Functions of Management

Part –II
Direction - Nature & Principles,
Motivation- Importance &Theories,
Leadership – Meaning, Styles, qualities & functions of
leaders,
Controlling – Need, Importance &Process,
Co-ordination - Meaning & Importance.
 Direction 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.
Directing is said to be the heart of management process.
 Planning, organizing, staffing have got no importance if
direction function does not take place.
Directing initiates action and it is from here actual work starts.
Direction is said to be consisting of human factors.
In field of management, direction is said to be all those
activities which are designed to encourage the subordinates
to work effectively and efficiently
According to Human, “Directing consists of process or
technique by which instruction can be issued and operations
can be carried out as originally planned”
Therefore, Directing is the function of guiding, inspiring,
overseeing and instructing people towards accomplishment
of organizational goals.
Characteristics of Direction:
Pervasive Function - Directing is required at all levels of
organization. Every manager provides guidance and
inspiration to his subordinates.
Continuous Activity - Direction is a continuous activity as it
continuous throughout the life of organization.
Human Factor - Directing function is related to subordinates
and therefore it is related to human factor. Since human
factor is complex and behaviour is unpredictable, direction
function becomes important.
Creative Activity - Direction function helps in converting plans
into performance. Without this function, people become inactive
and physical resources are meaningless.
Executive Function - Direction function is carried out by all
managers and executives at all levels throughout the working of
an enterprise, a subordinate receives instructions from his
superior only.
Performance Oriented-Directing is a performance oriented
function. The main motive of directing is bringing efficiency in
performance. Directing converts plans into performance.
Performance is the essence of directing. Directing functions
direct the performance of individuals towards achievement of
organisational goal
Directing flows From Top to Bottom-Directions are given by
managers to their subordinates. Every manager can direct his
immediate subordinate and take directions from immediate
boss. Directing starts from top level and flows to lower level.
Directing takes place at every level-Directing is a pervasive
function as it is performed by managers at all levels and in all
locations. Every manager has to supervise, guide, motivate and
communicate with his subordinate to get things done. However,
the time spent in directing is comparatively more at operational
level of management. Directing takes place wherever superior
subordinate relation exists.
Directing initiates action-The other functions of management,
i.e., planning, organising, staffing, etc., create conditions for
managers to take appropriate actions, whereas directing
function initiates actions in an organisation. It converts plans
into action. It is the key managerial function performed by the
managers.
 Importance of Directing Function
It Initiates Actions - Directions is the function which is the starting
point of the work performance of subordinates. It is from this
function the action takes place, subordinates understand their jobs
and do according to the instructions laid. Whatever are plans laid,
can be implemented only once the actual work starts. It is there
that direction becomes beneficial.
It Ingrates Efforts - Through direction, the superiors are able to
guide, inspire and instruct the subordinates to work. For this,
efforts of every individual towards accomplishment of goals are
required. It is through direction the efforts of every department
can be related and integrated with others. This can be done
through persuasive leadership and effective communication.
Integration of efforts bring effectiveness and stability in a concern.
Means of Motivation - Direction function helps in achievement of
goals. A manager makes use of the element of motivation here to
improve the performances of subordinates. This can be done by
providing incentives or compensation, whether monetary or non -
monetary, which serves as a “Morale booster” to the subordinates
Motivation is also helpful for the subordinates to give the best of
their abilities which ultimately helps in growth.
It Provides Stability - Stability and balance in concern becomes very
important for long term sun survival in the market. This can be
brought upon by the managers with the help of four tools or
elements of direction function - judicious blend of persuasive
leadership, effective communication, strict supervision and efficient
motivation. Stability is very important since that is an index of
growth of an enterprise. Therefore a manager can use of all the four
Coping up with the changes - It is a human behaviour that human beings show
resistance to change. Adaptability with changing environment helps in sustaining
planned growth and becoming a market leader. It is directing function which is of
use to meet with changes in environment, both internal as external. Effective
communication helps in coping up with the changes. It is the role of manager here
to communicate the nature and contents of changes very clearly to the
subordinates. This helps in clarifications, easy adaptions and smooth running of an
enterprise.
Efficient Utilization of Resources - Direction finance helps in clarifying the role of
every subordinate towards his work. The resources can be utilized properly only
when less of wastages, duplication of efforts, overlapping of performances, etc.
doesn’t take place. Through direction, the role of subordinates become clear as
manager makes use of his supervisory, the guidance, the instructions and
motivation skill to inspire the subordinates. This helps in maximum possible
utilization of resources of men, machine, materials and money which helps in
reducing costs and increasing profits.
