2 Principles of Management - Himalaya Publishing … Principles of Management PRINCIPLES OF MANAGEMENT Neelam Arora I/C Principal & Head, Department of Commerce, Lala Lajpatrai College

2 Principles of Management

PRINCIPLES OFMANAGEMENT

Neelam AroraI/C Principal & Head, Department of Commerce,

Lala Lajpatrai College of Commerce and Economics,Mahalaxmi, Mumbai.

MUMBAI NEW DELHI NAGPUR BENGALURU HYDERABAD CHENNAI PUNE LUCKNOW AHMEDABAD ERNAKULAM BHUBANESWAR

INDORE KOLKATA GUWAHATI

Introduction to Management 3

© AuthorNo part of this publication may be reproduced, stored in a retrieval system, ortransmitted in any form or by any means, electronic, mechanical, photocopying,recording and/or otherwise without the prior written permission of the publishers.

First Edition : 2013

Published by : Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd.,“Ramdoot”, Dr. Bhalerao Marg, Girgaon, Mumbai - 400 004.Phone: 022-23860170/23863863, Fax: 022-23877178E-mail: [email protected]; Website: www.himpub.com

Branch Offices :New Delhi : “Pooja Apartments”, 4-B, Murari Lal Street, Ansari Road,

Darya Ganj, New Delhi - 110 002.Phone: 011-23270392, 23278631; Fax: 011-23256286

Nagpur : Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur -440 018. Phone: 0712-2738731, 3296733; Telefax: 0712-2721216

Bengaluru : No. 16/1 (Old 12/1), 1st Floor, Next to Hotel Highlands,Madhava Nagar, Race Course Road, Bengaluru - 560 001.Phone: 080-22286611, 22385461, 4113 8821, 22281541

Hyderabad : No. 3-4-184, Lingampally, Besides Raghavendra SwamyMatham, Kachiguda, Hyderabad - 500 027.Phone: 040-27560041, 27550139

Chennai : 8/2 Madley 2nd street, T. Nagar, Chennai - 600 017.Mobile: 09320490962

Pune : First Floor, "Laksha" Apartment, No. 527, Mehunpura,Shaniwarpeth (Near Prabhat Theatre), Pune - 411 030.Phone: 020-24496323/24496333; Mobile: 09370579333

Lucknow : House No 731, Shekhupura Colony, Near B.D. ConventSchool, Aliganj, Lucknow - 226 022.Phone: 0522-4012353; Mobile: 09307501549

Ahmedabad : 114, “SHAIL”, 1st Floor, Opp. Madhu Sudan House, C.G.Road, Navrang Pura, Ahmedabad - 380 009.Phone: 079-26560126; Mobile: 09377088847

Ernakulam : 39/104 A, Lakshmi Apartment, Karikkamuri Cross Rd.,Ernakulam, Cochin - 622011, Kerala.Phone: 0484-2378012, 2378016; Mobile: 09387122121

Bhubaneswar : 5 Station Square, Bhubaneswar - 751 001 (Odisha).Phone: 0674-2532129, Mobile: 09338746007

Indore : Kesardeep Avenue Extension, 73, Narayan Bagh, Flat No. 302,IIIrd Floor, Near Humpty Dumpty School, Indore - 452007 (M.P.).Mobile: 09303399304

Kolkata : 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank,Kolkata - 700 010, Phone: 033-32449649, Mobile: 7439040301

Guwahati : House No. 15, Behind Pragjyotish College, Near SharmaPrinting Press, P.O. Bharalumukh, Guwahati - 781009, (Assam).Mobile: 09883055590, 08486355289, 7439040301

DTP by : SunitaPrinted at : Geetanjali Press Pvt. Ltd., Kundanlal Chandak Industrial Estate,

Ghat Road, Nagpur - 440 018. On behalf of HPH.


Preface

The concept of management has drastically changed in last twodecades. The change has been revolutionary, especially in Indiancontext. A number of Indian corporations, which were hithertounknown not only to the world but to the Indians themselves, haveastonished the corporates world all over with their growth and reach.Indian corporate world is gradually moving away from a handful offamily dominated business houses, having a narrow concentratedcapital base to broad based global ownership. There has been aphenomenal growth in mergers and acquisitions; not only withinnational boundaries but Indian corporates are all set to acquire theworld giants.

The development of management thought has been evolutionaryin nature. Different management thinkers have interpretedmanagement from different perspectives. Much of the developmentin the field has taken place during last 100 years. The time periods inwhich different management concepts have developed may bedivided into five parts:

(a) Pre-Scientific Management Era (Before 1880)(b) Scientific Management (1880-1930)(c) Human Relations Era (1930-50)(d) Social Science Era (1950 Onwards)(d) Management Science Era (1950 Onwards)

The present book analyses the framework of managementtheory and practice in lucid manner for beginners in the field ofmanagement. The book will be useful to management students andnew entrants in the field of management.

