Bachelor of Commerce

(BCOM)

BCO-7
Management Principles and Applications

Block-1
Introduction to Management
Unit-1 Nature and Significance of Management
Unit-2 Managerial Skills and Role of Managers
Unit-3 Evolution of Management Thoughts
UNIT-1 NATURE AND SIGNIFICANCE OF
MANAGEMENT

Structure

1.0 Learning Objectives

1.1 Introduction
1.2 Definitions
1.3 Nature of Management
1.4 Scope and Importance of Management
1.5 Levels of Management
1.6 Management as an Art
1.7 Management as a Science
1.8 Management as a Profession
1.9 Let’s Sum-up
1.10 Key Terms
1.11 Self-Assessment Questions
1.12 Further Readings
1.13 Model Questions

1.0 LEARNING OBJECTIVES

After completion of the unit, you should be able to:

 Explain the meaning, concept and definition of management.
 Describe scope and importance of management.
 Know the nature and characteristics of management.
 Also understand whether management is a science or an art or a profession.

1.1 INTRODUCTION

Take a close look at the society around you. You would find the existence of several
organizations. To mention a few, the business organizations that produce goods or
services, hospitals, religious and social institutions like charities, schools, colleges and
universities. All these organizations exist to achieve pre-determined objectives. They
affect our lives in many ways. Though there are vast differences in their functioning
and approaches, they all strive to achieve certain objectives. It must also be noted that
organizations cannot achieve the objectives effortlessly. They are achieved through
systematic effort. Several activities have to be performed in a cohesive way. In the
absence of systematic and cohesive performance of the activities to achieve the
objectives, it is no wonder that the resources of organizations would be underutilized.
As such it is the function of the management to facilitate the performance of activities
such that the accomplishment of the objectives becomes possible.

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1.2 DEFINITIONS

Management is understood in different ways by different people. Economists regard it

as a factor of production. Sociologists see it as a class or group of persons while
practitioners of management treat it as a process. For our understanding, management
may be viewed as what a manager does in a formal organization to achieve the
objectives. In the words of Mary Parker Follet management is “the art of getting things
done through people”. This definition throws light on the fact that managers achieve
organizational goals by enabling others to perform rather than performing the tasks
themselves.

Peter F. Drucker defines, "Management is an organ; organs can be described and

defined only through their functions".

According to Terry, "Management is not people; it is an activity like walking, reading,

swimming or running. People who perform Management can be designated as members,
members of Management or executive leaders."

Ralph C. Davis has defined Management as, "Management is the function of executive
leadership anywhere."

Management encompasses a wide variety of activities that no one single definition can
capture all the facets of management. That is why, it is often said that there are as many
definitions of management as there are authors in the field. However, the definition
given by James A.F. Stoner covers all the important facets of management.

According to him:
“Management is the process of planning, organizing, leading and controlling the efforts
of organization members and of using all other organizational resources to achieve
stated organizational goals”.

The above definitions suggest:

 Management is a continuous process;
 Several interrelated activities have to be performed by managers irrespective of
their levels to achieve the desired goals;
 Managers use the resources of the organization, both physical as well as human,
to achieve the goals;
 Management aims at achieving the organisation’s goals by ensuring effective
use of resources in the best interests of the society.

1.3 NATURE OF MANAGEMENT

The salient features which highlight the nature of management are as follows:

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  Management is goal-oriented: Management is not an end in itself. It is a means
to achieve certain goals. Management has no justification to exist without goals.
Management goals are called group goals or organisational goals. The basic goal
of management is to ensure efficiency and economy in the utilisation of human,
physical and financial resources. The success of management is measured by the
extent to which the established goals one achieved. Thus, management is
purposefull.
 Management is universal: Management is an essential element of every
organised activity irrespective of the size or type of activity. persons are engaged
in working for a common goal, management is necessary. All types of
organisations, e.g., family, club, university, government, army, cricket team or
business, require management. Thus, management is a pervasive activity. The
fundamental principles of management are applicable in all areas of organised
effort. Managers at all levels perform the same basic functions.
 Management is an Integrative Force: The essence of management lies in the
coordination of individual efforts in to a team. Management reconciles the
individual goals with organisational goals. As unifying force, management
creates a whole that is more than the sum of individual parts. It integrates human
and other resources.
 Management is a Social Process: Management is done by people, through people
and for people. It is a social process because it is concerned with interpersonal
relations. Human factor is the most important element in management.
According to Appley, “Management is the development of people not the
direction of things. A good manager is a leader not a boss. It is the pervasiveness
of human element which gives management its special character as a social
process”.
 Management is multidisciplinary: Management has to deal with human
behaviour under dynamic conditions. Therefore, it depends upon wide
knowledge derived from several disciplines like engineering, sociology,
psychology, economics, anthropology, etc. The vast body of knowledge in
management draws heavily upon other fields of study.
 Management is a continuous Process: Management is a dynamic and an on-
going process. The cycle of management continues to operate so long as there
is organised action for the achievement of group goals.
 Management is Intangible: Management is an unseen or invisible force. It cannot
be seen but its presence can be felt everywhere in the form of results. However,
the managers who perform the functions of management are very much tangible
and visible.
 Management is an Art as well as Science: It contains a systematic body of
theoretical knowledge and it also involves the practical application of such
knowledge. Management is also a discipline involving specialised training and
an ethical code arising out of its social obligations.

On the basis of these characteristics, management may be defined as a continuous social

process involving the coordination of human and material resources in order to

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accomplish desired objectives. It involves both the determination and the
accomplishment of organisational goals.

1.4 SCOPE AND IMPORTANCE OF MANAGEMENT

Management is indispensable for the successful functioning of every organisation. It is

all the more important in business enterprises. No business runs in itself, even on
momentum. Every business needs repeated stimulus which can only be provided by
management. According to Peter Drucker, “Management is a dynamic life-giving
element in an organisation, without it the resources of production remain mere resources
and never become production”.

The scope and importance of management has been highlighted clearly in the following
points:
 Achievement of group goals: A human group consists of several persons, each
specialising in doing a part of the total task. Each person may be working
efficiently, but the group as a whole cannot realise its objectives unless there is
mutual cooperation and coordination among the members of the group.
Management creates team-work and coordination in the group. He reconciles the
objectives of the group with those of its members so that each one of them is
motivated to make his best contribution towards the accomplishment of group
goals. Managers provide inspiring leadership to keep the members of the group
working hard.
 Optimum utilisation of resources: Managers forecast the need for materials,
machinery, money and manpower. They ensure that the organisation has adequate
resources and at the same time does not have idle resources. They create and
maintain an environment conducive to highest productivity. Managers make sure
that workers know their jobs well and use the most efficient methods of work. They
provide training and guidance to employers so that they can make the best use of
the available resources.
 Minimisation of cost: In the modern era of cut-throat competition no business can
succeed unless it is able to supply the required goods and services at the lowest
possible cost per unit. Management directs day-to-day operations in such a manner
that all wastage and extravagance are avoided. By reducing costs and improving
efficiency, managers enable an enterprise to be competent to face competitors and
earn profits.
 Survival and growth: Modern business operates in a rapidly changing
environment. An enterprise has to adapt itself to the changing demands of the
market and society. Management keeps in touch with the existing business
environment and draws its predictions about the trends in future. It takes steps in
advance to meet the challenges of changing environment. Changes in business
environment create risks as well as opportunities. Managers enable the enterprise
to minimise the risks and maximise the benefits of opportunities. In this way,
managers facilitate the continuity and prosperity of business.

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 Generation of employment: By setting up and expanding business enterprises,
managers create jobs for the people. People earn their livelihood by working in
these organisations. Managers also create such an environment that people working
in enterprise can get job satisfaction and happiness. In this way managers help to
satisfy the economic and social needs of the employees.
 Development of the nation: Efficient management is equally important at the
national level. Management is the most crucial factor in economic and social
development. The development of a country largely depends on the quality of the
management of its resources. Capital investment and import of technical knowhow
cannot lead to economic growth unless wealth producing resources are managed
efficiently. By producing wealth, management increases the national income and
the living standards of people. That is why management is regarded as a key to the
economic growth of a nation and all the nations which make up the world.

1.5 LEVELS OF MANAGEMENT

Every business organisation, irrespective of its size, has many managerial positions in
its structure. These positions are created through the process of delegation of authority
from top to lower levels. Each position is marked by authority, responsibility, functions,
roles and relationships. The contents and nature vary, depending in the level at which
the position lies. As one moves upward in the organisation, the managerial position
plays an important role, larger the contribution, greater the authority and higher the
responsibility. These managerial positions lying in the chain of command may be
classified into various groups or levels of management. Broadly speaking, an
organization has two important levels of management, namely functional and operative.
The functional level is concerned with the process of determining primary objectives,
formulating basic policies, making vital decisions and controlling and coordinating
activities of personnel. The operative level of management is related to implementation
of plans and decisions, and pursuit of basic policies for achieving the objectives of the
organisation.

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Generally, the levels of management consisting of various managerial positions in the
structure of an organisation, differ from one organisation to another, depending on the
size of business activity, philosophy of management, span of control and other related
factors. But, in a joint stock company, for conducting its business efficiently, managerial
personnel may be placed in three levels, that is, top, middle and lower or supervisory
level.

Top Level Management

The top level management is generally occupied by the ownership group. In a joint stock
company, equity shareholders are the real owners of the company. Thus, they elect their
representatives as directors, form a board, known as board of directors, which
constitutes the top level of management. Besides the board, other functionaries
including managing director, general manager or Chief executive to help directors, are
included in this level. It is the highest level in the managerial hierarchy and the ultimate
source of authority in the organisation. The top level managers are accountable to the
owners and responsible for overall management of the organisation.

The major functions of the top level management are as under:

i. To make a corporate plan for the entire organisation covering all areas of
operations.
ii. To decide upon the matters which are vital for the survival, profitability and
growth of the organisation such as introduction of new product, shifting to
new technology and opening new plant etc.
iii. To decide corporate goals.
iv. To decide structure of organisation, creating various positions there in.
v. To exercise overall managerial control through the process of reviewing over
all financial and operating results.
vi. To make decisions regarding disposal and distribution of profits.
vii. To select key officials and executives for the company.
viii. To coordinate various sub-systems of the organisation.
ix. To maintain liaison with outside parties having a stake in business such as
government, trade union and trade associations etc.
x. To formulate basic policies and providing direction and leadership to the
organisation as a whole.

Middle Level Management

In order to fill up the gap which exists between functional and operative level, some
managerial positions are created at the middle level of management. Middle level
management consists of departmental managers, deputy managers, foreman and
administrative officers etc. These executives are mainly concerned with the overall
functioning of their respective departments. They act as a link between top and lower
level managers. The activities of middle level managers‟ centres around determining
departmental goals and devising ways and means for accomplishing them.

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The main functions performed by these managers are as under:
i. To prepare departmental plan covering all activities of the department within
the basic framework of the corporate plan.
ii. To establish departmental goals and to decide upon various ways and means
for achieving these goals to contribute to organizational goals.
iii. To perform all other managerial functions with regard to departmental
activities for securing smooth functioning of the entire department.
iv. To issue detailed orders and instructions to lower level managers and
coordinate the activities of various work units at lower level.
v. Middle level managers explain and interpret policy decisions made at the top
level to lower level managers.

Lower Level or Supervisory Level Management

Lower-level management is known as supervisory management, because it is concerned
mainly with personal oversight and direction of operative employees. It consists of
factory supervisors, superintendents, foremen, sales supervisors, accounts officers etc.
They directly guide and control the performance of rank and file workers. They issue
orders and instructions and guide day to-day activities. They also represent the
grievances of the workers to the higher levels of management.

Supervisory management performs the following functions:

i. Planning of day to day work
ii. Assignment of jobs and issuing orders and instructions
iii. Supervising and guiding workers
iv. Maintaining close personal contacts with workers to ensure discipline and
team-work
v. Evaluating operating performance
vi. Sending reports and statements to higher authorities
vii. Communicating the grievances and suggestions of workers to higher
authorities.

1.6 MANAGEMENT AS AN ART

Art refers to the ‘know-how’ – the ways of doing things to accomplish a desired result.
The focus is on the skill with which the activities are performed. As the saying goes
„practice makes a man perfect‟, constant practice of the theoretical concepts
(knowledge) contributes for the formation and sharpening of the skills. Therefore, what
is required is the right blend of the theory and practice. In a way, the attributes of science
and art are the two sides of a coin. Medicine, engineering, accountancy and the like
require skills on the part of the practitioners and can only be acquired through practice.
Management is no exception. As a university gold medalist in surgery may not
necessarily turn out to be a good surgeon, similarly a management graduate from the
best of the institutes may not necessarily be very effective in practice. In both the cases,
the application of the knowledge acquired through formal education, requires ingenuity

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and creativity on the part of the practitioner. Correct understanding of the variables of
the situation calls for pragmatism and resourcefulness.

Effective practice of any art requires a thorough understanding of the science underlying
it. Thus science and art are not mutually exclusive, but are complementary. Executives
who attempt to manage without the conceptual understanding of the management
principles and techniques have to depend on luck and intuition. With a sound knowledge
and the necessary skills to use such knowledge, they stand a better chance to succeed.
Therefore, it may be concluded that ‘management is both a science and an art’.

1.7 MANAGEMENT AS A SCIENCE

To gain a correct perspective as to what management is, let us examine the exact nature
of management – whether it is a science or an art? An understanding, therefore, of the
exact nature of science as well as art may help in understanding the discipline in a better.
Any branch of knowledge to be considered a science, (like the ones we have – physics,
chemistry, engineering, etc.) should fulfil the following conditions:

 the existence of a systematic body of knowledge encompassing a wide array of

principles;
 principles have to be evolved on the basis of constant enquiry and examination;
 principles must explain a phenomenon by establishing cause effect relationship;
 the principles should be amenable for verification in order to ensure accuracy
and universal applicability.

Looked at from this angle, management as a discipline fulfils the above criterion. Over
the years, thanks to the contributions of many thinkers and practitioners, management
has emerged as a systematic body of knowledge with its own principles and concepts.
Principles help any practicing manager to achieve the desired goals. However, while
applying the principles, one should not lose sight of the variables in the situation, since
situations differ from one to another. Thus, the importance of personal judgment cannot
be undermined in the application of principles. Further, management is a dynamic
subject in that, it has drawn heavily from economics, psychology, sociology,
engineering and mathematics, to mention a few. It is multi-disciplinary in nature, but a
word of caution. Though management considering its subject matter and the practical
utility may be considered as ‘science’, for reason discussed below, it cannot be viewed
as an ‘exact science’. In other words, it is a science, but an ‘inexact science’ because:

 Firstly, management by definition involves getting the things done through people.
Compared to the other inputs, ‘people’, who constitute the human resource of any
organization are unique in respect of their aspirations, attitudes, perceptions and the
like. Dissimilarities in the behaviour pattern are so obvious that standard research
may not be obtained in otherwise similar conditions.

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 Secondly, the behaviour of the human beings cannot be accurately predicted.
Hence, readymade and standard solutions cannot be prescribed.

 Thirdly, management is more concerned with future which is complex and

unpredictable. As the saying goes, ‘many a slip between the cup and the lip’,
changes in the environment may affect the plans and render even the most well
drawn plans ineffective.

 Lastly, since a business organization exists in an environment, it has a two way

interaction with the environment. The organization influences the environment by
its several decisions and in turn is influenced by the various elements of the
environment.

Important among these are technological, economic, socio cultural and political factors.
The whole thing is so complex that however effective the plans are, one is prone to be
taken over by the unexpected changes in the environment.

Unlike the pure or exact sciences where the results are accurate in the case of
management, the various factors discussed above may force even the excellent plans
and the strategies go haywire. Too many complexities and uncertainties render
management an „inexact science‟

1.8 MANAGEMENT AS PROFESSION

McFarland gives the following characteristics of a profession:

 existence of an organized and systematic body of knowledge,

 formalized methods of acquiring knowledge and skills,
 existence of an apex level body with professionalization as its goal,
 existence of an ethical code to regulate the behaviour of the members of the
profession,
 charging of fees based on service, and
 concern for social responsibilities.

A closer examination of management as a profession reveals that unlike medicine or

law, management has to go a long way to attain universally acceptable norms of
behaviour. There is no uniform code of conduct that governs the behaviour of managers.
The apex level body, the All India Management Association (AIMA) or NIPM
[National Institute of Personnel Management] provides only guidelines and does not
have any controlling power over the erring members. Managers also differ widely in
respect of their concern for the ethics and values of the society in which they function.
Many a time, in their obsession with profit, the societal interests are either neglected or
compromised. However, as in the case of other professions, it is implied that managers
are expected to set an example in doing good to the society. While making decisions,
they should be conscious of the impact of their decisions on the society. The larger
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interests of the society must be given top priority rather than short-term temptations.
After all, given the enormous resources they have at their command, the expectation
that managers should address themselves to the problems of society is not unnatural.

It must, however, be remembered that unlike professions like engineering, medicine,

law, accountancy, etc., the entry to management profession is not restricted to
individuals with a special degree. In other words, one need not necessarily possess
M.B.A or any other management degree or diploma to practice management. To quote
Peter Drucker, “no greater damage could be done to an economy or to any society than
to attempt to professionalize management by licensing managers or by limiting access
to management to people with a special academic degree”.

At the same time, it may be realized that the achievements of the pioneers of the
industrial development need not shadow the importance of management as a profession.
In arguing for and against, we must not ignore the context of the business. There has
been a sea change in the environment of the business. The modern business has become
more complex due to the uncertainties arising mainly from:

Ever increasing competition for the markets not only domestic but international as well;

 Rapid technological changes affecting all facets of human life;

 Increased sophistication and rapid obsolescence of technology;
 Expansion in the size of organizations and consequently the market, and
 The unexpected changes in the socio-cultural and political factors influencing
the business.

All these variables which have a significant bearing on the functioning of a business
point to the need for formal training and acquisition of skills by pursuing management
education. More so, at a time when people are talking about “borderless management”
in the context of globalization of business.

1.9 LET’S SUM-UP

Management principles and applications is quite exiting, challenging and rewarding

indeed. The module is carefully crafted for you to present the basic concepts and
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UNIT – 2 MANAGERIAL SKILLS AND ROLE OF
MANAGERS

Structure

2.0 Learning Objectives

2.1 Introduction: Managerial Skills
2.2 Technical Skills
2.3 Human Skills
2.4 Conceptual Skills
2.5 Let’s Sum-up
2.6 Key Terms
2.7 Self-Assessment Questions
2.8 Introduction: Role of Managers
2.9 Interpersonal Roles
2.10 Informational Roles
2.11 Decisional Roles
2.12 Let’s Sum-up
2.13 Key Terms
2.14 Self-Assessment Questions
2.15 Further Readings
2.16 Model Questions

2.0 LEARNING OBJECTIVES

After completion of the unit, you should be able to:

 Understand the nature and various types of skills required by managers
 Explain the nature of managerial roles and skills
 Appreciate the evolution of management thoughts

2.1 INTRODUCTION: MANAGERIAL SKILLS

Management job is different from other jobs. It requires elements of stewardship and
commitment to the purpose. It involves the obligation to make prudent use of human
and material resources. It requires sound judgment to handle complex situations.
Further, the nature of the job becomes increasingly complex at each higher level because
of the increase in the scope of authority and responsibility. Therefore, each higher level
requires increased knowledge, broader perspective and greater skills. For the purpose
of analysis, skills required of a manager are classified under three heads – technical,
human (employee relations skill) and conceptual skills as shown in Figure 2.2. The
exhibit helps in understanding the levels of management responsibility, the principal
skill requirements, and the extent to which each kind of skill is required at each level.

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2.2 TECHNICAL SKILLS

Technical skills refer to the ability to use the tools, equipment, procedures, techniques
and knowledge of a specialized field. It is primarily concerned with the ways of doing
the things. It implies proficiency in a specific field of activity. Technical skills are most
important for the lower level managers, because by nature their job involves supervision
of the workers. Effective supervision and coordination of the work of the subordinates,
therefore, depends on the technical skill possessed by the lower level manager. Any
supervisor without a sound knowledge of the job cannot make an effective supervisor.
Such supervisors are not respected by the subordinates at the shop floor. The relative
importance of the technical skills as compared to the other skills diminishes as one move
up to higher levels of management.

2.3 HUMAN SKILLS

Human skills are primarily concerned with “persons” in contrast to “things”. When a
manager is highly skilled in employee relations, he is aware of their attitudes,
assumptions, and beliefs and recognizes their limitations as well as their usefulness. He
accepts as an important fact of life, the existence of viewpoints and feelings, different
from his own. Thus, human skills refer to the ability of the manager to work effectively
as a group member and to build cooperative effort in the team he leads. It is the ability
to work with, understand and motivate people. He understands why people behave as
they do and is able to make his own behavior understandable to them. He can foresee
their reactions to possible courses of action. His skill in working with others is natural
and continuous. He does not apply it in random or in inconsistent fashion. It is a natural
ingredient of his every action. The flair for understanding, empathizing and working
with people is central to the human skills.

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2.4 CONCEPTUAL SKILLS

Conceptual skills also called design and problem-solving skills involve the ability to:
 see the organization and the various components of it as a whole;
 understand how its various parts and functions are related in a network fashion;
and
 to foresee how changes in any one of these may affect the others.

Conceptual skills extend to visualizing the relation of the organization to industry, to

the community and to the political, economic and social forces of the nation as a whole
and even to forces which operate beyond the national boundaries. It is the creative force
within the organization. A high degree of conceptual skill helps in analyzing the
environment and in identifying the opportunities and threats. Managements of
companies like ITC, Larsen & Toubro, Asian Paints, Bajaj Auto, Bharthi Telecom in
the private sector and National Dairy Development Board, Bharat Heavy Electricals
(BHEL) in the public sector, to mention a few, have amply demonstrated this skill in
gaining a competitive edge over their competitors. As you have understood by now –
the three types of skills discussed so far are not mutually exclusive. In other words,
management job always requires all the three skills, but in different proportions
depending upon the level of management. There is a gradual shift in the emphasis from
the bottom to the top of the pyramid. Technical skills and human skill are always in
great demand at the lower level of management for it is there the productive processes
and operations are carried out. It is there where you find most of the people. It is there
where the action takes place. In contrast, the need for conceptual skill is greatest at the
top level of management. Obviously, top managers are not often involved in the direct
application of specific methods, procedures and techniques, compared to those at the
lower echelons of management.

As evident from the foregoing discussion, at the entry level of the management job, that
is, at the supervisory level, besides technical skills, a manager has to process human
skills and the problem-solving skills (conceptual). To climb up the organizational
ladder, one must not only be good at the skills required for the present job, but also learn
and acquaint with the skills required at the next level. As result, in the event of
promotion to the next higher levels, he/she would feel at home and discharge the
responsibilities with ease.

Based on the differences in the type of skills required, organizations assess the training
needs of the managers. Accordingly, appropriate training, development methods and
programs are designed to equip them with the skills required at the respective levels.
Although, each of these skills is needed in some degree at every level of management,
there are successful executives who have no great amount of technical skills. But they
are able to compensate the lack of that skill through superior creative ability and skill
in identifying the talent and empowering the people through effective human resources
development practices and good leadership.

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2.5 LET’S SUM-UP

Assuming that a manager is one who directs the activities of other persons and
undertakes the responsibility for achievement of objectives through such efforts,
successful management seems to rest on three basic developable skills: technical,
human and conceptual. The relative importance of these three skills varies with the level
of managerial responsibility.

The technical skill implies an understanding of and proficiency in a specific kind of

activity, particularly one involving methods, processes, procedures, or techniques; it
involves specialised knowledge, analytical ability within that specialty, and facility in
the use of the tools and techniques of the specific discipline. Human skills could be
usefully divided into (a) leadership ability within the manager's own unit and (b) skill
in intergroup relationships. Experience shows that outstanding capability in one of these
roles is frequently accompanied by mediocre performance in the other. Intragroup skills
are essential in lower and middle management roles and intergroup skills become
increasingly important in successively higher levels of management. Conceptual skill
involves the ability to see the enterprise as a whole; it includes recognising how the
various functions of the organisation depend on one another, and how changes in any
one part affect all the others; and it extends to visualising the relationship of the
individual business to the industry, the community, and the political, social and
economic forces of the nation as a whole.

2.6 KEY TERMS

 Skill: An ability and capacity acquired through deliberate, systematic, and

sustained effort to smoothly carry out an activity / task / job.
 Technical Skill: It refers to the specialised knowledge and proficiency in handling
specific job.
 Human Skill: It is the ability to interact and reserve conflict situation for enhancing
organizational performance and productivity through cooperation and
coordination.
 Conceptual Skill: It is the ability to see the organization as a whole, to recognise
inter-relationship among different functions of business effectively and efficiently.

2.7 SELF-ASSESSMENT QUESTIONS

1. What types of skills are required at different levels of management? Examine why
human skills are considered most significant at all levels of management.
Ans:_________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________

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_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________

2. Who introduced the concept of managerial skills? Do you agree that lot of technical
skill is required by the top management of an organization? Why or why not?
Ans:_________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________

2.8 INTRODUCTION: ROLE OF MANAGERS

Hennery Mintzberg, a contemporary management thinker has done lot of research on

the various roles performed by a manager. A role, according to him, “Is an organized
set of behaviors belonging to an identifiable office or position.” Just as characters in a
play have specific roles, managers also play different roles. Through his studies,
Mintzberg identified ten roles that managers play at various times to varying degrees.
He classified them under three broad categories; interpersonal roles, informational roles,
and decisional roles.

The following summaries ten roles by category with examples of each:

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 ROLE DESCRIPTION Identifiable activities from
the study of Chief Executives
Interpersonal
Figure head Symbolic head; obligated to Ceremony, status requests,
perform routine duties of a solicitations.
legal or social nature.
Leader Responsible for the Virtually all managerial
motivation and activation of activities involving
subordinates; responsible for subordinates.
staffing, training and
associative duties.
Liaison Nurtures and maintains Acknowledgement of mail,
network of outside contacts. authorizing communication
The liaison role involves with external world.
interface activities with
environment.
Informational
Monitor Seeks and receives wide All activities concerned
variety of special information primarily with receiving and
from different sources. processing information.
Thorough understanding of
organization and
environment; emerges as
nerve centre of internal and
external information of the
organization.
Disseminator Transmits information Forwarding mail for
received from both within and informational purposes, verbal
outside the organization to contacts involving information
members of the organization; flow to subordinates(eg; review
some information factual, sessions, instant
some involving interpretation communication flows)
and integration of diverse
value positions of
organizational influencers.
Spokesperson transmits information to stake Board meetings; handling
holders about external contacts involving transmission
environment and of information to outsiders.
organization’s plans, policies,
actions, results, etc;
Decisional
Entrepreneur Searches the environment for Takes initiation for accepting
opportunities and initiates risk and challenges for
action to bring about changes; launching of new
supervises design of strategy products/services.

18
 and review sessions involving
initiation or improvement of
projects.
Disturbance Responsible for corrective Strategy and review sessions
Handler action when organization involving disturbances and
faces unexpected disturbances crises.
and turbulence.
Resource Responsible for the allocation Scheduling request for
Allocator of organizational resources of authorization; and activities
all kinds; making or approval involving budgeting and the
of all significant programming of subordinates
organizational decisions. work.
Negotiator Responsible for representing Negotiation
the organizations at major
negotiations

As Mintzberg points out, these roles are not independent of one another. Instead, they
are interdependent. The interpersonal roles arise out of the manager’s authority and
status in the organization and involve interactions with people. These inter personal
roles make the manager a focal point of information, enabling and compelling the
manager to assume and play the informational roles as an information processing centre.
By playing interpersonal and informational roles, the manager is able to play the
decisional roles; allocating resources, resolving conflict, seeking out opportunities for
the organization, and negotiation on behalf of the organization. Taken together the ten
roles comprise and define the work of the manager, whatever the organizations size and
nature of the business.

2.9 INTERPERSONAL ROLES

Three interpersonal roles help the manager keep the organization running smoothly.
Managers play the figurehead role when they perform duties that are ceremonial and
symbolic in nature. These include greeting the visitors, attending social functions
involving their subordinates (like weddings, funerals), handing out merit certificates to
workers showing promise etc. The leadership role includes hiring, training, motivating
and disciplining employees. Managers play the liaison role when they serve as a
connecting link between their organisation and others or between their units and other
organisational units. Mintzberg described this activity as contacting outsiders who
provide the manager with information. Such activities like acknowledgements of mail,
external board work, etc., are included in this category.

2.10 INFORMATIONAL ROLES

Mintzberg mentioned that receiving and communicating information are perhaps the
most important aspects of a manager’s job. In order to make the right decisions,
19
managers need information from various sources. Typically, this activity is done
through reading magazines and talking with others to learn about changes in the
customers‟ tastes, competitors‟ moves and the like. Mintzberg called this the monitor
role. In the disseminator role, the manager distributes important information to
subordinates that would otherwise be inaccessible to them. Managers also perform the
spokesperson role when they represent the organisation to outsiders.

2.11 DECISIONAL ROLES

There are four decision roles that the manager adopts. In the role of entrepreneur, the
manager tries to improve the unit. He initiates 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 allocator, 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 unit.

2.12 LET’S SUM-UP

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

2.13 KEY TERMS

 Figure head: This refers to the managerial position held as a symbol and position
occupied in an organisation.
 Leader: This role enables a manager to influence the behaviour of others for
accomplishment of group / organizational goals and objectives.
 Liaison: This refers to interacting with peers and individuals both inside and outside
the organization.
 Monitor: The manager receives and collects information to examine whether the
performance of desired tasks is accomplished as per predetermined standard.
 Disseminator: The manger transmits the required information to different
constituent members within the organization.
 Spokesperson: Manager disseminates the company’s vision, mission, objectives
and information to its external stakeholders in the environment.
20
UNIT – 3 EVOLUTION OF MANAGEMENT THOUGHTS

Structure

3.0 Learning Objectives

3.1 Introduction
3.2 Pre-Scientific Era
3.3 Classical School of Thought
3.3.1 Scientific Management
3.3.2 Administrative / Process School
3.3.3 Bureaucracy Model
3.4 Neo Classical School of Thought
3.4.1 Human Relations School
3.4.2 Behavioural School
3.5 Quantitative / Operations School
3.6 Systems Approach
3.7 Contingency Approach
3.8 Let’s Sum-up
3.9 Key Terms
3.10 Self-Assessment Questions
3.11 Further Readings
3.12 Model Questions

3.0 LEARNING OBJECTIVES

After completion of the unit, you should be able to:

 Appreciate the evolution of management thoughts over the years
 Understand different schools of thought and their contributions

3.1 INTRODUCTION

The origin of management can be traced back to the days when man started living in
groups. History reveals that strong men organized the masses into groups according to
their intelligence, physical and mental capabilities. Evidence of the use of the well
recognized principles of management is to be found in the organization of public life in
ancient Greece, the organization of the Roman Catholic Church and the organization of
military forces. Thus management in some form or the other has been practiced in the
various parts of the world since the dawn of civilization. With the onset of Industrial
Revolution, however, the position underwent a radical change. The structure of industry
became extremely complex. At this stage, the development of a formal theory of
management became absolutely necessary. It was against this background that the
pioneers of modern management thought laid the foundations of modern management
theory and practice.

23
Evolution of management thought may be divided into four stages:
1. Pre-scientific management period.
2. Classical Theory
(a) Scientific Management of Taylor
(b) Administrative Management of Fayol
(c) Bureaucratic Model of Max Weber
3. Neo-classical Theory or Behaviour Approach 4. Modern Theory or Systems
Approach

(Evolution of Management Thought)

3.2 PRE-SCIENTIFIC ERA

The advent of industrial revolution in the middle of the 18th century had its impact on
management. Industrial revolution brought about a complete change in the methods of
production, tools and equipments, organization of labour and methods of raising capital.
Employees went to their work instead of receiving it, and so, the factory system, as it is
known today, become a dominant feature of the economy. Under this system, land and
buildings, hired labour, and capital are made available to the entrepreneur, who strives
to combine these factors in the efficient achievement of a particular goal. All these
changes, in turn, brought about changes in the field of management. Traditional,
conventional or customary ideas of management were slowly given up and management
came to be based on scientific principles. In the words of L. F. Urwick - "Modern
management has thrown open a new branch of human knowledge, a fresh universe of
discourse". During the period following the industrial revolution, certain pioneers tried
to challenge the traditional character of management by introducing new ideas and
character of management by introducing new ideas and approaches. The notable
contributors of this period are:

(A) Professor Charles Babbage (UK 1729 -1871): He was a Professor of Mathematics
at Cambridge University. Prof Babbage found that manufacturers made little use of
science and mathematics, and that they (manufacturers) relied upon opinions instead of

24
investigations and accurate knowledge. He felt that the methods of science and
mathematics could be applied to the solution of methods in the place of guess work for
the solution of business problems. He advocated the use of accurate observations,
measurement and precise knowledge for taking business decisions. He urged the
management of an enterprise, on the basis of accurate data obtained through rigid
investigation, the desirability of finding out the number of times each operation is
repeated each hour, the dividing of work into mental and physical efforts, the
determining of the precise cost for every process and the paying of a bonus to the
workers in proportion to his own efficiency and the success of enterprise.