Principles of Directing
1. Maximum Individual Contribution
One of the main principles of directing is the contribution of
individuals. Management should adopt such directing policies
that motivate the employees to contribute their maximum
potential for the attainment of organizational goals.
2. Harmony of Objectives
Sometimes there is a conflict between the organizational
objectives and individual objectives. For example, the
organization wants profits to increase and to retain its major
share, whereas, the employees may perceive that they should
get a major share as a bonus as they have worked really hard
for it.
3. Unity of Command
This principle states that a subordinate should receive instructions
from only one superior at a time. If he receives instructions from
more than one superiors at the same time, it will create
confusion, conflict, and disorder in the organization and also he
will not be able to prioritize his work.
4. Appropriate Direction Technique
Among the principles of directing, this one states that appropriate
direction techniques should be used to supervise, lead,
communicate and motivate the employees based on their needs,
capabilities, attitudes and other situational variables.
5. Managerial Communication
According to this principle, it should be seen that the
instructions are clearly conveyed to the employees and it should
be ensured that they have understood the same meaning as was
intended to be communicated.
6. Use of Informal Organization
Within every formal organization, there exists an informal group
or organization. The manager should identify those groups and
use them to communicate information. There should be a free
flow of information among the seniors and the subordinates as
an effective exchange of information are really important for the
growth of an organization.
7. Leadership
Managers should possess a good leadership quality to influence
the subordinates and make them work according to their wish. It
is one of the important principles of directing.
8. Follow Through
As per this principle, managers are required to monitor the
extent to which the policies, procedures, and instructions are
followed by the subordinates. If there is any problem in
implementation, then the suitable modifications can be made.
Concept of motivation
Motivation refers to the way in which urges, drives, desires,
aspirations, strivings or needs , control and explain the
behaviour of human beings.
Motivation can be defined as a willingness to expand
energy to achieve a goal or a reward.
Motive refers to the inner state of mind that initiates and
controls behaviour towards business goals. They directly
correspond to the needs of individuals. Motivation is the
process of stimulating action by understanding the needs
of employee and by utilising their motives.
Intrinsic and Extrinsic Motivation
What Is Intrinsic Motivation?
When you're intrinsically motivated, your behavior is
motivated by your internal desire to do something for its
own sake -- for example, your personal enjoyment of an
activity, or your desire to learn a skill because you're eager
to learn.
Intrinsic motivation involves engaging in a behavior
because it is personally rewarding; essentially, performing
an activity for its own sake rather than the desire for some
external reward. Essentially, the behavior itself is its own
reward.
What Is Extrinsic Motivation?
When you're extrinsically motivated, your behavior is
motivated by an external factor pushing you to do
something in hopes of earning a reward -- or avoiding a
less-than-positive outcome.
Extrinsic motivation occurs when we are motivated to
perform a behavior or engage in an activity to earn a
reward or avoid punishment. In this case, you engage in a
behavior not because you enjoy it or because you find it
satisfying, but in order to get something in return or avoid
something unpleasant.
 Importance of Motivation
Increases Productivity: Motivation as a process leads to an
increase in productivity of the employee. Motivation meets the
needs of the employees and thereby creates the drive to work at
the best of his abilities. A well-employee will be willing to put in
more effort towards the betterment of the organization than
another disheartened employee.
Ensures Organizational Efficiency: Motivation plays an important
role in changing the attitudes of the employees in the
organization. Indifferent attitude is extinguished most efficiently
by motivation. The presence of such favorable attitude allows the
organization to thrive and be successful.
.
Ensures Loyal Workforce: A well-motivated workforce is a loyal
workforce. Motivated employees have high levels of morale and
commitment towards the organization and its goals and objectives.
Motivation thus reduces employee turnover and reduces the need
for constant induction of new employees.
Cordial Human Relations: a good motivational system lead to job
satisfaction. Job satisfaction results in cordial relations between
employer and employees.
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.
Leads to achievement of organizational goals:
The goals of an enterprise can be achieved only when the
following factors take place :-
◦ There is a co-operative work environment,
◦ There is best possible utilization of resources,
◦ 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.