Author


Contents

1. Introduction to Management 1 - 221.1 Meaning of Management1.2 Characteristics of Management1.3 Management Functions1.4 Responsibilities of Management to Society1.5 Development of Management Thoughts1.6 Contribution of F. W. Taylor1.7 Contribution of Henry Fayol1.8 Contribution of Elton Mayo1.9 System Approach to Management

1.10 Contingency Approach to Management

2. Management Function – Planning 23 - 39

2.1 Meaning of Planning2.2 Nature of Planning2.3 Essentials of a Good Plan2.4 Advantage of Planning2.5 Disadvantages of Planning2.6 Process of Planning2.7 Meaning of Decision Making2.8 Process of Management Decision Making2.9 Types of Managerial Decisions Making

2.10 Meaning of Management by Objectives (MBO)2.11 Features of MBO2.12 MBO Process2.13 Advantages of MBO2.14 Disadvantages of MBO


3. Organisation 40 - 58

3.1 Organization as a Structure3.2 Functional Organization Structure3.3 Product Matrix3.4 Vertical Organization Structure3.5 Definition of Authority3.6 Meaning of Decentralization3.7 Importance of Decentralization3.8 Meaning of Delegation of Authority3.9 Process of Delegation

3.10 Importance of Delegation of Authority3.11 Barriers to Delegation3.12 Measures to make Delegation Effective3.13 Delegation v/s Decentralization

4. Motivation 59 - 71

4.1 Meaning of Motivation4.2 Factors of Motivation4.3 Maslow’s Need Hierarchy Theory4.4 Herzberg’s Two Factor Theory4.5 McGregor’s X and Y Theory4.6 McClelland’s Achievement Motivation4.7 Blanchard’s Situational Leadership Theory

5. Quality Management 72 - 83

5.1 Meaning of Quality5.2 Dimensions of Quality5.3 Preventive and Maintenance5.4 Meaning of Quality Control5.5 Importance of Quality Control5.6 Methods of Quality Control5.7 Meaning of Total Quality Management


5.8 Features of Total Quality Management5.9 Advantages of Total Quality Management

5.10 Problems of Total Quality Management in India5.11 Quality Circles

6. Human Resource Management 84 - 112

6.1 Meaning of Human Resource Management6.2 Characteristics of Human Resource Management6.3 Functions of Human Resource Management6.4 Significance of Human Resource Management6.5 Meaning of Selection6.6 Sources of Recruitment6.7 Process of Selection6.8 Meaning of Training6.9 Importance of Training

6.10 Types of Training6.11 Methods of Managerial Training6.12 On-the-Job Training V/S Off-the-Job Training6.13 Meaning of Performance Appraisal6.14 Importance of Performance Appraisal6.15 Limitations of Performance Appraisal6.16 Methods of Performance Appraisal6.17 Meaning of Compensation Administration6.18 Objectives of Compensation Administration6.19 Factors Affecting Compensation Structure6.20 Executive Compensation6.21 Components of Executive Compensation


1.1 Meaning of Management1.2 Characteristics of Management1.3 Management Functions1.4 Responsibilities of Management to Society1.5 Development of Management Thoughts1.6 Contribution of F. W. Taylor1.7 Contribution of Henry Fayol1.8 Contribution of Elton Mayo1.9 System Approach to Management


Chapter 1Introduction to

Management


1.1 Meaning of Management

Management in all business and human organisation activity issimply the act of getting people together to accomplish desired goalsand objectives. Management comprises planning, organizing,staffing, leading or directing and controlling an organisation or effortfor the purpose of accomplishing a goal. Management can also referto the person or people who perform the act(s) of management.

“Management is the art of getting things done throughpeople.”

– Mary Parker Follett

“Management is the art of getting things done through andwith people in formally organised groups.”

– Harold Koontz

“Management is a distinct process consisting of planning,organising, actuating and controlling, performed to determineand accomplish stated objectives with the use of human beingsand other resources.”

– George Terry

Management is an art of getting the things done through peoplebecause at every level of management, the managers require thecreative skills and talents to get the work done from theirsubordinates.

1.2 Characteristics of Management

Following are the characteristics of management:1. Management is a process: Management is a process which

involves planning, organising, directing and controllinghuman efforts for achieving certain goals and objectives.People who perform this process are known as managers.Managers are required to plan activities, direct their


subordinates, exercise leadership, organise differentresources and control activities for achieving organisationalobjectives.

2. Management is intangible: Management is intangible or aninvisible force. It is abstract in character. Managerialactivities are only descriptive and not quantifiable.Management is an activity which is not directly visible. Thepresence of management activity can be noticed onlythrough its results like higher productivity, higher efficiency,better employer-employee relationship, better employeemorale etc.