(B) James Watt Junior (UK 1796 - 1848) and Mathew Robinson Boulton (1770 -
1842): James Watt Junior and Mathew Robinson Boulton contributed to the
development of management thought by following certain management techniques in
their engineering factory at Soho in Birmingham. They are:-

 Production Planning
 Standardization of Components
 Maintenance
 Planned machine layout
 Provision of welfare for personnel
 Scheme for executive development
 Marketing Research and forecasting
 Elaborate statistical records

(C) Robert Owens (UK 1771 - 1858): Robert Owens, the promoter of cooperative and
trade union movement in England, emphasized the recognition of human element in
industry. He firmly believed that workers' performance in industry was influenced by
the working conditions and treatment of workers. He introduced new ideas of human
relations - shorter working hours, housing facilities, training of workers in hygiene,
education of their children, provision of canteen etc. Robert Owen, managed a group of
textile mills in Lanark, Scotland, where he used his ideas of human relations. Though
his approach was paternalistic, he came to be regarded as the father of Personnel
Management.

(D) Henry Towne (USA 1844 -1924): H.R Towne was the president of the famous lock
manufacturing company "Yale and Town". He urged the combination of engineers and
economists as industrial managers. This combination of qualities, together with at least
some skill as an accountant, is essential to the successful management of industrial
workers. He favoured organized exchange of experience among managers and pleaded
for an organized effort to pool the great fund of accumulated knowledge in the art of
workshop management.

(E) Seebohm Rowntree (UK 1871- 1954): Rowntree created a public opinion on the
need of labour welfare scheme and improvement in industrial relations. The Industrial
Welfare Society, The Management Research Groups and the Oxford Lecture

25
Conferences in the U.K owed their origin and progress to the interest and zeal of
Rowntree.

3.3 CLASSICAL SCHOOL OF THOUGHT

Prof. Charles Babbage, James Watt Junior and Mathew Robinson Boulton, Robert
Owen, Henry Robinson Towne and Rowntree were, no doubt, pioneers of management
thought. But, the impact of their contributions on the industry as a whole was meagre.
The real beginning of the science of management did not occur until the last decade of
the 19th century. During this period, stalwarts like F.W. Taylor, H.L. Gantt, Emerson,
Frank and Lillian Gilberth etc., laid the foundation of management, which in due course,
came to be known as scientific management. This epoch in the history of management
will be remembered as an era in which traditional ways of managing were challenged,
past management experience was scientifically systematized and principles of
management were distilled and propagated. The contributions of the pioneers of this
age have had a profound impact in furthering the management knowhow and enriching
the store of management principles. F.W. Taylor and Henry Fayol are generally
regarded as the founders of scientific management and administrative management and
both provided the bases for science and art of management.

Features of Management in the Classical Period:

1. It was closely associated with the industrial revolution and the rise of large-scale
enterprise.
2. Classical organization and management theory is based on contributions from a
number of sources. They are scientific management, Administrative
management theory, bureaucratic model, and microeconomics and public
administration.
3. Management thought focussed on job content division of labour,
standardization, simplification and specialization and scientific approach
towards organization.

3.3.1 Scientific Management

Taylor's Scientific Management: Started as an apprentice machinist in Philadelphia,

USA. He rose to be the chief engineer at the Midvale Engineering Works and later on
served with the Bethlehem Works where he experimented with his ideas and made the
contribution to the management theory for which he is so well known. Frederick
Winslow Taylor well-known as the founder of scientific management was the first to
recognize and emphasis the need for adopting a scientific approach to the task of
managing an enterprise. He tried to diagnose the causes of low efficiency in industry
and came to the conclusion that much of waste and inefficiency is due to the lack of
order and system in the methods of management. He found that the management was
usually ignorant of the amount of work that could be done by a worker in a day as also

26
the best method of doing the job. As a result, it remained largely at the mercy of the
workers who deliberately shirked work.

He therefore, suggested that those responsible for management should adopt a scientific
approach in their work, and make use of "scientific method" for achieving higher
efficiency. The scientific method consists essentially of
(a) Observation
(b) Measurement
(c) Experimentation and
(d) Inference.

He advocated a thorough planning of the job by the management and emphasized the
necessity of perfect understanding and co-operation between the management and the
workers both for the enlargement of profits and the use of scientific investigation and
knowledge in industrial work. He summed up his approach in these words:
 Science, not rule of thumb
 Harmony, not discord
 Co-operation, not individualism
 Maximum output, in place of restricted output
 The development of each man to his greatest efficiency and prosperity.

Elements of Scientific Management: The techniques which Taylor regarded as its

essential elements or features may be classified as under:
1. Scientific Task and Rate-setting, work improvement, etc.
2. Planning the Task.
3. Vocational Selection and Training
4. Standardization (of working conditions, material equipment etc.)
5. Specialization
6. Mental Revolution.

1. Scientific Task and Rate-Setting (work study): Work study may be defined as the
systematic, objective and critical examination of all the factors governing the
operational efficiency of any specified activity in order to effect improvement.

Work study includes:

(a) Methods Study: The management should try to ensure that the plant is laid out
in the best manner and is equipped with the best tools and machinery. The
possibilities of eliminating or combining certain operations may be studied.
(b) Motion Study: It is a study of the movement, of an operator (or even of a
machine) in performing an operation with the purpose of eliminating useless
motions.
(c) Time Study (work measurement): The basic purpose of time study is to
determine the proper time for performing the operation. Such study may be
conducted after the motion study. Both time study and motion study help in
determining the best method of doing a job and the standard time allowed for it.

27
 (d) Fatigue Study: If, a standard task is set without providing for measures to
eliminate fatigue, it may either be beyond the workers or the workers may over
strain themselves to attain it. It is necessary, therefore, to regulate the working
hours and provide for rest pauses at scientifically determined intervals.
(e) Rate-setting: Taylor recommended the differential piece wage system, under
which workers performing the standard task within prescribed time are paid a
much higher rate per unit than inefficient workers who are not able to come up
to the standard set.
2. Planning the Task: Having set the task which an average worker must strive to
perform to get wages at the higher piece-rate, necessary steps have to be taken to plan
the production thoroughly so that there is no bottlenecks and the work goes on
systematically.

3. Selection and Training: Scientific Management requires a radical change in the

methods and procedures of selecting workers. It is therefore necessary to entrust the
task of selection to a central personnel department. The procedure of selection will also
have to be systematised. Proper attention has also to be devoted to the training of the
workers in the correct methods of work.

4. Standardization: Standardization may be introduced in respect of the following:

a) Tools and equipment: By standardization is meant the process of bringing
about uniformity. The management must select and store standard tools and
implements which will be nearly the best or the best of their kind.
b) Speed: There is usually an optimum speed for every machine. If it is exceeded,
it is likely to result in damage to machinery.
c) Conditions of Work: To attain standard performance, the maintenance of
standard conditions of ventilation, heating, cooling, humidity, floor space, safety
etc., is very essential.
d) Materials: The efficiency of a worker depends on the quality of materials and
the method of handling materials.

5. Specialization: Scientific management will not be complete without the introduction

of specialization. Under this plan, the two functions of 'planning' and 'doing' are
separated in the organization of the plant. The `functional foremen' are specialists who
join their heads to give thought to the planning of the performance of operations in the
workshop. Taylor suggested eight functional foremen under his scheme of functional
foremanship.
a) The Route Clerk: To lay down the sequence of operations and instruct the
workers concerned about it.
b) The Instruction Card Clerk: To prepare detailed instructions regarding different
aspects of work.
c) The Time and Cost Clerk: To send all information relating to their pay to the
workers and to secure proper returns of work from them.
d) The Shop Disciplinarian: To deal with cases of breach of discipline and
absenteeism.

28
 e) The Gang Boss: To assemble and set up tools and machines and to teach the
workers to make all their personal motions in the quickest and best way.
f) The Speed Boss: To ensure that machines are run at their best speeds and proper
tools are used by the workers.
g) The Repair Boss: To ensure that each worker keeps his machine in good order
and maintains cleanliness around him and his machines.
h) The Inspector: To show to the worker how to do the work.

6. Mental Revolution: At present, industry is divided into two groups – management

and labour. The major problem between these two groups is the division of surplus. The
management wants the maximum possible share of the surplus as profit; the workers
want, as large share in the form of wages. Taylor has in mind the enormous gain that
arises from higher productivity. Such gains can be shared both by the management and
workers in the form of increased profits and increased wages.

Benefits of Scientific Management: Taylor's ideas, research and recommendations

brought into focus technological, human and organizational issues in industrial
management.

Benefits of Taylor's scientific management included wider scope for specialization,

accurate planning, timely delivery, standardized methods, better quality, lesser costs,
minimum wastage of materials, time and energy and cordial relations between
management and workers. According to Gilbreths, the main benefits of scientific\
management are "conservation and savings, making an adequate use of every one's
energy of any type that is expended".

The benefits of scientific management are:-

(a) Replacement of traditional rule of thumb method by scientific techniques.
(b) Proper selection and training of workers.
(c) Incentive wages to the workers for higher production.
(d) Elimination of wastes and rationalization of system of control.
(e) Standardization of tools, equipment, materials and work methods.
(f) Detailed instructions and constant guidance of the workers.
(g) Establishment of harmonious relationship between the workers.
(h) Better utilization of various resources.
(i) Satisfaction of the needs of the customers by providing higher quality products
at lower prices.

Criticism

1. Worker's Criticism:

(a) Speeding up of workers: Scientific Management is only a device to speed up the

workers without much regard for their health and well-being.
(b) Loss of individual worker's initiative: Scientific Management reduces workers to
automatic machine by taking away from them the function of thinking.
29
(c) Problem of monotony: By separating the function of planning and thinking from
that of doing, Scientific Management reduces work to mere routine.
(d) Reduction of Employment: Scientific Management creates unemployment and hits
the workers hard.
(e) Weakening of Trade Unions: Under Scientific Management, the important issues
of wages and working conditions are decided by the management through scientific
investigation and the trade unions may have little say in the matter.
(f) Exploitation of workers: Scientific Management improves productivity through the
agency of workers and yet they are given a very small share of the benefit of such
improvement.

2. Employer's Criticism:

(a) Heavy Investment: It requires too heavy an investment. The employer has to meet
the extra cost of the planning department though the foreman in this department do not
work in the workshop and directly contribute towards higher production.

(b) Loss due to re-organization: The introduction of Scientific Management requires a

virtual reorganization of the whole set-up of the industrial unit. Work may have to be
suspended to complete such re-organization.

(c) Unsuitable for small scale firms: various measures like the establishment of a
separate personnel department and the conducting of time and motion studies are too
expensive for a small or modest size industrial unit.

Contributions of Scientific Management:

Major contributions are:

1. Emphasis on rational thinking on the part of management.

2. Focus on the need for better methods of industrial work through systematic study
and research.
3. Emphasis on planning and control of production.
4. Development of Cost Accounting.
5. Development of incentive plans of wage payment based on systematic study of
work.
6. Focus on need for a separate Personnel Department.
7. Focus on the problem of fatigue and rest in industrial work.

Taylor was the pioneer in introducing scientific reasoning to the discipline of

management. Many of the objections raised were later remedied by the other
contributors to scientific management like Henry L Gantt, Frank and Lillian Gilbreth
and Harrington Emerson.

Frank (USA, 1867 - 1924) and Lillian (U.S.A, 1878 - 1912): The ideas of Taylor were
also strongly supported and developed by the famous husband and wife team of Frank
30
and Lillian Gilbreth. They became interested in wasted motions in work. After meeting
Taylor, they combined their ideas with Taylor's to put scientific management into effect.
They made pioneering effort in the field of motion study and laid the entire foundation
of our modern applications of job simplification, meaningful work standards and
incentive wage plans.

Mrs. Gilbreth had a unique background in psychology and management and the couple
could embark on a quest for better work methods. Frank Gilbreth is regarded as the
father of motion study. He is responsible for inculcating in the minds of managers the
questioning frame of mind and the search for a better way of doing things.

Gilbreth's contributions to management thought are quite considerable. His main

contributions are:

(a) The one best way of doing a job is the way which involves the fewest motions
performed in an accessible area and in the most comfortable position. The best
way can be found out by the elimination of inefficient and wasteful motions
involved in the work.
(b) He emphasized that training should be given to workers from the very beginning
so that they may achieve competence as early as possible.
(c) He suggested that each worker should be considered to occupy three positions -
(i) the job he held before promotion to his present position, (ii) his present
position, and (iii) the next higher position. The part of a worker's time should be
spent in teaching the man below him and learning from the man above him. This
would help him qualify for promotion and help to provide a successor to his
current job.
(d) Frank and Lillian Gilberth also gave a thought to the welfare of the individuals
who work for the organization.
(e) Gilbreth also devised methods for avoiding wasteful and unproductive
movements.

He laid down how workers should stand, how his hands should move and so on.

Henry Lawrence Gantt (USA, 1861 - 1819): H.L Gantt was born in 1861. He graduated
from John Hopkins College. For some time, he worked as a draftsman in an iron
foundry.

In 1884, he qualified as a mechanical engineer at Stevens Institute. In 1887, he joined

the Midvale Steel Company. Soon, he became an assistant to F.W Taylor. He worked
with Taylor from 1887 - 1919 at Midvale Steel Company. He did much consulting work
on scientific selection of workers and the development of incentive bonus systems. He
emphasized the need for developing a mutuality of interest between management and
labour. Gantt made four important contributions to the concepts of management:

1. Gantt chart to compare actual to planned performance. Gantt chart was a daily
chart which graphically presented the process of work by showing machine
31
 operations, man hour performance, deliveries, effected and the work in arrears.
This chart was intended to facilitate day-to-day production planning.

2. Task-and-bonus plan for remunerating workers indicating a more humanitarian

approach. This plan was aimed at providing extra wages for extra work besides
guarantee of minimum wages. Under this system of wage payment, if a worker
completes the work laid out for him, he is paid a definite bonus in addition to
his daily minimum wages. On the other hand, if a worker does not complete his
work, he is paid only his daily minimum wages. There was a provision for giving
bonus to supervisors, if workers under him were able to earn such bonus by extra
work.

3. Psychology of employee relations indicating management responsibility to

teach and train workers. In his paper "Training Workmen in Habits of Industry
and Cooperation", Gantt pleaded for a policy of preaching and teaching
workmen to do their work in the process evolved through pre-thinking of
management.

4. Gantt laid great emphasis on leadership. He considered management as

leadership function. He laid stress on the importance of acceptable leadership as
the primary element in the success of any business.

Gantt's contributions were more in the nature of refinements rather than fundamental
concepts. They made scientific management more humanized and meaningful to
devotees of Taylor.

Harrington Emerson (USA, 1853 - 1931): Emerson was an American Engineer. He

devoted his attention to efficiency in industry. He was the first to use the term 'efficiency
engineering' to describe his brand of consulting. He called his philosophy "The Gospel
of Efficiency". According to him, "efficiency means that the right thing is done in the
rightmanner, by the right man, at the right place, in the right time".

Emerson laid down the following principles of efficiency to be observed by

management:-
 Ideals
 Common Sense
 Competent Counsel
 Discipline
 Fair Deal
 Proper Records
 Dispatching
 Standards and Schedules
 Standard Conditions
 Standardized Operations
 Standard practice instructions and
32
  Efficiency Reward.

3.3.2 Administrative / Process School

Henry Fayol was the most important exponent of this theory. The pyramidal form, scalar
principle, unity of command, exception principle, span of control and
departmentalisation are some of the important concepts set forth by Fayol and his
followers like Mooney and Reiley, Simon, Urwick, Gullick etc.

Henry Fayol (France, 1841 - 1925): Henry Fayol was born in 1941 at Constantinople
in France. He graduated as a mining engineer in 1860 from the National School of
Mining. After his graduation, he joined a French Coal Mining Company as an Engineer.
After a couple of years, he was promoted as manager. He was appointed as General
Manager of his company in 1888. At that time, the company suffered heavy losses and
was nearly bankrupt. Henry Fayol succeeded in converting his company from near
bankruptcy to a strong financial position and a record of profits and dividends over a
long period.

Concept of Management: Henry Fayol is considered the father of modern theory of

general and industrial management. He divided general and industrial management into
six groups:
1. Technical activities - Production, manufacture, adaptation.
2. Commercial activities - buying, selling and exchange.
3. Financial activities - search for and optimum use of capital.
4. Security activities - protection of property and persons.
5. Accounting activities - stock-taking, balance sheet, cost, and statistics.
6. Managerial activities - planning, organization, command, co- ordination and
control.

These six functions had to be performed to operate successfully any kind of business.
He, however, pointed out that the last function i.e., ability to manage, was the most
important for upper levels of managers.

The process of management as an ongoing managerial cycle involving planning,

organizing, directing, co-ordination, and controlling, is actually based on the analysis
of general management by Fayol. Hence, it is said that Fayol established the pattern of
management thought and practice. Even today, management process has general
recognition.

Fayol's Principles of Management: The principles of management are given below:

1. Division of work: Division of work or specialization alone can give maximum

productivity and efficiency. Both technical and managerial activities can be
performed in the best manner only through division of labour and specialization.

33
2. Authority and Responsibility: The right to give order is called authority. The
obligation to accomplish is called responsibility. Authority and Responsibility are
the two sides of the management coin. They exist together. They are
complementary and mutually interdependent.

3. Discipline: The objectives, rules and regulations, the policies and procedures must
be honoured by each member of an organization. There must be clear and fair
agreement on the rules and objectives, on the policies and procedures. There must
be penalties (punishment) for non-obedience or indiscipline. No organization can
work smoothly without discipline - preferably voluntary discipline.

4. Unity of Command: In order to avoid any possible confusion and conflict, each
member of an organization must received orders and instructions only from one
superior (boss).

5. Unity of Direction: All members of an organization must work together to

accomplish common objectives.

6. Emphasis on Subordination of Personal Interest to General or Common

Interest: This is also called principle of co-operation. Each shall work for all and
all for each. General or common interest must be supreme in any joint enterprise.

7. Remuneration: Fair pay with non-financial rewards can act as the best incentive
or motivator for good performance. Exploitation of employees in any manner must
be eliminated. Sound scheme of remuneration includes adequate financial and
nonfinancial incentives.

8. Centralization: There must be a good balance between centralization and

decentralization of authority and power. Extreme centralization and
decentralization must be avoided.

9. Scalar Chain: The unity of command brings about a chain or hierarchy of

command linking all members of the organization from the top to the bottom. Scalar
denotes steps.

10. Order: Fayol suggested that there is a place for everything. Order or system alone
can create a sound organization and efficient management.

11. Equity: An organization consists of a group of people involved in joint effort.

Hence, equity (i.e., justice) must be there. Without equity, we cannot have sustained
and adequate joint collaboration.

12. Stability of Tenure: A person needs time to adjust himself with the new work and
demonstrate efficiency in due course. Hence, employees and managers must have
job security. Security of income and employment is a pre-requisite of sound
organization and management.
34
13. Initiative: Creative thinking and capacity to take initiative can give us sound
managerial planning and execution of predetermined plans.

14. Esprit de corps: Esprit of Co-operation is the foundation of a sound organization.

Union is strength. But unity demands co-operation. Pride, loyalty and sense of
belonging are responsible for good performance.

3.3.3 Bureaucracy Model

Max Weber, a German Sociologist developed the bureaucratic model. His model of
bureaucracy include
i. Hierarchy of authority.
ii. Division of labour based upon functional specialization.
iii. A system of rules.
iv. Impersonality of interpersonal relationships.
v. A system of work procedures.
vi. Placement of employees based upon technical competence.
vii. Legal authority and power.

Bureaucracy provides a rigid model of an organization. It does not account for important
human elements. The features of Bureaucracy are:-

1. Rigidity, impersonality and higher cost of controls.

2. Anxiety due to pressure of conformity to rules and procedure.
3. Dependence on superior.
4. Tendency to forget ultimate goals of the organization.

Bureaucratic Model is preferred where change is not anticipated or where rate of change
can be predicated. It is followed in government departments and in large business
organizations.

3.4 NEO CLASSICAL SCHOOL OF THOUGHT

Neo-classical Theory is built on the base of classical theory. It modified, improved and
extended the classical theory. Classical theory concentrated on job content and
management of physical resources whereas, neoclassical theory gave greater emphasis
to individual and group relationship in the workplace. The neo- classical theory pointed
out the role of psychology and sociology in the understanding of individual and group
behaviour in an organization.

3.4.1 Human Relations School

George Elton Mayo (Australia, 1880 - 1949): Elton Mayo was born in Australia. He
was educated in Logic and Philosophy at St. Peter's College, Adelaide. He led a team

35
of researchers from Harvard University, which carried out investigation in human
problems at the Hawthorne Plant of Western Electrical Company at Chicago. They
conducted some experiments (known as Hawthorne Experiments) and investigated
informal groupings, informal relationships, patterns of communication, patterns of
informal leadership etc. Elton Mayo is generally recognized as the father of Human
Relations School. Other prominent contributors to this school include Roethlisberger,
Dickson, Dewey, Lewin etc.

Hawthorne Experiment: In 1927, a group of researchers led by Elton Mayo and Fritz
Roethlisberger of the Harvard Business School were invited to join in the studies at the
Hawthorne Works of Western Electric Company, Chicago. The experiment lasted up to
1932. The Hawthorne Experiments brought out that the productivity of the employees
is not the function of only physical conditions of work and money wages paid to them.

Productivity of employees depends heavily upon the satisfaction of the employees in

their work situation. Mayo's idea was that logical factors were far less important than
emotional factors in determining productivity efficiency. Furthermore, of all the human
factors influencing employee behaviour, the most powerful were those emanating from
the worker's participation in social groups. Thus, Mayo concluded that work
arrangements in addition to meeting the objective requirements of production must at
the same time satisfy the employee's subjective requirement of social satisfaction at his
work place.

The Hawthorne experiment consists of four parts. These parts are briefly described
below:-
1. Illumination Experiment.
2. Relay Assembly Test Room Experiment.
3. Interviewing Programme.
4. Bank Wiring Test Room Experiment.

1. Illumination Experiment: This experiment was conducted to establish relationship

between output and illumination. When the intensity of light was increased, the output
also increased. The output showed an upward trend even when the illumination was
gradually brought down to the normal level. Therefore, it was concluded that there is
no consistent relationship between output of workers and illumination in the factory.
There must be some other factor which affected productivity.

2. Relay Assembly Test Room Experiment: This phase aimed at knowing not only
the impact of illumination on production but also other factors like length of the working
day, rest hours, and other physical conditions. In this experiment, a small homogeneous
work-group of six girls was constituted. These girls were friendly to each other and were
asked to work in a very informal atmosphere under the supervision of a researcher.
Productivity and morale increased considerably during the period of the experiment.
Productivity went on increasing and stabilized at a high level even when all the
improvements were taken away and the pre-test conditions were reintroduced. The
researchers concluded that socio-psychological factors such as feeling of being
36
important, recognition, attention, participation, cohesive work-group, and non-directive
supervision held the key for higher productivity.

3. Mass Interview Programme: The objective of this programme was to make a

systematic study of the employees' attitudes which would reveal the meaning which
their "working situation" has for them. The researchers interviewed a large number of
workers with regard to their opinions on work, working conditions and supervision.
Initially, a direct approach was used whereby interviews asked questions considered
important by managers and researchers. The researchers observed that the replies of the
workmen were guarded. Therefore, this approach was replaced by an indirect technique,
where the interviewer simply listened to what the workmen had to say. The findings
confirmed the importance of social factors at work in the total work environment.

4. Bank Wiring Test Room Experiment: This experiment was conducted by

Roethlisberger and Dickson with a view to develop a new method of observation and
obtaining more exact information about social groups within a company and also
finding out the causes which restrict output. The experiment was conducted to study a
group of workers under conditions which were as close as possible to normal. This
group comprised of 14 workers. After the experiment, the production records of this
group were compared with their earlier production records. It was observed that the
group evolved its own production norms for each individual worker, which was made
lower than those set by the management. Because of this, workers would produce only
that much, thereby defeating the incentive system. Those workers who tried to produce
more than the group norms were isolated, harassed or punished by the group. The
findings of the study are:-

 Each individual was restricting output.

 The group had its own "unofficial" standards of performance.
 Individual output remained fairly constant over a period of time.
 Informal groups play an important role in the working of an organization.

Contributions of the Hawthorne Experiment: Elton Mayo and his associates

conducted their studies in the Hawthorne plant of the western electrical company,
U.S.A., between 1927 and 1930. According to them, behavioural science methods have
many areas of application in management. The important features of the Hawthorne
Experiment are:-

1. A business organization is basically a social system. It is not just a techno-

economic system.

2. The employer can be motivated by psychological and social wants because his
behaviour is also influenced by feelings, emotions and attitudes. Thus economic
incentives are not the only method to motivate people.

37
 3. Management must learn to develop co-operative attitudes and not rely merely
on command. 4. Participation becomes an important instrument in human
relations movement. In order to achieve participation, effective two-way
communication network is essential. 5. Productivity is linked with employee
satisfaction in any business organization. Therefore management must take
greater interest in employee satisfaction. 6. Group psychology plays an
important role in any business organization. We must therefore rely more on
informal group effort. 7. The neo-classical theory emphasizes that man is a
living machine and he is far more important than the inanimate machine. Hence,
the key to higher productivity lies in employee morale. High morale results in
higher output.

3.4.2 Behavioural School

There are three distinct elements of behavioural school as mentioned below:

1. The Individual: The neoclassical theory emphasized that individual differences
must be recognised. An individual has feelings, emotions, perception and
attitude. Each person is unique. He brings to the job situation certain attitudes,
beliefs and ways of life, as well as skills. He has certain meaning of his job, his
supervision, working conditions etc. The inner world of the worker is more
important than the external reality in the determination of productivity. Thus
human relations at work determine the rise or fall in productivity. Therefore
human relationists advocate the adoption of multidimensional model of
motivation which is based upon economic, individual and social factors.

2. Work Groups: Workers are not isolated; they are social beings and should be
treated as such by management. The existence of informal organization is
natural. The neo-classical theory describes the vital effects of group psychology
and behaviour on motivation and productivity. 3. Participative Management:
The emergence of participative management is inevitable when emphasis is laid
on individual and work groups. Allowing labour to participate in decision
making primarily to increase productivity was a new form of supervision.

Management now welcomes worker participation in planning job contents and job
operations. Neoclassical theory focuses its attention on workers. Plant layout,
machinery, tool etc., must offer employee convenience and facilities. Therefore,
neoclassical approach is trying to satisfy personal security and social needs of workers.

Human relationists made very significant contribution to management thought by

bringing into limelight human and social factors in organizations. But their concepts
were carried beyond an appropriate limit. There are many other factors which influence
productivity directly. Modern management thought wants equal emphasis on man and
machine and we can evolve appropriate man- machine system to secure both goals –
productivity and satisfaction.

38
Limitations of Human Relations Approach:-

1. The human relationists drew conclusions from Hawthorne studies. These

conclusions are based on clinical insight rather than on scientific evidence.
2. The study tends to overemphasize the psychological aspects at the cost of the
structural and technical aspects.
3. It is assumed that all organizational problems are amenable to solutions through
human relations. This assumption does not hold good in practice.
4. The human relationists saw only the human variables as critical and ignored
other variables.
5. The human relationists overemphasize the group and group decisionmaking. But
in practice, groups may create problems and collective decision-making may not
be possible.

3.5 QUANTITATIVE / OPERATIONS SCHOOL

The quantitative approach to management, sometimes known as operations research or

management science, uses quantitative techniques to improve decision making. This
approach includes applications of statistics, optimization models, information models,
and computer simulations. The quantitative approach originated during World War II
as mathematical and statistical solutions to military problems were developed for
wartime use.

The relevance of quantitative approach today is that it has contributed most directly to
managerial decision making, particularly in planning and controlling. The availability
of sophisticated computer software programs has made the use of quantitative
techniques more feasible for managers.

This approach is also called ‘Mathematical’, ‘Operations’ Research of ‘Management

Science’ approach. The basic feature of the quantitative management thought is the use
of mixed teams of scientists from several disciplines. The school use scientific tools for
providing a quantitative base for managerial decisions. Etc. The techniques commonly
used for managerial decision-making include Linear Programming, Critical Path
Method (CPM), Programme Evaluation Review Technique (PERT), Games Theory,
Queuing Theory, Break-Even Analysis, etc.

The basic assumptions of quantitative approach are as follows:

i. Management is essentially decision-making and an organization is a
decisionmaking unit.
ii. Organizational efficiency is depends upon the quality of managerial
decisions.
iii. The problem is expressed in the form of a quantitative or mathematical
model containing mathematical symbols and relationships.
iv. The different variables in management can be quantified and expressed in
the form of an equation.

39
 v. Development of decision-making models may require the skills of many
disciplines such as mathematics, economics, statistics, physical sciences,
behavioural sciences and cost accountancy.
vi. The mathematical models enable the managers to discover significant
relationship between variables that could be controlled.

3.6 SYSTEMS APPROACH

The systems approach to management indicates the fourth major theory of management
thought called modern theory. Modern theory considers an organization as an adaptive
system which has to adjust to changes in its environment. An organization is now
defined as a structured process in which individuals interact for attaining objectives.

Meaning of "System": The word system is derived from the Greek word meaning to
bring together or to combine. A system is a set of interconnected and inter-related
elements or component parts to achieve certain goals. A system has three significant
parts:
1. Every system is goal-oriented and it must have a purpose or objective to be
attained.
2. In designing the system we must establish the necessary arrangement of
components.
3. Inputs of information, material and energy are allocated for processing as per
plan so that the outputs can achieve the objective of the system.

(Design of Basic Model)

Systems Approach Applied to an Organization: When systems approach is applied to

organization, we have the following features of an organization as an open adaptive
system:-
1. It is a sub-system of its broader environment.
2. It is a goal-oriented – people with a purpose.
3. It is a technical subsystem – using knowledge, techniques, equipment and
facilities.

40
 4. It is a structural subsystem – people working together on interrelated activities.
5. It is a psychosocial system – people in social relationships.
6. It is co-ordinate by a managerial sub system, creating, planning, organizing,
motivating, communicating and controlling the overall efforts directed towards
set goals.

Characteristics of Modern Management Thought:

1. The Systems Approach: An organization as a system has five basic parts –

1) Input
2) Process
3) Output
4) Feedback and
5) Environment.
It draws upon the environment for inputs to produce certain desirable outputs. The
success of these outputs can be judged by means of feedback. If necessary, we have
to modify out mix of inputs to produce as per changing demands.

2. Dynamic: We have a dynamic process of interaction occurring within the structure

of an organization. The equilibrium of an organization and its structure is itself
dynamic or changing.

3. Multilevel and Multidimensional: Systems approach points out complex

multilevel and multidimensional character. We have both a micro and macro
approach. A company is micro within a business system. It is macro with respect
to its own internal units. Within a company as a system we have:-
i. Production subsystem
ii. Finance subsystem
iii. Marketing subsystem
iv. Personnel subsystem.
All parts or components are interrelated. Both parts as well as the whole are equally
important. At all levels, organizations interact in many ways.

4. Multimotivated: Classical theory assumed a single objective, for instance, profit.

Systems approach recognizes that there may be several motivations behind our
actions and behaviour. Management has to compromise these multiple objectives
eg: - economic objectives and social objectives.

5. Multidisciplinary: Systems approach integrates and uses with profit ideas

emerging from different schools of thought. Management freely draws concepts
and techniques from many fields of study such as psychology, social psychology,
sociology, ecology, economics, mathematics, etc.

6. Multivariable: It is assumed that there is no simple cause-effect phenomenon. An

event may be the result of so many factors which themselves are interrelated and

41
 interdependent. Some factors are controllable, some uncontrollable. Intelligent
planning and control are necessary to face these variable factors.

