ORGANISATION THEORY AND MANAGEMENT

GEETA MISHRA

Preface

With the rapidly changing socio-economic and political environment and trend towards globalization of economies, management of human resources in modern organisations has become a very challenging job. The people in organisations differ in terms of their attitudes, beliefs, values, background, knowledge etc and a thorough understanding of these concepts and processes can be of great value to the modern managers. The present study material synthesizes the study of the individual, the group and the organisation system and elaborates the applied behavioral science concepts, principles and techniques. It also provides an integrated view of modern organisations, their environment and organizational designs for healthy organisation and environment interface.

The subject matter has been presented in a simple and lucid manner, keeping the unique requirements of students in mind. A critical and balanced coverage is given to all the important topics in ORGANISATION AND MANAGEMENT. At the end of each chapter, multiple choice questions are given to enable the students to have self-appraisal of their understanding of the concepts in the chapter.

I am grateful to all those who have directly or indirectly helped me in preparing this course material. I sincerely believe that there is always scope for improvement. Therefore; I invite suggestions for further enriching the study material.

GEETA MISHRA

INDEX

Chapter No.

Topic

Page No.

1

Overview of Management

4

2

Management in the Era of Change

46

3

Interpreting the Organizational Reality

68

4

The Organization

83

5

Human resource Management

123

6

Bibliography

166

7

Key to End Chapter Quizzes

167

Chapter 1

Topic: - Overview of Management

Contents

1.1 Classical approach

1.2 Neo Classical Approach

1.3 Systems Approach to Management

1.4 Contingency Approach

1.5 Management and Managerial Roles

1.6 Practice and Study of Management

1.7 Challenges of Management in the 21st century

SCHOOLS OF MANAGEMENT

Management has been practiced in some form or the other since the dawn of civilization. Ever since human beings started living and working together in groups, techniques of organisation and management were evolved. The Pyramids of Egypt, the Chinese Wall, the Roman Catholic Church and other such wonders could not be possible without the application of management principles and techniques.

Despite ancient origins, very little conceptual and organized body of knowledge could be developed until the end of 19th century. A scientific and systematic study and application of management began mainly after the Industrial Revolution. Since then the development of management thought has been quite rapid.

The main stages in this development can be classified as follows:

1. Classical approach

2. Neo-classical approach

3. Systems approach

4. Contingency approach

1.1 CLASSICAL APPROACH

The classical approach to management is also known as Functional Approach, Empirical Approach or Management Process Approach. Its salient features are as follows:

1. Management is viewed as a systematic network (process) of interrelated functions. The nature and content of these functions, the mechanics by which each function is performed and the interrelationship between these functions is the core of the classical approach.

2. On the basis of experiences of experiences of practicing managers, principles are developed. These principles are used as guidelines for the practicing executive and basis of management training.

3. Functions, principles and skills of management are considered universal. They can be applied in different situations.

4. Formal training and education is emphasized for developing managerial skills in would be managers. Case study method is often used for this purpose.

5. Emphasis is placed on economic efficiency and the formal organisation structure.

6. People are motivated by economic gains. Therefore, organisations control economic incentives.

Uses and Limitations

The classical approach offers a convenient framework for the education and training of managers. First, the observational method of case study is helpful in drawing common principles out of past experiences with some relevance for future application.

The second merit of this approach is that it focuses attention on what managers actually do. Thirdly, this approach highlights the universal nature of management. Fourthly it provides a scientific basis for management practice. It also provides a starting point for researchers to verify the validity and to improve the applicability of management knowledge. Such knowledge about management is effectively presented. Classical approach provides a foundation on which the science of management can be built.

The classical approach however suffers from several shortcomings also which are as follows:

First, it offers a mechanistic framework that undermines the role of human factor. Secondly, the environmental dynamics and their effect on management have been discounted. Thirdly, there is a positive danger in relying too much on past experiences because a principle or technique found effective in the past may not fit a situation in the future. Fourthly the totality of the real situation can seldom be incorporated in a case study. Lastly, the classical approach is based on over-simplified assumptions. Its principles are ambiguous and contradictory.

Classical approach is based on three main pillars-bureaucracy, scientific management and administrative theory which are discussed below:

SCIENTIFIC MANAGEMENT (1856-1915)

Scientific management grew out of the need to increase productivity. At the beginning of the 20th century skilled labour in the United States was in short supply and it was necessary to improve the efficiency of workers. Frederick Winslow Taylor (1856-1915) is regarded as the father of scientific management .He was a brilliant engineer and management scientist in USA. He was convinced that there was a science of doing things in physical work at shop door level. In order to develop and scientific and systematic ways of doing things and to optimize efficiency, Taylor conducted a series of experiments. His objective was to provide a scientific basis for designing and performing jobs. He advocated a detailed scientific study of each job to determine the best way of doing it. He believed that management is a science resting on well recognized and clearly defined principles. He exhorted managers to adopt scientific and systematic approach to managerial problems in place of rule of thumb or trial and error methods.

Principles of Scientific Management

The basic principles of scientific management are as follows:

1. Develop a true science for each element of a workers job to replace rule of thumb method: Each element of a job and the motions required to perform it should be scientifically analyzed to determine and use the most efficient ways of doing it. Intuition, experience and hit or miss methods are replaced by scientific methods.

2. Job specialization or division of labour should be part of each job. Every worker should concentrate on the function so that he can become a specialist in it. Taylor suggested an almost equal division of the work and the responsibility between the management and the workers. He asserted that management should assume exclusive responsibility for planning and workers should assume doing, i.e. performing work as per instructions of management. In this way Taylor distinguished the roles and responsibilities of management from those of workers.

3. Scientific Selection, training and development of workers: Proper selection of employees best suited for the job would improve productivity. Scientific training should be arranged to develop each employee to his greatest efficiency and prosperity. First, the qualifications required for each job be clearly specified. These should be used as the basis for selection and training of employees. When a worker works on a job for which he is both physically and mentally fit, he can earn higher wages and mental satisfaction.

4. Close co-operation between management and workers to ensure that work is being done in accordance with the principles of scientific management. Harmonious relationship between management and labour is necessary for complete harmony of interests. Taylor advocated a complete mental revolution on the part of both managers and workers. Managers should adopt an enlightened attitude and share the gains of productivity with workers. Workers on their part should work with discipline and loyalty.

5. Maximum output in place of restricted output. Conflict between management and labour arises mainly on division of surplus. Taylor suggested that the best way to resolve the problem is to increase the size of surplus so that each side can have a larger share. In other words, Taylor believed that management and labour have a common interest in increasing productivity.

To sum up, Taylors principles:

Science, not rule of thumb

Harmony, not discord

Maximum output, in place of restricted output.

Development of each man to his greatest efficiency

Maximum prosperity of employer, coupled with maximum prosperity of each employee.

Co-operation not individualism.

According to F.W Taylor, Scientific management is the art of knowing exactly what you want men to do and seeing that they do it in the best and the cheapest way.

In order to implement the above principles, Taylor and his associates developed the following techniques:

1. Time Study

a. It is a technique which enables the manager to ascertain standard time taken for performing a specified job.

b. Every job or every part of it is studied in detail.

c. This technique is based on the study of an average worker having reasonable skill and ability.

d. Average worker is selected and assigned the job and then with the help of a stop watch, time is ascertained for performing that particular job.

e. Taylor maintained that Fair days work should be determined through observations, experiment and analysis by keeping in view an average worker.

Standard Time Working Hours = Fair Days Work

2. Motion Study

a. In this study, movement of body and limbs required to perform a job are closely observed.

b. In other words, it refers to the study of movement of an operator on machine involved in a particular task.

c. The purpose of motion study is to eliminate useless motions and determine the bet way of doing the job.

d. By undertaking motion study an attempt is made to know whether some elements of a job can be eliminated combined or their sequence can be changed to achieve necessary rhythm.

e. Motion study increases the efficiency and productivity of workers by cutting down all wasteful motions.

