir into this slot easily. Leti briefly
186 I Monogement Tert ond Coses

looh into what they baue done to change the
fortunes of corporate India in the recent past.
L Ratan Tata: Ouer the kst l0 years, Ratan
Thta quietly entered 15 netu businesses
(auto parts, pastenger cars, retailing,
internet seruice, insurance, telecom,
infrastructure, financial seruices,
information technology, etc.), two
(cosmetics,
pharmaceuticak, white goods,
cement, paints, oil drilling, etc.), and
herded the rebellious Tata companies (95
in all u.,ith an employee strength t 2.25
lahh) into a cohesiue group. (Jnder his
dynamic hadership, the strategic tenor has
ako changed. For one, their * a shifi
happening fom corumodity business to
brand-ledproducts and seruices. His signal
contribution, so far has come in the form
2. Kumar Mangalarn Birla: The soft
spohen cbartered accountant and MBA
from the London Business School,
inherited the Rs 15,000 nore A V Birk
grou? cornpanies due to tbe untimely death
of his father just seuen years ago. The
traditional, conseruatiue Marwari group
under his dynamic lzadership changed the
rules of the garne comp/ztely. The former
commo dity businesses-cemen t, a luminium,
fertilisers sau lot of consolidation ffirts
in recent times. Kumar Mangalam
brought in professionals, cbanged
rnindsets, acquired businesses (Madura
Garments boughtfiom Coates Vyelk, Indal
fromAlcan; Pl Data Systemsforn Group
Bull, etc.) and shed old ones. Right fom
the beginning Birla belieued that talented

of Indica - Indiai oun cAr. Till about
2 years bach people haae questioned
tbe uiability of an independent
conxpan! (TELCO) mahing a model
primarily in the market, hauing inuested
uery large sums of monel to create a
ca?acit! that seemed well beyond what
the company could hope to sell in a
crowded marhet. But Raian Tata
encouraged his team to do their best and
turn his dream in to a reality. The result:
Indica prouing the pundits wrong, has
become the largest selling passenger car in
India displacing formidable riuals like
Maruti, Hyundai, etc.
e/nplolees are tlte greatest assets of his
diuersified businesses. He therefore,
quietly weaned away talented /nanagers
frorn bluechips, gaue them top salaries and
encouraged thern to deliuer results
independently. Thanhs to his ffirx, all
the group companies are doing uery utell
in the marhet pkce - including Hindaho,
Grasirn, Indian Rangon, Indo Gulf-as is
euidentfrom the jump in turnouer from
Rt 15,000 rore to Rs 25,000 crore now.
A tort spohen introuert has changed a
stodgy old group into a rnodern giant-all
in less than 7 years time (tbe second largest
business house in India).

lntroduction
I Corporate planning: Corporate planning is the process of formulating objectives as well as
The process of developing and evaluating alternative courses of action to reach these
determining the nrajor
objectives of an objectives on rhe basis of identified exrernal opportunities and threats
organisation and the and internal corporare strengths and weaknesses. In the words of steiner,
policies and strategies
corporate planning "is the process of determining the major objectives of
that will govern the
acquisition, use and an organisation and the policies and strategies rhat
will govern the acquisition,
disposition of resources use and disposition of resources to achieve these objecrives." A careful
to achieve these
examination of the foregoing views reveal the following features of corporate
objectives.
planning:
 (hopter I Corporote plonning ond Environmentol Anolysis . \97
a Systematic: Corporate Plannlng ls.a systematic way of setting the long-term
goals of a company
and deciding the means to achieve them - taking intern"l as well .*t-.rn"l f".to6
into
", "..oun,.
a Continuous: Corporate planning is a continuous, on-going process. Corporare
plans mol,e in
tune with internal as well as external changes. They are subject to revision and
updaring from
time to time.
a Company-wide plan: Corporate plan is a kind of masrer plan covering the
company as a
All functional plans are offshoots of rhe corporate plan.
whole.

a Long-term view: Corporate planning takes a long-term view of business and does nor
deal with
day-to-da1' operations.

o Top level activityt Establishing long-rerm corporare goals and rhe means of achieving
these, is
a toP manag€ment resPonsibiliry' Of course, in the process of building corporare
go"ls, input,
from executives working at various levels are also taken into accounr.
a Forward looking: Corporate planning tries to put the company ahead of its rivals
through a
careful evaluation of all relevant internal as well as external factors having a bearing
o., ou-e."ll
perFormance' The whole exercise is forward looking in narure, in that it tries
to
colnPany s internal srrengths wirh external opportuniries and utilise the corporate ^.t.h "
resources in
the best possible way.
a Comprehensive: Corporate planning covers both strategic planning and operarional
planning.
Strategicplanningisdesignedtohelpcompaniesachieve.o.p.titi.,,erffiF;.l
I Strategic planning: lt
advantage -by trying ro exploit exrernal opportunities rhrough helps a firm achieve
unique inrernal capabilities. operational plans such as production competitive advantage
by capitalising on its
plan, markering plan, finance plan are designed to implemenr strategic
own strengths.
pllni
People generall;' believe that a good plan is one rhat is totally comprehensive
and. all-embracing,
leaving nothing to chance. They srill hold rhat corporare planning means planning
for rhe whole
comPany' and chel' PrePare enormous plans in which every aspect of the company
iJdetermined for
years ahead in solemn detail. However, as rightly pointed out b1,/. Argenti, '".orpor^,.
plan drawn
up in meticulous detail is the plan of an idiot'. It should have great gaps; it should
b. rk..iy; ar least,
large parts ofir should.
The futiliry of planning in meticulous detail over a long time horizon should be recognised.
As
soon as a corPorate plan starts to spell out product plans, manpower plans and
financial plais, ir is ,in
grave danger of over-reaching itselF and becoming a busybody'. As its n"-. ,ugn.rrs,
corporare
planning involves planning fbr the company as a whole (as a corporate whole). It i. not planning the
whole company.
Corporate planning is not a box of tricks, a bundle of techniques. So, it is wrong to
believe that
corPorate planning, if applied to business, would improve business performance in higher
profits' It is true that in the early stages of economic .*p"nrion, especially in"nd..sult
the 1960s, many
companies in the developed nations experienced a period of vigorous growth of
profits by pinning
their hopes on long-term planning. Many companies began to dir,.r.;$, and e*pand rh.i,
,h".. of
market in the same period. Corporate planning has come ro be associared with
.*p"nrion, mergers,
and diversification to such an extent that it began ro be thought that, if a companywas
not diversifring
or merging, it could not be doing corporate plannlng.
188 r tlilonogement Text ond Coses

I CORPOMTE PLANNING vs. LONG-MNGE PIANNTNG

Corporate planning is the comprehensive planning of business operations for effective implementation
of corporate policies and attainment of corporate goals. It involves preparation of ,tr"t.g.i. plans and
determination of objectives to be pursued in the long-run as well as shorr-run. It commits resources
for a future period that can be clearly looked into. It has nothing to do with the range. For example,
in groundnut cultivation, resources are deployed for a few monrhs and the time frame of a corporate
plan is less than a ye r' On the other hand, in iron and steel industry rhe resources are deployed,
having a long-term framework in mind.
I Long-range planning: Long-range planning is a part of corporate planning. It is concerned
It is a part of corporate
planning. lt defines the
with the prepararion of realistic esrimares for distant future. It indicates the
broad directions in extent of future time horizon which is fairly long in narure and which can be
which the organisation meaningfully expressed in the form of tentative goals by management. The
wants to grow in future.
time horizon of a long-rerm plan is usually dependent on rhe narure of
industry in which it is pressed into service. Such planning is basically concerned with the economic,
financial and technological aspects of the environment with special reference to the problems of
corporate growth.

I CORPOMTE PLANNING vs. STMTEGIC PLANNING

Strategic planning is not synonymous with corporate planning. It is a constituent of corporate planning.
Strategic planning is concerned with the framing of long-term goals by rop management and the plans
to accomplish those goals in a systematic way. It assumes the establishment of enterprise goals and
major policies before the actual deployment of corporate resources. It takes into account the actions
and reactions of competitors from time to time and pinpoints the need for modifring the strategic
plans from time to time. fu pointed ou;-by John Argenti,'strategic planning is the careful, deliberate,
systematic taking of decisions which affect or are intended to affect the organisation as a whole, as
opposed to only parts of it, over long periods of time'. Strategic planning, basically, has three important
features:

a It is concerned with the formulation of comprehensive plans for the enterprise as a whole. It is
not simply planning for a particular department or division.

a It emphasises long-term, strategic issues of great importance as against short-term, rourine,

operational issues.

a It involves the establishment of formal procedures for strategic planning.

a The basic purpose of strategic planning is to help a firm achieve competitive advantage by
capitalising on its own strengths. Competitive advantage is what allows a firm to gain an edge
over its rivals.
The differences between corporate planning and strategic planning may be stated thus:
(i) Degree of uncertainty: Strategic planning is associated with a high degree of uncertainry. In the
short-run, however, corporate planning carries low degree of uncertainry. In the long-run, the
degree of uncertainty may increase, subject to two conditions: the nature of business in which
the plan is put to use and also, the time frame.
 Chopter 8 [orporoie Plonning ond Environmenlol Anolysis r 189

(ii) Value judgement: Importance of value judgement is very high in preparing strategic plans,
when compared to corporate plans.
(iii) Risk: Errors in strategic plans may be very risky and even suicidal. Errors in any component of
corporare planning seriously affects the operations of other components as well but timely steps
may Prevent disastrous consequences'
(t"). Range: Strategic planning considers only long-range (strategic) issues. Corporate planning takes
into account both short-range (tactical) and longrange (strategic) issues.