7. Adaptive: The survival and growth of an organization in a dynamic environment

demands an adaptive system which can continuously adjust to changing conditions.
An organization is an open system adapting itself through the process of feedback.

8. Probabilistic: Management principles point out only probability and never the
certainty of performance and the consequent results. We have to face so many
variables simultaneously. Our forecasts are mere tendencies. Therefore, intelligent
forecasting and planning can reduce the degree of uncertainty to a considerable
extent.

3.7 CONTINGENCY APPROACH

Systems approach emphasizes that all sub- systems of an organization along with the
super system of environment are interconnected and interrelated. Contingency approach
analysis and understands these interrelationship so that managerial actions can be
adjusted to demands of specific situations, circumstances or environment.

Thus the contingency approach enables us to evolve practical answers to problems

demanding solutions. Organization design and managerial actions most appropriate to
specific situations will have to be adopted to achieve the best possible result under the
given situation. There is no one best way (as advocated by Taylor) to organize and
manage. Thus, Contingency Approach to management emphasizes the fact that
management is a highly practice-oriented discipline. It is the basic function of managers
to analyse and understand the environments in which they function before adopting their
techniques, processes and practices. The application of management principles and
practices should therefore be continent upon the existing circumstances.

Contingency approach guides the manager to be adaptive to environment. It tells the

manager to be pragmatic and open minded. The contingency approach is an
improvement over the systems approach. It not only examines the relationships between
sub-systems of the organization, but also the relationship between the organization and
its environment.

However, the contingency approach suffers from two limitations:-

1. It does not recognize the influence of management concepts and techniques on
environment.
2. Literature on contingency management is yet not adequate.

3.8 LET’S SUM-UP

Management occupies such an important place in the modern world that the welfare of
the people and the destiny of the country are very much influenced by it. It is an
42
 Bachelor of Commerce
(BCOM)

BCO-7
Management Principles and Applications

Block-2
Planning
Unit-4 Managerial Planning
Unit-5 Strategic Planning
Unit-6 Forecasting
UNIT-4 MANAGERIAL PLANNING

Structure

4.0 Learning Objectives

4.1 Introduction
4.2 Definitions
4.3 Nature and characteristics of planning
4.4 Need and significance of planning
4.5 The Six P’s of Planning
4.6 Step in Planning Process
4.7 Types / classifications of planning
4.8 Let’s Sum-Up
4.9 Key Terms
4.10 Self –Assessment Questions
4.11 Further readings
4.12 Model Questions

4.0 LEARNING OBJECTIVES

After completion of the unit, you should be able to:

 Explain the definition of planning in clear terms.

 Understand the nature and characteristics of planning.
 Appreciate, why planning is eminently essential for all organizations.
 Understand the benefits and limitations of planning

4.1 INTRODUCTION

Planning is deciding in advance what to do, how to do, when to do and who is to do.
Planning bridges the gap from where we are to where we want to go. It involves the
selection of objectives, policies and programmes from among alternatives. A plan
should be a realistic view of the expectations. Depending upon the activities, a plan can
be long range, intermediate range or short range. It is the framework within which it
must operate. For management seeking external support, the plan is the most important
document and key to growth. Preparation of a comprehensive plan will not guarantee
success, but lack of a sound plan will almost certainly ensure failure.

Planning can be done for the entire organization (Corporate Planning) or a business unit
(Business Planning), or a division (Divisional Planning) or a department (Departmental
Planning) or at the level of an individual manager (Personal Planning).

1
4.2 DEFINITIONS

“Planning is an intellectually demanding process; it requires the conscious

determination of courses of action”. -Harold Koontz
“Planning is the process of deciding in advance what is to be done, who is to do it, how
it is to be done and when it is to be done”. -Kenneth H. Killen

4.3 NATURE AND CHARACTERISTICS OF PLANNING

Nature of Planning

The essential nature of planning can be highlighted in terms of the following four major
aspects.

 Contribution to Purpose and objectives: The purpose of every plan and all
derivative plans is to facilitate the accomplishment of enterprise purpose and
objectives .This principle derives from the nature of organized enterprise, which
exists for the accomplishment of group purpose through deliberate cooperation.

 Primacy of Planning: Managerial operation in organizing, staffing, leading and

controlling are designed to support the accomplishment of enterprise objectives.
Hence, planning logically precedes the execution of all other managerial functions.

 Pervasiveness of planning: Planning is a function of all managers, although the

character and breadth of planning will vary with their authority and with the nature
of policies and plans outlined by their superiors.

 Efficiency of plans: The efficiency of a plan is by the amount it contributes to

purpose and objectives as off-set by costs and other consequences required to
formulate and operate it.

Characteristics of planning

 Planning is closely associated with the goals of the organization. These goals might
be implicit or explicit. However, well–defined goals lead to efficiency in planning.

 Planning is primarily concerned with the forecasting of future situation in which an

organization has to function. Accurate forecasting leads to correct decision about
future course of action.

 Planning involves the selection of the best among several alternatives for achieving
the organizational objectives, as all of them are not equally applicable and suitable
to the organization.

2
 Planning is comprehensive and is required in every course of action in the
organization.

 Planning is flexible as it is based on future conditions which are always dynamic.

As such, an adjustment is needed between the various factors and planning.

4.4 NEED AND SIGNIFICANCE OF PLANNING

While planning does not guarantee success in organizational objectives, there is

evidence that companies that engaged in formal planning consistently performed better
than those with none or limited formal planning and improved their own performance
over a period of time. It is very rare for an organization to succeed solely by luck or
circumstances. Some of the reasons as to why planning is considered a vital managerial
function are given below :

1. Planning is essential in modern business: The growing complexity of the modern

business with rapid technological changes, dynamic changes in the consumer
preferences and growing tough competition necessities orderly operations, not only
in the current environment but also in the future environment. Since planning takes
a future outlook, it takes into account the possible future developments.

2. Planning affects performance: A number of empirical studies provide evidence

of organizational success being a function of formal planning, the success being
measured by such factors as return on investment, sales volume, growth in earnings
per share and so on. An investigation of firms in various industrial products as
machinery, steel, oil, chemicals and drugs revealed that companies that engaged in
formal planning consistently performed better than those with no formal planning.

3. Planning puts focus on objectives: The effectiveness of formal planning is

primarily based upon clarity of objectives. Objectives provide a direction and all
planning decisions are directed towards achievement of these objectives. Plans
continuously reinforce the importance of these objectives by focusing on them. This
ensures maximum utility of managerial time and efforts.

4. Planning anticipates problems and uncertainties: A significant aspect of any

formal planning process in collection of relevant information for the purpose of
forecasting the future as accurately as possible. This would minimize the chances
of haphazard decisions. Since the future needs of the organization are anticipated
in advance, the proper acquisition and allocation of resources can be planned, thus
minimizing wastage and ensuring optimal utility of these resources.

5. Planning is necessary to facilitate control: Controlling involves the continual

analysis and measurement of actual operations against the established standards.
These standards are set in the light of objectives to by achieved. Periodic reviews
of operations can determine whether the plans are being implemented correctly.

3
 Well-developed plans can aid the process of control in two ways. First, the planning
process establishes a system of advance warning of possible deviations from the
expected performance.

Second contribution of planning to the control process is that it provides

quantitative data which would make it easier to compare the actual performance in
quantitative terms, not only with the expectations of the organization but also with
the industry statistics or market forecasts.

6. Planning helps in the process of decision making: Since planning specifies the
actions and steps to be taken in order to accomplish organizational objectives, it
serves as a basis for decision-making about future activities. It also helps managers
to make routine decisions about current activities since the objectives, plans,
policies, schedules and so on are clearly laid down.

4.5 THE SIX P’S OF PLANNING

They are as follows:

1. Purpose
An effective planning system requires a clear understanding of the organization’s
purpose. What are the reasons for the organization’s existence? Is it to increase profit
or increase market share or generate more employment or introduce more products, and
so on? This purpose must be clear and elaborate.

2. Philosophy
Philosophy incorporates the fundamental beliefs as to how the organization’s purpose
is to be achieved. For long-term survival and growth, a philosophy of ethical conduct
must be adopted.

3. Premise
This involves the strengths and weaknesses of the organization and its knowledge and
assumptions about its environment. By forecasting and other methods, the management
can make some conclusions about the trends of the environment and by knowing its
own strengths and weaknesses it can deal with the changing environment in a more
intelligent way.

4. Policies
Are general guidelines or constraints that aid managerial thinking and action. In a
typical organization, there are production policies, financial policies, accounting
policies, marketing policies, personnel policies; and these form the basis for planning
and necessary operational actions.

4
5. Plans
Plans represent specific objectives and action statements. Objectives are the goals to be
met and the action statements are the means to achieve these ends. These plans guide
us step by step as to how to reach the objectives and also at what stage the progress is
at a given time.

6. Priorities
A particular organisational goal must be given a particular priority. Limited resources
of time, finances, materials, etc., must be proportionally allotted to goals of priority.
The priorities will determine an appropriate allocation of resources. Prioritising goals
will determine what is relatively more important. A goal that is given higher priority
will receive more attention and more resources. For example, a research-oriented
organisation will get different priorities and resources than a profit-oriented
organisation. Setting priorities for goals will be established on the

4.6 STEPS IN PLANNING PROCESS

Planning is a process which embraces a number of steps to be taken. It is an intellectual

exercise and a conscious determination of courses of action. Therefore, it requires a
serious thought on numerous factors necessary to be considered in making plans. Facts
are collected and analyzed and the best out of all is chosen and adopted. The planning
process, valid for one organization and for one plan, may not be valid for all other
organizations or all types of plans, because various factors that go into planning process
may differ from organization to organization or plan to plan. For example, planning
process for a large organization may not be the same as for a small organization. The
steps generally involved in planning are as follows:

1. Establishing Verifiable Goals or Set of Goals to be Achieved :

The first step in planning is to determine the enterprise objectives. These are most often
set by upper level or top managers, usually after a number of possible objectives have
been carefully considered. There are many types of objectives managers may select: a
desired sales volume or growth rate, the development of a new product or service, or
even a more abstract goal such as becoming more active in the community. The type of
goal selected will depend on number of factors: the basic mission of the organization,
the values its managers hold, and the actual and potential ability of the organization.

2. Establishing Planning Premises :

The second step in planning is to establish planning premises, i.e. certain assumptions
about the future on the basis of which the plan will be intimately formulated. Planning
premises are vital to the success of planning as they supply economic conditions,
production costs and prices, probable competitive behaviour, capital and material
availability, governmental control and so on.

5
3. Deciding the planning period :
Once upper-level managers have selected the basic long-term goals and the planning
premises, the next task is to decide the period of the plan. Business varies considerably
in their planning periods. In some instances plans are made for a year only while in
others they span decades. In each case, however, there is always some logic in selecting
a particular time range for planning. Companies generally base their period on a future
that can reasonably be anticipated. Other factors which influence the choice of a period
are as follows: : (a) lead time in development and commercialization of a new product;
(b) time required to recover capital investments or the payback period; and (c) length of
commitments already made.

4. Findings Alternative Courses of Action :

The fourth step is planning is to search for and examining alternative courses of action.
For instance, technical know-how may be secured by engaging a foreign technician or
by training staff abroad. Similarly, products may be sold directly to the consumer by the
company's salesmen or through exclusive agencies. There is seldom a plan for which
reasonable alternatives do not exit, and quite often an alternative that is not obvious
proves to be the best.

5. Evaluating and Selecting a Course of Action :

Having sought alternative courses, the fifth step is to evaluate them in the light of the
premises and goals and to select the best course or courses of action. This is done with
the help of quantitative techniques and operations research.

6. Developing Derivative plans :

Once the plan has been formulated, its broad goals must be translated into day-today
operations of the organization. Middle and lower-level managers must draw up the
appropriate plans, programmes and budgets for their sub-units. These are described as
derivative plans. In developing these derivative plans, lower-level managers take steps
similar to those taken by upper-level managers – selecting realistic goals, assessing their
sub-units particular strength and weaknesses and analyzing those parts of the
environment that can affect them.

7. Measuring and Controlling the Progress :

Obviously, it is foolish to let a plan run its course without monitoring its progress. Hence
the process of controlling is a critical part of any plan. Managers need to check the
progress of their plans so that they can (a) take whatever remedial action is necessary
to make the plan work, or (b) change the original plan if it is unrealistic.

4.7 TYPES / CLASSIFICATIONS OF PLANNING

1. Objectives
The first step in planning is setting objectives it is said to be the desired future position
that the management would like to reach. They are basic to the organization and they
are defined as ends which the management seeks to achieve by its operations. They

6
define the future states of affairs which the organization strives to realize. They serve
as a guide for overall business planning objectives need to be expressive in specific
terms. They are the end points of planning.

2. Policy
A policy is a general guide to thinking and action rather than a specific course of action.
It defines the area or limits within decisions can be made to achieve organizational
objectives can be attained. A policy is a continuing decision as it provides answers to
problems of recurring nature.

3. Procedure
They are routine steps to carry out activities. They detailed the exact manner in which
any work is to be performed. They are specified in a chronological order. It lays down
the specific manner in which a particular activity is to be performed. It is a planned
sequence of operations for performing repetitive activities uniformly and consistently.
They play an important role in the daily operations of an organization.

4. Rules
They are rigid and definite plans that specify what is to be done or not to be done in
given situations. A rule provides no scope for discretion and judgment. It is a prescribed
guide to conduct or action. They are usually the simplest type of plans because there is
no compromise or change unless a policy decision is taken. They help to regulate
behavior and to facilitate communication.

5. Budget
It is a statement of expected results expressed in numerical terms. It is plan which
quantities future, facts and figures. They serve as a means of co- ordination and control.
They provide clarity, direction and purpose in the activities of an organization by laying
down verifiable and measurable goals for a specified period of time. It is expressed in
terms of money or physical units. It is a blue print of future course of action and
activities. It is prepared in advance, and related to future period.

6. Project
A project is a distinct cluster of functions and facilities for a defined purpose and definite
time period. It is designed and executed as a distinct plan. It is integrated into a unit and
is designed to achieve stated objectives. It is defined in term of specific objective,
interdependence of tasks etc. they help to facilitate co-ordination and control by
identifying an integrated work package within a heterogeneous mass of activities and
resources.

7. Strategy
The concept of strategy in business has been borrowed from military science and sports
where it implies outmaneuvering the opponent. The term strategy began to be used in
business with increase in competition and complexity of operations. It may be defined
as gamesmanship or as administrative course of action designed to achieve success in
the face of difficulties. It is an overall plan prepared for meeting the challenge posed by
7
the activities of competitors and other environment forces ( it is a long term plan as it is
designated to achieve the mission of the organization. It is forward looking and is
mainly the job of top management).

Limitations of Planning

Planning is not a substitute for executive judgment but merely an aid to it. It suffers
from the following limitations:

1. Inaccuracy: Planning is based on forecasts which are never cent per cent accurate.
The accuracy and reliability of forecasting diminishes as the forecasting period
increases. If reliable forecast and data are not available, planning becomes
unrealistic.

2. Time consuming: Planning is a time-consuming and expensive process. Time,

effort and money are required in the collection and analysis of data and in the
formulation and revision of plants. Planning is useful only when the expected gains
from it exceed its costs. By the time plans are prepared, conditions might change
rendering the entire efforts irrelevant.

3. Rigidity: Planning may result in internal inflexibilities and procedural rigidities

which curb initiative and individual freedom. Sometimes, planning may cause
delay in decision-making. A manager may be bogged down by rules and procedures
when there is need for quick decision.

4. Resistance: Planning often requires some change in the existing set-up. Unless the
required change is forthcoming, planning may be ineffective. Resistance to change
is an important obstacle in planning. Planning also requires a forward - looking
attitude. But very often, people have a greater regard for the present as future is
uncertain.

5. False Security: Planning may create a false sense of security in the organisation.
A manager may feel that all problems will be solved once the plans are put into
operation. In reality, management has to continuously revise the plans and regularly
check on their execution.

6. Pressure-tactics: Powerful people and other vested interests may exert pressure to
ensure that the plans serve their own interests. Moreover, the planners may be
unduly influenced by the 'pet projects' of the 'big boss' and may not make an
objective analysis of the available alternatives. It is very difficult to measure
accurately the effectiveness of planning.

7. External Constraints: The effectiveness of planning may be affected by external

forces which are beyond the control of those responsible for preparing plans.
Government control, natural calamities and other unforeseen events may create

8
UNIT-5 STRATEGIC PLANNING

Structure

5.0 Learning Objective

5.1 Meaning & Definition of Strategic Planning
5.2 Features of Strategic Planning
5.3 Strategic Planning Process
5.4 Levels of Strategy
5.5 Role of Strategy
5.6 Formulation of Strategy
5.7 Benefits of Strategic Planning
5.8 Limitations of Strategic Planning
5.9 Let's Sum Up
5.10 Key Words
5.11 Further Readings
5.12 Terminal Questions

5.0 LEARNING OBJECTIVES

After reading this unit you will able to know:

 The Meaning and Concept of Strategic Planning

 The benefits and limitations of Planning
 Process or Steps of Strategic Planning
 Role of Strategy in an organisation

5.1 MEANING & DEFINITION OF STRATEGIC PLANNING:

Strategic planning refers to the process of defining the strategy for the organisation and
allocating its resources for the perusal of the strategy. Strategic plan is a statement of
how the organisation is going to achieve its mission and objectives. A strategic plan
takes into consideration the entire organizational resources and helps diverts them
towards the most productive uses in the most efficient manner.

Strategic planning is a process in which organizational leaders determine their vision

for the future as well as identify their goals and objectives for the organization. Strategic
planning is important to an organization because it provides a sense of direction and
outlines measurable goals. Strategic planning is a tool that is useful for guiding day-to-
day decisions and also for evaluating progress and changing approaches when moving
forward.

11
5.2 FEATURES OF STRATEGIC PLANNING

Strategic plan is a course of action defined for a particular point of time. The features
of strategic plan are as follows:

 Strategic planning is an important aspect of strategic management

 Strategic planning provides direction to the enterprise.
 Formulated by top management.
 The plan is aimed to achieve specific goals and objectives.
 Ensures efficient allocation of organizational resources.
 The plan allocates resources for achievement of organizational goals within
specified time.
 It guides the organisation towards its mission.
 The plan is based on the organization‘s internal & external environment.
 Strategic Plans are formulated for a period of three to five years
 The purpose of the plan is to enable the organization capitalize on its strengths
while minimizing its weaknesses, and to take advantage of opportunities and
defend against threats

5.3 STRATEGIC PLANNING PROCESS

A strategic planning process is designed to drive businesses in the right direction and
promote the exchange of useful ideas between people with similar goals. Strategic
planning is an important tool to guide the work of any organisation. It will help maintain
a focused, long term vision of the organization‘s mission and purpose, and aid decisions
about the allocation of human and financial resources. The strategic planning process is
essentially a list of steps that managers should follow to implement a strategy within a
company. There are several key components that make up the strategic planning
process, including common phases like strategic analysis and strategy formulation,
along with implementation and monitoring.

Strategic planning involves an orderly sequence of activities and involves the following
steps:

 Identify your strategic positions: In order to achieve our goals first off all we
should have a clear vision. This is the first stage of strategic planning process. 24
Whenever we identify our strategic position, our goal should be realistic and
measurable.

 Gather people and information: After establishing the strategic position the next
step is to bring the people who are under planning process. Once you have
successfully identified your people and information to draw from, examine any
internal or external issues that could possibly affect your objectives.

12
 Perform a SWOT Analysis: SWOT stands for strength, weakness, opportunity&
Threat.

A SWOT analysis is often performed to help identify the strengths and weaknesses of a
business, as well as identify any opportunities and threats that could arise. A SWOT
analysis can also lead you in the right direction and towards your goals. SWOT analysis
plays an important part in the process of strategic planning. It provides information that
helps in synchronizing the firm‘s resources and capabilities with the competitive
environment in which the firm operates. It provides an all-round view of the current and
forward-looking situation of a business.

(Image Source : https://www.zoho.com/ )

Formulate your Strategic Plan: Once you have successfully identified your strategic
position and have a set of goals that align with your company’s mission, you can begin
working on your strategic plan.

 Execute your Strategic Plan: This stage is the action phase in the strategic
planning process. After the formulation of the strategic plan, it is time to implement
it.

 Constantly Monitor Performance : Have a strategic position and have a set of

goals that align with your company’s mission, you can begin working on your
strategic plan. This requires you to constantly monitor and manage performance
and tweak any components that are not leading to satisfactory results. It is also
important to hold those involved in the strategic planning process accountable for
their assigned tasks.

5.4 LEVELS OF STRATEGY

Strategy can be formulated at three levels, namely, the corporate level, the business
level, and the functional level. At the corporate level, strategy is formulated for your
organization as a whole. Corporate strategy deals with decisions related to various
business areas in which the firm operates and competes. At the business unit level,
13
strategy is formulated to convert the corporate vision into reality. At the functional level,
strategy is formulated to realize the business unit level goals and objectives using the
strengths and capabilities of your organization.

Corporate Level: Corporate level strategy occupies the highest level of strategic
decision making. Corporate level strategy defines the business areas in which your firm
will operate. It deals with aligning the resource deployments across a diverse set of
business areas, related or unrelated. Strategy formulation at this level involves
integrating and managing the diverse businesses and realizing synergy at the corporate
level. The top management team is responsible for formulating the corporate strategy.
The corporate strategy reflects the path toward attaining the vision of your organization.
Business Level: Business level strategy is applicable in those organisations which have
different business and each business is treated as a strategic business unit. Business level
strategies are formulated for specific strategic business units and relate to a distinct
product-market area. It involves defining the competitive position of a strategic business
unit. The business level strategy formulation is based upon the generic strategies of
overall cost leadership, differentiation, and focus.

Functional Level: Functional level strategies relate to the different functional areas
which a strategic business unit has, such as marketing, production and operations,
finance, and human resources. These strategies are formulated by the functional heads
along with their teams and are aligned with the business level strategies. The strategies
at the functional level involves setting up short-term functional objectives, the
attainment of which will lead to the realization of the business level strategy.

5.5 ROLE OF STRATEGY

 Framework for operational Planning

If strategies are developed carefully and understood properly by managers, they provide
a more consistent framework for operational planning. If this consistency exists and
applied, there would be deployment of organisational resources in those areas where
they find better use. Strategies defines the business area both in terms of customers and
geographical areas served. Better the definition of these areas, the better will be the
deployment of resources.

 Clarity In Direction of Activities

Strategy focus on direction of the activities by specifying what activities are to be
undertaken for achieving organisational objectives. They the objectives more clear and
specific. For example a business organisation may define its objective as profit earning
or a non-business organisation may define its objective social objective. But the
definitions are too broad for putting them operation. They are better spelled by strategies
which focus on operational objectives and make them more practical.

14
 To Increase Organisational Effectiveness
Strategies ensure organisational effectiveness in several ways. The concept of
effectiveness is that the organisation is able to achieve the objectives within the
available resources. So for effectiveness the resources should ensure their contribution
towards the organisation. Therefore each resource of the organisation has a specific use
at a particular time. If this is done, the organisation will achieve effectiveness.

 Personnel Satisfaction
Strategy provides satisfaction to the personnel of the organisation. In an organisation
where formal strategic management process is followed, people are more satisfied by
definite prescription of their roles thereby reducing role conflict and role ambiguity. If
the decisions are systematized in an organisation, everyone knows how to proceed, how
to contribute towards organisational objectives.

5.6 FORMULATION OF STRATEGY

Strategy formulation refers to the process of choosing the most appropriate course of
action for the realization of organizational goals and objectives and thereby achieving
the organizational vision.

 Setting Organizations’ objectives - The key component of any strategy statement is

to set the long-term objectives of the organization. It is known that strategy is
generally a medium for realization of organizational objectives. Objectives stress
the state of being there whereas Strategy stresses upon the process of reaching there.

 Evaluating the Organizational Environment - The next step is to evaluate the

general economic and industrial environment in which the organization operates.
This includes a review of the organizations competitive position. It is essential to
conduct a qualitative and quantitative review of an organization's existing product
line.

 Setting Quantitative Targets - In this step, an organization must practically fix the
quantitative target values for some of the organizational objectives. The idea behind
this is to compare with long term customers, so as to evaluate the contribution that
might be made by various product zones or operating departments.

 Aiming in context with the divisional plans - In this step, the contributions made
by each department or division or product category within the organization is
identified and accordingly strategic planning is done for each sub-unit. This
requires a careful analysis of macroeconomic trends.

 Performance Analysis - Performance analysis includes discovering and analyzing

the gap between the planned or desired performance. A critical evaluation of the
organizations past performance, present condition and the desired future conditions
must be done by the organization. This critical evaluation identifies the degree of
15
 gap that persists between the actual reality and the long-term aspirations of the
organization. An attempt is made by the organization to estimate its probable future
condition if the current trends persist.

 Choice of Strategy - This is the ultimate step in Strategy Formulation. The best
course of action is actually chosen after considering organizational goals,
organizational strengths, potential and limitations as well as the external
opportunities.

5.7 BENEFITS OF STRATEGIC PLANNING

 Improves in decision making: Strategic Planning makes the management of an

organization easier by providing a framework for decision-making and action. It
helps to identify and address the key issues.

 Uniform vision & Clarity of objectives: Strategic Planning establishes a uniform

vision and thus directs all the efforts in the same direction. The employees clearly
understand what is required to be done, it creates clarity of objectives and thus
create an increased level of commitment to the organization and its goals. It also
serves as a motivating factor for the employees.

 Judicious use of resources: Strategic Planning enables the optimum utilization of

the organizations resources. It helps firm to utilize its strengths to tap the
opportunities and thus perform to the best of its capabilities. It sets the priorities
and directs the resources towards their efficient utilization.

 Reduces Uncertainty : Strategic Planning reduces uncertainty by analysing the

environment and thus increases the ability to deal with risks posed by the external
environment

5.8 LIMITATIONS OF STRATEGIC PLANNING:

Limitations of Strategic Planning although there are many advantages to strategic

management, such as reducing the resistance to change and promoting collaboration,
there are also disadvantages. The strategic management suffers from the following
limitations:

 Complex Process: Strategic management is a complex process since it involves

continuous monitoring of the external and internal environments. Based on the
changing environmental conditions the objectives and plans need to be revised.
All components are interrelated, so a change in one component may affect others
areas. For example, due to fall in demand of a particular product produced by
the company because of some incident compels the revision its production plan.

16
  Too much paper work, not enough clear thinking: Another limitation in
planning is that too much emphasis is given to paper work rather than the
thought process. Much of the time gets wastes in complying with such
formalities.

 No commitment from the top level: Success of plans depends on the

commitment of the top level. If the top management does not take much interest
in planning and implementation, plans could never become a success.

 Time Consuming: Strategic planning is a time consuming process. A lot of time

of manager gets consumed in preparing, researching and communicating the
strategic plans which may hinder the day-to-day operations and negatively
impact the business.

 Difficulty in Implementation: Implementation of strategic plans is a

challenging task. It requires full attention, active participation, and
accountability of all members of the organization. A small loophole in its
implementation may make it ineffective.

 Insufficient emphasis on identifying key issues, opportunities and threats:

The base of strategic planning is identifying the key issues that need to be
stressed upon. If key issues could not be identified the whole activity remains
unfruitful.

 Uncertain future: Strategic Plans are formulated to achieve some objectives in

the future. Anticipating future is a difficult process. SWOT analysis provides
the basis for formulating plans. But future is uncertain. A simple happening
could change the entire scenario.

5.9 LET US SUM UP

Strategic Planning is about allocating resources to achieve the mission. Strategic

planning set priorities, focus energy and resources and strengthen the operations. It
provides direction to the enterprise. For strategic planning, SWOT analysis is done. The
analysis of the internal and the external environment provides a base for the
development of the mission and vision statements. After that Goals and objectives are
defined clearly and the plan of action is formulated. This plan of action is then
implemented and continuously monitored and reviewed. Effective planning requires
commitment from the top level.

5.10 KEY WORDS

SWOT stands for Strengths, Weaknesses, Opportunities and Threats'.

17
UNIT-6 FORECASTING

Structure

6.0 Learning Objective

6.1 Meaning & Definition of Forecasting
6.2 Features of Forecasting
6.3 Role of Forecasting
6.4 Process of Forecasting
6.5 Techniques of Forecasting
6.6 Difference between Planning and Forecasting
6.7 Let's Sum Up
6.8 Key Words
6.9 Further Readings
6.10 Terminal Questions

6.0 LEARNING OBJECTIVES

After reading this unit you will able to Understand the:

 Meaning and Concept of Forecasting
 Benefits and limitations of Forecasting
 Process of Forecasting
 Role of Forecasting
 Techniques/Methods of Forecasting
 Difference between Forecasting and Planning

6.1 MEANING OF FORECASTING

Every management has to make some predictions about the likely happening in the
future in preparing plans of activities for the future.

Future is difficult to be probed unless one knows the past happenings and how they are
occurring presently. Thus, forecasting may be defined as the process of assessing the
future by using calculations and projections that take account of the past performance,
current trends, and anticipated changes in the period ahead.

6.2 FEATURES OF FORECASTING

The following features of forecasting emerged on the basis of the aforesaid definition:

1. Forecasting essentially relates to future probable events.

2. Forecasting is needed rather a base for planning because it devises the future
course of action.

19
 3. It explains the probability of future events. Therefore, the happening of future
events can only be precise to a certain extent.
4. Forecasting is made by analysing the past and present factors which are related
to the functioning of an organisation.
5. The use of statistical and mathematical tools and techniques are required for the
analysis of various factors or variables.

6.3 ROLE OF FORECASTING

Role of forecasting can be better understood if we know to what extent it helps the
managers in their managerial activities. Forecasting plays it’s role in helping the
managers in the following ways:

1. Basis of Planning:
Forecasting is pivot to planning. The planning process is generated by it. While the
future course of action is decided by planning, it is expected to take place under certain
circumstances and conditions. Unless these conditions are known, planning would be
futile.

2. Promotion of Organization:
Performance of certain activities, is the key to the achievement of organisational
objectives. What activities should be performed depends entirely on the expected
outcome of these activities. As expected outcome depends on future events vis a vis the
way of performing various activities, forecasting of events is of direct relevance in
achieving organisational objectives.

3. Facilitating Co-ordination and Control:

For effective co-ordination and control, forecasting indirectly provides the ways.
Forecasting requires information about various factors. Information is collected from
various internal and external sources, which are also utilised for coordinating and
controlling various activities of the organisation.

4. Success in Organisation:
Risk is the common character of all business enterprises. Business has to bear it and has
to work within the ups and downs of the industry. The degree of risk depends on the
future happenings .This problem of uncertainties can be overcome to a great extent by
forecasting.

Though forecasting cannot evade the future happenings, it provides sufficient inputs
about those and indicates what alternative actions should be taken. Managers can save
a great deal of their time and money if they know in advance what is going to happen.

6.4 PROCESS OF FORECASTING

The process of forecasting generally involves and pass through the following steps:
20
1. Setting the Objectives:
The objectives of the forecasting are framed by taking in to consideration the purpose
for which the forecasting is to be done and the period for which it is to be made should
be decided at the very outset. The time period so considered is known as “TIME
HORIZON”.

2. Selection of Method:
The best suitable method or methods of Forecasting are chosen to ensure that the method
aligns with the purpose of the forecasting. Method plays an important role as forecasting
is based on specific evidence and is determined using a particular technique or method.

3. Data Collection:
Information or Data forms the foundation of any forecasting. Depending on the purpose
and nature of forecasting, collection of data is undertaken, which may be primary or
secondary.

4. Monitoring the Process:

After running the data through the method or methods adopted as per the suitability, the
results are monitored for analysis and desired corrective actions are initiated if
deviations are observed.

6.5 TECHNIQUES/METHODS OF FORECASTING

There are various methods of forecasting however, no method can be suggested as

universally applicable. In Practice, majority of the forecasts are made by combining
different methods. A brief explanation of the poplar methods of forecasting, is given
below:

1. Historical Analogy Method:

Under this method, forecast in regard to a particular situation is based on some similar
conditions elsewhere in the past. For example, the economic situation of a country ‘A’
can be forecasted by making comparison with any advanced country say ‘B’ at a
particular stage through which country ‘A’ is presently passing. Thus, based on
analogy, a general forecast can be made.

2. Survey Method:
This method is highly popular in general and Market research in particular. It is
conducted to gather information on the intentions of the concerned people. For example,
information may be collected through surveys about the preference of consumers on
various cosmetic items. Both quantitative and qualitative information may be gathered
by this method for forecasting.

