Principles & Practices of Management

Self Learning Material

Principles & Practices of

Management (MBA-101)

Course: Master of Business Administration

Semester-I

Distance Education Programme

I.K. Gujral Punjab Technical University

Jalandhar

Syllabus

I.K. Gujral Punjab Technical University

Scheme of (MBA) Batch 2012 Onwards

MBA101 Principles & Practices of Management

Max. Marks: 100

External Assessment: 60

Internal Assessment: 40

Objective: This course presents a thorough and systematic coverage of management theory

and practice. The course aims at providing fundamental knowledge and exposure of the

concepts, theories and practices in the field of management. It focuses on the basic roles,

skills and functions of management, with special attention to managerial responsibility for

effective and efficient achievement of goals.

Unit I

Introduction: Definition, nature, scope, importance, Functions of management and manager,

Managerial roles and skills, Managerial ethics: need, importance, classification and ethical

dilemma, Corporate social responsibility: concept, need, tools and strategies. Evolution of

management thought and Management thinkers. Scientific Management, General

administrative theories, Quantitative approach, Behavioral approach, Systems approach,

Contingency approach.

Unit II

Planning: Importance, types of plans, and process of planning, business forecasting.

Concept, importance, benefits, limitations and process of Managing by Objectives. Strategic

management : Nature, importance, purpose, types, process and major kinds of strategies.

Decision-Making: Importance, types, steps and approaches, Decision Making in various

conditions, decision tree.

Unit III

Organizing: Concept, types, structure and process of organization, Bases of departmentation,

Line & Staff concept; problems of use of staff & ways to avoid line-staff conflict. Authority

& power :-concept, responsibility and accountability. Delegation: concept, importance,

factors affecting delegation, Reasons for failure and ways to make delegation effective, Span

of Management. Decentralization vs centralization: concept, reasons types and advantage

vs disadvantages of decentralization. Coordination: Concept, importance, difficulties and

techniques to ensure effective coordination.

Unit IV

Control: Concept, importance, characteristics, planning-control relationship, process of

control –setting objectives, establishing standards, measuring performance, correcting

deviations, types, process and techniques of control, Comparative study: Comparative study

of main features of Japanese Management and Z-culture of American Companies, Chinese

Style Management, Modern management techniques: an overview of various latest

techniques: Business process Re engineering, business outsourcing, benchmarking,

knowledge management, total quality management process, McKinsey's 7-S Approach, E-

Business Management.

Note : Relevant Case Studies should be discussed in class.

Suggested Readings /Books:

Heinz Weihrich, Cannice & Koontz, Management (A Global Perspective), Tata McGraw Hill

Griffin, Management: Principle & Applications, Cengage Learning

Stephen Robbins & Coulter Mary,Management, Pearsons Education

V S P Rao & V H Krishna, Management, Excel Books

P.Subba Rao, Principles of Management, Himalaya Publishing

Dubrin, Management: Concepts & Cases, Cengage Learning

Daft, Principles of Management, Cengage Learning

Ferrell, Business: A Changing World, Tata McGraw Hill

Mukherjee, Principles of Management and Organisational behaviour, Tata McGraw Hill.

Table of Contents

Chapter No. Title Written By Page No.

1 Nature and Scope of Management Ms. Priyanka Singh, PIM,

Kapurthala

1

2 Schools of Management Thought Ms. Priyanka Singh, PIM,

Kapurthala

22

3 Business Ethics & Corporate Social

Responsibility

Ms. Priyanka Singh, PIM,

Kapurthala

44

4 Planning Ms. Priyanka Singh, PIM,

Kapurthala

63

5 Strategic Management Ms. Priyanka Singh, PIM,

Kapurthala

90

6 Decision Making Ms. Priyanka Singh, PIM,

Kapurthala

108

7 Organizing Ms. Priyanka Kaushik,

PIM, Kapurthala

121

8 Delegation & Decentralisation Ms. Priyanka Kaushik,

PIM, Kapurthala

142

9 Coordination Ms. Priyanka Kaushik,

PIM, Kapurthala

157

10 Controlling Ms. Priyanka Kaushik,

PIM, Kapurthala

168

11 Styles of Management Ms. Priyanka Kaushik,

PIM, Kapurthala

181

12 Modern Management Techniques Ms. Priyanka Kaushik,

PIM, Kapurthala

195

Reviewed by:

Dr. Harpreet Singh Chahal

Department of Business Management, GNDU Regional Campus, Gurdaspur.

© IK Gujral Punjab Technical University Jalandhar

All rights reserved with IK Gujral Punjab Technical University Jalandhar

Chapter 1

Nature and Scope of Management

Structure

1.0 Objectives

1.1 Introduction

1.2 What is management?

1.3 Nature of management

1.4 Importance of Management

1.5 Process of Management

1.6 Functions of management

1.7 Traits of a successful manager

1.8 Managerial roles

1.9 Summary

1.10 Glossary

1.11 Answers to Check your Progress

1.12 Bibliography/ References/ Suggested Readings

1.13 Terminal and Model Questions

1.0 Objectives

After studying this chapter, you will be able to:

Explain the concepts of management.

Discuss the different approaches towards management.

Describe the nature of management and

Classify the functions of management and understand the significance of each function in

carrying out the managerial processes effectively.

Understand the technical, human and conceptual skills required by a manager and

appreciate the use of these skills in building up an effective organization.

Identify the role of managers in present business scenario in different context.

1.1 Introduction

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As we all know that an individual is the basic unit of a society. This is well-known fact that no

individual can fulfill all his desires himself. Therefore, he unites with his peer group and works

in an organized group in order to achieve his desired objectives that he could not accomplish

individually. We, as human beings, are surrounded by different organized groups vis-à-vis a

family, friends, peer group, school, business firm etc. Management is an indispensable part of

any group activity. It is a primary force within the group which tends to lead it towards the group

goal. Management is required to bring the material and human resources together and work for

the achievement of the organizational goals.

Management is a universal process in all organized social and economic activities. In our real life

also, every activity that we undertake involves an element that ensures coordination in the

activity, which motivates us to accomplish our goals. This element is none other than the

management.

1.2 What is management?

The term management can be described as “manage + men + t” which implies to “manage men

tactfully.” It is the act of getting the work done with the efforts of others. It is a diverse process

comprising of activities of planning, organizing, activating and controlling, performed in order to

define and achieve the definite goals with the use of human and material resources.

As a management student, you must be aware of the fact that the term ‘Management’ is used

widely in various contexts. Sometimes it is used to describe “group of managers in an

organization”. At other times, it refers to the tasks that management does and includes planning,

organizing, leading and controlling. It is also referred to as a body of knowledge, a practice and a

discipline. There are some who describe it as a technique of leadership and decision making or a

means of coordinating. An understanding of the various concepts of management will help you

better understand what actually management is. So, we have the following conceptualizations for

management.

1. Management as a Noun: As a noun, management refers to all those persons who are

concerned with getting things done through others. Thus, management comprises of all

those personnel who have the responsibility over the others and includes the Chief

Executive Officers, supervisors, foremen and managers.

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2. Management as a Process: As a process, management is used to describe all the functions

that a manager performs. It is the management that sets the organizational objectives and

initiates the activities in order to achieve those objectives. The various elements of this

managerial process include planning, organizing, staffing, directing, coordinating and

controlling.

3. Management as an Activity: Since management is concerned with getting things done

through others, it is referred to as an activity. Like any other activity such as playing,

reading etc., management is also an activity in the sense that a manager accomplishes

various tasks through the efforts of other people. It includes the interpersonal activities,

decisional activities and informative activities.

4. Management as a Group: As we know that it is a group that operates in an organization,

so as a group, the term management refers to all those people who are engaged in

performing the various managerial activities. This group comprises of Chief Executive,

departmental managers, sectional officers, supervisors, foremen and so on. Thus, when

we talk of management, we are concerned with the personnel who are actually involved

in performing various managerial activities at all levels in an organization.

5. Management as a Discipline: Sometimes, management is referred to neither as an activity

nor as personnel who perform those activities, but as a body of knowledge, a practice and

a discipline. In this context, it refers to the various managerial principles and practices as

a subject of study.

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Check your progress I:

Q1. Management is an art as well as science.

A) True

B) False

Q2. Management refers to all those persons who are concerned with getting things done through

others. This makes management study in context of:

A) Noun

B) Activity

C) Group

D) Discipline

1.3 Nature of Management

The various definitions of management reveal the following characteristics of management:

1. Group Activity: Management is an essential element of a group activity. It is required

when an organized group is working towards the accomplishment of some common goal.

So it is the duty of management to make people realize the objectives of the group and

direct their efforts towards the achievement of these objectives.

2. Goal Oriented: All the activities of management are concerned with some goals that are

to be achieved. These goals are pre-determined and all the efforts of management are

directed towards their fulfillment. Thus, it is more inclined towards the establishment and

accomplishment of the organizational goals.

3. Universality: The principles of management have a universal applicability and can be

applied in every type of organization. Wherever there is human activity, management is

involved. Whether it is business, society, politics, education, management is required in

each and every stream. So, it is universal in character.

4. Social Process: Management involves working with people in an organization. The

efforts of human beings have to be directed and regulated by the management in order to

achieve the desired organizational objectives. So, it is regarded as a social process. It is

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the social obligation of the business to make optimum utilization of available scarce

resources for the benefit of the society at large.

5. System of Authority: Since management is the process of directing the efforts of the other

people at work, the authority is implied in every line of action. Authority may be defined

as the power to get the work done from others and to induce them to work in a definite

manner.

6. Multidisciplinary: Management draws ideas and concepts from various fields like

psychology, sociology, anthropology (study of people, society and culture), economics,

ecology, statistics, operations research etc. thus, it is a multidisciplinary field and

includes a study of all these phenomenon.

7. Dynamic nature of Principles: Principles of management are flexible in nature and

change with the changes in the environment of an organization. There is nothing

permanent in the landslide of management. Moreover, the principles and practices of

management are relative and not absolute. An organization may differ in its functioning

form other organization. So, these principles are applied according to the needs of an

organization.

8. Science or Art: Management is both science as well as an art. It is a science because it

involves the certain principles that are universally applicable irrespective of the type of

organization. However, the results of the management depend upon the skills of the

managers who are to perform the tasks. In this way, management is an art. Thus,

management is both an art as well as a science. However, it may be noted that

management is not an exact science as is the physical science. Since it is still in an

evolutionary stage, it is termed as an inexact science or social science.

9. Profession: In modern times, management is regarded as a profession. It has a systematic

and specialized body of knowledge consisting of techniques and principles and has the

potential to be taught as a subject. In the present times, management is entrusted in the

hands of professional managers.

10. Intangible: Management is intangible, which implies that it cannot be seen. It can only be

felt. For instance, when the desired objectives are not achieved, it is said that it is the

result of the poor management of the organization.

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11. Needed at all levels in an organization: It is one of the significant features of management

that it is required at all levels of an organization. The only difference that exists is in the

nature of activity and the extent of authority at various levels.

Check your progress II:

Q1. Management is a system of ………………….

Q2.Management is needed at which level in an organization?

A) Top Level

B) Middle Level

C) Lower Level

D) All Levels

………………………………………………………………………………………………………

Q3. Which of the following is not a characteristic of management?

A) Universality

B) Group Activity

C) System of Authority

D) All are the characteristics of Management

………………………………………………………………………

1.4 Importance of Management

Management is the art of getting maximum prosperity with minimum of effort. Whenever there

is a group of people doing some work collectively, there arises a necessity to have adequate

managerial control. The following points highlight the importance of management:

a) Optimum Utilization of resources: Management ensures that the various factors of

production such as land, labor, capital and machinery are optimally utilized. It finds out

the best possible methods to make the best use of available physical resources and

motivates employees for achieving the organizational goals.

b) Achievement of Organizational Goals: One of the significant roles of management is to

set the goals for the organization and channelize the resources in an optimum manner to

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achieve the set targets. It brings together the physical and human resources and mobilizes

them to strive towards the achievement of business goals.

c) Growth and Development of Business: Every business strives for growth and

development. Management facilitates in improving the efficiency and performance of

people in the organization. Thus, the available resources are channelized into productive

areas thereby enhancing the profitability of the business. This further helps in business

expansion and diversification. Thus, we can say that effective planning and control help a

business to grow and develop.

d) Improved Quality: Management helps in producing better quality products at a minimum

of cost. It implements various controls over the production processes and attempts to curb

wastages at various levels. It also creates quality consciousness among people concerned

with the production activity.

e) Development of Human Skills: Human resource development is one of the key concerns

in the modern times. A good management gives due importance to improvement of skills

and technical competence of its personnel as it develops a confidence and boosts their

morale. In the modern era, only those organizations can survive who equip their

manpower with the latest techniques and methods of work.

f) Risk Minimization: Risk is inherent in every business, but an effective management

always makes an effort to control or diversify it. The different policies and procedures

designed for the organization have to be evaluated and corrective measures need to be

taken, if required, so as to minimize the element of risk present in it.

g) Providing Innovation: In the dynamic business environment, there is a need to work for

continuous improvement in the methods or techniques of work so as to abreast with the

latest thinking. A sound management offers new ideas, phenomenon and visions to the

organization so that it can compete in the market.

h) Enhanced Profits: Profit maximization is the key objective for any organization to grow

and develop. In order to maximize the profits, the organization has to either increase its

sales revenue or reduce its cost. An efficient management helps in reducing the cost by

reducing wastages and thereby maximizing the profitability of the organization.

i) Social Welfare: Management plays a significant role of fulfilling its social responsibility

as well. It is beneficial not only to the business concern, but also serves the society. It

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provides quality goods at reasonable prices. It generates employment opportunities and

hence helps in raising the standard of living of the people. It ensures optimum utilization

of available scarce resources and thus strives for the growth and development of

economy as a whole.

1.5 Process of Management

Management is concerned with getting the work done through the efforts of the others. It is not a

one-time activity but a continuous process directed towards the accomplishment of the

organizational objectives. It is an ongoing series of interrelated activities. The sum total of these

activities is called the process of management. A process may be defined as a systematic way of

doing the things. It is more inclined towards the transformation of inputs to outputs. It consists of

a set of interrelated operations in that are performed by the human resources in an organization in

order to achieve the set goals.

Management process is characterized by the following features:

a) Social Process: The entire management process is regarded as the social process since

cooperation of people is required for the success of an organization. Managers perform

the vital role of guiding, directing, influencing and controlling the actions of others to

achieve the stated goals. He also has the potential to influence the people outside the

organization.

b) Continuous Process: The process of management is an on-going and continuous.

Managers continuously take up one or the other activity in the organization, thereby

repeating the management cycle times and again. Each managerial function is viewed as

a sub process of total management process.

c) Universal: Management functions are universally applicable in the way that a manager

has to perform them irrespective of the size and nature of the organization. Each manager

performs the same functions regardless of his rank/position in the organization. Even in

the case of non-profit organizations, similar managerial functions are performed.

d) Iterative: Managerial functions are confined within each other. The performance of the

next function starts only at the completion of the previous function. Thus, various

functions are taken together. For instance, planning, organizing, directing and controlling

may occur within staffing function. Similarly, organizing may require planning, directing

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and controlling. In other words, all functions can be thought of as sub functions of each

other.

e) Composite: All managerial functions are composite and integrated. There cannot be any

sequence which can be strictly followed for performing various functions. The sequential

concept may be true in a newly started business, where functions may follow a particular

sequence, but the same will not apply to a going concern. Any function may be taken up

first or many functions may be taken up at the same time.

1.6 Functions of Management

Management is the process that brings together the various human and material resources

together and encourages people for the realization of the desired goals of the organization. It is a

continuous process of performing interconnected tasks. The set of these activities is termed as

management process. It consists of various interrelated functions required to achieve the desired

organizational goals.

Henry Fayol, Father of management gave the six prime functions of management.

Let us discuss these functions in detail below:

Coordinating

Controlling


other.














Planning

Organizing

Staffing

Directing


other.














Organizing

Staffing

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1. Planning: The basic managerial function is planning. It is the process of deciding in

advance what to do, when to do, how to do and who will do a particular task. Thus, it

involves “thinking before doing.” Its primary objective is to achieve better results and

involves selection of organizational objectives and developing policies, programmes,

procedures, budgets and strategies. Planning is a continuous process that takes place at all

levels of management.

The process of planning involves a numbers of steps:

a) Gathering information

b) Setting objectives

c) Developing planning premises

d) Examining alternative courses of action

e) Evaluation of action patterns

f) Reviewing limitations

g) Implementing the plans

2. Organizing: In order to achieve the organizational objectives, various factors of

production are employed. The organizing function deals with all the activities concerned

with arranging, guiding, coordinating, directing and controlling the activities of other

factors of production viz. men, material, money and machines. Thus, it provides a

framework within which people associate for the attainment of business objectives.

The process of organizing involves the following steps:

a) Identification of the work to be performed

b) Classification of work

c) Assignment of work to individuals

d) Delegation of authority and fixing responsibility

e) Coordination of authority-responsibility relationships of various activities

3. Staffing: This function is concerned with the human resources of an organization and

involves manning the positions created by organization process. Since this function deals

with human resources whose behavior and actions cannot be predicted, so it has become

a specialized branch of management.

The process of staffing comprises of the following:

a) Planning manpower requirements in terms of quantity and quality

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b) Recruitment, selection and training

c) Development, promotion, transfer and appraisal

d) Determination of employee remuneration

4. Directing: This function initiates organized and planned action and ensures effective

performance by the subordinates towards the accomplishment of group activities. So it is

also termed as “management in action.” George R. Terry has well defined directing as

“moving to action and supplying stimulative power to the group. Thus, it concerns the

aggregative manner in which a manager directs the efforts of the people in an

organization. It involves the following elements:

a) Leadership: In order to improve the performance of the subordinates, a manager has

to issue orders and instructions to them and also guide in order to assist them in

accomplishing the organizational objectives. Leadership is the ability to develop

confidence among the subordinates and influencing their work with the aim of

maximizing the satisfaction among the employees and the organization. In order to be

an effective leader, a manager must possess the qualities of foresightedness, initiative,

self-confidence, vision and personal integrity.

b) Communication: Communication is the life blood of any organization. It is a vital

function of management as nothing happens in management until communication

takes place. It can be defined as the exchange of ideas, feelings, facts, conditions or

opinions between two or more persons in order to create a common understanding of

the subject matter of communication. It is a two way process since it involves both

information and understanding. It is said to be formal when it follows the formal

channel of the organizational structure. It is informal when it does not follow the

formal channels. Similarly, it can flow in both upward and downward directions i.e.

from subordinate to superior and vice-versa. Communication is necessary at all levels

of management for effective decision making and planning. Proper communication

flow enhances coordination and ensures smooth working of an organization.

c) Motivation: The term motivation is derived from the word ‘motive’ which means a

need or the urge that stimulates an individual into action. Motivation is a

psychological process of creating an urge among the subordinates to perform certain

actions or behave in the desired way. It is a vital function of management since the

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performance of the employees in an organization depends upon their ability and

motivation. A manager has to continuously strive towards motivation of the

subordinates either through financial or non-financial incentives so that they can be

inspired, motivated or persuaded for contributing their best towards the achievement

of enterprise objectives. An effective motivational system must be productive,

competitive, comprehensive and flexible and must be in accordance to the varied

needs of the subordinates.

d) Supervision: It is another significant element of directing function of management.

Supervision aims at overseeing the tasks of the subordinates to ensure that the work is

carried out as planned. It is necessary to guarantee optimum utilization of available

resources, to get the required and directed work done and to correct the subordinates

whenever they go wrong. Supervision can be made more effective by sound

organizational setup, effective delegation, human approach, effective communication

and management by objectives.

5. Coordination: Coordination is another significant function of management required to

channelize the activities of various individuals in the organization for the common goal.

An organization is a sum total of various units called departments or segments. Every

department or segment is given a target to be achieved and it is the task of the

management to see that every department is able to fulfill its objectives and corrective

measures have to be taken in case of any deviations. Coordination creates team spirit and

promotes collective efforts in the organization. In other words, it can be said that it is an

orderly arrangement of group effort to provide unity of action in pursuit of common

objectives.

6. Controlling: Controlling is the most crucial function of management. It is the process of

determining what is being accomplished and involves evaluating the performance, and

applying corrective measures, if required so that the performance takes place in

accordance with the plans. In every organization, planning and controlling are required

for the effective achievement of desired goals. The planning of activities does not ensure

execution and implementation of policies. Control process enables the management to

ensure that the plans are duly implemented and if the performance is deviated from the

standards, the corrective measures are to be taken. Thus, if planning initiates the

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management process, control may be said to be the final step. If planning is looking

ahead, controlling is looking back. In other words, control is not possible without

planning and planning without control is meaningless.