3. Management is a group activity: Management is a groupactivity since it involves the combined efforts of variouspeople for achieving certain common objectives and goals.An individual without the support of other people will not beable to accomplish any task. Management is an art ofachieving results by managing and co-ordinating theactivities/efforts of different people working in anorganisation.

4. Management is a dynamic process: Management operatein dynamic environment and therefore management needs tobe dynamic in its approach. Managers have to use theircreative skills and talents to conduct organisational activitieswhich will help the organisation in achieving its goals andobjectives. Managers have to be creative and innovative intheir ideas.

5. Management is an art of getting things done throughpeople: Management is an art of getting things done throughother people. Managers have to lead their subordinates,motivate them and extract the desired results which will helpthe organisation to achieve its desired goals and objectives.Management is a process of achieving certain well definedobjectives through group efforts.

6. Management is result-oriented: Management efforts aredirected towards the fulfilment of certain concrete objectives.Thus, it is always result-oriented. All the activities ofmanagement are directed towards achievement of certainwell defined concrete organisational objectives such asincrease in sales, profits or achieving higher efficiency,productivity etc.


7. Management is different from ownership: Managementmainly deals with the management of different managerialactivities of business. Accordingly, managers manage thebusiness on behalf of their owners and they themselves arenot the owners of business. The owners hire the services ofprofessional managers to manage the business on theirbehalf.

8. Management is required at different levels: Managementis required at various levels to perform different functions.Even though, managers’ job is the same but the managers athigher levels perform more important duties while themanagers at the lower level perform routine duties. Thescope of the functions performed by the managers differswith the levels of management.

9. Management is art, science and profession: Managementis an art as it involves an application of knowledge and skillsfor the solution of managerial problems. It is a science as itis a systematised body of knowledge, consisting of generallyaccepted principles put forth by Henry Fayol and others. It isnow unfolding as a distinct profession due to the separationof management from ownership.

10. Management is irreplaceable: A number of new techniquesof problem solving in management have been evolvedrecently, viz., computer applications, information systems,PERT, CPM, decision tree, linear programming, etc. Thesetechniques improve managers’ abilities to make decisionsand make them more efficient in their jobs, but they cannotsubstitute the management.

1.3 Management Functions

In 1916, Henry Fayol provided a functional approach tomanagement in his book “Industrial and General Management”.According to him, the list of managerial functions includes planning,organising, co-ordinating and controlling.

In 1930, Luther Gullick coined the word "PODSCORB" fromthe initial letters of management functions where;

P – stands for planning;O – stands for organising;


D – stands for directing;S – stands for staffing;CO – stands for co-ordinating;R – stands for reporting andB – stands for budgeting.

Of these, reporting is covered by the controlling function.Let us analyse these functions in detail:1. Planning: Planning is primarily an intellectual exercise. It is

the base of all managerial activities, i.e., controlling, co-ordinating, managing, staffing, etc.

"Planning is deciding in advance what to do, how to do it,when to do it and who is to it. Planning bridges the gap fromwhere we are, to where we want to go."

– Koontz and O'Donnell

2. Organising: Organisation is the process of establishingrelationships among the members of the enterprise. Therelationships are created in terms of authority andresponsibility.

"Organising involves the grouping of activities necessaryto accomplish goals and plans, the assignment of these activitiesto appropriate departments and the provisions for authoritydelegation and co-ordination."

– Koontz and O'Donnell

3. Directing: Once subordinates are organised, superiors havea continuous responsibility of guiding and leading them forbetter work performance and motivating them to work withzeal, confidence and enthusiasm. In this respect, GeorgeTerry has used the word 'Actuating' for "Directing".

“Direction embraces those activities, which are related toguiding and supervising subordinates.”

– Koontz and O’Donnell


The direction function of the management consists of three sub-functions:

(a) Communication: Promoting free and fair exchange ofcommunication, both upward and downward.

(b) Leading: Influencing subordinates at work towards theattainment of desired objectives.

(c) Motivating: Psychologically encouraging subordinatesto execute the plans and policies.

(d) Supervising: Overseeing the functioning of subordinatesto ensure performance and prevent wastage.

4. Staffing: Staffing means selecting and recruiting thecompetent and qualified people needed for the jobs. Thisneeds manpower planning and manpower management. Itincludes selection, placement, induction, training, promotionand transfer of the employees in the organisation.

“Staffing involves manning the organisational structurethrough a proper and effective selection, appraisal anddevelopment of personnel to fill the roles designed into thestructure.”

– Koontz and O’Donnell

5. Co-ordination: Co-ordination is the essence of management.It involves unity of purpose and harmonious implementationof plans for the achievement of the desired ends. It aims atthe canalisation of group efforts in the direction of pre-determined goals of a business.