 Theories of Motivation
The motivation concepts were mainly developed around
1950’s. Three main theories were made during this period.
Maslow’s need hierarchy
Herzberg’s Two factor theory
Theory X and Theory Y
These theories are building blocks of the contemporary
theories developed later. The working mangers and learned
professionals till date use these classical theories to explain
the concept of employee motivation.
Maslow’s need hierarchy
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.
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.
Herzberg’s Two factor theory
In 1959, Frederick Herzberg, a behavioural 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”.
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 if
these factors are absent / if these factors are non-existant 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. The hygiene factors
symbolized the physiological needs which the individuals
wanted and expected to be fulfilled. These 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 programmes, 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.
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.
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 (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
Happy to work on their own initiative.
More involved in decision making.
Self-motivated to complete their tasks.
Enjoy taking ownership of their work.
Seek and accept responsibility, and need little direction.
View work as fulfilling and challenging.
Solve problems creatively and imaginatively.
Employees use self-direction and self-control if they are dedicated
and sincere to achieve the organizational objectives.
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.
McGregor views Theory Y to be more valid and reasonable
than Theory X. T
hus, he encouraged cordial team relations, responsible and
stimulating jobs, and participation of all in decision-making
process.
 LEADERSHIP
Leadership is a process by which an executive can direct, guide and
influence the behavior and work of others towards accomplishment
of specific goals in a given situation. Leadership is the ability of a
manager to induce the subordinates to work with confidence and
zeal.
Leadership is the potential to influence behaviour of others. It is also
defined as the capacity to influence a group towards the realization
of a goal. Leaders are required to develop future visions, and to
motivate the organizational members to want to achieve the visions.
According to Keith Davis, “Leadership is the ability to persuade others
to seek defined objectives enthusiastically. It is the human factor
which binds a group together and motivates it towards goals.”
Leadership differs from management in a sense that:
While managers lay down the structure and delegates authority
and responsibility, leaders provides direction by developing the
organizational vision and communicating it to the employees and
inspiring them to achieve it.
While management includes focus on planning, organizing,
staffing, directing and controlling; leadership is mainly a part of
directing function of management. Leaders focus on listening,
building relationships, teamwork, inspiring, motivating and
persuading the followers.
While a leader gets his authority from his followers, a manager
gets his authority by virtue of his position in the organization.
While managers follow the organization’s policies and procedure,
the leaders follow their own instinct.
 Differences between Leadership and Management
Leadership and management are the terms that are often
considered synonymous. It is essential to understand that
leadership is an essential part of effective management. As a
crucial component of management, remarkable leadership
behaviour stresses upon building an environment in which each
and every employee develops and excels. Leadership is defined as
the potential to influence and drive the group efforts towards the
accomplishment of goals. This influence may originate from formal
sources, such as that provided by acquisition of managerial
position in an organization.
A manager must have traits of a leader, i.e., he must possess
leadership qualities. Leaders develop and begin strategies that
build and sustain competitive advantage. Organizations require
Management is more of science as the managers are exact, planned,
standard, logical and more of mind. Leadership, on the other hand, is an
art. In an organization, if the managers are required, then leaders are a
must/essential.
While management deals with the technical dimension in an
organization or the job content; leadership deals with the people aspect
in an organization.
While management measures/evaluates people by their name, past
records, present performance; leadership sees and evaluates individuals
as having potential for things that can’t be measured, i.e., it deals with
future and the performance of people if their potential is fully extracted.
If management is reactive, leadership is proactive.
Management is based more on written communication, while leadership
is based more on verbal communication.
Qualities of a Leader
A leader has got multidimensional traits in him which
makes him appealing and effective in behavior. The
following are the requisites to be present in a good leader:
Physical appearance- A leader must have a pleasing
appearance. Physique and health are very important for a
good leader.
Vision and foresight- A leader cannot maintain influence
unless he exhibits that he is forward looking. He has to
visualize situations and thereby has to frame logical
programmes.
Intelligence- A leader should be intelligent enough to
examine problems and difficult situations. He should be
analytical who weighs pros and cons and then summarizes
the situation. Therefore, a positive bent of mind and mature
outlook is very important.
Communicative skills- A leader must be able to
communicate the policies and procedures clearly, precisely
and effectively. This can be helpful in persuasion and
stimulation.