The process of controlling involves the following steps:

a) Establishing standards

b) Measuring actual performance

c) Comparing actual performance with the standards

d) Finding variances or deviations

e) Taking corrective measures

Check your progress III:

Q1. What is motivating, leading and any other actions involved in dealing with people called?

A) Planning

B) Organizing

C) Controlling

D) Leading

……………………………………………………………………………………………………..

A2. Planning is setting goals, establishing strategies and developing plans to coordinate

activities.

A) True

B) False

………………………………………………………………………………………………………

Q3. Setting goals, establishing strategies and developing plans to coordinate activities is related

to which management function?

A) Planning

B) Organizing

C) Controlling

D) Leading

……………………………………………………………………………………………………..

Q4. Monitoring activities to ensure that they are accomplished as planned is……….?

A) Planning

B) Staffing

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C) Controlling

D) Organizing

……………………………………………………………………………………………………..

1.7 Traits of a Successful Manager

In order to perform the various managerial functions, a manager needs to possess and exhibit

certain skills or qualities. These are popularly termed as traits of a manager. A brief description

of these managerial traits is given below:

1. Planning Traits: The planning function is concerned with defining the future state of your

organization. It is deciding in advance the future course of action to be undertaken by the

different personnel in the organization. Hence, the planning traits include the following:

Ability to think ahead

Ability to forecast environmental trends

Ability to define the objectives of the organization

Ability to select the most appropriate strategy

Ability to meet the set standards for monitoring the implementation of the

strategies.

2. Organizing Traits: Since planning determines the future course of direction of an

organization, organizing function follows it. While planning specifies what to achieve,

organizing function deals with who will achieve, what and how it will be achieved. These

traits can be indicated as:

Ability to analyze and describe various organizational jobs

Ability to select, train and induct people in jobs

Ability to define authority and responsibility links

Ability to adapt to the dynamic environment and change these links

3. Leadership Traits: A successful manager is a good leader and has the capability to

understand the differences among the values, perceptions, personality and attitudes of the

diverse work force in the organization. Thus leadership traits involve the following key

characteristics:

Self confidence

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Ability to assess the situations and needed behavior

Ability to understand the varied perceptions of people and situations

Understanding of attitudes, personality and values of the personnel in the

organization

4. Controlling Traits: The controlling function is performed in order to ensure that the actual

results are in consonance with the desired results. Any deviation between the planned and

the actual outcome has to be corrected by the manager by taking appropriate action and

decisions. In performing this function, a manager uses his leadership and motivation traits

to control and regulate the performance, in accordance to the earlier planning.

Activity:

Suppose you are manager of ABC Ltd. What is the basis for organizing various departments in

your organization?

Can you identify in your organization, the various levels of management?

………………………………………………………………………………………………………

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………………………………………………………………………………………………………

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5. Decision-making Skills: These skills are required in the planning process. A manager’s

effectiveness lies in making good and timely decisions. Whatever the situation is, a

manager has to take many decisions, be it of routine nature or complex ones. The success

of an organization depends upon a larger extent to these skills of a manager.

6. Managerial Skills at various levels: These skills refer to the personal ability put to use by

the manager in specific position that he/she holds in an organizational hierarchy. These

skills are categorized into three heads. These are:

Technical skills

Human skills

Conceptual skills

Check your progress IV:

Q1. The __________ level managers depend most on conceptual skills?

……………………………………………………………………………………………………

Q2. Managers at different levels in the organizational hierarchy require various sets of skills.

Finding rational and implementable solutions to the problems faced by the organization falls

under which of the following sets of skills?

A) Technical Skills

B) Human Skills

C) Conceptual Skills

D) Decision making Skills

………………………………………………………………………………………………………

Q3. An accountant’s ability to audit a company’s records is an example of what type of skill?

A) Technical Skills

B) Human Skills

C) Conceptual Skills

D) Design Skills

………………………………………………………………………………………………..

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1.8 Managerial Roles

Managers are the individuals who achieve goals through other people. They make decisions,

allocate resources and direct the activities of other to attain the goals. A manager has to perform

a very crucial job in an organization. How successfully an organization achieves its objectives

and fulfills its social responsibilities as well, depends to a larger extent on the ability to its

managers. A manager plays many diverse roles in an organization. The key roles of a manager

are described as follows:

1. Interpersonal Relationships: A manager has to perform many roles while maintaining a

strong interpersonal relationship with the people in the organization he serves. These

roles are figured as follows:

a) As a figure head: A manager has to perform many representative functions at the

organizational level as a figure head. These functions include representing the

organization at various corporate events, fulfilling social norms, greet people, speak

at functions etc.

b) Leadership role: A manager has to get the work done through others and has to direct

the efforts of others towards the achievement of the desired goals. So, he has to act as

a leader in an organization. He is the one who is to take the front and set an example

of commitment and dedication for the subordinates to follow.

c) Relationship Officer: It is the responsibility of the manager to maintain a link

between the top and the lower level of management. He has to keep an eye on the

various internal and external forces that are going to influence the organizational

work culture. Thus, he has to maintain liaison by attending meetings, conferences and

other corporate events etc.

2. Information Processing: A manager obtains, examines and communicates the information

at all levels of management. In this perspective, he executes the following roles:

a) Monitoring Information: A manager always gathers information about the internal

and the external environment influencing his business. This information is collected

through reports, periodicals, personal contacts etc.

b) Disseminating Information: The information is disseminated to those people who

require it. The subordinates may be informed about the change in policies or other

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manners governing the organization. He also meets the informational needs of other

people in the organization. This may be done through circulars, letters, phone calls or

personal meetings.

c) Organization’s spokesperson: A manager plays the vital role of spokesperson of the

organization while dealing with the external parties. This may involve ample of

communication with the external parties and can be done through telephone calls,

letters or personal meetings.

3. Decision Making: Every plan of management involves a certain line of action. This

involves a series of decision making activities. The role of a manager as decision maker

is described as follows:

a) Entrepreneurial role: A manager has to take various strategic decisions for the

expansion or diversification of the organization. These decisions include procurement

of funds, resource allocation, marketing strategies etc. These decisions involve

consultation with other personnel in the organization and are taken through meetings,

telephone calls, suggestions etc.

b) Conflict Management role: A manager has to act as a conflict handler many a times in

an organization. There may be certain situations where there is a difference of opinion

among the employees and the management. So, it is the responsibility of the manager

to act as an arbitrator to resolve such organizational disputes or grievances. Such

conflict management is essential to maintain cordial relations in the organization.

c) Resource allocator: Every organization is segregated into different departments. It is

the manager who looks into the demands of various segments and takes necessary

actions. He makes the allocation of available resources in an optimum manner so that

there is neither over supply nor shortage of resources in any department.

d) Negotiating Role: A manager has to negotiate with the outsiders for taking certain

decisions. He has to negotiate prices with the suppliers, rates are to be fixed with the

customers and purchase of assets is to be negotiated with the manufacturers.

Moreover, he also has to negotiate with trade unions on various issues.

Check your progress V:

Q1. Match the following:

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1. __________ refers to the manager acting as a

communication channel between departments and

senior management.

a) Interpersonal Roles

2. _________ refers to the tactical and strategic

decisions made by managers. They have access to

the necessary information to make such decisions

and have authority to do so.

b) Informational Role

3. ___________are the formal parts of a manager’s

job. Leader role – being in charge of employee-

related issues. Figurehead role – being a

representative of the business. Liaison role – being

a communicator for the business.

c) Decision making Role

………………………………………………………………………………………………………

Q2. According to Henry Mintzberg’s classification of managerial roles, a manager designing and

initiating change within the organization is said to be playing which of the following roles?

A) Figurehead

B) Leader

C) Disseminator

D) Entrepreneur

………………………………………………………………………………………………………

1.9 Summary

Management is the coordination of all resources through the process of planning, organizing,

directing and controlling in order to attain the stated objectives. The basic principles of

management have universal applicability and can be applied to every organization irrespective of

its type. Management is an art as well science, but not an exact science and has now been

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recognized as a profession. It has a systematic and specialized body of knowledge consisting of

principles, techniques and laws and can be taught as a separate discipline. It is a continuous

process that brings all the resources together and motivates people to work for the achievement

of organizational goals.

1.10 Glossary

a) Management: Art of getting things done through others.

b) Management Theory: Systematic grouping of inter-dependent concepts and principles,

which give a framework of knowledge.

c) Planning: Deciding in advance the future course of action.

d) Organizing: Process of identifying and grouping of work to be performed, defining and

delegating responsibility and authority for the achievement of the goals of the

organization.

e) Staffing: Process of manning the various positions in the organization.

f) Directing: Carrying out the desired action plans and includes leadership, communication,

motivation and supervision.

g) Controlling: Process of evaluating the action plan to ensure achievement of objectives.

h) Coordination: Channelizing the activities of individuals in the organization.

i) Vision: A viable view of the future that is embedded in but improves on the present.

j) Mission: A statement of organization’s purpose, basic goals and philosophies.


Check your Progress I: 1. A; 2. A

Check your Progress II: 1. Authority; 2. D; 3. D

Check your Progress III: 1. D; 2. A; 3. A; 4.C

Check your Progress IV: 1. Top; 2. D; 3. A

Check your Progress V: 1. B, C, A; 2. D


Koontz and Weihrich, “Essentials of Management – An International and Leadership

Perspective", Tata Mc Graw Hill Education Pvt. Ltd., ninth edition, 2012

Stephen P. Robbins, Mary Coulter and Neharika Vohra, “Management”, Pearson

Prentice Hall, Tenth edition, 2011

Page 20 of 210

Karminder Ghuman and K. Aswathappa, “Management – Concept, Practice and

Cases”, Tata Mc Graw Hill Education Pvt. Ltd., 2010

Rajeesh Viswanathan, “Principles of Management – Concept & Cases”, Himalaya

Publishing House, 2010


a) Discuss management as an art, science or profession.

b) “Management is the art of getting things done through others.” Discuss.

c) What is management? Describe the various functions undertaken by a manager.

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Chapter 2

Schools of Management Thought

Structure

2.0 Objectives

2.1 Introduction to the Evolution of Management Thought

2.2 Scientific Management

2.3 Administrative Theories

2.4 Quantitative Approach

2.5 Behavioral Approach

2.6 Systems Approach

2.7 Contingency Approach

2.8 Summary

2.9 Glossary



2.12 Test and Model Questions

2.0 Objectives

In this chapter, you will learn about:

The evolution of management thought and contributions of different management

pioneers.

The various approaches towards management, their contributions and limitations

The systems approach of management and how it has its applicability in different

situations and contingencies.

2.1 Introduction to the Evolution of Management Thought and Management Thinkers

As we know, the roots of management lie with the group of practitioners and writers who sought

to formulate rational principles that can facilitate in increasing the efficiency of the organization.

Since, they have set the theoretical foundations for the management discipline; their

contributions are classified as classical approach to management. This classical approach is

further divided into two sub categories: scientific management and general administrative

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theories. This chapter will help you understand the contemporary management theory and

practice and also demonstrate how the evolution of management concepts reflected the changing

needs of organizations and society as a whole.

2.2 Scientific Management

The theory of scientific management was propounded by Frederick W. Taylor. He is regarded as

the “Father of Scientific Management”. His management thought is the subject matter of two

books: Shop Management and Principles of Scientific Management which were published in

1903 and 1911 respectively. He laid emphasis on the following factors for enhancing the

productivity of the workers:

Science, not rule of thumb;

Harmony, not discord;

Co-operation, not individualism;

Maximum output, in place of restricted output;

The development of each man to his greatest efficiency and prosperity.

Meaning of Scientific Management: The concept of scientific management implies that one

should have a complete knowledge of what is to be done and how it is to be done. Thus, when

we go by this approach, we apply scientific techniques in the managerial activities such as

recruitment, selection and training of the employees as well as resolving the various industrial

issues.

In the words of F. W. Taylor, scientific management is “knowing exactly what you want men to

do and seeing that they do it in the best and the cheapest way.” Thus, the scientific

management implies the application of two-fold techniques:

The discovery of the best method of performing a particular work.

The best method for meeting a given situation.

Features of Scientific Management:

Let us discuss the characteristics of scientific management in brief:

It is a systematic, analytical and objective approach to tackle industrial problems;

It makes use of scientific techniques in methods of work, recruitment, selection and

training of employees;

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It strives to discover the best method of doing a work at the minimal cost.

It replaces the traditional methods of the rule of thumb and hit or miss approaches with

scientific techniques.

It tends to bring a complete revolution in the thought process of the management as well

as employees.

It lays emphasis on all the factors of production, men, material and technology.

It attempts to develop every man to his greatest efficiency and prosperity.

Objectives of Scientific Management: The theory of scientific management has certain

objectives, which we shall discuss below:

1. To accelerate the rate of productivity by making use of standardized tools, equipment and

methods.

2. To improve the quality of the product by research, quality control and continuously

monitoring and inspection.

3. To reduce the cost of production of system planning and regulation and implementing

various cost control techniques.

4. To avoid the wastages in the use of resources, time and the techniques of production.

5. To adopt scientific selection and training procedure so as to place the right person on the

right job.

6. To set up a sound system for the payment of wages to the employees so as to ensure

maximum efficiency.

7. To ensure that the goods are provided to the consumers at reasonable prices throughout.

Components of Scientific Management: Taylor propounded the following main components of

scientific management:

Separation of Planning from Doing: He laid emphasis on the separation of planning

activity from doing. Thus, the task of planning should be given to specialists and must be

separated from actual performance.

Functional foremanship: The concept of functional foremanship as advocated by Taylor

is in contrast to the unity of command and is now implemented in the management of

various industries. He proposed that there should be eight persons involved in directing

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the activities of the workers. Out of these eight persons, four persons are related with the

planning function. These include (i) route clerk; (ii) instruction card clerk; (iii) time and

cost clerk and (iv) disciplinarian. The other four persons are concerned with the operating

activity and include (i) speed boss; (ii) inspector; (iii) repair boss and (iv) gang boss.

Determining the Fair day’s work and one best way of doing it: Taylor was of the

opinion that there is always one best way of doing a particular job that requires least

movements, less time and minimal cost. The focus of this theory was on improving the

efficiency of the work force. So he had to take recourse to these studies in order to

determine a fair day’s work.

Differential Piecework system of wage payment: Taylor explained the phenomenon of

“systematic soldiering”, which implied that the workers were not producing as much as

they were cap able to produce. In order to overcome this problem, he proposed the

differential piece rate system of wage payment. What we do in this system is, we pay the

wages according to the individual performance and on the position which he occupies.

Moreover, this rate of wage payment is based on accurate knowledge and not on mere

estimates.

Bilateral Mental Revolution: According to Taylor, the essence of scientific

management is the mental revolution, which is to be brought upon the part of both

workers and management. It is the responsibility of the management to provide a healthy

environment to its employees for achieving their maximum efficiency. There should be a

congenial and cooperative work environment in the organization for the employees.

Moreover workers should also work with a sense of belongingness with the concern.

They should be disciplined, loyal and sincere in completing their work. They should

make every possible effort to reduce the wastages. So, we can say that there should be a

feeling of mutual trust in an organization among the management and the workers. Taylor

held that “without this complete mental revolution on both sides, scientific management

does not exist”. He explained the three facets of this mental revolution:

a) All out efforts for increased production;

b) Creation of the spirit of mutual trust and confidence;

c) Inculcating and developing the scientific attitude towards problems.

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Principles of Scientific Management: Taylor advocated the following elements of scientific

management:

Work Study: According to International Labour Office “work study is a term used to

embrace the techniques of method study and work measurements which are employed to

ensure the best possible use of human and material resources in carrying out specified

activity”. In simple words, work study involves the process of analyzing the work to be

performed by eliminating the unnecessary operations and finding out the quicker way of

doing it. Work study eliminates wasteful and unnecessary operations, reduces efforts and

increases productivity.

Standardization of Tools and Equipment: One of the important elements of scientific

management is the standardization of tools and equipment. Taylor emphasized on the use

of ‘the best way of doing the work’. In order to increase the efficiency and speed of work,

we must have proper tools and equipment to supplement our work.

Scientific selection, placement and training: Selection of right persons on the right job

is one of the crucial aspects for ensuring the efficiency and quality of work. According to

Taylor, the selection of the workers should be made on the basis of their education,

experience and attitude towards work. We must select the employees on the basis of

merit rating which implies ‘round pegs in round holes’. We must provide training to the

employees to make them suitable for the new jobs. Orientation training must be imparted

to them so that they become ready to face the new challenges.

Development of functional foremanship: Taylor pleaded the concept of functional

foremanship. He was of the opinion that the task of planning and designing should be

separated from the workers and factory executives. The concept of functional

foremanship is the extension of the principle of specialization or the division of labor to

the sphere of management. Thus, we must separate the functions of planning and doing.

He proposed that there should be eight persons involved in directing the activities of the

workers. Out of these eight persons, four persons are related with the planning function.

These include (i) route clerk, to lay down the sequence of operations; (ii) instruction card

clerk lays down the exact method of doing the work; (iii) time and cost clerk, to keep the

records of the time spent by different workers on different jobs and prepare the cost

sheets and (iv) Disciplinarian, to deal with the cases involving breach of discipline and

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absenteeism. The other four persons are concerned with the operating activity and include

(i) speed boss, to ensure that the machines are run at the optimum desired speed; (ii)

inspector – to ensure that the workers perform their work as per the desired quality; (iii)

Repair boss – to ensure that the machines are regularly cleaned, serviced and repaired;

and (iv) Gang boss – to assemble and set up various tools and equipment.

Thus, Taylor wanted to streamline the working of the production department.

Introducing the costing system: Another significant element of scientific management

is the introduction of the efficient system of cost accounting. It is a technique used to

calculate the cost per unit and total cost of production. Thus, the system of cost

accounting serves the following purposes:

Mental revolution: Taylor strongly emphasized on the complete mental revolution on

the part of both the workers and the management. Simply stating, mental revolution is

concerned with the changing the psychological attitude of workers and management

towards each other. It is the responsibility of the management to provide a healthy

environment to its employees for achieving their maximum efficiency. There should be a

congenial and cooperative work environment in the organization for the employees.

Moreover workers should also work with a sense of belongingness with the concern.

They should be disciplined, loyal and sincere in completing their work. They should

make every possible effort to reduce the wastages. There should be a feeling of mutual

trust in an organization among the management and the workers. So, we can say that in

order to improve the working of an enterprise, it was essential to bring mental revolution

on the part of workers and management.


Q1. Taylor’s theories were also known as:

a) Organized management

b) Scientific system

c) Taylorite system

d) None of the above

1) Q2. Which of the following is NOT a principle of Scientific Management?

a) Each job should be analyzed to determine the best way of doing it.

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b) Employees should be carefully trained at their jobs

c) Employees should be rewarded for productivity

d) Employees should be selected so as to get along with other members of their group………………………………………………………………………………………………………

………………………………………………………………………………………………………

…………………………………………………………………………………………………..

2.3 Administrative Theories

Henry Fayol and Max Weber were the two important individuals who helped in the development

of general administrative theory. Fayol’s attention was directed towards the activities of

managers i.e. he focused on what managers do. Fayol was a French mining engineer in his early

thirties, but after that he switched over to general management and was Managing Director from

1888 to 1918. He wrote his book General and Industrial Management in 1916 in French, which

was translated in English in 1949, only when American Management writers came to know

about his ideas.

Fayol is known as the father of management or the founder of the classical management. Not

because he was first to investigate managerial behaviour, but because he was the first to

systematize it. He was contemporary to Taylor. Taylor was basically concerned with

organizational functions, whereas Fayol was interested in the total organization. It may be noted

that Taylor is known as the father of scientific management, i.e. supervisory or lower

management, while Fayol is recognized as the father of management, i.e. the higher management

or the general management.

Max Weber was a German Sociologist. He developed a theory of organization structures and

described the various organizational activities on the basis of various authority relations. He

described an ideal type of organization called bureaucracy as a form of organization which is

characterized by division of labour, a clearly defined hierarchy, elaborated rules and regulations

and impersonal relationship. He used this principle of bureaucracy for theorizing about the work

and the way to do that work in larger organizations.

Some of our current management ideas and practices can be directly traced tocontribution of general administrative theories.

Companies like Samsung, General Electric and CISCO System etc. have developed theirmanagerial systems on the foundations of the administrative theories.

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The functional view of the manager’s job originated with Henry Fayol. Weber’s bureaucracy

formulated an ideal model for organization design. When we see organizations laying off

significant number of workers, restructuring the organization, shifting long term goals and the

like, the general administrative theorists’ principles are at work.

