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UNIT – IV– MANAGEMENT
BOOK TO BE REFERED – PRINCIPLES OF MANAGEMENT BY TRIPATHI AND
REDDY
Management
As per G.R. Terry “Management is a distinct process consisting of activities of planning,
organizing, actuating and controlling, performed to determine and accomplish shared
objectives with use of human beings and other resources”
Functions or process of Management
Management has four functions that it performs. These are also the four steps in the process
of management. These are:
1. Planning
2. Organizing
3. Actuating
4. Controlling
1. Planning: Planning is deciding in advance about what should be done. Thus planning
involves:
Goal
Man
Material
Machines
Methods
Money
Markets
Planning Actuating
Organizing Controlling
What has
to be
done –
specific
objectives
, tasks
How to
execute –
methods,
policies,
procedure
How to
bring
innovation
How to
evaluate
the
results
Who is to
do it –
departme
nts, sub-
units,
personnel
Where -
Departm
ents
When to
execute –
time of
each
procedure
2. Organizing: This is nothing but putting human and non-human resources together.
This includes bringing people together in a structure of hierarchy of authority and
responsibility. Thus, it includes selection of personnel, training of people and filling
vacant post as and when the need arises. It also includes putting together non-human
resources like raw material, capital, tools, equipments, etc.
Human resource Non-Human resource
Recruitment/Selection, Training, filling vacant posts
3. Actuating/Directing/Leading/Motivating: This is the next function where a
manager tells people what they need to do and how best it can be done. Thus, other
than definition of tasks, authority and responsibility, it also involves communication,
leading and motivating. Thus, along with handing over of tasks in which
communication and clear communication has a major role of play. Thus, what people
need to do should be communicated clearly. Plus, a manager should guide and
positively influence the work of his subordinate. A manager also needs to motivate his
subordinates.
Thus Actuation/Directing includes:
Leadership Communication Motivation
Tools, equipments,
finance, raw-
material etc
Guiding and
influencing
work of
subordinate
s
Different methods to
pass orders and
information – should
be clear to be
effective
To improve job
performance
Financial
incentives –
bonus, perks,
increase in
salary
Non-financial –
recognition,
promotion,
praise,
opportunities of
advancement
4. Controlling:
This is a function of management which involves the evaluation of work done. The idea
behind controlling as a function of management is to see whether the objectives have been
achieved or not. Thus, it is a way to check the achievement of the targets. Controlling
involves:
1. Establishing standards of performance
2. Measuring current performance
3. Checking it against standard performance
4. Taking action if current performance is below standard performance or does not meet
standard performance.
5. Representation: This is an additional function of management which explains the
additional role of a manager. This involves the work of a manager where a manager needs to
represent the company in front of stakeholders, labour unions, government, suppliers, clients,
financial institutions etc.
6. Role of Manager: This are also the functions of management as the role performed by
managers are the functions that they perform. These include:
a. Interpersonal role
i. As a figurehead
1. Attending to dignitaries, wedding of employees, taking clients
for meals
ii. Leader – this is to ensure that there is unity of direction
1. To motivate his subordinates
2. To guide his team
iii. Liaison: TO create contacts inside and outside the company
b. Informational role
i. Monitor: Here he has to perform the role of a monitor to check if
everything is as per what is required. To be a effective monitor the
manager seeks information from:
1. Contacts outside the company
2. From employees who give him information of things happening
inside a company
ii. Disseminator: The give information is known as dissemination of
information. A manager performs this role by providing useful
information to his bosses as well as subordinates. This information can
be useful to the bosses to take effective decisions. It can be useful to
the subordinates as it will help them to work better.
iii. Spokesperson: speaks on behalf of the company with labour unions,
government, consumers, financial institutions, etc.
c. Decision role:
i. Entrepreneur: a manager performs the role of entrepreneur by taking
up innovation. That is bringing new ideas about product or methods to
be used
ii. Disturbance handler: as a disturbance handler a manager solves strikes
or helps clients that are facing a situation of bankruptcy
iii. Resource allocator: It takes the decision of allocating resources among
various sections of a company as per the need of the sections. He also
allocates authority and responsibility to all
iv. Negotiator: He acts as a negotiator on behalf of the company where he
negotiates with labour unions or the government for the benefit of the
company.
Nature of management
1. Management is a discipline: Management is considered a discipline as it includes
well-defined concepts and principles that are helpful in managing an organization.
2. Management is a group of people: Management is also considered as a group of
people who are performing the role of managers or performing the managerial
functions
3. Management is a process: Management is a process as it involves various steps to
carry out various activities and sub-activities like planning, organizing, actuating,
controlling and other such steps. It is also a process as it occurs over a period of time.
4. Management is multidisciplinary: Management is said to be multidisciplinary as
utilizes tools and concepts of various other disciples like mathematics, statistics,
Economics, anthropology, sociology, etc.
5. It is based on flexible principles: Management is based on flexible principles and not
rigid principles. This means the principles of management change as per the change in
environment. Thus, if there is change in culture of a set of people then the principles of
organizing that people can also change.
6. Management is an art and a science: Management is both an art and a science.
1. It is a science because:
Like another other discipline of Science, management is a systematic body
of knowledge which is unbiased and orderly
The methods of inquiry or research used in management are systematic,
scientific and empirical (that is based on practical facts and not
speculations)
It uses scientific tools and methodologies to analysis data. Thus, use of
statistical tools are common in management
Results of management research are communicable, objective or unbiased.
This means that the solutions of management research are replicable. They
can be used to solve similar problems elsewhere.
However, management is not an exact or precise science as it is based on human behaviour
which keeps changing. This is why management is considered a part of behavioural science.
However, management research is able to tell us a tendency or probability, which is close to
being precise.
2. Management as an Art:
Art is how a particular work can be performed or accomplished
Art is personal skill or creativeness
Skill in performance depends on the experience of a person, observation, education
level etc.
Thus Management as an art is a skill of getting good work done from others.
The Science part of management provides managers with the education of actual
principles of management or the theory. However, management as an art is the actual
application and effective application of the principles that not only requires education
but also skill or creativeness
Thus, management is both an art and a science
7. Management as a profession: Management is a profession as it is a body of knowledge
and no profession can be practised without knowledge. Similarly people can only entre the
profession by applying the knowledge. Like other professions, management also has a
professional association which has clearly defined ethical codes of conduct
8. Management is not the same as administration: there are three different views to
explain the difference between management and administration. These are:
a. As per Sheldon, Spiegel and Milward:
i. Administration involves thinking. Thus, making policies, plans, and
deciding on objectives is administration. Top level management is involved
in administrative activities
ii. While management involves „doing‟. Thus, executing or implementing the
policies, plans and decisions is management. Middle or lower level
management is involved in management activities.
b. As per EFL Brech and others
i. Management is the generic term that includes administration
ii. Thus administration is a branch of management which includes two
functions of management, i.e., planning and control.
iii. Functions of management include Administrative management (upper
level management) and operative management (middle and lower level
management)
c. As per Peter Drucker
i. The difference between management and administration is that they are used
in different fields
Administration is used in non-business institutions like Army,
government, religious institutions, etc
Management is governance of business enterprises
Economic performance or profit making becomes an important part of
management. Thus managers will always consider profit and loss before
taking a decision. However, in administration there are no economic
considerations. For example government will buy food grain at high price
and distribute it at subsidized rate for the welfare of the people.
CHAPTER - EVOLUTION OF MANAGEMENT THOUGHT: MANAGEMENT
YESTERDAY AND TODAY
Management though evolved from classical times to modern times. It is divided into classical
approach, neo-classical approach and modern approach.
a. Classical approach: This consists of
a. Scientific management: This approach to management was pioneered by
Fredrick Winslow Taylor (1856-1915). He is considered the father of
scientific management and made very important contributions to scientific
management. He made the following important contributions which are
classified under scientific management. These are:
i. Time and Motion study: He carried a time and motion study to decide
the standard time required to complete a job. He used a stop watch to
study the time required. Thus, he found the best time and way to do a
job.
ii. Differential payment: Once the standard number of piece during a
fixed time was found he devised incentives to increase production. He
suggested that those who produce less than the standard should get
lower piece rate and those producing more than standard should get a
bonus or incentive.
iii. Drastic reorganization of supervision: He suggested two things here:
1. Job planning should be by the supervisor or manager rather
than individual workers. This is to set a standard in methods
and bring uniformity
2. To have more foremen, each performing a functional relation.
iv. Scientific recruitment and training: he suggested that the managers
should ensure scientific selection of workers through proper
procedures. He also suggested proper training of workers to bring
uniformity in work and increased efficiency.
v. Friendly cooperation between management and workers: Rather
than conflict between the two, there should be cooperation and
friendship between the two to develop common interest in increasing
productivity.
There were two more important contributions made to scientific management approach.
These were:
1.Henry. L Gantt: His contribution included:
a. Willingness to use new methods and skills is as important as knowledge. That is why
motivation is very important. Motivation would help employees to have the willingness to
use new methods and skills.
b. He gave the following suggestions for scientific management of an organization:
He suggested that a 50 cent bonus per day should be given to those workers who
finish their assigned work.
He also suggested bonus for those foreman whose workers have finished the assigned
work.
He suggested extra bonus for those foremen who has motivated all the workers to
finish their assigned work.
He also suggested public rating of workers with the help of Progress Bar Charts.
These charts had different colour bars to depict the status of work. Black was for
target achieved and red for below target.