Objective- A leader has to be having a fair outlook which is
free from bias and which does not reflects his willingness
towards a particular individual. He should develop his own
opinion and should base his judgement on facts and logic.
Knowledge of work- A leader should be very precisely knowing the
nature of work of his subordinates because it is then he can win
the trust and confidence of his subordinates.
Sense of responsibility- Responsibility and accountability towards
an individual’s work is very important to bring a sense of influence.
A leader must have a sense of responsibility towards organizational
goals because only then he can get maximum of capabilities
exploited in a real sense. For this, he has to motivate himself and
arouse and urge to give best of his abilities. Only then he can
motivate the subordinates to the best.
Self-confidence and will-power- Confidence in himself is important
to earn the confidence of the subordinates. He should be
trustworthy and should handle the situations with full will power.
Humanist-This trait to be present in a leader is essential because he deals
with human beings and is in personal contact with them. He has to
handle the personal problems of his subordinates with great care and
attention. Therefore, treating the human beings on humanitarian grounds
is essential for building a congenial environment.
Empathy- It is an old adage “Stepping into the shoes of others”. This is
very important because fair judgement and objectivity comes only then.
A leader should understand the problems and complaints of employees
and should also have a complete view of the needs and aspirations of the
employees. This helps in improving human relations and personal
contacts with the employees.
From the above qualities present in a leader, one can understand the
scope of leadership and it’s importance for scope of business. A leader
cannot have all traits at one time. But a few of them helps in achieving
effective results.
Good personality.
Emotional stability.
Sound education and professional competence.
Initiatives and creative thinking.
Sense of purpose and responsibility.
Ability to guide and teach.
Good understanding and sound judgment.
Communicating skill.
 Sociable.
Objective and flexible approach.
Honesty and integrity of character.
Self confidence, diligence and industry.
 Leadership Styles

All leaders do not possess same attitude or same perspective. As

discussed earlier, few leaders adopt the carrot approach and a
few adopt the stick approach. Thus, all of the leaders do not get
the things done in the same manner. Their style varies. The
leadership style varies with the kind of people the leader
interacts and deals with. A perfect/standard leadership style is
one which assists a leader in getting the best out of the people
who follow him.
Some of the important leadership styles are as follows:
Autocratic leadership style: In this style of leadership, a leader
has complete command and hold over their employees/team.
The team cannot put forward their views even if they are best
for the team’s or organizational interests. They cannot criticize
or question the leader’s way of getting things done. The leader
himself gets the things done. The advantage of this style is that
it leads to speedy decision-making and greater productivity
under leader’s supervision. Drawbacks of this leadership style
are that it leads to greater employee absenteeism and turnover.
This leadership style works only when the leader is the best in
performing or when the job is monotonous, unskilled and
routine in nature or where the project is short-term and risky.
The Laissez Faire Leadership Style: Here, the leader totally
trusts their employees/team to perform the job
themselves. He just concentrates on the
intellectual/rational aspect of his work and does not focus
on the management aspect of his work. The
team/employees are welcomed to share their views and
provide suggestions which are best for organizational
interests. This leadership style works only when the
employees are skilled, loyal, experienced and intellectual.
Democratic /Participative leadership style: The leaders
invite and encourage the team members to play an
important role in decision-making process, though the
ultimate decision-making power rests with the leader. The
leader guides the employees on what to perform and how
to perform, while the employees communicate to the
leader their experience and the suggestions if any. The
advantages of this leadership style are that it leads to
satisfied, motivated and more skilled employees. It leads to
an optimistic work environment and also encourages
creativity. This leadership style has the only drawback that
it is time-consuming.
Bureaucratic leadership: Here the leaders strictly adhere to
the organizational rules and policies. Also, they make sure
that the employees/team also strictly follows the rules and
procedures. Promotions take place on the basis of
employees’ ability to adhere to organizational rules. This
leadership style gradually develops over time. This
leadership style is more suitable when safe work conditions
and quality are required. But this leadership style
discourages creativity and does not make employees self-
contented.
Leadership Functions:
1. Setting Goals:
A leader is expected to perform creative function of laying out
goals and policies to persuade the subordinates to work with
zeal and confidence.
2. Organizing:
The second function of a leader is to create and shape the
organization on scientific lines by assigning roles appropriate to
individual abilities with the view to make its various
components to operate sensitively towards the achievement of
enterprise goals.