21
3. Opinion Poll:
Opinion poll is conducted, as the name suggests, to assess the opinion of experts in the
particular field, whose views carry a lot of weight. For example, opinion polls are highly
popular to predict the outcome of election results in many countries including India.

4. Business Barometers:
Barometer is used to measure the atmospheric pressure. In the same sense, index
numbers are used to measure the state of an economy between two or more periods. An
index number is the measure of change in a variable 0r variables over time. It is a kind
of representative number.

5. Time Series Analysis:

This method involves decomposition of historical series into its various components
like trend, seasonal variances, cyclical variations, and random variances. When the
components are separated, the variation of a particular situation can be known over the
period of time and forecasting is made about the future trend through suitable
projections.

6. Regression Analysis:
Regression analysis is a statistical technique used to describe relationships among
variables. It is meant to disclose the relative movements of two or more inter-related
series. It is used to estimate the changes in one variable as a result of specified changes
in other variable or variables. In economic situations, business activities are affected by
a number of factors simultaneously.

7. Input-Output Analysis:
Under this method, a forecast of output is made based on given input if relationship
between input and output is known. Accordingly, with a given input-output relationship,
input requirement can be forecasted on the basis of final output.

6.6 DIFFERENCE BETWEEN PLANNING AND FORECASTING

Even though Planning and Forecasting can be termed as Siamese twins, both the terms
are having different connotations.

1. While,planning is the process relating to the future course of action, forecasting

is prediction of future performance of the organization on the basis of past as
well as present performance and relevant information.

2. Forecasting is done by different levels of experts, economists or analysts

engaged by the management. Planning is done by top management to formulate
plans for the organization with an eye on it’s objectives.

22
 Bachelor of Commerce
(BCOM)

BCO-7
Management Principles and Applications

Block-3
Organising-I
Unit-7 Principles of Organisation
Unit-8 Span of Management
Unit-9 Organisational Structures
UNIT-7 PRINCIPLES OF ORGANISATION

Structure

7.0 Learning Objectives

7.1 Introduction
7.2 Definitions
7.3 Concept
7.4 Principles of organisation
7.5 Importance of Organisation
7.6 Making Organisation Effective
7.7 Let’s Sum-up
7.8 Key Terms
7.9 Further Readings
7.10 Model Questions

7.0 LEARNING OBJECTIVES

After completion of the Unit, you shall be able to understand:

 Concept of Organisation
 Principles of Organisation
 Importance of Organisation

7.1 INTRODUCTION

The word organisation is derived from the word ‘organism’. In organism, each part has
its own role, but has a definite relationship with the main body. In the same manner
under organising, the entire business is divided into different parts with independent
roles but they are all connected to the main Goals of the business. Thus, organising
means dividing the whole organisation into various departments/sections, positions are
created and relationship amongst them is established. To enable the positions, so
created, to function smoothly and in a harmonious manner, their authority and
responsibility have to be prescribed. We must bear in mind that, organisation arises
when a group of people work together with a common objective.

7.2 DEFINITIONS

Different scholars have given different definitions of organization, which can be quoted
as under:

Louis Allen, “Organization is the process of identifying and grouping work to be

performed, defining and delegating responsibility and authority and establishing

1
relationships for the purpose of enabling people to work most effectively together in
accomplishing objectives.”
Koontz and O’Donnell, ‘The establishment of authority relationships with provision
for co-ordination between them, both vertically and horizontally in the enterprise
structure.”

Oliver Sheldon, “Organization is the process so combining the work which individuals
or groups have to perform with the facilities necessary for its execution, that the duties
so performed provide the best channels for the efficient, systematic, positive and
coordinated application of the available effort”.

George Terry, “Organising is the establishing of effective authority relationships

among selected work, persons, and work places in order for the group to work together
efficiently”.

C.H. Northcott, ‘The arrangement by which tasks are assigned to men and women so
that their individual efforts contribute effectively to some more or less clearly defined
purpose for which they have been brought together”.

L.H. Haney, “Organisation is a harmonious adjustment of specialised parts for

accomplishment of some common purpose or purposes”.

Haimann, “Organization is the process of defining and grouping the activities of the
enterprise and establishing the authority relationship among them.”

Mc Farland, “An identifiable group of people contributing their efforts towards the
attainment of goals is called organization.”

Chester Barnard, “Organizing is a function by which the concern is able to define the
role positions, the jobs related and the coordination between authority and
responsibility. Hence, a manager always has to organize in order to get results.

A study of the above mentioned definitions makes it clear that organization is a process
to define and classify the functions to be performed for the attainment of the objectives
of the organization and also establish relationships among different organisational
positions.

7.3 CONCEPT

The concept of Organisation can be understood from two angles:

 Static Concept
 Dynamic Concept

2
1. Static Concept:
Under static concept the term ‘organisation’ is understood simply as a structure or
a network of authority relationship. Organisation is understood as group of people
working together in a formal structured relationship to achieve common objectives.
It lays emphasis on position and not on people.

2. Dynamic Concept:
The term ‘organisation’ is used as a process of an on-going activity under dynamic
concept, In this sense, organisation is an ongoing process of organising various
factors of production in general but people and processes in particular. Under this
concept organisation is considered as an open, continues and adoptive system rather
than a closed one.

To understand what it is and how important it is in a more vivid manner, we have to

understand the various Principles of Organisation. These principle mostly clarify the
nature, character, functions and pervasiveness of Organisation.

7.4 PRINCIPLES OF ORGANISATION

For the sake of greater clarity, all the principles of Organisation can be grouped under
Three broad categories as under:
(I) Overall Principles
(II) Structural principles
(III) Operational Principles

Following is a brief comment on each of the above –stated principles of organisation

under appropriate categories :

(I) Overall principles

Under this classification, some of the very fundamental principles of organisation
included i.e principles which are absolutely essential for an effective and logical
functioning of the organisation .A brief explanation of the principle ,under this category
is as follows:

(i) Principle of unity of objective: Very simply stated, this principle

requires that individual and departmental objectives though out the
enterprise must be perfectly harmonized : and that all objectives must be
mutually supportive and collectively contributing to overall common
objectives.

(ii) Principle of simplicity: The observance of this principle requires that

the management must, as possible, design a simple organisational
structure .A simple structure facilitates a better understanding of

3
 superior- subordinate relationship: and provide background for better co-
operation among people.

(iii) Principle of flexibility: While designing the organisational structure, the

management must provide for in-built devices within the structure itself,
which would facilitate changes in the organisational structure to be
effected as and when environmental factors-internal and/ or external –so
demand.

(II) Structure Principles

Structural principles of organisation relate to those aspects of the organisation ; which
have a bearing on the structuring ( or the development) of the organisation : its
fundamental design and shape. Some of the important principles, in this context, might
be the following ones :

(i) Principle of division of work: Since the work of the enterprise cannot
be performed by only one person ; it is imperative that such work must
be suitably divided among a number of person .In fact the total
managerial work ought to be divided among a number of managers; and
the total operational work being division among a number of operation
personnel.

(ii) Principle of functional definition: The above state principle implies

that the role(or job) of each individual and of each department of the
enterprise must be suitably defined ,in terms of the –work content, the
authority and facilities required for job performance and the relationship
of the job with those of others, in the enterprise.

(iii) Principle of optimum departmentation: There are many ways and

bases for creating departments within an organisation. According to the
principle of optimum departmentation, departments in an organisation
must be so created and maintained –as to facilitate the best attainment of
the common objectives of the enterprise.

(iv) Principle of unity of direction: This principle implies that each group
of activities having the same objective must have only one overall head
and only one overall or master plan. As a principle of organisational, this
concept of unity of direction must be so embedded in designing the
organisational structure that for each group of similar activities ,there is
a provision for only one overall head-having authority over all personal
performing the same function ,anywhere, in the organisation.

(v) Span of management principle: The span of management principle is

variously called as – the span of control or the span of supervision.
However, the phrase ''span of management ' is the widest; including also
the notions of span of control and span of supervision.
4
The span of management principle implies that is a limit to the number of
subordinates; whose work could be effectively managed (controlled or
supervised) by a superior. Points of comment certain useful observations in the
context of span of management principle, could be made as under:-

(a) There is a limit only to effective management ; for ineffective or

inefficient management, well there is no limit .Hence, span of management
principle is valid only in the context of effective management .An example
would illustrate the significance of this idea. For example, in a school or
college class-room .the number of students must be limited ; as no teacher
,howsoever competent, could effectively impart learning to an indefinite
number of pupils .As against this situation, take the case of a public speaker
who could well address giant gathering of audience; for there in, it does not
matter whether and how far the audience is receptive to the speech of the
speaker or how effective is the process of communication between the
speaker and the audience. In this latter case, span of management principle
is neither valid nor applicable.

(b) What exactly is or must be the number of subordinates under once superior,
cannot be asserted with precision or certainty; as the span of management
principle is situational .There is no hard and fast number of subordinates
which would determine an optimum span of management under all
managerial situations .Among other factors, the competence of the superior
and the abilities, skills and requirements of subordinate, are the most
dominating factors- likely to determine span of management, in a particular
managerial situation.

(c) Span of management principle explains the raison deter for the structure of
the organisation ; in case otherwise ,a single manager might be in a position
to handle and manage the work of all the subordinates; and there would not
be any need for a structured organisational structure.

(d) Span of management principle has much to do with the shape of the
organisational structure ; i.e. whether it would be a tall or a flat –
organisational structure .This is the notion implied behind the concepts of
narrow vs. wide spans of management .A narrow span of management is
one where a superior can handle rather a smaller number of subordinates;
while in a wide span of management ,the number of subordinates is ''large
'than manageable under a narrow span of management. Accordingly, a
narrow span of management would result in a somewhat taller shape of the
organisation; and a wide span of management would lead to a comparatively
'flat'' organisational structure.

5
Let us take a hypothetical example to illustrate how a 'tall 'or a ''flat' organisational
structure would shape out- depending on whether it is a narrow or a wide span of
management. Suppose in an enterprise there are 10 subordinates to managed by the
management .Further suppose the span of management is also 10. In this situation, only
one management would be required to handle and manage the work of all the
subordinates. The organisational structure would appear as follows:

(Subordinates)

Now, suppose the span of management is only 5. In this case, the manager would be
aided by two assistant managers; and controlling 10 subordinate via two assistants-each
assistant manager managing the work of 5 subordinate .The organisational structure, in
this case would look like somewhat taller than its counterpart under wide span; and will
have more layers of the organisation. The following chart illustrates this concept.

Without going into the details of the discussion, it would suffice to say that the shape
of the organisational structure-tall or flat has implications for organisation efficiency on
grounds of costs of administration, effectiveness of communication and facilities in
coordination.

(III) Operational Principles Operational

Principles of organisation could be suggested to be those which have a bearing on the
running or functioning of the organisation .Some important principle, under this
category, are as follows :

6
 (i) Principle of adequate delegation: By the principle of adequate
delegation, we mean that each managerial position be provided with
adequate (or necessary or requisite) authority –to enable the holder of the
position i.e. the manager to cope successfully with the requirements of his
job.

(ii) Scalar chain principle: Scalar chain implies a chain of superiors –ranging
from the highest rank to the lowest rank - in an organisation. The scalar
chain forms the base of authority –responsibility relationship among
managers and sub-ordinates, in the organisation; thus promoting mutual
understanding among superiors and subordinates at different levels of the
organisation. As a principle of organisation scalar principle requires its
incorporation into the design of the organisation –for ensuring smooth
running of the enterprise life.

(iii) Principle of unity of command: The above –sated principle implies that
an employee must receive orders and instructions, only from one superior
at a time. The observance of this principle is desirable for reasons of
removing doubts and confusions from the mind of the employees; and for
facilitating exact fixation of responsibility on individuals for the result
expected of them.

(iv) The authority –level principle: The authority –level principle implies
that manager at particular levels in the management hierarchy must decide
only those matters which fall within the purview of the authority vested in
their managerial positions.

A natural extension of this principle is that if a manager at any level of the management
hierarchy comes across a matter not covered by his authority; the matter must either be
referred upwards in the hierarchy or pushed down the hierarchy at the appropriate level
for decision.

7.5 IMPORTANCE (OR ADVANTAGES) OF ORGANISATION

The importance of organisation could be highlighted by references to the role it plays

in the enterprise life; considered in the following analytical manner;
(i) Basic role of the organisation
(ii) Other aspects of role

Let us consider the role of the organisation as planned above :-

(I) Basic role of the organisation

The basic role of the organisation could be expressed by comparing it to a vehicle; which
is devised and designed for the attainment of the enterprise objectives. Just as with the
7
help of a vehicle a person is enabled to reach up to his/her destination; in a similar
manner, a group of persons (comprised in the enterprise) is made in a position to reach
their destination i.e. the attainment of common objectives via vehicle of the
organisation.

In fact, for the attainment of enterprise objectives, action on of the individuals,

comprised in a group activity, is necessary; and undertaking such action is facilitated in
a planned and systematic manner by the organisation structure i.e. the organisation.

(II) Other aspects of the role

Some important aspects of the role of the organisation could be stated as follows.

(i) Facilities specialisation

An organisation exists basically to take care of and implement –the division of work of
various types-among managers, subordinates and operators .Such division of work,
leading to specialisation in various spheres, is instrumental in bringing about increased
human efficiency in the organisational functioning.

Point of comment
Division of work, not only enable an enterprise to take advantages of
specialisation, in managerial and operational work; it also makes for an order
and system, in the functioning of the organisation.

(ii) Avoids omissions ,overlapping and duplication of efforts

While dividing work among departments and individuals, during the process of
organising, care is exercised by management to see that-

(a) No part of work, necessary for attainment of objectives, is lost sight of

(b) There is no overlapping or duplication of activities and effort, while assigning
work to individuals and departments. That way, the organisation leads to an
economical, effective and efficient functioning of the enterprise.

(iii) Defines (or clarifies) authority –responsibility relationship

An organisational structure defines and clarifies, authority responsibility relationship
among managers and subordinates in the enterprise-all through-horizontally and
vertically. Such clarification of authority responsibility relationship not only means a

8
smooth functioning of the organisational life, but also promotes good human relations,
in the organisation-through facilitating mutual understanding of one another.

(iv) Facilitates staffing

The organisational structure is a great ad to efficient. It, by clearly defining various
organisation positions-managerial –managerial and operational, not only point out to
the need for appropriate personnel who must man these positions; but also specifies the
requirements to be sought after in various personnel-in terms of the abilities and skill
needed to perform those jobs.

Point of comment
A well-defined organisational structure facilitates personnel development, specially of
managers, by a allowing job-rotation system. Top management can restart to job
rotational technique, as the requirements of jobs defined in the structure indicate the
possibility or otherwise for taking an appropriate decision on matters of shifting among
different positions.

(v) Provides for co-coordination

An organisation facilitates co-ordination : as the latter is provided for in the structure of
organisation –as an in- built device.

Needless to say, that a well-designed and defined organisational structure provides for
thorough co-ordination-horizontally and vertically ; and enables management to relish
the essence of manager ship and take the enterprise to the heights of success.

(vi) Establishes channels of communication

Communication among the personnel in the enterprise, is not only the basis of the
operational life of the organisation; but also is instrument in fostering good human
relationship-through creating a base for mutual understanding.

An organisational structure helps to establish various channels of communications;

relating people to one another through the scalar chain and other organisational links.
But for the organisation, communication could only be casual, erratic and least authentic
or there could be a situation of an absolute communication gap.

(vii) Facilitates 'Management by Exception'

Management by exception is a philosophy in which the top management would
concentrate only on exceptional or critical matters (like strategy formulation, policy –
making, controlling significant deviations in performance by personnel etc.); leaving
the rest of routine and operational matters to subordinates throughout the enterprise.

Such a system of management i.e. management by exception could not be initiated and
installed in the enterprise ,just casually or a sudden; rather a sound organisational
structure paves the way and creates an environment for the introduction of this
philosophy in a gradual and systematic matter .as a matter of fact, matter. As a matter
9
of fact, management by exception is nothing, but the highest state of decentralisation of
authority; and the latter could be provided for while designing and structuring the
organisation.

(viii) Copes with environmental changes

Environmental changes being reflected in conditions like –super fast changing
technology ,accentuating competition, emerging latest social and cultural values,
extending state regulation of trade and industry etc.- are well taken care of by a sound
organisation. The organisation could, of course ,face such challenges ; by resorting to
changes in the systems of management styles, reorganisation of departments, providing
facilities for research and development and effecting improvements in the operational
life and undertaking other like measures.

(ix) Leads to growth and expansion

A sound organisation leads an enterprise along growth lines. Growth and expansion of
the enterprise, which is imperative even for survival in a highly dynamic economy ; is
much facilitated by the organisation through-creating more departments ,enlarging
existing departments, widening span of management, providing for better and more
effective co-ordination and communication devices-and all this tasking place within the
existing system ,structure and functioning of the enterprise.

(x) Produces synergism

A sound organisation through ensuring effective integration of departmental
functioning, helps the enterprise to take advantage of the synergy feature of the business
system. The more compact and responsible is the organisational structure; the more
would be the advantages of the synergy effect.

7.6 MAKING EFFECTIVE ORGANISING

Since an organisation is a vehicle devised for attainment of the enterprise objectives; it

is imperative that this vehicle be properly designed and operated. Some of the guidelines
for ensuring effective organising are suggested below;
10
(A) Primary guideline
(B) Specific guidelines

(A) Primary guideline –planning the structure :

The primary or basic guideline for ensuring effective organisation is to plan the
organisational structure keeping in view the fundamental principle of organisation.
However, while planning or designing the organisation structure, the management must
followed blindly ; rather moulded or modified according to the special objectives, needs
and requirements of the enterprise.

(B) Specific guidelines

Some of the specific guidelines towards ensuring effective organisation are described
below :

(i) Improving members' understanding through charts and manuals :

For ensuring effective organising, it is desirable that members of the organisation
understand their job assignments properly and appreciate how their jobs are related to
the work of others. They must also be clear about their authority responsibility relation
with others in the organisation.

Organisation charts and manuals go a long way in achieving the aforesaid objectives.
An organisation chart indicates how departments one tied together along the principal
lines of authority .A well-written organisation manual contains a statement of
organisation philosophy , programmes, charts and an outline of position descriptions.
Organisational charts and manuals make organising understandable.

(ii) Balance centralisation and decentralisation:

There must be a rightful compromise between centralisation and decentralisation, for
optimising organisational efficiency .Some managements fail to decentralise authority;
while some decentralise to an extent that the organisation develops a system of
independent organisational satellites.

(iii) Avoid granting of authority without responsibility or granting of

responsibility without authority :
To ensure effective organising, avoid granting of authority without exacting
responsibility; otherwise the delegate will misuse the same. Further, superiors should
not hold subordinates responsible for result without giving them the authority to
accomplish them. Both the above situation will lead to organisation anarchy conflicts
and confusion.

(iv) Avoid line –staff conflicts at all cost:

Line-staff conflicts take life and pleasure out of organisational life. The roles, duties,
authority and mutual-relational of line and staff must be defined and clarified. In any
case, line-staff conflicts must be avoided at all costs, to ensure effective organising.
11
(v) Avoid break down of unity of command :
A breakdown of the unity of command may result from too great proliferation (the
sudden increase in the number or amount of something) of functional authority
delegation to staff specialists; when e.g. the controller, the purchasing director, the
personnel manager etc. exercise some degree of line authority over people throughout
the company. To ensure effective organising, the grace of the principle of unity of
command departments:

(vi) Avoid misuse of service departments :

(Service department are essentially a grouping of activities which might be carried out
in other departments, but are brought together in specialised department i.e. service
department for purposes of efficiency and control e.g. accounting ,purchasing ,plant
maintenance, typing ,statistical reports etc.)

Sometimes, people in line departments regard service departments as relatively

unnecessary and unimportant and ignore them; whereas they are, in fact, as significant
as any operating department .On the other hand, many service departments mistakenly
look upon their function as an end in itself; rather as a service to the whole organisation
.Both the above situation are undesirable and reduce organisational efficiency. Effective
organising organising requires proper appreciation of the status and role of service
departments, and proper establishing of relationship of these departments to the so-
called line departments.

(vii) Avoid organisation inflexibility:

Many older companies exhibit ample evidence of organisational inflexibility i.e. their
organisational structures become too rigid to meet the demands of changing
environment. This situation must be avoided at all costs. To ensure effective organising,
a scheme of organisational change and development must be intelligently designed and
properly implemented.

(viii) Lines of information to be separated from lines of authority :

A common cause of ineffective or less effective organising is confusion of the lines of
authority and lies of information. Unless information is confidential; there is no reason
why lines of information should follow lines of authority. In fact, lines of information
should be separated from lines of authority i.e. the chain of command; because only
decision making requires managerial authority not information gathering and
dissemination.

(ix) Avoid over-organisation and under-organisation.

A popular cause of ineffective or less effective organising is the phenomenon of over
organisation or under organisation.

12
Over-organisation may take place where there are too many levels of organisation,
which unduly complicate the organisational structure or there are too many staff and
service departments.

Under-organisation may be cause by forming excessive committees with decision –

making power; sapping (destroying something gradually) the time energies of managers
and their staffs.

(x) Recognise the importance of informational organisations :

Informal organisation are part and parcel of the formal organisation .Informal
organisation 'line and system of communication is called the grapevine. Which is
inevitable and valuable – with a possibility of spreading rumours ours being associated
with it .Management must recognise informal organisations and handily these carefully
to ensure effective organising.

Guidelines for effective organising –at a glance

7.7 LET’S SUM-UP

Organising is the process of defining and grouping the activities of the enterprise and
establishing authority relationships among them. Organisation can be viewed as a
Structure as well as a process. Organisation arises only when the number of people
working in an enterprise is more than one. If there is only one person, he is expected to
perform all the functions single-handedly and there will be no need to divide the work.
In the absence of division of work, organization is meaningless. We have studied the
principles of organising to understand it’s nature,characteristics and importance. By
following the process there is systematic division of work and clarity of authority and
responsibility. Organisation structure is both formal and informal which persist within
the organization and both are important for successful running of the concern. The
guiding principles as enumerated make the organisation an effective vehicle for
attainment of organisational objectives.
13
UNIT-8 SPAN OF MANAGEMENT

Structure

8.0 Learning Objectives

8.1 Introduction
8.2 Tall Structure
8.4 Flat Structure
8.5 Factors affecting Span of Control.
8.6 Graicunas Formula
8.7 Let’s Sum-up
8.8 Key Terms
8.9 Further Readings
8.10 Model Questions

8.0 LEARNING OBJECTIVES

After completion of this unit, you will be able to understand:

 Meaning of Span of Management

 Types of Span
 Factors affecting Span of Control
 Graicunas Formula

8.1 INTRODUCTION

The concept of Span of Management, which is also known as span of control, was
propounded by a French Management Consultant V.A.Graicunas. More precisely, span
of management denotes how effectively one supervisor can control the activities of
subordinates reporting to him so as to make the coordination smooth. The twentieth
century management thinkers hold that for effective control, the optimum number of
subordinates reporting to one supervisor or a manager should not exceed six at top level
and twenty at bottom level. This concept does not hold much water as on date due to
advent of modern technology. Further, there is no scientific evidence to prove it.

There can be two kinds of structures in the organisation depending on the number of
employees controlled by the managers. They are:

(i) Tall structures, and

(ii) Flat structures.

15
8.2 TALL STRUCTURES

In this structure, a manager supervises less number of subordinates .Therefore, proper

control can be exercised over their activities. This creates more number of authority
levels in the organisation. In other words, this is also known as narrow span of control.

ADVANTAGES OF A TALL STRUCTURE:

1. Activities of the subordinates can be closely monitored, which is a must for

organisational success.
2. Communication channels are smooth, faster and clear amongst superiors and
subordinates.
3. Personal bonding is promoted under this structure.
4. Narrow span facilitates faster decision making process.

DISADVANTAGES OF A TALL STRUCTURE:

1. Due to multi levels in the hierarchy, it crates gap between top management and
ground level workers .This gap, sometimes, distorts the communication process.
2. As more personnel are required to supervise the subordinates, it entails more
establishment expenditure. Thus, it is a costly form of structure.
3. Decision-making on strategic matter gets delayed because of too many levels.
4. Supervising the subordinates takes away more time of the managers and have
less time for important matters.
5. Employees work under strict control of superiors. Decision-making is primarily
centralised. This restricts employees’ innovative abilities, which leads to
demotivation
6. Strict control also leads to low job satisfaction, which in turn have negative
impact on productivity.

16
To overcome the limitations of a tall structure, many organisations reduce the number
of levels in the hierarchy .This is called downsizing the organisation.

According to Peter F.Drucker, “The most common and most serious symptom of mal-
organisation is multiplication of the number of management levels. A basic rule of
organisation is to build the least possible number of management levels and forge the
shortest possible chains of command.”

8.3 FLAT STRUCTURES

These structures have a wider span of control. Here the Manager has ample scope to
supervises a larger number of subordinates. This type of structures have lesser number
of authority levels. This type of structure is advocated by James C. Worthy

For example, if span for authority level is four then the structure would appear as
follows:

MERITS OF A FLAT STRUCTURE:

1. The decision-making process is effective and faster as superiors delegate

authority to subordinates.
2. The overhead cost will be less as less number of managers are required to
supervise the activities of relatively larger number of subordinates.
3. The hierarchical distance is reduced between the top management and workers,
which makes the communication process more effective.
4. It motivates the employees and productivity improves.

DEMERITS OF A FLAT STRUCTURE:

1. Superiors cannot closely monitor the activities of the subordinates due large in
numbers.
2. Co-ordination becomes difficult due to flat structure.
3. Dilution of control becomes a common feature, which affect organisational
productivity.

17
Both the structures have relative merits and demerits. There is no scientifically proven
method to find the exact number of subordinates that a manager can effectively control.
Management thinkers like Arthur G. Bedeian assert that span of control and
organisational efficiency are not related as span of control is situational and its success
depends on a variety of factors.

So far as success and failures of the structures are concern, there is no dearth of
examples prevalent in management literature, of contradictory views on both the
structures.

8.4 FACTORS AFFECTING SPAN OF MANAGEMENT

A suitable span of control can be determined by the following factors:

1. Managerial Competence:-
If competent managers are there, a wide span of management should be more
acceptable. Managers who rank high on decision making, motivating employees, ability
to be focussed and with leadership qualities can effectively supervise larger number of
subordinates.

2. Nature of work:-
If the work is repetitive in nature and employees perform similar work, managers can
supervise more subordinates and have a wide span of control. Non-repetitive and
challenging work requires narrow span of control as supervision has to be strict. Hence,
nature of work also influence the span of management to a great extent.

3. Assistance to managers:-
Easy access to technical or professional assistance facilitates in controlling larger group
of subordinates. Span of control can, therefore, be wide.

4. Competence of subordinates:-
The more competent the subordinates the less supervision is required to manage their
jobs. If supervisor’s assistance is reduced, span of control can be wide.

5. Plans and policies:-

Well defined plans, policies and procedures preclude the possibility of confusions and
eventually need lessor supervision. This in turn allow the supervisors to manage
relatively larger number of subordinates in a wide span of control.

6. Organisational level:-
The top executives look after important and specialised activities, therefore the span
should be ideally narrow at the top level but at lower levels the span can be wide mostly
routine and similar jobs are performed at lower level.

18
7. Authority-responsibility structure:-
If authority-responsibility structure is not well-defined more confusions would arise and
span of management will, thus, be narrow and understood, superiors can supervise
larger number of subordinates. Reverse would be the case if clarity persists.

8. System of control:-
Effective system of control promotes decentralisation which promotes wide span of
control. Further, the span of control can be wide in case there is extensive delegation,
clarity of jobs, well defined authority-responsibility relationships and freedom to take
decisions.

9. Financial factors:-
While a narrow span requires more supervising staff and becomes a costly structure,
wide span, may result into organisational inefficiencies. As such proper balancing act
must be performed between the costs and benefits of the span to be adopted, so that
supervision is effective.

8.6 GRAICUNAS FORMULA

According to V.A. Graicunas, as the number of subordinates increases arithmetically,

the number of relationships which the superior has to control also increases almost
geometrically Therefore, a superior can only control a limited number of subordinates,
and anything beyond a limit is very hard to control. In 1933, he published a paper called
"Relationship in Organisation." In this paper, he mentioned three types of Superior-
Subordinate relationships, i.e. Direct Single Relationships, Direct Group Relationships,
and Cross Relationships. This theory can be explained with the help of a simple
example.

For example, A has two subordinates B and C. Now let us consider the no. of
‘Relationships’.
Here, the relationship between A & B and A& C are considered Direct Single
Relationships.
Relationship between A & B and A & C in presence of C and B respectively are taken
as Direct Group Relationships.
Relationship between B & C and C & B are treated as Cross Relationships.

Thus total numbering six relationships.(two direct, two group and two cross)
Thus, when the number of subordinates is 2, the number of relationships, which the
superior (boss) has to control is 6. Simil

V.A. Graicunas has explained his principle with the help of the this formula:-

19
UNIT-9 ORGANISATIONAL STRUCTURES

Structure

9.0 Learning Objectives

9.1 Introduction
9.2 Types
9.3 Line organisation
9.4 Staff organisation structure
9.5 Line and Staff Organisation
9.6 Informal Organisation
9.7 Let’s sum-up
9.8 Key words
9.9 Further Readings
9.10 Model Questions

9.0 LEARNING OBJECTIVES

After reading this unit you will able to know:

 The Meaning and Concept of Strategic Planning
 The benefits and limitations of Planning
 Process or Steps of Strategic Planning
 Role of Strategy in an organisation

9.1 INTRODUCTION

One thing, which is common to all types of organisations, is the establishment of

authority relationship among persons and positions so that it helps in the achievement
of organisational objectives. Broadly speaking, managers have to deal with two types
of organisational structures-one formal and the other informal.

The formal organisation is the official reporting relationships which are clearly known
to every manager.

Alongside the formal organisation, there exists an informal organisation structure,

which is a set of evolving relationships and patterns of human interaction within an
organisation that are not officially prescribed. The existence of informal organisation
depends solely on Formal organisation.

9.2 TYPES

Formal organisational models/structures are categorised as under:

22
 (i) Line organisational structure.
(ii) Staff organisational structure.
(iii) Line and staff organisational structure.
(iv) Functional organisational structure.
(v) Departmental Structure or departmentation.

These organisational structures are briefly described here under except the last two,
which will be taken care of in the next unit.

9.3 LINE ORGANISATION

An organisation structure consisting of line personnel only may be called a line

organisation. In such an organisation, each position has general authority over all the
lower positions .

(Fig. A).

In a line organisation, as shown in the above figure, authority flows downwards in a

straight line. No subordinate is under more than one superior. Scalar principle and the
principle of unity of command are strictly followed.

Advantages: The main advantages of the line organisation are as follows:

1. It is simple to work. There are no staff positions.

23
 2. It is economical and effective, for it permits of rapid decisions and effective
coordination, as all the activities affecting the department are in the hands of one
individual.
3. It makes for unity of command and also conforms to tasks in a definite manner
upon the concerned individuals.
4. It fixes responsibility for the performance to tasks in a definite manner upon the
concerned individuals.
5. It is conducive to effective control because a subordinate is answerable to only
one boss.

Disadvantages: The system has the following drawbacks:

1. The system is not workable in large organisations.

2. It suffers from lack of specialisation. Each department manager has to buy his
own materials, design his own product, engage his own labour, keep his own
records, set his own standards of output and cost. Therefore, because of the lack
of specialized skill each head of the department is inclined to be a jack of all
trades and master of none.

3. The fixation of responsibility on the shoulder of the manager can crush under
the load of too much work.

4. The system cannot reap or provide the benefits of expert advice of the staff
personnel because it does not provide for their appointment.

9.4 STAFF ORGANISATIONAL STRUCTURE

The authority relationships or positions in an organisation can be categorized as:

(I) LINE POSITION:

Line position depicts the direct chain of command that flows from top to bottom and is
responsible for the achievement of an organisation’s goals and

(II) STAFF POSITION:

Staff position intended to provide expertise, advice and support for the line positions. It
is mostly advisory in nature and does not come under the direct line of organisational
activities like Staff Dept, Law, Finance and accounts etc.

The line authorities or managers have the direct authority (known as line authority) or
control to be exercised by them to achieve the organisational goals. The staff officers or
managers have staff authority (i.e., authority to advice the line) over the line. This is
also known as functional authority.
24
An organisation where staff departments have authority over line personnel in narrow
areas of specialization is known as staff or functional authority organisation.