He also brought out a charting system called Gantt chart which is still in use.
2. Frank and Lillian Gilbreth
They carried out time and fatigue study
They tried to study and find the most economical way to lay bricks
They used the motion camera to watch the process of laying bricks
All the movements were classified in 17 types and provided with short hand symbols
for quick recording.
Limitation of the approach:
Economic incentives do not always work: A person may have other needs other
than financial needs like ego needs, security need. Thus, economic incentives may not
work on a worker every time.
Time and motion study not scientific: as per this criticism two persons doing the
same job may take different times. So there is no such thing as „one best way‟ or it is
difficult to come to a standard performance.
System of functional foremanship breaks the principle of unity of command:
This leads to confusion, mismanagement, fatigue among workers, etc.
Increased resentment among workers: As methods, tools and techniques were
changed as per the suggestions by Taylor, there was a lot of resentment among
workers
b. Administrative management: Given by Henry Fayol (1821-1945). He is considered the
father of administrative management. He suggested 14 principles of management. These are:
vi. Division of work: Various works like planning, organizing, directing
and controlling should be separated and handled by specialists
vii. Authority and responsibility: A manager should have the authority to
get work done from others but should also bear responsibility for the
decisions and action taken. Authority is said to depend on both
personal power as well as formal authority.
viii. Discipline: Discipline as per Fayol means 1) obedience to authority, 2)
follow rules, 3) sincere effort to complete a job, 4) Respect for
seniors/superiors. He suggested ways to maintain discipline by:
1. Appointing good supervisors at all levels
2. Clear and fair agreement between employers and employees
3. Judicious or fair application of penalties. That is there should
be no discrimination while imposing penalties.
ix. Unity of command: This means that each employee should get
command from one supervisor only. If it is not done so then it may
lead to conflict in command which may lead to confusion and
indiscipline
x. Unity of direction: There should be complete unity between
individual and organizational goals.
xi. Subordination of personal interest to general interest: Individual
interest of more money, status, etc should be held lower than the
general interest of the organization.
xii. Remuneration: Fair payment of remunerations or salary should be
there. This effects worker‟s morale and efficiency. Remuneration to be
paid should be based on the capacity of the firm, general living
conditions, productivity of workers, etc.
xiii. Centralization: Whether centralization or decentralization should be
practised or what degree of it should be practised would depend on the
size of the organization, the activity of the organization, etc. E.g. if an
organization is large and has many departments then decentralization is
appropriate for quick decision-making. Similalry of a organization is
dealing with a technology which changes very frequently then
decentralization is appropriate.
xiv. Scalar Chain: There should be a proper chain of hierarchy of
authority and responsibility from the highest to the lowest level. He
suggested that in principles a proper path or chain of communication
should be followed. But for quick decisions these links can be jumped
by throwing a gang plank. Here a gang plank is thrown from D to O.
That is if D needs to coordinate its activities with O then instead to
going up to A to get permission, D seeks permission from C and O
from N and then they coordinate their activities.
xv. Order: There should be order in work. For that there should be proper
selection of people, right kind of duties to right kind of people and a
A
M B
C
D
N
O
P E
proper organization. This will maintain order and not create chaos,
confusion and frustration.
xvi. Equity: managers should be free of bias and personal likes and
dislikes. There should be justice
xvii. Stability of tenure: Security of job is an essential condition for
motivation of workers to work better.
xviii. Initiative: A manager should give enough scope to his juniors to take
initiative, since that is the first step towards innovation. They should be
given the freedom to think and implement a plan.
xix. Esprit de corps: This means team spirit, which should be created
among workers. Unity is a great source of strength and has a positive
influence on job performance. He suggests that managers should not
practise divide and rule and there should be more verbal
communication between the team members.
Limitation of Administrative management
Unity of command and division of work are contradictory principles
The suggestions were based on limited research. As a result suggestions or
conclusions not replicable
Principles suggested are not flexible
This approach was based on the assumption that organizations are closed system, but
in reality they are open systems.
c. Bureaucracy – Max Weber is considered the father of Bureaucracy. In 1910 he studied
various organizations and came up with the suggestion that bureaucratic system of
management is more effective, as it is based on merit and not hereditary. The important
features of bureaucratic administration are as follows:
xx. Systematic division of work: There is systematic division of work
which brings about efficiency in work and reduces or eliminates
wastage.
xxi. Standard rules: There are standard rule in the functioning of a
bureaucratic system. That is why personnel require special training to
understand these rules and implement them effectively.
xxii. Principle of hierarchy is followed: There is a lower officer working
under the control of a higher supervisor.
xxiii. Knowledge and training necessary: There is emphasis on knowledge
and training for the personnel. It is on the basis of the knowledge and
training that the authority granted to the personnel is considered
legitimate. That is until and unless a officer has not received training
whatever authority he has would not have any following or legitimacy.
xxiv. Paper work: Administrative acts, decision rules are recorded in writing.
That is why there is a lot of paper work involved. Plus recording of
everything in writing makes it less vulnerable to manipulation by
people or risk of whoever wants to whatever become less.
xxv. Rational selection: People are selected on the basis of the merit. This is
because scientific methods of selection are used like selection tests,
interviews etc.
Limitation of Bureaucratic approach
Overconfirmity to rules: In this type of organization, people normally stick to the
rules. As a result they only follow what the rule says and do not think about the spirit
behind a rule or a law. That is why many a times the law or policies they implement
do have the desired outcome. E.g. a doctor instead of attending to an emergency
victim is more worried about the entry form that the victim has to fill at the hospital.
Buck-passing: In situations where there are no rules in a burecratic system,
employees are afraid to take a decision as they are scared that they might be punished
for taking a wrong decision. Thus, they try and pass this responsibility to someone
else.
Displacement of goals: This is a very common problem faced in a burecratic
organization where the original goal with which the organization was set up with has
been displaced or replaced by another goal or objective. This changes the direction in
which the organization was moving. This is likely to happen if some groups that have
a strong hold on the organization change the goals of the organization to suit their
selfish interest. E.g. of displacement of goal could alos be when a factory worker is
praised for his regular attendance at work rather than the quality of his work. Soon
attendance at work becomes more important goal than quality of work.
No real right to appeal: Clients of a bureaucratic organization feel dissatisfied as
they have no real right to appeal against the wrong doings of the employees, as many
a times the seniors of the employees take their side rather than attend to the appeal of
the clients
Rigid structure: Very rigid roles and overconfirmity of rules makes the structure
very rigid
Inability to satisfy needs of mature individuals: A mature individual as per Chris
Argyris wants independence to work, wants to take initiative, opportunity to use all
his skills, etc. However, in a rigid and controlled structure like the bureaucratic
structure this is something he is not able to achieve.
II.Neo-classical approach:
This includes:
1. Human relations approach
Scientific and administrative management approach were not able to answer on
questions of ideal human resource management
These approaches were not able to explain the relation between production efficiency
and work-place harmony
It was the human relations approach that was able to explain the „people side‟ or
„human side‟
This approach was inspired by the Hawthorne experiments which were done by Elton
Mayo from 1927 to 1932 in Western Electric Company in USA on 29,000 workers.
These experiments were done in four stages:
o Illumination experiment
In this experiment it was tested if there was a correlation between
illumination and workers‟ productivity. Various tests were done on
groups of workers. Later on, 2 groups were tested where one group
called the „control group‟ was put under controlled lighting while
another group called the „test group‟ faced varying levels of
illumination. It was found that illumination affected production only
marginally.
o Relay assembly test room:
1. In this experiment various other factors were changed like
illumination, rest pauses, length of rest pauses, length of
working hours, and other physical conditions
2. A group of six women were chosen for this experiment. These
women were good friends with each other. These women faced
ideal working conditions as well as not so good working
conditions in this experiment.
3. The result of this experiment showed a marginal difference
between the productivity level of women when the conditions
of working were proper and when they were improper. This
was because:
A. The women felt very important to be part of an
experiment
B. They worked in a tension-free environment
C. There was high-cohesion or very good
relations in the group.
o Interview program:
This was the 3rd
phase of the experiment. In this phase they
interviewed 20,000 workers. Workers were asked direct and indirect
questions on working conditions. The conclusions of the experiment
were:
4. Social relations with a work place has a big influence on the
attitude and behaviour of workers
5. Informal groups were very important and set production norms
for the group members. These norms group members had to
abide by if they had to stay in the group
o Bank wiring observation:
This was the last phase of the experiment where 14 men were observed while
making terminal banks of telephone wiring assembly.
They observed that:
a. Informal groups set their own production targets which were less than the
company targets despite an incentive system
b. It was to protect their piece rate as well as the slower or weaker workers
c. Those who broke the norms were isolated, harassed or punished
d. Those who produced more than the group target were called „rate-busters‟,
those who complained to the supervisor were called „squealers‟ and those who
were very slow were termed as “chisellers‟
The human relations approach brought out the fact that informal relations have an important
role of play in production and job performance. It is after this approach that more
concentration on human aspects came about.