3. Initiating Action:
The next function of a leader is to take the initiative in all
matters of interest to the group. He should not depend upon
others for decision and judgment. He should float new ideas
and his decisions should reflect original thinking.
4. Co-Ordination:
A leader has to reconcile the interests of the individual
members of the group with that of the organization. He has to
ensure voluntary co-operation from the group in realizing the
common objectives.
5. Direction and Motivation:
It is the primary function of a leader to guide and direct his
group and motivate people to do their best in the
achievement of desired goals, he should build up confidence
and zeal in the work group.
6. Link between Management and Workers:
A leader works as a necessary link between the management
and the workers. He interprets the policies and programmes
of the management to his subordinates and represents the
subordinates’ interests before the management. He can prove
effective only when he can act as the true guardian of the
interests of his subordinates
Meaning of Controlling
Controlling consists of verifying whether everything occurs in
conformities with the plans adopted, instructions issued and
principles established.
Controlling ensures that there is effective and efficient
utilization of organizational resources so as to achieve the
planned goals.
Controlling measures the deviation of actual performance from
the standard performance, discovers the causes of such
deviations and helps in taking corrective actions
According to Brech, “Controlling is a systematic exercise
which is called as a process of checking actual
performance against the standards or plans with a view to
ensure adequate progress and also recording such
experience as is gained as a contribution to possible
future needs.”
Controlling has got two basic purposes
It facilitates co-ordination
It helps in planning
 Process of Controlling
Establishment of standards- Standards are the plans or the targets
which have to be achieved in the course of business function. They
can also be called as the criterions for judging the performance.
Standards generally are classified into two-Measurable or tangible -
Those standards which can be measured and expressed are called
as measurable standards. They can be in form of cost, output,
expenditure, time, profit, etc.
Non-measurable or intangible- There are standards which cannot be
measured monetarily. For example- performance of a manager,
deviation of workers, their attitudes towards a concern. These are
called as intangible standards.
Controlling becomes easy through establishment of these standards
because controlling is exercised on the basis of these standards.
Measurement of performance- The second major step in controlling is
to measure the performance. Finding out deviations becomes easy
through measuring the actual performance. Performance levels are
sometimes easy to measure and sometimes difficult. Measurement of
tangible standards is easy as it can be expressed in units, cost, money
terms, etc. Quantitative measurement becomes difficult when
performance of manager has to be measured. Performance of a
manager cannot be measured in quantities. It can be measured only by-
Attitude of the workers,
Their morale to work,
The development in the attitudes regarding the physical environment,
and
Their communication with the superiors.
It is also sometimes done through various reports like weekly, monthly,
Comparison of actual and standard performance- Comparison of actual
performance with the planned targets is very important. Deviation can be
defined as the gap between actual performance and the planned targets.
The manager has to find out two things here- extent of deviation and cause
of deviation. Extent of deviation means that the manager has to find out
whether the deviation is positive or negative or whether the actual
performance is in conformity with the planned performance. The managers
have to exercise control by exception. He has to find out those deviations
which are critical and important for business. Minor deviations have to be
ignored. Major deviations like replacement of machinery, appointment of
workers, quality of raw material, rate of profits, etc. should be looked upon
consciously. Therefore it is said, “ If a manager controls everything, he ends
up controlling nothing.” For example, if stationery charges increase by a
minor 5 to 10%, it can be called as a minor deviation. On the other hand, if
monthly production decreases continuously, it is called as major deviation.
Taking remedial actions- Once the causes and extent of
deviations are known, the manager has to detect those
errors and take remedial measures for it. There are two
alternatives here-
◦ Taking corrective measures for deviations which have
occurred; and
◦ After taking the corrective measures, if the actual
performance is not in conformity with plans, the
manager can revise the targets. It is here the controlling
process comes to an end. Follow up is an important step
because it is only through taking corrective measures, a
manager can exercise controlling.
Importance of Controlling:
Accomplishing Organisational Goals:
Controlling helps in comparing the actual performance with the
predetermined standards, finding out deviation and taking
corrective measures to ensure that the activities are performed
according to plans. Thus, it helps in achieving organisational goals.
Judging Accuracy of Standards:
An efficient control system helps in judging the accuracy of
standards. It further helps in reviewing & revising the standards
according to the changes in the organisation and the environment.
Making Efficient Use of Resources:
Controlling checks the working of employees at each and
every stage of operations. Hence, it ensures effective and
efficient use of all resources in an organisation with
minimum wastage or spoilage.