Contribution by Henry Fayol:

According to Fayol, business activities in any organization consist of six interdependent

operations as follows:

1. Technical - activities concerning production.

2. Commercial - activities concerning buying, selling and exchange.

3. Financial - activities concerning optimum use of capital.

4. Security - activities concerning protection of property.

5. Accounting - activities concerning final accounts, costs and statistics.

6. Managerial - activities concerning planning, organizing, commanding, coordinating and

controlling.

According to him, the first five activities were well known and as such to devoted his attention to

the description and explanation of the managerial activities. Also he analyzed the nature of such

activities and skill requirements, which were so far given little scattered attention by thinkers.

Fayol considered the process of management to be of universal application and distinguished

between five elements of the process. He regarded these elements of management as the function

of management, which were being performed by all managers universally and at all the levels of

organization. He divided management functions into five parts as follows:

Forecasting and planning

Organizing

Command

Coordination

Control

Thus, according to Fayol, management means to forecast and plan, to organize, to command, to

co-ordinate and to control. The management was defined as the process of performing these

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functions. It may be noted that the present pattern of management functions follows broadly the

lines set by Fayol. He emphasized that management involved the application of certain skills,

which could be acquired by persons on the basis of systematic instructions and training.

Principles of Management

Fayol made a distinction between "elements of management" and "general principles of

management". Besides a systematic analysis of the management process and management

functions, Fayol formulated a set of fourteen principles as guidelines for implementing the

process of management.

These principles may be listed as follows:

1. Division of Work

In any organized situation, work should be divided into compact jobs to be assigned to

individuals. This applies to managerial work and non-managerial work. Division of labour

facilities specialization and improves efficiency, if it is done within reasonable limits.

2. Authorities and Responsibility

The authority is the official right to a manager to manage people and things. Authority of a

manager goes hand in hand with the responsibility for effective results. In other words, there

should be parity or balance between authority and responsibility vested in a managerial

position.

3. Discipline

Discipline is defined as observance of diligence and respect for seniors and rules and

regulations. Managers as leaders of their work groups should enforce discipline throughout the

organization. Fayol declares that discipline requires good superiors at all levels. He emphasized

the need of discipline among the personnel for the smooth running of organization. He

advocated penalties to prevent in violation.

4. Unity of Command

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It means that a subordinate in an organization should be under direct supervision of a single

from whom he should get instructions and to whom be should be accountable. In other words,

every employee should have only one boss. If a subordinate has more than one boss, to that

case conflict and condition in authority and instructions of general bosses would result.

5. Unity of Direction

Fayol advocates one head, one plan for a group of activities having same objective. In other

words, a set of activities having the same objective should be under the direction of a single

manager. Similarly, there should be one plan of action for such a set of activities because the

objective is the same. This principle promotes smooth coordination of activities, efforts and

resources.

6. Subordination of Individual Interest to Group Interest

The collective good and common interest of the organization should prevail over the narrow,

sectional and self-interest of its members of an organization for the welfare of both the

organization and the members.

7. Remuneration of Personnel

Remuneration as well the methods of payment in an organization should be fair so as to afford

maximum satisfaction both to the organization and its employees.

8. Centralization

According to Fayol, everything which reduces the importance of subordinates’ role is

centralization and that which increases it, is decentralization. In his opinion, the question of

centralization and optimum degree in particular case. There should be a proper combination

and decentralization in an organization based on a consideration of several internal and external

factors.

9. Scalar Chain

Fayol defines the scalar chain as the chain of superiors ranging from the ultimate authority

(i.e. top authority) to the lowest ranks. It is also known as hierarchy of management. Every

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communication should follow the prescribed route, i.e. the proper channel. Authority

relationships are said to be scalar when subordinates report to their immediate superiors and

when their superiors, in turn, directly report as subordinates, to their superiors.

10. Order

Order relates to both persons and things. It means a systematic arrangement of materials and

systematic placement of people in the organization. In material order, everything should be in

its proper place and there should be a place for everthing. For social order there should be a

place assigned to each employee, and each employee should be in the place assigned. The right

man in the right place is the ideal here.

11. Equity

Equity means combination of fairness, kindliness and justice. Equity motivates the workers to

perform their duties. Besides, it promotes a friendly atmosphere between superiors and

subordinates.

12. Stability of Tenure of Personnel

Management should strive to minimize employee turnover (i.e. changes in staff). In other

words efforts should be made to achieve relative stability and continuity of tenure of the

personnel. This could be achieved by attractive remuneration and honorable treatment of

personnel. Stability and continuity of personnel promote teamwork, loyalty and economy.

13. Initiative

It refers to the freedom to propose a plan and execute it. Management should encourage

subordinates to take desirable initiative in thinking out plans and executing them. Extending

opportunities and freedom to contribute their best could do this.

14. Esprit de corps

Esprit de corps means the spirit of loyalty and devotion, which unites the members of a group

or society. It is a sense of respect and belongingness to one's organization. This principle

stresses the need for team spirit, cordial relations, and co-operations among the personnel.

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It is to be noted that Fayol made is clear that he had no intention to close the list of principles or

make them inflexible.

Critical Evaluation

Fayol's administrative or process or functional theory of management may be evaluated as

follows:

(A) Contribution of Fayol's Work

Fayol's major contribution was to identify management as a separate set of skill or functions

performed by managers in the organizations. The skills and abilities required for effective

management were stated to be dependent on the manager's positions at different levels of

organization. Fayol pointed out that administrative or managerial skills were more essential for

higher-level manager, whereas technical skills and abilities were required more of the lower

levels.

Fayol was the first thinker who emphasized, for the first time the necessity of formal education

and training in management. He was the person who provided a set of means (i.e. planning,

organizing, commanding, coordinating and controlling) for understanding the management

process. He also provided principles for implementing this process.

He provided conceptual framework for analyzing the management process and emphasized that

management was a separate, distinct activity.

Management as a body of knowledge gained immediately from Fayol's analysis of management

skills of universal relevance and the analysis of the principles of general management.

(B) Limitations or Weaknesses

Fayol's administrative theory of management is criticized on the following grounds.

1. It is too formal as Fayol divides "business activities" into six categories, and their

management into five functions and the implementation of these functions with the help of

fourteen principles.

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2. Some critics call this theory as inconsistent, vague and inadequate.

3. It does not pay adequate attention to workers. It has pro-management bias.

4. Jernert Simon calls Fayol's principles as proverbs, comparable to folklore and folk wisdom.

Conclusion

Inspite of several criticisms of Fayol's work, his theory of managerial functions still exerts

considerable influence on the practice of management as well as the teaching of this subject

world over. It may be also noted that when combined together the scientific management

approach and the functional approach are called classical school or classical theory of

management or classical approach to management.


Q1. Match the following:

Henry Fayol a) Allowing workers to be creative and

innovative in their work

Division of Labor b) Formal, written instructions that specify

actions to be taken.

Initiative c) Father of Management

Rules d) Allowing workers to specialize tasks

…………………………………………………………………………………………………

Q2. State which of the following are true / False?

Stability of tenure was developed to fulfill the need to keep employees for a long time to take

advantage of their skills and knowledge

a) True

b) False

………………………………………………………………………………………………….

Contribution by Max Weber:

According to Max Weber, there are three types of power in an organization:

2. Traditional power

3. Charismatic power

4. Bureaucratic power or legal power

Features of Bureaucratic Organization

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The characteristics or features of Bureaucratic Organization are as follows:-

There is a high degree of Division of Labor and Specialization.

There is a well-defined hierarchy of authority.

It follows the principle of Rationality, Objectively and Consistency.

There are Formal and Impersonal relations among the member of the organization.

Interpersonal relations are based on positions and not on personalities.

There are well defined Rules and Regulations. There rules cover all the duties and rights

of the employees. These rules must be strictly followed.

There are well defined Methods for all types of work.

Selection and Promotion is based on Technical qualifications.

Only Bureaucratic or legal power is given importance.

Criticism of Bureaucratic Organization

Bureaucratic organisation is a very rigid type of organisation. It does not give importance to

human relations. It is suitable for government organisations. It is also suitable for organisations

where change is very slow. It is appropriate for static organisations.

Bureaucratic organisation is criticised because of the following reasons:-

Too much emphasis on rules and regulations. The rules and regulations are rigid and

inflexible.

No importance is given to informal groups. Nowadays, informal groups play an important

role in all business organizations.

Bureaucracy involves a lot of paper work. This results in lot of wastage of time, effort

and money.

There will be unnecessary delay in decision-making due to formalities and rules.

Bureaucratic model may be suitable for government organizations. But it is not suitable

for business organizations because business organizations believe in quick decision

making and flexibility in procedures.

Too much importance is given to the technical qualifications of the employees for

promotion and transfers. Dedication and commitment of the employee is not considered.

There is difficulty in coordination and communication.

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There is limited scope for Human Resource (HR).


Q1. Explain the charismatic power.

………………………………………………………………………………………………………

………………………………………………………………………………………………………

………………………………………………………………………………………………………

………………………………………………………………………………………………………

………………………………………………………………………………………………………

………………………………………………………………………………………………………

………………………………………………………….……………………..……………………

………………………………………………………………………………………………………

……………………………………………………………………………………………………

Q2. Which of the following is the principle characteristic of bureaucratic organization?

a) Relativity

b) Objectivity

c) Consistency

d) All of the above

………………………………………………………………………………………………………

2.4 Quantitative Approach

This approach is evolved from the Decision Theory School. It provides a quantitative basis for

decision making and studies management as a system of mathematical models and processes. It

is also known as “Operations Research” or “Management Science School”. The main

feature of this school is the use of mixed teams of scientists from several disciplines. It uses

scientific techniques for providing quantitative base for managerial decisions. The exponents of

this school view management as a system of logical process. It can be expressed in terms of

mathematical symbols and relationships or models. We make use of different mathematical

techniques such as linear programming, simulation, queuing etc. for various managerial

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decisions. This has contributed in developing orderly thinking amongst managers. It has added

exactness to the discipline of management. However, it can only be used as a tool in managerial

practice.

Limitations: This approach suffers from the following limitations:

It does not give any consideration to human element, which is a significant factor in

every organization.

In practical life, executives have to take the managerial decisions quickly. They do not

have much time to wait for the development of complex mathematical models.

This approach is based on the assumption that all the variables to decision making are

measurable and inter-dependent. This assumption is very much unrealistic.

The mathematical models facilitate the management in taking various managerial

decisions. However, this is not the only task that management has to perform. They

have various functions to perform other than decision making.

It is also possible that the information which we use for developing the mathematical

models for the purpose of decision making is not up to date. This may lead to wrong

decision making.

In this context, Harold Koontz has stated that, “it is too hard to see mathematics as a separate

approach to management theory. Mathematics is a tool rather than a school.”

2.5 Behavioral Approach

As we know that management is the art of getting things done through others. This explains why

we need to focus on the perspective of on organization’s people. This field of study that

emphasizes on the actions of people at work is called “Organizational Behavior”. The behavioral

approach to management lays stress on increasing production through an understanding of

people. According to the proponents of this approach, if managers understand their people and

adapt their organizations success will usually flow.

The Hawthorne Studies

The most important contribution to the human resources approach to management came out of

the Hawthorne Studies undertaken at the Western Electric Company’s Hawthorne Works in

Cicero, Illinois. The behavioral approach is usually described as beginning with a series of

studies conducted between 1924 and 1932, examined the effect of different illumination levels

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on worker productivity, which led to a new emphasis on the human factor in the functioning of

organizations and attainment of goals. Here, control and experimental groups were established

and a series of experiments were conducted during the span of 8 years. Let us discuss them one

by one:

The Relay Assembly Test Room Experiments: The relay assembly test room experiments

originally had a scientific management orientation. The experimenters believed that if they

studied productivity long enough under the different working conditions (including variations in

weather conditions, temperature, rest periods, work hours and humidity). The basic objective of

this experiment was to determine the relationship between intensity of light and worker

efficiency, as measured by worker output.

In one of the studies, experimenters chose two women as test subjects and asked them to choose

four other workers to join the test group. Together the women worked in a separate room over

the course of five years (1927–1932) assembling telephone relays.

Output was measured mechanically by counting how many finished relays each worker dropped

down a chute. This measuring began in secret two weeks before moving the women to an

experiment room and continued throughout the study. In the experiment room, they had a

supervisor who discussed changes with them and at times used their suggestions. Then the

researchers spent five years measuring how different variables affected the group's and

individuals' productivity. Some of the variables were:

giving two 5-minute breaks (after a discussion with them on the best length of time), and

then changing to two 10-minute breaks (not their preference). Productivity increased, but

when they received six 5-minute rests, they disliked it and reduced output.

providing food during the breaks

shortening the day by 30 minutes (output went up); shortening it more (output per hour went

up, but overall output decreased); returning to the first condition (where output peaked).

Changing a variable usually increased productivity, even if the variable was just a change back to

the original condition. However it is said that this is the natural process of the human being to

adapt to the environment without knowing the objective of the experiment occurring.

Researchers concluded that the workers worked harder because they thought that they were

being monitored individually.

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Researchers hypothesized that choosing one's own coworkers, working as a group, being treated

as special (as evidenced by working in a separate room), and having a sympathetic supervisor

were the real reasons for the productivity increase. One interpretation, mainly due to Elton Mayo

was that "the six individuals became a team and the team gave itself wholeheartedly and

spontaneously to cooperation in the experiment." (There was a second relay assembly test room

study whose results were not as significant as the first experiment.)

Bank wiring room experiment

The purpose of the next study was to find out how payment incentives would affect productivity.

The surprising result was that productivity actually decreased. Workers apparently had become

suspicious that their productivity may have been boosted to justify firing some of the workers

later on. The study was conducted by Elton Mayo and W. Lloyd Warner between 1931 and 1932

on a group of fourteen men who put together telephone switching equipment. The researchers

found that although the workers were paid according to individual productivity, productivity

decreased because the men were afraid that the company would lower the base rate. Detailed

observation of the men revealed the existence of informal groups or "cliques" within the formal

groups. These cliques developed informal rules of behavior as well as mechanisms to enforce

them. The cliques served to control group members and to manage bosses; when bosses asked

questions, clique members gave the same responses, even if they were untrue. These results

show that workers were more responsive to the social force of their peer groups than to the

control and incentives of management.

Recognizing the Human Variable: Taken together, the series of studies conducted at

Hawthorne plant gave management thinkers a new direction for research. Managers began to

realize that they needed to understand this influence so they could maximize its positive effects

and minimize its negative effects. Hawthorne study results helped managers to see that

understanding what motivates employees is a critical part of being a manager.

Check your progress IV:

Q1. What are the four phases of Hawthorne experiments? Name them.

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Q2. Each statement below about the Hawthorne Studies is true except

a. Secondary analyses of the studies' original data supported using monetary incentives to get

higher productivity

b. The Hawthorne Studies motivated further understanding of human behavior in organizations

c. Empathic management behavior leads to more productivity than directive management

behavior

d. The studies had strong research designs that allowed solid conclusions.

………………………………………………………………………………………………………

2.6 Systems Approach

Systems approach towards management is based on the general systems theory. A system is

defined as a set of interrelated and interdependent parts arranged in a manner that produces a

unified whole. There are two basic types of systems – closed and open. Closed systems are not

influenced by and do not interact with their environment. In contrast, open systems are

influenced by and do interact with their environment. Today, when we describe organization as

a system, we mean by an open system. As you know, an organization takes inputs from the

environment and transforms them into outputs that are distributed into the environment. The

organization is open to and interacts with its environment.

The Systems approach and Management Practices: Researchers have concluded that an

organization is made up of “interdependent factors, including individuals, groups, attitudes,

motives, formal structure, interactions, goals, status and authority.” What this means is that as

managers coordinate work activities in the various parts of the organization, they ensure that all

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these parts are working together so that the organization’s goals can be accomplished. For

instance, the systems approach affirms that no matter how efficient the production department

might be, the marketing department better anticipate the changes in customer tastes and work

with the product development department in creating products customers want or the

organization’s overall performance will suffer.

In addition, this approach implies the decisions and actions in one organizational area will

affect other areas. For example, if purchasing department does not acquire the appropriate

quantity and quality of inputs, the production department will not be able to do its work.

Furthermore, it also recognizes that organizations are not self-contained. They rely on their

environment for essential inputs and as outlets to absorb their outputs. No organization can

survive for long if it ignores government regulations, supplier relations or the varied external

constituencies on which it depends.

2.7 Contingency Approach

The early management theorists came up with management principles that were generally

assumed to be universally applicable. Later on it was found that these principles have certain

limitations in context of real business situations. For instance, the principle of division of labor

is widely acceptable and valuable concept, but the jobs can become too specialized. Similarly,

the theory of bureaucracy is desirable in many situations, but in other circumstances, other

structural designs have to be implemented. Thus, management cannot be based on the

application of principles in all the situations. Managers have to follow different approaches and

techniques to be followed in different and changing situations. The contingency approach, also

called as situational approach implies that organizations are different, face different situations

and require different ways of managing.

A good way of describing contingency is “if, then”: If this is the way my situation is, then this

is the best way or me to manage in this situation. This approach is intuitively logical because

organizations and even units within the same organization differ – in terms of size, goal, work

activities and the like. It is a concept in management stating that there is no one universally

applicable set of management principles (rules) by which to manage organizations.

Organizations are individually different, face different situations (contingency variables), and

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require different ways of managing. Contingency approaches remain less common than change

management approaches.


Q1. Systems approach is based on _____________________ theory of management?

………………………………………………………………………………………………………

Q2. There are two basic types of systems: ______________ and __________?

……………………………………………………………………………………………………

Q3. Contingency Approach is also termed as ________________ approach?

………………………………………………………………………………………………………

2.8 Summary

Thus, we have discussed the contributions of great thinkers and practitioners to the

development of management thought. From the above description of the various schools of

management thought, we can conclude that management is no more a restricted domain of

managers and entrepreneurs. Many disciplines have contributed to its growth and resulted in

recognition of management as a separate discipline.

2.9 Glossary

a) Work Study: process of analyzing the work to be performed by eliminating the unnecessaryoperations and finding out the quicker way of doing it

b) Mental revolution: Bringing change in the attitude of workers and management in anorganization.

c) Scientific management: Deciding what is to be done and see that it is being done in the bestpossible manner.

d) Route clerk: to lay down the sequence of operations

e) Instruction card clerk: He lays down the exact method of doing the work

f) Time and cost clerk : to keep the records of the time spent by different workers on different

jobs and prepare the cost sheets

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g) Disciplinarian: to deal with the cases involving breach of discipline and absenteeism.

h) Speed boss: to ensure that the machines are run at the optimum desired speed

i) Inspector: to ensure that the workers perform their work as per the desired quality

j) Repair boss: to ensure that the machines are regularly cleaned, serviced and repaired and

k) Gang boss: Person appointed to assemble and set up various tools and equipment.

l) Scalar Chain: Chain of authority ranging from the top officials to the lower levels ofmanagement.

m) Equity: It represents a sense of fairness, kindliness and justice for all in an organization.


Check your progress I: 1. B; 2. D

Check your progress II: 1. C, d, a, b; 2. A

Check your progress III: 1. Base your answer on section 2.4; 2. D

Check your progress IV: 1. Base your answer on section 2.6; 2. A

Check your progress V: 1. General systems; 2. Open and closed; 3. situational


• LM Prasad, “Principles and Practices of Management”, Sultan Chand & Sons.

• Peter F Drucker, “Tasks, Responsibilities and Practices”, Heinemann.

• James A. F. Stoner; R. Edward Freeman and Daniel R. Gilbert, “Management”, Pearson

Prentice Hall.

• Fred Luthans, “Introduction to Management”, Tata McGraw Hill Publishing House.


a) What is the contribution of Elton Mayo to the development of management thought?

b) Explain in detail the contribution of Henry Fayol to the management.

c) Discuss the Human Behavior approach to management. What are its contributions to the

theory of management?

d) Write an essay on the contribution of Taylor in the field of management.

e) What are the basic tenets of Weber’s bureaucracy theory of management? Compare it

with the ideas of Fayol.

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Chapter 3

Business Ethics & Corporate Social Responsibility

Structure

3.0 Objectives

3.1 Introduction

3.2 Business Ethics: What does it really mean

3.3 Need of ethics in business

3.4 Implementing and Institutionalizing Ethics

3.5 Ethical Dilemma

3.6 Introduction to Corporate Social Responsibility

3.7 Pros and Cons of Social Responsibility of Business

3.8 Tools of Corporate Social Responsibility

3.9 Strategies for Implementing Corporate Social Responsibility

3.10 Summary

3.11 Glossary

3.12 Answers to check your progress

3.13 Test/Model questions

3.14 Suggested Readings

3.0 Objectives

After studying this chapter, you will get to know about:

The meaning of ethics and values in context of business.