3. Functional Foremanship

a. Taylor advocated functional foremanship for achieving ultimate specification.

b. This technique was developed to improve the quality of work as single supervisor may not be an expert in all the aspects of the work.

c. Therefore workers are to be supervised by specialist foreman.

d. The scheme of functional foremanship is an extension of principle pf specialization at the supervisory level.

e. Taylor advocated appointment of 8 foramen, 4 at the planning level & other 4 at implementation level.

f. The names & function of these specialist foremen are: -

Instruction card clerk concerned with tagging down of instructions according to which workers are required to perform their job

Time & cost clerk is concerned with setting a time table for doing a job & specifying the material and labor cost involved in it.

Route clerk determines the route through which raw materials has to be passed.

Shop Disciplinarians are concerned with making rules and regulations to ensure discipline in the organization.

Gang boss makes the arrangement of workers, machines, tools, workers etc.

Speed boss concerned with maintaining the speed and to remove delays in the production process.

Repair boss concerned with maintenance of machine, tools and equipments.

Inspector is concerned with maintaining the quality of product.

4. Standardization

a. It implies the physical attitude of products should be such that it meets the requirements & needs of customers.

b. Taylor advocated that tools & equipments as well as working conditions should be standardized to achieve standard output from workers.

c. Standardization is a means of achieving economics of production.

d. It seems to ensure

The line of product is restricted to predetermined type, form, design, size, weight, quality. Etc

There is manufacture of identical parts and components.

Quality & standards have been maintained.

Standard of performance are established for workers at all levels.

5. Differential Piece Wage Plan

a. This tech of wage payment is based on efficiency of worker.

b. The efficient workers are paid more wages than inefficient one.

c. On the other hand, those workers who produce less than standard no. of pieces are paid wages at lower rate than prevailing rate i.e. worker is penalized for his inefficiency.

d. This system is a source of incentive to workers who improving their efficiency in order to get more wages.

e. It also encourages inefficient workers to improve their performance and achieve their standards.

f. It leads to mass production which minimizes cost and maximizes profits.

6. Other Techniques

a. Various other techniques have been developed to create ordeal relationship between management and workers and also to create better understanding on part of works.

b. Those includes use of instruction cards, strict rules & regulations, graphs, slides, charts etc, so as to increase efficiency of workers.

Critical evaluation

Although it is accepted that the scientific management enables the management to put resources to its best possible use and manner, yet it has not been spared of severe criticisms.

Workers Viewpoint:

1. Unemployment - Workers feel that management reduces employment opportunities from them through replacement of men by machines and by increasing human productivity less workers are needed to do work leading to chucking out from their jobs.

2. Exploitation - Workers feel they are exploited as they are not given due share in increasing profits which is due to their increased productivity. Wages do not rise in proportion as rise in production. Wage payment creates uncertainty & insecurity (beyond a standard output, there is no increase in wage rate).

3. Monotony - Due to excessive specialization the workers are not able to take initiative on their own. Their status is reduced to being mere cogs in wheel. Jobs become dull. Workers loose interest in jobs and derive little pleasure from work.

4. Weakening of Trade Union - To everything is fixed & predetermined by management. So it leaves no room for trade unions to bargain as everything is standardized, standard output, standard working conditions, standard time etc. This further weakens trade unions, creates a rift between efficient & in efficient workers according to their wages.

5. Over speeding - the scientific management lays standard output, time so they have to rush up and finish the work in time. These have adverse effect on health of workers. The workers speed up to that standard output, so scientific management drives the workers to rush towards output and finish work in standard time.

Employer's Viewpoint:

1. Expensive - Scientific management is a costly system and a huge investment is required in establishment of planning dept., standardization, work study, training of workers. It may be beyond reach of small firms. Heavy food investment leads to increase in overhead costs.

2. Time Consuming - Scientific management requires mental revision and complete reorganizing of organization. A lot of time is required for work, study, standardization & specialization. During this overhauling of organization, the work suffers.

Some experts believe that Taylors contribution has been somewhat over-emphasised .The originality of his ideas has been doubted. Business managers have opposed the idea of replacing judgment with prefabricated techniques. The term scientific management is not acceptable to many persons, because it is nothing but a scientific approach to management.

In the final analysis, Taylor made a lasting contribution to making jobs and their management more efficient and productive. Scientific management was developed by engineers and scientists and their concern for efficiency led to better methods and tools. Many of the Taylors contributions provide the essence of modern management practice. According to Peter Drucker scientific management is one of the great liberating and pioneering insights. Without it a real study of human beings at work would be impossible. Taylor laid the foundation of modern management as a science. He is therefore, rightly known as the father of scientific management.

ADMINISTRATIVE THEORY (1841-1925)

One of the first and the foremost contributors to administrative management theory was Henry Fayol, a French industrialist. Fayol started his career as mining engineer and later became a chief executive. He published his famous book Administration Industrielle et Generale in 1916.It was published in English under the title General and Industrial Management in 1949

Fayol's legacy is his generic Principles of Management. Of Fayol's six generic activities for industrial undertakings (technical, commercial, financial, security, accounting, managerial), the most important were the five functions of Management that focused on the key relationships between personnel and its management.

The Five Functions are:

PLANNING

Planning is the most basic or primary function of management. It precedes other functions because a manager plans before he acts. Planning involves determining the objectives and selecting a course of action to achieve them. It implies looking ahead and deciding in advance what is to be done, when and where it is to be done and by whom it is to be done. Planning is a mental process requiring the use of intellectual faculties, foresight, imagination and sound judgment. It consists of forecasting, decision-making and problem solving. A plan is a predetermined future course of action. Drawing up plans of actions that combine unity, continuity, flexibility and precision given the organisation's resources, type and significance of work and future trends. Creating a plan of action is the most difficult of the five tasks and requires the active participation of the entire organisation. Planning must be coordinated on different levels and with different time horizons;

ORGANISING

Once plans are formulated, the next step is that of organizing. Organising is the process of establishing harmonious authority-responsibility relationships among the members of the enterprise. It is the function of creating a structure of duties and responsibilities. The network of authority-responsibility relationships is known as organization structure. Such a structure serves as the framework within which people can work together effectively for the accomplishment of common objectives.

According to Fayol, To organize a business is to provide it with everything useful to its functioning-raw materials, tools, capital and personnel. A sound organisation helps to avoid duplication of work and overlapping of effort. Providing capital, personnel and raw materials for the day-to-day running of the business, and building a structure to match the work. Organisational structure depends entirely on the number of employees. An increase in the number of functions expands the organisation horizontally and promotes additional layers of supervision;

COMMANDING

Optimizing return from all employees in the interest of the entire enterprise. Successful managers have personal integrity, communicate clearly and base their judgments on regular audits. Their thorough knowledge of personnel creates unity, energy, initiative and loyalty and eliminates incompetence;

COORDINATING

Unifying and harmonizing activities and efforts to maintain the balance between the activities of the organisation as in sales to production and procurement to production. Fayol recommended weekly conferences for department heads to solve problems of common interest;

CONTROLLING

Identifying weaknesses and errors by controlling feedback, and conforming activities with plans, policies and instructions. Fayol's management process went further than Taylor's basic hierarchical model by allowing command functions to operate efficiently and effectively through co-ordination and control methods. For Fayol, the managing director overlooked a living organism that requires liaison officers and joint committees.

Fayol gave the following general principles of management:

1. Division of Work. Specialization allows the individual to build up experience, and to continuously improve his skills. Thereby he can be more productive.

2. Authority. The right to issue commands, along with which must go the balanced responsibility for its function.

3. Discipline. Employees must obey, but this is two-sided: employees will only obey orders if management play their part by providing good leadership.