Improving Employee Motivation:
Employees know the standards against which their
performance will be judged.
Systematic evaluation of performance and consequent
rewards in the form of increment, bonus, promotion etc.
motivate the employees to put in their best efforts.
Ensuring Order and Discipline:
Controlling ensures a close check on the activities of the
employees. Hence, it helps in reducing the dishonest
behaviour of the employees and in creating order and
discipline in an organization.
Facilitating Coordination in Action:
Controlling helps in providing a common direction to the all
the activities of different departments and efforts of
individuals for attaining the organizational objectives.
Techniques of controlling
ADDITIONAL READING
Techniques
1.Personal Observation:
of Controlling Traditional
The simplest way to control organisational activities is that managers take round at the work place
and observe the progress of the work. Any defect in performance can be spotted and corrected
immediately. A face-to-face interaction is possible where workers get their doubts solved on-the-job
and guidance and counselling can also be provided there and then.
This method creates psychological pressure on the employees and they perform better when they
know they are being observed by their superiors. Managers can also know the behavioural, technical
and psychological problems that workers are facing at the work place and they try to overcome
these problems.
However, this method demotivates the employees who work under psychological pressure of being
constantly watched. This method is also not suitable for large-scale organisations where managers
cannot spend time in personally observing the performance of each worker.
Small, medium-sized and non-profit organisations can be benefited more by this technique of
control than large-sized, profit-making organisations.
2.Budgeting:
A budget is a statement which reflects future incomes, expenditures and profits
that can be earned by a firm. It is a future projection of the firm’s financial
position. Non-financial aspects like units produced, units sold, unit cost of
material and labour etc. can also be important components of a budget.
Budget is “the process of stating in quantitative terms, planned organisational
activities for a given period of time.” Budgeting control refers to comparison of
actual performance with planned or budgeted performance. It is a basic
technique of control and is used at every level of organisation. Budgets are
prepared for the organisation as a whole and for each departmental unit.
3.Break-Even Analysis:
Break-even analysis or cost-volume-profit analysis defines the relationship
between sales volume, costs and profits to arrive at a figure of sales at which
sales revenue is equal to cost. The point at which sales revenue is equal to cost
(fixed cost plus variable cost) is the break-even point.
Sales beyond the break-even point will earn profits for the organisation and sales
below the break-even point is a situation of loss.
As a technique of control, managers compare actual output with the break-even
point of sales and if they are not able to sell beyond this point, they should
improve their performance by increasing the sales or reducing the costs.
4Financial Statements:
Financial statements depict financial position of the firm over a period of time,
generally one year.
The statements are prepared along with last year’s statements so that firm can
compare present performance with last year’s performance and take action to improve
its future performance. As these statements are prepared at the end of the financial
year, as a measure of control, they guide managers to improve future performance.
These statements provide information on the following aspects:
1. Liquidity – The firm can know how much cash it has to meet its financial liabilities.
2. Financial strength – It represents assets, liabilities and equity position of the firm.
3. Profitability – The excess of revenue over cost represents profit of the firm.
5.Statistical Data and Reports:
Data helps in applying statistical techniques of averages, regression, correlation etc. to
predict financial performance. Data can be used for diagrammatic representations like
trend charts, histograms, pie charts, and bar graphs etc. which assess the company’s
performance. Deviations can be pointed out and corrected.
Report is a statement that represents data in the form of information for carrying out
the controlling function.
Statistical data and regular reporting system provide information about company’s
financial and non-financial performance. A supervisor, for example, prepares a special
report on how the salesmen are dealing with customers. This report helps managers
to control the behavioural attitudes of salesmen to develop a good clientele.
Modern Techniques of Control
1.Management Information System (MIS):
To carry out managerial functions of planning through controlling for various
functional areas (production, marketing etc.) and integrate them with the external
environment (Government, customers etc.), managers need different types of
information (quantitative and qualitative).
Earlier, this information was provided by the accounting system which was limited
and quantitative in nature. With computers, managers have access to huge quantity
of data at very high speed. Computers help to create the data base and manipulate
the information as desired for taking various managerial decisions. It helps in storage
and retrieval of information. Computers enable managers to collect data at very short
intervals of time, process, analyse, convert it into useful information and relate it to
the external environment.