“Co-ordination is an ongoing process whereby a managerdevelops an integrated orderly and synchronised pattern ofgroup efforts among his subordinates and tries to attain unity ofaction in the pursuit of a common purpose.”

– McFarland

6. Reporting: Reporting is essential in an organisation in orderto control deviations from the pre-determined objectives ofthe organisation and also determining the policies regardingpromotion, transfer and demotions of the employees. Eachand every subordinate in the organisation is expected toreport to his immediate superiors.


7. Budgeting: A budget puts minimum and maximum limits onexpenditure for a specific period. Budgeting is also a tool ofcontrolling as it controls financial wastage in theorganisation.

“Budgetary control is a process of finding out what isbeing done and comparing these results with the correspondingbudget data in order to approve accomplishments or to remedydifferences either by adjusting the budget estimates orcorrecting the cause of the difference.”

– George Terry

1.4 Responsibilities of Management toSociety

The emergence of management as an essential factor ofproduction is an important event in the history of business. Classicaltheorists stressed land, labour and capital as basic factors ofproduction, needed for the production of goods and services.However, due to growing complexities of business and consequentincrease in competition, both internally and externally, managementhas become an important factor of production.

Not only the success or failure but also the very survival of anenterprise depends on its management.

'Ineffective management cuts at the very root of theeconomy.'

– George Terry

In other words, ineffective management results in wastage ofscarce resources like capital and labour.

The following points highlight the responsibilities ofmanagement towards society and its various segments:

1. optimum utilisation of resources: A good managementsecures maximum results, in terms of production, sales,profits and employees’ satisfaction with minimum inputs, interms of physical resources and man-power efforts. Thus,management results in optimum utilisation of scarceresources.


2. Leadership and motivation: Organisational goals cannot beachieved by using force. Management creates willingnessand motivates the workers to work towards the achievementof pre-determined organisational objectives. Thus,management leads and motivates the employees in the rightdirection.

3. Initiative and innovation: Management is a group activity.A good manager works with a common consensus andcreates an environment in which everyone gets anopportunity to express his/her views. This gives anopportunity to the subordinates to come forward withinnovative ideas.

4. Minimises wastage: Along with ensuring judiciousutilisation of resources, a good management also aims atcutting down wastage, both human as well as non-human.Management plans, organises, directs and controls theactivities of the organisation and thereby helps in controllingwastage.

5. Industrial peace: Management helps to develop a healthyenvironment within the organisation by promoting a two-way communication between the superiors and thesubordinates. This develops cordial relations between themand promotes industrial peace and harmony.

6. Builds competitive strength: In today’s competitiveenvironment, the quality of performance determines theprofitability of the organisation. Sound management enablesthe enterprise to achieve higher levels of productivity andprofitability, which in turn build competitive strength.

7. Improves standard of living: A sound management helpsto improve the standard of living of both - the workers andconsumers by improving its productivity and profitability.Due to increased profitability, workers get higher wages andconsumers get better quality products at lower prices.

8. Growth, expansion and diversification: In moderncommercial fields, growth and expansion are necessary formaking enterprise stable, profit making and economicallyviable. A sound management helps organisation to grow,expand and diversify and make it a going concern.

9. Social consciousness: Business is a part of society. Thus, asound management shoulders social responsibilities of


business and contributes towards the welfare of differentsegments of the society, viz. consumers, workers, investors,shareholders, government and the society at large.

1.5 Development of Management Thoughts

The earliest contribution to the management theories can betraced back to the periods of the Greeks, the Romans and theEgyptians. The use of the principle of specialisation and division oflabour was evident in China as early as 1650 B.C. The RomanCatholic Church with its hierarchy of management has greatlycontributed to the management thoughts.

The development of management thought has been evolutionaryin nature. The present status and position of management can,therefore, be best appreciated and understood in the light of itsevolution over the years. Much of the development in this field hastaken place during the last 100 years. The time periods in whichdifferent management concepts have evolved and developed can bedivided into the following five segments:

1. Pre-Scientific Management Era (Before 1880)2. Scientific Management (1880-1930)3. Human Relations Era (1930-50)4. Management Science Era (1950-1960)5. Systems approach (1960-1970).6. Contingency approach (1970 onwards).The above time periods are only suggestive. They only signify

the dominance of a management thought during a particular timeperiod.

The main schools of management thoughts are:1. Management process school: The Management Process

School has developed during the scientific management era.Frederick Taylor and Henry Fayol were the founders of thisschool of thought. They perceived the management theory asa process of getting things done through and with peopleoperating in organised groups. The process was consideredto be universal regardless of the type of enterprise or thelevel in a given enterprise.