4. Unity of Command. Each worker should have only one boss with no other conflicting lines of command.

5. Unity of Direction. People engaged in the same kind of activities must have the same objectives in a single plan. This is essential to ensure unity and coordination in the enterprise. Unity of command does not exist without unity of direction but does not necessarily flows from it.

6. Subordination of individual interest (to the general interest). Management must see that the goals of the firms are always paramount.

7. Remuneration. Payment is an important motivator although by analyzing a number of possibilities, Fayol points out that there is no such thing as a perfect system.

8. Centralization (or Decentralization). This is a matter of degree depending on the condition of the business and the quality of its personnel.

9. Scalar chain (Line of Authority). A hierarchy is necessary for unity of direction. But lateral communication is also fundamental, as long as superiors know that such communication is taking place. Scalar chain refers to the number of levels in the hierarchy from the ultimate authority to the lowest level in the organization. It should not be over-stretched and consist of too-many levels.

10. Order. Both material order and social order are necessary. The former minimizes lost time and useless handling of materials. The latter is achieved through organization and selection.

11. Equity. In running a business a combination of kindliness and justice is needed. Treating employees well is important to achieve equity.

12. Stability of Tenure of Personnel. Employees work better if job security and career progress are assured to them. An insecure tenure and a high rate of employee turnover will affect the organization adversely.

13. Initiative. Allowing all personnel to show their initiative in some way is a source of strength for the organization. Even though it may well involve a sacrifice of personal vanity on the part of many managers.

14. Esprit de Corps. Management must foster the morale of its employees. He further suggests that: real talent is needed to coordinate effort, encourage keenness, use each persons abilities, and reward each ones merit without arousing possible jealousies and disturbing harmonious relations.

BUREAUCRACY (1864-1920)

Max Weber, a German social scientist, analyzed the formation and administration of public bureaucracies, which happen to be the oldest form of organisation. Weber evolved an ideal type of bureaucracys a conceptual model for analytical purposes. His model is characterized by the following features:

1. Division of work. There is a high degree of specialization or division of labor in a bureaucratic organisation. A task is divided into very specialized jobs and each member performs his specialized function in a predictable manner.

2. Rules and Regulations. Detailed and rigorous rules and regulations are laid down to specify and govern the work behavior, rights and duties of job holders. There is rigid adherence to prescribed rules designed to ensure consistency and predictability in work performance. Behavior is subject to discipline and control within the framework of rules. In addition, procedures are laid down for orderly performance of tasks.

3. Hierarchy of Authority. A clearly-defined hierarchy is created by downward delegation of authority. There is distribution of formal position authority to give commands needed for discharging duties at various levels. Each position in the hierarchy covers an area over which it has complete jurisdiction in terms of competence and authority.

4. Technical competence. Selection and promotion of job-holders are based on their on their technical competence. Qualifications are prescribed for each job/ position. Special training is given to provide knowledge of rules and administrative procedures.

5. Record Keeping. Every decision and action is recorded in a wide array of written documents and preserved in its original and draft form.

6. Impersonal relations. Relations among the members of a bureaucratic organisation are impersonal and formal. Superiors adopt an impersonal attitude in dealing with their subordinates.

Weber visualized bureaucracy as an ideal pattern of organisation because it embodies the advantage of precision, efficiency, competence, objectivity, unity, conformity, discipline and order. According to Weber, Bureaucracy provides an ideal way for harnessing the human and mechanical energy. Real life organisations, both private and public, exhibit varying degrees of bureaucracy. Generally the degree of bureaucracy is higher in governmental and military organisations than in private business and voluntary organisations. Weber sought to improve the performance of socially important organisations.His model has contributed to organizational thinking but it has been criticized due to its inflexibility and its focus in impersonal efficiency rather than on human values and needs.

1.2 NEO-CLASSICAL APPROACH

Classical approach led to more efficient forms of organisation and management. But it failed to recognize the overwhelming role of people in management. Jobs became narrow and workers began to resist the formal and impersonal treatment over-looking their social and psychological needs. This resistance and the need to secure willing cooperation of workers led to the development of neo-classical approach.

Neo-classical approach may be analysed in three parts namely, Hawthorne Experiments, Human Relations Movement and Behavioral Approach.

Hawthorne Experiments

The Hawthorne Studies (also knows as theHawthorne Experiments) were conducted from 1927 to 1932 at the Western Electric Hawthorne Works in Cicero, Illinois (a suburb of Chicago). This iswhere Professor Elton Mayo examined the impact of work conditions in employee productivity. Elton Mayo started these experiments by examining the physical and environmental influences of the workplace (e.g. brightness of lights, humidity) and later, moved into the psychological aspects (e.g. breaks, group pressure, working hours, managerial leadership) and their impact on employee motivation as it applies to productivity.

The Hawthorne Effect

In essence, the Hawthorne Effect, as it applies to the workplace, can be summarized as "Employees are more productive becausethe employeesknow they are being studied." Elton Mayo's experiments showed an increase in worker productivity was produced by the psychological stimulus of being singled out, involved, and made to feel important. Additionally, the act of measurement, itself, impacts the results of the measurement. Just as dipping a thermometer into a vial of liquid can affect the temperature of the liquid being measured, the act of collecting data, where none was collected before creates a situation that didn't exist before, thereby affecting the results.

The Hawthorne Experiments and Employee Motivation

Elton Mayo's studies grew out of preliminary experiments at the Hawthorne plant from 1924 to 1927 on the effect of light on productivity. Those experiments showed no clear connection between productivity and the amount of illumination but researchers began to wonder what kind of changes would influence output.

Variables Affecting Productivity

Specifically, Elton Mayo wanted to find out what effect fatigue and monotony had on job productivity and how to control them through such variables as rest breaks, work hours, temperature and humidity. In the process, he stumbled upon a principle of human motivation that would help to revolutionize the theory and practice of management.

Elton Mayo selected two women, and had those two select an additional four from the assembly line, segregated them from the rest of the factory and put them under the eye of a supervisor who was more a friendly observer than disciplinarian. Mayo made frequent changes in their working conditions, always discussing and explaining the changes in advance.

Relay Assembly

The group was employed in assembling telephone relays - a relay being a small but intricate mechanism composed of about forty separate parts which had to be assembled by the girls seated at a lone bench and dropped into a chute when completed.

The relays were mechanically counted as they slipped down the chute. The intent was to measure the basic rate of production before making any environmental changes. Then, as changes were introduced, the impact to effectiveness would be measured by increased or decreased production of the relays.

Feedback mechanism

Throughout the series of experiments, an observer sat with the girls in the workshop noting all that went on, keeping the girls informed about the experiment, asking for advice or information, and listening to their complaints.

The experiment began by introducing various changes, each of which was continued for a test period of four to twelve weeks. The results of these changes are as follows:

Work Conditions and Productivity Results

Under normal conditions with a forty-eight hour week, including Saturdays, and no rest pauses. The girls produced 2,400 relays a week each.

1. They were then put on piecework for eight weeks.

Output increased

2. They were given two five-minute breaks, one in the morning, and one in the afternoon, for a period of five weeks.

Output increased, yet again

3. The breaks were each lengthened to ten minutes.

Output rose sharply

4. Six five-minute breaks were introduced.

The girls complained that their work rhythm was broken by the frequent pauses

Output fell only slightly

5. The original two breaks were reinstated, this time, with a complimentary hot meal provided during the morning break.

Output increased further still

6. The workday was shortened to end at 4.30 p.m. instead of 5.00 p.m.

Output increased

7. The workday was shortened to end at 4.00 p.m.

Output leveled off

8. Finally, all the improvements were taken away, and the original conditions before the experiment were reinstated. They were monitored in this state for 12 more weeks.

Output was the highest ever recorded - averaging 3000 relays a week

Elton Mayo's Conclusions on Job Performance

Elton Mayo came to the following conclusions as a result of the study:

The aptitudes of individuals are imperfect predictors of job performance. Although they give some indication of the physical and mental potential of the individual, the amount produced is strongly influenced by social factors.