Limitation of Human relations approach
- It only considers the human side and ignores other aspects
- There is too much emphasis of the assumption that an organization can be turned into
a „big happy family‟
- It provides unrealistic picture of informal groups
- Leisurely process of decision-making cannot work in emergencies
- Wrong assumption that satisfied workers are more productive.
b.Behavioural approach: This was brought by behavioural scientists like Douglas
Macgregor, Abraham Maslow, Kurt Lewin and others. This approach gave the following
contributions to management thought:
o Flexibility in job design: A organization should be flexible where jobs should be made
on the basis of capabilities of an average employee
o Participative or group decision-making: A system in an organization should be
participative and based on group decision-making as business problems are too complex
to be left to an individual to solve.
o Self-directed or positive action: Instead of external control, self-direction and self-
control should be encouraged among workers as positive action would bring better results
than punitive or negative action.
o Flexible leadership styles: They did a detailed study on leadership styles and
recommended that democratic leadership style should be used. However, they also
suggested that as the need arises autocratic and job-oriented styles should also be
practised.
o Cater to individual needs: They also suggested that no two individuals are the same, so
manager should cater to individual needs of each worker. So a manager should influence
or motivate accordingly.
III. Modern approach
a.Quantitative approach or Management Science Approach:
o This approach was developed and used during the Second World War.
o This approach focuses on decision-making on quantitative tools and techniques
for making objective rational decisions
o This approach talks about Operations Research (OR). A OR team consists of
specialists from different fields like mathematics, economics, statistics,
engineering, etc
o The team looks for the least cost or most effective technique or course of action
for management.
o This type of method is mostly used for solving problems are
1. Bus routing
2. Automation
3. Choosing whether a company should go global or not.
o This is mostly useful for technical aspects and has limited use for staffing and
leading or other human aspects.
b.Systems approach
o This was provided by Chester Bernard, George Homan and others. This approach
contributed as follows:
o A system is a set of inter-related parts: This approach spoke about an organization as a
system which consists of various interdependent parts. The four main parts of a system
are – task (consisting of objectives), structure (authority, responsibility, communication,
work flow), people (employees, motives, attitudes, values, informal relations), and
technology (tools, equipments, techniques, etc.). These four parts are interrelated or
interdependent.
o Central to the systems approach is the concept of ‘holism’: A system has to be
considered as a whole rather than in parts. Giving in example of 12 restaurants in Chicago
William Whyte and 3 of his associates found that in these restaurants only one part of the
organization, i.e. people, were considered as a problem, whereas the problem was in the
method or technique used. Thus, all parts have to considered or seen simultaneously
o A system can either be a closed or open system: a closed system is the one that is
independent of its outside environment; where as an open system interacts with its
environment. All systems, whether biological or man-made are dependent on the outside
environment. Thus all systems are open systems. A business system is an open system
where inputs like raw material, human efforts, power, etc come from the outside
environment. They are transformed in an industry and sent as output. The transformation
process is known as „throughput‟
In the above chart an open system is depicted. In this system there is „synergy‟ that is when
different departments cooperate they become effective rather than working in isolation.
An open system also works effectively if it has a feedback system, that is feedback from
within the system as well from the environment which is outside.
o Each system has a boundary: Generally activities required in the transformation
process (conversion of input in output) defines their boundaries like manufacturing,
transportation, warehousing, health care, communication etc. It helps determine where
the system ends and where it begins. The transformation process within an open system
have boundary spanning units which protects the transformation process from all the
changes taking place in the outer environment. The following chart below would
demonstrate the boundary spanning units of s system
Thus, purchase department from the input side keep a constant flow of raw material
by stocking it. If there is any shortage outside, then the stock by the purchase
department can be used. Similarly the personnel departments constant hiring and
training of workers keeps the transformation process safe from any shortage of
manpower. On the output side, the marketing department through its research and
feedback is able to safeguard the transformation process from any changes in
consumer need and behaviour
Limitations of systems approach
- Does not present anything new
- It only combines what classical and neo-classical scholars have said
- It is old wine in new bottle
3.Contingency approach
o There is no one best way of doing things under all conditions
TRASFORMATION OF ENERGY
(THROUGHPUT)
Input of information,
energy, materials
(import)
Output of
products, ideas,
services (Export)
Environment
Environment
TRASFORMATION PROCESS
(THROUGHPUT)
From the output side
Warehousing
Marketing
Quality control
From the input side
Purchase
Personnel
o This approach suggest that a manager has to identify the best technique suitable to
achieve goals
o E.g. A manager has to change leadership styles as per the situation.
o This approach is usefull in taking decisions regarding:
o Degree of decentralization
o Motivational and leadership styles to be chosen
o Resolving conflicts
o Employee development and training program
CHAPTER - PLANNING
Meaning and nature of planning
This is the first step or function of management. As per M.E. Hurley “Planning is deciding in
advance what is to be done. It involves the selection of objectives, policies, procedures and
programmes from among alternatives”. Thus planning is:
Nature of planning
Planning is:
1. A continuous process: It is not stagnant but goes on. A manager has to keep
checking how the plan is going and keep adding more steps or deleting a few to make
it successful by checking the conditions inside and outside the company.
2. It focuses on objectives: the main aim of planning is to achieve the objectives of an
organization. Thus, planning is the blueprint to achieve that objective.
3. It is all pervasive: It is present at all levels of an organization and is done by manager
at all levels. Top level manager do long term planning while lower level managers do
short-term planning.
4. Planning is the primary function: it is the first step in management. All future
courses of action from what to do, when, where, how, and whom is decided through
planning
5. Planning facilitates cooperation: it helps to set coordination between various units
or departments of an organization which is essential for the smooth working and
achievement of goals
What has
to be
done –
specific
objective,
tasks
E.g.
should
the
company
make the
parts or
buy or
from
outside
How to
execute –
methods,
policies,
procedure
E.g.
Do we do
automation
Do we have
shift
How to
bring
innovation
e.g.
innovation
in product,
methods,
technique,
procedure
How to
evaluate
the
results
E.g. what
will be
the
standard
performa
nce
Who is to
do it –
departme
nts, sub-
units,
personnel.
E.g. Do we
hire new
people or
promote
the
existing
one
Where -
Departm
ents
When to
execute –
time of
each
procedure
Do we
have a
monthly
weekly or
six monthly
plan
6. Planning facilities efficiency: It helps bring efficiency in working of an organization.
A manager decides/plans how to achieve the objectives with the best and most
economical alternatives
7. Planning is an intellectual process: It involves a lot of thinking and intelligent
thinking. Thus, it is an intellectual process
8. Planning has limitations: There are various limitations that a planning process has.
These are:
a. It is expensive and time consuming. Time, every, and money is used in
planning. There is a risk also involved in planning as many a times planning is
done on the basis of certain assumptions that are not precises.
b. Planning sometimes restricts quick decision-making: Planning sets certain
rules and regulations which may restrict a manager from taking quick
decisions. This may kill initiative too. Too many rules may not allow a person
to take the first step.
c. Scope of planning is limited in those organizations where things are
changing quickly like fashion industry. Thus, before a plan is made and
implemented it already becomes redundant as things have changed in the
industry.
d. Planning has limitation in forming accurate premise and assumptions.
Since plans are based on or are made on the basis of premises or assumptions
which may not precise, there is always the danger of a plan going wrong.
e. Planning also has limitations due to people’s resistance: Planning sets
order. Planning also brings change and people who are used to working in a
system for many years may not like change. Thus, they are likely to resist any
kind of planning that would restrict their activities or bring change.
f. If a plan is set many months or years in advance then it is likely to lose its
value as there might be small or big changes that may appear either in the
outside environment or within the company. Thus this is also a limitation of a
plan.
Importance/advantage of planning
1. Minimizes risk and uncertainty: People cannot work on intuitions. They need to
plan as it helps cope with changing environment. It also helps decide for future needs.
Thus, when plans for future are made and accordingly provisions are made, then a
company is ready to face those future problems.
2. Leads to success: This is because planning means a well thought-out action. It is not
random or adhoc. As a result it leads to success. Most of the battles have been won
because of a good battle plan.
3. Focuses attention on organizational goals: It decides the orderly sequence of steps
in achieving the organizational goals
4. Facilitates control: Control can only be exercised if there is a plan. When it is
decided before hand what the standards will be and how targets will be evaluated.
5. Trains executives: Managers who are involved in the planning process get trained in
the process to not only handle the planning process or how to do planning but also
able to see the bigger picture.
Steps in Planning
1. Setting of goals and objectives: This is the first step where is explains what the
organization wants to achieve. A company can have objectives like a high growth rate
in profit or launching a new product or taking more social responsibility.
2. Setting planning premises: Premises are certain assumption made about the future
based on certain factors. Thus, to draw premise a lot of facts and information is
required which helps in the planning process. The different types of premises are:
a. Internal and external premises: Information and facts about sales, skills of
employees, resources with the company, etc are internal premise. External
premise are based on factors that are external like technological changes, govt.
policies, population, demand, etc.
b. Tangible and intangible premises: Some of the premises cannot be measured
like political instability, attitudes etc. These are intangible. Tangible is that can
be measured like population growth, demand, capital invested. Etc.
c. Controllable and uncontrollable premises: Those factors that cannot be
controlled like war, strike, etc are uncontrollable factors and plans made on
assumption based on these factors are un-controllable premise. Such plans
need revision constantly. However, there are controllable premises like skill of
the labour force, organization policy, availability of labour and capital, etc.
3. Deciding planning period: Next step is to decide on how long will be the planning
period. Some plan for a year, while some for 5 to 10 years. However, the time of plan
will depend on three factors:
a. Lead time in development: Heavy industries have longer planning period as
they have longer gestation period while a smaller manufacturer can have
annual plans
b. Time required to recover capital investment: E.g. 10 lakh worth machine
with turnover of 2 lakh per year then this machine will take 5 years to cover
capital investment. Thus plan period will be 5 years
c. Length of commitment made: if commitment to mine an area is for 10 years
then a plan can be made for 10 years. If the commitment period changes due to
sub-leasing of the mine then the plan period can also be less.