Need for ethics and values in a business framework.

Ethical decision making and norms for ethical behavior.

Concept of corporate social responsibility and its significance.

Various arguments in favor of and against corporate social responsibility

The various tools and strategies for implementing social responsibility.

3.1 Introduction

All persons, whether in business, university or any other enterprise, are well versed with the term

ethics. Business, like any other social institution, develops certain belief system and values for

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which they stand. These beliefs and values that guide them through their journey of business is

what we call ethics. Business ethics relate to the behavior of a businessman in a business

situation. It is the driving force behind our decision making in an organization that guides us

about right and wrong in all the actions that we perform.

3.2 Business Ethics: What does it really mean

When we talk of ethics, moral values and beliefs, we generally come across a philosophy that

deals with deciding what is good or what is bad for us. Ethics involve a discipline that examines

good or bad practices within the context of a moral duty. But when it comes to everyday

business, ethics mean adhering to law, competing with others in an honest manner and

performing daily tasks without any element of deceit. Thus, it includes the practices and

behaviors that are good or bad.

There are two components of business ethics. These are descriptive ethics and normative ethics.

Descriptive ethics involves describing, characterizing and studying morality. It basically

deals with the concept of – “What is?”

Normative ethics involves supplying and justifying moral systems. Thus, this concept

basically answers the question of – “What should be?”

Source:www.ethicsandvaluesnigeria.org

“The time is always right to do what is right” – Martin Luther

King

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In simple words, it is the study of standards of conduct and moral judgment; and also the

standards of right conduct.

The following figure depicts some of the key issues that we all come across in a business

context. Consider the following aspects and answer the question in your understanding of the

ethical conduct.

Source: Wall Street Journal, 21 October 1999, pp. 81–84. Ethics Officer Association, Belmont,

Mass.; Ethics Leadership Group, Wilmette, Ill.; surveys sampled a cross-section of workers at

large companies and nationwide.





ethical conduct.








ethical conduct.




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Ethics are an essential attribute of the human consciousness, which guide the increasing quest of

the common thread of goodness in the good human being, good society and the good life. We

can define ethics as the principles of a framework of philosophy of an individual on the basis of

which we decide what is good or bad, desirable or undesirable.

The value system that we acquire and develop shapes our attitudes, performances, goals and

aspirations. It sets the standards and guidelines that govern our behavior. In business also, we

come across certain situations, where as a manager, we have to take many decisions and these

decisions are governed by our moral values and beliefs. These beliefs guide us about right or

wrong, fair or unfair, good or bad. Thus, ethical beliefs define our conduct in an organization as

well and so we term it as ethical conduct in a business. It deals with behavior of managers in an

organization. The structure of an ethical environment is described as follows:

a) Code of conduct: A code of conduct may be defined as a formal statement that outlines

how the organization expects and requires its employees to resolve ethical questions.

b) Ethical Education: Codes of conduct cannot detail a solution for every ethical situation,

so there is a need for corporations to provide training in ethical reasoning.

c) Ethical Action: It involves helping employees recognize and reason through ethical

problems and turning them into ethical actions.

d) Ethical Leadership: It states that executives must demonstrate ethical behavior in their

actions.

What is? What ought tobe?

How do we getfrom what is

to what oughtto be?

what is ourmotivation for

actingethically?

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The ethical conduct involves the following values:

a) Continuous Improvement: The desire and ability of the company to develop and

incorporate ways to improve itself.

b) Customer Delight: The positive emotional response and joy that the customer feels from

interaction with the company’s people, products and services.

c) Developing People: The desire and ability of the company to improve the employees

working in the organization.

d) Innovation: The desire and ability of the company to venture into new break through

areas of opportunity.

e) Optimum Utilization of Resources: The desire and ability of the company to improve its

performance by full utilization of its current resources.

f) Commitment to the Society: The commitment of the company to focus on the social

needs and aspirations of the society.

The following figure gives a detail about the various sources of ethical norms

3.3 Need of ethics in business

Business in India is passing through tree-bullet times as there is lot of concern for business

survival and growth due to various factors such as global and domestic competition of MNCs,

environmental degradation, need for balancing multiple stakeholders’ expectations etc.

Fellow Workers

Family

Friends

The Law

Regions of Country

Profession

Employer

Society at Large

Fellow Workers

Religious Beliefs

The Individual

Conscience

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Business is a part of society. Its functioning should contribute to the welfare of society as a

whole and not only to itself. Therefore, organizational decisions should be made in such a way

which not only provides benefit to the organization but also the society at large, so as to

maximize the welfare of society. Many management theorists stress that companies must operate

according to the values that guide the thinking and behavior of people in an organization.

In view of the above discussion, it is appropriate to discuss at this stage the ethical

conduct for a business as propounded by a renowned management thinker, Dr. M. B. Athreya.

He gave a seven factor model to do a business in an ethical manner. These are described as

follows:

a) Righteousness: It is important for the business to follow ‘dharma’ in the creation and

sharing of wealth; maintaining the highest standards of ethics and integrity in every

action taken.

b) Public Good: Another significant value is that individuals and organizations should work

not just for private goal, but also for well-being of community as a whole.

c) Efficacy: It is critical that all businesses pursue efficiency, productivity, resource

optimization and conserve resources so as to internalize the value of efficacy in the best

interest of sustainable development of the economy as a whole.

d) Innovation: Business has to strive towards innovations and constantly moving ahead in

order to meet the growing social and economic expectations of its various stakeholders.

Thus, every business has to work for the effective solutions to the societal issues with its

innovation.

e) Learning: Business is the key instrument to solve the problems of growth, employment,

education, consumption, information and quality of life. The constant feedback helps a

business to improve and progress. The viability and health of nations and global society

will depend on the skills of learning and utilization of such learning by business.

f) Respect: Prof. Athreya adds another ethical aspect of respect for individuals and human

dignity in the business. It is said that respect begets respect. In business also, we are

dealing with human beings. Everyone wants respect for himself, be it any organization.

So, we should imbibe the feeling of respect and concern for the people.

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g) Competitive: Business should be aggressive, competitive, with lot of initiative and

creativity. All its efforts should be directed to increase market share ethically so as to

work for the upliftment of society as a whole.


Q1. Is business ethics a necessity?

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Q2.How would you recognize an ethical organization? What are its characteristics?

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3.4 Implementing and Institutionalizing Ethics

In order to fully implement and therefore institutionalize ethical conduct in an organization, there

is a need to initiate the following steps:

a) Selection: The prime activity that we have to do is to make a selection of the values or

ethics that we need to implement in our organization. This is of key consideration

because unless we have a clear idea in our mind about the ethical behavioral aspects that

we want in our organization, it will be very difficult for us to develop a sound code of

conduct for the organization.

b) Commitment: In order to implement the designed ethical conduct, there arises a need to

work with full commitment. It is essential for all the people in the organization to be fully

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committed towards their business objectives and strive for improving their performance

so as to ensure growth and development.

c) Standards: A set of standards for each activity in the company needs to be implemented

for each value.

d) Structure: The Company needs to have the right structure that defines job positions,

divisions, departments etc., to implement the values.

e) Jobs, Activities and Systems: The Company must have clear defined job positions,

activities and streamlined systems to facilitate the implementation of values. The values

need to be incorporated into every job position and activity to be performed in the

organization. Standard operating procedures and even individual position tasks need to be

linked to these values.

f) Employee Responsibility: The responsibility of every individual regarding the

implementation of each value must be clearly defined and understood. For instance, when

we prepare for job orientation, job description

Now, we have discussed the various pre conditions for successfully implementing the ethical

conduct in an organization. However, it is important here to note that there are certain on-the-job

ethical dilemmas that need to be addressed. For instance, there may be a situation in which a

business decision may be influenced for personal gain, or an employee discloses illegal, immoral

or unethical practices in the organization. There might be some positive aspects as well i.e. there

may be employees who are engaged in telling the truth and adhering to deeply felt ethical

principles in business decisions. Thus, people expect employees to be loyal and truthful, but

ethical conflicts may arise.


Q1. What are the steps required for implementing the business ethics in an organization?

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3.5 Ethical Dilemma

Ethics in business has to do with making the right choices. When we do not have one right way

and we must choose the best in the circumstances. Managers are sometimes faced with business

choices that create tensions between ethics and profits, or between their private gain and public

good. Any decision where moral considerations are relevant can potentially give rise to an

ethical dilemma, for instance;

A decision that requires a choice between rules;

A decision where there is no existing rule or example to follow;

A decision that morally requires two or more courses of action, which are in practice

incompatible with each other.

A decision that should be taken in your self-interest, but which appears to violate a moral

principle that you support.

Issues and dilemmas in the workplace can range from the simple disagreement to complex issues

that affect the bottom line in a negative manner. For every business, a proper understanding of

the various issues that can cause problems in the workplace will help identify and correct them

before the business suffers. Some of the common issues and dilemmas for ethical conduct in a

business organization are as follows:

Internal Conflict: There are various issues that can result in ethical dilemma. Some of the

common examples are; if an employee is passed over for a promotion or denied a pay

raise, misunderstandings resulting from a lack of open communication, feeling harassed

by other employees, managers and supervisors. When such internal conflicts start

influencing the productivity of the business and morale of the surrounding environment,

management must take the corrective measures to control the situation.

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Ethical Issues: Ethical issues such as employee theft, providing discounts or price breaks

outside of the usual company policies and practices and other unfair practices are prime

examples of possible issues and dilemmas a small business may face.

Team Dynamics: Team dynamics can make or break a project or initiative for any

business. Team members may try to promote their own agenda or take credit for work

done by other team members. When working as a team, challenges related to differing

views and ideas may take center stage. This can lead to distractions and eventually,

difficulty reaching a workable solution. Setting forth a proper framework to work within

and identifying the roles each member can play during team exercises can help limit any

issues or difficulties stemming from team dynamics.

Other Issues: Several other issues and dilemmas spring to mind when thinking about a

small business workplace. Possible leadership problems may develop if leaders,

managers and supervisors refuse to play by the same rules as the rest of the employees.

This can have a negative effect on creating a positive workplace culture. Other workplace

issues can stem from the absence of a company handbook that spells out all company

policies and procedures. This can lead to a lack of continuity and a lack of control over

the direction of the workplace.

Causes of Ethical Dilemma

Pressure from management Ambition and discrimination Negotiating tactics

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The following figure represents the various factors that influence ethical behavior at work.


As we all know that the concept of corporate social responsibility is not new. It got into limelight

when Howard R. Bowen, introduced his book “Social Responsibility of Businessman”. He

suggested that businesses should consider the social implications of their decisions. Corporate

social responsibility (CSR) is concerned with the business practices that follow ethical norms,

comply with the legal provisions and aim at the promotion of benefits to the individuals and

community at large. The most common forms of fulfilling CSR are making philanthropic

contributions to the community at large, actions for the environment preservation, making

investments in a socially desirable manner and working for the welfare of the various

Ethical policiesand codes











EthicalBehaviorat work

Individualfactors

organizationalfactors

TopManagement

Ethical policiesand codes











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stakeholders. In simple words, corporate social responsibility refers to the obligations and duties

of the business towards the different sections of the society. Thus, it means the obligation of the

decision-makers to take actions which protect and improve the welfare of the society as a whole

along with their own interests.

In the words of K. K. Andrew, “Social Responsibility may be taken to mean intelligent and

objective concern for the welfare of the society.”

H. S. Singhania classifies the social responsibility of business into two categories:

The manner in which a business carries out its own business activity;

The welfare activity that it takes upon itself as an additional function.

We know that there exists a mutual inter-dependence between society and business. Now-a-days,

business is not a mere profit making occupation, rather it has assumed the role of a social

function, which involves certain duties and also requires the appropriate ethics to be followed in

performing the activities. The way an organization functions has a strong influence on the

shareholders, suppliers, customers, employees and society at large. So, it becomes essential for

every business concern to be socially responsive so as to maintain a balance between the

conflicting interests of these groups.

3.7 Pros and Cons of Social Responsibility of Business

There is a continuous debate going on whether a business should assume social responsibility or

not. This is because every business wants to earn more and more profits. It is generally viewed

that if a business assumes social responsibility, it will not be able to achieve its objective of

profit maximization. So let us have a view of should a business assume its social responsibility

or not, in context of the various arguments put in favor of and against the corporate social

responsibility.

Pros of Corporate Social Responsibility:

1. Public Requirements: The business has a strong inter-relationship with the society. A

business takes its inputs from the society and in return, its output is also consumed by the

society. So, for a business to grow and develop, must fulfill the needs of the society. Now

what has happened is the expectations of the public form the business have changed with

the passage of time. Therefore, every business that needs to survive in the changing times

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has to adapt to those dynamic expectations of the public. Since, business is a part and

parcel of society, it must think for fulfilling its social responsibility.

2. Favorable for business: Performance of social obligation by business is not only

beneficial for the society, but also for the business itself. The business firm that is more

responsive towards the fulfillment of social responsibility and upliftment of the society

has a better community in which to conduct its business. Moreover, society may reject an

enterprise that does not bother about social welfare.

3. Moral Justification: Nowadays, modern industrial society faces a lot of social problem

due to large scale emergence of industries. It becomes the moral responsibility of the

business concern to work for the betterment of society and resolve the social issues.

Moreover, if we see on ethical grounds also, a business makes use of the different

resources from the society. So it becomes a moral requirement to devote some of these

resources for the overall development of the society as well.

4. Socio-cultural norms: In a country like India, where people value socio-cultural heritage,

it is much clear that if a business promotes social equalities, healthy employer-employee

relations and works for the upliftment of the society, it will enjoy better social position. A

business that works against the traditional values will definitely receive criticism from the

society.

5. Responsibility must correspond with power: Business enjoy great social power and affect

the economy, minorities and other social issues. So, in order to match their social power,

the business must perform equal amount of social responsibility as well. If they fail to do

so, it will reflect their irresponsible behavior, and will have a negative impact on their

social repute.

6. Public image: Every business wants to have a larger customer base, better employees,

increased profitability, more responsive money markets etc. so, a firm can enjoy better

public image if it meets its responsibility towards different sections of the society.

7. Government regulations: Every business has to regulate its operations in public interest.

If a business does not itself respond positively to the needs of the society, it will be

compelled by way of government laws and regulations.

8. Indebted to society: There exists inter-dependence between the business and society.

Business makes use of the various resources form the society. Thus, it is indebted to the

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society for providing it the vast resources. So, we can say that business is in a position to

work for the social goals with the help of these resources.

Cons of Corporate Social Responsibility:

1. Deviation from the main objective: The primary objective of every business is to

maximize its profits. Thus, economic efficiency is the top priority and any deviation from

this may divert the business from its mission. The welfare of employees and owners will

also be served well by increasing the profitability of the business concern. Moreover, the

performance of social responsibility also requires the cash outflow and it adversely

affects the financial position of the concern. It is to be noted here that the nature of

business activities is economic and not social and the only criteria to measure the success

of the business should be the economical values and not the social service.

2. Increase in prices: We have already studies that the business will perform social

obligations by incurring certain costs. Now, the actual burden of this cost will be shifted

to the customers by way of increased prices of the goods and services. Thus, whatever

costs, a business occurs on the social welfare, the burden will ultimately shift to

customers, by way of a part of cost of production of the goods and services. So,

ultimately it is the consumer who bears the ultimate burden of the corporate social

obligation.

3. Excessive concentration of power: If we combine the social activities with the economic

activities of the business, it will imply giving the business excessive concentration of the

power. Business has already got enough social power. If we over power it would mean

letting them influence society in education, in home, in government and in the market.

Thus, the society will also start depending upon the business. And this dependence will

create many social, economic and political problems.

4. Lack of social skills: It is also possible that a businessman, who is good at managing

business, may not be good at solving social problems. We know that a businessman

devotes all his energies in running his business efficiently and smoothly. He might not

have the appropriate skills to resolve the complex social issues. However, in the present

times, this limitation has been overcome to a great extent by institutions like Xavier

Institute of Social Science and IRMA (Institute of Rural Management Anand), which

provide training to its students for the social welfare only.

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5. Influence on social set-up: When business starts spending its resources for the welfare of

the society and resolving the social issues, it may try to influence the society for its own

good. This may hamper the growth and development of the society and may give rise to

many social, economic and political issues.

6. Lack of Accountability: Businessmen have no direct accountability to the people. So, it is

not advisable to make them responsibility for those areas for which they have no

accountability. We know that the management of a business is accountable only to its

owners for the profits of the concern, but not to the society for the fulfillment of its social

obligations.

7. Opposition from the society: This might also be the case that the various groups in the

society do not want the involvement of the business in the various social goals. There is a

great difference in opinion among the various social groups, businessmen, government

and other stakeholders. There might be one group that is in favor of the involvement of

business in the social activities, while there may be a few others also who do not wish to

have the involvement of business into the social goals.

8. Complex social Problems: There are many social issues which remain unresolved despite

the involvement of large business houses. Some of the prominent social problems include

AIDS, Deforestation, Sex discrimination etc. Similarly, when we talk of business, it has

to face many issues, for instance, how to maximize its profits, reducing the cost of

productions, ensuring timely supply of goods to its customers etc. Now when a business

itself is facing so much complexities, how can we expect it to fulfill its social

responsibility amidst its own huge complex problens.

3.8 Tools of Corporate Social Responsibility

3.9 Strategies of Implementing Corporate Social Responsibility

Identify Focus: The first step organizations undertake when implementing corporate

social responsibility is to identify the focus of the program. An organization with too

many causes will have a difficult time managing them appropriately. Scattered interests

also tend to backfire as the organization appears insincere. Narrowing the focus to one or

two major causes enables the organization to become identified with these cause and the

participants in the program receive more focused attention.

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Determine costs: Corporate social responsibility involves financial considerations on a

number of levels. For example, an organization should determine whether it will provide

materials for a program, allow employees to participate in volunteer efforts during work

hours or donate money to a cause. Organizations often hire people to oversee their

corporate social responsibility efforts, and this adds to their cost. While the focus of

corporate social responsibility is to benefit others, organizations must consider their own

costs to ensure the program is fiscally feasible.

Engage Employees: Organizations that are successful in implementing corporate social

responsibility involve their employees. They encourage employees to use their skills to

help the cause. For example, marketing staff might be encouraged to help a nonprofit

with promotional efforts. The organization's information technology staff can have paid

time off to help set up a computer system for a school. Organizations also solicit input

and feedback from their employees about causes in which they have interests.

Communicate with stakeholders: An organization implements corporate social

responsibility to benefit the program's recipients, its employees and the organization as a

whole. Information about the corporate effort must be shared with stakeholders such as

customers, business partners and the community. Organizations that promote their social

efforts through news releases, social media sites, networking events and public relations

opportunities can be positively viewed by the community -- but only if they don't do it in

an obviously self-serving way.

Identify the CSR chain of accountability through the firm.

Allocate sufficient resources to ensure that CSR responsibilities can be effectively carried

out.

Incorporate CSR key performance indicators into the business plan.

Inspire and educate. By reaching people on a personal level, they are more likely to take

on the challenge of CSR.

Display CSR commitments on the firm's website. This is one of the quickest and easiest

sources of company information.

Celebrate CSR achievements, motivating the team and building enthusiasm and pride

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Activity

You are a member of the Board of Directors of a large manufacturing concern. The Chief

Engineer for the safety claims that a new model that is being proposed for the production carries

a potential risk if hit from the rear. It could be corrected for about Rs. 2000 per car. The car is not

up to the “state of the art” exemplified by cars of comparable size produced by other

manufacturers. The CEO of the company claims that the cost of making the safety measures for

the car will cost much more than the amount that the company has to pay in case it is being sued

by the families of those killed in accidents and thus, on these grounds, he has authorized the

production of the cars. The Chief Engineer has gone over the CEO’s head and has brought the

issue to the Board for the vote. Now, you being a member of the Board have to support the CEO

and if you oppose the CEO, you will not be invited to serve another term on the Board.

What is your responsibility in this case? And what should you do?

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3.10 Summary

We can thus conclude that business ethics is a set of moral values and principles that govern

what human conduct ought to be. In simple words, they specify what is right/ wrong, fair/unfair

and good/bad. Corporate social responsibility (CSR) is concerned with the business practices that

follow ethical norms, comply with the legal provisions and aim at the promotion of benefits to

the individuals and community at large. In simple words, corporate social responsibility refers to

the obligations and duties of the business towards the different sections of the society. Thus, it

means the obligation of the decision-makers to take actions which protect and improve the

welfare of the society as a whole along with their own interests.