Fig-B

In the line organisation, the line managers are not expected to be experts in all the other
functions they are required to perform. But in the staff authority organisation, staff
personnel, who are specialists in some fields are given functional authority i.e. Expert
opinion, advice or guidance.

The principle of unity of command or direction is violated in staff organisational

structure i.e., a worker or a group of workers may have to receive instructions from the
line mangers as well as the staff specialist which may result in confusions. Orders from
multiple sources may lead to ineffectiveness.

While this type of structure overcomes the demerits of a pure line organisaional
structure, it has some major disadvantages:

These demerits are:

(i) the potential conflicts resulting from violation of principle of unity of command
and
(ii) the tendency to keep authority centralized at higher levels in the organisation.

9.5 LINE AND STAFF ORGANISATION

In line and staff organisation, line authority percolates down in the same manner as in
the line organisation. In addition, specialised officers having expertise in different fields
are attached to line managers to advise them on important matters, as is shown in the
figure.
25
 Fig:C

In line and Staff organisation structures attempts have been made to incorporate the
advantages of both the structures. Thus, those who render advice on various aspects of
organisational functioning and fall outside the chain of command are staff personnel.
Those who implement the ideas and form part of the chain of command are line
personnel. Most organisations have both line and staff personnel and are, therefore,
called line and staff organisations. We must, however, remember that even the heads of
the specialised department having advisory functions do enjoy authority or line
relationship with subordinates of the respective departments.

Advantages:
Having all the benefits of the line organisation. It has the following added advantages:
1. Line managers get the instant advantage of expert knowledge of staff specialists
at various levels.

2. Staff specialists relieve the line managers from the botheration of specialized
functions like finance, public relations, legal matters etc. and thereby facilitate
them to do their routine work more effectively.

3. Right information/advice at the right moment is provided by the specialists to

the line managers. This enables the line managers to take prompt and appropriate
decisions.

4. Since experts are appointed for helping the line personnel, line and staff
organisation structure is relatively more flexible

Disadvantages:
Despite the strong merits that the structure has, it is not free from defects .The demerits
of Line and staff organisation are as follows:
26
 1. There is generally a conflict between the line and staff executives. Staff
personnel may complain that their advice is ignored by the line managers who
in their turn dubbed them as theorists. Most of the it appears to be a clash of
‘ego’. Such a conflict is harmful to the organisational health.

2. Sometimes staff personnel act casually and not perform their duties properly as
they are not accountable for the results.

3. Another undesirable but frequent observation under this type of structure is that
due to relatively limited career growth, turnover amongst the staff personnel is
quite high. Further, to gain importance they also resort to personal appeasement
and favouritism.

We have seen the structural relationships in the functioning of Formal Organisation with
their relative pros and cons. As we have discussed earlier informal organisation is a
shadow of formal organisation .It has it’s own place in all types of organisations.

The informal organisational structure gets created automatically and the main purpose
of such structure is getting psychological satisfaction. The existence of informal
structure depends upon the formal structure because people working at different job
positions interact with each other to form informal structure.

9.6 FEATURES OF INFORMAL ORGANISATION

(1) Informal organisational structure gets created automatically without any

conscious efforts.

(2) Informal organisational structure is formed by the employees to get psychological

satisfaction.

(3) Informal organisational structure does not follow any fixed path of flow of
authority or command.

(4) Source of information cannot be known under informal structure as any person
can communicate with anyone in the organisation.

(5) The existence of informal organisational structure entirely dependent on formal

organisation structure.

Advantages of Informal Organisation:

1. Fast Communication:
Communication is faster in the absence of any fixed pattern or scalar chain.

27
2. Fulfils Social Needs:
Informal communication gives due importance to psychological and social needs of
employees which motivates them.

3. Correct Feedback:
Through informal channels of communication or grapevine the top management can
know the real feedback of employees on various policies and plans, which can be put to
strategic use.

Disadvantages of Informal organisation:

1. Spread Rumours:
According to a survey 70% of information spread through informal organisational
structure are rumours which may mislead the employees.

2. May Bring Negative Results:

If informal organisation opposes the policies and changes of management, then it
becomes very difficult to implement them in organisation.

3. More Emphasis to Individual Interest:

Informal structure gives more importance to satisfaction of individual psychological
needs/personal interest as compared to organisational interest.

9.7 LET’S SUM-UP

Formal organisational structure determines the assignment and coordination of roles,

power and responsibilities within a business. There are different types of Such structures
like Line, line and staff, Functional, Divisional etc. All these structure aim at
maintaining coordinated authority-relationship so as to manifest smooth work flow to
achieve organisationl goals. No structure is full proof and each has its quota of merits
and demerits .As such, manger has to be tactical in playing a balancing act. In doing so,
manager has also to manipulate the informal structure, which he has to face, in the
organisation’s favour.

9.8 KEY TERMS

 Authority-Power/position to command.
 Psychological needs-Affection, affiliation etc.
 Grapevine-Informal communication channels.
 Informal-Unofficial
 Scalar chain-Line of authority or route of communication.

28
 Bachelor of Commerce
(BCOM)

BCO-7
Management Principles and Applications

Block-4
Organising-II
Unit-10 Departmentation
Unit-11 Delegation of Authority and Responsibility
Unit-12 Centralisation an Decentralisation
UNIT-10 DEPARTMENTATION

Structure

10.0 Learning Objectives

10.1 Introduction
10.2 Importance
10.3 Basis of Departmentation
10.4 Functional Departmentation
10.5 Divisional Departmentation
10.5.1 Product Basis
10.5.2 Process Basis
10.5.3 Customer Basis
10.5.4 Location Basis
10.5.5 Time Basis
10.5.6 Size Basis
10.5.7 Task Basis
10.6 Let us Sum up
10.7 Key Terms
10.8 Further Readings
10.9 Model Questions

10.0 LEARNING OBJECTIVES

After completion of the Unit, you will be able to understand:

 Meaning and Importance of Departmentation

 Basis and forms of Departmentation
 Relative merits and demerits of different form of Departmentation

10.1 INTRODUCTION

Organisation structure based on Departmentation means division of work into small

units on the basis of similarity of functions and features. Departments are created and
activities of similar nature are grouped when the organisation grows in size.

According to G.R.Terry and Franklin

“Departmentalisation is the clustering of individuals into units and of units into

departments and larger units in order to facilitate achieving organisational goals.”

1
10.2 IMPORTANCE OF DEPARTMENTATION

1. Organisation structure:
This network of authority- responsibility relationships is the basis organisation structure.
Departmentation strengthens organisational structures so as to track authority
relationship in a better way and fix accountability

2. Specialisation:
One of the important objectiv1es of Departmentation is to reap the benefits of
specialisation through division of work. As each department performs activities of
similar nature repeatedly, they gain expertise. This leads to increase in efficiency and
productivity.

3. Flexibility:
Organization's competitiveness and success can be ensured by making the structure
flexible. Departmentation makes the structure flexible and adaptive to change.

4. Co-ordination and Control:

Control and coordination are facilitated by the activities which are undertaken with
adequate clarity in Departmentation.

5. Sharing of resources:
Optimum utilisation of resources is ensured since resource sharing becomes need based
in departmentation irrespective of their nature of activities. This reduces wastages as
requirement is assessed based on priority.

6. Scope for growth and diversification:

Scope for organisational growth and diversification is ample in departmentation as it
enables the management to expand their area of operation into new geographical
divisions, new product and process line.

7. Responsibility:
It becomes easier for top management to fix responsibility since similar activities are
grouped in departmentation and the responsibility is vested with a departmental head.

8. Development of managers:
Under departmentation , heads of the various departments get ample scope to take
independent decisions of varied nature. This makes them to be creative as well as
innovative. They are groomed to take up higher challenges in this process.

2
10.3 BASIS OF DEPARTMENTATION:

Departments are created for activities of similar nature to reap the aforesaid benefits,
depending on the basis of products ,process or geographical locations. There are two
broad forms or basis of departmentation:

A. Functional departmentation, and

B. Divisional departmentation

10.4 FUNCTIONAL DEPARTMENTATION

As the name suggests, functional organisation creates departments along activities or

functions of similar nature. For example, activities carried out by a manufacturing
organisation are production, finance, sales etc. For a bank they are borrowing, lending,
agency services etc. The conscious grouping, of jobs and resources, is done in such a
way that employees who perform the similar activities are kept in the same department.
Keeping nature of the department sub-departments are also created.

Functional Departmentation Chart

Merits of Functional Departmentation:

 Functional departmentation is simple and logical basis of creating departments.

 Since workers in one functional area focus in a particular activity they acquire
expertise and specialised skills.

3
  Employees working in one department are closely knitted and work collectively,
which facilitates smooth coordination.

 The departmental manager ensures that activities are performed strictly

according to rules and procedures laid down for the department.

 Exercising control is easier in functional departmentation as units are small and

closely knitted.

 Functional organisation is best suited for small and stable organisations in which
labour turnover is least and few specialised products are manufactured.

Limitations of Functional Departmentation:

 Sight of the overall organisational goals is often lost as the employees are highly
focused on departmental goals.

 Delayed decisions are observed for the organisation as a whole as several

departments are to be consulted.

 Under functional departmentation, people are more loyal to their respective

departments and departmental rivalry crops up. This makes it difficult to co-
ordinate various functional activities by top management.

 Organisations operating in the dynamic environment do not accept functional

activities as the basis of departmentation as this is a suitable form of
departmentation for stable organisations.

 Functional departmentation is not suitable for complex organisations which are

dynamic in products and process.

10.5 DIVISIONAL DEPARTMENTATION

Divisional structures are created on the basis of smaller divisions where each division
has its own functional activities. Major divisions that determine the organisation
structure are as follows;

10.5.1 Product Departmentation:

This form of departmentation is suitable for companies that produce multiple products
and departments are created on the basis of products. Product departmentation is
grouping of jobs and resources for a particular product or product lines.

4
 ORGANISATION CHART SHOWING PRODUCT DEPARTMENTATION

Merits of product departmentation:

 As focused attention can be given for a particular product, efficiency is

increased. This ensures better performance of employees in each department.
This also promotes product specialisation which helps in product growth and
quality.

 Since all decisions related to a product are taken by product manager decisions
are taken quickly.

 The product manager finds it easier for coordination as all the activities, both
primary and auxiliary, relating to the product are under his control.

 Establishing authority-responsibility relationships by delegation in a department

is smooth in product departmentation. Thus control is exercised properly and
growth is maximised.

 Product managers are accountable for results of their product departments. This
promotes performance and profitability of different product departments.

 Organisational efficiency is enhanced by promoting profitable products as

eliminating the unprofitable ones is easier due to independent comparison of
different products on the basis of cost vis a vis revenue is easy under the system.

Demerits of Product Departmentation

The followings are few important limitations of product departmentation.

 Though intra departmental coordination and control improve, inter departmental

coordination becomes difficult since departments focus attention on activities of
their own departments without consideration for other departments.
5
  This is comparatively an expensive basis of departmentation in comparison to
functional departmentation because every department appoints specialists at the
cost of duplication of efforts.

10.5.2 Process Departmentation

Process departmentation is popular, where the product passes through different stages
and each stage is designated as a process. Departments are created for each process.

Sugar mill ,for example, has crushing ,boiling, filtering refining etc. processes. For each
process, departments are created and headed by people skilled and competent to carry
that process.

ORGANISATION CHART SHOWING PROCESS DEPARTMENTATION

Merits of Process Departmentation:

 As work is divided into different processes, the process departmental head and
his team gain specialisation in that process by constantly carrying out activities
related to that process only. Specialisation results in economy of time, money
and managerial skills.

 Process departmentation, helps in maintenance of the equipment’s related to a

process because specialised technology requires specialised skills to maintain
that process.

 Since employees carry out only one operation or process on the work activity,
managers can impart training to the to efficiently carry out that process.

Demerits of Process Departmentation

 Unless uniformity in output is maintained, coordination is hampered as output

of one department is the input of another. This can also result in conflict amongst
process managers.
6
  Boredom and demotivation prevail as people handle the same job repeatedly.
Scope of job rotation and job enrichment are limited This state of affairs have a
telling affect on the efficiency and productivity in the long run.

10.5.3 Customer Departmentation

When organisations resort to departmentation based on customers’ need, it is known as

Customer Departmentation.

Bank for example, gives loan to meet different customer requirements like housing loan,
car loan, Business loan etc. Departments are created accordingly under this form of
Departmentation.

ORGANISATION CHART SHOWING CUSTOMER DEPARTMENTATION:

Merits of Customer Departmentation:

 Competitive advantage is ensured due to greater consumer satisfaction through

dedicated and specialised service. By catering to varied customer needs,
companies have better chances of survival and growth.

 An organisation which is customer centric is bound to grow and make profits.

The basis of departmentation according to customer needs justifies it.

 Departmentation on the basis of customers preference make the employees

become specialists in that particular department. This specialisation ultimately
translated in to more business and goodwill.

Limitations of customer departmentation:

 From the organisation perspective, coordination is difficult due to greater

involvement of employees in their respective departments.

7
  Consumer behaviour is dynamic in nature and mostly unique in most of the
cases. As such it becomes difficult to frame departmental policies and need a
balancing act in framing policies so that organisation can adapt to the ever
changing customer environment.

 Under this type of departmentation, employees must have specialised skills.

Engagement of specialised manpower entails higher expenditure. So, it is
expensive.

 As the personnel and products/ services are segregated category wise, scope of
cross-selling is limited.

10.5.4. Territorial Departmentation:

Organisation creates departments based on location of customers or resources dispersed

geographically under this type for which this is also known as geographical
departmentation.

The product or customer differentiation, both can be the basis of geographic or territorial
departmentation. This basis is suitable for large-sized organisations which have
activities dispersed over different geographical areas.

Chart Showing Geographic Departmentation:

8
Merits of Geographical Departmentation:

 The emphasis is on selling in different regions according to customer needs..

Managers are able to promote sales as they are aware of the local conditions of
the area where they are operating.

 Firms setting up their units near the sources of raw material, take advantage of
economies of operation.

 Communication with the consumers and formulation of policies are smooth as

marketing people belong to local area.

Limitations of Geographic Departmentation:

 Top management finds it difficult to control and co-ordinate their activities since
departments are widely dispersed, Different local conditions also create
problems of understanding.

 As each department has auxiliary departments like personnel, accounting etc., it

is expensive. This method is suitable for large-scale organisations who can
afford its cost.

 Managers are to perform functional activities related to their departments for

which, they may not be specialists in all the functional activities.

Few other types of departmentations

10.5.5 Departmentation by Time:

This method of departmentation is used in situations where work is done round the clock
because, the nature of work entrusted to the organisations is such that work cannot be
stopped or essential in nature i.e. health, fire, police, railways, air-lines etc.
Here, workers work in shifts; morning, afternoon and night, so that work can progress
continuously to meet the demand.

10.5.6. Departmentation by Size:

Departments are created on the basis of number of people who form the department.
Example may ARMY, where soldiers are grouped to form various departments.

10.5.7. Departmentation by Task Force:

When organisation has a number of projects (tasks), it forms task forces which consist
of people from different units having different skills to complete those projects.

9
UNIT-11 DELEGATION OF AUTHORITY AND
RESPONSIBILITY

Structure

11.0 Introduction
11.1 Definitions
11.2 Parity of Authority and Responsibility
11.3 Importance of Delegation
11.4 Principles of Delegation
11.5 Let’s Sum-up
11.6 Key Terms
11.7 Self-Assessment Questions
11.8 Further Readings
11.9 Model Questions

11.0 LEARNING OBJECTIVES

After completion of the unit, you should be able to:

 Explain the meaning, concept and definition of management.
 Describe scope and importance of management.
 Know the nature and characteristics of management.
 Also understand whether management is a science or an art or a profession.

11.1 INTRODUCTION

All activities are not performed by one person. Every individual is only one manpower.
Single handed he can accomplish so little in a day. Only way to accomplish more is
through sound and effective delegation. Authority should be provided to the
subordinates too. Process of transferring authority and creation of responsibility
between superior and subordinates to accomplish a certain task is called delegation of
authority. It can take place without decentralization. It can be withdrawn by delegator
at any time. It minimizes the burden of managers of unit, departments or plant.
Relationship is between superior and immediate subordinates are indicated. It is
technique of management used to get the things done through others. It is confined to
manager and subordinates. Authority is only delegated, not responsibilities. Very
important to management process Control remains in hand of superior who supervise
the activities of subordinates. It is an art of management science. When authority is not
given to subordinates there is no performance. Delegation is the process of sharing
authority; power and work (deliver the power from one person to another or one level
to another level).

11
11.2 DEFINITIONS

It is necessary to have brief understanding of three terms intimately connected with the
concept and process of delegation.

Responsibility
Responsibility indicates the duty assigned to a position. The person holding the position
has to perform the duty assigned. It is his responsibility. The term responsibility is often
referred to as an obligation to perform a particular task assigned to a subordinate. In an
organisation, responsibility is the duty as per the guidelines issued.

Definitions of Responsibility
According to Davis, "Responsibility is an obligation of individual to perform assigned
duties to the best of his ability under the direction of his executive leader." In the words
of Theo Haimann, "Responsibility is the obligation of a subordinate to perform the duty
as required by his superior".

McFarland defines responsibility as "the duties and activities assigned to a position or

an executive".

Authority
Authority is the right or power assigned to an executive or a manager in order to achieve
certain organizational objectives.

A manager will not be able to function efficiently without proper authority. Authority is
the genesis of organizational framework. It is an essential accompaniment of the job of
management. Without authority, a manager ceases to be a manager, because he cannot
get his policies carried out through others. Authority is one of the founding stones of
formal and informal organisations. An Organisation cannot survive without authority.
It indicates the right and power of making decisions, giving orders and instructions to
subordinates. Authority is delegated from above but must be accepted from below i.e.
by the subordinates. In other words, authority flows downwards.

Definitions of Authority
According to Henri Fayol, "Authority is the right to give orders and the power to exact
obedience."

According to Mooney and Reily, "Authority is the principle at the root of Organisation
and so important that it is impossible to conceive of an Organisation at all unless some
person or persons are in a position to require action of others."

Accountability
Every employee/manager is accountable for the job assigned to him. He is supposed to
complete the job as per the expectations and inform his superior accordingly.

12
Accountability is the liability created for the use of authority. It is the answerability for
performance of the assigned duties.

Definition of Accountability
According, to McFarland, "accountability is the obligation of an individual to report
formally to his superior about the work he has done to discharge the responsibility."

When authority is delegated to a subordinate, the person is accountable to the superior

for performance in relation to assigned duties. If the subordinate does a poor job, the
superior cannot evade the responsibility by stating that poor performance is the fault of
the subordinate. A superior is normally responsible for all actions of groups under his
supervision even if there are several layers down in the hierarchy. Simply stated,
accountability means that the subordinate should explain the factors responsible for non-
performance or lack of performance.

11.3 FEATURES/CHARACTERISTICS OF DELEGATION

Delegation has the following features:

1. Delegation is a process:
Managers delegate tasks in a sequential order of steps.

2. On-going process:
Delegation is a continuous process. Managers continue to delegate tasks to subordinates
and get them delegated by their superiors to achieve the organisational goals.

3. An art: not science:

Delegation does not necessarily mean that subordinates will perform those tasks well.
There is no cause and effect relationship between the task assigned and their actual
performance. Delegation is, thus, not a science. It is the art of how well and what the
manager delegates to subordinates.

4. Delegation of authority and not accountability:

Managers can only delegate work and authority to perform that work. Delegation does
not absolve managers of accountability to their superiors for the part of task assigned to
subordinates. They remain accountable for the tasks assigned to subordinates and are
answerable to their superiors for its performance. Thus, responsibility (tasks) and
authority can be delegated but not accountability.

5. Necessary activity:
Managers cannot avoid delegation. They cannot perform all the tasks themselves. They
have to learn the art of delegation that is, how to delegate and what to delegate.
Corporate performance is judged by how well managers get the work done by the
process of delegation. Delegation is not an option. It is a necessity.

13
6. Different forms:
Delegation can take different forms. It can be downward, upward or lateral.

11.4 PARITY OF AUTHORITY AND RESPONSIBILITY

Managers exercise great care during the process of delegation. If routine jobs are
retained by them and important matters are delegated, the entire process of delegation
becomes ineffective. Manager determines the authority and responsibility that should
be retained by him and that which should be delegated.

The authority and responsibility which he retains for his own performance is called
reserved responsibility. According to Louis A Allen “a manager cannot effectively
delegate responsibility and authority for initiating and making final decisions for
planning, organising, coordinating, motivating and controlling the activities and
positions that report to him.”

Making plans; single use or multiple use, strategic plans, policies, procedures rules etc.
cannot be delegated. These activities are of supreme importance for the organization
and managers cannot delegate them to subordinates. These are the foundation which
provide meaning and substance to the organisation. Though not delegated, managers
can take help of other line and staff managers in framing the plans.

While organising determines the framework of the organisation structure with well-
defined authority-responsibility relationships amongst various individuals at various
levels, the base for providing structure to organisation, whether functional or divisional
or matrix, is the sole responsibility of managers and cannot be delegated to subordinates.

The kind of people to be recruited, selected, trained, placed on different jobs, the kind
of leadership style to be adopted, the measures of reward or coercion used as
motivational factors are the important business decisions that cannot be delegated.
These are, thus, the important areas of management where delegation will not be
effective. What then are the areas where delegation will be effective?

With reference to plans and objectives of the organisation, the important managerial
functions of planning, organising, staffing, directing and controlling are managed by
managers themselves and routine activities with respect to each functional area of
production, finance, personnel and marketing are delegated to subordinates, i.e.,
responsibility entrusted to lower- level managers should be with respect to routine jobs
in the specific functional area. In the finance department, for example, the sources of
raising funds, designing the capital structure, determining the optimum debt-equity
ratio, apportioning funds between fixed and current assets are determined by the top
managers. Once decided, accepting applications, returning excess funds and issuing
share certificates can be delegated to lower-level managers (if funds are raised through
issue of shares). Launching a new product, planning a market survey, feasibility and
project report are done by top managers but actually conducting the feasibility studies
14
and market surveys is delegated to lower-level managers. Once responsibilities to be
delegated are determined, authority to carry out those responsibilities is also delegated.
The authority must be commensurate with responsibilities so that subordinates can
effectively discharge their obligations. The matters which are of routine nature for top
managers are important for subordinates and they need authority to carry out those
responsibilities.

Delegation has the following important elements:

Responsibility
Responsibility is the activity or task entrusted by the manager to subordinates. Though
delegated, the ultimate responsibility (accountability) for completion of the task rests
with the manager.

Authority
To carry out the responsibility assigned, there is need for authority to allocate resources,
command people, issue directions and make decisions. The authority is therefore,
delegated to subordinates to enable them to carry out the responsibility assigned.

Accountability
When managers delegate part of their work-load to subordinates, they remain
accountable for accomplishment of that task. The responsibility and authority, thus, can
be delegated but accountability cannot.

Subordinates need authority to carry out the responsibility. Authority enables delegates
to give instructions to members of their unit. Authority without responsibility and
responsibility without authority has no meaning. Authority, Responsibility and
Accountability are Inter-related. They need proper consideration while introducing
delegation of authority within an Organisation. In the process of delegation, the superior
transfers his duties/responsibilities to his subordinate and also give necessary authority
for performing the responsibilities assigned. At the same time, the superior is
accountable for the performance of his subordinate. As authority and responsibility are
not mathematically related to each other, authority cannot be exactly equal to
responsibility. It must be commensurate with the responsibility; neither more nor less.

11.5 IMPORTANCE OF DELEGATION

Delegation is unavoidable. Managers have to be skilled in the art of delegation.

Delegation of authority is a process in which the authority and powers are divided and
shared amongst the subordinates. When the work of a manager gets beyond his capacity,
there should be some system of sharing the work. This is how delegation of authority
becomes an important tool in organization function. Through delegation, a manager, in
fact, is multiplying himself by dividing/multiplying his work with the subordinates. The
importance of delegation can be justified by –

15
1. Relief to managers:
Delegation relieves managers of the burden to carry out every activity on their own. By
delegating routine activities to lower levels, top managers concentrate on important
policy matters. This increase efficiency of the organisation.

2. Develops managers:
By delegating authority and responsibility to subordinates, managers can accept more
and responsibilities from their superiors. By delegating routine jobs down the hierarchy,
they can take more challenging projects and enhance their skills as competent managers

3. Develops subordinates:
When routine and innovative tasks are delegated to subordinates, their skill in
performing the delegated tasks increases. Training programmes can be organised to
develop them as potential managers.

4. Better decisions:
Through delegation, decisions related to routine matters are taken by those who are
closest to the decision-making situation. This increases the quality of decisions.

5. Faster decisions:
Not only are the decisions effective, they are also fast as subordinates have the authority
to do the jobs assigned without going to the superiors every time they face a problem.
They have authority to solve the problems on their own.

6. Specialisation:
Division of work into sub-units and delegation of responsibilities according to skill,
knowledge and competence of subordinates promotes specialisation on the job and
results in greater output. “Delegation provides a way to break down the responsibilities
of a manager and assign them across several subordinate managers based on their
specialised capability.”

7. Job satisfaction:
When subordinates achieve the delegated standards of performance, its provides them
job satisfaction and motivates them to perform better.

8. Promotes inter-personal relationships:

Delegation increases interaction of managers with the subordinates and promotes
healthy relationships amongst them.

Therefore, from the above points, we can justify that delegation is not just a process but
it is a way by which manager multiples himself and is able to bring stability, ability and
soundness to a concern.

16
11.6 PRINCIPLES OF DELEGATION

The following principles make the process of delegation effective:

1. Authority, responsibility and accountability:

These are the elements of delegation that make it an effective process.

2. Parity of authority and responsibility:

Subordinates need authority to carry out the responsibility. Authority enables delegates
to give instructions to members of their unit. Authority without responsibility and
responsibility without authority have no meaning. As authority and responsibility are
not mathematically related to each other, authority cannot be exactly equal to
responsibility. It must be commensurate with the responsibility; neither more nor less.

3. Scalar chain:
Every member should know his position in the scalar chain to know his superiors who
have the power to delegate and his subordinates to whom he can delegate. The
responsibility can be assigned if every person knows his position in the hierarchy.
Scalar- chain determines direct authority relationship between the superior and
subordinates. Clarity in scalar chain relationships promotes faster and effective
decisions.

4. Completeness of delegation:
Every part of the total work (except the one which is reserved by managers) should be
delegated down the scalar chain. If some part of the work is not delegated, gaps would
arise in respect of the work not so assigned and the work will not be completed properly.

5. Unity of command:
Every individual should have one boss to whom he should report. If subordinates have
more than one boss, they may not be able to carry out the assigned task. For example, if
a person cannot accomplish the task assigned to him by boss A, he may say that he was
busy carrying out instructions of boss B and vice versa while it may not actually be so.

He, thus, avoids responsibility of carrying out the assigned tasks. Unity of command
creates personal responsibility for results and avoids conflicts in instructions in the
organisations. There is complete clarity about who has to carry out whose orders and
when.

6. Absoluteness of responsibility:
Though the task and authority to carry out the task is delegated, the delegator continues
to remain accountable to his superiors for the acts assigned to his subordinates. If district
manager cannot achieve the sales target, branch manager (delegator) remains
responsible to the General Manager of sales department. Delegation does not mean that
superiors get free from the responsibility of tasks assigned to subordinates. If
subordinates do not perform well, delegator has to ensure that they know the task and
17
perform it will. Ultimate responsibility means accountability. While responsibility can
be delegated, accountability cannot be delegated.

7. Delegation by results:
Managers should determine the objective of delegation, that is, what they want their
subordinates to do and then delegate the tasks along with authority to them. If production
manager wants to increase production of Northern Branch, he should delegate this task
to his branch manager, Northern Region.

The branch manager will carry out the tasks when things are clear to him. Vague orders
like, ‘increase the sales’ are not effective even if subordinates have authority to carry
out such orders. What is expected out of delegation by whom, when etc. must be clearly
planned and communicated to subordinates for effective delegation. Subordinates
should know the outcomes expected from their actions.

8. Delegate within defined limits:

Managers cannot delegate what they are themselves not authorised to do. For example,
if manager does not have authority to raise funds from financial market without sanction
of top managers, he cannot delegate this task to subordinates. Only those tasks which
manager is himself authorised to do can be further delegated.

Sometimes, decisions are made by two or more managers together. This is called
splintered authority. It means authority to take decisions through interdepartmental
interaction. A single manager is not authorised to make decisions.

11.7 LET’S SUM-UP

Delegation means to grant or confer. It helps to coordinate activities at various levels to

increase efficiency of the organisation. It helps managers to concentrate on important
organisational matters and pass the routine matters to subordinates. Management is the
art of getting things done through others and managers can get others to do things if they
delegate them the responsibility along with authority. Delegation is an important skill
that helps manager to effectively manage his organisation. “How well a manager
delegates determines how well he can manage.”Delegation relieves the burden of
managers and creates healthy atmosphere in the organisation. Companies identify the
capabilities of managers by judging their skills in how effectively they engage in the
process of delegation

11.8 KEY TERMS

Delegation: Delegation is the assignment of any responsibility or authority to another

person to carry out specific activity/activities.

18
UNIT-12 CENTRALISATION AN DECENTRALISATION

Structure

12.0 Learning Objectives

12.1 Introduction
12.2 Definitions
12.3 Decentralisation vs. Delegation
12.4 Factors affecting Centralisation and Decentralisation
12.5 Principle of Centralisation and Decentralisation
12.6 Advantages and Disadvantages
12.7 Let’s Sum-up
12.8 Key Terms
12.9 Self-Assessment Questions
12.10 Further Readings
12.11 Model Questions

12.0 LEARNING OBJECTIVES

After completion of the unit, you should be able to:

 Explain the meaning, concept and definition of management.
 Describe scope and importance of management.
 Know the nature and characteristics of management.
 Also understand whether management is a science or an art or a profession.

12.1 INTRODUCTION

Centralization and decentralization are the opposite ends of an organization continuum.

On the one hand, centralization brings uniformity of policy and action, utilizes the skills
of centralized and specialized staff, and enables closer control over operating units. And
on the other hand, decentralization tends to effect faster decision-making and action on
the spot without consulting higher levels. Decentralization has the effect of motivating
the subordinates since they have a greater share in management decision-making. The
question of centralization or decentralization is a matter of degree. It is not possible to
conceive of an organization which is exclusively centralized as some decentralization
of authority is bound to exist. Likewise, there can be no absolute decentralized structure
as the top executive cannot delegate all his authority. The issue of centralization and
decentralization has to be decided objectively taking into consideration the size and
nature of enterprise, diversity of the company's product, economies of division of labour,
location of markets, nature of services to be performed, availability of trained and
efficient managers, philosophy of management, etc. Centralization is not a system of
management good or bad by itself, capable of being adopted or discarded at the whim
of managers or of circumstances; it is always present to a greater or less extent

20
12.2 DEFINITIONS

When the power to take decision rests with the top management it is called as
‘Centralisation’.

When the power to take decision is given to the person performing the job it is called as
‘Decentralisation’.

According to Fayol—"everything which goes to increase the importance of the

subordinate's role is decentralisation and everything which goes to reduce it is
centralisation." The importance of the subordinate is reduced and the importance of the
superior executive is increased in centralisation.

According to Allen, “Centralization” is the systematic and consistent reservation of

authority at central points in the organization. The implication of centralization can be:-

1. Reservation of decision making power at top level.

2. Reservation of operating authority with the middle level managers.
3. Reservation of operation at lower level at the directions of the top level.

12.3 DE-CENTRALISATION VS. DELEGATION

Though both delegation and decentralization are related concepts, but the distinction
between the two terms must be clearly understood. Decentralization could be
differentiated from delegation in the following way:

(i) Delegation creates authority-responsibility relationship between a superior

and his subordinates, whereas decentralization refers to the creation of
semiautonomous decision-making units or even profit centres functionally
related to the top management. In other words, decentralization is diffusion
of decision making authority throughout the multiple layers of the
organization.

(ii) Decentralization is simply not an extension of delegation. The purpose of

delegation may be confined to relieve the excessive burden of key
managerial personnel, but decentralization has a deeper meaning bordering
on a new philosophy of organization and management.

(iii) Delegation is a process whereby the superior assigns certain tasks and
responsibilities within his control to his subordinates, immediately vests part
of his decision-making authority in them and precisely it is an obligation
from them for proper discharge of authority conferred upon them and for

21
 effective performance in the area of delegated activity. But, on the other
hand, decentralization refers to structural dispersal of authority for decision
making in various facts of organizational operations throughout the
organization in the form of semi autonomous units, subject to overall control
by the top management.