Informal organization affects productivity. The researchers discovered a group life among the workers. The studies also showed that the relations that supervisors develop with workers tend to influence the manner in which the workers carry out directives.

Work-group norms affect productivity. The Hawthorne researchers were not the first to recognize that work groups tend to arrive at norms of what is "a fair day's work." However, they provided the best systematic description and interpretation of this phenomenon.

The workplace is a social system. The researchers came to view the workplace as a social system made up of interdependent parts. The worker is a person whose attitudes and effectiveness are conditioned by social demands from both inside and outside the work plant. Informal group within the work plant exercise strong social controls over the work habits and attitudes of the individual worker.

The need for recognition, security and sense of belonging is more important in determining workers' morale and productivity than the physical conditions under which he works.

The major finding of the study was that almost regardless of the experimental manipulation, worker production seemed to continually improve. One reasonable conclusion is that the workers were happy to receive attention from the researchers who expressed an interest in them. Originally, the study was expected to last one year, but since the findings were inexplicable when the researchers tried to relate the worker's efficiency to manipulated physical conditions, the project was incrementally extended to five years.

HUMAN RELATIONS MOVEMENT

Hawthorne Experiments laid the foundation for human relations movement in management. Subsequent research contributed several concepts and techniques of human relations. Human relations school is a socio psychological approach to management. It suggests that a business enterprise is asocial system in which group norms exercise significant influence on the behavior and performance of individuals. Workers cannot be motivated by economic rewards alone. They require social satisfaction at the workplace. Therefore, managers should create such a climate in the organisation that worker can feel happy. Employee counseling, participative decision making, cordial super vision, job enrichment and other techniques have been suggested for keeping workers happy and satisfied. According to Keith Davis, human relations is an area of management precise which is concerned with the integration of people into a work situation in a way that motivates them to work together productively, cooperatively and with satisfaction and achieve organizational goals.

The human relations school is based on the following ideas:

1. The Individual. According to the human relations school, each person is unique. He brings certain attitudes, beliefs, values, skills etc. to the job situation. Therefore an individual is motivated by not only economic factors but by several social and psychological factors.

2. The Work Group. Work is a social experience and most workers find satisfaction in social or informal groups. The norms of such groups determine to a great extent the attitude and performance of workers. Therefore, managers should maintain good interpersonal and inter group relations to maximize productivity.

3. The leader. As the leader of a work group, a supervisor/manager should provide a pleasant work climate wherein employees are allowed to have a say in the decision making process. He can gain respect and obedience by adjusting to various personalities and situations.

4. The work environment. A positive work environment enables employees to satisfy their needs as well as to achieve organizational goals. Positive work environment consists of clearly defined goals, performance linked rewards, feedback on performance, participative decision making, interesting and growth oriented work, open communications, etc.

BEHAVIORAL APPROACH

Human relations movement focused on interpersonal relations and overlooked the wider subject of organizational behavior. Organisational behavior involves the study of attitudes, behavior and performance of individuals and groups in organizational setting. Behavioral approach includes the issue of organizational behavior. It is also known as human resource approach because it stresses development of human beings for the benefit of both the individual and the organisation.

The main propositions of behavioral science approach are as follows:

1. An organisation is a sociotechnical system

2. Individuals differ in terms of their attitudes, perceptions and value systems. Therefore they react differently to the same situation.

3. People working in an organisation have their needs and goals which may differ from the organisations needs and goals. Management should achieve fusion between organizational goals and human needs.

4. A wide range of factors influence relations among people.

5. Peoples behavior as individuals may be different from their behavior as members of a group.

6. Persons working together in an organisation form their own informal groups. Such groups have their own norms, culture and communication systems.

7. Informal groups exercise a significant influence on the attitudes, behavior and performance of employees.

Thus behavioral approach is an extension and improvement of human relations movement. It has made significant contribution towards the development of management thought.

1.3Systems approach to management

Just as human body is formed of different interdependent systems so is also an organization. A change in any one of these systems may affect all or some other systems to varying degrees. This ripple effect influences the effectiveness of the organization. To understand the interactions and the consequences between the various systems of the organization the managers should posses the ability to get a perspective view. Treating an organization as formed of different systems is known as systems approach.

Systems theory was first applied in the fields of science and engineering. It also has found wide acceptance in the practice of management. A system can be defined as essentially a set or assemblage of things interconnected or interdependent, so as to form a complex unity. Cars, computers, television and radio sets are some examples of systems.

There are two major types of systems: closed and open. A closed system has definite boundaries; it operates relatively independently and is not affected by the environment outside the system. Stand by generator is an example of a closed system. With its different systems working together in perfect harmony the generator continues to supply power as long as it has sufficient fuel supply without much regard to the external environment.

An open system as the name implies, is characterised by its interaction with the external environment. Clearly, any business or other organization must be described by an open-system model that includes interactions between the enterprise and its external environment.

Fig: Organization on an open system model

The above shown figure is self explanatory. One important mechanism which makes the system to adapt and adjust to the changing conditions of its environment and to exercise control over its operations is feedback. As explained thus far, systems approach of management provides an integral approach to management. It views management in its totality. It helps in seeing the problems of the organization in wider perspective. This approach is more useful in managerial decision-making.

Based on the systems approach, Talcot Parsons has suggested three meaningful levels in the hierarchy of complex organisations: Technical, Organisational and Institutional.

The Technical Level is concerned with the actual production and distribution of products and services. It also includes activities like research and development, operation research and accounting.

The Organisational Level coordinates and integrates work performance at the technical level. It is concerned with obtaining the continued flow of inputs into the system and maintaining the markets for the outputs from the system.

The Institutional Level is concerned with relating activities of the organization to environmental system. It involves relating the organization to the needs of the environment.

1.4 CONTINGENCY APPROACH

The contingency approach to management is based on the idea that there is no one best way to manage and that to be effective, planning, organizing, leading, and controlling must be tailored to the particular circumstances faced by an organization. Managers have always asked questions such as "What is the right thing to do? Should we have a mechanistic or an organic structure? A functional or divisional structure? Wide or narrow spans of management? Tall or flat organizational structures? Simple or complex control and coordination mechanisms? Should we be centralized or decentralized? Should we use task or people oriented leadership styles? What motivational approaches and incentive programs should we use?" The contingency approach to management (also called the situational approach) assumes that there is no universal answer to such questions because organizations, people, and situations vary and change over time. Thus, the right thing to do depends on a complex variety of critical environmental and internal contingencies.

Classical management theorists such as Henri Fayol and Frederick Taylor identified and emphasized management principles that they believed would make companies more successful. However, the classicists came under fire in the 1950s and 1960s from management thinkers who believed that their approach was inflexible and did not consider environmental contingencies. Although the criticisms were largely invalid (both Fayol and Taylor, for example, recognized that situational factors were relevant), they spawned what has come to be called the contingency school of management. Research conducted in the 1960s and 1970s focused on situational factors that affected the appropriate structure of organizations and the appropriate leadership styles for different situations. Although the contingency perspective purports to apply to all aspects of management, and not just organizing and leading, there has been little development of contingency approaches outside organization theory and leadership theory. The following sections provide brief overviews of the contingency perspective as relevant to organization theory and leadership.

CONTINGENCY PERSPECTIVE AND ORGANIZATION THEORY

Environmental change and uncertainty, work technology, and the size of a company are all identified as environmental factors impacting the effectiveness of different organizational forms. According to the contingency perspective, stable environments suggest mechanistic structures that emphasize centralization, formalization, standardization, and specialization to achieve efficiency and consistency. Certainty and predictability permit the use of policies, rules, and procedures to guide decision making for routine tasks and problems. Unstable environments suggest organic structures which emphasize decentralization to achieve flexibility and adaptability. Uncertainty and unpredictability require general problem solving methods for no routine tasks and problems. Paul Lawrence and Jay Lorsch suggest that organizational units operating in differing environments develop different internal unit characteristics, and that the greater the internal differences, the greater the need for coordination between units.