2. Human behaviour school: Human behaviour approach isthe outcome of the Hawthorne Experiments in the early 1930


conducted by Elton Mayo and his associates. AbrahamMaslow, Douglas McGregor, Keith Davis, Chester Barnardand Kurt Lewin are the other who made a significantcontribution to the school. The advocates of humanbehaviour school viewed an organisation collectively as asocial system of inter-personal and inter-group relationships.

3. Empirical school: The Empirical School started around1952, i.e. in the social science era. Earnest Dale, the founderof this school identified management as a study ofexperience rather than the general principles as believed bythe founders of the management process school. Thisapproach was adopted by the Graduate School of BusinessAdministration at the Harvard University for impartingmanagement instruction and education to its students.

4. Social science school: Chester Barnard is considered to thefather of the Social Science School. According to him,management is a social system, a system of co-operativerelationships, and co-operation and team work among theorganisational system is necessary for the achievement oforganisational objectives. This approach seeks to identify thenature of cultural relationships of various social groups andattempts to integrate them into a social system.

5. Decision theory school: Decision theory approach revolvesround the basic problem of management, i.e. decision-making, the selection of a suitable course of action out of thegiven alternatives. The major contribution to this approachwas made by Herbert A. Simon. According to him, themanager is a decision-maker and the organisation is adecision-making unit. Therefore, the basic problem inmanaging is to make rational decisions.

6. Quantitative school: The Quantitative School ofmanagement thoughts is just an extension of the DecisionMaking Approach. This approach is also known asOperations Research School as it envisages the use ofmathematical relationships, theories and models for makinglogical and rational decisions. The main contributors to thisschool of thoughts are Richard Cyert, Russel Ackoff,William Churchman and Forrester.

7. Systems school: Systems Approach to management viewsan organization as a single, unified and purposeful system


which is composed of many inter-related sub-systems. Itstudies the organisational system as a whole and inter-relation between its various sub-systems and externalenvironment. Kenneth Boulding, R. A. Johnson, F. E. Castand Trist were the major contributors to the Systemsapproach of management.

8. Contingency school: Joan Woodward, P. R. Lawrence,Hickson and Fiedler are the major contributors to theContingency Approach. According to them, there is nouniversal technique of management. The management actionis contingent upon the situation. Thus, a manager's task is toidentify which technique will, in a particular situation, underparticular circumstances and at a particular time, bestcontribute to the attainment of the organisational goals.

1.6 Contribution of F. W. Taylor

The concept of scientific management was introduced byFrederick Winslow Taylor in the USA in the beginning of 20thcentury. This concept was further carried on by Frank and LillianGilbreth, Henry Gantt, George Berth Edward Felen and others.

Scientific management was concerned essentially withimproving the operational efficiency at the shop floor level.

"Scientific management is the art of knowing exactly whatyou want your men to do and then seeing that they do it in thebest and cheapest way."

– F. W. Taylor

Taylor joined Midvale Steel Company in the U.S.A as a workerand later on became a supervisor. During this period, he continuedhis studies and eventually completed his Master of Engineering(M.E.). Subsequently, he joined Bethlehem Steel Company. At boththese places, he undertook several experiments in order to improvethe efficiency of people at work. On the basis of his experiments, hepublished a book entitled as 'Scientific Management'.

Some of the major contributions of Taylor under scientificmanagement are as follows:

1. Time and motion study: Time study is the art of observingand recording the time required to do each detailed element


of an industrial operator. Motion study refers to the studyand analysis of the movements of an operator in performinga job so that attempts can be made to remove uselessmovements from the process. Time and motion studytogether help in determining the best method of performing ajob and the standard time allowed for it.

2. Functional foremanship: Taylor evolved the concept offunctional foremanship based on the specialisation offunctions. He identified eight types of foreman to direct theactivities of workers. Of these, the following four foremenare concerned with planning :

(a) Route clerk.(b) Instruction card clerk.(c) Time and cost clerk.(d) Disciplinarian.

The remaining four foremen are concerned with the executionof work. These are:

(a) Speed boss.(b) Inspector.(c) Maintenance foreman.(d) Gang boss.

3. Differential payment: Taylor introduced a new paymentscheme called differential piece wage plan. Under thisscheme, a worker received low price rate if he produced thestandard number of pieces. On the other hand, the workerreceived high rate if he surpassed the standard. Workerswere motivated to work hard and earn more.

4. Reorganization of supervision: Taylor introduced theconcept of functional foremenship. Taylor suggested that thework should be planned by a foreman and not the workers.Under functional foremanship, he suggested employing four,six or eight foremen who would give orders to an individualworker depending on their specialization.

5. Scientific selection and training: The selection of workersby scientific methods would not alone serve the purpose,unless their placement on right jobs is earned. Appropriatetraining would prepare the workers to accept challenging job,and avail of promotion opportunities arising in the


organisation. Taylor thought of entrusting the task ofselection and training to a central personnel department.