(iv) Delegation takes place between a superior and a subordinate and is a

complete process. It may consist of certain tasks alone. But decentralization
involves spreading out the total decision-making power throughout the
organization.

(v) Sheer pressure of managerial workload forces managers to delegate a part of

their burden to their subordinates, as a matter of necessary with few
alternatives. Decentralization, on the other hand, could be only one of the
options open to an enterprise out of several alternative ways of organizing
expanding operations. This means that delegation of authority could take
place without decentralization, whereas there can be no decentralization
without delegation of authority.

(vi) In case of delegation of authority, the diligent has directive responsibility in

relation to his subordinates. But in a decentralized setting, direction is to a
large extent substituted by control by the top management. The control
mechanism is also elaborate so as to ensure that the dispersal of authority
strengthens the entire organization and that the semi autonomous units have
a central focus on viability and vitality of the organization; and

(vii) Delegation could be a routine administrative activity involving only

managers and their subordinates while decentralization is a conscious and
deliberate organizational action with strategy overtones, to manage growth
and expansion under conditions of environmental pressures, challenges and
opportunities.

12.4 FACTORS AFFECTING CENTRALISATION AND

DECENTRALISATION

Some degree of centralisation and decentralisation should be decided in order to

maintain a balance. There are some factors which may require centralisation while there
are others which may need decentralisation. These factors influence a decision about the
degree of centralisation and decentralisation.

1. Size and Complexity of Organisation:

In case of bigger concerns there is a need to decentralise authority to lower levels in the
organisation. It will facilitate decision making and control. When the concern is small
then centralisation will be useful. If the operations of a concern are simple then
centralisation is preferred while in complex operations decentralisation will be useful.
22
2. Communication System:
When communication system is good then top management can control the operations
at last and centralisation should be preferred. In the present technological age, managers
setting in even other countries can control decision making and operation of a business.
If the communication system is slow and ineffective then decentralisation should be
used.

3. Competence of Personnel:
When competent personnel are available in the organisation then powers should be
delegated to various levels of management to make use of their expertise. In case
competent persons are not available to share the responsibility of the top management
then decision making should be retained at higher level.

4. Degree of Standardisation:
The greater the degree of standardisation in operations, the more will be the
centralisation because it will be easy to control the operations from the top. The
centralised structure will bring uniformity of action in such an organisation.

5. Spread of Activities:
If a business has different plants or units situated at different places then decentralisation
will be essential to carry on the activities effectively. The finance function in such a
business should be centralised to ensure effective control over assets and capital
expenditure.

12.5 PRINCIPLE OF CENTRALISATION AND DECENTRALISATION

Fayol is of the opinion that there should be a proper balance between centralisation and
decentralisation. An organization must not be completely centralized or decentralized,
there should be a match between the two depending upon the size, nature and location
of business.

The top management must keep the authority to take important decisions of the
organization but adequate authority must be delegated to the lower level employees to
take the department level decisions. This will facilitate the proper and timely functioning
in the organization. And the top management will be free from extra burden of taking
and handling each and every affair of the organization. All the lower level problems will
be handled at that level only; this also gives a feeling of superiority to the lower level
employees which motivate them to perform better.

Positive impacts of this principle:

 Facilitates proper functioning of the organization;
 Timely completion of work;
 No extra burden on the top management;
23
  Motivates the lower level employees; and
 Decisions will be taken at the level of action.

Consequences of violation of this principle:

 Over burden on the top management;
 Difficulty in the achievement of organizational objective;
 Delay in action, because the decisions of top management are to be waited.
 Sometimes it creates conflict between the management and the employees; and
 Ego clashes in case of different decision by lower level and top level
management.

12.6 CENTRALISATION AND DECENTRALISATION

Centralization and decentralization are the opposite ends of an organization continuum.

On the one hand, centralization brings uniformity of policy and action, utilizes the skills
of centralized and specialized staff, and enables closer control over operating units. And
on the other hand, decentralization tends to effect faster decision-making and action on
the spot without consulting higher levels. Decentralization has the effect of motivating
the subordinates since they have a greater share in management decision-making. The
question of centralization or decentralization is a matter of degree. It is not possible to
conceive of an organization which is exclusively centralized as some decentralization
of authority is bound to exist. Likewise, there can be no absolute decentralized structure
as the top executive cannot delegate all his authority. The issue of centralization and
decentralization has to be decided objectively taking into consideration the size and
nature of enterprise, diversity of the company's product, economies of division of labour,
location of markets, nature of services to be performed, availability of trained and
efficient managers, philosophy of management, etc. Centralization is not a system of
management good or bad by itself, capable of being adopted or discarded at the whim
of managers or of circumstances; it is always present to a greater or less
extent.Nowadays, two types of organizational structure can be seen, which are
centralized and decentralized. Centralization of authority means the power of planning
and decision making are exclusively in the hands of top management while in the case
of Decentralization, the powers for the same has been disseminated by the top
management to the middle or low-level management. There is a never ending debate
between these two terms to prove which one is better. In this significant differences
between Centralization and Decentralization are explained:

12.7 LET’S SUM-UP

Centralisation and decentralisation are the two opposite ends in an organisation. In

practice there cannot be neither complete centralisation nor decentralisation. In a highly
centralised organisation decision making is costly and delayed. The operations of the
24
 Bachelor of Commerce
(BCOM)

BCO-7
Management Principles and Applications

Block-5
Directing and Staffing
Unit-13 Directing
Unit-14 Leadership
Unit-15 Staffing
UNIT-13 DIRECTING

Structure :
13.0 Learning Objectives
13.1 Introduction
13.2 Characteristics
13.3 Importance
13.4 Principles
13.5 Elements
13.6 Let’s Sum-up
13.7 Key Terms
13.8 Further Readings
13.9 Model Questions

13.0 LEARNING OBJECTIVES

On completion of the Unit, you will be able to explain:-

 Directing and its importance.
 Characteristics of Direction.
 Principles of Directing.
 Elements of Directing.

13.1 INTRODUCTION

Directing is said to be a process in which the managers instruct, guide and oversee the
performance of the workers to achieve predetermined goals. All other function have got
no importance if direction function does not take place. For this Directing is called the
heart of Management process.

Directing initiates action and it is from here actual process of work begins. Direction is
consisting of human factors. In simple words, it provides guidance to workers is doing
work. In the field of management, direction is said to be all those activities which are
designed to encourage and guide the subordinates to work effectively as well as
efficiently.

Definitions:

According to Human, “Directing consists of process or technique by which instruction

can be issued and operations can be carried out as originally planned”

1
According to Marshall, ”Directing involves determining the course, giving orders,
instructions and providing dynamic leadership”.

According to G.R.Terry, Directing/Direction is ,“Activating means and moving in to

action-supplying simulative power to the group”.

According to Koontz and O ‘Donnell; “directing is a complex function that includes all
those activities which are designed to encourage subordinate to work effectively and
efficiently in both the short and long-run.”

From the above definitions, we can gather that, Directing is the function of guiding,
inspiring, overseeing and instructing people towards realisation of common of
organizational goals.

13.2 CHARACTERISTICS OF DIRECTING

Direction as a function has got the following characteristics:

1. Pervasive Function – It is pervasive because it is a prerequisite in all the

managerial functions. Directing is also required at all levels of organization.
Every manager provides guidance and direction to his subordinates whatever
may be the activity.

2. Continuous Activity - Direction is a continuous activity throughout the life of

the organization.

3. Human Factor - Directing function relates to superior- subordinates

relationship. Therefore it is related to human factor. As human factor is complex
and multidimensional so human behaviour is. As such direction function
becomes highly important.

4. Creative Activity -Organisational plans are converted to performance through

the active intervention of Direction. Without this function, people would
become inactive and rest of the resources would prove meaningless. The
creative integration of physical resources with human intervention is made
possible by direction alone.

5. Executive Function – As Direction is essentially a function of giving

instructions, issuance of orders and providing guidance by managers at all levels
to the subordinates for effective execution, it remains basically an executive
function.

2
13.3 IMPORTANCE OF DIRECTING

Few philosophers call Direction as “Life spark of an enterprise”. It is also called as on

actuating function of management because it is through this function that actual
operation of an organisation actually begins. Being the pivotal character of enterprise,
it’s importance cannot be undermined. The following are the benefits of direction.

1. It Triggers Actions - Whatever plans are laid, implemented cannot be said to

have been made unless and until the actual work starts. Actual work commence
only necessary directions are given or orders issued. To the subordinates. It is
here that direction becomes beneficial.

2. It Integrates Efforts - Through direction, the superiors are able to instruct,

inspire and guide the subordinates to work. For this, efforts of every individual
towards accomplishment of goals are required. It is through direction the efforts
of every individual, group or department can be interrelated and integrated. This
can be done through persuasive leadership and effective communication.
Integration of efforts bring effectiveness and stability in a concern which is
made possible by direction.

3. Means of Motivation - A manager makes use of the element of motivation

through direction to improve the performances of subordinates. This can be done
by providing incentives or compensation. This reward or recognition boosts the
morale of the subordinates and they are motivated to give their best, which
ultimately benefits the organisation.

4. It Provides Stability -Stability is prime concern of any organisation in a

dynamic business environment as the very survival and growth of the
organisation depends on it. This can be actualized by the mangers with the help
of four tools or elements of direction. These tools are persuasive leadership,
effective communication, strict supervision and efficient motivation. Therefore
a manager can make use of all the above four traits in him so that performance
standards can be maintained.

5. Adapting to changes – Organisation ready to adapt to changes quickly can only

sustain and survive. Resistance to change is a basic human behaviour because
everybody loves to be in old moorings. It is directing function with leadership
acumen which is of use to meet with the changing needs of the dynamic
environment both internal and external. It is the role of manager here to
communicate the nature and contents of changes very clearly to the
subordinates, so as to convince them in what ways they will be benefitted in the
changed situation..
3
 6. Efficient Resources Utilization – To get maximum out of minimum is the old
dictum of any organisation. This would remain as a day dream or a Slogan
without judicious intervention of direction. The resources can be utilized
properly only when less of wastages, duplication of efforts, overlapping of
performances, etc. doesn’t take place. This is possible through prudent direction
only. This also helps in maximum possible utilization of 5 Ms of management
i.e. Men, Machine, Materials, Methods and Money in reducing costs and
increasing benefits.

From the above discussion, we can justify that direction is the heart of management
process. As heart plays an important role in a human body so as direction in an
enterprise. Direction translates plans and programs in to performance with the active
support of its elements .According to Earnest Dale, “Directing is what has to be done
and in what manner through dictating the procedures and policies for accomplishing
performance standards”. Therefore, it is rightly said that direction is the essence of
management process.

13.4 PRINCIPLES OF DIRECTION

Subordinates are the frontline soldiers of organisations and effective direction leads to
greater contribution of subordinates towards organization goals. The directing function
can be well effective only when it is based on the accepted and well framed basic
principles, which are explained below:

1. Harmony of Objectives
Harmonisation of personal interest and organisational interest must be ensured so
as to make the people realize the objectives of the group and direct their efforts
towards the achievement of their objectives. Proper realisation of common
objectives would lead to subordination of individual interest to group interest. The
interest of the group must always prevail over individual interest.

2. Unity of Command
Source of direction should be unitary. This upholds the principle of unity of
command. It simply means that one person should receive orders from only one
superior. In other words, one person should be accountable to only one superior.
Violation of this principle would lead to confusions and chaos. If one subordinates
receives directions from two managers, which may be contradictory in nature then
authority is undermined, discipline weakened, loyalty divided and results in delays.

4
3. Unity of Direction
To have effective direction, the group should be aware of the common objective.
This will make them clear as to which way they should move on the directed line
together. In other words, each group of activities having the same objectives must
have one plan of action and must be under the control of one supervisor.

4. Direct Supervision
The directing function of management becomes more effective if the superior
maintains direct relations in the span of control. This culminated in to direct
supervision and direct supervision infuses a sense of participation among
subordinates .This motivates them to put in their best to achieve the organizational
goals. Direct supervision also enables the managers to get proper feedback.

5. Participative Management
When directions are issued after consulting the subordinates or by accepting their
suggestions, it becomes more effective. This also become instrumental in instilling
a sense of belongingness amongst the subordinates. In the long run it helps in
reducing labour turnover and increasing productivity.

6. Effective Communication
The flow of instructions, ideas and feedback are essential to have an effective
direction. The faster they flow the more effective they become. This can be ensure
by an effective communication network. So, a robust and effective communication
channel, both formal and informal, is a pre-requisite for effective direction This
provides for free flow of information, suggestions, ideas, and grievances.

7. Follow-up
Making direction effective without follow up measures is just like building castles
in the air. In order to make direction effective, a manager has to continuously follow
to ensure that guidelines are followed without deviation and subordinates are
guided properly whenever deviation is observed. This is not feasible without
follow-up. This not only helps in detecting the deviation early and controlling the
damage but also give a sense of security to the subordinates.

13.5 ELEMENTS OF DIRECTION

The important elements of direction are as follows-

i) Supervision
Supervision is an important element of the directing function of management. It refers to
monitoring the progress of work of one’s subordinates to ensures that the progress is
5
according to the plan and direction and guiding them properly. Supervision has an
important feature which includes face-to-face interaction between the supervisor and his
subordinates. This is an essential element of direction as it translates plans in to action.

ii) Motivation
Motivation as an element of direction has its own role to play. Motivation is that force
which drives a man to work and keeps him working. Since human factor is the only factor
which provides mobility to other factors and dynamic in nature. This human factor is also
the deciding factor in the success or failure of an organisation. Keeping them motivated
through direction by means of monetary and nonmonetary incentives, will go a long way
in achievement of organisational objectives which measures the success of direction.

iii) Leadership
Direction and leadership are so closely associated that sometimes they are treated in a
similar sense. The manager, who issues instructions or direct the subordinate regarding
the activities to be undertaken, is also a leader. While directing, if adequate leadership
skills are not displayed then direction will be meaningless and the purpose will be lost.
This will demotivate the subordinates and they will be directionless. Hence, leading plays
a decisive role in directing.

iv) Communication
Directing requires act of transferring facts, ideas, figures, etc. from one person to another
in various levels of an organisation. To facilitate this the communication system should be
proper and responsive. Directing function becomes effective only when the manager
knows the intricacies of communication so as to make the subordinates understand the
instructions properly. If communication is not proper or distorted then direction fails in
guiding the subordinates. Basically, success of direction solely depends on effectiveness
of communication.

Keeping the above in view, it would not be wrong to say that Supervision, Motivation,
Leadership and Communication are the four pillars of Direction.

13.6 LET US SUM UP

Directing function of management refers to the process of instructing, guiding,

counselling, motivating and leading people in the organisation to achieve its objectives.
It is one of the key managerial functions performed by every manager. As the heart of
management functions, it strives to reach the goal by taking all along through a set of
guiding principles that streamline the process. It rests on four strong pillars of
Leadership, Supervision, Motivation and Communication to act as the life spark of an
enterprise.

6
UNIT-14 LEADERSHIP

Structure :

14.0 Objectives
14.1 Introduction
14.2 Leadership Styles
14.3 Leadership Theories
14.3.1 Contingency
14.3.2 Trait Theory
14.3.3 Blake and Mouton’s Managerial Grid
14.4 Types of Power
14.5 Types of Leader and Power Concept
14.5.1 Thought leaders
14.5.2 Courageous leaders
14.5.3 Inspirational leaders
14.5.4 Servant leaders
14.6 Formal vs. Informal Leader
14.7 Let’s Sum up
14.8 Key Terms
14.9 Self -Assessment Questions
14.10 Further Readings
14.11 Model Questions

14.0 LEARNING OBJECTIVES

After completing this unit, you will be able to know:

• About various leadership styles
• The role and responsibilities of a good leader
• Types of leaders and power concept
• Different theories and styles of leadership

14.1 INTRODUCTION

Leadership is a process by which a person influences others to accomplish aims or

objectives, using their capacity to motivate, inspire and influence others. Leadership is
related to other management concepts such as motivation, communication, authority,
power and delegation, it is the relationship through which one person influences the
behaviour and actions of other people.

8
The position as a ‘manager’ gives the authority to accomplish certain tasks and
objectives, but this power or influence, perhaps through official job title, does not make
a manager a leader. Being a manager makes you ‘the boss’, but being a leader means to
motivate, inspire and influence others e.g. ‘followers’, to achieve aims or objectives,
not just from ‘bossing them around’. Natural leaders have the power to initiate action
without any formal authority.

Characteristics or ‘Personality Traits’ of good leaders

 Trustworthy and a good listener

 Enthusiastic and need for achievement
 Confident and competent
 Inspirational and motivational
 Coach and counselor
 Good communicator and well organized
 Tolerant, diplomatic and intelligent
 Committed to excellence
 Adaptable and flexible

14.2 LEADERSHIP STYLES

What is Hawthorne Studies?

A series of experiments were conducted by Mayo and Roethlisberger in an electricity
factory called the Western Electric company at their Hawthorne plant known as
Hawthorne Works, at Illinois, in USA, on factory workers between 1924 and 1932.
These studies are known as Hawthorne Studies. Initially, the study focused on effect of
lighting on productivity and later was enhanced to study the social effects.

First Experiment on Lighting:

In the first experiment, the effect was observed for minute increases in illumination. In
these lighting studies, light intensity was altered to examine its effect on worker
productivity. One phase of these studies aimed at finding out if changes in illumination,
rest period and lunch breaks can affect the productivity of the workers. It was found to
the surprise of the researchers that less light, shorter and fewer rest periods and shorter
lunch breaks resulted in increased productivity. Once all these changes; were eliminated
and the normal working conditions were resumed, it was also seen that the workers'
productivity and the feeling of being together went up.''

Two things emerged from the initial studies: (1) the experimenter effect, and (2) a social
effect. The experimenter effect was that making changes was interpreted by workers as
a sign that management cared, and more generally, it was just provided some mental
9
stimulation that was good for morale and productivity. The social effect was that it
seemed that by being separated from the rest and being given special treatment, the
workers developed a certain bond that also increased productivity. Hence the increase
in productivity was attributed to the attitude of workers towards each other, their feeling
of togetherness and to the attention paid to the workers by the researches that made them
feel important which resulted in improvement in their work performance. This is known
as Hawthorne effect.

Second Experiment - Bank Wiring Room:

The second phase of the study, the Bank Wiring Room, helped in studying the social
effects. The purpose of the next study was also to find out how payment incentives
would affect productivity. The study was conducted by Elton Mayo and W. Lloyd
Warner between 1931 and 1932 on a group of fourteen men who put together telephone
switching equipment. During this study some workers were put in a special room, and
placed an observer full time in the room to record everything that happened. The kind
of work done was assembling telephone switching equipment. The process was broken
down into three tasks: wiring, soldering and inspection. Besides looking at the social
organization of the group, they kept track of performance variables, like quality of work
and amount of work.

The researchers found that although the workers were paid according to individual
productivity, productivity decreased, even though they were paid by the amount they
did each day, they did not raise outputs. If somebody tried, he faced opposition from
others as the team became afraid that if some started producing more, the company
would change the base rate. The surprising result was that productivity actually
decreased. Workers apparently had become suspicious that their productivity may have
been boosted to justify firing some of the workers later on.

Detailed observation between the men revealed the existence of informal groups or
"cliques" within the formal groups. These cliques developed informal rules of behavior
as well as mechanisms to enforce them. The results show that workers were more
responsive to the social force of their peer groups than to the control and incentives of
management. Just as management tried to control worker behavior by adjusting piece
rates, hours of work, etc., the workers responded by adjusting management toward goals
that were not necessarily economically rational.

Leadership Lessons from Studies:

Researchers concluded that the workers worked harder because they thought that they
were being monitored individually. Researchers hypothesized that choosing one's own
coworkers, working as a group, being treated as special and having a sympathetic
supervisor were the real reasons for the productivity increase. One interpretation was
that "the six individuals became a team and the team gave itself wholeheartedly and
10
spontaneously to cooperation in the experiment. This study established the behavioral
change that happened due to an awareness of being observed, resulting in active
compliance with the supposed wishes of researchers, because of special attention
received, or positive response to the stimulus being introduced.

These findings made Mayo and Roethlisberger conclude that a leader has not only to
plan, decide, organize, lead and control but also consider the human element. This
includes social needs of being together and being recognized for the work interaction
of the group members with each other and their wellbeing. A good leader ought to keep
the above aspects in his style of working with people and supervising their work.

Douglas McGregor’s theory X and theory Y

Douglas McGregor described two individuals in life ‘the untrustworthy, money
motivated, calculative mass, and the trustworthy, broadly motivated, moral elite who
organise and manage the mass’. The manager depending on their perception of
subordinates, would use either a Theory X or Theory Y style of leadership. The
assumptions of the sub-ordinate is therefore the intervening factor in deciding which
leadership style a manager should adopt.

• Theory X The assumption or perception of theory X is that sub-ordinates ‘don’t

want to work’, they are self-interested, lazy and would prefer leisure rather than
working for someone else. The prime motivational reason why they work is for
money. This was the classical school of belief of management until early
twentieth century, in line with the views of Henry Fayol and Frederick Taylor,
classical school managers who existed at this time. To get the best out of them,
a leader must structure work and energise their sub-ordinates by close
supervision, defined tasks, systems and structure. The assumption of workers
are that they are self interested and calculative; therefore need to be coerced and
controlled by the manager.

• Theory Y The assumption or perception of theory Y is that given the right

conditions for subordinates, their application of physical and mental effort to
their work is as ‘natural as rest or play’, work offers them satisfaction and
meaning. This perception is in line with the human relations school of thought,
Elton Mayo without doubt the father of the "human relations" movement.
Contrasted to the classical school of management, this approach moved away
from the ‘carrot and stick’ approach to the belief that ‘contented cows produce
the most milk’ To get the best out of them, a leader must let sub-ordinates
exercise more discretion and control over their own work. Sub-ordinates are
committed and will exercise self-direction and self-control. The leader therefore
should be group centered, reinforcing friendship, support and respect, sub-
ordinates will thrive on the challenge, responsibility and delegation given.
11
Michigan Studies on Leadership Styles : The employee oriented style of the leader
emphasizes the relationship aspect of the jobs of the individual. Such a leader takes
interest in every one and accepts the individuality and personal needs of the individual.
He has complete confidence and trust in all matters in his subordinates. His subordinates
feel free to discuss things about their jobs with their superior. He always asks
subordinates for ideas and opinions and always tries to make constructive use of them.
The production oriented style of the leader emphasizes production and technical aspects
of the job. He looks at subordinates or employees as tools to accomplish the goals of
the organisation. Work, working condition and work methods are tried to be understood
better in his style of the leadership orientation. Likert related these orientations to the
performance of the employees. He showed that the employee oriented style brought
high producing performance compared to production-oriented style. Of course, the
satisfaction of employees was not directly related to productivity in Likert’s study.

14.3 LEADERSHIP THEORIES

14.3.1 Contingency Theory

The belief that there is no single correct or best way to manage subordinates, it entirely
depends on different circumstances. Contingency or situational approaches to
leadership style state that different leaders emerge to fit the situation, therefore different
situations require different leadership traits or skills. Also there is no single ‘best’ style
of leadership, therefore the leader must act in an adaptable way, diagnosing the
leadership style appropriate to the situation, but also has to apply and adopt appropriate
styles given the circumstances.

Contingency theories focus on variables relating often to the task and environment in
order to determine which particular style of leadership is best suited. Leadership styles
adopted could depend on factors such as the task, relationship between the manager and
subordinate, the willingness and ability of sub-ordinates, their motivation, knowledge,
skills or aptitudes to perform the job or task effectively. Therefore effective leaders need
to be flexible and adapt according to the situation. Lawrence and Lorsch (1967)
concluded from their research that there is no single best way to organize or manage
people.

Therefore management should adapt certain behaviour or different leadership styles to

suit a given set of circumstances. The major problem in practice of contingency theory
is that managers may need to adapt or change their own behaviour as situations change,
and this is not as easy as you would expect, someone with a military background, who
is by nature assertive and autocratic, would need extensive self awareness and training
in order to modify to a democratic management style.

12
14.3.2 Trait theory of leadership

The trait approach to leadership was one of the earliest theories of leadership. Although
it is not a fully articulated theory with well-developed hypotheses, the trait approach
formed the basis of most early leadership research. This approach focuses on the
personal attributes (or traits) of leaders, such as physical and personality characteristics,
competencies, and values. It views leadership solely from the perspective of the
individual leader. Implicit in this approach is the assumption that traits produce patterns
of behavior that are consistent across situations. That is, leadership traits are considered
to be enduring characteristics that people are born with and that remain relatively stable
over time.

These traits included the following:

• Physical vitality and stamina
• Intelligence and action-oriented judgment
• Eagerness to accept responsibility
• Task competence
• Understanding of followers and their needs
• Skill in dealing with people
• Need for achievement
• Capacity to motivate people
• Courage and resolution
• Trustworthiness
• Decisiveness
• Self-confidence
• Assertiveness
• Adaptability/flexibility

One of the concerns about such lists is that the attributes typically associated with
successful leaders are often perceived as “male” traits. Reportedly, when men and
women are asked about the other gender’s characteristics and leadership qualities,
significant patterns emerge, with both men and women tending to see successful leaders
as male.

But there are also some problems associated with this theory. Many early researchers
found no differences between leaders and followers with respect to their leadership
characteristics—some even found that individuals who possessed these traits were less
13
likely to become leaders. Researchers also found very small relationships between these
traits and leadership effectiveness. Because so few of the traits clearly differentiated
between effective and ineffective leaders, their efficacy in selecting individuals for
leadership positions was severely limited. There were too many leadership variables
with low reliabilities, and no rationale for selecting specific variables to include in a
study. This approach has been called “dustbowl empiricism” at its worst. Additionally,
there has been little systematic research on the processes by which individuals acquire
the capacity for leadership. If leadership is indeed an individual difference variable, then
very little is known about the origin of these differences.

14.3.3 Blake and Mouton’s Managerial Grid

First developed in the 1960s, the managerial grid has been through many iterations
(Blake & Mouton, 1964, 1978, 1985, 1994). It is widely accepted as a critical and
important analysis of leadership behavior. It is similar in some respects to the Ohio State
Studies, which combined a focus on tasks and a focus on the relationship with the
subordinate. However, the managerial grid develops these concepts further by
quantifying the degree to which the focus is on tasks or “concern for production/results,”
and the focus is on the relationship with the subordinate or “concern for people.” The
one to nine scale in figure given below allows for discernment among the various
responses regarding concern for production or people, where one represents a low
concern and nine represents a high concern. Blake and McCanse (1991) postulated there
were five leadership types:

1.1—Impoverished Management: Emphasizes a situation in which there is both low

concern for results and low concern about people. The apathetic nature of this leader
results in behavior that is withdrawn from subordinates and indifferent to success.

1.9—Country Club Management: This combination of low concern for results with
high concern for people results in a leader who is more interested in pleasing people
than in the performance of tasks. This leader attempts to create an environment that is
friendly and welcoming

9.1—Authority-Compliance Management: This represents a high concern for results

but a low concern for people. This controlling leadership style is characterized by
dictating instructions to subordinates in a way that does not show concern or
compassion.

5.5—Middle of the Road Management: This style of compromise is evident in leaders

who balance concern for results with satisfying relationships. The group is functioning;
however, there is potential for greater success.

14
9.9—Team Management: Great emphasis is placed on production and on people. This
optimal balance of developing human relationships and effective results attainment
provides for the most satisfying work environment.

14.4 TYPES OF POWER

• Charisma
Charisma is the power of influence inherent in a leader’s style or personality. A
charismatic leader develops a new, ambitious vision for the company and communicates
it to employees through powerful speeches and unique behavior. The charismatic leader
is also sensitive toward the needs of employees. Managers can augment their charisma
by making small changes in behavior to create better rapport with others, such as
making more eye contact or smiling.

• Legitimacy
Legitimate power resides in the leader’s position. People comply with legitimate
requests because they feel they have to. Legitimate requests are more effective if they
are made with respect and humility rather than arrogance.

• Rewards
Influence by rewards requires offering something in return for complying with a
request. Rewards should be of value to the person. Effective rewards may come in the
15
form of public recognition and awards. More importantly, the link between behavior
and reward should be clear to employees.

• Expertise
Leaders can exercise influence by rational persuasion based on knowledge, skills or
special abilities. The leader presents a plan of action with logical arguments and
supporting evidence. Professionals such as lawyers, physicians and accountants draw
on this type of influence.

• Relationships
The leader’s relationship network is a source of power and influence. To cultivate this
type of power, managers need to identify and befriend the right people. Moreover, they
should repair damaged relationships, improve their image, and seek to understand others
better.

• Empowering
To builds an effective organization, managers should avoid hoarding power. Leaders
need to empower followers and teach them the effective use of power and leadership.
Empowering leverages manager's influence and increases leadership effectiveness.

14.5 TYPES OF LEADER AND POWER CONCEPT

Leaders may be categorized into the following four types:

1. Thought leaders
2. Courageous leaders
3. Inspirational leaders
4. Servant leaders

14.5.1 Thought Leaders

Thought leaders harness the power of ideas to actualize change. They stretch their
followers by helping them envision new possibilities. Oliver Wendell Holmes said,
“The human mind once stretched to a new idea never goes back to its original
dimension.”

Sometimes a new idea can bring about a paradigm shift, which may provide a new lens
for viewing or a radically different context for understanding. At other times, the new
idea leads to only incremental change. But all change, whether large or small, starts
with a new idea.

16
For centuries, thought leaders have competed in the marketplace of ideas using books,
papers, and oral presentations. They still do, but today they also use the Internet, social
media, and other technological advances to disseminate their ideas more rapidly and
broadly. E-books, blogs, e-zines, tele-seminars, and Webinars have made thought
leadership instantaneously available to ordinary citizens.

Examples of thought leaders:

Many of Jack Welch’s ideas challenged conventional business practices. Some of his
leading-edge ideas included “workout and best practices,” stretch goals, creating
boundary-less organization (breaking down all “silos”), and pursuing Six Sigma quality.

Steve Jobs was the co-founder, chairman, and CEO of Apple Inc., where he oversaw
the development of the iMac, iTunes, iPod, iPhone, iPad, and numerous other
innovations. He has been referred to as the “Father of the Digital Revolution,” “a master
of innovation,” and “the master evangelist of the digital age.”

Dr. W. Edwards Deming was an American statistician, professor, author, lecturer, and
consultant. After World War II, his ideas about quality and process control had a major
positive impact and influence on Japanese manufacturing businesses. Subsequently, his
concepts and teachings spurred a major quality revolution among American
manufacturers and consumers.

Thought leaders attract followers and initiate change by the power of their ideas.'

14.5.2 Courageous Leaders

Courageous leaders bravely pursue a vision in the face of considerable opposition and
risks. They have strong convictions about their mission (purpose), vision (long-term
goals), and values (right and wrong). They speak up for their core beliefs and fight for
their values, even when their stand is unpopular. They have strong beliefs, being able
to stick with them through popular and unpopular times, is the most important
characteristics of a great leader.”

In addition, they seek the truth and speak the truth.

Examples of courageous leaders:

Rosa Parks was an African-American civil rights activist, who the U.S. Congress called
“the first lady of civil rights” and “the mother of the freedom movement.” On December
1, 1955, in Montgomery, AL, she refused to obey the bus driver’s order that she give
17
up her seat to a white passenger. Her great courage marked a pivotal point in the Civil
Rights Movement.

Abraham Lincoln, the 16th president of the United States, served during the most
difficult and dangerous period of our nation’s history. Even though his life was
constantly in danger and his policies were unpopular with many, he steadfastly held to
his convictions and governed with strength, fairness, and dignity. On January 1, 1863,
he courageously issued his memorable Emancipation Proclamation, which declared the
freedom of slaves within the Confederacy.

Sherron Watkins (Enron), Coleen Rowley (FBI), and Cynthia Cooper

(WorldCom) are three “whistleblowers” who had the courage to confront higher-ups
in their organizations, even though it meant jeopardizing their jobs and careers. In 2002,
Time magazine selected them as persons of the year.

Courageous leaders attract followers and motivate people to change by their willingness
to take risks and stand up for their beliefs and values.

14.5.3 Inspirational Leaders

Inspirational leaders promote change by the power of their passionate commitment to

ideas and ideals. They lift our eyes from present practicalities to future possibilities.
Their words stir up our spirits, strengthen our convictions, and move us to action. We
are eager to follow them because they call forth the best that is in us.