Assets 0nd Liobilities of Corporote Plonning

In the words of Meruin l{ohn,'llnder an orderly system of planning, more problems are solved, more
missions are accomplished, fewer trials are required, fewer errors are made, Iess time is taken, and
random activity is minimised'. Yet, despite the essential need for and the unquestioned value of
planning, it should be noted that planning is not all on the credit side of the ledger. The payoffs and
costs of corporate planning may be stated thus:

Thble 8.1
Corporate Planning: Obstacles and Benefits

Obstacles to Corporate Planning Benefi ts of Corporate Planning

Time to do planning: Good planning is hard work. Integrated approach: CP provides direction and a

How to srrike a balance between current operations
and long-range planning.
Instilling the need for planning: 'We try to use as
much foresight as $'e can, but there are always new
factors that come into t}re business that require revision
ofthe plan.
Resistance to change: There is the problem ofgeming
people to assume responsibility for change and
developing new skills within the company.
Ivory-tower planning: The biggest obstade is the
tendency for long-range planning to become divorced
from actual operations. It is planned in an ivory tower
and not translated into action.
Rapid change: The world is not predictable. We are
living in a world of rapid economic, social and
competitive change. Governmenr and non-government
forces affect corporate planning greatly.
Unpredictable competition : We can do all the planning
in the world and along comes some competitor who
does somethingelse and we have to adjust and, perhaps,
throw our plan away,
sense of purpose for the company. Day-to-day
operational thinking gives way to more fruitful long-
run designs. Piecemeal approach to problems of
management is replaced by the integrated approach.
Managing risk and change: Corporate planning
minimises the chance of mistakes and unpleasant
surprises, becausestrategies are formulated after a carefirl
scrutiny ofinternal as well as external environment.
CP not only helps in reducing uncertainty but also
enables management to learn to live with ambiguity.
Accordingro Arynt, CP is the most imponant method
ofprotecting current profits, future profits, stability,
working and promoting the growth of the firm.
Better use ofresources: Effective corporate plaru provide
for more optimal acquisition, maintenance, utilisation
and replacement ofphysical and human resources.
Effecdve decision-making: Effective corporate plans
enable managers rc ifuntifi early problzrns, threats or
opportunities that may exisr in the environment and
improve decision-making by surFacing all factors that
have a bearing on a decision.
Improved behavioural climate: Corporate planning
enables organisationd participants to think in a broad
way. Positive attitudes are developed; there would be
less friction between departments. CP helps in
channeling behaviour in the right direction.

Efiective control: Corporate plans help in preventing

deviations, oversights and mistakes.
190 I Monogement Text ond Coses

T EFFECTIVE CORPOMTE PLANNING

Itis true that CP is not a sure bet. At the same time, it should nor be accepted
as a palliative for all
organisational ills. Corporate planning has limitations, bur, 'these arise mostly in cases
ihere planning
was slipshod, poor judgement was used, planning was not d.one in
-od.r"tiorr, o,
some other of the many sins of commission or omission took place'. Instead of d.iscounting
the
utiliry of corPorate planning practices for all organisational ills, managers should rry ro overcome
these limitations through constructive effort. Good management growrh
"..o-pii.h.s
and development through efficient, planned utilisation of all available resources. The well-managed
organisation does not meekly economise and avoid new venrures. Instead, it recognises opportunity
and accepts the entrepreneurial challenge of deploying its resources profitably .ho.
- to capitalir. o.,
opportunities for irs own good and for the good of society.
Impressive-looking books do not ensure success of corporate planning. Any aspiring plan will
not happen merely because it is neatly documented. It is still very necessary on crearing rigid,
standing plans, but rather on creating a dynamic planning capabiiity. Success stems from a top
management thar:

a Is determined to grow.

a Inspires an atmosphere of growth in the company.

a Fosters an awareness of environmental change.
a Sets high goals.

a Develops foimal strategies and a budgeted growth plan.

a Reshapes the organisation to fulfil new objectives.

a Encourages entrepreneurial talents.

a Stimulates interdependence and collaboration.

a Develops suitable incenrives, and, mosr notably,

a Obtains broad executive involvement.

To be successful, corporate planning should have a dynamic influence on top managemenrt
decision-making process. The corporate planning head should be given the opportuniry of participating
in top decision-making process. In this manner, corporate planning becomes part of
the organisationt fabric, rather than merely a matter of formal reporrs. Above all, corporate planning
should receive continued support and blessings from top management. '!?ithout the active ,,rppo. oi
the chief execurive, no corporare planning system can be successfully introduced.

Elements of Corporote Plons

The contents of corporate plans are known by various names such as the scope of the plan, plan
coverage, and output of planning. These contents vary from organisation to organisation. However,
some common elementi can be explained thus:
I Mission: lt is a
statement of the reason 1. Mission: The corporation mission identifies the function which the
for being in business. organisation intends to perform within society. It is a statement of the
 (hopter I Corporote Plonning ond Environmenhl Anolysis r 19L

reason for being in business. The mission statement of Maruti Udyog Limited, for example, is
to provide transportation (peoplet car). The same can be said of railroad industry rrvhose
mission may be expressed in terms of 'transporting people and products'. A mission should be
expressed in a brbad way leaving enough room for diversificadon and expansion plans. The
primary mission of DTC (Delhi Tiansport Corporation) is to provide mass rransir for as many
Passengers as possible. Its basic strategy has not changed in years: economic transportation to
as many passengers as possible. This means that if an organisation is to survive in the long-run,
it must provide some benefit to sociery.
2 Objectives: Objectives that serve as the desired end results can be established once the mission
statement is determined. Basically, an objective is an end result, the end point, or something
that you aim for and try to reach. A variety of objectives are pursued by business organisations
such as continuiry of profits; efficiency, employee satisfaction and development, qualiry products,
services for customers; good corporate citizenship and social responsibility. Some objectives
are pursued in the short-run and others in the long-run. These objectives are developed keeping
in view both the strengths of the firm and the forecasted environmenr. If the environmental
strengths are not consistent with the changes predicted in the environmenr, certain capabilities
of the firm may need to be developed so as ro achieve the objecrives.
Having discussed in brief that an enterprise should establish objectives in each area is vital to
its existence, it is of interest to inquire into the actual range and pattern rf goals pursued by
various organisations. After surveying a group of the largest industrial and non-industrial firms
in USA, YK. Shetty points (New look at Corporate Goals, Califorrria Management Review 22
'Winter
1979) out that profitabiliry growth and market share are the most frequently reponed
goals, followed closely by social responsibiliry, employ-ee welfare, product qualiry and service.

Objectives, then, being plural, demand trade-offs in attempt to accomplish them. Shareholders
want larger dividends, customers want better quality products at lower prices, workers want
higher salaries and benefits, and society expects higher standards ofsocial conduct. Consequently,
managers must exercise judgement in setting these goals. According rc Gluech and Jauch, the
following factors influence the formulation of objectives.
Objectives are not the result of managerial power alone. They result from the managers' who
are trying to satisfr the needs of all groups involved (stockholders, employees, suppliers, customers
and others) with the enterprise. These groups have conflicting objectives. Managers, therefore,
should bargain with these groups and produce a set of objectives rhat can best serve the interest
of these groups at rhar time.

Internal Sources and Power

Set ofFuture Objectives and Priorities

Values of Top Management Past Objectives and Development of

the Firm

Figure 8.1
Factors Influencing the Formulation of Objectives
 L92 I Monogement Text ond Coses

3' Strategy: An organisation's strategic plan,.primarily

developed by top managemenr, serves to
define its overall characrer, mission and dir
an advantageous relation to the
is a broad programme for achiev
It creares a unified direction for
the deployment of resources use
links the resources, human as well as non-
risks posed by the environment. Th
in recenr years. Strategic planning pr
It enables managers to develop suitable objectives appropriare merhod.s for achieving these
_and
objectives. It also provides necessary information fo, to make g."J a."i.r"r. I, ,Iro
^"i^g.r,because
minimises the chances of mistakes and unpleasanr .u.priJ..
obJectives and, strategies
are subjected to careful examination. To devise an appropriare
srraregy, managers must find the
'common thread' of their organisations. What
i, o,r.-businer, *h"t it sh"ould be? \fho are
"nd
are we heading? \fhat major competirive
ce do we excel? By answering such quesrions,
of their organisations and devise the most
onship between the distinctive capabilities of the
the finn's environmenr.
4' Programme of action: The best plans in the world are absolutely worthless
if they cannor be
success of an enterprise. One of the important
ndia, is the inabiliry to achieve results through a
ramme covers a relatively large set of acrivities. Ir
n objective, (ii) rhe organisation unir or member
responsible for each step, and (iii) the order and timing of each srep.