6. Cordial relations between management and workers: Inits essence, scientific management is a complete ‘mentalrevolution’ on the part of workers as well as management.According to Taylor, it involves an immense change in theattitude of both the sides. Both the parties must realize thattheir prosperity is dependent on each other and none shouldtry to prosper at the cost of the other.

Taylor’s concept of scientific management developed into amovement and dominated the industrial management science forseveral decades after him.

1.7 Contribution of Henry Fayol

Henry Fayol was a French mining engineer who later turned aleading industrialist and a successful manager. His life-longexperience, in the field of managing, was produced in the form of amonograph titled 'Administration Industrielle-et-Generale' in 1916 inthe French language. This monograph was reprinted in Frenchseveral times but was never translated in English until 1929.

Henry Fayol has been rightly called the ‘father of administrativemanagement’ for his practical approach to management theory. Hehas identified fourteen fundamental principles of management. Thesefourteen principles are:

1. Division of labour and specialisation: Division of labour isa famous principle of economics, put forth by the classicaleconomists like Adam Smith. Fayol applied this principle tomanagement theory. Division of labour leads tospecialisation, which in turn improves the efficiency of theemployees.

2. Authority and responsibility: According to Fayol,authority and responsibility must flow in the same direction.Responsibility is the natural outcome of authority. A properbalance between authority and responsibility helps toprevent the misuse of authority and promotes a fair fixationof responsibility.

3. Discipline: Discipline means observation of certain rulesand regulations. People in the organisation should be boundto accept certain code of conduct. The three basic requisites


of discipline are disciplined supervisors at all the levels,clear and fair agreement on goals and judicious applicationof penalties.

4. Unity of command: According to this principle, anemployee should receive orders only from one superior. Ifmore than one superior exercise their authority over thesame employee then the latter will always be in a state ofconfusion and a confused employee will never be able toperform to the best of his ability.

5. Unity of direction: Unity of direction is essential forachieving unity in action, in the pursuit of common goals bya group of persons. For this Fayol advocates ‘one head andone plan’. Unity of direction (one head, one plan) is notsame as unity of command (one employee receives ordersfrom one superior).

6. Subordination of individual interest to general interest:According to this principle, the fulfilment of individualobjectives in the long run is contingent upon the attainmentof common objectives in the short run. Thus, in case theneed arises, an individual must sacrifice, in favour of largergroup objectives.

7. Remuneration: Remuneration is the price paid to people,managers and workers, for the services rendered by them.According to Fayol, the system of remunerating personnelshould be fair and satisfactory to both the employees andemployer. It should be attractive in order to employ andretain the best personnel.

8. Centralisation: Everything that goes to increase theimportance of subordinates’ role is decentralisation andeverything which goes to reduce it, is centralisation. Thereshould be a fair balance between the degree of centralisationand decentralisation in order to achieve the best results.

9. Scalar chain: Scalar chain refers to the line of authorityfrom the highest to the lowest executive for the purpose ofcommunication. However in the routine course of business,employees at the same level can communicate with eachother following the principle of ‘Gang Plank’.


10. Order: Fayol has classified order into two categories:(a) Material order: Material order is described as ‘a place

for everything and everything in its place’.(b) Social order: Social order demands the employment of

a right person in the right place.11. Equity: The principle of equity implies a sense of fairness

and justice to all. Observance of equity alone makespersonnel, loyal and devoted. Loyalty and devotion must beelicited from the personnel through a combination ofkindness and justice while dealing with them.

12. Stability of tenure: An employee needs time to adjust withthe new work, its environment and demonstrate efficiency.Therefore, stability of tenure is a desirable principle forensuring efficiency. Unnecessary employees’ turnover is thecause and effect of a bad management.

13. Initiative: Initiative is the freedom to propose and execute aplan. To have freedom in this respect is the greatestsatisfaction for an intelligent person. A manager, whoinduces his subordinates to think and act on their own, isalways better and more successful than the one who does not.

14. Espirit-de-Corps: Espirit-de-Corps is a French phrasewhich means "union is strength". It means the spirit ofloyalty and devotion to the group, to which one belongs. It isthe foundation of a sound organisation. This can be achievedby avoiding the dirty policy of ‘divide and rule’ andpromoting effective communication.

These principles are flexible and require suitable adjustment andmodification in the view of situational factors operating in thedifferent enterprises.

1.8 Contribution of Elton Mayo

Human Relations Movements actually started with the series ofexperiments conducted by George Elton Mayo, professor ofIndustrial Research at the Harvard Graduate School of Business andhis colleagues at the Hawthorne plant of Western Electric Company.