4. Finding alternative courses of action: This is the next step that is there are various
alternatives to do one work. Thus, in order to finish one work, there can be two
alternatives. E.g. If a new machine is bought or a new system is going to be set up in
the company then a company would find what are the alternatives available in terms
of personnel who would run this new machine or new system. They can either employ
foreign technician or send current employees for training outside.
5. Evaluating and selecting a course of action: Having sought alternatives, these have
to be evaluated in light of the objectives, resources, and premises available with the
company. Then a decision or choice is made about the best course of action. Taking
the above example, each of the alternatives will be evaluated. If they find that having
foreign technicians would turn out to be more expensive than sending the current
employee for training and that it would not lead to any difference in productivity then
the second alternative would be chosen.
6. Developing derivative plans: After a master plan is made then sub-plans are derived
from the master plan and are unit or department specific. These are keeping the main
plan in mind but is also specific to a department.
7. Measuring and controlling the process: There is a need to check the progress of the
plan also. So the progress is measured and seen if it is working as per the planned
parameters. If not then control measures are taken or changes are made in the original
plan.
Guidelines for a good/ effective plan
A good or an effective plan should constitute the following aspects:
1. Coordination
a. Between main and derivative plan: There should be proper coordination
between the main or the master plan and the derivative or unit/departmental
level plans. If this is not so then the master plan as well as the derivative plans
will fail to achieve the objectives of the organization
b. There should also be a proper coordination between long-term and short-term
plans
2. Communication
a. All relevant information needs to be communicated to each planner (lower or
higher level). This is because if correct and complete information is not passed
on for planning then a plan is likely to go wrong.
b. E.g. If the policies or goals of company are not known to a department then a
department is likely to make a plan which may go against the interest of the
company.
3. Participation
a. There should be effective participation of subordinates in the planning
process. This has many advantages, such as, (a) there is better understanding
of the company goals (b) There is better chance of a plan working (c) There is
a better sense of belonging among the subordinates (d) there is better
participation of subordinated in company activities
b. Participation can also come from a „bottom-up approach‟ in planning. This
approach allows the subordinates to give ideas to set a plan. This type of
approach is not only going to be effective as there is better sense of
participation from the subordinates, plus there is likely to be a more effective
plan as the subordinates are the people who know the ground realities or the
actual problems occurring in the field. Thus, they can suggest plans that would
overcome these problems
4. Proper working climate
a. For a plan to be effective it is also essential that people who are working in a
company and are making plans for it should have a proper working climate in
terms of good physical as well as socio-economic environment.
Types of plan
Hierarchy of organizational plans
Objectives
Strategies
Single use plans Standing plans
(Programmes, (Plans, policies, methods, Rules)
Budgets)
Objectives are achieved through strategies and strategies are achieved through two main
plans. These are single-use and standing plans.
Objectives
Objectives are different from vision (dream), Purpose (role in the society or broad aim), and
mission (unique or specific aim). E.g. a person or persons may have a vision which could be
development of Central India. The „purpose‟ then could be Human resource development in
central India. The Mission could be to „provide professional education by setting a
professional college‟.
Objectives on the other hand are specific targets to be reached by an organization. It is the
translation of mission of an organization in concrete tasks and targets. Thus, starting
undergraduate and postgraduate engineering programme, help to economically backward
students, and education of girls can be objectives of the same company.
Characteristics of objectives
1. Objectives are multiple in numbers: It is not necessary that a company would have
only one objective. A company can have multiple or more than one objective.
2. Objectives are tangible or intangible: Objectives can be tangible, i.e., they can be
measurable like production target. Thus a company can have the objective of
achieving production of 100 MT in the coming months. Similarly, objectives can they
can be intangible like increasing motivation of employees.
3. Objectives have a priority: Every organization have objectives which are prioritized
as per their importance. Thus, for a college, the priorty would be to achieve the
objective of quality teaching, which would be followed by research and then other
objectives.
4. Objectives are normally arranged in a hierarchy: Objectives also have a hierarchy.
Thus there are objectives which are formulated for the company as a whole, this is
followed by objectives that each department of the company fixes for itself, which
may be followed by objectives fixed a lower level.
5. Objectives sometimes clash with each other: It is possible that sometimes
objectives may clash with each other. E.g. quality of a product may be low due the
objective to create product with low cost of production. On the other hand the
Marketing Department may have the objective of selling high quality products for
consumer satisfaction.
Criteria of good objectives
1. Should be clear and acceptable: If objectives are not clear or not clearly
communicated then they will not be achieved. Similarly, objectives should be
acceptable to all those who are trying to achieve these objectives and that would be
the employee of the company.
2. Must support one another: Objectives should not clash with each other but should
support each other.
3. Should be precise and measurable: Objectives should be as precise and measurable as
possible. This would act as motivator for the workers because when they can measure
the achievement of the objectives they would feel good about it and would be
motivated to work better. Preciseness and measurement is also essential as it is easier
to assess whether objectives have been achieved or not.
4. Should always remain valid: Objectives should always be as per changing times.
Thus, any objective which does not suit the current or changing needs will become
invalid. For example suppose the objective formed by a college long ago was to give
benefit to girl students so that they do not suffer due to discrimination. If the society
has transformed and gender discrimination no longer takes place in that society, then
in that case this objective will not be valid.
Strategies
Strategies are the basis of a good plan. They are drawn by doing a SWOT (S-Strengths, W-
Weaknesses, O-opportunities, T-Threats) analysis before drawing a plan. Thus, strategies
include two things:
1. Environmental appraisal
2. Corporate appraisal
Environmental appraisal looks at the threats and opportunities for the company from
external factors or threats and opportunities that exist in the outside environment. These are:
1. Political and legal factors: This will include political stability, taxation laws,
monetary and fiscal policies. Thus, political stability can bring opportunities for the
business to grow where as political instability can prove to be a threat.
2. Economic factors: Exchange rates, trends in prices, supply of labour, raw material
etc. E.g. if there are new and cheaper source of raw material that a company finds
then that is an opportunity, but if there is a shortage then that would be threat.
3. Competitive factors: Indentifying competitors, their performance, their market
spread, pricing of the product.
4. Social and cultural factors: Change in the society in terms of culture and other
aspects.
Corporate appraisal: This is to identify and analyse the strengths and weaknesses of the
company from within. Thus, it looks at internal factors. Strength will include skills of the
employees, good customer service, good transportation facility, ability to influence law or
policies of the government, etc. Weaknesses can be scarcity of, lack of updated machinery,
very high personnel turnover, etc.
Standing plans: these are plans which need to be used again and again. Thus, a bank will not
make a single-use plan for loan approval. Instead it will make a standing plan defining
various parameters on which to judge a plan. Standing plans are policies, procedures,
methods, and rules
1. Policies:
a. They are general guidelines
b. They give a direction to management
c. They set boundaries
d. They provide a framework, while specific decisions on these guidelines are
taken by the respective managers
e. They bring uniformity, quicker delegation of work, and speed up decisions at
lower level
2. Procedures
a. While policies are general guidelines, procedures are more detailed
b. They include step-wise details about how a task would be conducted
c. The same steps are repeated every time the activity or task is performed
d. E.g. procedure followed in the selection of personnel.
e. Procedures are useful as they are time saving, bring uniformity and bring in a
fair system of decision-making
3. Methods
a. While policies are general guidelines, procedures are steps to do a particular
task, methods are techniques followed in each step of a procedure.
b. Thus one of the steps in selection procedure of personnel is carrying out tests.
Methods would include how these written tests are to be conducted.
c. Methods bring uniformity, make procedures productive and efficient, and
improved methods reduce fatigue
4. Rules:
a. Rules lay down the do‟s and don‟ts
b. They are recorded instructions
c. They are helpful in bringing unit of direction, uniformity and require less
supervision.
2.Single – Use Plan
These are plans for one time use. These plans are developed for a specific use or to achieve a
specific objective. Once that objective is achieved, the plan is discarded. The example of
single use plans are Programs and budgets.
1. Programs:
a. Programs are specific plans undertaken to achieve a specific task
b. For example, program to set-up 5 branches, program to train employees in a
particular skill are programs which when done are discarded.
c. A program involves a specific time-line and a specific budget
2. Budget
a. A budget is a statement prepared before hand for a specific period of time and
for a specific task. A budget can be a production budget, a financial budget, a
sales budget which all mentions a specific estimate or plan.
b. A Budget helps set a standard or limit against which the actual performance is
measured
c. The comparison between the actual results and what was budgeted helps judge
the performance.
CHAPTER - ORGANIZATION
Meaning of organization: There are various definitions of organization given. These are:
As per Amitai Etizoni:
“Organization is a social unit or human grouping deliberately structured for the purpose of
attaining specific goals”.
Sehein defines
“An organization as the rational coordination of the activities of a number of people for the
achievement of a common explicit purpose or goal, through division of labour and function,
and through hierarchy of authority and responsibility”
Thus every organization has
– A purpose, goal or objective
– It clearly has duties and activities that are essential to carry out the objectives
– Activities are classified in jobs
– There is a relationship between jobs established.
Organization as a structure
• A structure is a pattern in which various parts or components are interrelated.