5' Reappraisal: Once a corPorate plan has been set into motion, evaluation and reappraisal
is
necessary to provide feedback on its progress. In this manner, adjustments can
b.^-"de
necessary to assure that actual results compare favourably with 'hoped for' ",
results. Evaluation
enables managers to learn from experience and, thus, increas. th.i, capaciry for
formulating
future worthwhile corporate plans.

Techniques of Corporote Plonning

Corporate planning essentially covers three rhings: Short-term plans, medium term
plans, and. long-
term plans. Let's examine these in greater detail:
l ' Short-term corPorate plans: There is no standard answer to the question: 'How long
should a
corPorate plan be?' In case of capital-intensive industries such as iron and steel,
..r]ou...,
committed for many years and it becomes necessary to indulge in'long-range planning, "."
However,
in case of a fashion industry like the one producing
-.i, wear, rhe ,.roo.... n"eed nor be
committed for many years. Planning can be short-range, yet, effective. As Prof Bhattacharyya
(Corporate planning, Oxford, Calcuna) remarked: "Corpo.ate planning.o--i6
rhe resources
for the period ahead that can be clearly looked into; it has got nothini to do with the range,,.
However, the corporate planning process can be viewed i.o- th...-posirions:
short-range,
medium and long-range. The focus of short-term corporare plans is, oiviously, o.,
th" pro"fit
and growth objectives of a firm. All the projects underraker by the firm whether
to acquire
new products, markets or resources or to improve the marketing and manufacturing
activiry
 Choflor I Corprote Plonning ond [nvironmentl Anolysis I 193
etc. have these objectives in view. Usually, the firm prepares a balance sheet of its strengths and
weaknesses before planning to commit resources on various projects. Without rhis informadon,
it would be difticult for the firm to formulate goals in a clear way. In making feasible strategies,
the executives should also consider potential market available, resources, opportunities and
constraints of the environment. Thus, short-term corporate plans focus on the following:
. Determine the goals clearly. It is not enough to have the big picture. Specific and meaningful
objectives having a quanrirarive measure musr be spelt out.

o Objectives must be determined in the light of (i) company strengrhs and weaknesses and
(ii) environmental opportunities and constraints.
a Careful resource audits may be conducted to find out the weak spots. Disinvcstment
decisions leading to a gradual reduction in the scale of operations are rhe most difficult
decisions, management is called upon to make.

2. Medium-term corporate plans: Once the company has outlined its goals, has drawn out a
balance sheet of its strengths and weaknesses, has fixed its strategies, the nort srep is to rranslate
the rhetoric into the action through medium-term corporate plans. The corporate planning
process, for example, may be shown thus:

i i
Strategic Medium-Term Short-Term
Long-range Specific Derailed Implementation
objective detailed plans plan for revtew
policies <i cooperation of current erraluadon
and various financial operation
strategles plans

Long-range I Operationd, I
(Strategic) I planni"g
racdcal
I
planning

Figure 8.2
Corporate Planning Process

Itis at this stage that alternative courses of action are looked into and current ractics are
modified to achieve the overall goals. The following things take place at this srage:
o Reviewing the progress of operational plans.
o Evaluating alternative courses of action.

o Modification of existing policies, when the operational plans fail to achieve the strategies
objectives.
o Development of entirely new policies when the existing policies are totally not satisfacrory
in meetingzhe goals specified.

Thus, medium-term plans are concerned with deployment of resources for current
business operations to meet longterm strategic plans. They are essentially concerned with
implementing strategic plans by coordinating the work of different departments in the
organisation,. Thpy try to integrate various organisational units and ensure commitment to
strategic plans.
194 I Monogement Teil ond Coses

3. Long-range Corporate Plans: Long-range plans, typically, span a time horizon of three to five
years into the future. They reflect the fundamental direction of an enterprise and its broad
objectives. They are basically concerned with the futurity of present decisions in terms of (i)
setring goals and developing strategies to achieve them and (ii) translating strategies into detailed
operational programmes and ensuring that plans are carried out.

One of the important objectives of a long-range corporate plan is to position the organisation
as advantageously as possible in its environment. This requires looking both outside the
organisation for threats and opportunities and inside for strengths and weaknesses. Corporate
objectives, basicaily, are the result of strategic planning process in business. Of course, for
business orgariisations to be effective, they must interlock strategic and operating plans. Strategies
'World Airlines and Sears Roebuck), where the
like 'group thinking at the top' (adopted by Tians
chairman is assisted by four or five top officers in formulating business strategies, may help
integrate plans at different levels.

Long-range planning should also provide for review and revaluation of plans. Plans and their
implementation must be constantly open to evaluation. Both, during and after implementation,
foliow-up and control in the form of feedback are essential. Comparison of actual results with
'hoped for' results is necessary to improve the effectiveness of plans while they are being put
into action, as well as to improve future plans'

Concept of Environment
Managers musr have a deep understanding and appreciation of the environment in which they and
their organisations function. To illustrate the importance of environment to an organisation, consider
th. of a swimmer crossing a wide stream. The swimmer must assess the current' obstacles
"rr"logy
dirt"rrte before setting out, If these elements are not properly understood, the swimmer might
"rrd
end up too far upsrream or dcwnstream. The organisation is like a swimmer, and the environment is
like the srream. Just as the swimmer needs to understand conditions in the water, the organisation
I lnternal
must understand the basic ingredients of its environment to properly
environment: The manoeuvre (or change direction) among them.
conditions and forces
within an organisation.
The environment of business is the 'aggregate of conditions, events and
influences that surround and affect it' (Dauil. Since the organisation is part
of a broader social system, it has to work within the framework provided by
I External
the sociery and its innumerable constituents. For the sake of simpliciry the
environment: Everything
outside an organisation environmental forces could be classified into two categories: internal
that might affect it. environment and external environment.
The internal environment consists of conditions and forces within an organisation that affect the
organisation's management. Aspects of the internal environment include the organisation's mission,
.oipor"r. culture, o*rr.., and the board of directors, employees, other units of the orgnisation and
uni,ons. The external environment consists of those factors that affect a firm from outside its
organisational boundaries. Of course, the boundary that separates the organisation- from its external
..,1ri.orr-.rr, is always not clear and precise. For example, shareholders are Part of the organisation,
but in another sense, they are part of its environment.

I Macro-environment: I EXTERNAL AND INTERNAL ENVIRONMENT

The general
\While analysing the total (macro) environment, it is more effective to deal
environment that affects
all business firms. with the external forces first and then the internal, although some opine that
 Chophr I Corporote Plonning ond Environmentol Anolysis I L95
the reverse order is better. For example, analysis of the internal environment might reveal a cash
surplus, and top management might then decide to search the external environment for in',r.stm.nt
"n
opportuniry such as an acquisition. Even here, examining external environment is essential to find
whether the timing is right for an acquisition or any orher use of cash. Vhile deciding the internal-
external order of analysis, one should not lose sight
of aspects that work well in one ser of conditions Features of Environment
and change colour in anorher set of circumstances.
For example, Arvind Mills' is struggling because it
Complex: The environment comprises of
took huge loans For the installation of what has multifarious events, factors, conditions and
turned out to L" excess capacity. Due to flourishing influences arising from various sources. They
markets in early 90s, management over-estimated interact with each other constantly and often
future sales and increased plant capacity. !?hen produce entirely new set of influences. lt is
demand subsided, fashion changes occurred and not easy to state clearly what kind of forces
new entranrs came with a bang, Arvind Mills' constitute a given environment.
market share fell drastically. Also, denim (its main Dynamic: The environment of an organisation
product) is not regularly used by an average person, is dynamic and constantly changing. Changes
as it is a fashion item. The company is now in technology, government regulations,
exploring overseas markets seriously in order to competitive forces etc. compd organisations
to shift gears and change direction, quite
pay off its debts and survive. Thus, a large
often. At times, there could be too many
production capaciry may be an internal strength changes in too little time, leading to shocks
in an expanding economy, but it could be a and surprises in the market place (Toffter).
tremendous burden and an internal weakness in a
Ghallenging: All firms are impacted by
recessionary period. Here, it would be better to political, legal, economic, technological and
evaluate the external environment, than the social systems and trends. Together, these
internal. elements comprise the macro-environment of
business firms. Because these forces are so
In actual practice, since both exrernal and dynamic, their constant change presents
internal forces interact and impact organisational myriad opportunities, and threats or
survival and growth, managers would do well to constraints to strategic managers.
examine both sets of factors at the same time.
The external environment reveals opportunities and threats and the internal environment uncovers
strengths and weaknesses. An opportunity is a favourable condition in rhe organisation's environmenr
that enables it to consolidate and strengthen its position. A thredt is an unfavourable condition rhar
creates a risk and causes damage to an organisation. For example, the slowdown in the US market is
a real threat to Indian sofrware exporters while outsourcing is perceived as an opporruniry to be
exploited. A strength is an in-built capabiliry which an organisation can use to gain ,ti"t.gi.
over its competirors. (say superior R&D skills of Ranbaxy Laboratories r "du"nt"g.
SWOT analysis: An
Ltd). A weahness is an inherent limitation thar creares a strategic disadvantage analysis intended to
(say Colgate's single - product image), Managers ofren use S\7OT (acronym match the firm's
strengths and
for strengths, weaknesses, opportunities and threats) analysis to match the
weaknesses with the
strengths and weaknesses existing within an organisation with the threats oppbrtunities and
and opportunities operating in the environment before formulating an threats posed by the
envrronment.
effective strategy.