This system of obtaining timely, relevant and accurate information
based on computer technology is known as management
information system. The system helps managers in preparing reports
for effectively carrying out planning and controlling functions.
2.Management Audit:
Audit means periodic inspection of financial statements and verifying that the
statements are honestly and fairly prepared according to accounting principles. An
audit, thus, provides a basis for control.
Two types of audit can be conducted by a firm:
(a) External audit
(b) Internal audit
External Audit:
It refers to verification of financial statements. Company’s assets, liabilities and
capital accounts are checked and deviations are reported to managers for future
action. Control is, thus, facilitated through verification of accounts against the
standard principles. This audit is known as financial audit.
Internal Audit:
It refers to verification of various statistical data and reports so that correct and
fair presentation of financial statements is made. It evaluates the firm’s internal
operations, determines where things have gone wrong and where corrective
action is needed. It examines the efficiency with which the firm utilises its assets
and carries its operations in the light of environmental factors. This audit is
conducted by members internal to the organisation. These members may belong
to the department of finance or there may be a separate internal auditing staff
(in case of large-sized organisations).
3.Responsibility Accounting:
It divides the organisation into smaller units where each unit is
headed by a manager who is responsible for achieving the targets of
his unit. These units are called responsibility centres and the head of
each responsibility centre is responsible for controlling the activities
of his centre. Performance of each responsibility centre is judged by
the extent to which targets of that centre are achieved.
4.Network Techniques (PERT and CPM):
When a complex project is undertaken which involves a
series of inter-related or inter-dependent activities, the
network models or techniques help in planning,
coordinating and controlling the network of activities.
Various sequences of activities are scheduled with
reference to time and cost and managers execute the
project within the constraints of time and cost.
PERT-Programme Evaluation and Review Technique:
PERT is also called time-event network. It is a technique used to plan and
control a complex project that is represented as a network of events and
activities, with time estimates given to complete each activity.
It is a network of events and activities on a project with estimated time
for completion of each activity.
An event is the beginning or the ending of the activity. It is represented by
a circle in the network. An event by itself does not use time or resources.
An activity is the time taken by an operation between two events. It
represents time taken to complete an event. It is represented by an arrow.
CPM – Critical Path Method:
CPM determines critical activities for completing the
project, assumes expected time as the time taken to
complete the project and concentrates on this critical
sequence of activities to optimise the use of time and
resources. It concentrates only on the critical path and not
the whole project.
CPM also plans and controls various sequences of events
and activities similar to PERT
5.Balanced Score Card:
Balanced score card is “a performance measurement tool that looks
at four areas — financial, customer, internal processes and
people/innovation/growth assets — that contribute to a company’s
performance.” It evaluates organisational performance in terms of
financial and non-financial parameters. It is a performance appraisal
and reporting system that maintains balance between financial and
non-financial measures. It links performance to rewards and
recognises the diversity of organisational goals.
It presents financial and non-financial measures to
evaluate the firm’s long-run and short- run performance in
a single report. Managers develop goals in these four areas
and take steps to achieve these goals. For example, sales
growth or return on investment (ROI) can be used as
measures of financial performance; sales from new
products can be used as measures of customer goals.
Managers focus on all these areas as they collectively
account for organisational success.
6.Ratio Analysis:
Financial statements show financial performance in absolute figures. The
statements, for example, may represent profit of Rs.50 lakh or Rs.40 lakh for
a year. The figure of profit has no meaning unless it is related to capital
employed by the firm. Profit of Rs.50 lakh may have been earned over a
capital base of Rs.1 crore giving a return of 50% while Rs.40 lakh may have
been earned on a capital base of Rs.60 lakh giving a return of 66.796.
Though the figure of Rs.50 lakh looks more attractive, it is not actually so.
Ratio is a numerical relationship between two numbers. Ratio analysis draws
comparison between selected items from the financial statements in
percentages or fractions and assesses financial performance of the firm.
Ratio analysis has the following uses:
1. Ratios can be used to compare current performance of the company
with its past performance. Performance over a period of time in a year can
also be compared. This helps managers in making predictions. A fall in the
profit ratio, for example, requires managers to take corrective action.
2. Ratios of a company can be compared with ratios of other firms in the
same industry. Comparing performance with other companies helps in
assessing its market standing.
3. Ratios help in taking corrective action by setting standards of
performance for sales, profits etc. If these standards are not met, it
requires corrective action by managers.