Joan Woodward found that financially successful manufacturing organizations with different types of work technologies (such as unit or small batch; large-batch or mass-production; or continuous-process) differed in the number of management levels, span of management, and the degree of worker specialization. She linked differences in organization to firm performance and suggested that certain organizational forms were appropriate for certain types of work technologies.

Organizational size is another contingency variable thought to impact the effectiveness of different organizational forms. Small organizations can behave informally while larger organizations tend to become more formalized. The owner of a small organization may directly control most things, but large organizations require more complex and indirect control mechanisms. Large organizations can have more specialized staff, units, and jobs. Hence, a divisional structure is not appropriate for a small organization but may be for a large organization.

In addition to the contingencies identified above, customer diversity and the globalization of business may require product or service diversity, employee diversity, and even the creation of special units or divisions. Organizations operating within the United States may have to adapt to variations in local, state, and federal laws and regulations. Organizations operating internationally may have to adapt their organizational structures, managerial practices, and products or services to differing cultural values, expectations, and preferences. The availability of support institutions and the availability and cost of financial resources may influence an organization's decision to produce or purchase new products. Economic conditions can affect an organization's hiring and layoff practices as well as wage, salary, and incentive structures. Technological change can significantly affect an organization. The use of robotics affects the level and types of skills needed in employees. Modern information technology both permits and requires changes in communication and interaction patterns within and between organizations.

1.5 MANAGEMENT AND MANAGERIAL ROLES

DEFINITIONS OF MANAGEMENT

Production or Efficiency-oriented Definitions:

Those who have put forward the concept of management as a source of efficiency in organization have viewed that management is concerned with generating efficiency in organizational settings.

Taylor has defined management as follows:

Management is the art of knowing what you want to do and then seeing that it is done in the best and cheapest way

In a similar way, John Mee has defined management in terms of securing maximum results when he views that:

Management is the art of securing maximum results with minimum effort so as to secure maximum prosperity and happiness for both employer and employee and give the public the best possible service.

Decision oriented Definitions:

Decision-oriented definitions of management have been provided by decision theorists who have seen management process in terms of decision making. A decision oriented definition of management has been provided by Stanley Vance as follows:

Management is simply the process of decision making and control over the action of human beings for the expressed purpose of attaining pre-determined goals

The decision-oriented definition of management indicates that the basic activity of a manager is to make decisions and enforce these decisions.

People-oriented Definitions:

Lawrence Appley has called management as personnel management and has defined it as follows:

Management is the accomplishment of results through the efforts of other people.

Koontz has defined management in similar way when he says that:

Management is the art of getting things done through and with people in formally organized groups

Function-oriented Definitions:

These definitions put emphasis on the various functions performed by managers in organizations. McFarland states that

Management is defined for conceptual, theoretical, and analytical purposes as that process by which managers create, direct, maintain and operate purposive organizations through systematic, coordinated, cooperative human efforts.

Henry Fayol, an early management thinker, has elaborated these functions more precisely when he defined management as follows:

To manage is to forecast and to plan, to organize, to coordinate and to control.

MANAGERIAL ROLES

Henry Mintzberg has studied the work roles of the chief executive and has categorized these roles into three areas. These areas are interpersonal relationships, information processing and disseminating and decision making. Each of these areas are further sub divided into various roles. These roles are:

(A) Interpersonal Relationships

1. Managers role as a figurehead:

Managers act as symbolic figurehead performing social or legal obligations. These duties include greeting visitors, signing legal documents, taking important customers to lunch etc.

2. Managers leadership role:

Since a manager is responsible for the activities of his subordinates he must motivate them to perform better. He must be an exemplary leader so that his subordinates follow his directions and guidelines with respect and dedication.

3. Managers role as a liaison officer:

In addition to their constant contact with their own subordinates and peers ,the managers must maintain a network of outside contacts in order to assess the external environment of competition, social changes or changes in government rules and regulations.. An auto assembly plant supervisor may telephone a tire supplier to determine the amount of inventory available for next week; a prosecuting attorney may meet with the presiding judge and defense attorney to discuss the use of motions and evidence in a libel trial; or a college professor may meet with professors in a separate department on campus to obtain information on a prospective doctoral student. Ultimately, the liaison role enables a manager to develop a network for obtaining external information which can be useful for completing current and future work activities

(B) Information Processing

1. Managers role as a monitor:

A manager assumes the monitor role by continually scanning the environment for information or activities and events that may identify opportunities or threats to the functioning of the work unit. Much of the manager's gathering of information is achieved through the network of contacts that has been established through the interpersonal roles. Hearing small talk at a banquet about a competitor's planned marketing program, learning through casual conversation at a ball game about the negative medical evaluation of an unsigned ball player, or daily reading of a business periodical are all examples of the kinds of information gathering involved in the monitor role.

2. Managers role as a disseminator of information:

The information a manager gathers as a monitor must be evaluated and transmitted as appropriate to members of the organization. The transmittal of information by a manager activates the disseminator role. Privileged information may be disseminated to subordinates, peers, or superiors in the organization. The manager may inform the marketing vice-president about the specific marketing strategy a competitor is planning to implement. A baseball manager may inform the team owner that an impending trade should be cancelled because of the unfavorable medical report on one of the players. Or reading The Wall Street Journal may inform the manager that a shipping strike is looming and thus enable her to inform subordinates that temporary layoffs may occur next month.

3. Managers role as a spokesman:

Occasionally, a manager assumes the role of a spokesperson by speaking on behalf of the work unit to people inside or outside the organization. This might involve lobbying for critical resources or appealing to individuals who have influence on activities that affect the work unit. A top manager asking the board of directors to keep the work unit together during a reorganization period or a corporate president speaking to a college audience on the role the company plays in education would both constitute engaging in the spokesperson role.

(C) Decision Making

1. Managers role as an entrepreneur:

The entrepreneur role comes into action when the manager seeks to improve the work unit. This can be accomplished by adapting new techniques to fit a particular situation or modifying old techniques to improve individual or group activity. Managers usually learn of new or innovative methods through information gathered in the monitor role. As a result, a supervisor purchases a new kiln which will shorten the drying process for ceramic tiles; a director of a youth club trains staff in the use of personal computers to increase file access; or a president establishes a new pension plan to improve employee morale.

2. Managers role as a conflict handler:

Whereas the entrepreneur role establishes the manager as the initiator of change, the disturbance handler role establishes the manager as a responder to change. Organizations, unfortunately, do not run so smoothly that managers are never called upon to respond to unwelcome pressures. In these cases, the manager is required to act quickly to bring stability back to the organization. A law partner must settle a disagreement among associates in the firm on who will present a case before a judge; a personnel director must negotiate with striking employees dissatisfied with the procedures for laying off employees; or a cannery first-line manager must respond to a sudden shortage of cans used to package perishable fruit because the supplier has reneged on a contract.

3. Managers role as resource allocator:

When a manager is placed in the position of having to decide to whom and in what quantity resources will be dispensed, the resource allocator role is assumed. Resources may include money, time, power, equipment, or people. During periods of resource abundance, this role can be easily performed by a manager. In most cases, however, organizations operate under conditions of resource scarcity; thus, decisions on the allocation of resources can be critical for the success of the work unit, division, or organization. As a decision maker, the manager must strive not only to appropriately match resources with subordinates but also to ensure that the distribution of resources is coordinated to effectively complete the task to be performed. An office manager must provide secretaries with appropriate equipment to generate and duplicate documents. A manager of a fast-food restaurant must coordinate work shifts to have the maximum number of employees working during the lunch hour. Corporate presidents may provide their administrative assistants with decision-making responsibility for day-to-day matters.