3.11 Glossary

a) Descriptive ethics – It involves describing, characterizing and studying morality.

b) Normative ethics – It involves supplying and justifying moral systems.

c) Ethics – the study of standards of conduct and moral judgment; and also the standardsof right conduct.

d) Righteousness – maintaining the highest standards of ethics and integrity in every

action taken.

e) Team Dynamics – Setting forth a proper framework to work within and identifying

the roles each member

f) Ethical Dilemma – business choices that create tensions between ethics and profits, or

between their private gain and public good.

g) Corporate Social Responsibility – obligation of the decision-makers to take actions

which protect and improve the welfare of the society as a whole along with their own

interests.

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Check your progress I: Base your answer on section 3.4

Check your progress II: Base your answer on section 3.5

Check your progress III: Base your answer on section 3.6


A. C. Fernando, “Business Ethics – An Indian Perspective”, Pearson Prentice Hall, 2012

Richard T De George, “Business Ethics”, Pearson Education Ltd

Harold Koontz, Heinz Weihrich, “Essentials of Management, An International andLeadership Perspective”, McGraw Hil

Stephen P Robbins, Mary Coutler and Neharika Vohra, “Management”, Pearson PrenticeHall.

3.14Test and Model questions

a) What do you mean by business ethics? Discuss the need and importance of ethical

business conduct.

b) Should a Business be obliged to fulfill the social responsibility? Give your arguments.

What are the key considerations while implementing corporate social responsibility?

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Chapter 4

Planning

Structure:

4.0 Objectives

4.1 Introduction

4.2 Meaning and Definition of planning

4.3 Nature of planning

4.4 Types of business plans

4.5 Planning Process

4.6 Meaning of MBO

4.7 Process of MBO

4.8 Benefits of MBO

4.9 Limitations of MBO

4.10 Summary

4.11 Glossary




4.0 Objectives

After going through this unit, you will understand:

What is managerial planning and why is it important

What are the different types of plans that we make use in the ordinary course of business

The logical steps involved in planning and see how these steps are significant in setting

the objectives and determining the means to achieve these goals.

The emerging concept of management by objectives.

The importance of MBO in the present business scenario.

The limitations of MBO and the ways to overcome them.

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4.1 Introduction

Planning is one of the most important functions of management. It is the prime activity that

initiates the very essence of managerial tasks. It deals with the determination of the future course

of action. Thus, when we talk of planning, we find answers to the basic questions such as what to

do, when to do, how to do and who is to do? Thus, planning involves deciding in advance the

future activities to be performed. In simple words, it is thinking before doing.

4.2 Meaning and Definition of planning

Planning is one of the most important functions of management. It is the prime activity that

initiates the very essence of managerial tasks. It deals with the determination of the future course

of action. Thus, when we talk of planning, we find answers to the basic questions such as what to

do, when to do, how to do and who is to do? Thus, planning involves deciding in advance the

future activities to be performed. In simple words, it is thinking before doing.

In the words of George R. Terry, “If you do not know where you are going, no road will lead you

there. Without the activities determined by planning, there would be nothing to organize, no one

to actuate and no need to control.”

According to Alford and Beatty, “Planning is the thinking process, the organized foresight, the

vision based on facts and experience that is required for intelligent action.”

Theo Haimann defines planning as “Deciding in advance what is to be done. When a manager

plans, he projects a course of action for the future, attempting to achieve a consistent,

coordinated structure of operations aimed at the desired results.

4.3 Nature of planning

Thus, from the above definitions, we are clear that planning is a process of deciding about the

goals which we want to achieve and thus, for achieving those goals we have to decide the best

course of action from amongst the alternatives available. So, we can describe the nature of

planning as follows:

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Primary Function: In the previous chapters, we have broadly classified the functions of

management as planning, organizing, directing and controlling. So we can say that at all

managerial levels, planning is the foremost function that a manager has to perform. That

is why it is also sometimes referred to as essence of management.

Focuses on Objectives: Planning involves the various steps in determining the objectives

of the organization. It lays down the various means that we can use in order to achieve

those managerial objectives. Thus, we can say that every plan that we formulate helps in

achievement of our objectives.

Function of all Managers: It is a function that has to be performed by managers at all

levels. The top management however has to devote much more time to planning than the

middle or lower level of management. For instance, the Managing Director or the

President of a company devotes much more time in planning the activities than the

supervisor.

Intellectual Process: We call planning as thinking before doing. Thus planning is a mental

work and involves creative thinking and imagination. When we plan some activities, we

do all our actions as per the plan laid down and not by mere guess work. Thus planning

provides a concrete structure to our thoughts and thus determines the course of action to

be followed depending upon the available information.

Continuous Process: It is rightly said that planning has no end. We do planning in a

continuous manner. For instance, a manager makes new plans and also modifies the old

plans in the light of information received from the persons who are concerned with the

execution of plans. It is therefore, a never ending process.

Dynamic: Planning is a dynamic function of management. With the changes in the

business environment, the business plans and policies are also modified in context of the

diverse scenario. We know that the factors that affect the business are not within the

control of management, necessary changes are made as and when warranted by the

management.

Ensures Efficiency, Economy and Accuracy: One of the pre-requisites of planning is that

the objectives should be achieved but at minimal cost. It should ensure an optimum

utilization of resources by securing efficiency, economy and accuracy in the business

organization.

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Forecasting: Planning is deciding in advance the future course of action. Thus when we

plan, we use different scientific techniques of forecasting so as to predict the future

trends. It is therefore a kind of future picture wherein immediate events are defined with

some distinctness while distant events appear gradually less distinct.

Planning and Linking Factors: Planning aims at deciding future course of action in

advance so as to achieve the desired objectives.


Q1. State whether it is true or false?

a) Planning is concerned with thinking before doing.

b) Planning follows all other functions of management.

c) Planning is a function of top management only.

d) Planning is static.

e) Planning is deciding in advance what to do, when to do, how to do and who is to do.

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4.4 Types of business plans

Plans can be classified as follows:

1. Mission: The Mission or purpose identifies the basic reason/ idea behind setting up an

organization. Every organization in order to be meaningful must have its mission or

purpose which it needs to fulfill. We all know very well about the going concern

concept which states that a business is assumed to go on for an indefinite period of

time. So, this going concern concept will be applicable only if business has a well

identified reason for which it is to survive. In other words, it represents the basic

objective behind setting up an organization and is to be achieved efficiently and

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effectively. We are well aware of this fact that our business exists in a social system.

Now, in every social system, every enterprise has some task assigned to it by the

society. For example, a business is set up with the purpose of production and

distribution of goods and services. Similarly, the purpose of a university is to impart

education and providing related services to the community.

2. Objectives or Goals: We use the terms objectives or goals interchangeably. These are

the ends towards which the activity is aimed. They represent not only the end point of

planning, but also the end towards which the various functions of organizing, staffing,

leading and controlling are directed.

3. Strategies: For years, the term strategy has been used by militants and meant grand

plans made so as to outlay the enemy in the battlefield. Thus, in business, by strategy,

we mean a plan made in the light of plans by the competitors. As a business planner,

we must see the plans and policies of our competitors and then modify our plans so as

to prove the superiority of our products and services. McFarland defines a strategy as

“An executive behavior whose purpose is to achieve success for the company or

personal goals in a competitive environment, based on the actual or profitable actions

of the others.” Thus, we can also say that strategies denote a general programme of

action and an assignment of importance and resources towards the attainment of

comprehensive objectives.

4. Policies: Policies provide us a guide to action. When we set the objectives, we

determine the targets that we want to achieve. Now, in order to achieve those

objectives, we need to decide the activities to be performed. This decision is taken with

the help of policies. Policies guide us how to reach our goals and achieve our targets. It

is a general statement that guides our thinking, decision making and action in an

organization. Policies define an area within which a decision is to be made and ensure

that the decision will be consistent with and contribute to an objective. The policies

thus decide the limits within which management can take decisions. It is a statement

which guides an organization to deal with a particular situation in a particular manner.

For example, the recruitment policy of an organization may specify about the fresh

recruitments to be made through the employment exchange only. Similarly, we may

develop promotion policy also for our employees that lay down that the employees will

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be promoted on the basis of merit or seniority. Policies therefore help us to resolve the

issues before they become problems make it unnecessary to analyze the same situation

every time it comes up and unify other plans, thus permitting managers to delegate

authority and still maintain control over what their subordinates do.

5. Procedures: Procedures are the plans that establish a required method of handling

future activities. They are chronological sequences of required actions. They are guides

to action, rather than to thinking and they deal the exact manner in which certain

activities must be accomplished. Procedures are also plans but they are more specific

and show the sequence of definite acts. In simple words, procedures specify the route

or path towards our objectives.

6. Programs: Program is a sequence of activities undertaken for implementing the policies

and achieving the objectives of a business concern. It comprises of various small plans

that together contribute in the accomplishment of overall objectives. Programs are a

complex of goals, policies, procedures, rules, steps to be taken, resources to be

employed and other elements necessary to carry out a given course of action. For

instance, there may be a program to increase the sales by 25%. In order to accomplish

this program, many small plans may be made to increase the sales, for example;

advertisement, salesmen, direct mailing etc.

7. Budgets: A budget is a plan in which estimated results are shown in a quantitative

monetary form i.e. revenue and costs. Thus, it is a statement of expected results

expressed in numerical terms. We generally call financial operating budget as a “profit

plan”. It is a tool of control in the sense that we take corrective action immediately if

any deviations are detected. A budget quantifies the plan and lays down the targets

towards which actual operations are directed.

8. Rules: A rule is a specific action to be taken or not to be taken with respect to situation.

“Rules spell out either specific required action or no action, allowing no discretion.”

For example: ‘No Smoking’ is a rule which allows no discretion or deviation on the

part of anybody in the organization.


Q1. Take up an organization you know and identify its purpose or mission, even if it is not

formally stated by the enterprise.

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Q2. A phrase that announces where your company wants to go or a broad picture of what you

you’re your company to become is ______________?

a) Vision statement

b) Income statement

c) Values statement

d) Mission statement

Q3. __________ lays out how you intend to carry out your business plan. It points out proposed

changes in management or organization.

a) Balance sheet

b) Mission statement

c) Vision statement

d) Action plan

Q4. A page in length; the whole plan summarized to point out key ideas covered:

a) Executive summary

b) Income statement

c) Balance sheet

d) Mission statement

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4.5 Planning Process

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As we know that every business has its own philosophy for its functioning. So, we have to give

due consideration to the constraints for our business while chalking out the business plans. In

order to work for a systematic planning, we have to follow certain steps that assist in

accomplishing the goals in an effective manner. Let’s discuss these steps in detail:

1. Being Aware of Opportunities: An awareness of the opportunities in both internal as well

as external environment is the real starting point for planning. All the managers should

take a preliminary look at the possible future opportunities and see them clearly and

completely, examine their own strengths and weaknesses, develop an understanding of

the issues to be resolved and the expected gains for the organization. Thus, the planning

process requires a realistic diagnosis of the opportunity situation.

2. Establishing Objectives: The next step in planning process is to set up objectives for the

organization as a whole and for each subordinate work unit. These objectives are to be set

for both long term and short term perspective. Objectives specify the expected results and

thereby indicate the end points of what is to be done, where the primary emphasis is to be

placed and what is to be accomplished with the help of strategies, policies, procedures,

rules, budgets and programmes.

The objectives of an organization give direction to the major plans. These by reflecting

these objectives, define the objective of every major department, which in turn control

the objectives of the subordinate department. In short, we set the objectives in a

hierarchy.

3. Developing Premises: The next logical step in planning is to establish, circulate and

obtain agreement to utilize critical planning premises such as forecasts, applicable basic

policies and existing company plans. These are basically the assumptions on which our

entire planning is based. The golden principle governing the planning premises is “The

more thoroughly individuals charged with planning understand and agree to utilize

consistent planning premises, the more coordinated enterprise planning will be.”

Forecasting is essential in planning as it gives answer to the following questions:

What kinds of markets will be there?

What volume of sales to be achieved?

What prices are to be charged?

What technical developments can take place?

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What costs? What wage rates?

What tax rates and policies?

What policies with respect to dividends?

What political or social environment?

What could be the long term trends?

4. Determining Alternative Courses: The fourth step in planning is to search for and

examine the various alternative courses of action. For example, if we require additional

funds for our company, then we can explore the various sources from which we can raise

the funds such as issue of share capital, raising loans from banks, borrowing from

financial institutions, public deposits etc. All the available courses should be adequately

evaluated to discover the most useful course of action.

5. Evaluating the Alternative Courses: After seeking out alternative courses and examining

their pros and cons, the next important step is to evaluate those alternatives by weighing

them in light of their premises and goals. For instance, we may have one alternative that

may be the most profitable, but may require larger cash outflows and higher risk,

similarly there may be another alternative which may be less profitable but with less risk

as well; another may better suit the company’s long range objectives.

There are so many alternative courses in most situations and so many variables and

limitations to be considered that make evaluation task a bit difficult for the managers. We

need to use appropriate methodology for evaluating these alternatives which involve

statistical tools and operations research. The major factors that are to be kept in mind

while evaluating the alternatives are risk, capital shortage, long range objectives etc.

6. Selecting a Course: Now this is the point where the plan is adopted – the real point of

decision making. When the comparative results of different alternatives are tabulated, the

alternative that seems to be the best is selected. Occasionally, an analysis and evaluation

of alternative courses may reveal that two or more alternatives are advisable and thus a

manager may decide to follow several courses rather than the one best course.

7. Formulating Derivative Plans: When a plan is selected, the next step in the process is to

formulate derivate or subsidiary plans for the accomplishment of master plans. Now at

this stage, we have already decided a master course of action. The basic task which we

have to do now is to develop plans for the different departments in the organization. Each

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departmental head prepares a plan for the departmental activities keeping in line the

primary objectives of the concern. For instance, if a company decides to develop a new

product, by installation of a certain new machine, then the various subsidiary objectives

that could be developed may include; hiring of new employees, procuring requisite funds,

new product advertising, purchase of raw materials etc.

8. Quantifying Plans by Budgeting: After decisions are made and plans are set, the final step

involved, as we indicated in the types of plans, is to quantify them into budgets. The

overall budgets in an organization include the aggregate of income and expenses, with

resultant profit or surplus and the budgets of major balance sheet items such as cash and

capital expenditures. Each department or program of a business can have its own budget

that tie together to form an overall budget. If we do well in setting up budgets, these can

become a means of adding the various plans and set important standards against which

planning process can be measured.

9. Coordination of Short and Long Range Plans: The common mistake that most of the

managers do is to formulate the short-range plans without reference to long-range plans.

A proper integration between the two is very critical element in planning process as there

is no benefit of going for a short-range plan until it contributes to the achievement of

long-range plans. Responsible managers should therefore, continually review and revise

immediate decisions to determine whether they actually contribute to long-range

programmes and subordinate managers should be regularly briefed on a long-range plans

so that they will make decisions consistent with the company’s long-range goals.

10. Controlling the Plans: The last stage in planning is to watch the progress of a plan and

note down its shortcomings and weaknesses. These shortcomings should be corrected

without any delay and all future plans should be designed in light of these drawbacks. So,

we can say that a continuous review of plans helps us in keeping the plans up to date.


Q1. __________________ focuses people on the methods and processes used to attain

results, rather than on results themselves.

a) Management by Objectives (MBO)

b) Single-use plans

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c) Contingency plans

d) Management by means (MBM)

Q2. A blueprint specifying the resource allocations, schedules and other actions necessary for

attaining goals.

a) Planning

b) Plan

c) Goal

d) Mission

Q3. The management function concerned with defining goals for future performance and

how to attain them.

a) Plan

b) Goal

c) Planning

d) Vision

Q4. State whether the following are true or false.

a) Operational plans specify the action steps towards achieving operational goals and

supports tactical activities.

b) Mission statement is an organization’s purpose or reason for existence.

c) Strategic goal represents broad statement of where an organization wants to be in the

future. Pertains to the organization as a whole rather than to specific divisions or

departments.

d) The golden principle governing the planning premises is “The more thoroughly

individuals charged with planning understand and agree to utilize consistent planning

premises, the more coordinated enterprise planning will be.”

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4.6 Meaning of MBO

“Management by objectives works if you know the objectives – Ninety percent of the time you

don’t”.

-Peter F. Drucker

The idea that led to MBO were contributed by Donaldson Brown and Alfred Sloan in 1920’s and

Edward Hagenin in 1930s. Peter Drucker, a renowned management writer introduced the term

MBO in1954 in his book “Practice of Management”. He introduced a chapter “objectives of a

Business” in which he set the objectives of performance and result.

DEFINITIONS

“A Dynamic system which seeks to integrate the company’s need to clarify and achieve profits

and growth goal with managers need to contribute and develop himself”

-Humble

MBO is result centred, non specialist, operational managerial process for effective utilisation of

material, physical and human resources for the organization and organization with the

environment.”

- Chakravarty

MBO – What it is all about?

MBO which is also called as “Management by Results” focuses on the objectives that we set in

management process and lay greater emphasis on the performance improvement in the

organization. MBO thus is basically concerned with the joint participation of subordinates and

superior in the establishment of clear and specific objectives for each individual and unit.

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In other words, MBO is a complex managerial activity that integrates the various key managerial

activities in a systematic manner and the entire process is directed towards the achievement of

organizational as well as individual objectives in an effective and efficient manner.

We may use the following different terms to Denote MBO:

- Accountability management

- Action plan of objectives

- Goals Management

- Improving Business Results

- Improving Management Performance

- Management by objectives and result

- Management by result

- PRIDE :-Performance Results and Individual Development Evolution

Features / Characteristics of MBO: Following are the chief characteristics of MBO:

1. Participation and Interaction: - In MBO, both the superior and subordinates are

required to recognize that they both have to jointly formulate the objectives. They have to

get together, jointly agree and write out the duties and areas of responsibilities in their

respective jobs.

2. Jointly setting Goals:- In MBO, we have to keep this thing in mind that there is a joint

effort on the part of both the superior and the subordinate. The subordinate has to set his

targets and objectives after adequately discussing the activities with the superior. It is to

be noted that here the superior also has to be available to the subordinates for the

execution of the objectives in an effective and efficient manner.

3. Mutually Devise Methodology:- Both Superior and subordinate discuss about the

methodology to be followed in the achievement of objectives and also ascertain if any

sort of training is further needed to improve the skills and knowledge of the employees.

4. Review of the Progress:- In order to exercise complete control over the achievement of

the objectives, it is necessary to review the progress of the personnel at regular time

interval. Thus, what we have to do is to make sure that superior and the subordinates

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meet; evaluate and review the performance results in terms of predetermined goals at a

regular interval.

5. Support from Top Management:- We always acknowledge this fact that superior’s

helping hand remains always extended to the subordinate in his achievement of his goal.

The superior act as a coach and makes available his valuable advice and Guidance to

subordinates.

6. Result oriented MBO: - The process of MBO focuses exclusively on the “Results” and

not the means that we make use of for achieving these results. This is the most significant

aspect of MBO that here a Superior does not pass any judgment on the performance of

his subordinate although he guides the subordinate in attaining his goals.

7. System of Information: - Another important characteristic feature of MBO is that

system of Information must be provided to ensure implementation.

Check your Progress IV:

Q1. Strengths, weaknesses, opportunities and threats

a) Policies

b) SWOT Analysis

c) Rules

d) Strategy

Q2. Business strategies are concerned with the activities of different functional area of the

business.

a) True

b) False

Q3. The philosophy based on converting organizational goals into personal ones.

a) Management by Objectives

b) Planning

c) Management by means

d) strategic management

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Q4. Which of the following is the chief characteristic of management by objectives?

a) Participation and Interaction

b) Mutually Devise Methodology

c) Review of the Progress

d) System of Information

e) All of the above

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4.7 Process of MBO

Let us now discuss the steps involved in management by objectives. The following diagram

clearly illustrates the steps to be followed for implementing management by objectives.

PROCESS OF MBO

Identification of key Result

Determination of Subordinates Objectives

Revision of job Description

Preliminary objective setting

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MBO as a system aims to enhance the commitment and participation of employees in

objective achievement. The various steps involved in it are as follows:

1. Preliminary objective setting: - The very initial task in implementing MBO is the setting

up of objectives. It is because the top management should be very clear in itself about the

purpose, the goals and objectives which its enterprise has to achieve in a given period. There

has to be a hierarchy of objectivities in an organization. The top management is responsible

for pointing out which objectives are primary and secondary and keeping the people aware of

changes which occur from time to time. Certain goals should be scheduled for

accomplishment in a shorter period and other for a much longer period. As one goes down the

line in an organization, the length of time set for accomplishing goals tends to get shorter.