T ENVIRONMENTAL ANALYSIS
In order to survive and flourish in a highly competiuve and turbulenr environmenr, every organisation
must strike a happy balance berween environment, values and resources (Thompson). Be.",rr.
organisations are oPen systems, environmental factors inevitably influence them, and it is upto
 796 r Monogement Texl ond Coses

Features of Environmental Analysis managers ro ensure that this influence is harnessed

(Ian \Tilson)
Holistic exercise: EA takes a holistic,
broad view of the environment instead ol
scanning trends in a piece-meal fashion. lt is
a way of looking at the forest, rather than the
trees.
Exploratory process: EA tries to explore the
unknown terrain, putting emphasis on what
could happen. The focus is clearly on
alternative f uture choices, seeking
Clarification of the assumptions about future,
speculating systematically about various
outcomes, assessing probabilities and
drawing more rational conclusions.
Continuous activity: EA is not a one-short
deal; it is a continuous process of picking up
new signals from the environment and
keeping track of shifts in the overall pattern of
trends. To this end, detailed studies are carried
out from time to time to keep a close watch on
previously identified trends that were found
to be important from the organisation's point
of view.
a It helps strategists to focus on alternatives that help achieve predetermined
those options that are not in line with andcipated opportunities or threats.
in a positive way, leading to organisational success
(PS. Thoma.). Environmental analysis is the
process of monitoring an organisational
environmenr to identify both present and future
threats and opportunities that may influence rhe
firm's abiliry to reach its goals.
Properly used environmental analysis can help
ensure organisational successin many ways:
a Ir helps firms to adjust to environmenral
change at a right time, that is, encashing
opportunities as rhey arise and eliminating
the negative impacts of environmental
threats through proactive planning.
It helps
an organisation to come out with an early
warning system to ward off threats from
competitive forces and develop suitable
strategies to turn problems into
opportunities.
a It tries to improve organisational
performance by making managers and
divisional managers aware of issues that
arise in the firm's environment, by having
a direct impact on planning and by linking
corporate and divisional planning (Certo and
Paer).
goals and eliminare

Components of Externol Environment

Most managers readily agree that an organisation's external environment is more difficult to understand
and manage than the internal environment. The reasons are fairly obvious. The external forces are
T frustratingly large in number, difficult to assess and predict and are not
environment: lt easily amenable ro advance planning and policy making. 'writers like schitit
comprises of factors that
have, therefore, suggested that "changes in the external environment are
originate beyond, and
usually irrespective of,
any single firm's
operatint situation:
economic, social,
political, technological
and ecological factors.
trends and deploy their resources judiciously. ve will now examine each
one of the externd environmental forces to understand better how they affect strategic management.

I ECoNoMIc ENVIRONMENT
Economic factors throw light on the nature and direction of the economy in which a firm operates.
Consumption Patterns are usually governed by the reladve affluence of market segmenrs. Therefore,
 Chopter 8 Corporote Plonning ond Environmentol Anolysis t 797
while carrying out strategic planning exercises, the firm must focus atrention I Ecology: The
on economic rrends in the segments that affect its industry. Low interest relationships among
rates on personal savings, for example could compel individuals to equiry human beings and other
living things and the air,
and bond markers, leading to a boom for the capital marker activity and
social and water that
mutual fund industry. At the national and international level, the firm must support them.
look into the general availabiliry of credit, the level of disposable income
and the propensiry of people to spend. Interest rates, inflation rates,
I Substitute products:
unemployment rates and trends in the gross national product, governmental Alternative producb that
policies, sectoral growth rates of agriculture, industry infrastructur€, erc., may satisfy similar
are other economic influences it must consider. consumer needs and
wants but differ
The potential impact of international economic forces has been largely somewhat in specific
discounted till early 90s. Thanls to liberalisation, opening up of the economy, characteristics.
and the dismantling of quantitative restrictions, every move on rhe r Switching costs:
ihternational arena needs a careful look. The fall of Nasdaq, the interest rate One-time costs that
buyers of an industry's
cut by Federal Reserve, the collapse of Korean electronics and automobile
outputs incur if they
makers, the entry of Chinese goods into Indian markets and a host of other switch from one
relevant economic forces significantly impact Indian manufacrurers. company's products to
corporate planners will have to closely monitor orher economic indicators another's-
also_seriously,for various reasons. Pattern of income distribution in th.
"o,ttttffi!1ffif,Sfr?
products demanded by people belonging to various income groups. Figures relatini to savings and
investment habits of people in South India speak volumes about why the fixed diposir maiket is
b_goming there. During the last 12 months or so, the industrial growth rate has fallenio 5.5 percent,
GDP growth projections have come down to 5.8 percent,'agriculture is having a bad run, capital
goods production has shown a negative trend, car sales have come down fro^ 17 percent to just 2
Percent; cement sales have not picked up significantly, the invesrmenr climate has suffered badly due
to falling stock indices and the systemic failure of stock exchanges in Cdcutta and Bombay. (India
Today, March 12,2001; Nov., 20, 2000; Augusr,2l,2000). Despite these negarive trends, the
quality of growth during the past 5 years or so has changed dramatically. The services secror now
accounts for nearly 50 percent of national incomes; family incomes are rising faster than individual
incomes; job opportunities are more diverse; productiviry of capital and labour has increased; industry
is more competitive today than ir was a decade back.
Table 8.2
Common Economic Indicators
National Income Capital Market
GNP Equitymarket
Personal disposabld income Bond market
Persona.l consumption
Policy Iniriatives
Retail sales
Fiscal poliry
Savings Monetarypolicy
Personal savings Labour and employment policy
Corporare savings
In ternational Tr-arsactions
Investmcnt Exchange rates
Industry investment Exports
FDI flows Imports
Prices, Wages, Productivity Balance of payments
Inflation rare Secoral Growth
Raw material price Index changes Agriculture
Labour productiviry Industry
Infrastructure
Services
L98 r Monogement Text ond Coses

I SOCIAL AND CULTURAT ENVIRONMENT

The social factors that affect a firm include the values, artitudes, beliefs, opinions and life-sryles of
Persons in the firm's external environment, as developed from demographic, cultural, religions,
educational and ethnic conditioning. Like other forces in the external ..rlri.o.rrn..r,, social factors
change continually. As social attitudes, beliefs and values change, so does the demand for various
types of attire, books, leisure activities etc. Let's examine these factors in greater d.etail.

a Demographic factors: Demographic characteristics such as population, age distribution,

religious composition, literacy levels, inter-state migration, ,,rr"l-rrib"n mobility,
income distribution, erc., influence a firm's
Reading Between dre Lines
strategic plans significantly. The entry of women
into the labour market has, in recenr times,
GDP: lt is the value of a nation's annual total affected the hiring and compensation policies of
production of goods and services that serves their employers. This has also expanded the market
as a major indicator of economic growth. A fqr a wide range of products and services
decline in GDP signals toward reduced
necessitated by their absence from their homes
consumer expenditures and lower demand
for business outputs. (GDP rates have fallen (such as convenience foods, microwave ovens, day
from 7.5 per cent in 1996-97 to 5.8 per cent in - care cenrres, erc.). The shifts in age distribution
2000-2001 ). caused by improved binh control methods have
lnterest rates: Lower interest rates literally compelled producers to go after youth -
encourage consumer spending. Retailers, oriented goods (beaury products, hair and skin
construction companies, automobile care preparations, fitness equipment, etc.). The
manufacturers benefit because lower rates growing number of senior citizens has made many
trigger demand for durable goods. Lower rates
are conducive to capital expenditures and to
a government to pay more attentlon to tax
mergers and acquisitions. ln contrast, high exemptions, social securiry benefits etc. Another
rates dampen business plans to raise funds important concern is the desire for a better quality
to expand or to replace outdated facilities. of work life. Employees expecr more from
lnflation rates: High rates boost costs of doing organisations than simply a pay cheque. They want
business and result in constraints on business cleaner air and water as well as more leisure time
operations. lt may even compel governments to enjoy life more fully.
to take action that slows the growth of the
economy. Labour mobility across different occupations
Unemployment rate: When unemployment and regions, in recent times, has cut down wage
is high, the company is able to be very differentials greatly. If labour is heterogeneous as
selective about whom it hires, but consumer is the case in India, managing people becomes a
buying may decline because fewer people tough and demanding task. The explosive
are working. The slowdown in the US market
population growth during the last decade has
and the subsequent exodus of HIB visa-
holders iscurrently proving be to serious implications for Indian government
advantageous to lndian software majors in wanting to go after sophisticated technologies,
terms of hiring experienced personnel, low discarding traditional, labour intensive methods.
attrition rates, better bargaining power in The presence of a large number of English speaking
terms of billing rates with overseas players
engineers at the same time, has encouraged many
etc.
sofrware giants to ser up shop in India. Cheap
(Source: P Wright et al. Strategic Management)
labour, rise in income levels and favourable
governmental initiatives have made the Indian market more arrracrive to multinationals in
recent times.
 (hopbr 8 (orporofe Plonning ond Environmenlol Anolysis . 199