At the time of the experiments, there was an acute problem ofemployee dissatisfaction at the plant. It was also quite evident thatthe employees were not producing up to their fullest capability. This


happened in spite of the fact that it was one of the most progressivecompanies with pension schemes, sickness benefit schemes, andnumerous other facilities offered to its employees.

The company sought help from the group of universityprofessors to tackle the issue when the earlier attempts of the expertsproduced inconclusive findings. The study continued for an extendedperiod of time and had gone through various phases, which is brieflydescribed here.

1. Phase I: Illumination Experiments: In order to test thetraditional belief that better illumination will lead to higherlevel of productivity, two groups of employees were selected.In one, the control group, the illumination remainedunchanged throughout the experiment while in the other theillumination was increased. As had been expected, theproductivity went up in the latter or what was known as theexperimental group.But what baffled the experimenters was the fact that theoutput of the control group also went up. The investigatorsthen started to reduce the illumination for the test group. Butin this case as well, the output went up again. Thus, theresearchers had to conclude that illumination affectedproduction only marginally and there must be some factorwhich produced this result.

2. Phase II: Relay Assembly Test Room: In this phase, apartfrom illumination, the possible effects of other factors suchas length of the working day, rest pauses and their durationand frequency and other physical conditions were probed. Itwas found that the productivity and morale of the groupincreased consistently during the period of experiment.Surprisingly, here also the researchers found that theproduction of the group had no relation with the workingconditions. The outcome of the group went increasing at anall-time high even when all the improvements in the workingconditions were withdrawn.The researchers, thus, concluded that socio-psychologicalfactors such as feeling of importance, recognition, attentionand participation, small informal cohesive work group, non-directive supervision, etc. played a key role in increasing theproductivity.


3. Phase III: Interviewing Program: From the RelayAssembly Test Room, the researchers for the first timebecame aware about the existence of informal groups andthe importance of social context of the organizational life.To probe deeper into this area in order to identify the factorsresponsible for human behaviour, they interviewed morethan 20,000 employees. The direct questioning was laterreplaced by non-directive type of interviewing. The studyrevealed that the workers’ social relationship inside theorganizations has a significant influence on their attitude andbehaviour. It was also found that merely giving a person anopportunity to talk and air his grievances has a beneficialeffect on his morale.

4. Phase IV: Bank Wiring Test Room: It had been discoveredthat social groups in an organization have considerableinfluence on the functioning of the individual members.Observers noted that in certain departments, output had beendeliberately restricted by the workers. Mayo decided toinvestigate one such department which was known as thebank wiring room where there were fourteen men workingon an assembly line.It was found that the group evolved its own productionnorms which were much lower than that set by the authority.This was done deliberately by the group to protect the slowworkers and because of the apprehension that if the pace ofproduction were increased, a sizeable number of theworkforce would eventually be redundant. The group normwas so strictly adhered to by most of the group members thatnobody dared to violate it for the fear of being ostracized bythe group. An individual who had emerged as the informalleader controlled the group.

Thus, the Hawthorne study pointed out the following:1. A business organization is a socio-technical entity, where the

social interactions among its members is extremelyimportant.

2. There is not necessarily a direct correspondence betweenworking conditions and high production.

3. Economic motives are not the only motive for an employee.Social needs can also significantly affect their behaviour.


4. Employee-centered leaders always tend to be more effectivethan the task-oriented leaders.

5. The informal groups and not the individuals are the units ofanalysis in a group.

Later on people like Douglas McGregor, Abraham Maslow,Kurt Lewin, Chester Bernard, Rensis Likert, Chris Argyris, WarrenBennis etc. from more formal behaviour science backgrounddeveloped an approach which later came to be known as behaviouralscience approach.

However, the Human Relation movements and the BehaviouristSchools also had their share of criticisms. These are:

1. It is diagonally opposite to the classical schools. It focuseson the human side of the organization and certainly ignoredother critical factors.

2. At times some hard decisions have to be taken in anorganization and it is impractical to try to please every oneall the time.

3. Though it is true that individuals do have other thaneconomic motives, the importance of financial incentivescannot be ignored.

4. There is hardly any empirical support for the view ‘happyworkers are more productive’, which seems to be the focaltheme of this school.

1.9 System Approach to Management

The Systems Approach to management was developed during1950. Management thinkers such as Kenneth Boulding, Bertalanffy,R. A. Johnson and Chester Barnard made a significant contributionto the development of the Systems Approach to management.

The term ‘system’ may be defined as a composite entityconsisting of a number of elements which as inter-dependent andinter-acting. These elements are referred to as the sub-systems. Eachsystem is distinguished from the other systems by a boundary, whichdefines its outer limits. The boundary of a system is determined bythe intensity of interactions and inter-dependencies of its elements.The world outside the boundary of the system is known as itsenvironment.