4. Managers role as negotiator:

In addition to decisions concerning organizational changes, disturbances, and resources, the manager also enacts as a negotiator .The process of negotiation is possible only when an individual has the authority to commit organizational resources. Hence, as managers move up the managerial hierarchy and obtain control over more resources, they become more involved in the negotiator role. For example, the president of a record company may be called in to discuss terms of a possible contract with a major rock group; a production manager must negotiate with the personnel department to obtain employees with specialized skills; or a college dean must negotiate with department heads over course offerings and the number of faculty to be hired.

The relative emphasis a manager places on these ten roles is highly dependent on the manager's authority and status in the organization. Length of time on the job, position in the management hierarchy, goals of the subunit to be achieved, and skills the manager possesses all play a part in determining which roles are more prominent than others at any given time. For instance, a marketing manager is more likely to emphasize the interpersonal roles because of the importance of personal contact in the marketing process. A financial manager, charged with responsibility for the economic efficiency of the organization, will probably focus on the decisional roles. A staff manager, or a manager who performs in an advisory capacity, is likely to be more heavily involved in the informational roles. Regardless of the differences that may occur, however, all managers enact interpersonal, informational, and decisional roles while performing their tasks. Effectively managing an organization is a demanding task. Managers not only must develop skills related to the functional areas of management but also must learn how to integrate these activities.

What makes this process demanding is that events and activities external and internal to an organization can radically change the techniques and methods managers must use in order to arrive at successful outcomes.

Managers cannot afford to be limited in their view of management, nor can they simply rely on how things were done in the past. Even the most seasoned and successful managers are prone to mistakes. However, a more complete knowledge of the managerial process can reduce the chances of mistakes that will have dire consequences for an organization. Such knowledge may help managers to better plan, organize and staff, direct, and control organization activities within the context of their organization.

1.6 PRACTICE AND STUDY OF MANAGEMENT

Management is needed in all types and sizes of organisations, at all organizational levels and in all organizational work areas, and in all organizations, no matter what country they are located in. This is known as the universality of management. Managers in all these settings will plan, organize, lead and control. However, this is not to say that management is done the same way. The differences in what a supervisor in a software applications testing facility at Microsoft does versus what the CEO of Microsoft does are a matter of degree and emphasis, not of function. Because both are managers, both will plan, organize, lead and control but how they do so will differ.

Since management is universally needed in all organisations, we have a vested interest in improving the way organisations are managed. We interact with organisations every single day of our lives.

Organizations that are well managed develop a loyal customer base, grow and prosper. Those that are poorly managed find themselves with a declining customer base and reduced revenues. By studying management one will be able to recognize poor management and work to get it corrected. In addition one will be able to recognize good management and encourage it, whether its in an organisation with which one is simply interacting or whether its in an organisation in which one is employed.

The Reality of Work:

Another reason for studying management is the reality that for most of us, once we graduate from college and begin our career, we will either manage or be managed. For those who plan on management careers, an understanding of the management process forms the foundation upon which to build our management skills. For those of us who dont see ourselves in a management position, we are still likely to have to work with managers. Also, assuming that we will have to work for a living and recognizing that we are likely to work in an organisation, well probably have some managerial responsibilities even if one is not a manager. Our experience tells us that one can gain a great deal of insight into the way one boss behaves and the internal workings of organisations by studying management. Our point is that we dont have to aspire to be a manager to gain something valuable from a course in management.

Rewards and Challenges of Being a Manager

The rewards and challenges of being a manager are as follows:

Rewards

Challenges

Create a work environment in which organizational members can work to the best of their ability

Have opportunities to think creatively and use imagination.

Have opportunities to think creatively and use imagination.

Help others find meaning and fulfillment

In work.

Support, coach, and nurture others.

Work with a variety of people.

Receive recognition and status in organisation and community.

Play a role in influencing

organizational outcomes

Receive appropriate compensation in form of salaries, bonuses and stock options.

Good managers are needed by organisations.

Do hard work

Have to deal with a variety of personalities.

Often have to make do with limited resources.

Motivate workers in chaotic and uncertain situations.

Successfully blend knowledge, skills, ambitions and experiences of a diverse work group.

Success depends on others work performance.

Being a manager in todays dynamic workplace provides many challenges. It can be a tough and often thankless job. One may have to deal with a variety of personalities and many times have to make do with limited resources. It can be a challenge to motivate workers in the face of uncertainty and chaos.

And managers may find it difficult to effectively blend the knowledge, skills, ambitions and experiences of a diverse group of employees. Finally, as a manager, your success typically is dependent upon others work performance.

Despite these challenges, being a manager can be very rewarding. One is responsible for creating a work environment in which organizational members can do their work to the best of their ability and help the organisation achieve its goals. In addition as a manager one often have the opportunity to think creatively and use ones imagination. A manager helps others find meaning and fulfillment in their work. As a manager one gets to support, coach and nurture others and help them make good decisions. One gets to meet and work with a variety of people-both inside and outside the organisation.

Other rewards of being a manger may include receiving recognition and status in the organisation and community, playing a role in influencing organizational outcomes, and receiving attractive compensation in the form of salaries, bonuses, and stock options. Finally, organisations need good managers. Nothing great ever happens by itself. Its through the combined efforts of motivated and passionate people that organisations accomplish their goals. As a manager, one can get satisfaction from knowing that ones efforts, skills and abilities are needed.

1.7Challenges of Management in the 21st century

Management has been around since the dawn of civilization. In primitive societies almost everyone had to do physical labor. To escape this burden, about the only choices were going into politics (kings) or religion (priests).

Civilized urban societies led to more specialization, created new vocational alternatives to manual labor, and saw a tendency of those who did not work with their hands to look down on those who did. This particular attitude was fostered by scribes, who used their knowledge of writing to produce literature that mocked the illiterate laboring classes.

When we read that the Pharaoh build the PYRAMIDS, we know that in fact that actual work was done by other people. As these laborers cut, moved, and placed the stones, the first managers were there to tell them what to do, to see that they did it, and to chastise those whose performance was unsatisfactory.

Basically, these were the functions of managers until the twentieth century. The apogee of this form of management was perhaps reached in late nineteenth in the factory system. One can still visit the Boott Cotton Mills Museum of in Lowell, Massachusetts to see how work and management were organized then.

The Lowell mills were famous because instead of relying on immigrants, they also recruited, hired, and provided dormitories for middle class young women, selling the idea that employment and the money it brought were socially acceptable and increased their marital prospects. Today one can still read the work rules that these women had to follow. One stated that only short sleeve dresses were permitted. This was because when the mill managers saw employees talking instead of working, they would strike them in the arm with a rattan. Long-sleeved dresses impeded the effectiveness of this form of disciplinary action.

The "hit them with a whip" school of management suffered a decline and fall in the 20th century, though remnants still exist in various places in the world and the wish for such methods still is expressed now and then even by contemporary managers. Other methods of managing workers received classical expression in Frederick Taylors Scientific Management in 1911. Taylorism led to new management tools involving such techniques as measurement and statistics.

What might be called the "efficiency expert" school of management was for the most part supplanted around the 1960s by a more "humanistic" approach, whose classical exponent was the psychologist Abraham Maslow. The changes in management thinking in this decade reflected the more educated workforce and greater respect for democracy that grew out of World War II.

In the 1970s Robert Greenleaf invented Servant Leadership, and in the 1990s Peter Block carried this concept forward to Stewardship. These ideas revolutionized the mental model for managers by suggesting that they replace thinking about how to get people to do things with thinking about to help people do things.

Best practice management concepts in the late 20th century also included excellence and total quality management, reengineering, systems thinking, cross functional teams, empowerment and flat organization charts, learning organization, dialogue, reinventing work, and diversity. As knowledge in general increased with "Internet speed," management thought, already heavily influenced by psychological sciences, and received infusions from numerous disciplines. Moreover, cross-fertilization between academia and the business community created a vast increase in management related research activity.