The objectives set should be specific and realistic. These objectives are preliminary and

tentative subject to modifications as the entire chain of verifiable objectives is worked out by

Counseling

Matching Goals and Resource Allocation

Recycling Objectives

Establishing Check Points

Review and appraisal of performance

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the organization. In the setting of objectives, the manager also establishes measures which

will indicate goal accomplishment. While operational objectives must be measurable, many of

the best strategic goals are not reduced to measurement, but to verbal statements of conditions

which would exist if the goal were attainable.

2. Identification of key Result:- The objectives of the enterprise provide a base for

identification of key result areas. The key result areas are the priorities of the enterprise. The

key result areas for an enterprise can be profitability, market share, innovation, development

of the enterprise, labour relations etc. These priorities get changed over time according to

changed circumstances.

3. Determination of Subordinates Objectives: This is a well-known fact that the

accomplishment of the organizational goal is much dependent on the individuals working in

it. Hence, they must be informed regarding objectives, strategies and key result areas. Then,

the mutual consultant on between superior and subordinates leads to formulation of objectives

for subordinates on the following levels.

(a) On departmental level, objectives are set for various departments with reference to

overall objectives.

(b) On individual level, targets for various individual manager working in enterprise are set

according to the targets of the concerned department

4. Revision of job Description:- Under MBO resetting of the individual goals will call for a

revision of the job description of various positions which in turn, will call for the revision of

the whole organizational structure. The organizational chart and manuals will be amended to

depict the changes brought in by the MBO. The job description of various jobs will now

define their objectives, responsibilities and authority. The relationship of one job in the

organization should also be clearly established.

5. Matching Goals and Resource Allocation:- Setting of objectives does not mean anything

in itself unless resources and means to achieve there objectives are also provided. Thus, the

subordinates must be provided necessary tools and materials by the managements, so that they

can achieve their goals effectively and efficiently. The resource allocation should also be

made in consultation with the subordinates. If goals are precisely set, resource requirement

can be precisely measured which will make the resource allocation very easy.

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6. Recycling Objectives:- Goal setting is not only a joint process but also an interaction

which requires recycling because in the goal setting the contribution of subordinates comes

into the picture. Goals are neither move from top to bottom nor from bottom to top. In fact,

there is a degree of recycling. What we do in recycling is, we involve the subordinates at

every level of goal setting and they influence it considerably. Thus people set goals for

themselves which create the feeling of commitment which is necessary for attaining goals.

Odiorne has indicated that “the power of commitment is what makes M.B.O. works, and the

absence of such commitment can cause it to fail”.

7. Establishing Check Points:- MBO ensures that periodic meetings between the manager

and his subordinates are organized so as to discuss the progress toward the accomplishment of

the target of the subordinates. For this the manager must establish check points or standards of

performance for evaluating the progress of the subordinates. The standards should be

specified quantitatively as far as possible and the subordinate must understand them fully.

This practice should be followed by each manager with his subordinate and it should lead to

key result analysis as target or goals are represented in terms of results. The key result

analysis should be reduced to writing. It generally contains the following information:

(i) The overall objectives of the job of the subordinate.

(ii) The key results, he must achieve to fulfil his objectives.

(iii) The long term and short term priorities of tastes he must adhere to.

(iv) The scope and extent of assistance he expects from his superior and related

departmental managers and the assistance he must extend to other departments.

(v) The nature of information and report he will receive to carry out self-evaluation.

(vi) The standards by which his performance will be evaluated.

8. Review and appraisal of performance:- This is the last stage in the process of MBO.

There should be periodic reviews of progress between manager and the subordinates. These

reviews would determine whether the individual is making satisfactory progress. It will also

disclose about the development of any unanticipated problems. It also facilitates the

subordinate to understand the process of MBO in a better manner. It also improves the morale

of subordinates since the manager is showing active interest in the subordinate’s work and

progress. However, the performance appraisal at these intermediate reviews should be

conducted, based upon fair and measurable standards. These reviews will also assist the

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manager and the subordinates to modify either the objectives or the methods, if necessary.

This increases the chances of success in meeting the goals and makes sure that there are no

surpluses at the final appraisal.

9. Counseling:- The performance review is conducted at periodic intervals in the

organization. It helps the subordinates in improving their performance in the future. The

subordinates will come to know about their deficiencies and the superiors can assist the

subordinates in overcoming these deficiencies and work with improved efficiency and

productivity.

Thus, we can conclude from the foregoing discussion that MBO is by nature a future oriented

process and motivates employees to think about the future in terms of “where they are going”.

.


Q1. Define recycling.

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Q2. What is the role of performance appraisal in implementing management by objectives?

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4.8 Benefits of MBO

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MBO has been one of the most widely practiced managerial approaches due to its various

benefits that we are going discuss as under:

1. Improved Performance:- MBO helps in managing various resources and activities of an

enterprise. This is because when we implement MBO in our organization, the objectives

and expected roles of employees are clarified with their own active participation.

Performance of employees is regularly watched by the superiors on the basis of set

objectives. All this leads to improvement in performance of employees.

2. Clarification of Organizational Action:- The organizational objectives are set and then

we decide with the formulation of departmental objectives. Not only objectives, but

specific key result areas are also identified. Changes in external and internal environment

are properly watched to review the objectives accordingly. Thus, organizational action

becomes more clarified and can be executed in a simplified manner.

3. Team Spirit:- Organizational, departmental and individual goals are set with active

participation of employees of the enterprise. The efforts, interests and actions are

properly integrated. A team spirit is fostered to remove the differences between superior

and subordinates. Hence, actions of all individuals are coordinated through team spirit.

4. Maximum Utilization of Human Resources:- Since the goals are set in consultation

with the subordinates, these are easy to be targeted. This is because when goals are set by

the superior himself, then there might be issues with respect to the accomplishment of

these objectives by the subordinates in terms of the skills and efficiency required. In

addition, since these goals are fixed according to the particular abilities of the

subordinates it obtains maximum contribution from them, and thus it leads to maximum

utilization of human resources.

5. Better Decision:- We know that the system of MBO involves active interaction,

discussion and participation of superior and subordinates. In this healthy environment,

better decisions are taken by them after considering the various resources available with

the organization.

6. Basis for Organizational Change:- Through MBO, the execution of change process

becomes easier. Since all individuals are well informed about goals and environmental

changes, they become more innovative and dynamic and show less resistance to change.

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7. Effective Controls and Appraisal:- M.B.O. not only ensures effective planning but also

aids in developing effective controls. M.B.O besides providing clarity as what one is

expected to achieve, also provides the measurement criteria to judge where one stands.

More organizations are moving toward appraisal of objectives and results rather that

traits.

8. Improved Communication:- In MBO, there is improved communication between the

management and the subordinates. This continuous two way communication helps in

clarifying any ambiguities, refining and modifying any processes or any aspect of

objectives.

9. No Role Ambiguity:- As we have already discussed earlier that we set our targets and

objectives jointly, so there is no role ambiguity or confusion in the organization. All the

employees have a clear picture of what goals are set for the organization, for the division

for the department and for the individual members. Both the managers and the

subordinates know what they have to do and what is expected of them.

10. Motivation:- M.B.O provides an opportunity to individuals in the organization to

participate in goal determination. This surely encourages them to achieve those goals

also. Moreover, people are recognized and rewarded who have shown better

performance. This type of climate motivates the individuals to show their skill or

potential to achieve targets.

11. Career Development of the Employees:- MBO provides a realistic means of analyzing

training needs and opportunities for growth of the employees. The management takes

keen interest in the development of skills and abilities of subordinates and provides an

opportunity for strengthening those areas which need further refinement, thus, leading to

career development of employees.

12. Result Based Performance Evaluation:- The system of periodic performance

evaluation lets the subordinates know how well they are doing. In MBO strong emphasis

is put on measurable and quantifiable objectives. As s result, the appraisal tends to be

more objectives, specific and equitable. As these appraisal methods are “based on result

and not on some intangible characteristics.These are considered to be superior to the trait

evaluation methods of appraisal

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4.9 Limitations of MBO

M.B.O is not free from limitation or weaknesses. Some problems are inherent in the system

while others arise due to wrong implementation. The common problems are:

1. Lack of Support of Top Management:- In traditional organization, we experience that

the authority is vested in the top management and it flows from top to bottom. In MBO

subordinates are given an equal opportunity of participation, which is resented by the top

management. The full support of top management is one of the basic requirements for the

successful implementation of this system.

2. Resentful Attitude of subordinates:- The subordinates can also be annoyed by the

system of MBO. Sometimes, while setting the goals, they may be under the pressure to

get along with the management and the objectives which are set may be unrealistically

high or far too rigid. The subordinates generally feel suspicious of the management and

believe that MBO is another false play of the management to make them work harder and

become more dedicated and involved.

3. Failure to teach the philosophy of M.B.O:- Many managers fail to understand this new

philosophy of managing the organization. They have many doubts in their mind such as

what MBO is, how it works, why it is adopted, how it can improve performance, what

benefits it can provide, etc. So, it becomes essential for the management to guide the

employees about the concept of MBO and then implement the entire system so as to

ensure its successful implementation.

4. Difficulties in Quantifying the Goals and Objectives:- The MBO will be successful

only if the goals can be set in quantifiable terms. But if the areas are difficult to quantify

and difficult to evaluate, it will not be possible to judge the performance of the

employees. Moreover, MBO does not have any subjectivity in performance appraisal. It

rewards only productivity without giving any consideration to the creativity of the

employees.

5. Emphasis on Short run objectives:- Another limitation of MBO is that it takes into

account both long term as well as short term objectives. What the problem that we have

to face while its implementation is that sometimes in the organization more emphasis is

laid on short term objectives at the cost of long term objectives. This may lead to

incompatibility between long term and short run objectives.

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6. Time consuming techniques:- We have studied that MBO is a system and has to be

implemented in different stages, which makes it a time consuming process. Before

implementation of M.B.O Concept, a lot of time is spent on teaching the basic

philosophy, its application and its benefits etc. to the employees. Moreover, time is also

consumed in setting the objectives at various levels of management and the performance

appraisal of various departments. Hence it is a very time consuming technique.

7. Pressure on the employees:- Although the employees are given chance to fix the

objectives but in reality, they may not be in a position to express their views freely. Many

a times, they have to give their consent regarding objectives under pressure in the group

meeting. Moreover, they are under pressure to achieve goals within a specified time. This

may result in resentment on the part of employees.

8. Lack of adequate Skills and Training: - It has to be kept in mind that for implementing

MBO, one must be adequately trained and skilled in this context. Most of the managers

lack adequate skills, knowledge and training required in interpersonal interaction which is

required in the MBO. Many managers tend to sit down with the subordinate, formulate

the goals and targets with no input permitted from the subordinates and then demand that

the goals be achieved in a specified time. Thus, they oversee the fact the goals should be

realistic and must be such that are in line with the organizational objectives and be easily

achieved. In this type of environment, two way communication does not take place and

objectives are imposed on the subordinates. This destroys their morale, initiative and

performance.

9. Poor Integration:- Generally, the integration of the MBO with the other system such as

forecasting and budgeting is very poor. This lack of integration makes the overall

functioning of the system very poor.

10. Inflexibility:- In the present dynamic world, condition change frequently; therefore a

particular objective may not be valid forever. But it is not possible to change the

objectives frequently and it is also useless to follow the old objective, which has lost its

relevance in the changed circumstances.

11. Not a substitute for Success: - Many people refer it as a sure short for success. But it is

no substitute for success. This approach in itself will not serve the purpose until its

essence is not understood and will executed.

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12. Limited Application: - MBO is useful largely for the managerial and professional

employees. It is not appropriate for all levels and for everyone because of the heavy

demands made by it. It can be made applicable only when both the subordinates and

managers feel comfortable with it and are willing to participate in it.

13. Long Gestation Period:- It takes a lot of time, sometimes 3-5 years to implement the

MBO programme properly and fully and some research studies have shown that these

programmers can lose their impact and potency as a motivating force over a long period

of time.

14. Lack of Follow Up: Under the system of MBO, the superior must get in touch with the

subordinate at the appropriate time and at that time, the subordinate will inform the boss

exactly what has been accomplished and how. If the superior delays the meeting, it will

create hurdles in the successful implementation of MBO as the subordinate will also start

taking the programme casually.

The above given problems can be overcome by implementing the MBO system properly.

4.10 How to Improve Effectiveness of MBO

1. Support of top management:- It is pertinent to get top management support and

commitment. Without this commitment, MBO can never really succeed. The top managers

and their subordinates should all consider themselves as players of the same team. This

means that the supervisors must be willing to relinquish and share the necessary authority

with their sbordinates.

2. Objectives should be realistic and achievable: - The objectives should be crystal clear,

realistic and achievable. For example, it is not realistic for the R&D department of an

enterprise to set a goal of, say 30 inventions per year. Moreover, these goals should be set

with the active participation of the subordinates. These must be properly communicated,

clearly understood and accepted by all.

3. Participative goal setting: - The objectives and goals should be set with the active

participation of the subordinates. There should be effective two way communication between

the superior and the subordinate for setting the goals and for discussing the subordinate’s

problems. These objectives must be properly communicated and clearly understood and

accepted by all. MBO works best when the goals are willingly accepted.

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4. Overall Philosophy of Management: - For the successful implementation of MBO in an

organization, it is essential that it should be treated as the overall philosophy of the

management. It should not be simply performance appraisal technique or a divisional

process. It should change and replace all the old systems rather than just being added to them.

5. Decentralization of Authority: - MBO will not be effective if the manager is not willing to

delegate sufficient authority to the subordinates. The subordinates who have been given

challenging assignments through discussion with the superior must be given adequate

authority to accomplish their goals, otherwise they will not be willing to accept new

assignments and they will resist the setting of clearly defined goals.

6. Revision and Modification Goals: - We know that change is the law of nature. So, keeping

in view the dynamic work environment, the goals and objectives of the organization should

be duly revised. The review technique should be such that all deviations are caught early and

corrected.

7. Orientation and training of Executives:- As the philosophy of MBO is to be implemented

by the executives, they must be given formal training in understanding the basis as will as the

contents of the programme. They must be adequately oriented about the value of MBO. They

should be trained in how to set the goals, the methods and tools to achieve these goals,

methods of reviews and evaluation of performance and provision to include and feed back

that may be given.

8. Integration of MBO Programme: - MBO cannot be implemented in isolation. It should be

accepted as a style of managing and should be synthesized with the organizational climate.

All personnel involved should have a clear understanding of their role, authority and their

expectations. The system should be absorbed wholly by all departments and members of the

organization.

4.11 Summary

Thus, we have learnt that planning is one of the most important functions of management. It

is the prime activity that initiates the very essence of managerial tasks. It deals with the

determination of the future course of action. It involves deciding in advance the future

activities to be performed. In simple words, it is thinking before doing. MBO which is also

called as “Management by Results” focuses on the objectives that we set in management

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process and lay greater emphasis on the performance improvement in the organization. MBO

thus is basically concerned with the joint participation of subordinates and superior in the

establishment of clear and specific objectives for each individual and unit.

4.12 Glossary

a) Planning: Deciding in advance the future course of action.

b) Mission: the basic function or task of an enterprise.

c) Objectives: the ends towards which the activities are aimed at.

d) Strategy: plan that sets the basic long term objective and the adoption of the courses of

action for its accomplishment

e) Policies: general statements that guide the thinking process in decision making by

defining the area within which the decision is to be made

f) Procedures: Plans that establish a required method of handling the future course of action.

g) Budget: A statement of expected outcomes expressed in quantitative terms

h) MBO: Management by Objectives; it is a managerial system that integrates key

managerial activities in a systematic manner and is directed towards the achievement of

organizational goals in an effective and efficient manner.


Check your progress I: 1. A) True; b) False; c) False; d) False; e) True

Check your progress II: 1. Base your answer on section 4.5; 2 d; 3 d; 4 a

Check your progress III: 1 a; 2 b; 3c; 4 a) True; b) False; c) True; d) True

Check your progress IV: 1 b; 2 b; 3 a; 4 e

Check your progress V: Base your answer on section 4.8


Essentials of Management by Harold Koontz and Heinz Weihrich, Tata McGraw Hill

Stephen P. Robbins, Mary Coulter and Neharika Vohra, “Management”, Pearson Prentice

Hall, Tenth edition, 2011

Koontz and Weihrich, “Essentials of Management – An International and Leadership

Perspective", Tata Mc Graw Hill Education Pvt. Ltd., ninth edition, 2012


a) “Planning is looking ahead and control is looking back”. Comment

b) Describe briefly the various steps involved in planning process.

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c) Define planning. What are the different types of plans?

d) What is Management by Objectives? Discuss the various steps involved in management

by objectives.

e) Discuss the advantages and disadvantages of management by objectives. Can the

disadvantages be eliminated or reduced? If yes, how?

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Chapter 5

Strategic Management

Structure:

5.0 Objectives

5.1 Introduction

5.2 What is a strategy

5.3 Concept of Strategic Management

5.4 Nature of Strategic Management

5.5 Objectives of Strategic Management

5.6 Process of Strategic Management

5.7 Kinds of Strategies

5.8 Summary

5.9 Glossary

5.10 Answers to Check your progress



5.0 Objectives

After going through this chapter, you will be able to:

Understand the concept of strategic management

Describe the nature of strategic management

Identify the objectives of formulating strategies

Explain the process of strategic management

Understand the different kinds of strategies

5.1 Introduction

With the Liberalization, Privatization and globalization policy in 1991, the concept of

strategic management has emerged in the Indian corporate sector. The various other terms

that we make use of for this concept are: Business Policy, Corporate Strategy and Corporate

Planning. Managers at all companies face three central questions in thinking strategically

about their company’s present circumstances and prospects: Where are we now? —concerns

the ins and outs of the company’s present situation — its market standing, how appealing its

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products or services are to customers, the competitive pressures it confronts, its strengths

and weaknesses, and its current performance — Where do we want to go? — deals with the

direction in which management believes the company should be headed in terms of growing

the business and strengthening the company’s market standing and financial performance in

the years ahead — How will we get there? — Concerns crafting and executing a strategy to

get the company from where it is to where it wants to go.

5.2 What is a strategy

The word strategy is used popularly in armed forces in order to formulate a plan of action so

as to defeat the possible moves, actions and reactions of the enemy. In case of business, the

strategy is formulated by the business concerns for meeting the offensive moves of the rival

concerns. We often see pepsi and Coca-Cola companies resorting to different strategies in the

light of the strategic actions of each other. The following definitions will make the concept of

strategy more clear.

“A strategy is a unified, comprehensive and integrated plan relating the strategic advantages

of the firm to the challenges of the environment. It is designed to ensure that the basic

objectives of the business are achieved.” - Glueck W.F.

Thus, strategy is important because it makes possible the implementation of policies and long

range plans for attaining company goals, creation of effective business strategy requires a

basic knowledge of economic theory, management principles, accounting, statistics, finance

and administrative practice.

In 1988, Henry MIntzberg described the many different definitions and perspectives on

strategy reflected in both academic research and in practice. He examined the strategic

process and concluded it was much more fluid and unpredictable than people had thought.

Because of this, he could not point to one process that could be called strategic planning.

Instead Mintzberg concludes that there are five types of strategies:

Strategy as plan – a directed course of action to achieve an intended set of goals; similar

to the strategic planning concept;

Strategy as pattern – a consistent pattern of past behavior, with a strategy realized over

time rather than planned or intended. Where the realized pattern was different from the

intent, he referred to the strategy as emergent;

Strategy as position – locating brands, products, or companies within the market, based

on the conceptual framework of consumers or other stakeholders; a strategy determined

primarily by factors outside the firm;

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Strategy as play – a specific maneuver intended to outwit a competitor; and

Strategy as perspective – executing strategy based on a "theory of the business" or natural

extension of the mindset or ideological perspective of the organization.

5.3 Concept of Strategic Management

Strategic management refers to all those steps or measures that are undertaken by the

business houses so as to survive in the competitive environment. A strategy is needed only

for competitors. The concept of corporate strategy thus implies attempt to alter companies

policies in relation to that of its competitors.

Thus, in the present business scenario that is full of many complexities and challenges, the

success of its operations depends upon the various strategies it adopts. The growth and

development of the business in today’s world depends upon the effective implementation of

strategic management.

“Strategic management is the formulation and implementation of plan and carrying out of

activities relating to the matters which are of vital, persuasive or continuing importance to the

total organization.” -Arthur Sharplin

“Strategic management is a set of decisions and actions which lead to the development of an

effective strategy or strategies to help achieve corporate objectives.” - Glueck W.F.