• There is a pattern of relationship between various components, i.e. Between activities and
positions
• Dalton et. al. have defined organization structure as
– Organization structure refers to the differentiation and integration of activities and
authority, role, and relationships in the organization. Differentiation is the differences in
cognitive and emotional orientations among managers in different functional departments
and differences in formal structure among these departments. Integration refers to the quality
of the state of collaboration that is required to achieve unity efforts by the organization.”
The factors which help decide which is the best structure that will suit a company, are as
follows:
• Environment: The outside environment on which an organization depends also decides the
structure of an organization. If there is stable environment, then classical structures like line
or line and staff org. will be suitable. However, for an ever changing environment, informal
decentralized or unrestricting structures are suitable.
• Culture: Culture of country can also help decide the type of structure. Like USA – culture
supports decentralized structures – Germany centralized structures
• Task - What is the task or objective of org. If religious then decentralized / voluntary
structure – business institution – structured formal structure
• Technology – Complex technology – more and strict supervision – tall structure with unity
of command
• Strategy – Diversification – leads to divisions – centralized structure not suitable
Organization as a process
1st - Consideration of objectives – Objectives decide which activities to be performed –
accordingly the type of organization structure can be built E.g. Structure for a army
organization is different from a business enterprise as their objectives are different.
2nd - Grouping of activities into department: this is known as departmentalization –
grouping of similar activities is departmentalization. This is also known as horizontal
differentiation – The aim is division of labour and creation of specialization
BASIS OF DEPARTMENTALIZATION • Departmentalization is done on certain basis. These are:
1. Functions – Departments are created as per the functions in an organization E.g.
Various functions are Production, Finance, Personnel
Product – Suitable for organizations producing different products – E.g. Consumer
product, electronics, etc. Each product manufacturing unit is further departmentalised
as per functions like marketing, personnel, etc.
E.g. TATA – steel, vehicles, clothes, cosmetics, eyewear, jewellery etc.
2. Customers – Departments or units as created as per the customers it serves. E.g.
Software unit serving the government, Electronics firms with different
departments/units for military, industries, households
3. Region or territory: when departments are created as per regions or territories
within a region. E.g. Coal India, Indian Railways, etc.
4. Time: When departments/units/divisions created as per time of the activity – E.g.
morning and evening shift
5. Process: When a process is spilt into various units/departments – E.g. Production
process of bags into split into spinning, weaving, dyeing and finishing.
A organization can be departmentalized on the basis of product and then on the
basis of territory E.g. Tractor dept., appliance dept., generator dept – each can be
eastern region, western region etc. – then can be split as per functions like
production, sales, personnel, etc.
3rd - Deciding which department will be the key department: The department which is
doing the key activity – as key departments demand key attention– e.g. production
department in a cement bag manufacturing firm – key departments would be spinning and
weaving.
4th - Determining levels at which various types of decisions are to be made: Level of
Centralization and decentralization – How much of decision-making authority to be
centralized in the hands of top executives – and how much to be distributed among managers.
Decentralization A structure is decentralized when:
1. Greater number of decisions taken at lower levels
2. Important decisions taken at lower level
3. Fewer people are consulted before decision
4. Less checking is required in the correctness of the decision
Level of decentralization will depend on: 1. Size of the organization: if the size of the organization is big then decentralized
decision-making will be more effective
2. Philosophy of top management: if the top management believes in the philosophy
that lower level management is not self-directed and not capable of taking decisions
then the decisions will be centralized and vice-versa.
3. Abilities of lower-level managers: If the lower-level managers are able and
responsible then decision-making can be decentralized
4. Organization’s environment – less uncertainty, less dynamism in production
process the a decentralized system. On the other hand is the competitive environment
is stable then more centralized decision
5. Cost and significance of decision – if the decisions to be taken are very important
and any wrong decisions can prove to be costly to the organization then it will be a
centralized decision.
5th - Determining the span of management – Number of subordinates who report to a
manager – larger number, bigger span, smaller number , smaller span
6th - Setting up a coordination mechanism Peter Drucker – Organization like a tune – not individual sounds but relation between them
-Conflicts and competition between departments will lower coordination
- Mechanisms needed to keep coordination – so that company goals achieved and conflicts
reduced.
Principles of organization For a sound and efficient organization structure the following principles are necessary:
1. Objective: What is the organization going to do will determine what its structure will be.
Thus, for an appropriate structure there should be clarity of objective.
2. Specialization - structure should promote specialization – activities should be divided as
per areas of specialization.
3. Span of control – There should be minimum people who can be supervised – ideal is 6.
4. Exception – manager should handle only exceptionally complex problems - will help the
manager to devote time to more important issues.
5. Scalar principle – clearly defined line of authority or chain of command.
6. Unity of command – every subordinate should have only one boss – multiple commands
lead to confusion, indiscipline, de-motivation, uneasiness, etc.
7. Authority – Clearly defined in order to get work done
8. Delegation – Proper delegation of authority – should be equal to responsibility – i.e.
enough authority to get the work completed.
9. Responsibility – superior responsible for subordinates and has his responsibilities – should
not avoid work by delegating authority and responsibility to subordinate.
10. Efficiency – completion of task with least cost
11. Simplicity – Simple structure – less levels – because simple for effective communication
and coordination
12. Flexibility – Flexible, thus adaptive as per changing environment – should allow changes
in structure without disturbing the basic design.
13. Balance – reasonable balance between size of departments, between centralization and
decentralization, span of control and short chain of command
14. Unity of direction – It helps in better coordination – there should clear objectives and
clear plan to fulfil the objective.
15. Personal ability – A structure should have people through proper selection – a structure
should also encourage personnel development.
16. Acceptability – structure acceptable to all – if not then people will change it over time or
it will not work effectively.
Types of organization An organization structure consists of formal and informal interactions. Thus there are:
1. Formal organizations: When an organization has a formal structure - based on division of
labour – concentration is on performance of job not individual – Authority & responsibility
assigned to each job – people placed in hierarchy - a formal set of rule or code of conduct,
procedure, methods.
2. Informal organization –
• Natural grouping of people
• Not designed or planned
• Created on the basis of some similarity in groups on the basis of age, gender, place of
origin, religion, likings, etc
• More complex than formal structure
• Membership in group is voluntary
• Behaviour of group members governed by norms
Forms of organization structures
1. Line organization structure
Features 1. Oldest and simplest form: It is the oldest and simplest form of organization based on the
scalar principle, where scalar means steps.
2. Vertical flow of authority: In this type of organization authority flows from the top to the
bottom in a more or less a straight line which is why it is known as line organization. In this
the highest authority is exercised by those sitting at the top and is then passed on to the
subordinates
3. Responsibility upwards: Responsibility as well as accountability flows upward from the
subordinates to the superiors.
4. Unity of command: Each manager has a direct authority over his immediate subordinate.
Everyone reports to one boss or one immediate superior.
Two types of line org: Pure and departmental
1. Pure – Production manager – Foreman A, B, C – Workers.
2. Departmental – Production manager – Foreman (Spinning), Foreman (weaving), Foreman
(Dyeing), Foreman (finishing) – Workers under each.
Pure Line org.
Departmental Line Org.
b. Merits
1. Simple: It is a simple structure or organization. Thus, it is easy to understand and manage.
2. Effective decision-making: It is effective structure as all decisions are controlled by one
person at each level. As a result, decisions can be made fast.
3. Clarity: Responsibility is fixed at each level. Each person knows and does his duty well as
he knows that he will be held responsible for it. It is also very clear about who he is
responsible to.
4. Discipline: There is greater control and discipline in this structure as there is one
immediate boss handling the subordinates or juniors. Normally indiscipline may arise when
there is more than boss to pass command or order.
5. Flexibility: This type of organization is flexible and can easily change as per changes in
circumstances as the structure is very simple. So new posts can be added or deleted without
much financial cost to the company or without disturbing the existing structure.
c. Demerits
1. Less scope for specialization: There is very little scope for specialization as one executive
or manager is required to do all the work. The work done by the manager may be beyond his
area of knowledge or qualifications. As a result, quality work may not be done.
2. Managers are overloaded: There is extreme concentration of work at the top. As a result
managers are overloaded with work. This brings down their efficiency.
3. Limited use: This type of organization is only suitable for small enterprises or companies
and has limited utility.
4. Scope for misuse of power: Power is also largely concentrated at the top. As a result
decisions can be as per mood of the top executives. Thus, it is not necessary that the decisions
taken will be correct and objective. With a large concentration of power in one person at each
level, there is high likelihood of misuse of power by the line managers.
5. Distribution of work can be arbitrary: Since distribution of work depends on the
discretion or decision of one manager, it can be arbitrary or random. What this means that it
is not necessary that authority and work would be distributed as per merit and ability. If a line
manager is biased then this distribution of work can be per the ability of juniors to keep the
manager happy.
6. It encourages nepotism: Since there is only on decision-maker sitting at each level, the
authority and power of that level is only with that line manager. This may result in nepotism
or favouritism. As a result people with merit may not get the due credit where as non-
deserving employees may get advancement in job.
2.Line and Staff organization
A. Features
1. Improvement over line: This is an improvement over the line organization.
2. Staff: In this staff or specialists/experts are attached to departments or the line managers.
Staff literally means stick which means support. Thus, the staff members are there to support
the line managers.