Some of these trends such as TQM and reengineering - seemed by 2000 to have run their course. The permanent value of the new thinking underlying them, however, should not be denied; and 21st century versions of these movements should actually be welcomed.

Others trends such as learning and diversity progressed to the point where "second generation" (learning organization) or "new" (diversity) versions appeared. In the early 21st century, it was even easy to see the development of a "third wave" in these well-established concepts.

Just as the 21st century has seen new types of organizations and new ways of doing business arise, so, too, will there be new management trends, ideas, and techniques. While running after every trendy idea is hardly a recommendable strategy, the wise manager will learn, study, and apply the best current thinking.

At the start of the 21st century, the following rate to be the most important ideas regarding management:

Management is for everyone. As educational levels rise and information technology accelerates, the distinction between "managers" and "workers" will fade away and management knowledge will be everyone's responsibility.

Management is for learners. As information becomes the chief product of every business and as knowledge continues to explode, everyone will be a learner and the manager's foremost task will to promote learning.

Management is based on communicating. As techniques for planning, strategizing, decision-making, and problem solving become the common province of everyone in the organization, the need for improving communication will be paramount and managers will be increasingly using dialogue and other communication tools.

Management is about change. As technology and information reshape all our lives, change management will be "business as usual" and managers will be change agents who guide everyone to find and embrace the best new practices.

Management is broad based. As boundaries disappear within organizations and in the world at large, the scope of management will grow and managers will be organizational development experts, diversity experts, facilitation experts, consultation experts and much else.

Chapter 1

END CHAPTER QUIZZES

Q1.Which one of the following theories ignored the concept of leadership, motivation, power and informal relations?

(a) Classical

(b) Behavioral

(c) Modern

Q2.Which theory states that there is no best way to manage all situations?

(a)Systems Theory

(b)Contingency theory

(c)Administrative Theory

Q3. The general conclusion of the Relay Assembly Test Room Experiments was that employees would work better if the management was concerned about their welfare and superiors paid special attention to them. This phenomenon was subsequently labeled as the..

(a)Relay effect

(b)Hawthorne effect

(c)Human effect

Q4. Unlike Classical theorists who viewed organizations from a production point of view, behavior theorists viewed it from the point of view.

(a)Human

(b)Technical

(c)Administrative

Q5. Weber coined the term .to identify large organisations that operated on a rational basis.

(a)Autocracy

(b)Diplomacy

(c)Bureaucracy

Q6. Management is:

(a) An Art

(b) A Science

(c) Both

Q7.Which of the following Fayols principles of management aims at avoiding the possibility of conflicting orders?

(a)Well-defined hierarchy of authority

(b)Unity of Command

(c)Unity of Direction

Q8. Espirit de corps means

(a) Unity is strength

(b) Buyer Beware

(c) Service is our motto

Q9. Time Study is a technique which enables the manager to ascertain standard

taken for performing a specified job.

(a)Time

(b)Units

(c)Quantity

Q10.Who identified the three types of managerial roles, namely interpersonal, informational and decision roles?

(a)Peter Drucker

(b)Henry Mintzberg

(c)Max Weber

Chapter - 2

Topic: - Management in the Era of Change

Contents

2.1 Multiple stakeholder Relationship

2.2 Ethics

2.3 Social Responsibility: - The modern challenges

2.4 Values

2.5 Values & Corporate Culture

2.1 Multiple Stakeholder Relationship

Organisation exist because of their ability to create value and acceptable outcome for various groups of stakeholders, people who have an interest, claim, or stake in organisation, in what is does, and in how well performs. In general, stakeholders are motivated to participate in an organisation if they receive inducements exceed the value of the contributions they are required to make. Inducements rewards such as money, power, and organisational status. Contributions are the knowledge, and expertise that organisations require of their members during the performance.

There are two main groups of organisational stakeholders: inside stakeholders and outside stakeholders. The inducements and contributions of each group are summarized in table given below.

Inside Stakeholders

Inside stakeholders are people who are closest to an organisation and have the strongest or most direct claim on organisational resources: shareholders, managers, and the work force.

SHAREHOLDERS. Shareholders are the owners of the organisation, and, as such, their claim on organisational resources is often considered superior to the claims of other inside stakeholders. The shareholders contribution to the organisation is to invest money in it by buying the organisations stock. The shareholders inducement to invest is the prospective money they can earn on their investment in the form of dividends and increase the price of stock. Investments in stock are risky, however, because there is no guarantee of a return. Shareholders who do not believe that the inducement (the possible return on their investment) is enough to warrant their contribution (the money they have invested) sell their shares and withdraw support from the organisation.

TABLE

INDUCEMENTS AND CONTRIBUTIONS OF ORGANISATIONAL STALEHOLDERS

Stakeholder

Contribution to the Organisation

Inducement to Contribute

INSIDE

Shareholders

Money and capital

Dividends and appreciation

Managers

Skills and expertise

Salaries, bonuses, status and power

Workforce

Skills and expertise

Wages, bonuses, stable employment, and promotion

OUTSIDE

Customers

Revenue from purchase of goods and services

Quality and price of goods and services

Suppliers

High- quality inputs

Revenue from purchase of inputs

Government

Rules governing good business practice

Fair and free competition

Unions

Free and fair collective bargaining

Equitable share of inducements

Community

Social and economic infrastructure

Revenue, taxes, and employment

General public

Customer loyalty and reputation

National pride

MANAGERS. Managers are the employees who are responsible for coordinating organisational resources and ensuring that an organisations goals are successfully met. Top managers are responsible for investing shareholder money in resources in order to maximize the future output of goods and services. Managers are, in effect, the agents or employees of shareholders and are appointed indirectly by shareholders through an organisations board of directors to manage the organisations business.

Managers contributions are the skills they use to direct the organisations response to pressures from within and outside the organisation. For example, a managers skills at opening up global markets, identifying new product markets, or solving transaction-cost and technological problems can greatly facilitate the achievement of the organisations goals.

Various types of rewards induce managers to perform their activities well: monetary compensation (in the form of salaries, bonuses, and stock options) and the psychological satisfaction they get from controlling the corporation, exercising power, or taking risk with others peoples money. Managers who do not believe that the inducements meet or exceed their contributions are likely to withdraw their support by leaving the organisation.

THE WORK FORCE. An organisations work force consists of all non managerial employees. Members of the work force have responsibilities and duties (usually outlined in a job description) that they are responsible for performing. An employees contribution to the organisation is the performance of his or her duties and responsibilities. How well an employee performs is, in some measure, within the employees control. An employees motivation to perform well relates to the rewards and punishments that the organisation uses to influence job performance. Employees who do not feel that the inducements meet or exceed their contributions are likely to withdraw their support for the organisation by reducing the level of their performance or by leaving the organisation.

Outside stakeholders

Outside stakeholders are people who do not own the organisation, are not employed by it, but do have some interest in it. Customers, suppliers, the government, trade unions, local communities, and the general public are all outside stakeholders.

CUSTOMERS. Customers are usually an organisations largest outside stakeholders group. Customers are induced to select a product (and thus an organisation) from alternative products by their estimation of what they are getting relative to what they have to pay. The money they pay for the product is their contribution to the organisation and reflects the value they feel they receive from the organisation. As long as the organisation produces a product whose price is equal to or less than the value customers feel they are getting, they will continue to buy the product and support the organisation. If customers refuse to pay the price the organisation is asking, they withdraw their support, and the organisation loses a vital stakeholder. Southwest Airlines attention to its customers has resulted in their loyal support.