Inspirational leaders have positive attitudes that create strong emotional connections
with people. Their speech is enlivened with words such as justice, freedom, honor,
respect, pride, and love. Their affirming and encouraging demeanor builds the
confidence of their followers and elicits their wholehearted devotion. Their can-do
attitude keeps hope alive during difficult times.

Inspirational leaders create a sense of urgency by explaining why it’s important to take
action sooner rather than later. In addition, they describe actionable steps people need
to take.

Examples of inspirational leaders:

Ronald Reagan, the 40th president of the United States, was known for his strong
leadership on behalf of free enterprise and politically conservative ideals. His
inspirational leadership style incorporated excellent communication skills seasoned
with humor and optimism. He had a sign on his desk in the Oval Office that read, “It
can be done!”
18
Martin Luther King, Jr., was an American clergyman, activist, and leader in the
African-American Civil Rights Movement. He is best known for his belief in nonviolent
civil disobedience. His words and actions have inspired many people to speak up and
stand up for what’s right.

Pat Summit was the leader of the University of Tennessee Lady Volunteers basketball
program for 38 years. She was known as an intense, demanding, focused, determined,
and inspiring coach. She compiled an amazing record of 1,098 wins and 208 losses,
winning eight NCAA national championships along the way.
Inspirational leaders attract followers and motivate people to change by the power of
their passion and their strong convictions.

14.5.4 Servant Leaders

Servant leaders care deeply about people. They seek to remove the barriers and
obstacles that hold others back from achieving their full potential. They strive to create
an environment where their followers can do their best work. Servant leaders frequently
ask, “How can I help?”

Former AT&T executive Robert K. Greenleaf popularized the concept of the servant
leader in “The Servant as Leader,” an essay first published in 1970. Kent Keith, CEO
of the Greenleaf Center for Servant Leadership, states, “I think the simplest way to
explain it would be to say that servant leaders focus on identifying and meeting the
needs of others rather than trying to acquire power, wealth, and fame for themselves.”

Examples of servant leaders include:

Mother Teresa founded the Missionaries of Charity, a Roman Catholic religious

congregation, in Calcutta, India. Today, the ministry has more than 4,500 sisters
ministering in 133 countries. Members vow to give “wholehearted and free service to
the poorest of the poor.”

Oprah Winfrey is the chairman of Harpo Inc. Her focus is helping others succeed.
Many of her TV programs and outreach initiatives are aimed at removing obstacles, so
people can achieve their potential. Her goal is to empower people to achieve their
dreams.

Max De Pree was the CEO of Herman Miller office furniture company from 1980 to
1987. Max states, “The first responsibility of a leader is to define reality. The last is to
say ‘thank you.’ In between, the leader is a servant.”

19
Servant leaders attract followers and motivate people to change by helping to remove
obstacles that are in the way of their growth and development.

Successful leaders come in different shapes and sizes. No two are alike, and no single
leadership style is always best. All leaders want to change the status quo, but they use
different means. Some take the lead with their ideas, while others lead with their passion
and conviction. Still others lead by demonstrating courage in the face of risks and the
unknown, and some bring about change by serving others.

14.6 FORMAL vs INFORMAL LEADER

Formal leader is a member of organization who has given authority by virtue of his
position to influence other members of organization to achieve organizational goals. An
informal leader has no formal organizational authority to influence others but possesses
special kills and talent to influence and lead other members of organization. Managers,
directors are formal leaders in a typical organization. Informal leaders possess strong
self-motivation, possess positive attitude, motivates others and puts effort to drive
organizational goals. Informal leaders are best candidates for future formal leaders

Important differentiator factor between formal and informal leader is, formal leader is
officially bind to drive members towards organizational goal and is responsible for
results or outcome of efforts at the end. Informal leader do not have such official
commitment towards group’s goal or organization goal and may not be directly
responsible for final results and may not be accountable for it. Formal leader has official
responsibility towards organizational goals, has formal job description. Informal leader
might not have formal job description to lead and motivate others and job description
might be limited to certain task.

Leading is one of principal managerial functions. Managers are supposed to be formal

leaders because they have the authority to influence their subordinates and are expected
to use it. They are officially responsible for outcome of their group. However, in an
organization, not all managers are leaders, whether they have direct reports or not. In
certain cases job description might demand strong leadership, on other hand leadership
might not be major factor. However, in today’s competitive world, most of the
managerial jobs demand leadership qualities, inter personal and inter group interaction
and a manager has to manage different type of responsibilities and roles. A leader
influences other member of groups, leads group, and directs members towards its goals.
A leader influences subordinate’s level of motivation, their performance and quality of
their decisions.

A leader may succeed or many not succeed to help organization achieve its goal.
Effective leader helps organization achieve goal, an ineffective leader does not.
20
UNIT-15 STAFFING

Structure

15.0 Learning Objectives

15.1 Introduction
15.2 Meaning and definition
15.3 Importance
15.4 Process/Functions
15.5 Let’s Sum-up
15.6 Key Terms
15.7 Further Readings
15.8 Model Questions

15.0 LEARNING OBJECTIVES

After completing this module the students will be able to

 Know the meaning and importance of staffing.
 Know the nature of staffing
 Know the process and functions of staffing

15.1 INTRODUCTION

After planning and organizing the next function of management is ‘Staffing’ .It is
important to have a good organization structure, but it is even more important to fill the
positions with the right people at the right time. Staffing is filling and keeping the
position provided by the organization structure with right kind of people at the right
place. All the managers have a responsibility for staffing. The staffing function deals
with the human elements of management. This function has assumed significant
importance because of advancement of technology, growth in size of organizations and
complex human behaviour.

15.2 MEANING AND DEFINITIONS

Staffing is the third function of management. Staffing includes recruitment, selection,

training, developing, promotion and compensation of personnel. It is the process of
hiring and developing the required personnel to fill various positions in the organization.
It involves estimating the number and type of personnel required, recruiting and
developing them, maintaining and improving their competence and performance.

23
Staffing may also be defined as the process of identifying, assessing, placing,
developing and evaluating individuals at work.

According to Koontz and O’Donnell, “Staffing involves manning the organization

structure through proper and effective selection appraisal and development of personal
to fill the roles designed into the structure.”

According to Mc Farland,” The staffing function of management consists of few

interrelated activities such as planning of human resource, recruitment, selection,
placement, training and development, remuneration, performance appraisal, promotion
and transfers. All these activities make up the elements of the process of staffing.”

15.3 IMPORTANCE OF STAFFING

Staffing is people centered. Success in dealing with people depends on the extent to
which they are perceived as making realistic contribution to the solutions of managerial
issues. We must bear in mind that every manager is expected to perform this function
because he is engaged in getting things done through and with other people. There are
various benefits of proper and efficient staffing. These are as under:

a) Helps in finding efficient worker - Staffing helps in discovering talents. For

achievement of organizational goals, engaging competent workers and
developing them to work more efficiently are prime concern of the organisation.

b) Helps in increased Productivity – Staffing ensures greater productivity by

putting right man at the right job. It helps in improved productivity through
proper selection as per the job requirement.

c) Maintains Harmony - Staffing maintains harmony in the organisation.

Through proper recruitment, selection, training and continuous appraisals,
individuals are not just selected but developed to boost their performance and
contributions. This gives everyone an equal opportunity for getting better
compensation which eventually resulted in peace and harmony.

d) Helps in morale boosting - Boosting of morale of the employees is directly

related to employees satisfaction .Through various training and development
programmers their knowledge, skills and abilities improve. This gives them a
feeling of security and assured them of their career advancement.

e) Helps in Optimum utilization of human resources - Manpower Planning

provides a basis for recruitment, transfer and training of employees. Deficiency

24
 or surplus of manpower is revealed in advance and adequate steps are taken for
optimum utilisation of the Human resource.

15.4 STAFFING PROCESS

Staffing function is performed by all managers at all levels. However, its scope is
different in small and large organization. In large organization there is a separate
department called Human Resources Department (HRD), with specialists to manage the
people. Staffing is an inherent part of Human Resources Management as it is the
practice of finding evaluating and establishing a working relationship with people.

Following are the steps involved in staffing process

1. Manpower planning- Estimation of manpower requirements in the future is the

first stage in the staffing process. It is known as manpower or human resources
planning. Its purpose is to make right kind of personnel available so that there is no
surplus or shortage of people in any department. To determine the qualifications
needed to meet the requirements of jobs, the organisation first of all has to analyse
the jobs, write the jobs description and prepare job specifications.

2. Recruitment - Once the manpower requirement is known, the process of

recruitment starts. It is the process of identifying the sources for prospective
candidates and to explore the methods to ensure them to apply for the jobs. The
process of recruitment and the cost involved in it depends on the size of the
undertaking, types and numbers to be recruited. The sources of recruitment can be
through:

a) Internal sources through promotions and transfers of existing employees and

succession planning.
b) External Sources denote recruitment from outside through employment
exchange, manpower supply agencies, advertisement, campus recruitment,
poaching, reference etc.

3. Selection - The process of selection leads to employment of persons who fulfils the
eligibility criteria like: qualifications, experience etc. to fit in to the job-profile.
However, the candidates are to go through a process, which is known as selection
process. This process begins with tests, interviews, shortlisting, medical
examination etc.

Selection is frequently described as a process of rejection, as it eliminates all the

candidates those who do not match up to the requirements of the job offered. As
the employees are placed in the jobs for which they are best suited, they derive
25
 maximum job satisfaction reducing the labour turnover and increasing the overall
efficiency of the organization. The candidates have to go through the whole
selection process of an organization as stated above.

Tests may be written, on the job skill test to determine the level of Knowledge,
skills and attitude.

Interviews are conducted to have an interaction with the potential employee to

judge his personality, emotional maturity, aptitude and attitude. This also gives a
chance to the candidate to explain, why he should be selected. There are different
types of interviews like, one to one panel, stress etc.

In most cases, Group Discussion is also conducted to assess the leadership quality
of the candidates.GD is conducted mostly for junior and middle level executives.

Certain MNCs also conduct informal interviews over lunch or dinner and
sometimes through telephones or video conferencing. The idea is to get to know
the candidate maximum in minimum time as the organisation is going to invest a
fortune in him.

4. Placement- The candidate selected for appointment are to be offered specific jobs.
A personnel should be placed in a position where there is full use of his capabilities.
Proper placement reduces demotivation, inefficiency, turnover and absenteeism.

Almost all the organisation schedule a training programme for the newly selected
candidates before they are put in the designated position.

5. Training and Development- Training is an organized activity for increasing the

knowledge, skills and attitude of the people for a definite purpose .Its purpose is to
achieve a change in the behaviour of the employees so as to make them befitting
for the designated job. Training is imparted for capacity building and enable them
to contribute their best. Their jobs better. The initiative for training generally comes
from the management. Development emphasizes on growth of an individual. It’s a
continuous process for holistic development of the employees.

According to Edwin B Flippo ' Training is the act of increasing the knowledge and
skills of an employee for doing a particular job.’

Types The training may be of

I. On the Job Training
II. Off the Job Training

26
 I. On the Job Training: It refers to the learning while actually performing a
particular work or job. This type of training is more suitable to every type of
employees. It includes:
a. On specific job training
b. Rotation of position /job rotation
c. Special projects
d. Apprenticeship training/Mentoring

II. Off the Job Training: Under this method, a trainee is removed from his normal
working place and spends his full time for training purpose in any other place-
training institutes, tourist resorts/hotels with professional or in-house trainers .It
includes:
a. Induction or on-board training
b. Intensive training
c. Conference
d. Case study
e. Role playing
f. Management games
g. Vestibule/simulation training

6. Performance Appraisal is a formal procedures to evaluate contributions of an

employees to the organisation. It also reveals efficiency, attitude and other qualities
of the assessee, which form the basis for his training need and career path.

Objectives of Performance Appraisal:

 To help a manager to decide the increase in pay on ground of merits.
 To find out the training needs.
 To nominate employees for training programs.
 To motivate the employees to do better in his or her present job.
 To contribute to the growth and development of an employee.
 To identify employees for deputation to other organizations
 To help in creating a desirable work culture in the organization.

7. Promotion and Transfers are affected on the basis of feedback report of

employees’ performance .Transfer means shifting of an employees from one job to
another or one department to other on promotion or due to change in organization
structure/changes in the volume of work.

8. Compensation offered by organizations must be competitive not only during the

tenure of the employee but also after his retirement to attract and retain talented
27
 Bachelor of Commerce
(BCOM)

BCO-7
Management Principles and Applications

Block-6
Motivation, Coordination and
Control
Unit-16 Motivation
Unit-17 Coordination
Unit-18 Control
UNIT-16 MOTIVATION

Structure:

16.0 Learning Objectives

16.1 Meaning of Motivation
16.2 Importance of Motivation
16.3 Motivation incentives
16.4 Motivational challenges
16.5 Theories of Motivation
16.6 Motivation and Morale - Relationship and Differences
16.7 Let’s sum up
16.8 Key Terms
16.9 Self- Assessment Questions
16.10 Further Readings
16.11 Model Questions

16.0 LEARNING OBJECTIVES

After completing this unit you will be able to:

 Understand the concept and meaning of motivation,
 Understand the nature of the motivation,
 Describe the importance of the motivation and
 Define different theories of motivation.

16.1 MEANING OF MOTIVATION

Motivation is the word derived from the word ’motive’ which means needs, desires,
wants or drives within the individuals. It is the process of stimulating people to actions
to accomplish the goals. In the work goal context the psychological factors stimulating
the people’s behaviour can be -
 Desire for money
 Success
 Recognition
 Job-satisfaction
 Team work, etc

One of the most important functions of management is to create willingness amongst

the employees to perform in the best of their abilities. Therefore the role of a leader is

1
to arouse interest in performance of employees in their jobs. The process of motivation
consists of three stages:-
1. A felt need or drive
2. A stimulus in which needs have to be aroused
3. When needs are satisfied, the satisfaction or accomplishment of goals.

Therefore, it can be said that motivation is a psychological phenomenon which means

needs and wants of the individuals have to be tackled by framing an incentive plan.

16.2 IMPORTANCE OF MOTIVATION

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

provides:

Puts human resources into action: Every concern requires physical, financial and
human resources to accomplish the goals. It is through motivation that the human
resources can be utilized by making full use of it. This can be done by building
willingness in employees to work. This will help the enterprise in securing best possible
utilization of resources.

Improves level of efficiency of employees: The level of a subordinate or a employee

does not only depend upon his qualifications and abilities. For getting best of his work
performance, the gap between ability and willingness has to be filled which helps in
improving the level of performance of subordinates. This will result into-
 Increase in productivity
 Reducing cost of operations, and
 Improving overall efficiency

Leads to achievement of organizational goals: The goals of an enterprise can be

achieved only when the following factors take place :- There is best possible utilization
of resources, There is a co-operative work environment, The employees are goal-
directed and they act in a purposive manner Goals can be achieved if co-ordination and
co-operation takes place simultaneously which can be effectively done through
motivation

Builds friendly relationship : Motivation is an important factor which brings

employees satisfaction. This can be done by keeping into mind and framing an incentive
plan for the benefit of the employees. This could initiate the following things:
 Monetary and non-monetary incentives,
 Promotion opportunities for employees,
 Disincentives for inefficient employees.

2
In order to build a cordial, friendly atmosphere in a concern, the above steps should be
taken by a manager. This would help in: Effective co-operation which brings stability,
Industrial dispute and unrest in employees will reduce, The employees will be adaptable
to the changes and there will be no resistance to the change, This will help in providing
a smooth and sound concern in which individual interests will coincide with the
organizational interests, This will result in profit maximization through increased
productivity.

Leads to stability of work force: Stability of workforce is very important from the
point of view of reputation and goodwill of a concern. The employees can remain loyal
to the enterprise only when they have a feeling of participation in the management. The
skills and efficiency of employees will always be of advantage to employees as well as
employees. This will lead to a good public image in the market which will attract
competent and qualified people into a concern. As it is said, “Old is gold” which suffices
with the role of motivation here, the older the people, more the experience and their
adjustment into a concern which can be of benefit to the enterprise.

From the above discussion, we can say that motivation is an internal feeling which can
be understood only by manager since he is in close contact with the employees. Needs,
wants and desires are inter-related and they are the driving force to act. These needs can
be understood by the manager and he can frame motivation plans accordingly. We can
say that motivation therefore is a continuous process since motivation process is based
on needs which are unlimited. The process has to be continued throughout.

We can summarize by saying that motivation is important both to an individual and a

business. Motivation is important to an individual as:

Motivation will help him achieve his personal goals. If an individual is motivated, he
will have job satisfaction. Motivation will help in self-development of individual. An
individual would always gain by working with a dynamic team. Similarly, motivation
is important to a business as the more motivated the employees are, the more
empowered the team is, the more is the team work and individual employee
contribution, more profitable and successful is the business. During period of
amendments, there will be more adaptability and creativity. Motivation will lead to an
optimistic and challenging attitude at work place.

16.3 MOTIVATION INCENTIVES

Incentive is an act or promise for greater action. It is also called as a stimulus to greater
action. Incentives are something which are given in addition to wagers. It means
additional remuneration or benefit to an employee in recognition of achievement or
better work. Incentives provide a spur or zeal in the employees for better performance.
3
It is a natural thing that nobody acts without a purpose behind. Therefore, a hope for a
reward is a powerful incentive to motivate employees. Besides monetary incentive,
there are some other stimuli which can drive a person to better. This will include job
satisfaction, job security, job promotion, and pride for accomplishment. Therefore,
incentives really can sometimes work to accomplish the goals of a concern. The need
of incentives can be many:-

 To increase productivity,
 To drive or arouse a stimulus work,
 To enhance commitment in work performance,
 To psychologically satisfy a person which leads to job satisfaction,
 To shape the behavior or outlook of subordinate towards work,
 To inculcate zeal and enthusiasm towards work,
 To get the maximum of their capabilities so that they are exploited and utilized
maximally.

Therefore, management has to offer the following two categories of incentives to

motivate employees:

Monetary incentives- Those incentives which satisfy the subordinates by providing

them rewards in terms of rupees. Money has been recognized as a chief source of
satisfying the needs of people. Money is also helpful to satisfy the social needs by
possessing various material items. Therefore, money not only satisfies psychological
needs but also the security and social needs. Therefore, in many factories, various wage
plans and bonus schemes are introduced to motivate and stimulate the people to work.

Non-monetary incentives- Besides the monetary incentives, there are certain non-
financial incentives which can satisfy the ego and self- actualization needs of
employees. The incentives which cannot be measured in terms of money are under the
category of “Non- monetary incentives”. Whenever a manager has to satisfy the
psychological needs of the subordinates, he makes use of nonfinancial incentives. Non-
financial incentives can be of the following types:-

Security of service- Job security is an incentive which provides great

motivation to employees. If his job is secured, he will put maximum efforts to
achieve the objectives of the enterprise. This also helps since he is very far off
from mental tension and he can give his best to the enterprise.

Praise or recognition- The praise or recognition is another non- financial

incentive which satisfies the ego needs of the employees. Sometimes praise
becomes more effective than any other incentive. The employees will respond
more to praise and try to give the best of their abilities to a concern.
4
 Suggestion scheme- The organization should look forward to taking
suggestions and inviting suggestion schemes from the subordinates. This
inculcates a spirit of participation in the employees. This can be done by
publishing various articles written by employees to improve the work
environment which can be published in various magazines of the company. This
also is helpful to motivate the employees to feel important and they can also be
in search for innovative methods which can be applied for better work methods.
This ultimately helps in growing a concern and adapting new methods of
operations.

Job enrichment- Job enrichment is another non- monetary incentive in which

the job of a worker can be enriched. This can be done by increasing his
responsibilities, giving him an important designation, increasing the content and
nature of the work. This way efficient worker can get challenging jobs in which
they can prove their worth. This also helps in the greatest motivation of the
efficient employees.

Promotion opportunities- Promotion is an effective tool to increase the spirit

to work in a concern. If the employees are provided opportunities for the
advancement and growth, they feel satisfied and contented and they become
more committed to the organization.

The above non-financial tools can be framed effectively by giving due concentration to
the role of employees. A combination of financial and non-financial incentives help
together in bringing motivation and zeal to work in a concern.

Positive Incentives
Positive incentives are those incentives which provide a positive assurance for fulfilling
the needs and wants. Positive incentives generally have an optimistic attitude behind
and they are generally given to satisfy the psychological requirements of employees.
For example-promotion, praise, recognition, perks and allowances, etc. It is positive by
nature.

Negative Incentives
Negative incentives are those whose purpose is to correct the mistakes or defaults of
employees. The purpose is to rectify mistakes in order to get effective results. Negative
incentive is generally resorted to when positive incentive does not works and a
psychological set back has to be given to employees. It is negative by nature. For
example- demotion, transfer, fines, penalties.

5
16.4 MOTIVATIONAL CHALLENGES

Motivation seems to be a simple function of management in books, but in practice it is

more challenging. The reasons for motivation being challenging job are as follows: One
of the main reasons of motivation being a challenging job is due to the changing
workforce. The employees become a part of their organization with various needs and
expectations. Different employees have different beliefs, attitudes, values, backgrounds
and thinking. But all the organizations are not aware of the diversity in their workforce
and thus are not aware and clear about different ways of motivating their diverse
workforce. Employees motives cannot be seen, they can only be presumed. Suppose,
there are two employees in a team showing varying performance despite being of same
age group, having same educational qualifications and same work experience. The
reason being what motivates one employee may not seem motivating to other.
Motivation of employees becomes challenging especially when the organizations have
considerably changed the job role of the employees, or have lessened the hierarchy
levels of hierarchy, or have chucked out a significant number of employees in the name
of down-sizing or right-sizing. Certain firms have chosen to hire and fire and paying for
performance strategies nearly giving up motivational efforts. These strategies are
unsuccessful in making an individual overreach himself.

The vigorous nature of needs also pose challenge to a manager in motivating his
subordinates. This is because an employee at a certain point of time has diverse needs
and expectations. Also, these needs and expectations keep on changing and might also
clash with each other. For instance-the employees who spend extra time at work for
meeting their needs for accomplishment might discover that the extra time spent by
them clash with their social needs and with the need for affiliation.

16.5 THEORIES OF MOTIVATION

A. Maslow’s Hierarchy of Needs Theory

Abraham Maslow is well renowned for proposing the Hierarchy of Needs Theory in
1943. This theory is a classical depiction of human motivation. This theory is based on
the assumption that there is a hierarchy of five needs within each individual. The
urgency of these needs varies. These five needs are as follows

Physiological needs- These are the basic needs of air, water, food, clothing and shelter.
In other words, physiological needs are the needs for basic amenities of life.

6
Safety needs- Safety needs include physical, environmental and emotional safety and
protection. For instance- Job security, financial security, protection from animals,
family security, health security, etc.
Social needs- Social needs include the need for love, affection, care, belongingness,
and friendship.

Esteem needs- Esteem needs are of two types: internal esteem needs (self-respect,
confidence, competence, achievement and freedom) and external esteem needs
(recognition, power, status, attention and admiration)

Self-actualization need- This include the urge to become what you are capable of
becoming / what you have the potential to become. It includes the need for growth and
self-contentment. It also includes desire for gaining more knowledge, social- service,
creativity and being aesthetic. The self actualization needs are never fully satiable. As
an individual grows psychologically, opportunities keep cropping up to continue
growing.

According to Maslow, individuals are motivated by unsatisfied needs. As each of these

needs is significantly satisfied, it drives and forces the next need to emerge. Maslow
grouped the five needs into two categories - Higher-order needs and Lower-order needs.
The physiological and the safety needs constituted the lower-order needs. These lower-
order needs are mainly satisfied externally. The social, esteem, and self-actualization
needs constituted the higher-order needs. These higher-order needs are generally
satisfied internally, i.e., within an individual. Thus, we can conclude that during boom
period, the employees lower-order needs are significantly met.

7
Implications of Maslow’s Hierarchy of Needs Theory for Managers
As far as the physiological needs are concerned, the managers should give employees
appropriate salaries to purchase the basic necessities of life. Breaks and eating
opportunities should be given to employees.
 As far as the safety needs are concerned, the managers should provide the
employees job security, safe and hygienic work environment, and retirement
benefits so as to retain them.

 As far as social needs are concerned, the management should encourage

teamwork and organize social events.

 As far as esteem needs are concerned, the managers can appreciate and reward
employees on accomplishing and exceeding their targets. The management can
give the deserved employee higher job rank / position in the organization.

 As far as self-actualization needs are concerned, the managers can give the
employees challenging jobs in which the employees’ skills and competencies
are fully utilized.

Moreover, growth opportunities can be given to them so that they can reach the peak.
The managers must identify the need level at which the employee is existing and then
those needs can be utilized as push for motivation.

Limitations of Maslow’s Theory

It is essential to note that not all employees are governed by same set of needs. Different
individuals may be driven by different needs at same point of time. It is always the most
powerful unsatisfied need that motivates an individual. The theory is not empirically
supported. The theory is not applicable in case of starving artist as even if the artist’s
basic needs are not satisfied, he will still strive for recognition and achievement.

B. Herzberg’s Two-Factor Theory of Motivation

In 1959, Frederick Herzberg, a behavioral scientist proposed a two-factor theory or the

motivator-hygiene theory. According to Herzberg, there are some job factors that result
in satisfaction while there are other job factors that prevent dissatisfaction. According
to Herzberg, the opposite of “Satisfaction” is “No satisfaction” and the opposite of
“Dissatisfaction” is “No Dissatisfaction”. Herzberg classified these job factors into two
categories

Hygiene factors- Hygiene factors are those job factors which are essential for existence
of motivation at workplace. These do not lead to positive satisfaction for long-term. But
8
if these factors are absent / if these factors are non-existent at workplace, then they lead
to dissatisfaction. In other words, hygiene factors are those factors which when
adequate/reasonable in a job, pacify the employees and do not make them dissatisfied.
These factors are extrinsic to work. Hygiene factors are also called as dissatisfiers or
maintenance factors as they are required to avoid dissatisfaction. These factors describe
the job environment/scenario. The hygiene factors symbolized the physiological needs
which the individuals wanted and expected to be fulfilled. Hygiene factors include:

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

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

Fringe benefits - The employees should be offered health care plans (mediclaim),
benefits for the family members, employee help programs, etc.

Physical Working conditions - The working conditions should be safe, clean and
hygienic. The work equipments should be updated and well-maintained.

Status - The employees’ status within the organization should be familiar and retained.

Interpersonal relations - The relationship of the employees with his peers, superiors
and subordinates should be appropriate and acceptable. There should be no conflict or
humiliation element present. Job Security - The organization must provide job security
to the employees.

Motivational factors- According to Herzberg, the hygiene factors cannot be regarded

as motivators. The motivational factors yield positive satisfaction. These factors are
inherent to work. These factors motivate the employees for a superior performance.
These factors are called satisfiers. These are factors involved in performing the job.
Employees find these factors intrinsically rewarding. The motivators symbolized the
psychological needs that were perceived as an additional benefit. Motivational factors
include:

Recognition - The employees should be praised and recognized for their

accomplishments by the managers. Sense of achievement - The employees must have a
sense of achievement. This depends on the job. There must be a fruit of some sort in the
job.

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Growth and promotional opportunities - There must be growth and advancement
opportunities in an organization to motivate the employees to perform well.

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

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

Limitations of Two-Factor Theory:

The two factor theory is not free from limitations:

The two-factor theory overlooks situational variables. Herzberg assumed a correlation

between satisfaction and productivity. But the research conducted by Herzberg stressed
upon satisfaction and ignored productivity.

The theory’s reliability is uncertain. Analysis has to be made by the raters. The raters
may spoil the findings by analyzing same response in different manner.

No comprehensive measure of satisfaction was used. An employee may find his job
acceptable despite the fact that he may hate/object part of his job. The two factor theory
is not free from bias as it is based on the natural reaction of employees when they are
enquired the sources of satisfaction and dissatisfaction at work. They will blame
dissatisfaction on the external factors such as salary structure, company policies and
peer relationship. Also, the employees will give credit to themselves for the satisfaction
factor at work. The theory ignores blue-collar workers.

Implications of Two-Factor Theory

The Two-Factor theory implies that the managers must stress upon guaranteeing the
adequacy of the hygiene factors to avoid employee dissatisfaction. Also, the managers
must make sure that the work is stimulating and rewarding so that the employees are
motivated to work and perform harder and better. This theory emphasize upon job-
enrichment so as to motivate the employees. The job must utilize the employee’s skills
and competencies to the maximum. Focusing on the motivational factors can improve
work-quality.

C. Theory X and Theory Y

In 1960, Douglas McGregor formulated Theory X and Theory Y suggesting two aspects
of human behaviour at work, or in other words, two different views of individuals
10
(employees): one of which is negative, called as Theory X and the other is positive, so
called as Theory Y. According to McGregor, the perception of managers on the nature
of individuals is based on various assumptions.

Assumptions of Theory X

An average employee intrinsically does not like work and tries to escape it whenever
possible. Since the employee does not want to work, he must be persuaded, compelled,
or warned with punishment so as to achieve organizational goals. A close supervision
is required on part of managers. The managers adopt a more dictatorial style. Many
employees rank job security on top, and they have little or no aspiration/ ambition.
Employees generally dislike responsibilities. Employees resist change. An average
employee needs formal direction.

Assumptions of Theory Y

Employees can perceive their job as relaxing and normal. They exercise their physical
and mental efforts in an inherent manner in their jobs. Employees may not require only
threat, external control and coercion to work, but they can use self-direction and self-
control if they are dedicated and sincere to achieve the organizational objectives. If the
job is rewarding and satisfying, then it will result in employees’ loyalty and commitment
to organization. An average employee can learn to admit and recognize the
responsibility. In fact, he can even learn to obtain responsibility. The employees have
skills and capabilities. Their logical capabilities should be fully utilized. In other words,
the creativity, resourcefulness and innovative potentiality of the employees can be
utilized to solve organizational problems.

Thus, we can say that Theory X presents a pessimistic view of employees’ nature and
behaviour at work, while Theory Y presents an optimistic view of the employees’ nature
and behaviour at work. If correlate it with Maslow’s theory, we can say that Theory X
is based on the assumption that the employees emphasize on the physiological needs
and the safety needs; while Theory X is based on the assumption that the social needs,
esteem needs and the self-actualization needs dominate the employees. McGregor views
Theory Y to be more valid and reasonable than Theory X. Thus, he encouraged cordial
team relations, responsible and stimulating jobs, and participation of all in decision-
making process.

Implications of Theory X and Theory Y

Quite a few organizations use Theory X today. Theory X encourages use of tight control
and supervision. It implies that employees are reluctant to organizational changes. Thus,
it does not encourage innovation. Many organizations are using Theory Y techniques.
11
Theory Y implies that the managers should create and encourage a work environment
which provides opportunities to employees to take initiative and self-direction.
Employees should be given opportunities to contribute to organizational well-being.
Theory Y encourages decentralization of authority, teamwork and participative decision
making in an organization. Theory Y searches and discovers the ways in which an
employee can make significant contributions in an organization. It harmonizes and
matches employees’ needs and aspirations with organizational needs and aspirations.

D. ERG Theory of Motivation

To bring Maslow’s need hierarchy theory of motivation in synchronization with

empirical research, Clayton Alderfer redefined it in his own terms. His rework is called
as ERG theory of motivation. He recategorized Maslow’s hierarchy of needs into three
simpler and broader classes of needs:

Existence needs- These include need for basic material necessities. In short, it includes
an individual’s physiological and physical safety needs.

Relatedness needs- These include the aspiration individual’s have for maintaining
significant interpersonal relationships (be it with family, peers or superiors), getting
public fame and recognition. Maslow’s social needs and external component of esteem
needs fall under this class of need.

Growth needs- These include need for self-development and personal growth and
advancement. Maslow’s self-actualization needs and intrinsic component of esteem
needs fall under this category of need

The significance of the three classes of needs may vary for each individual.

Difference between Maslow Need Hierarchy Theory and Alderfer’s ERG Theory
ERG Theory states that at a given point of time, more than one need may be operational.
ERG Theory also shows that if the fulfillment of a higher-level need is subdued, there
is an increase in desire for satisfying a lower-level need.

According to Maslow, an individual remains at a particular need level until that need is
satisfied. While according to ERG theory, if a higher- level need aggravates, an
individual may revert to increase the satisfaction of a lower level need. This is called
frustration- regression aspect of ERG theory.