a Cultural factors: Social attitudes, values,

Big Mac eyes Big Lunch Market
customs, beliefs, rituals and pracrices also
influence business pracrices in a major way.
in India
Christmas offers grear financial
opportunities for card companies, toy McDonald's, the fast food giant, has not been
retailers, tree growers, mail order catalogue able to make much headway into the lunch
market in lndia due to certain erroneous
firms and other related businesses. Social
perceptions in the minds of office executives
values refer to abstract thinking about what and students looking for a hurried and
is good, right and desirable. Beliefs, on rhc affordable lunch which is hygienic. One
other hand, reflect the characteristics of reason was its premium look, carrying the tag
that its meant for high society. Another reason
physical and social phenomena. We may
traced after a series of customer surveys was
believe, for example, thar a high-fat diet the non-oily and less-spicy nature of food. A
causes cancer or that chocolate causes acne. third one was its non-vegetarian label. To
Beliefs are important (whether right or overcome these perceptions, Mcponaldlq
introduced three meal options: Pizza Mc Puff
wrong) in that they affect how we behave (Rs 39); Chicken Mc Grill (Rs 49) and
and what we buy. For example, McDonald's Maharaja Mac (Rs 84) at various prices. To
does not serve rhe beef burgers in India oome closer to the vegetarians, it is introducing
because Indians consider cows as sacred the Chatpatey Potato Wedges and other new
products (Aloo - Tikki Burger in 1999). As part
animals (Hindu tradition ,prohibits rhe of the menu vision 2001, it plans to make food
consumption of beef in any form). Values items more spicy as well.
and beliefs vary from culture to culture and (Source: Economic Times, 28-03-2001 ).
before going ahead in abigway, companies
must study the socio-culrural environmenr of a counrry thoroughly to
I Culture: The set of
avoid costly mistakes. To market soup in Japan, the manager/marketer values that helps an
must realise that soup is regarded there as a breakfast drink rather organisation's members
understand what it
than a dish served for lunch or dinner. The loyalty shown by Japanese
stands for, how it does
workers towards their employees, to take another example, is far things and what it
greater than that shown by Indian workers for their employers. considers important.

The distinction, obviously can be traced back to their respective socio-cultural roots!
a Religious, ethical and moral factors: India is a country where people belonging ro almost all
religious faiths live-Hindus, Muslims, Sikhs, Christians, Budhists and Jains. They speak
different languages. 'With a population of over 1 billion and 65 per cenr literacy level, the
country offers exciting opportunities to marketers. The counrry - specific risks in terms of
corruPtion, political instabiliry, vast cultural differences, poor infrastructure etc are equally
threatening. The ethical and moral roots of society are, however, very srrong. People believe in
joint family system (especially in North India), carry on prayers daily, believe in destiny, respect
elders and senior citizens, perform rituals scrupulously, and are generally God-fearing. The
spread of consumerism, the rise of middle-class with high disposable incomes, the flashy life
sryles of people working in software, telecom, media and multinational companies and stock
market addicts seem to have changed the socio-cultural scenario in recent times. After the 90s,
people have started rationalising the philosophy - ends justif' the means. Such lower ethical
standards have become a real threat now to business organisations which have traditionally
been carrying out their operarions in a fair way.
200 r llonogemont Tert ond Coses

I POTITICAL ENVIRONMENT
Many political factors influence how managers formulate and implement srrategic direction. Due to
the socidist learnings of some of the ministers, Coca Cola and IBM had to move out of India in late
70s. A deep-seated fear of multinationals prevented political leaders to shut the door on giant
I Barriers to entry: The multinational companies for a painfully long time. Barriers to entry ,
decline in unit costs of a protcctionist policies, high tariffs, anti-nationalist slogans, bad publicity have
product which occurs as
the absolute volume of
had a cumulative effect in creating a closed economic model where people
production per period of had to wait years together to buy e Bajaj Scooter or a Fiat car in India.
time increases.
'Vhen things turned bad to worse, the situation is sought to be remedied
through a bold liberalisation programme in early 90s. Apan from willingness to bend the rules and
get along with the times, political stability is also essential for economic growth. After the Babri
Masjid demolition in 1992, economic reforms
Politics and Pepsi in India
again took a back seat and the then prime minister,
V Narasimha Rao could not carry on the bold
Political forces were clearly at play when liberalisation programme further. The subsequent
Pepsi-cola lnternational was preparing for its securities scam derailed the economy, all the more.
introduction of Pepsi products in lndia. Just Subsidies were never cut as planned at that time,
when Pepsi was trying to introduce its soft
public sector units could not be put on sale,
drinks, the nationalist administration wanted
the'company to change the name of its soft Industrial Disputes Act remained intact, Urban
drinks from 'Pepsi Era'to 'Lehar Pepsi'- a move Land Ceiling Act could not be amended (it
that cost the company a huge fortune in happened finally in 1999), a National Renewal
design and packaging changes. Apart from Fund could not be set up and the Insurance sector
fighting it out with its chief rival, Coca-Cola
Co., Pepsi had to wage a war of sorts reforms remained in the basket. Now small
against bad publicity and f requent donations (imagine how cheaply Indian's most
govemmental interference. lt had to overcome powerful are willing to sell their souls!) to political
insurmounlable hurdles created by Parle
parries - a mere $2127 in the case of the Bharatiya
Exports Ltd of Bombay, headed by Ramesh
Chauhan, which had an estimated 80 per cenl Janata Party's Bangaru lexman nd $4,255 by the
market share in the cola market at that time. Samata party's Jeya Jaitly for introducing arms
Whipping up nationalist sentiments after the dealers to higher-ups - have again come in the
defeat of reform-minded Rajiv Gandhi
government, Chauhan tried every trick in the way of the bold economic steps proposed by NDA
book (including threats, scheming with Government led by Vajpayee. The Tehelka expose
politicians, buying out dealers, creating covering the whole shady deals on videotapes in
labour troubles etc.) to put breaks to the
operations of Pepsi, permanently. Pepsi the recent past has put a big question mark on
survived all such bad publicity, Chauhan's crucial economic issues such as disinvestment,
bare - knuckle style, retaliations from Coca- downsizing, dereservation, labour reforms, power
Cola, nationalist sentiments - through sheer
sector reforms, etc,
gdt and determination to conquer one of the
largest cola markets in the world. Thanks to
its copyright punch line 'Yeh Dil Manage More'
T LEGAL ENVIRONMENT
and endorsements by celebrities, Pepsi is The legal framework/regulatory environment is
going very strong in the lndian market
decided by the political party in power. The
currently.
government, therefore, may legislate on matters
Sources: (a) W.G. Kumund and M D Amico, Marketing, West
like wage fixation, managerial remuneration, safery
Publishing, NY 1 996 (b) Economic Times, 2813/2001.
and health at work, location of plants, entry of
mulrinationals, price control, import - export policy, licensing poliry etc. In a centrdly planned and
 Choptqr
conrolled economy like India, it is the government
that lays down the rules of the game and rhe
industry has to scrupulously adhere to the rule
book. Lobbying, political donations, public
awareness campaigns still help in bending the policy
stipulations a bit but, by and large, the levers of
control are held by the ministers and bureaucrats
only. During the license-permit-raj that prevailed
till late 80s, CEOs of most companies in India
were expected to know the domestic market (orly),
know the governmenr, make short-term plans, be
able to handle diversified companies, and also
implement the vision of the Babu, the owner (Tlam.
C.D). The family-owned businesses that existed
wanted fixers, yes-men, collaborators and people
with right connecrions with government officials.
Licensing policies, quota restrictions, imporr
duties, forex regulations, restrictions on FDI flows,
controls on distribution and pricing of
commodities, regulations on all aspects of
corporare functioning - have really pur the captains
of industry in a spot and pushed them to the wall.
A sort of love - hate relationship between corporare
heads and bureaucrars prevailed for a frustratingly long time. The liberalisarion
economic refbrms and srrucrural adjustments brought about in early 90s have altered
scenario quite dramatically.
8 Corporote Plonning ond Environmentul Anolysis t 201,
McDonald's'Way of Surviving
McDonald's sells its burgers in over 75
countries. Each country has laws that present
McDonald's with problems - or opportunities.
German Law, for example, prohibits
advertised discounts and special price offers
like 'buy one, get one free'. Labour unions in
France, recently accused the company of
cheating workers out of overtime pay. lt can,t
sell its most popular beef burgers in lndia.
Coping with foot-dragging officiats,
sometimes requires McDonald,s to take the
offensive. ln Germany, one Chinese food
promotion worked so well that the company
ran out of spring rolls. "l tried to order more
from out of our supplier in Denmark',, explains
McDonald's head of purchasing in Germany,
"but he told us his company needed
permission from the government to work on
the weekends. I called the Danish Labour
minister and got it!"
(Source: Zikmund and D'Amico, Marketing, 1999).
measures macro -
the economic

Obviously, companies that want to do business globally musr pay atrenrion to the above
developments closely and learn to adapt themselves to the laws of the land.'The rules
of competition,
trademark rights, price controls, product qualiry laws, and a number of other legal issues
in individual
countries may be of special importance to global companies such as Coca-Cola, Unilever,
IBM, and
McDonald's.