SUPPLIERS. Suppliers, another important stakeholder group, contribute to the organisation by providing reliable raw materials and component parts that allow the organisation to reduce uncertainty in its technical or production operations and thus reduce production costs. Suppliers have a direct effect on the organisations efficiency and an indirect effect on its ability to attract customers. An organisation that has high- quality inputs can make high-quality products and attract customers. In turn, as demand for its products increases, the organisation demands greater quantities of high-quality inputs from its suppliers.

One of the reasons why Japanese cars remain so popular with U.S. consumers is that they still require fewer repairs than the average U.S. made vehicle. This reliability is a result of the use of component parts that meet incredibly stringent quantity control standards. In addition, Japanese parts suppliers are constantly improve their performance. The close relationship between the large Japanese automakers and their suppliers is a stakeholder relationship that pays long-term dividends for both parties. Realizing this, in the last decade U.S. car manufacturers have also moved to establish strong relationships with their suppliers to increase quality, and the reliability of their vehicles has increased as result.

THE GOVERNMENT. The government has several claims on an organisation. It wants companies to compete in a fair manner and obey the rules of free competition. It also wants companies to obey agreed-upon rules and laws concerning the payment and treatment of employees, workers health and laws concerning the payment and treatment of employees, workers health and workplace safety, nondiscriminatory hiring practices, and other social economic issues about which Congress has enacted legislation. The government makes a contribution to the organisation by standardizing regulation so that they apply to all companies and no company can obtain an unfair competitive advantage. The government controls the rules of good business practice and has the power to punish any company that breaks these rules by taking legal action against it. Thus its contribution is to leave a company alone. Sometimes, however, it may leave companies too alone.

TRADE UNIONS. The relationship between a trade union and an organisation can be one of conflict or cooperation. The nature of the relationship has a direct effect on the productivity and effectiveness of the organisation and the union. Cooperation between managers and the union can lead to positive long-term outcomes if both parties agree on an equitable division of the gains from an important in a companys fortunes. Managers and the union might agree, for example, to share the gains from cost saving due to productivity improvements that resulted from a flexible work schedule. Traditionally, however, the managements-union relationship has been antagonistic because unions demands for increased benefits conflict directly with shareholders demands for greater company profits and thus greater returns on their investments.

LOCAL COMMUNITIES. Local communities have a stake in the performance of organisations because employment, housing, and the general economic well-being of a community are strongly affected by the success or failure of local businesses.

THE GENERAL PUBLIC. The public is happy when organisations do well against foreign competitors. This is hardly surprising, given that the present and future wealth of a nation is closely related to the success of its businesses and its economic institutions. The French and Italians, for example, are notorious for preferring domestically produced cars and other products, even when foreign products are clearly superior. To some degree, they are induced by pride in their country to contribute to their countrys organisations by buying their products. Typically, U.S. consumers do not support their companies in the same way. They prefer competition to loyalty as the means to ensure the future health of American businesses.

A nations public also wants its corporations to act in a socially responsible way, which means that corporations refrain from taking any actions that may injure or impose costs on other stakeholders.

2.2 ETHICS

The Advantages of Ethical Behavior

Ethics- the moral values, beliefs, and rules that govern the way organisational stakeholders should act toward one another- from an important part of organisations cultural values. In an age when many different stakeholders scrutinize an organisations action, and competition is fierce, organisations cannot afford to engage in actions that will be hurt their reputation. Neither can they allow employees to take advantage of their position to commit unethical acts. Thus creating an ethical organisational culture is one of top managements major priorities. Managers create an ethical culture by making a personal commitment to uphold ethical values and transmit them to subordinates. All organisations are expected to develop and follow ethical values because of the advantages that ethical behavior confers on an organisation and on society.

Ethical values and rules control self-interested behavior that might threaten societys collective interests. Ethical values establish desired end states for example equitable or good business practices and the modes of behavior needed to achieve those end states, such as being honest or being fair. Free and fair competition between organisations is possible only when values and norms constrain people action in certain situation. It is ethical for a business person to compete with rival and drive that rival out of business if the basis for competition is legal. Competition based on price and quality is legal and ethical. It is not ethical to compete by shooting a rival, blowing up a rivals factory, spreading false rumors about competition products, or stealing information from a rivals organisation. Quality and price competition creates value for an organisations stakeholders and the general public competition by underhanded means hurts stakeholders and goes against the public interest. Note that ethical practices do not ensure that nobody gets hurt the rival forced out of business does get hurt but the harm done rival has to be weighed against the gain to consumers.

Ethical values in an organisations culture reduce the costs people incur in deciding what the right is or appropriate. By reflexively following an ethical rule, people spend less time and effort trying to weigh, measure, or balance, and decide what the right thing to do is.

When an organisations behavior follows accepted ethical rules, the organisation gains a positive reputation effect. Over time, people will most likely view with suspicion and hostility an organisation that is known for engaging in illegal acts. However an organisation that always follows the rules and is known for its ethical business practices over and above strict legal requirements will have a good reputation valuable asset that makes people want to deal with it. Although unethical organisations might reap short term benefits, they are penalized in the long run because eventually people will refuse to deal with them.

Why Does Unethical Behavior Occur?

If there are good reasons for individuals and organisations to behave ethically, why do we see so many instances of unethical behavior?

Lapses in Individual Ethics

In the theory, individuals learn ethical principles and codes of morality as they mature. Ethics are learned from family, friends, religious institutions, schools, professional associations, and other organisations. From their experiences, people learn to differentiate right from wrong. However, imagine that your father is a mobster, your other is a political terrorist, or your family belongs to a warring ethnic or religious group. Brought up in such a context, you may believe that it is ethical to do anything and to perform any act - including murder to benefit your family, friends, or group. In a similar way, individuals within an organisation may come to believe that any action that promotes or protects the organisation is acceptable, even if it does harm to others. That sort of thinking prompted the Beech Nut management team to approve the sale of sugar water labeled as apple juice.

Ruthless Pursuit of Self- Interest

We normally confront ethical issues when we weigh our personal interests against the effects that our actions will have on others. Suppose you will be promoted to vice president of your company if you can secure a $100 million contract, but that to get the contact, you must bribe the contractor with $1 million. Your career and future will probably be assured if you perform this act. What harm will it do? you ask yourself. Bribery is common, and if you dont pay the million dollars, you are certain that somebody else will. So what do you do? Research suggests that people who believe they have the most at stake are the ones most likely to act unethically. Similarly, it has been shown that organisations that are doing badly economically and are struggling to survive are the ones most likely to commit unethical and illegal acts such as price fixing or bribery, although many other organisations will do so if they are given the opportunity.

Outside Pressure

Many studies have found that the likelihood of unethical or criminal behavior increases when people feel outside pressure to perform. If company performance is deteriorating, for example, top managers may feel pressures from shareholders to boost performance, and fearful of losing their jobs, they may engage in unethical behavior to increase the value of corporate stock. If outside pressures work in the same direction, it is easy to understand why unethical organisational cultures develop. Managers at all levels buy into unethical acts and the view that the end justifies the means comes to permeate the organisation. As organisational members pull together to disguise their unethical action and to protect another from prosecution, the organisation becomes increasingly defensive.

The temptation for organisations to collectively engage in unethical and illegal behavior is very great. Industry competitors can clearly see the advantages of acting together to raise prices because of the extra profits they will earn. The harm they inflict as a result of their collusion is difficult to see because their customers may number in the millions. Unethical companies may rationalize by saving that individual customers are affected so slightly that they are hardly hurt at all. However if every company in every industry behaved unethically, and if all companies tried to extract money from their customers, customers would have much less to spend and the nations economy as a whole would suffer. Moreover, price fixing results in a misallocation of societys resources. Companies spend less and less on improving their products because they have no incentive to improve them. Simply by increasing prices they can make all the money they want with the products they already have.

The social costs of unethical behavior are hard to measure but can easily be seen in the long run. They take the form of mismanaged organisations that become less innovative and spend less and less on research and development and more and more on advertising or manageri