For instance- when growth need aggravates, then an individual might be motivated to
accomplish the relatedness need and if there are issues in accomplishing relatedness
needs, then he might be motivated by the existence needs. Thus, frustration/aggravation
12
can result in regression to a lower-level need. While Maslow’s need hierarchy theory is
rigid as it assumes that the needs follow a specific and orderly hierarchy and unless a
lower-level need is satisfied, an individual cannot proceed to the higher-level need;
ERG Theory of motivation is very flexible as he perceived the needs as a range/variety
rather than perceiving them as a hierarchy. According to Alderfer, an individual can
work on growth needs even if his existence or relatedness needs remain unsatisfied.
Thus, he gives explanation to the issue of “starving artist” who can struggle for growth
even if he is hungry.

Implications of the ERG Theory

Managers must understand that an employee has various needs that must be satisfied at
the same time. According to the ERG theory, if the manager concentrates solely on one
need at a time, this will not effectively motivate the employee. Also, the frustration-
regression aspect of ERG Theory has an added effect on workplace motivation. For
instance- if an employee is not provided with growth and advancement opportunities in
an organization, he might revert to the relatedness need such as socializing needs and
to meet those socializing needs, if the environment or circumstances do not permit, he
might revert to the need for money to fulfill those socializing needs. The sooner the
manager realizes and discovers this, the more immediate steps they will take to fulfill
those needs which are frustrated until such time that the employee can again pursue
growth.

16.6 MOTIVATION AND MORALE - RELATIONSHIP AND

DIFFERENCES

Morale can be defined as the total satisfaction derived by an individual from his job, his
work-group, his superior, the organization he works for and the environment. It
generally relates to the feeling of individual’s comfort, happiness and satisfaction.

According to Davis, “Morale is a mental condition of groups and individuals which

determines their attitude.” In short, morale is a fusion of employees’ attitudes,
behaviors, manifestation of views and opinions - all taken together in their work
scenarios, exhibiting the employees’ feelings towards work, working terms and relation
with their employers. Morale includes employees’ attitudes on and specific reaction to
their job.

There are two states of morale:

High morale - High morale implies determination at work- an essential in achievement

of management objectives. High morale results in: A keen teamwork on part of the
employees. Organizational Commitment and a sense of belongingness in the employees
13
mind. Immediate conflict identification and resolution. Healthy and safe work
environment. Effective communication in the organization. Increase in productivity.
Greater motivation.

Low morale - Low morale has following features:

 Greater grievances and conflicts in organization
 High rate of employee absenteeism and turnover.
 Dissatisfaction with the superiors and employers.
 Poor working conditions.
 Employees frustration.
 Decrease in productivity.
 Lack of motivation.

Though motivation and morale are closely related concepts, they are different in
following ways:

 While motivation is an internal-psychological drive of an individual which urges

him to behave in a specific manner, morale is more of a group scenario.

 Higher motivation often leads to higher morale of employees, but high morale
does not essentially result in greatly motivated employees as to have a positive
attitude towards all factors of work situation may not essentially force the
employees to work more efficiently.

 While motivation is an individual concept, morale is a group concept. Thus,

motivation takes into consideration the individual differences among the
employees, and morale of the employees can be increased by taking those
factors into consideration which influence group scenario or total work settings.

 Motivation acquires primary concern in every organization, while morale is a

secondary phenomenon because high motivation essentially leads to higher
productivity while high morale may not necessarily lead to higher productivity.

Things tied to morale are usually things that are just part of the work environment, and
things tied to motivation are tied to the performance of the individual.

16.7 LET’S SUM UP

Motivation is the activation of goal-oriented behaviour. It is to give reason, incentive,

enthusiasm, or interest that causes a specific action or certain behaviour. The internal

14
UNIT-17 COORDINATION

Structure

17.0 Learning Objectives

17.1 Introduction
17.2 Nature of Coordination
17.3 Elements of Coordination
17.4 Factors Affecting Coordination
17.5 Importance of coordination
17.6 Principles of Coordination
17.7 Types of Coordination
17.8 Techniques of Coordination
17.9 Requisites of Effective Coordination
17.10 Cooperation and coordination
17.11 Let’s Sum-up
17.12 Key Terms
17.13 Further Readings
17.14 Model Questions

17.0 LEARNING OBJECTIVES

After completing this module the you will be able to:

 Know about co-ordination
 Role of co-ordination in each function of Management.
 Various types of co-ordination
 Factors affecting coordination
 To know how co-ordination helps in achieving the goals of an organization.

17.1 INTRODUCTION

Coordination plays a very important role in every field of human activity. Coordination
as the essence of management function, achieves the objectives of an enterprise by
directing and unifying group efforts. The coordinator of an enterprise must also direct
and coordinate the activities of various personnel so as to bring unified element in the
task of managing and must be effected through the various functions of the
management.

17
Definitions :

“Co-ordination” is balancing and keeping the terms together, by ensuring a suitable

allocation of working activities of the various members and seeing that these are
performed with due harmony among the members themselves.” -E.F.L. Breach.

Co-ordination has been viewed by different management authors and experts in

different ways. Henry Fayol considers co-ordination to be one of the separate
managerial functions to a manager. Louis A. Allen has also regarded co-ordination as
one of the separate managerial functions. Further, James D. Mooney considers co-
ordination as the first principle of organisation and Ralph C. Davis considers co-
ordination primarily as a vital phase of controlling.

17.2 NATURE OF CO-ORDINATION

From the above definitions of Coordination, we can state the nature of Coordination as
under:
 Co-ordination is the responsibility of the top executive which is related with the
qualities of his leadership

 It is a process, the need of which is felt in all the activities. The managers,
however have been conscious of “the co-ordinating efforts”.

 It is an orderly arrangement of group activities which is a necessity in all

activities.

 It’s success largely depends on unity of action.

 It aims at the attainment of common purpose or goal of the organisation.

17.3 ELEMENTS OF COORDINATION

Following are the elements of coordination:

1. Group Effort: It ensures that individuals work as group for promoting their
individual and organisational goals.

2. Unity of Action: Coordination ensures that activities of each individual, group and
department are headed towards the common goal.

18
3. Common Purpose: Coordination maintains balance amongst individual,
departmental and organisational goals. All individuals, groups and departments
should have a common purpose, that is, achieve the organisational goals.

17.4 FACTORS AFFECTING COORDINATION

The factors which affect coordination are as follows:

(1) Growth in Size: The task of synchronizing daily activities, due to growth in size
of the business and staff, becomes more complicated. This makes co-ordination
more challenging.

(2) Growing Specialisation: The complexity of Modern business necessitates

specialisation, which in turn calls for greater coordination.

(3) Human Nature and their Problems: The problems and nature of human beings
are so complicated that they always present problems of co-ordination. Therefore,
the need for co-ordination arises from the diversity of tasks to be undertaken and
of persons to carry them out.

17.5 IMPORTANCE OF COORDINATION

Coordination is the epitome of management. It is important to the success of any

enterprise. It helps an organisation in the following ways:

i) Increases Efficiency
Coordination pulls all the functions and activities together. The human as well
as non-human resources are utilised in an optimum way. The resources flow
through productive channels ensuring required quality and quantity of output.
Efficiency is, thus, improved.

ii) Improves Human Relations

Coordination brings unity of action and direction. Mutual trust, cooperation and
understanding improve among the personnel .This improves human relations
both in formal and informal manners.

iii) Inter-Departmental Harmony

Orderly functioning with clear plans and programs, instilled by coordination
reduces inter departmental conflicts and an atmosphere of harmony is created.
This, in turn, helps in meeting goals efficiently and effectively.

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iv) Key to Other Functions
The success of the various functions of management solely depends on
Coordination. It makes planning more purposeful, organisation more well-knit,
and control more regulative and effective. As such, it is the key to other
functions of management.

17.6 PRINCIPLES OF CO-ORDINATION

The various principles of coordination, according to Mary Parker Follet, may be listed
as follows:

(i) Principle of Direct Contact

In the first principle, Mary Parker Follet states 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.

(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.

(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 in any organisation.

(iv) 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.

(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
department adjusts it’s functions to favour other department(s) in unfavorable
situations, then it is said to have been self-coordinated. This principle is rarely
practiced.

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17.7 TYPES OF COORDINATION

Coordination can be broadly categorised in to two types-Internal and External.

 Internal Coordination:
Internal coordination refers to the coordination among the employees or authority level
positions, working at various level or departments in the management span.

Coordination between positions at different levels of the hierarchy like top level and
middle level, is known as Vertical coordination.

When coordination is manifested between or amongst various positions or divisions like

sales department and finance department at the same level of managerial positions, it is
known as Horizontal coordination.

 External Coordination:
External coordination denotes coordination of any executive, employee, or department
of the organisation with external agencies like Govt. departments, other organisations,
customers, suppliers, financial institutions or interactions with external environment.

17.8 TECHNIQUES OF COORDINATION

1. Scalar Chain:
Scalar chain identifies every person’s position in the organisation structure. It
identifies the authority and responsibility attached to each position in the scalar
chain. When one knows his position, the position of his boss and his subordinates,
it facilitates coordination..

2. Rules and Procedures:

In organisations where simple and routine activities are performed, rules and
procedures provide established standards of performance. Organisational members
perform according to rules without going to top managers everytime they face a
problem. Rules and procedures, thus, provide effective guidelines to achieve
coordination.

3. Plans and Goals:

Well defined plans and goals help to achieve coordination by ensuring that efforts
of all individuals and departments are directed towards organisational goals without
confusions or bottlenecks.

21
4. Information System:
People of different departments at all levels need information for making various
decisions. Effective information systems, like computers and networking facilitate
free flow of information and facilitate coordination throughout the organisation.

5. Lateral Relationships:
Lateral relations refer to relations between peer groups of different departments.
People of different departments interact with each other through formal and
informal communication systems. These relations refer to “coordination of efforts
through communicating and problem solving with peers in other departments or
units, rather than referring most issues up the hierarchy for resolution.”

6. Cooperation:
Cooperation is a way of achieving coordination. Cooperation refers to voluntary
actions of members to work collectively as a group. If all members cooperate with
each other, it will result in coordination amongst their activities.

7. Committees:
“Committees are usually formal organised groups with designated membership and
a chairperson with regularly scheduled meetings.” Committees are formed to solve
specific organisational problems. Committees help to achieve horizontal
coordination amongst efforts of different departments.

8. Managerial Integrators:
Managerial integrators are specially appointed managers or special coordinators
who coordinate the products or projects. They coordinate the activities of work
groups carrying out different projects or producing different products.

9. Meetings:
Meetings are an effective way to achieve coordination as people of different
departments meet at specific time intervals to discuss the progress of their
departments. Members of different departments interact openly on various
departmental issues and through mutual discussions, develop solutions for early
resolution. This promotes coordination.

10. Self-Coordination:
Though external forces are effective in achieving coordination, the most effective
way to achieve coordination is to realise on one’s own that all members, all levels
and all departments are aimed to gear towards one goal—that is, the organisational
goal. Self-realisation that both have to maximise each other’s interest without
disharmony and conflicts is the best way to achieve coordination.

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17.9 PRE-REQUISITES OF EFFECTIVE COORDINATION

1. Start before the Plan: Coordination should start even before the plans are
formulated and finalized. The plans should be coordinated with the environmental
factors.

2. End after Control: Coordination ends only after the control function. Control
function has to be coordinated with the planning function in order to ensure that the
plans are achieved.

3. Continuous Process: Coordination is a continuous process. The organizational

activities are to be networked and the network should continue uninterruptedly so
as to ensure continuous workflow.

4. Dynamism: Coordination should be dynamic in order to foresee the environmental

changes and infuse their consequences into the network of organizational activities
before the competitors adopt it. Therefore coordination should be dynamic.

5. Direct Personal Contact: Coordination can be effective, if the superior establishes

and maintains direct personal contact and direction with his subordinates.

6. Effective Communication: Communication without distortions, gaps etc. make

the coordination perfect.

7. Flat Organisation Structure: Flat organisation structure allows the employees to

interact and communicate freely and frequently with their superiors. Further the
superiors also interact with his/her subordinates with an open mind, which in turn
make the coordination effective.

8. Leadership: Democratic and participative leadership allow the employees and

leader to communicate with each other frequently. Further, they encourage the
subordinates to express their ideas, view-points etc. regarding their activities. Thus,
they enable the coordination effective.

17.10 DIFFERENCE BETWEEN CO-OPERATION AND CO-ORDINATION

Very often the two terms, ‘cooperation’ and ‘coordination’ are taken to be similar,
which is not. Both the terms are having different connotations though interrelated. The
distinctive features of these two can be enumerated as follows:

 While coordination is a managerial function ,cooperation is not.

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UNIT-18 CONTROL

Structure

18.0 Learning Objectives

18.1 Introduction
18.2 The prerequisites and characteristics of Effective Control Systems
18.3 The Control Process
18.4 Control as a Feedback System
18.5 Different methods of Control
18.6 Policies and Design Choices in Control
18.7 Strategies adopted for controlling
18.8 Let’s sum up
18.9 Key Terms
18.10 Self-Assessment Questions
18.11 Further Readings
18.12 Model Questions

18.0 LEARNING OBJECTIVE

After completing this unit, students will be able to:

 Define Motivation
 Describe the characteristic features of motivation
 Differentiate between various types of motivation
 Understand motivational challenges
 Comprehend the relationship between motivation and morale.

18.1 INTRODUCTION

It is defined as the process of ensuring the efficient achievement of organisation

objectives. In an unstable environment under which management works, control is
necessary to foresee problems, measure performance against standards, take corrective
actions for deviations from plans and if necessary, modify plans accordingly. The term
control may have some negative connotations for some, literally. But, in the
management process, it is a facilitating function which supports the organisation to
accomplish the set objectives. The primary responsibility for exercising control rests
with every manager charged with the execution of plans.

As per Henry Fayol, “control consists in verifying whether everything occurs in

conformity with the plans adopted, the instructions issued and principles established.
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Its object is to point out weaknesses and errors in order to rectify them and prevent
recurrence. It operates on everything, things, people, and actions".

It is not correct to assume that only top management has the responsibility for control
and that there is little need for control at lower levels of management. While the scope
for control may vary to some extent depending upon the position of an employee in the
hierarchy, all those who have responsibility for the execution of plans need to exercise
control too.

18.2 PREREQUISITES & CHARACTERISTICS OF EFFECTIVE

CONTROL SYSTEMS

There are two major prerequisites of control: a plan and a structure.

a) Plan: Controls must be based on plan. More clear and complete the plans are ,
more effective the controls can be; plans acts as the standards by which the
actions are measured.

b) Structure: There is need for a structure to know where the responsibility rests
for deviations and corrective action, if any needed. As in the case of plans, more
clear and complete the organisation structure is, more effective the control can
be. Controls, to be effective, should share the following basic characteristics:

c) Appropriate: Controls should correspond to an organization’ s plans. Controls

designed for a general manager are inappropriate for a supervisor. Similarly,
control systems suitable for a line department may be inappropriate for a staff
department.

d) Strategic: Control should serve a strategic purpose and provide spotlight on

positive and negative exceptions at critical points.

e) Acceptable: Controls will not work unless people want them to. They should
be acceptable to those to whom they apply.

f) Reliable and Objective: Controls should be accurate and unbiased. If they are
unreliable and subjective, people will present them.

g) Cost-effective: The benefit from control should be greater than the costs.
Control devices should yield tangible benefits.

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18.3 THE CONTROL PROCESS

There are four steps in control process: (1) Setting of control standards, (2)
Measurement of actual performance, (3) Comparing actual and standard performance
and (4) Taking corrective action. These steps are discussed in detail:

1. Setting of Control Standards:

Every enterprise plans its activities in advance. On the basis of plans, the objectives and
goals of every department, branch, etc. are fixed. These, goals are converted into
quantity, value, man hour etc. These are to be/achieved in future. There may also be
qualitative goals. The achievement of various targets is made the responsibility of
specific persons. The levels of achievement are also decided in advance. Whether a
particular result is to be taken as satisfactory, average or poor should be pre determined
so that the persons responsible for that work should be able to assess their performance.
Some strategic points should be selected as controls or yardsticks. Following four
guidelines may be used for selecting strategic points:
(i) The control points should be timely so that they may be able to reveal
significant deviation in time thereby saving further losses.
(ii) Control points should be such as to permit economical observation and
report.
(iii) Control points, especially for executives at higher levels should provide
comprehensive courage.
(iv) Control points should be such as would promote balanced performance.

2. Measurement of Performance:
The second step in controlling process is the measurement of performance. The actual
performance is measured against the standards set. This will enable management to
determine whether the work is being done according to plans or not. The measurement
of quantitative objectives is easy since figures of work done will be available. The
qualitative performance such as human relations, employee morale, etc. can only be
measured through psychological tests and surveys. Measurement of performance is an
important part of control process. If measurement is such that deviation is detected at
the earliest then it will enable appropriate action well in time. If that is not possible then
deviations should be detected as early as possible.

3. Comparing Actual and Standard Performance:

The next step in control process is the comparison of actual performance with the
standards set. The purpose of this comparison is:

(a) to find out deviations if any, and

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 (b) to determine the reasons for such deviation.

While comparing actual performance with the standard, some permissible limits are also
fixed. When the deviations are within the prescribed limits then there is no cause for
worry. But if the deviations are more than the allowable limits then it calls for urgent
action. This is also known as ‘management by exception.’ When things are going as per
plans or within the allowable limits then top management is not required to take any
note of it. But on the other hand if performance is not up to the level then it is brought
to the notice of top management for taking corrective action. If the manager gives
attention to every deviation then he will not be able to give enough time for important
things.

When the actual performance is not up to the level then causes for it should be pin-
pointed. Necessary steps are taken so that performance is not adversely affected once
again. If no efforts are made to rectify the weak areas then the whole control process
will be futile. Whenever the performance is low than the standards, the reasons for it
should immediately be found.

4. Taking Corrective Action:

The last but most important step in controlling process is of taking corrective action.
Whenever the performance is less than the standards, efforts should be made to rectify
it. Whatever the reasons for low performance, efforts are made to achieve organizational
goals. No control process can automatically rectify the mistakes in a system. It is the
action which is required to set the things right, sometimes the targets are not achievable
even with more efforts then these will have to be revised. The control action may
involve review of plans and goals, change in the methods of work, change in the
assignment of task, change in existing techniques of direction and change in
organization structure. The corrective action generally involves top management. It is
said by some persons that taking corrective action is not a part of control but a separate
managerial function. The overlapping of control function only shows the unity of
manager’s job. It shows that managing process should be integrated one.

18.4 CONTROL AS A FEEDBACK SYSTEM

Management control is usually viewed as a feedback system. Control is more than a

matter of establishing standards, measuring performance and correcting for deviations.
To initiate corrective action, there should be a program (or a plan of action) which needs
to be implemented and monitored as to whether such implementation will give the
desired performance.

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Feedback refers to the process of adjusting future actions on the basis of information
about the past performance. The following chart, which depicts the Feedback process
involved in a management control, gives an idea of the Feedback system.

It is thus clear from the above chart that the system of management control is not just a
simple process of establishing standards, measuring performance and correcting the
deviations detected, if any. This is because the Feedback system involved in this, places
control in more complex and realistic light than this simple process.

Alert managers should realise that they should not only measure actual performance,
compare such measurements against standards, identify and analyse deviations, if any,
but also develop a program for corrective action and implement such a program for
securing the desired performance. Unless this program for corrective action which is
developed by them is properly implemented, they cannot make the necessary
corrections.

It is heartening to note that latest developments in the field of computer technology and
electronic gathering, transmission and storage/of data, etc., have led to the development
of a system of ‘Real-Time’ Information. Recent developments in electronic hardware
of automatic control have reinforced the importance of this principle.

The electrical engineer refers to a closed-loop system of feedback when the information
of actual performance is feed back to the source of energy by electrical or mechanical
means in an endless chain. An open loop system of feedback involves human
intervention at some point in the flow. Real-Time information refers to the information
pertaining to the actual happenings the moment events occur. These latest technical
developments collect and supply real-time data on many operations and thereby keep
the management abreast of latest developments in the organisational set-up, including

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data relating to sales, stock position, storage facility, gross profit, production
developments and several other important developments in the manufacturing process.

18.5 METHODS OF CONTROL

There are nine methods of control which may be classified three categories based on
their frequency of use: Constantly used controls: Self-control, group control and
policies, procedures and rules. Periodically used controls: Management Information
Systems, External Audits and Budgets. Occasionally used controls: Special reports,
personal observation and project control.

 Constant Controls
Self-control: Managers need to exercise more self-control to minimise the need for other
control methods and making control in the organisation acceptable and effective. Self-
control means giving a fair day's work for a fair day's pay, reporting to work on time,
discharging duties and responsibility properly and respecting the rights of others in the
organisation. Respect for self-control in an organisation can be a motivating factor. A
sense of appreciation for self-control can be promoted among employees through
training in behaviour modification.

Group Control: Work groups are a source of control. Group-defined norms exert
greater influence in organisations than the norms that managements may choose to set
unilaterally and thrust on groups. Group norms and group control can aid or hinder
formal authority. Organisations would do well to develop and use group control
processes to reinforce formal authority. While in some organisations group control
processes helped increase output and improve quality,, in others they resulted in
restricting output. For group norms to contribute to organisational goals there should be
a climate of trust and openness, a culture of cooperation than confrontation. Quality
circle, quality of work life programmes and work redesign experiments being taken up
in some organisations are examples that point to organisational thrust toward
reinforcing group control processes for achieving organisational goals through
integration of members' interests with those of the organisation.

Policies/Procedures/Rules: These are essentially bureaucratic control mechanisms

referred to in the discussion on control strategies. They reflect past managerial
experience and include a variety of aspects concerning how to make certain decisions,
deal with resources, etc. If the policies, procedures and rules are properly formulated,
clearly communicated and implemented consistently throughout the organisation, they
can be effective in controlling individual and work group behaviour.

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 Periodic Controls:
Management Information Systems: A Management Information System is a mechanism
designed to collect, combine, compare, analyse and disseminate data in the form of
information. As such, management information systems link the various decision-
making centres within an enterprise and serve a useful function in providing feedback
for control purposes.

External Audits: The annual financial audit by an outside accounting firm is one form
of external audit, mainly of the finances of an organisation. In the case of public sector
units, such an audit is performed by Comptroller and Auditor General also. Forward
looking progressive private companies have in the past sought to have a social audit,
not for evaluating financial performance, but to find out whether and how well they
have been discharging their social obligations. An example is the case of Social Audit
conducted in Tata Steel in the late 1970s.

Budgets: Budgets are plans that deal with the future allocation and utilization of various
resources to different enterprise activities over a given period of time. Budgets help
establish plans and also serve as the basis for measuring or evaluating the standards of
performance. Budgetary control is a good example of bureaucratic control strategy.

 Occasional Controls:
Special Reports: These have a special role. Special reports can be commissioned by an
organisation when its normal control systems point to the need for detailed investigation
or study of a particular operational aspect. When major policy decisions of strategic
importance are taken, special reports may be commissioned. These include situations
where the organisations find the need for overcoming the existing difficulties,
modernisation, expansion, diversification, merger, acquisition etc. Special reports vary
in content and style depending upon the purpose. They could be prepared internally by
managers in the organisation or by consultants or outside institutions. Special reports
are a valuable method for controlling in turbulent environments, warranting changes in
products and markets, technology and production processes, organisational structure,
etc.

Personal Observation: Managers can know what is happening in an organisation by

relying on information provided by others as also by finding out for them. Firsthand
knowledge has to be critical to be effective.

Project Controls: Various methods have been developed for controlling specific
enterprise projects. The best example is the network analysis using the PERT tool.
PERT is an acronym for Programme Evaluation and Review Technique. It is a diagram
showing the inter-relationships between the events and activities that comprise a

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project. It is a detailed, easy-to-communicate means for determining current status of a
project, stimulate alternative plans and schedules and controlling activities.

18.6 POLICIES AND DESIGN CHOICES IN CONTROL

Organisations have three options in exercising control:

 Centralization or delegation
 Formal or Informal
 Direct or Indirect

Preferences for one or a mix of all options are matters of judgment. Judgment in turn
could be based on theory, practice or premonition. Each option has relevance in a
particular situation.

Centralization or Delegation: Centralization is an approach where control is exercised

by the chief executive or the top management group (comprising a few individuals).
Others in the lower rungs of hierarchy cannot act on their own or use their discretion.
Thus, functional autonomy will be lacking at operating levels.

Delegation, on the contrary, manifests transfer of decision-making authority downward

and outward within the formal structure. Sometimes, decision-making power is
transferred downwards in a hierarchy prescribing limits on the scope and type of
decisions. For example, a branch manager is allowed to spend up to Rs 5000 per month
on consumables, without referring upwards for approval, so long as it falls within the
monthly budget. Here although the decision-making power is transferred, overall
control is incorporated into the arrangement. Where delegation occurs in an
organisation-wide context, it becomes decentralization.

Centralised Control:
 makes it easier to coordinate the activities of various subunits/departments in an
organisation.
 seeks to achieve balance among various functions because the top management
can be expected to have a broad organisation-wide perspective.
 proves more useful because control will be in the hands of senior, experienced
top executives.
 is necessary to meet extraordinary situations.
 is economical since duplication in activities and resource use can be avoided.

Delegation and decentralization too have positive features:

 they relieve the top management from overload.
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  motivate individuals to give better performance due to opportunities for
individual freedom, discretion and control.
 contribute to the personal and professional development of managers.
 people at operating levels are more knowledgeable about the dynamics in
decision making situations and can be expected to take appropriate actions to
suit local conditions. This is particularly true in the case of large and widely
dispersed units. affords prompt actions and provides flexibility.

Formal or Informal: Formalization refers to establishing written policies, procedures,

rules etc. which prescribe the do's and don'ts. As organisations grow, formalisation
grows. Formalization renders activities more predictable in a desired direction and
facilitates coordination and control.

In large organisations where it is no longer possible to retain high degree of centralised

control, formalisation helps to retain consistency and continuity by restraining the
negative effects of delegation and decentralization. Formalization is appropriate for
large organisations operating in conditions of stability. But, in today's fast changing
environments, complete formalisation may not be desirable and practicable. Excessive
formalisation vitiates the climate for initiative and employee freedom in performance,
results in employee resistance and may even become counterproductive.

Formalization can be effective insofar as policies, procedures and rules are flexible
enough and reviewed periodically to make them appropriate to current changing
situation.

Direct or Indirect: There are two ways of controlling. One way is to supervise
subordinates' activities closely, trace deviations to the persons responsible and get them
to correct their practices. This is called indirect control The other way is to develop high
quality managers who will properly understand and apply managerial principles,
functions, techniques and philosophy, make few mistakes and initiate corrective actions,
wherever necessary, themselves. This is called direct control. The higher the quality of
managers and their subordinates, the less will be the need for indirect controls.

Exercising close supervision through indirect controls adds to overhead costs and
reduces employee motivation. Modern management practices call for a greater degree
of ‘self control’ (which in effect means direct control) by those who perform work. With
the revolution in information technology using computers, control can be exercised
through real-time information, i.e., gathering information on what is happening as
events are occurring. This made it easy for organisations to combine direct controls with
indirect controls. But here indirect control is exercised not through close personal
supervision, but through modern technology and hence several of the negative features
of close personal supervision of superiors such as infringement on freedom of operation
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and subjectivity in evaluation are avoided. Direct control hastens corrective actions,
lightens the burden caused by indirect control and subordinates feel less concerned
about superior's subjectivity in rating their performance because in indirect control one
would feel a close relationship between performance and measurement.

18.7 STRATEGIES ADOPTED FOR CONTROLLING

There are four Strategies implemented for controlling in organisation. Each strategy will
utilise one or more of the features listed

Personal centralised control

 Centralised decision-making
 Direct supervision
 Personal leadership: founded upon ownership or charisma, or technical
 Expertise reward and punishment reinforce conformity to personal authority

Bureaucratic control
 breaking down of tasks into easily definable elements
 formally specified methods, procedures and rules applied to the
 conduct of tasks budgetary and standard cost-variance accounting controls
 technology designed to limit variation in conduct of tasks with respect
 to pace, sequence and possibly physical methods routine decision-taking
delegated within prescribed limits
 reward and punishment systems reinforce conformity to procedures
 and rules breaking down of tasks into easily definable elements
 formally specified methods, procedures and rules applied to the
 conduct of tasks budgetary and standard cost-variance accounting controls
 technology designed to limit variation in conduct of tasks with respect
 to pace, sequence and possibly physical methods routine decision-taking
delegated within prescribed limits
 reward and punishment systems reinforce conformity to procedures and rules

Output control
 jobs and units designed to be responsible for complete outputs
 specification of output standards and targets
 use of `responsibility accounting' systems
 delegation of decisions on operational matters: semi-autonomy
 reward and punishment linked to attainment of output targets

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Cultural control
 development of strong identification with management goals
 semi-autonomous working: few formal controls
 strong emphasis on selection, training and development of personnel
 rewards oriented towards security of tenure and career progression

Control through electronic surveillance

 speed and quality of work recorded and assessed remotely via
 information and communication technology (ICT) employee’s performance
assessed against that of other employees and
 trends such monitoring of performance used to reward and discipline employees

HRM control
 use of selection methods to ensure that new recruits ‘fit’ the profile of
 attitude, behaviour, and capabilities desired by management training and
development designed to reinforce this desired profile
 assessment procedures and reward systems used to encourage conformity

a) Personal centralised control: This approach is often found in small owner

managed organisations and is characterized by the centralization of decision
making and initiative around a leadership figure. Control consists largely of
personal inspection to see that decisions are carried out, and the leader may spend
a high proportion of time supervising the work personally. Once the organisation
grows large enough to employ someone to undertake detailed supervision of
everyday tasks, the locus of decision-making and close supervision will tend to
become separated. The authority of the leader will usually rest upon the rights of
ownership, special personal qualities (charisma) or technical expertise.

b) Bureaucratic control: This approach to control is familiar in public sector

organisations and in many other types of large organisations. It is based on the
specification of how members should behave and carry out their work. There is an
attempt to ensure predictability through formal job descriptions and procedures, the
breaking down of tasks into constituent elements, and the specification of standard
methods for the performance of tasks. Reward and punishment systems can be
designed to reinforce this control strategy. Compliance can be rewarded by
upgrading, improved status, favorable employment benefits and job security.
Bureaucratic control will make use of accounting control systems such as budgetary
control and standard cost variances. The bureaucratic strategy also permits
delegation without loss of control. Managers can delegate routine decision-making
within formally prescribed limits of discretion

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c) Output control: This approach relies upon the ability to identify specific tasks
having a measurable output or criterion of overall achievement – for example, an
end-product, a part manufactured to agreed standards, batch production or a sub-
assembly. Rewards and sanctions can be related to performance levels expressed in
output terms. Output control strategy is aimed at facilitating the delegation of
operational decision-making without the need for bureaucratic controls or relying
on close personal supervision. Once output standards have been agreed,
subordinates can work with a ‘semi-autonomous’ relationship to management, free
from detailed control over how tasks are carried out. Output control may be difficult
to apply to certain activities, such as the legal department of a business
organisation. Although it may be difficult to establish suitable and agreed measures
of output, and it may be difficult for management to codify the activities involved,
output control may be more appropriate than the application of a bureaucratic
control strategy.

d) Cultural control: This approach has been identified with moves away from
conventional forms of organisation and is based on maintaining control through
internalized compliance rather than external constraint. The basis of cultural control
is the acceptance and willing compliance with the requirements of management and
belief of the organisation. A major example is the cultural control that tends to be
exemplified by larger Japanese corporations, although this is subject to criticism of
compulsory sociability. Although a strong corporate culture is intended to provide
an alternative to control, in practice strenuous efforts are usually made to ensure
employees conform to the culture. Provided members have the necessary skills and
ability they can be given wide freedom of action in deciding how to undertake their
responsibilities. Cultural control, combined with personal autonomy, has long been
associated with the professions. Despite criticisms of cultural control it is in tune
with the increasing number of professional and knowledge workers, and is
consistent with self-managing units or teams working with only limited formal
controls.

e) Control through Electronic Surveillance: The essence of control is that the speed
and quality of work is recorded and assessed remotely through the use of ICT
without reliance on personal supervision. Control data are precise rather than
impressionistic and subject to management bias. Monitoring of performance can be
used readily as the basis for reward and discipline. Control through electronic
surveillance is applied to many types and levels of activity. A common example is
call centres although customer service representatives dislike the pressure from this
form of control and the objectivity of relying on electronically produced statistics
is subject to challenge.

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