I TECHNOLOGICAL ENVIRONMENT
Technological factors rePresent major opportunities and threats that must be taken
into accounr
while formulating strategies. Technological breakthroughs can dramatically influence
organisation,s
products, services markers, suppliers, distributors, competitors, customers, manufacturinf
p.o.oro,
marketing Practices and competitive position. Technological advancemenrs can open
up new markers,
resultin a proliferation of new and improved products, change the relative cost position in an
industry and render existing products and services obsolete. Technological changes can reduce
or
eliminate cost barriers between businesses, create shorter production runs, create rhoit"g..
in technical
skills, and result in changing values and expectations of cusromers and employe., (fn Dauid).
Technological advancements can create new competitive advantages that are more
powerful than
exisring ones. Recent technological advances, as we well know, in .o-pt.r,.rr, lasers, rolotics,
satellite
networks, fibre optics, biometrics, cloning and other related areas have paved the
way for significant
oPerational improvements. Manufacturers, banks and retailers, for example, h"lre
,rsed advlnces in
comPuter technology to carry out their traditional tasks at lower costs high., levels of cusromer
"rrd
202 r Monogement Text ond Coses
Ford, the Virtual Enterprise
Ford Motor company has set up Covisint, in
partnership with rivals like GM Daimler
Chrysler, Renault, Nissan and others to
network consumers, dealers, vendors,
manufacturers through the Web. Hitherto,
manufacturing schedules followed the
conventional linear supply chain principle,
where the manufacturer creates the product
and tries to sell it after networking with
suppliers of various components and parts.
The production schedule is first drawn up,
information is then passed as tier-l supplier
of parts (electrical assembly) who in turn
outsources the job from tier-ll supplier/makes
head lamp) and tier-lll supplier (wires and
switches). This time-consuming process
necessitates large inventories at various
levels and does not take changing consumer
tastes into accounl. Covisint, the virtual
enterprise with no physical assets, is trying to
rejig the whole thing in a dramatic way. The
demand information which is obtained frorn
the dealers is flashed to all tiers in the supply
chain simultaneously and they in turn will
supply components immediately. The build-
to-order principle followed by Dell is, thus,
converted into an operational philosophy
guiding the operations of all players in the
network. The attempt is to convert the supply
chain into an operational philosophy guiding
the operations of all players in the network.
The attempt is to convert the supply chain into
a demand chain. Networking with hundreds
of dealers across the globe, Ford is now in a
position to deliver customised cars at amazing
speed (Three day programme in UK, South
America etc) and efficiency (saving $2000-
3000 per vehicle on a $19,000 vehicle). Ford
is estimating theoretical savings of $2.7 billion
annually if all parts are sourced through the
e-marketplace created by Covisint. Ford is
able to resolve all channel conflicts quite
successfully (4200 dealers in US alone)
through the website ford.com. Ford has also
created the e-CRM company, Percepta to
process customer queries and complaints 24
hours a day.
(Source: Business world, 2-4-2001).
pollution is created by dust particles and gaseous discharges that contaminate the air and cause global
warming. Over the years, the growing number of coal-burning factories, thermal plants, automobiles
satisfaction. Consider the case of an old economy
giant, Ford Motor company, which is morphing
into a new economy animal using web-based
technologies to the best advanrage (AnanA.Thanks
to the Internet, the old days of being able to
concentrate only on rhe nuts and bolts of rhe
business seem to be over. The winners are going
to be companies that move closer and connect
well with customers. Thke the stunningly successful
case of MP3, a freely-available standard for the
compression and transmission of digital audio.
The big guns of the music business - Sony, RCA
and the rest - were so confident about their control
over the music industry that they couldn't see the
threat posed by a tiny player like MP3.com, which
quietly spun its own B-web. The company didn't
try doing everything: the B-web had a combination
of content companies (like MP3); manufacrurers
such as 53 (maker of the Rio MP3 player);
distribution technologies (like Napster); and, of
course, hundreds of thousan& of teenagers who
swore by the music, but couldn't pay for it.
Technological change, thus, can create or even
decimate existing business.s or even entire
industries, since it shifts demand from one product
to another. Examples of such change include the
shifts from vacuum tubes to transistors, from steam
locomotives to diesel and electric engines, from
fountain pens to ball points, from propeller
aeroplanes to jets, and from typewriters to
computer-based word processors (Vrigh).
T NATURAL ENVIRONMENT
The natural environment comprising of ecological,
geographical and topographical factors (such as
natural resources, weather, climate, location etc)
are-all relevant to business. Historically, Industries
were set up in places where natural resources
were available in abundance. This has created
pockets of affluence, congestion and pollution all
at the same time. The natural endowments began
to be used recklessly leading to air, water and land
pollution and ozone depletion, gradually. Air
 Chopter I Corporole Plonning ond [nvironmentol Anolysis t 203
etc. have precipitated the problem further. Water pollution occurs mainly when industrial toxic
wastes are thrown into the nature 's water ways. Land pollution is caused by the disposal of hazardous
industrial toxic wasres in underground dumps.
The situation has become quite alarming in recent years when pollution levels have risen ro
unmanageable proportion causing serious damage to ozone layer - hearing up the soil, water and air.
Thanks to environmental activists, many companies are now seriously rrying to come out with
(a) eco-friendly products, (b) modified processes, (c) redesigned production equipment and (d) recycled
by-products. Steel companies have been forced to spend heavily in cleaner - burning fuels and pollution
control equipment. The automobile industry has been asked to redesign engines that conform to
strict emission control norms. The gasoline industry has been compelled to formulate new lowlead
or no-lead products. And, thousands of companies have found it necessary to direct their R&D
efforts towards finding ecologically superior products such as Sear's phosphate - free laundry detergenr,
Pepsi cola's biodegradable plastic soft drink botie (Pearce and Robinson).

I INTERNATIONAL ENVIRONMENT
International developments can greatly impact the abiliry of an organisation ro do business abroad.
For example, fluctuations of the rupee against foreign currencies influence the abiliry of an Indian
comPany to comPete in global markets. When the price of the rupee is high against foreign currencies,
Indian companies find it difficult to compete in the international market. Conversely, when the
rupee falls against foreign currencies, new business opportunities open up. International factors
influence domestic companies in another way, i.e. by producing new global comperirors. For example,
a number of technological advances pioneered in the United States have led to successful products.
Yet, in regard to such items as phonographs, colour televisions, audio and video tape recorders,
telephones, semi-conductors, and computers, US producers have gradually lost a major share of the
domestic market to foreign competitors, who took the basic technology and successfully builr upon
it. International factors assume greater importance when domestic companies directly depend on
(imports) or exports to certain countries. For example, the slowdown in US economy is impacring
the fortunes of software exporters in India, who derive more than 60 per cent of their revenues from
the Silicon Valley. The dismantling of quantitative restrictions, to take another example, from 1.4.2001
is going to affect the fortunes of domestic companies manufacturing goods such as dry cell batteries,
toys, stereos, telephone equipment, shoes, wrist watches, drinks and juices, chandeliers, colour
televisions etc (especially cheap imports from China). Thanks to the advances in transporrarion
and communication technology in the past century, almost no parr of the world is cut off from
the rest. The world is a big global village now and virtually every organisarion, no marter what it
offers and from which place it operates, is affected by international developments in one form or the
other.

I TASK/COMPETITIVE/OPERATING ENVIRONMENT r Task or competitive

or operating
The task environmenr is that part of the external environment consisting of environment: Specific
specific outside forces with which an organisation interfaces in the couise orgarrisations or Sroups
that affect the
of carrying our irs operarions. Ir consists of the factors in the organisarion's
organisations
immediate environment (rnicro-enuironment). Usually, a single organisation
has difficulry in exerting a direct influence on the external environmenr, but it may be more successful
in affecting its own task or market environments. The various elements of micro-environment need
not necessarily affect all the firms in a particular industry in rhe same way. Imporrant elements in the
 204 r iionogement Text ond Coses

include: clients, competirors, suppriers,

:lf ;:Xn:Uf;Jllt}Jl,lot""tr labour suppry

(a) Clients: Clients include the cusromers,

of a business is to create and sustain c
into a lifeless machine without cusro
patients, universities without srudenrs,
that stay close to the customer, survive
shareholders and partners, roo, have
a st
get appropriate economic rerurns on thei
influence on the way, the firm deals
wit
liabiliry etc.

G) Competitors: Competitors' acrions and res

firm will prosper. Important data about c
time include number of
advertising location, pro
local, regional, nationa
higher-technology fields, competition can
companies have undergone dramatic changes
within a rapidly expanding market. In re
competition in several industries such as ban
car industry etc.

G) Suppliers: Suppliers of raw materials, e

an organisation's external environment.
profitability will suffer. The energy crisis in

credit on easy rerms for its operations.

(-d) Labourr The environment's labour supply represenrs
those individuals that may be employed
to work for the or8anisation. All organis"tiorr, ,r..d
qualified, trained hands to take care
of assigned duties' This, in turn, is iifluenced by
the economy, employment, socio-cultural
al growth, unions, etc. The influence of unions
in regulating supply
uired, is diminishing in recent years due ro recessionary
trends, global
lation, disenchantment of members over limited
successes achieved by

G)

Environmental protection Agenry, etc.