3. Advisors and specialists: The job of the staff is only to give advice to the managers. They
pay attention towards research and planning. They have no authority. The decisions are taken
by line managers on the basis of the advice given by the staff. The line managers are there to
implement or execute policies. Thus the staff has the „authority of ideas‟ and the line manager
have „authority to command‟. It is said that „Line tells‟ (gives commands) and „staff sells‟
(gives information and advice)
B. Merits
1. Reduction of load: Line managers are less loaded as the staff shares the burden.
2. Expert advice: Line managers get expert advice from the staff.
3. Quick decisions: Quick decisions can be taken by line managers as quick information and
advice is passed on by the staff which increases efficiency.
4. More productive: It is more productive and profitable than line organization as decisions
are based on expert advice. As a result, the advice will lead to better result for the industry.
5. Flexible: this type of organization is also flexible as new activities can be taken up by the
staff without any adjustments in line management.
6. Undivided authority and responsibility: There is undivided authority and responsibility
as only line managers have the authority. Thus there is less conflict and decisions can be
taken quickly.
c. Demerits
1. Conflict: There can be situations of conflict between the line manager and the staff if the
advice of the staff is not taken.
2. Mismatch of ideas: There can also be conflicts because line managers handle more
practical work while the work of the staff members is more theoretical, which may not match.
The ideas or suggestions given by the staff members may not work practically. Thus there
can be mismatch of ideas.
3. Costlier: It is costlier than line organization as there is an addition of staff members.
Thus, it is not suitable for small enterprises.
4. Element of risk: There is an element of risk as the line managers may start to depend too
much on the advice of the staff members. This situation can be exploited by the staff
members where they can take advantage or twist policies to meet their self-interest.
5. Risk due to lack of accountability: Staff members may act irresponsibly as they are not
responsible for the decisions. The final decision is taken by the line manager. As a result if
anything goes wrong, it will be line managers who would be held responsible. Thus with no
accountability the staff can pass on wrong advice to the line managers.
6. Recommendations can be ignored: Sometimes good recommendations of the staff may
be ignored by the line managers. This is likely to happen as the staff has no authority to
implement or take decisions.
7. Risk of misinterpretation of advice: The specialized advice of the staff reaches the
workers through the line managers. There is a risk that the line managers may not understand
the advice well. There can be misinterpretation, which can lead to wrong implementation of
the recommendations of the staff members.
3.Functional organization
A. Features
In functional organization activities are grouped as per the functions to be performed.
The delegation of authority from top to bottom is according to the functions to be
performed and the subordinates have to receive orders from more than one superior.
This organization structure was recommended by Frederick. W. Taylor who is considered
the father of Scientific Management. During his career of 26 years he carried various
experiments and recommended reorganization of supervision or use of functional
foremanship.
He suggested that instead of one foreman handling all the work of production, there
should be functional foremanship or one foreman for each of the functions or activities of
production.
Thus, thus he suggested that there should be a repair foreman, a gang foreman, Time and
cost foreman, Route foreman, etc, each one handling a certain function of production.
B. Merits
1. High level of efficiency: There is high level of efficiency in this type of organization as
there is high degree of specialization performed by the functional managers. Each functional
manager is an expert in his field. Thus, there is efficiency in working.
2. Less burden: There is less burden on the top level managers as functional managers take
over each of the functions that were performed by one manager.
3. Suitable for big organizations: Since there is specialization, functional organization is
suitable for large enterprises where a lot of specialization is required.
4. Large scale production: Due to scope for specialization, large scale production is possible
in this type of organization. It is well known that large scale of production leads to economies
or reduction in cost of production.
5. Better control and supervision: Compared to line managers, functional managers have
better control and can supervise the subordinates better as they are experts in their fields and
can command the workers better as well guide/supervise better.
C. Demerits
1. Indiscipline: this type of organization structure can lead to indiscipline, as subordinates
have to follow instructions from more than one boss. This breaks the principal of Unity of
command. It leads to confusion and chaos as there can be conflicting commands from
different bosses. As a result, workers are not able to work properly and complete their targets.
2. Lack of coordination: There can be lack of coordination between functional managers
which can cause delay in decision-making.
3. Costlier: It is costlier type of organization and suitable for larger organization. Thus is
application is limited to only big organizations.
4. Problem in fixing of responsibility: With multiplicity of authority, it becomes difficult to
fix the responsibility of any action on one manager. Functional managers can pass on the
buck or blame of failure can be shifted in each other.
4.DIVISIONAL ORGANIZATION STRUCTURE
Product divisionalization – Reliance Industries – Gas, textiles, chemicals etc
Territorial divisionalization - Region, State, district etc. LIC, WCL, etc
Strategic business units - market segment (e.g. Satyam computers – 13 business units
in India – 3 in USA – 1 for overall sales - 1 for US govt. projects - 1 for retail sale.
Merits
1. Focus of one division on product or area – better performance – specialized service
2. There is more freedom or autonomy– better performance of managers
3. Organization size can be increased by opening another division and not disturbing the
current one.
Demerits
1. Costly
2. Shifting manager from one division to another may not be efficient
5.PROJECT ORGANIZATION STRUCTURE
- Organized on the basis of projects
- Each project - people drawn from each functional department
- They return when project over
- Project manager not in line of authority
- Defies unity of command
6.MATRIX ORGANIZATION STRUCTURE
- Here the authority and responsibility flows around two lines – Product/service and
function.
- Like a matrix this has rows that combine various departments and the columns show
functional departments.
- Defies unity of command
CHAPTER - DIRECTING
MEANING OF DIRECTING
This is another function of management. Directing involves two main aspects
1. What needs to be done
2. How can it be done best
Thus, directing is
1. Giving order and instructions
2. Leading and motivating
Thus, directing as a function of management or manager involves guiding, leading,
motivating and supervising subordinates for them to work efficiently. Directing as a function
is performed at all levels of management and is a continuous process.
As per Koontz and O’Donnell “Direction is a complex function that includes all those
activities which are designed to encourage subordinates to work effectively and efficiently in
both the short and long run”
As per Earnest Dale “Direction is telling people what to do and seeing that they do it to the
best of their ability. It includes making assignments, corresponding procedures, seeing that
mistakes are corrected, providing on the job instruction and of course issuing orders”
Principles of Directing
There are certain requirements for effective direction or principles of directing. These are:
1. Principle of harmony of objectives: This means that a harmony, peace or unity in
objectives of organizational and individual employee objectives should be achieved. Thus, if
a subordinate is told to work hard because it will increase company profits, then an employee
may not work. But if he is told that working hard will fetch him a promotion or bonus then he
is likely to work.
2. Unity of command: the subordinate should receive order from one superior. Because if
that does not happen then it will lead to indiscipline, confusion, divided loyalty and decreased
personal responsibility. Another reason why the immediate boss should give instruction is
because it is only the immediate boss who knows the nature of his subordinate well. Thus,
will be able to give right directions to his subordinate.
3. Direct supervision: Supervision, direction should be direct rather than through a middle
person. This ensures that there is no communication gap and correct instructions have gone to
the subordinate. There is another advantage of direct supervisions which is that is morale
boasting for employee if he gets personalized instructions from the boss.
4. Efficient communication: Efficient communication is a two-way process where it is not
only passing of instruction and order from superior to subordinate but subordinate also passes
on information to superior. Communication is a system of feedback that helps subordinates
understand how they are doing or performing and also helps a superior understand what the
subordinates think of him.
5. Follow-through: This is very important to ensure that communication is effective. This is
to see if the subordinate has understood well, is he performing well, what are the problems
they are facing etc.
6. Effective leadership: For effective direction, the supervisor has to have effective
leadership qualities so that he can only guide them well but motivate them too to get the best
out of his workers.
Characteristics/features of a good order An order is part of directing. But an order needs to be effective for the subordinate to perform
the task successfully. For an order to be effective the following characteristics should exist in
an order:
1. Should be clear and complete: If unclear orders are given the subordinate will not be able
to complete his/her work. Similarly if complete instructions are not given then a subordinate
is likely to assume and such assumption can be wrong.
2. Should be compatible with the objective of the organization: Order should be in line
with the objectives of the organization. If the objective of an organization is quality education
then the principal of a college should give instructions to teachers that ensure quality
education to the students.
3. Should be compatible with the employee’s personal interest: Order should also ensure
that the employee is also getting benefit from it. If an employee wants to grow professionally
and if an order fulfil that objective of the employee then he will follow that order. Thus
making the order as effective.
4. Should be feasible: An order should not be impossible to follow. Thus, its possibility is
very important
5. Should be face-to face: An order given face-to-face is more effective than an order given
over a phone or otherwise. Because in long distance orders there is a chance of interpretation
of order.
6. Should define a time limit for compliance: An order should define a time limit for
compliance that is it should tell in what time the order should be fulfilled. That will make an
order effective.
CHAPTER- COMMUNICATION
Meaning of communication It is a process to transmit to another person,
1. Ideas
2. Methods
3. Thoughts
4. Feelings
5. Orders
6. Facts
7. instructions
As per Theo Haimann “Communication is the process of passing information and
understanding from one person to another….it is the process of imparting ideas and making
oneself understood by others”.
In a work place communication between the superior and the subordinate are very important
for the efficient working of both the superior and the subordinate as well as the whole
organization.
Principles of communication Communication will be effective if it contains the following characteristics or follows the
following principles:
1. Clarity of thought: For a communication to be effective it should be clear. Thus, whatever
is being communicated should be done clearly. Any confusion in thought process will lead to
confusion in what is communicated. Thus, the objective of communication should be clear.
That is what is being communicated and what purpose.