Check your Progress I:

Q1. Strategy as a _______________ refers to a directed course of action to achieve an

intended set of goals; similar to the strategic planning concept

a) Plan

b) Position

c) Pattern

d) Play

Q2. Strategic management refers to all those steps or measures that are undertaken by the

business houses so as to survive in the ___________ environment.

a) Competitive

b) Political

c) Social

d) Economic

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Q3. The five types of strategies are proposed by which of the following management

practitioner?

a) FW Taylor

b) Henry Mintzberg

c) Pattern

d) Play

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5.4 Nature of Strategic Management

More and more organizations are using strategic management because of the following key

components of the nature of strategic management:

Increasing rate of changes: The environment in which business operates is changing

rapidly. In order to survive in the dynamic business environment, a business has to

keep its policies and strategies up to date. Thus, a. effective strategy helps in

maximizing the profitability of the concern.

Higher Motivation of Employees: The foundation of the process of strategic

management is the formulation part i.e. we have to plan our activities. Thus, we

assign the clear cut duties to our work force with respect to what is to be done, how it

is to be done and who is to do. When we follow strategic management in our

organization, we can see that our employees become loyal, sincere and goal oriented

and their efficiency is also increased.

Strategic decision making: Under strategic planning, the first and the foremost step is

to set up the objectives of the concern. Strategic decisions taken under strategic

management are helpful in smooth and efficient working of the organization.

Optimization of profits: An effective strategy should develop from policies of a

concern, and takes into due consideration the actions of the competitors. It considers

future operations in respect of market area and opportunity, executive competence,

available resources and limitations imposed by the government. An effective strategy

should optimize profits over the long run.

5.5 Objectives of Strategic Management

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More and more organizations are concentrating on strategic management because of the

following reasons –

1. Increasing rate of changes -: The environment in which the business operates is fast

changing. A business concern which does not keep its policies up to date, cannot

survive for a long time in the market. In turn, the effective strategy optimizes profits

for a long time.

2. Higher motivation of employees-: The employees are assigned clear cut duties by the

top management viz. what is to be done, who is to do it, how to do it and when to do

it. When strategic management is followed in any organization, employees become

loyal, sincere and goal oriented and their efficiency is also increased. They also get

rewards and promotions resulting in higher motivation for the employees. A strategy

must respect human values and duly consider the aspirations of individual members.

3. Strategic decision-making-: Under strategic planning, the first step is to set the goals

or objectives of a business concern. Strategic decisions taken under strategic

management help the smooth sailing of an enterprise. Strategic planning is the overall

planning of operations for effective implementation of policies.

4. Optimization of profits -: An effective strategy should develop from policies of a

concern. It takes into account actions of competitors. It considers future operations in

respect of market area and opportunity, executive competence, available resources

and limitations imposed by the government. An effective strategy should optimize

profits over the long run.

5. Miscellaneous -: Mr. H.N. Broom in his book on “business policy and strategic

action” has mentioned that a strategy has a primary concern with the following :

a) Marketing opportunity: products, prices, sales potential and sales promotion.

b) Available distribution channel and costs.

c) The scale of company operations.

d) The manufacturing process required to implement their scale of operations

(with an optimal production cost).

e) The research and innovation programme.

f) The type of organization.

g) The amounts and proportions of equity and credit capital available to the firm

and their combined adequacy.

h) The planned rate of growth.

Check your Progress II:

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Q1. Why should a company implement the system of strategic management

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5.6 Process of Strategic Management

The strategic management covers the following four steps:

1. Identification of Business objectives and purposes.

2. Formulation of strategies.

3. Implementation of strategies.

4. Evaluation of strategies.

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IDENTIFICATION OF BUSINESS OBJECTIVES AND PURPOSES:

The corporate objectives signify the final end result which is to be attained over a

period of time. A strategy is a means to achieve the objectives. Generally, the words purpose

and mission are used interchangeably. However these terms have different meanings in

management. Corporate purpose gives a clear picture of what the company is about and what

it wants to achieve in future. It is a statement of the principal line of business which it wants

to pursue. Corporate missions explain the scope of business in terms of product and market.

Objectives on the other hand define the direction to achieve the mission.

The mission of Fertilizer Company may be mentioned as to fight world hunger and

the objective may be mentioned as to increase the agricultural productivity through

development, efficient production of improved fertilizer, generate profits to finance R&D and

to ensure satisfactory returns on investment.

FORMULATION OF STRATEGIES:

In strategy formulation, a firm must be aware of its strength, weaknesses,

opportunities and threats. SWAT Analysis focus attention on these four variables viz.

strength, weaknesses, opportunities and threats. The first two are internal whereas the last two

are external to an organization.

a. Strength: - The strong points of an organization are referred to as its strength. Trained

and efficient personnel, quality products, reasonable price, strong financial position,

identification ofbusiness

objectives andpurposes

formulationn ofstrategies

implementationof strategies

evaluation ofstrategies

Process of Strategic Management

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efficient marketing networks, well organized R&D department etc. are its strength.

An organization should try to mass up its strength.

b. Weaknesses: - Every organization suffers from certain points such as obsolete or old

machinery, inefficient management, weak financial position, large span of control,

poor quality of products etc. An effort must be made quickly by the management to

overcome or minimize the weaknesses.

c. Opportunities: - Opportunities are entirely external in the business environment.

Opportunities do not come every time and the management must exploit them to

make profit without delay. Opportunities arise from government policies relating to

tax, exports, duty drawbacks, import substitution etc. An organization should

immediately try to take advantage of such opportunities by diversifying its activities.

It is a alertness of the top management to judge the available opportunities and take

advantage of them without delay. Economic liberalization in India has opened up

many new opportunities in many areas of business operations.

d. Threats: - These are also external to an organization like opportunities. It is right to

say that liberalization in India has opened up many new areas but it has also brought

with it many threats to existing business units. A number of companies have made an

exit from the business world in India. An efficient top management can forsee such

threats well in advance and devise strategies and tactics to meet them. The various

threats to an existing business include competition from other companies, changes in

demand, changes in government policies, strikes etc.

If the product of a company has become obsolete on account of arrival of new

product, it must come out with an alternative product otherwise its survival in the

business will be difficult.

Check your Progress III:

Suppose you are Managing Director of ABC Ltd. As you are planning to implement the

strategic management in your organization, you are required to do a SWOT analysis so as to

find out the key considerations before its implementation. Outline the findings of SWOT

analysis.

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IMPLEMENTATION OF STRATEGIES:

This involves a number of administrative and operational decisions. The following are the

three important components of the strategy:

1. Resource Implementation

2. Organizational Implementation

3. Functional policy Implementation

1. RESOURCE IMPLEMENTATION: - In order to effectively implement a strategy, all

available resources viz. human, financial, material, technological etc. must be made

available. There must be right men at the top and responsible positions. Such human

resources must possess required qualities, skills, talents. The top management must act

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objectively i.e. without bias or prejudices in making the resources available at the right time.

The job of strategic management is mainly confined to three operational areas viz. physical,

financial and human resources. Unless the resources required are made available, no

business strategic plans can be put into action.

DIFFICULTIES IN RESOURCE ALLOCATION

The following problems are generally faced by the top management:

A. Scarcity of Resources: - All resources may not be always available. Even if available, the

resources may be very costly.

B. Important Restriction: - In order to procure machinery and plant from foreign country,

there may be restrictions relating to either foreign exchange or any other reason best

known to the government.

C. Human Resources: - The working of an organization depends not nearly on the quantity of

human resources but their quality. If human resources have professional skill and

experience, they can give much more return then the cost incurred in procuring such

resources.

2. ORGANISATIONAL IMPLEMENTATION: - A suitable organization in necessary for

effective implementation of a strategy. According to Mc Kinsey,” Neither strategy nor

structure can be determined independently of the other…..strategy can rarely succeed

without an appropriate structure. In almost every kind of large scale enterprise, examples

can be found where well-conceived strategic plans were thwarted by an organization

structure that delayed the execution of the plans or gave priority to the wrong set of

considerations. Good structure is inseparably linked to the strategy.”

In order to implement a strategy, the organization structure may have to be changed.

In India, a number of companies have changed their organizational structure.

3. FUNCTIONAL POLICY IMPLEMENTATION: - Formulation of policies is essential for

effective implementation of strategy. A policy is considered to be a guideline for action. It

channelizes organizational efforts in a pre-determined direction and leads to the achievement

of goals.

According to Glueck,” The critical element, the major analytical exercise involved in

policy making, is the ability to factor the grand strategy into policies that are compatible,

workable. It is not enough for managers to decide to change the strategy. What comes next is

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at least as important. How do we get there, whom and hoe efficiently? This is a manager does

by preparing policies to implement the grand strategy.”

The various policies in a business can be classified as follows:

1. Corporate Policies

2. Divisional Policies

3. Departmental Policies

The Business policy affects the success of the business to a great extent. The senior

managers who are primarily concerned with long term decisions usually carry the

designations such as chief executive, president, general manager or executive director.

Policies make clear what and how everybody is expected to do his work and promote

delegation of decision-making to the managerial level.

4. VALUATION OF STRATEGIES: - The last phase of strategic management is valuation and

control. In business, conditions often change resulting in the need of evaluation of existing

strategies and planning the new ones to take advantage of changing conditions. According to

Arthur Sharplin,” The purpose of strategic management evaluation is to monitor and

evaluate progress towards organization’s objectives and to guide or correct the process or

change the strategic plan to better accord with current conditions and purposes.”

Thus the evaluation of strategies is undertaken to measure the success of strategies

employed to realize the main objective of an enterprise. The need for evaluation of strategies

arises on account of following reason:

a. It is necessary to keep proper control on performance.

b. It provides a feedback of strategic policy followed earlier.

c. Such an evaluation is necessary for motivation of employees. The promotion or

demotion or rewards are based on the evaluation of policies.

d. Whether the decisions taken by the managers at various levels are in tune with the

strategic management can only be known by strategic evaluation.

e. Management gets valuable information as a result of such evaluation.

The evaluation process consists of the following:

i. Fixing Standards

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ii. Measuring performance

iii. Analyzing variations

iv. Taking corrective actions

i. FIXING STANDARDS: any basis used for comparisons in evaluation is known as

standard. According to Arthur Sharplin” in essence, the strategy evaluation process is

simply a matter of comparing an existing strategy with the best alternative and

deciding whether and to what degree the strategy should be changed.”

Standards may be fixed on the basis of:

a) QUANTITATIVE CRITERIA i.e. the performance of a business enterprise

may be compared with its past performance or with the industry or

competitors etc. and standards fixed accordingly.

b) Qualitative criteria i.e. the subjective evaluation in the different areas such as

ability of managers, risk taking capacity or clarity of strategies etc. may be

taken as a standard.

ii. MEASURING PERFORMANCE: The measurement of performance evaluation

becomes very easy when standards are fixed in advance and adequate techniques of

measurement are evolved. Timing and period of evaluation is very important for

measuring performance. In case the evaluation is delayed, the purpose of evaluation is

forfeited.

iii. ANALYSING VARIANCES: Variance refers to the difference between the actual

performances of that unit. If the performance is better as compared to the planned one,

the variance is positive and every management will welcome it. However if the actual

performance is below the expected performance, the ,management should find out the

reasons and analyse them for negative variance

iv. TAKING CORRECTIVE ACTION: This is the last step in the evaluation. The

standards already set may be checked and required by management. Certain corrective

steps may be taken to reformulate strategic plans and objectives.

5.7 Kinds of Strategies

As we have studied in the process of strategic management, we need to set up strategies for

all the levels of management. The management team has to develop and evaluate the

alternative strategies and then select the one that is compatible at all levels. The strategy must

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be such as to allow the organization to best capitalize on its resources and the available

opportunities. According to the applicability in the current business scenario, we have four

Grand strategies for an organization. Let us discuss them in detail.

1. Growth Strategy: The management with the belief that bigger is better, it chooses this

strategy. A growth strategy is one in which an organization attempts to increase the

level of the organization’s operations. Growth can take the form of increased sales,

higher sales revenues, large workforce or a large market share. Many growth

organizations achieve this objective through direct expansion, new product

development, improvement in the quality or by diversifying or merging with or

acquiring other firms. The prominent examples include NIIT which use franchising

opportunities to promote their growth strategies.

2. Stability Strategy: A stability strategy is best known for what it is not i.e. it is

characterized by an absence of significant changes. With the help of this strategy, an

organization continues to serve its same market and its customers while maintaining

its market share. Now the question that comes to your mind is when this strategy is

most appropriate? The answer to this question is dependent upon the existence of

several conditions; a stable and unchanging environment, satisfactory organizational

performance, a presence of valuable strengths and absence of critical weaknesses and

non-significant opportunities and threats. We can see that some organizations have

successfully employed a stability strategy, while the others have not. The reason

behind this is that no change means no news. Another might be the company itself

wants to keep a low profile; stakeholders may consider status quo to be inappropriate,

or the strategy may be an indication of rigidity of the planning process. Nonetheless,

company such as BATA India uses this strategy very well. We have seen that BATA

has not moved far from its footwear emphasis. The company has not demonstrated a

desire to diversify into other apparels as have some of its competitors.

3. Retrenchment Strategy: With the technological advancements, global competition and

other environmental changes, the mergers and acquisitions based upon growth and

stability strategies are no longer viable for some companies. Instead, organizations

such as SEARS, AT&T, General Motors, Apple computer in US as well as TISCO,

SAIL, Bajaj Auto and Mahindra & Mahindra in India have had to pursue a

retrenchment strategy. This strategy is characteristic of an organization that reduces

its size or sells off less profitable product lines

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4. Combination Strategy: Combination Strategy is the simultaneous pursuit of two or

more of the strategies that we have described above; i.e. one part of the organization

may be pursuing a growth strategy while another is retrenching. When L&T sold off

its cement division to Kumar Managalam, Birla’s Grasim Industries, it had followed a

combination strategy. By selling its division, L&T concentrated on its growth strategy

of its core engineering business.

Check your Progress IV:

Q. Which of the following statement best relates with the following key issues:

1.

How well does the strategy fit the company's situation?

Is the strategy helping the company achieve a sustainable competitive advantage?

Is the strategy resulting in better company performance?

a) The best indicators of a company’s strategies

b) Companies already in a strong industry position are more prone to strategies

c) Additional criteria for judging the merits of a particular strategy

c) 3 questions that can be sued to distinguish a winning strategy from a so-so or flawed

strategy

2.

How management intends to grow the business

How it will build a loyal clientele and outcompete rivals

How each functional piece of the business will be operated

How performance will be boosted

a) A company's strategy is all about how:

b) A company's strategy is shaped partly by

c) A company's business model explains:

d) A strategy focused enterprise is more:

3. Risk-averse companies often prefer: likely to be a strong bottom-line performer than a

company whose management team does not take its strategy making responsibilities

seriously.

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a) True

b) False

4. The best indicators of a company's strategy are: → "conservative strategies"

a) True

b) False

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What Makes a Strategy a Winner?

1. Three questions can be used to test the merits of one strategy versus another and

distinguish a winning strategy from a losing or mediocre strategy:

a. How well does the strategy fit the company’s situation?

i. To qualify as a winner, a strategy has to be well matched to industry and

competitive conditions, a company’s best market opportunities, and other

aspects of the enterprise’s external environment. Unless a strategy exhibits a

tight ft with both the external and internal aspects of a company’s overall

situation, it is likely to produce less than the best possible business results.

b. Is the strategy helping the company achieve a sustainable competitive advantage?

i. The bigger and more durable the competitive edge that a strategy helps build,

the more powerful and appealing it is.

c. Is the strategy resulting in better company performance?

i. Two kinds of performance improvements tell the most about the caliber of a

company’s strategy: (1) gains in profitability and financial strength and (2)

gains in the company’s competitive strength and market standing.

2. Strategies that come up short on one or more of the above questions are plainly less

appealing than strategies passing all three test questions with flying colors.

CORE CONCEPT: A winning strategy must fit the enterprise’s external and

internal situation, build sustainable competitive advantage, and improve

company performance.

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3. Other criteria for judging the merits of a particular strategy include internal

consistency and unity among all the pieces of strategy, the degree of risk the strategy

poses as compared to alternative strategies, and the degree to which it is flexible and

adaptable to changing circumstances.

Why are Crafting and Executing Strategy Important?

1. Crafting and executing strategy are top priority managerial tasks for two very big

reasons:

a. There is a compelling need for managers to proactively shape or craft how the

company’s business will be conducted.

b. A strategy-focused organization is more likely to be a strong bottom-line

performer.

A. Good Strategy + Good Strategy Execution = Good Management

1. Crafting and executing strategy are core management functions.

2. Among all the things managers do, nothing affects a company’s ultimate success

or failure more fundamentally than how well its management team charts the

company’s direction, develops competitively effective strategic moves and

business approaches, and pursues what needs to be done internally to produce

good day-to-day strategy execution and operating excellence.

3. Good strategy and good strategy execution are the most trustworthy signs of good

management.

4. The better conceived a company’s strategy and the more competently it is

executed, the more likely it is that the company will be a standout performer in the

marketplace.

5.8 Summary

Thus, we have studied in detail about the emerging concept of strategic management.

Strategy is important because it makes possible the implementation of policies and long range

plans for attaining company goals, creation of effective business strategy requires a basic

knowledge of economic theory, management principles, accounting, statistics, finance and

administrative practice. Thus, in the present business scenario that is full of many

complexities and challenges, the success of its operations depends upon the various strategies

it adopts. The growth and development of the business in today’s world depends upon the

effective implementation of strategic management.

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5.9 Glossary

a) Strategy: An Action plan formulated to defend the possible moves of the competitors.

b) Strategic Management: It refers to all those steps or measures that are undertaken by

the business houses so as to survive in the competitive environment.

c) Mission: It is a statement of the principal line of business which it wants to pursue.

d) Objective: It defines the direction to achieve the mission.

e) SWOT: It is the analysis of Strength, Weakness, Opportunity and Threats of an

organization.

f) Standards: It is the basis used for comparison and evaluation of strategies.


Check your progress I: 1 a; 2 a; 3 b



Check your progress IV: 1 c;2 a; 3 b; 4 b


Fundamentals of Management – Essential Concepts and Applications by Robbins,

DeCenzo, Bhattacharya and Aggarwal, Pearson Education

The Strategy-Focused Organziation: How Balanced Scorecard Companies Thrive in

the New Business Environment by Robert S. Kaplan, Harvard Business Review Press

Strategic Management by John A Pearce II, Tata McGraw Hill

Strategic Management: Concepts (12th Edition) by Fred R David, Prentice Hall


a) Define strategic management. What are its features? Why is it essential to study strategic

management?

b) Describe the strategic management process in detail.

c) What is a strategy? Explain the different types of strategies. How can you select the most

competitive strategy?

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Page 107 of 210

Chapter 6

Decision Making

Structure:

6.0 Objectives

6.1 Introduction

6.2 Types of decisions

6.3 Steps in decision making

6.4 Approaches towards decision making

6.5 Decision making in various conditions

6.6 Decision tree analysis

6.7 Summary

6.8 Glossary




6.0 Objectives:

After going through this unit, you will be able to:

Explain the concept of decision making

Understand the various types of decisions that are taken in the ordinary course of

business.

Describe the process of managerial decision making

Identify the decision making strategies in different situations

Understand the various approaches that we make use while taking decisions

6.2 Introduction:

The decision making is an important job of a manager. Every day he has to decide about

doing or not doing a particular thing. A decision is the selection from among alternatives. “

It is a solution selected after examining several alternatives chosen because the decider

foresees that the course of action he selects will be more than the others to further is goals

and will be accompanied by the fewest possible objectionable consequences.” It is the

selection of one course of the action from two or more alternative course of action.

Definition:

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“A decision is an act of choice wherein an executive forms a conclusion about what must be

done in a given situation. A decision represents a course of behavior chosen from a number

of possible alternatives.” - Mac Farland

“Decision making is the selection based on some criteria from two or more possible

alternatives.” - George Terry

Characteristics: Following are the chief characteristics of decision making process.

1. Decision making is based on rational thinking. The manager tries to foresee various

possible effects of decision before deciding a particular one.

2. It is a process of selecting the best from among alternatives available.

3. It involves the evaluation of various alternatives available .the selection of best

alternative will be made only when pros and cons of all of them are discussed and

evaluated.

4. Decision making is the end result because it is preceded by discussions and

deliberations.

5. Decision making is aimed to achieve organizational goals.

6. It also involves certain commitment. Management is committed to every decision it

takes.

6.3 Types of Decision Making:

Owners / Board of Directors

TacticalDecisions

OperationalDecisions

Managers

Most Employees

Strategic

Decisions

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1. Programmed Decisions- The programmed decisions are of routine nature. These are

for solving day to day and routine problems and are repetitive in nature. The rules and

procedure are described for taking these decisions. These decisions remain consistent

for a relatively longer period of time and over many situations. These decisions are

made for solving both simple and complex problems. The decisions are of routine

nature requiring no judgment.