 Chopter I Corprote Plonning ond Environmentol Anolysh r 205

Components of lnternol Environment

Organisations also have an internal environmentwhich includes all the elements
within the organisation,s
boundaries such as human resources, resources, mission, culture, etc, An
of these factors is
^utline
given below (Vrtgh).
Table 8.3
Important Aspects of an Organisations Internal Environment
O rganisational Aspects Personal Aspects

Sructure Labour relarions

Communication nerwork Recruitment practices
Record ofsuccess Tiaining programmes
Hierarchy of o bjectives Performance app raisa.l sptem
Polic.ies, procedures, rules Incentive systems
Ability of managemenr rearn Turnover and absenteeism
Markering Aspects Production Aspects
Market segmentation Plant faciliry layout
Product strategy Research and development
Pricing strategy Use oftechnology
Promotion straregy Purchasing of raw materials
Distribution straregy Inventory conrrol

Use ofsubcontracting

!inancial Aspecrs

Liquidiry
Profitability

Acrivity

Investment opporrunity

(Source: Cerro and Perer, Srraregic Managcmenr p.39)

I HUMAN RESOURCES
A firm's real assets are its human reso.rces consisting of board of directors, I Human resources:
The experience,
knowledge, capabilities,
skills and judgement of
the employees.

translates rhetoric into action plans. Managers with vision, drive and enthusiasm
always help the
firm steer out of troubles and stay ahead of competition. An organisation's employees
are also a key
element of its internal environment. '!7hen managers .mploy.es embrace the same values and
have the same goals, everyone wins. vhen they work at "rrd
cross-- purposes, however, or when conflict
and hostiliry pervade rhe organisation, everybody loses.

Other organisational resources: Other organisational resources (capital, land, equipment,

plant,
' structure, technology Processes etc) should always be properly aligned with the
firm's strengths
206 r Monogemenl Text ond Coses

and combined in an appropriate manner to produce results. Factors such as proper location,
up-to-date technology, adequate capacity, efficient distribution nerwork, reliable and cost-effbctive
sources of supply, etc., help the firm in realising its professed goals.

a The otganisation's mission and culture: Organisations are ser up for a purpose. Although the
PurPose may change over time, it is essential that stakeholders understand the reason for the
organisation's existence, that is, the organisation's mission. An organisation's mission is a
statement of its 'fundamental, unique purpose that sets a business aparr from other firms of its
rype and identifies the scope of the business's operations in product and market terms' (Pearce
and Dauid). The mission at the corporate level is stated in fairly broad terms but is sufficiently
precise to provide direction to the organisation. At the business unit level, the mission is
narrower in scope and more clearly defined. It is necessary rhar an organisation carefully
understands its mission, because a clear sense of purpose is essentid to set proper goals. CK
Prahakd argued that organisations should spend considerable amount of time understanding
what proficiencies they possess. For instance, Sony has used its skills in miniaturising audio,
video and electronics products as its particular strategic competence. Likewise, AT&T's
divesification into the credit card field was an application of its strategic comperence in rransaction
processing, based on its extensive billing experience in the telephone industry (Stalh, Euans).
Companies that have lost sight of their goals, in India too, have slipped badly and lost their
sheen and value in the market place (NEPC Group, Arvind Mills, UB Group, Damania Group,
Modi Group, to name a few). They failed because they were not able to determine clearly
which activities fit into their strategic direction and capabilities and which ones do not.
In a similar vein, culture is important to organisations because as individuals act on shared
values and other aspects of organisational culture, their behaviours can have a major impact on
organisational eff'ectiveness. Organisational cultures, of course, develop from a variery of sources.
Strong founders may leave a major influence on the culture that develops within an organisation. For
example Ray lftoc, the founder of McDonald's espoused, 'qualiry, service, cleanliness and value', is
still the corporate creed. As reward systems, policies and procedures are established, they impact
culture by further speci$'ing notions of appropriate behaviour. Further, critical incidents, such as an
employee being rewarded or fired for pushing a major innovation, may add to individuds' perceptions
of internal notms over time. For example, a consistent and shared emphasis on innovation has
helped 3M produce a steady stream of new products, as well as make continual improvements in
existing ones.

Techniques of Environmentol Sconning

Environmental analysis or scanning, as stated earlier, is a process by which organsations monitor
their internal and external environments to spot opportunities and threats affecting their business.
I Environmental The basic purpose is to help managemenr determine the future direction of
scanning: The gathering the organisation. Scanning simply involves reviewing and evaluatingwhatever
and analysis of
information about internal and external environments can be gleaned from
information about
relevant environment several distinct sources. The following techniques are generally pressed irrto
trends. service while carrying out environmental scanning.

a S\(rOT analysis: S\7OT analysis helps an organisation match its strengths and weaknesses
with opportunities and threats operating in the environment. An appropriate strateg;r is one
 Chopter 8 [orporote Plonning ond Environmentol Anolysis t 207
that capitalises on the opportunities by using organisational resources
and capabilities to the
best advantage and neutralises the threats by minimising
the adverse influence of weaknesses.
EToP: It is the acronym for environmental threat and opportuniry
profile. ETop is a summarised
' picrure of the environmental factors and their likely impact
on the organisation. Initially, the
different asPects of relevant environment are listed. Importance of
each factor is assessed
closely and expressed in qualitative (high, medium o. lo*)
or quanrirative rerms (3, 2, l). A
relevant factor so analysed might leave a positive or negarive positive
impact. impact of a factor
is an opportunity and negative impact is a threat. In the finai
stage, the i-port"rr". of each
factor and its impact is combined to produce a compacr, overalr
pi..ur..
Forecasting techniques: Micro-environmental and industry
scanning and analysis are only
' marginally useful if all thel' do is, reveal currenr conditions. To be
rruly useful, such analyses
must forecast future trends and changes. Forecasting is a way of
estimating the future events
that are likely to have a major impact on the .n,.rpri-r.. It is a techniqu.
*h"...by managers rry
to predict the future characteristics oft
toJ"y th"t will help the firm deal wirh 'i:l;
inexact science, four techniques can be par
ental
forecasting, Delphi technique and Multiple scenanos.

(a) Time seties anal\sis: This is an empirical procedure in which

certain historical trends
(such as population growth, technological innovations,
changes in incomes etc) are used
to predict such variables as a firm's sales or marker share. Because time
series analysis
projects historical trends into the future, irs validity depends on
the similariry between
past trends and future conditions (Brght and Schoeman),

(b) Judgemental forecasting: This is a forecasring rechnique in which employees, customers,

suppli as a source tf qualitative information regarding
future ntatives may be arked ro forecasr sales growth in
variou r interaction with customers. Survey in.trrrments
may b . trade associations to obtain their
,
specific trends.
ludg.-.n..
o.,

(c) Delphi technique: This is a forecasting procedure in which experrs

in the appropriare field
of study are independently questioned abour the probability of some
..',,..ri'. o..urr..r...
The responses of the experts are compiled, and a .u--"ry is senr
to each expert, with the
Process repeating until consensus is arrived at regarding a particular fore.ast.d e.,r.rrt.
(d) Mubiple scenarios: Future evenrs can
go wrong, trends may change, events
unexpected things may change the who
formulate several alternative description
scenarios).

After implementing the environmental analysis process, management

. should continually evaluare
and strive to improve it. The
Process, as pointed oui by Certo and. peter, "should be linked ro currenr
planning oPerations, responsive to the information needs of top
managemenr, supported by key
managers' and performed by people who understand the
difference b.t*..., bei.rg analysr and
being a strategist". "n
208 I Monogement Terl ond Coses

0rgonisotionol Responses to the Environmenl

Given the myriad issues, problems and opportunities in an organisation's environment, how should
the organisation adapt? Each organisation must assess its own unique situation and adapt according
to the wisdom of its top management. It is not easy to come out with clear cut answers because the
relationships between the organisation and its many environments are multifarious and difficult to
predict. Even more difficult is the task of stating exactly what an organisation should do in response
to a particular situation in the environment. For example, the removal of quantitative restrictions on
consumer items, agricultural products, import of second-hand vehicles is going to impact a number
of domestic organisations w.e.f 1-4-2001, In such a scenario, the number of possible organisational
responses are too numerous to be catalogued in a specific way. However, certain commonly used
organisational responses could be stated thus:

(a) Boundary-spanning response: In every organisations, there are certain positions called boundary
roles that link the organisation with its various external constituencies. These roles are filled by
public- relations representatives, sales people, purchasing agents etc. These boundary spanners
spend a great amount of time with external groups and help present the organisation's interest
in dealings with the environment. They also convey the information about the environment to
the organisation's management. They, thus, help the firm to scan the environmental forces
closely and take steps proactively, in order to survive and progress in a complex and dynamic
environment,
(b) Strategic responses: Another way that an organisation adapts to its environment is through a
strategic response. The options here include maintaining the status quo (even after removal of
quantitative restrictions. Bajaj Auto, for example, may not curtail production of scooters because
managemenr may feel that it is doing very well currently), altering strategy a bit (say cut the
prices a bit and advertise aggressively highlighting qualiry service and reliability aspects more
prominently) or adopting an entirely new strategy (reduced emphasis on scooters and expand
the motor cycle market in line with global trends, or even venture into an alliance with an
international car manufacturer). If the market that a company currently serves is growing
rapidly (as is the case with motor cycle segment), the firm might decide to invest even more
heavily in products and services for that market. The firm may like to pursue new markets for
old products, introduce new products to old markem, or introduce new products to new markets.
Alternatively, if a marker is shrinking or does not offer reasonable possibilities for growth (say,
the moped market) the company many decide to cut back, or to get out of competition altogether.
Firms also indulge in domain shifts (changes in the mix or products and service offered so that
the firm will interface with more favourable environmental elements) to regain the lost glory.
Moving our of current products or services or locations into a. more favourable domain,
diversification, expansion of product/service portfolio are all part of this strategy.
(") Flexible stiuctural designs: An organisation may also respond to environmental changes by
altering its structural form. A firm that operates in an environment with relatively low levels of
uncertainty might use a bureaucratic design putting emphasis on rules, order and conformance.
Alternatively, a firm that operates in a turbulent environment might favour an organic structure,
emphasising inforrnaliry, team structure, risk taking, initiative and creativity at various operating
levels.
 (hopter 8 Corporote Plonning ond Environmentol Anolysis . 209
(d) Mergers, takeovers, acquisitions and alliances: A Company may
also engage in these kinds of
strategies for a variery of reasons, such as gaining entry
into new markets, .1i".rding its presence
in a current market, enhancing its market share, consolidating its posiiion
in a particular
region or segment, etc.