2. Clarity of language: Language should be clear to the person receiving instructions, orders,
ideas etc. Language should be as per the audience. If the manager is talking to the workers
then speaking in English or very complicated language will not be understood by the people.
3. Is adequate and complete: If the communication is incomplete then it leads to confusion
as well as leaves scope for people to assume. Thus, there should not be any scope for
assumptions.
4. Careful selection of medium: The medium of communication can be chalk-board, power
point presentation, oral presentation, etc. Which medium should be used and when depends
on the audience, urgency of the matter to be communicated, and the subject matter.
5. In line with organization’s objectives: communication should be in line with the
objectives of the organization. It will lead to confusion, bad performance and reduction if
profit of the company if the communication is in conflict with the objectives of the
organization.
6. Existence of congenial environment: Communication is a two-way process and it will
only be an effective two way process if there is a congenial or friendly environment.
7. Follow-up of communication: Follow up of what happened to the communication that
was done is important. This is to ensure that whatever has been communicated is effectively
received.
8. Avenues to improve communication skills: Shot-term training course should be
developed for managers for them to develop communication skills.
Importance of communication 1. Useful in selection process: It is useful to explain to a suitable candidate the importance or
advantages of joining the company he/she is giving interview for. The policies, benefits,
objectives, achievements can be communicated to the candidate in order to attract the
candidate towards the company.
2. Useful in orientation: it is also useful in orienting the people who join an organization.
Communication is a way through which they can learn about the work culture, the peers they
will be working with, codes of conduct, etc.
3. Useful in motivating employees: Communication whether oral or written is an important
way to motivate people to perform better. This also sets an example for others to perform
well.
4. Teaches employees on personal safety on job: Through various verbal and written
instructions employees can be communicated about the need and importance of personal
safety. This is very important for the preservation of the human resource.
5. Projecting image of the organization: Many a times a company faces certain problems
that affect the image of the company in the eyes of the public. By communicating the right
scenario to the public the company can keep a clean image. That is what ONGC did in 1982
when its oil rig caught fire and there was a lot of damage.
6. Useful in decision-making: Managers can only take decisions and effective decisions if
they are communicated with the right information which can be both formal and informal
information
7. Brings coordination: Communication between two departments or two persons brings
better coordination as they understand each other‟s problems and limitations.
8. Helps in maintaining industrial peace: Conflict resolution can also happen through
communication. If labour unions do not communicate their problems to the management,
then there can be industrial unrest. After unrest if the problems are not communicated or
solved then the unrest will continue.
9. Increases managerial efficiency: It is said that managers spend more than 80% of their
time in communication activities like meetings, communicating with contacts inside and
outside an organization. Thus, for managers to perform efficiently they need to communicate.
Types of communication 1. Formal: All work related information, instructions, orders, facts when passed from one
person to another is formal communication. This can come in the form of written, oral or
non-verbal form
2. Informal: Informal communication includes rumors or gossips going on in the
organization. This is a very important source of information to managers to understand what
is going on within an organization, what kind of informal relations exist within an
organization, what is group behavior like. etc
3. Downward: This is communication from superior to subordinate. This is mostly formal
communication, but it can also include motivation, leadership, guiding as well as counseling
to solve personal problems of the employees
4. Upward: This is from subordinate to superior. This is in the form of feedback from the
subordinate to the superior about the performance of the superior as a leader or supervisor as
well as important information on group activities.
5. Horizontal: This is information from on unit head to another or from one unit to another.
This is effective in carrying out coordinated activities between the various departments
6. External communication: This is verbal as well written communication to government,
customers, competitors, educational institutions, banks, etc.
7. Oral: This is verbal communication during meetings and other places between superior
and subordinates or the other way round or between peers
8. Written: Reports, letters, memos, codes of conduct, instructions are all communication
forms in written form.
9. Non-verbal: communication without use of words – spoken or written – body language -
personal appearance, facial expressions, postures, gestures, eye contact, etc
BARRIERS IN COMMUNICATION
Communication effective when – creates desired impact on receiver – flow of
communication smooth – both ways
Barriers - hindrances or something that prevents progress/growth/flow of something.
Barriers in communication – hindrance in effective flow of communication - Both
from receiver and sender
Barriers act like sieve – filters message – part reaches or distorts/damaged message –
wrong message reaches/sent
E.g. Boss tells subordinate – “prepare bimontly report” – subordinate thinks “once in
two months” boss meant “twice a month” – lack of clarity in use of words
Barriers classified in following categories:
INTRA-PERSONAL BARRIERS
INTER-PERSONAL BARRIERS
ORGANIZATIONAL BARRIERS
INTRA-PERSONAL BARRIERS
Barriers due to individual attitude and problems
Variation in thinking – due to perception, experiences, education, culture, personality
– result – same information in different ways
Common causes of intra-personal barriers are:
1.WRONG ASSUMPTION – Assuming that people would know – e.g. use of abbreviations
– FOC, SOS
Cause of wrong assumption – no idea about receiver‟s background – have wrong concepts
fixed in mind (“this is basic!! Everyone knows this!!!)
2. VARIED PERCEPTION – different viewpoints for same situation – e.g. 6 blind men and
a elephant
How is it a barrier? – people close their mind to other people‟s viewpoint
e.g. – disagreement between two people – a friends perception always the right
perception/ point of view – break in communication.
3. DIFFERING BACKGROUNDS
Difference in education, culture, language, experience, etc –
How a cause of barriers in communication?
E.g. Experience – Rock-climbing experience
E.g. Education - computer hardware expert presenting to a group of doctors
Solution – knowledge of background of audience/receiver
4. WRONG INFERENCES
Jumping to conclusions – without knowing facts –
Consequence - wrong information gets communicated – rumors spread
E.g. two colleagues not seen for days – inference drawn “must have got fired” – fact –
got transferred to another department.
5. BLOCKED CATEGORIES
Block what is against our view - Positive reaction to information - only if it confirms
to our view point – we block the rest.
Rigidity in opinion – problem in communicating - e.g. Indian mentality - people from
science background have “two brains” – rest are “bird brains” – no deviation from
their view.
6. CATEGORICAL THINKING
“Mr./Ms. Know-all” category – pansophists – they feel they know everything – not
ready to take any information or opinion – barrier
E.g. Budget meeting – wrong request for purchase of vehicle – But – topic already
discussed and decided in meeting!!!!
II. INTERPERSONAL BARRIERS: Barriers due to improper exchange of words, thoughts
between two or more people
1. LIMITED VACABULARY
Loss of words to express oneself
E.g. loss of words during a speech – result - ineffective speech – poor impression on
audience
Person with good vocabulary – but not used at the right time
Correct use of vocabulary also essential
2. INCOMPATABILITY OF VERBAL AND NON-VERBAL MESSAGES
Major barrier – facial expression or body language says something – verbal message
is the opposite
Physical appearance –non-verbal cue - another barrier – physical appearance – one
message – talk – another message
3. EMOTIONAL OUTBURST
Extreme emotions – anger, bias – barrier in communication
Good emotions – good communication
Negative reactions/emotions – aggression, defensive – bad communication
Emotional composure important – avoid reactions during negative behaviour
4. COMMUNICATION SELECTIVITY
Attention to only part of message
Why – only interested in part of message
E.g. meeting of division heads – each head only listens to what is relevant
Reading part of written message – also a barrier.
5. CULTURAL VARIATION –
Lack of understanding of culture of society
Lack of knowledge of Law, customs, norms
Consequence - difficult to communicate with people of that culture
6. POOR LISTENING SKILLS
Hearing and listening – not same
Hearing – passive activity – listening – requires attention – proper interpretation of
what speaker says
Engrossed in thoughts
Worries
Lack of concentration/ wandering attention
Indifference
Result – break in communication – long-run & short-run
7. NOISE IN THE CHANNEL
Any disturbance/interference in message - receiving/sending - technical or semantic
Technical - noise in telephone line, dim typescripts, illegible writing, loud music,
people arriving late for meetings, talking in the meetings.
Semantic – error in message itself (unclear sentence, faulty grammar, misspelling,
incorrect punctuation – or in its interpretation
III. ORGANIZATIONAL BARRIERS
1. TOO MANY TRANSFER STATIONS/FAULTY ORGANIZATION STRUCTURE
Too many links/hierarchy – too many people between the sender and the receiver -
risk of misinterpretation – distorted message
2. FEAR OF SUPERIORS
Fear or awe
Unfriendly superior – fear to put a point across
Too much information also due to fear – leading to bulky reports – superior may skip
important points
3. USE OF INAPPROPRAITE MEDIA
Common media used – graphs, charts, emails, ppts, etc
Decision about appropriate media - as per
Time (printed letter for longer time)
type of message (confidential or otherwise – telephone or face-to-face),
Cost (sending 400 page written printed report or emailing it)
intended audience (workers – speech or verbal meeting, executives – ppt)
4. INFORMATION OVERLOAD
Too much of information for human brain to take
Result – no further communication - fatigue, disinterest - relevant information mixed
with irrelevant information – quality of information drops.
CHAPTER - CONTROL
MEANING AND NATURE OF CONTROL
Meaning: Process of management in order to check
– What has been achieved
– Whether there is a variance from the standard
– If yes, apply corrective measure
Thus, control is activity to ensure everything is going as per plan
Definition of control: George Terry “Controlling is determining what is being accomplished, that is, evaluating the
performance and if necessary, applying corrective measure so that the performance
takes place according to plans”
Nature of control – It is a dynamic and continuous process – detects mistakes – brings changes in plans
– it does not stops but continues
– It is universal – all operations on an org. go through control process – all org. go
through control – hospitals, colleges, businesses, Army etc.