Considering the relationship between a system and itsenvironment, the systems may be classified into two categories:

1. Closed system: A closed system interacts least with itsenvironment. It is self-contained and does not depend muchon the other systems. It does not receive any input from theother systems. It is a non-adaptive system.

2. Open system: An open system actively interacts with theother systems and establishes exchange relationships. Suchsystems are often forced to adapt themselves with theexternal environment in order to survive and grow.

Under the systems approach, the management can be bestdescribed in the following way:

1. Management is a social system: Management is an art ofgetting things done through others. It is practised by thepeople (managers), through the people (operating staff) andfor the people (consumers and the society at large). Thus, theimportance of human factor in management cannot beignored. Hence, management is a social system.

2. Management is an open system: Management, like anyother social system, is an open system. Being an opensystem, it interacts with its environment. Out of thisinteraction, it avails various resources and allocates andcombines them to produce desirable output, which issupplied to the environment.

3. Management is an adaptive system: Management seeks tomaintain a continuous equilibrium of an enterprise with theexternal environment – economic, social, political, culturaland technological, in order to ensure not only the survivaland growth of the enterprise but also to make it fulfil theaspirations of the society, in the best possible manner.

4. Management is a dynamic system: Nothing ever ispermanent except change. The environment, in whichmanagement functions, is dynamic in nature. Thus,management needs to continuously adjust to the changingenvironment. Thus, the success of a management can be bestevaluated in terms of its adaptability to the environment.

5. Management system is probabilistic: Management systemis probabilistic and not deterministic. This is because theapplication of theories and principles as laid down by the


management theorists will not always yield the same results.These principles do not have universal applicability, sincehuman behaviour is dynamic and differ from person toperson.

6. Management system is multi-dimensional: According tothe systems theory, management has both, micro and macroapproach. At the macro level, it can be applied to supra-system, i.e. a business system as a whole and at the microlevel; it can be applied to an organisation. It can also beapplied to the sub-systems of an organisation.

7. Management is an integrated system: Systems approach tomanagement takes an integrated view of the function ofmanaging. There is no simple cause-effect relationship inmanagement, rather each managerial phenomena is the resultof a number of inter-related and inter-dependent factors. Themanagement integrates these factors in order to view thesephenomena in totality.

Systems approach to management provides an integrated ofmanaging. It considers the management in its totality in relation to itsenvironment. Thus, it permits both-analysis and synthesis,differentiation and integration - right from primary sub-system levelto the macro system level. However, the systems philosophy hasbeen criticised as being too abstract, vague and over-conceptual.


The contingency approach, also called situational approach, wasdeveloped by managers, consultants and researchers who tried toapply the concepts of the major schools of thought to the real-lifesituations. When methods, highly effective, in one situation failed towork in other situations, they sought an explanation. Why did anorganizational development program work brilliantly in one situationand fail miserably in another? The advocates of the contingencyapproach had a logical answer - results differ because situationsdiffer; a technique that works in one case will not necessarily workin all the cases.


"When a sub-system in an organisation behaves inresponse to another system or sub-system, we say that responseis contingent on the environment. Hence, a contingencyapproach is an approach where the behaviour of one sub-unit isdependent on its environmental relationship to other units orsub-units that have control over the consequences desired bythat sub-unit."

– Tosi and Hammer

As per the above statement, contingency approach has thefollowing features:

1. Management action is contingent on certain action outsidethe system or sub-system of an organisation, as the case maybe.

2. Organisational action should be based on the behaviour ofaction outside the system so as to integrate the organisationwith its external environment.

3. Since the organisation-environment relationship is not static,no action can be universal. It varies from situation tosituation.

In conclusion it can be said that the managerial action largelydepends upon the total strength and weakness of the organisation andopportunities and threats which lie out in the environment of eachorganisation.

According to the contingency approach, a manager's task is toidentify which technique will, in a particular situation, underparticular circumstances and at a particular time, best contribute tothe attainment of management goals. Managers have to find a "bestfit' between the demands of:

1. The tasks;2. The people; and3. The environment.For example, where workers need to be encouraged to increase

productivity, a classical theorist may prescribe a work simplificationscheme while a behavioural scientist may seek to create apsychologically motivating climate and recommend some approachlike job enrichment. But the manager trained in the contingencyapproach will ask, "Which method will work best here?"


1. If the workers are unskilled and training facilities andresources are limited, then work simplification will be thebest option.

2. On the other hand, with skilled workers driven by pride intheir abilities, a job-enrichment program might be moreeffective.

On the whole, contingency approach represents an importantturn in modern management theory, because it portrays each set oforganizational relationships in its unique circumstances.

Documents

2 Principles of Management - Himalaya Publishing … Principles of Management PRINCIPLES OF MANAGEMENT Neelam Arora I/C Principal & Head, Department of Commerce, Lala Lajpatrai College