Summory
Corporate planning (CP) is a systematic way of seming the long-term
goals of a company and deciding
the means to achieve these, keeping internal capabilities ,rrd'.*....rl'l
in mind. It is a
requirements
company-wide, comprehensive exercise that includes both srraregic
andoperational planning. Cp
provides direction and a sense of purpose to a company, It tries to
minimise the chance of mistakes
and unpleasant surprises. It tries to put resources to the best advantage.
On the negative side,
environmenral uncertainry rapid technological
the top level may create major road blocks for co
must assess the impact of environmental factors
people at various levels.

c important elemenrs, i.e., mission, objectives, srraregy, programme of

action mPortant techniques of corporate planning p...r-.d into- r.*i".
rhe co corporare planning, medium-term corporare".. planning and long_term "t
corporare planning.

Every organisation is part of a broader social system and hence, it

has to work within rhe
framework offered by the society and its constituenr parts-often
labelled as internal environment and
external environment. The external environment consists of those
factors (economic, social cultural,
political, legal, technological) that afFect a firm from outside its organisational
boundaries. Aspects of
the internal environment include the organisation's mission, .orpo"r","
culture, owners and the board
of directors, employees, other units of the organisation and unions.
The external environment reveals
opportunities and threats and the internal environment uncovers
strengths and weaknesses.'Io operate
successfully in a turbulent environment, firms have to match
the irrt"errral strengths and. weaknesses
with the external threats and opportunities in a careful manner. Firms use
various techniques for rhis
PurPose' S\roT analysis, ETotj forecasting tools are often used to help management d...r-irr.
changes, of course, each organisation"
us position for itself through various
new products to old producti, new
ign, form alliances, etc.

Review Questions
l. Define Corporate Plannrng. Point out the differences between corporare
planning, long-range
planning and strategic planning.
2.
'what
are the advantages and disadvantages of corporate pranning.
a \fhat are the principal componenrs of a corporate plan.

4. outline the various approaches to corporate planning. Use examples to suppoft your arguments.
5. Outline the techniques of corporate planning.
210 r Monogemenl Text ond Coses

'What
6. do you mean by the term'environment' , Explain the major components of environment.

7. Define 'Environmental analysis'. Explain the factors influencing environmental analysis.

8. 'Write short notes on:

. S'$7OT Analysis

o ETOP
o Various approaches to corporate planning
9. Define 'Environment'. Explain why environmental analysis is necessary in strategic management?
10. 'What are the various environmental factors that affect the business? Discuss their relative
importance.

11. Discuss phe elements of competitive environment which should be analysed ior strategy
formulatio.r.

12. What is an organisation's task environment? \flhat are the major dimensions of that environment?
13. Justi$t the need to define the relevant environment for an organisation.
V. Differentiate clearly berween the external and internal components of euvironment.
15. Explain how organisations respond to environmental uncertainry complexity and dynamism?

Discussion Questions
l. Give an example of how political-legal forces have presented an opportunity cr: a threat to a

particular industry or business organisation.

2. Identify an industry that has low barriers to entry and one that has high barriers. Explain hovr
these differences in barriers to entry affect the intensiry and form of competition in those rwo
industries.

3. Identifr an organisation that has enjoyed great growth in recent years. To what degree and in
what ways do you think this firm's success resulted from taking advantage of favourable
conditions in its remote, industry and operating environments?

References
t. R.L. Ackoff, ,4 Concept of Corporate Planning, John \7iley, New York, 1970.
2. K.R. Andrews, The Concept of Corporate Strategl,Tuaporevala' Bombay, 1970.
3. S. Bhattacharya, Corporate Phnning, Oxford & IBH, New Delhi, 1985'
4. G.A. Steiner, Top Management Planning, McMillan, New York, 1973.
5. J. Argenti, Corpcrate Pknning, George A.llen and Unwin Ltd., London' 1971'
6. S. Venu, Corporate Pknning, Orient Longmal, Calcutta, 1975.
7. Keith Davis, The Challenge of Busines, McGraw Hill, New York, 1975.
8. Alvin Toffler, Future Shock, Random House, New York, 1971.
9. J.L. Thomson, Strategic Management, Thompson Business Press, London, 1997'
10, PS. Thomas, 'Enuironmenta! Anatysi for Corporate Planning'. Business Horizons, October, 1974
 Chopter 8 Corporote Plonning ond Environmentol Anolysis t 2Ll
1I. Ian.V-ilson, "?.16e Benefrs of EnuironmentalAnzlysi", in K.J. Alberr (ED) The Srraregic Management,F{andbook, McGraw
Hill, New York, 1988.
12. S.C. Certo and J.P Perer, Strategic Management, Mccnw Hill, Ny, 1990.
13. \CK. Schilir, 'Managers Role in the Future', Mantgerial planning, May-June, I9g5.
'14. P !(right, M. Kroll, J. Parnell, Strategic Matngement, prentice Hall, Newyork, 199g.
15. J.A. Pearce and R.B. Robinson, Snategic Management, McGraw Hill, New york, 2000,
16. Team C.D. "The LIan for the Neu Millennium", Economic Times, g-4, Jn., 1999.
17. lr4. Anand, "The Driu into Virtual RealirT'i Business \7orld, 2 April, 2001.
18. F.R. David, Stategic Managemen4 Prentice Hall, NJ, 1997.
19' J.A. Peerch and F. David, "Corporate Mission Statements: The Bottom Linc",The Academy of Managemenr Executive, May,
t987.
20. G. Stalk' P Evans and L.E. Shulman "Conpeting of Capabilities: The Neu Ruhs for Corporate Snategy", Haryard Business
Review, 1992.
21. J.R. Brighr and M.E.F. Schoeman, A Guide to Practical Tlchnohgical Forecating, Prentice Hall, NJ, 1979.

Websites
To find how companies in the same indusrry adopr differenr plans and srrategies co win over the hearts of customers visir rhe
follorving, for example in the resrauranr indurrv
i w.motel6.com
I ww/.basshotels.com/holiday-inn

Skill Building Exercise

I DEVELOPING A STMTEGY FOR HERO MOTOR CYCLE COMPANY
(HMC)
You have been an extremely successful entrepreneur. Your Hero Motor Cycle company, located on
the outskirts of Ghaziabad belt, has more than doubled its sales each year for the pasr l0 years.
HMC manufactures various types of bicycles including racing and mounrain bikes. HMC also
makes accessories such as seat covers, travel packs and reflectors and does a brisk business in bicycle
HMC has been successfully offering better quality and more innovative designs and features
parts.
than the competitors all these years. The firm went public rwo years back and the issue got
oversubscribed nearly 20 times. HMC, according to marker sources, has tremendous growth potential.
Leveraging on its brand value and market reputation, HMC can borrow money for mergers and
acquisitions and thereby, consolidate its position in the market place. You are aware of several
current business opporrunities:

a The Max Rolling company, a manufacturer of fabricated steel products and roller bearings can
be bought for a fair price. The company is currently family-owned.

a The Lalbhai Leather company, which produces leather goods for automobiles and shoes, can
be acquired or leased on a long-term basis.

a A flourishing international motor cycle franchise is also available in your area.

A very good location for an auto parts outlet is going to be available within the next year.
The information you have at this time indicates that an auro parrs outlet would be received very well
in the Ghaziabad belt (with rising land prices, rural incomes have risen phenomenally in recent
times).
212 r Monogement Tert ond Coses

-A small chain of three remil birycle oudets in Noida will soon be offered for sale because the
owners want to move back to their hometown in Punjab. The outlets have done reasonably well, but
improvements could be made that would probably increase sales dramatically.

A computer training outfit, surrounded by all educational institutions and located in Delhi
University area, is up for sale. The current owners, who have been very successful want to retire and
move to USA where their only son is settled.

You believe that sufficient funds could be raised to acquire two of these businesses. There are
\
other issues to be resolved. Assume that HMC has strong manufacturing and marketing capabilities
andnoglaringinternalweaknessesrelativetocomPetitorsinthebiryclebusiness.
Develop a grand strategy for HMC. Analyse the various business opportunities before HMC
and pick upa suitable strategy for each business that you intend to acquire. Also, explain the reasoning
behind your choices.