4. Ratios help in delegation and decentralisation of authority by
defining a target rate of return for departmental performance.
Departmental heads compare their performance with the standard rate
of return.
5. Ratios help in financial decision-making. They provide important
information to stakeholders for determining their interest in the
company. Profitability ratios, for example, help shareholders in deciding
whether to retain or sell their shareholding in the company. Banks and
financial institutions assess liquidity ratios to find company’s financial
strength and ability to repay the loans. Long-term creditors are
interested in solvency conditions or leverage ratios.
6. Ratios optimise the use of capital and other resources. They help
in knowing whether or not capital is providing fair return to owners
and other stakeholders. This promotes efficiency of the firms.
The most commonly used ratios used by organizations can be
classified into the following categories:
Liquidity ratios
Solvency ratios
Profitability ratios
Turnover ratios
7.Economic Value Added (EVA):
Value added is an important tool to measure financial performance of
a company. It indicates net wealth or value created by the company.
Its major goal is to maximise shareholders’ wealth. Companies must
generate wealth to survive and grow. A company may survive without
profits in the short-run but it cannot survive without adding value to
its wealth. It covers financial management functions that result in
wealth creation.
8.Market Value Added (MVA):
Market value added is “a financial tool that measures the
stock market’s estimate of the value of a firm’s past and
expected investment projects.” Thus, it measures market
value of the firm’s stock. If company’s market value is more
than the capital invested (share capital, debentures and
retained earnings), the company will have positive MVA. It
means managers have created wealth. If, on the other
hand, market value is less than capital invested in the firm,
MVA will be negative which means managers have
destroyed wealth.
Co Ordination
Co-ordination is the unification, integration, synchronization of
the efforts of group members so as to provide unity of action in
the pursuit of common goals. It is a hidden force which binds all
the other functions of management.
According to Mooney and Reelay, “Co-ordination is orderly
arrangement of group efforts to provide unity of action in the
pursuit of common goals”.
According to Charles Worth, “Co-ordination is the integration of
several parts into an orderly hole to achieve the purpose of
understanding”.
Management seeks to achieve co-ordination through its basic
functions of planning, organizing, staffing, directing and
controlling.
That is why, co-ordination is not a separate function of
management because achieving of harmony between
individuals efforts towards achievement of group goals is a
key to success of management.
Co-ordination is the essence of management and is implicit
and inherent in all functions of management.
Importance of Co Ordination
Coordination encourages team spirit
There exists many conflicts and rivalries between individuals,
departments, between a line and staff, etc. Similarly, conflicts
are also between individual objectives and organizational
objectives. Coordination arranges the work and the objectives in
such a way that there are minimum conflicts and rivalries. It
encourages the employees to work as a team and achieve the
common objectives of the organization. This increases the team
spirit of the employees.
Coordination gives proper direction
There are many departments in the organization. Each
department performs different activities. Coordination
integrates (bring together) these activities for achieving the
common goals or objectives of the organization. Thus,
coordination gives proper direction to all the departments of
the organization.
Coordination facilitates motivation
Coordination gives complete freedom to the employees. It
encourages the employees to show initiative. It also gives
them many financial and non-financial incentives. Therefore,
the employees get job satisfaction, and they are motivated
to perform better.
Coordination makes optimum utilization of resources
Coordination helps to bring together the human and material
resources of the organization. It helps to make optimum
utilization of resources. These resources are used to achieve the
objectives of the organization. Coordination also minimizes the
wastage of resources in the organization.
Coordination helps to achieve objectives quickly
Coordination helps to minimize the conflicts, rivalries, wastages,
delays and other organizational problems. It ensures smooth
working of the organization. Therefore, with the help of
coordination an organization can achieve its objectives easily and
quickly.
Coordination improves relations in the organization
The Top Level Managers coordinates the activities of the Middle Level
Managers and develop good relations with them. Similarly, the
Middle Level Managers coordinate the activities of the Lower Level
Managers and develop good relations with them. Also, the Lower
Level Managers coordinate the activities of the workers and develop
good relations with them. Thus, coordination, overall improves the
relations in the organization.
Coordination leads to higher efficiency
Efficiency is the relationship between Returns and Cost. There will be
higher efficiency when the returns are more and the cost is less. Since
coordination leads to optimum utilization of resources it results in
more returns and low cost. Thus, coordination leads to higher
efficiency.