– Action-based – corrective action are taken during this process
– There is a close link between planning and control: Planning fixes objectives and
standards – control checks if everything as per std. – if not then measure taken – plan
modified accordingly.
Importance of control - Increases productivity – regular evaluation – helps improve performance – better
productivity
- Reduces defects and mistakes – regular evaluation – helps check any mistakes or
defects in work
- Helps meet deadlines – regular evaluation – helps manager check the performance –
if low performance – managers can motivate and help subordinate meet deadlines
- Facilitates communication – regular evaluation – manager communicates with
subordinate regularly – departments coordinating activities, communicate
- Improves safety – regular evaluation – brings out faults in machines – helps
avoiding accidents
- Lowers cost – regular check reduces wastage – thus helps reduce cost of production
STEPS IN CONTROL PROCESS
1. Establishing standards
1. Physical standards – No. of unit per labour hour
2. Cost standards – Material cost/unit
3. Revenue standards – sales/per customer
4. Intangible standards – success of public relations program
5. Work practice standards – Shadow tool boards
2. Measuring and comparing actual results against standards - Budgetary controls, personal observation, ratio analysis, financial statements, etc.
Measuring and comparing at - Mid- term
- End of process
3. Taking corrective measures: - Many causes of deviation – faulty machine, lack of motivation, poor internal
environment
- Corrective measures to be taken as per cause of variation
Principles of effective control 1. Suitable – it should be suitable to activity – production controls for production – sales
control for sales
2. Timely – feedback about deviation should be quick – no effective control when
damage is already done
3. Clear and understandable – clear and definite controls – no scope of argument.
4. Flexible – flexible budgets – can go up and down as per work
5. Economical – benefit from control system more than cost in implementing it.
6. Provide solution to problems – should be effective is serving the purpose – that is find
deviations.
7. Acceptable to all – employees should consider them as reasonable and realistic
8. Motivate people to high performance – tough standards. Will be challenging to some
people, thus they will be motivated to meet them.
Span of control Number of subordinates who report to a manager – larger number, bigger span,
smaller number, smaller span
Appropriate span is important, because
1. Too big – little guidance and control
2. Too small – over controlling
3. Span also decides the structure of organization – flat or tall
Tall – many levels of supervision
Flat – few management levels
E.g. a sales manager has 16 sales personnel under him. Thus his span of
management is 16. Thus, he is operating in a flat structure –
If he feels that there is less control then he will add 4 sales managers under.
His span of control will reduce to 4 and another level of management will add
up.
Factors governing span of management
1. Ability of manager – more competent – big span
2. Ability of employees – able, motivated , less supervision required – big span
3. Type of work – same – big span, different –small span
4. Well-defined authority and responsibility – big span
5. Geographical location – dispersed – small span, same place – bigger span
6. Sophisticated control and information - system – big span
7. Level of management – research by Gerald Frisch
1. Super managers – board policy control and not direct supervision – 50 subordinates
2. General Managers – closely involved with subordinates – 10 to 12
3. Middle managers – Executive and operative supervision – 50
4. Supervisory level – supervision of same type/routine job - 100
8. Economic consideration – bid span means costly organization – if cannot afford then
smaller span
Types of control 1. Past-oriented control – Control after process -- controls used for future controls –
E.g. report cards, inspection of goods produced, accounting records – these controls
used for – disciplining, training, promoting.
2. Future- oriented control – Measures during the process – act as warning – warning
of sales up or down – can adjust production accordingly (reduce costs or increase
production)
Both the types used by firms – mid-term and end of process
Control techniques
1. Budgetary controls
2. Zero base-budgeting
3. Standard Costing
4. Responsibility accounting
5. Financial statements
1. Balance sheet
2. Profit and loss account
6. Ratio analysis
7. Break even analysis
8. Internal and external audit
9. Rules, regulations, and standing orders
10. Reports
11. Personal observation
I. Budgetary controls
I. Budgeting – Budgeting –
Budget - statements to show anticipated result – financial and non-financial.
Preparation of budget – first step of control - setting standards of performance - e.g.
sales budget sets std. sales (area-wise, representative-wise) for a period
Types of budgets 1. Sales budgets – Sales programme
Defines sales potential - quantity, value, period, product
Factors considered for budget - population trend, consumers‟ purchasing power,
nature of competition, past sales, extent of advertising
2. Selling and distribution cost budget – e.g. advertising cost, R& D cost,
transportation cost.
3. Production budget – Qty. of units to be produced in a period – this is as per sales
target – also called Output Budget
4. Production cost budget – based on Production Budget - Cost of carrying out
production – types -
Raw material budget – quantity of raw-material for production.
Labour budget – Total labour for production
Production overhead budget – overheads during budget period.
5. Capital expenditure budget – Expenditure on capital goods – plant, machinery,
equipment etc.
6. Cash Budget – Anticipated cash receipts and anticipated cash expenditure
7. Master Budget – Summary budget of all functional budgets – sales, production,
etc. – gives over all picture
II. Zero-base budgeting – programmes revaluated – standards in budget set from zero or
scratch – each item in budget evaluated for its utility to org.
III. Standard costing – – Setting of cost standards on – raw material, labour, etc.
– Measurement of actual performance
– Actual cost Vs. std. costs
– Finding the level of variance
– Finding causes of variance
– Necessary steps to prevent variance in the future
IV. Responsibility accounting:
- Each department head made responsible for performance of dept.
Dept. made autonomous unit – earn own profit and show separate profit – selling its
product to other department – price of sale called “transfer price”- E.g. iron to steel plant
– steel plant sells steel to finishing plant
V. Financial statements:
1. Balance sheet
2. Profit and loss account/income statement
3. Cash flow statement
V.1. Balance sheet - Statement to give financial position of co. on a particular date – normally 31st
March.
- It contains assets and liabilities at given time
- According to Howard “A statement which reports the values owned by the
enterprise and the claims of the creditors against these properties”
- Francis “As a screen picture of the financial position of a going business at certain
moment”
Contents of Balance sheet - Current assets – held in cash and can be easily converted in cash – e.g. cash-in-hand,
bills receivable, marketable securities, finished products, advance payments
- Fixed assets – tangible assets - assets used for long period to produce goods and
services – value of equipment, machinery, land, building, furniture, fixtures, etc.
- Intangible assets – non-physical assets that earn profit – e.g. – trademark, copyright,
goodwill, patents, etc
- Other assets – funds reserved for assets, non-trade debtors, etc.
- Deferred expenses – payments deferred – not to be paid in current year – expenses
on advertisement
- Current liabilities – short-term loans, unpaid taxes, bank overdraft, unclaimed
dividends, bills payable etc.
- Long-term liabilities – non-current liabilities – to be paid over long period of time –
loans from banks and other financial institutions, etc.
- Net worth: total assets MINUS total liabilities– also known as owner‟s equity or net
assets – owner‟s claim in firm. Total assets = Total liabilities + new worth
V.2. PROFIT AND LOSS ACCOUNT
Balance sheet – snap shot of a firm
Profit & loss account – financial position over a period of time – say one year
- It shows –whether earning profit or incurring losses – by how much
- Concisely – revenue earned and expenses incurred on operations over a period of time
- Other names – income statement, operating statement, statement of revenue and
expenses
V.2. Cash flow Statement
Statement showing in flow and out flow of cash of the business
- It is to look at liquidity of business
- Short-term capability of business – ability to pay bills
- Useful to accounting personnel (pay salaries, immediate expenses); creditors (can the co.
pay); potential investors (can they invest), etc
- Three cash flow activities
Operating activities – sale of goods, interest received/paid, payment to employee, etc
- Investment and financial activities – dividend received/paid, property bought, etc
VI. RATIO ANALYSIS - Taking two figures from a financial statement and taking their ratio or percentage – ratio is
expressing a relation between two figures, mathematically
- Helps carry out analysis and financial planning
- Analysis based on ratios – that is why ratio analysis
Types of ratios
1. Liquidity ratios
2. Debt ratios
3. Profitability ratios
4. Operating ratios
How a Ratio is expressed?
As Percentage - like 25% or 50% . E.g. if net profit is Rs.25,000/- and the sales is
Rs.1,00,000/- then the net profit can be said to be 25% of the sales.
As Proportion - Can be expressed in terms of relationship between net profit to sales
as 1 : 4.
As Pure number /times - The same can also be expressed in an alternatively way such
as the sale is 4 times of the net profit or profit is 1/4th of the sales.
VII. Break-Even analysis
d. It is another control tool
e. It is used to find out – the volume of sales required to cover costs.
f. Break-even is the point where – cost and revenue equal
g. In other words – it‟s a point where there is no profit no loss
h. Control – identifies minimum sales necessary to prevent loss
VIII. Internal and external audit
Internal audit – Internal auditor who is employee of the company
Pin point defects and measures to remove them
External audit – external agencies go through financial as well as other aspects
IX. Rules, regulations and standing order – setting rules, code of conduct and orders are
also tools to bring control
X. Reports: various reports like - Labour utilization report
- Scrap report
- Material usage report
- Sales by product, sales representative, area, customer
- Report on profit and loss by product
- Selling expenses report by product, sales representative, area, customer
XI. Personal observation - Observing subordinates while they are working
- Can help detect mistakes in methods, can figure out attitude towards work
- Workers are alert when under observation