2. Non -Programmed Decisions – Non-programmed decisions are related to problems

which are unique and no repetitive. These are for solving non repetitive or unique

problems. Every decision will have to be taken separately by analyzing and evaluating

each problem and every decision is different and there is no consistency such

decisions are for solving complex problem and these decisions are judgment in each

case.

3. Strategic decisions- strategic decisions relate to policy matter and need the

development analysis of alternatives. Strategic decisions are taken at top management.

These decisions are important and have long term implications. These decisions are

related to the growth development and profitability of the organization. More

judgment and skills are required for taking these decisions.

4. Tactical decisions-tactical decisions are taken at lower level of managers. These

decisions have short term implications. These decisions are concerned with simple,

routine and repetitive problems. These decisions are taken with reference to

predetermined rules and procedure and require less judgment.

5. Individual decisions- a decisions taken by one person is known as individual

decisions.in a small concern normally the owner take most of the decisions, in a big

concern the routine or simple decisions may be left to particular managers. Such

decisions are generally taken as pre-determined rules and procedure and require

judgmental thinking. All managers, whether at top level or at lower level take

decisions for carrying out their activities?

6. Group decisions-when decisions are taken by two or more persons, these are known

as group decisions. Generally the strategic or others important decisions taken by

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group instead of individual because of risk involved. The decisions of board of

directors or committees come under this category. A decision regarding introducing a

new product etc. may be taken by a group than by individual. These are time

consuming but well discussed decisions are more beneficial for an organization since

they ensure their conformance with the objectives of the concern.


Q1. Factors those are relevant in a decision

a) Decision implementation

b) Heuristics

c) Satisfice

d) Decision criteria

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Q2. Identify two decision problems and recommend programmed and non-programmed

decisions.

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6.4 Steps involved in decisions making

A decision cannot be taken in isolation. We have to undergo a proper process to reach at a

conclusive decision. So let us discuss this in detail. It involves following steps:

1. Defining the problem- The first step is to defining the problem.it is not easy to define

the problem.it should be seen that what is causing the trouble and what will be the

solutions. Before defining the problem the manager has to identify critical or strategic

factor of the problem. Chester Bernard has pointed out that the theory of the strategic

factor is necessary for the appreciation of the decision making process of decision

making. He emphasizes that in decision making the analysis required is actually a

search for the strategic factors.

2. Analysis of problem-after defining the problem, the manager should analyze it. He

should collect all possible information about the problem and decide whether it will

be sufficient to take decision or not. Sometimes it may be costly to get additional

information or further information may not be pssible.in the words of peter drucker,

“to make a sound decisions, it is not necessary to have all facts; but it is not necessary

to know what is information lacking in order to judge how much of risk the decisions

involves, as well as the degree of precision and rigidity that the proposed course of

action can afford. “So whatever the information is available should be used to analyze

the problem.

3. Alternative courses of actions-every problem has No. of solutions. If there is only one

solution then there is no need for decision making. A manager must try to find out

various alternatives in order to get satisfactory results of a decision. It should be kept

in mind that alternative solutions are no guarantee of wisdom or the right decisions.

But at least they prevent one making Wong decision.

4. Evaluation of alternative-after developing various alternatives, the next step is to

evaluate them and select the right one. The desirable and undesirable consequences of

adopting each alternative should be tested. This exercise will enable the manager to

see the risk involved in each course of action. The alternatives should be evaluated in

relation to time and money involved in them. Only that alternative which gives

maximum economy should be selected.

5. Experience-the often repeated proverbs ‘like history repeats itself ‘or ‘experience is

the best teacher ‘provide help in decision making. The past experience acts as a guide.

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The difficulties faced can be well judged in advance. Hence the decision should not

be the same. While relying on experience the condition prevailing in the past, at

present and possible effects in future should be properly considered before making

decisions. The experience is an asset with a manager but it should not be blindly

relied upon.

6. Experimentation-experimentation is used in enquiry. The alternatives are put to actual

practice and one giving better result is selected. Experimentation however is not

possible for the management.it will be costly to put every alternative to practice.

However it may be used in limited way. For example-when a new product is put in

market it can be marked in a limited area to see the reaction of consumers. If the

management want to install a new organizational set up then it may be first apply in a

branch before being used in whole business.it will always be better to take a decision

on the basis of facts, study, analysis of results etc.

7. Taking decisions and follow up-when various alternatives are properly evaluated than

final decision is taken. The decision is communicated to the concern persons for

action.it is not enough to take decision.it should also be seen, whether is properly

implemented or notify it is not then the decision should be reviewed and necessary

changes may be made if required.

The following figure depicts the steps involved in decision making.


Identifythe

decision

GatherInformatio

n

Identifythe

Alternatives

Weigh theEvidence

Choosefrom

Alternatives

TakeAction

Reviewthe

Decision

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Q. State whether the following are true or false?

a) Decision making is a process

b) The process of putting a decision into action is called decision implementation

c) Decision making starts with evaluation of implemented solutions and ends with

identification of problem.

d) Rational decision making is when the decisions are taken within the limits of a manager’s

ability to process information.

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6.5 Approaches towards Decision Making

A manager has to make decisions under different conditions. While taking a decisions how

does a manager perceive the things, how does he react and how does he try to resolve, all this

is human behavior. So let us study the different approaches that we make use of while taking

the decisions. Basically, we have two approaches that explain this phenomenon-:

1. Rational or ‘economic man model’ - The classical approach to decision making in

economies has used the ‘economic man ‘model under condition of uncertainty. The economic

man is completely rational. It states how a manager should behave in the process of decision

making. This approach does not fully apply to practical situations, and has features like-

* Approach is logical and full of reasoning.

* The manager knows the various alternatives available and will be in position to

evaluate them rationally.

*Manager should try to reach goal with positive attitude.

*A manager must have clear understanding of the actions that he is going to perform.

2. Behavior model: ‘Administrative man’. Rationality approach may not always be

applicable in practical situations. Management experts have developed behavioral approach

which is realistic as per the demand of the situation. This approach is pragmatic and holds the

view that the manager is a human being and cannot be fully rational because he is confronted

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on many constraints, problems, limitations. Taking into consideration various factors of real

life decision making, the manager’s rationality is bounded by the following major limitations:

* A manager may not have access to all type of required information.

* There may be a situation where multiple and conflicting objectives may be involved.

* Decisions are made to be implemented on future and the future environment is full of

complexities.

*The problem requiring a solution may be complex and unstructured.

6.6 Decision Making Under Various Conditions

There is a certain risk involved in decision making and the conditions vary from certainty to

complete uncertainty. The strategy of taking decisions under different conditions can vary.

The condition under which decisions are taken as follows-:

1. Certainty

Under the condition of certainty, people are reasonably sure about what will happen when

they take a decision. The required information is available and it is resalable and the cause

and relationship are known. The manager makes decisions under such situation at different

times with the same results. Under such situation is a deterministic model is used, in which

all factors are assumed to be exact with the chance playing on role.

2. Risk

Most of the business decisions are taken under risk conditions. The available information

does not answer overall questions about the outcome of decisions. A manager has to develop

the estimates of the likelihood of the various states of events occurring. The estimates may be

on past experience, other available information.in order to improve decision making under

these conditions, one may estimate the objective probabilities of an outcome by using the

various statistical tools, for.eg. Mathematical models. On the other hand based on judgment

and experience may be used. There is the number of tools which helps the manager in taking

decisions under such conditions.

3. Uncertainty

The decision making under uncertainty is difficult preposition. In an uncertain situation,

people have only a meager database and they do not know whether the data they have is

reliable or not. They cannot evaluate the interactions of the different variables. For example:

If a company wants to enter a foreign market. If may not be sure about the consumer

preferences for the product, economic situation, above all the political conditions. The

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conditions in new market may so fluctuate that proper decision taking become a problem.

The use of various modern techniques may improve the quality of decisions under

uncertainty conditions. The use of risk analysis, decision tree analysis and preference theory

can help in taking proper decision under those situations.

6.7 Decision Tree Analysis

When we talk about decision tree, we analyze a structural format in which the

decisions take place. The decision tree analysis refers to that technique of analysis in

which we take the decisions collectively. In other words, the decision is taken by

number of persons. So, we also term it as group decision analysis. So in order to avoid

the risk in taking important decisions, a number of persons are assigned the work of

making decisions. One person may not be able to able to analyze various aspects of

decisions; instead more persons bring their experience and knowledge together and

suggest a decision.

1

A

C

B

2

Outcome 1

Outcome 2

Outcome 4

Outcome 3

Outcome 5

Outcome 6

Outcome 7

- Uncertainty (external event)- Decision

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Advantages to tree analysis

1. A group of persons have more ideas and information for making decisions than one

person. They can analyze and evaluate the alternative in better manner by considering

various aspects.

2. A decision taken by a group has more acceptability and commitment on the part of

people who take it as their own decision.

3. Interaction among more persons leads to more creativity since they are specialized in

their field.

4. Group decision making also serve as communication function since various aspects of

problems are discussed.

5. Those who are involved in decision making are more satisfied with the decision and

are more likely to support it.

Disadvantages of Tree Analysis

1. Groups are known for wasting more time and energy in coming together.

2. Some members may dominate the discussion and force others to agree to their view

points.

3. It becomes very costly since several persons are participating.

4. In case of disagreement there may be conflicts among members.

5. Delay in making decisions may inhibit management to take decisions when necessary.


Q1. How do situations affect the individuals when they make a decision?

…………………………………………………………………………………………………

……

…………………………………………………………………………………………………

…………….

…………….……………………………………………………………………………….

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Q2. Assume that you are a manager in ABC Ltd. You are faced with the problem of high

labor turnover. How would you resolve this problem and describe the analysis of the situation

in the form of a decision tree.

…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………………………………

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………………………………………………

6.8 Summary

Decision making is the process of selection of a course of action from the different

alternatives available. It is the core of planning. Managers must take the decisions keeping in

mind the different constraints they have to face. We all know that there are many alternatives

available for a course of action. So, as a manager, we have to narrow down them to a few that

are in line with our objectives and hence are evaluated on quantitative and qualitative

grounds.

6.9 Glossary

a) Decision: A decision is the selection from among alternatives.

b) Decision Making: It is the selection based on some criteria from two or more possible

alternatives.

c) Programmed Decisions: Decisions taken for handling routine problems and are

repetitive in nature

d) Non-programmed decisions: These are for solving non repetitive or unique problems

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e) Strategic Decisions: strategic decisions relate to policy matter and need the

development analysis of alternatives

f) Tactical Decisions: These decisions are concerned with simple, routine and repetitive

problems.

g) Economic Man Model: It states how a manager should behave in the process of

decision making.

h) Certainty: people are reasonably sure about what will happen when they take a

decision. The required information is available and it is resalable and the cause and

relationship are known.

i) Risk: The available information does not answer overall questions about the outcome

of decisions. A manager has to develop the estimates of the likelihood of the various

states of events occurring.

j) Uncertainty: In this situation, people have only a meager database and they do not

know whether the data they have is reliable or not.

k) Decision Tree Analysis: The decision tree analysis refers to that technique of analysis

in which we take the decisions collectively.


Check your progress I: 1 a; 2 Base your answer on section 1.3



Check your progress IV: 1 True; 2 True; 3 False; 4 False

Check your progress V: Base your answer on section 6.7


LM Prasad, “Principles and Practices of Management”, Sultan Chand & Sons.

Peter F Drucker, “Tasks, Responsibilities and Practices”, Heinemann.

Fred Luthans, “Introduction to Management”, Tata McGraw Hill Publishing House.

Stephens P. Robbins, David A. DeCenzo, Sanghamitra Bhattacharyya and

Madhushree Nanda Agarwal, “Fundamentals of Management”, Pearson Education

James A. F. Stoner; R. Edward Freeman and Daniel R. Gilbert, “Management”,

Pearson Prentice Hall.


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a) “Decision making is the primary task of a manager”. Critically analyze the statement and

explain the process of decision making.

b) Identify the different types of problems that a manager has to face and describe the types

of decisions to solve them.

c) What do you mean by decision making? What are its characteristics? Discuss in detail the

steps involved in managerial decision making.

d) Critically analyze the distinguishing features of decision-making in modern business

management.

6.12

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Chapter – 7

ORGANIZING

Structure

7.1 Objectives7.2 Introduction7.3 Concept, Definition & Nature of Organizing7.4 Types of Organization7.5 Process of Organization7.6 Organization Structure7.7 Types of Organizational Structure7.8 Basis of Departmentation7.9 Concept of line and staff organisation7.10 Problems of use of staff7.11 Ways to avoid line-staff conflict7.12 Authority7.13 Responsibility & Accounting7.14 Summary7.15 Glossary7.16 Answers to check your progress7.17 References7.18 Suggested Readings7.19 Terminal and Model Questions

___________________________________________________________________7.1 Objectives___________________________________________________________________


Explain the concepts of organization.

Describe the nature of organization.

Classify the types of organization.

Explain the importance of organizing as a function of management.

Learn about the role of authority and power.

___________________________________________________________________7.2 Introduction___________________________________________________________________

Once managers are done planning, then what? In previous unit we discussed

planning function. Now it is the time when managers need to begin to "work the

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plan". In other words, how the objectives determined under planning can be

successfully achieved. The simple solution to achieve the objectives is proper

organization of all the activities and sub-activities and determines the relationship

between those people who are to perform those activities and functions. For

example, in an enterprise under planning it has planned to produce laptops. Now in

order to achieve this objective the main activity (production of laptops) will be sub-

divided into various activities among the sales department, production department,

marketing department, finance department, etc. As we see, in every department

there are different people who look after the various jobs to achieve the goal. Now it

is decided that who will be the superior or who will be the subordinate and what will

be their responsibility and authority. This is the effort which is made to achieve the

objectives of the enterprise by dividing the main work into sub-work. Moreover

relationship is also decided between the persons engaged in these activities. All this

process of doing things is organization.

___________________________________________________________________7.3 Concept, Definition & Nature of Organizing

The word organization is derived from the word ‘organism’ which means that a

unit with many parts and each part of it, even though working independently, has

a definite relationship with the main unit. In simple words, when a group of

organized people working for a particular purpose. The need for an organization

arises only when the number of employees working in an enterprise is more than

one. If there is only one person, he is expected to perform all the tasks alone and

there will be no need to divide the work. Organization is meaningless in the

absence of division of work.

Different scholars have defined organization in different ways:

According to Haimann, “Organization is the process of defining and grouping the

activities of the enterprise and establishing the authority relationship among

them.”

According to McFarland, “An identifiable group of people contributing their efforts

towards the attainment of goals is called organization.”

On the basis of analysis of definitions, different experts will get the information

about the characteristics or nature of the organization:

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1. Division of work: Division of work is the basis of an organization. Work is

divided among different people in an order to achieve the organizational goal.

Proper division of work is essential in an organization. For this the entire work of

business is divided into different departments. The work of every department is

further sub-divided into different sub-works. Under organization an effort is made

to achieve the objectives successfully by way of division of work.

2. Coordination: Different persons in the organization are assigned with different

works but the aim of all these persons is same i.e. attainment of the

organizational objective. So to achieve the enterprise goal proper coordination is

required from each and every person as the work of all persons depends on each

other's work. The work of one person starts when other person finished his task.

3. Plurality of Persons: Organization cannot be run by a single individual. Group

of many persons is required who assemble to fulfill a common purpose.

4. Common Objectives: There are different departments in the organization but

all are working to achieve a common goal.

5. Well defined Authority & Responsibility: In an organization, there is a chain

of workers having different posts from top to bottom. Each and every person in an

organization is assigned with different authority for efficient work performance

and it is simultaneously decided as to which will be the responsibility of that

individual in case of unsatisfactory performance.

6. Superior – Subordinate Relationship: Relationship between persons

employed in the organization is decided. It is decided that who will be the

superior and who will be the subordinate. Except top level position and the lowest

level position everybody is somebody’s superior and somebody’s subordinate.

For example: in a college, head of the department is superior to assistant

professor and assistant professor is subordinate to head of the department.

7. Organization is Dynamic : As time changes the knowledge and experience of

the people undergo a change. The impact of all the changes affects an

organization and its various functions like determining of activities, division of

authority and responsibility, mutual relations etc. thus, organization is not a

process which is decided for all times to come but it changes according to the

need of the hour.

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Q1. An organisation chart shows

i) Structure of Relationships ii) Span of Control

iii) Leadership styles

Q2. State true or false:

i) Span of control means one boss for one subordinate. (.....................)

ii) Organisation chart is visual representation of organisation’s activities, people

who are performing these activities and relationships amongst them.(...............)

___________________________________________________________________7.4 Types of Organization___________________________________________________________________

There are two types of organization. First is formal organization and there is informal

organization. In simple words, two kind of relationship can be established among the

employees. Firstly the relationship which is definite and defined before hand and

secondly those relations which are not clearly defined and definite beforehand.

i) Formal Organization

Formal organization is that organization where authority, responsibility and mutual

relationships among the employees are clearly defined. In this type of structure,

division of activities is deliberately done so that the objectives of an organization can

be easily achieved by a human group. Under the formal organization each individual

has inter-relationship with others as a superior or a subordinate. This organisation is

bound by rules, regulations and procedures. It means everything is done according

to the pre-determined rules and regulations.

Principles of Formal Organization:

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A formal organization is based on for main principles. These are :

1) Principle of Division of work: This principle states that whole work is divided into

many departments and each activity is performed by different person. This principle

provides the benefit of specialisation.

2) Principle of span of Control: Principle of span of control means the number of

subordinates working under a superior. According to this principle, one superior

should not have more than five or six subordinates.

3) Principle of Unity of Command: According to this principle, each subordinate

should get orders from a single superior.

4) Scalar Principle: Under this principle allthe people working in an organization

should be bound with one another from top to bottom in a vertical chain. For example

: Board of directors General Manager Departmental Manager Supervisor

ForemanWorkers.

ii) Informal Organization

An informal organization arises because of common interests, tastes and religiousand communal relations. In this organization an individual has friendly relationshipand cooperative nature with other individuals. For example: if an individual has anheadache and he wants medicine he can consult anybody in the organization heknows. As in formal organization, if an individual has any departmental issue he hastto consult his department manager. Thus, it is clear that in an informal organizationrules and procedures are to be followed but it is completely based on mutualgoodwill.

Difference between Formal Organization and Informal Organization

Basis ofDifference

Formal Oganization Informal organization

Formation It is formed to achieve thepredetermined organizationalgoal. It is crated deliberately.

This organization arises becauseof inter relationships of differentpeople.

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Rules &Procedures

It is based on strict rules andprocedures. If someone triesto violate rules it may lead topenalties.

It has its own group norms whichare not written and clear. Violationof group norms leads to socialdisapproval.

Stability It is stable. It is instable.

Size It has a big size. Its size is small because thewhole organization is divided intomany small groups.

Communication Formal communication isdone.

Based on informalCommunication.

Flow ofAuthority

Flows from top to bottom. From top to bottom or horizontally.

Purpose Its purpose is to achieveorganisational objective incommon.

Its purpose is to fulfil individualneeds.


Q1. Groups formed on the basis of interaction amongst people of different

departments at different levels are

i) Formal Groups ii) Informal Groups

Q.2 Informal relationships can be

1) Horizontal 2) Flexible

3) Random 4) All of these

___________________________________________________________________7.5 Process of Organization

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In order to complete the organizing function of management following steps aretaken:

1. Fixing the Objectives: first step of the organization is to fix the objective so thatall the individuals in an organization put their effort to achieve that goal. But toachieve that goal next step has to be followed. For example: objective of theorganization is to manufacture a bicycle.

2. Identifying activities required for achieving the objectives: second step is toidentify the activities which help the organization to achieve that objective. Forexample: to manufacture a bicycle activities like purchase of spare parts, rawmaterial, production, advertisement, sales, arrangement of finance, research,keeping of stock of material, recruitment of employees etc.

Steps in organizing process

3. Grouping of Activities: in order to achieve the objectives of the organisation,grouping of activities has to be done. All the similar type of activities are given to aone particular department. For example: activities like promotion, branding ,advertising etc. of bicycle is given to a marketing department.

4. Defining responsibility of each employee: after dividing the activities todifferent departments or groups responsibility of each individual is fixed. In otherwords, what an individual has to do for the attainment of the objective. For example :the purchase manager will be given the the responsibility for purchases; financemanager will be given the responsibility of managing finance etc.

Step 1 • Fixing the objectives

Step 2 • Identifying activities required for acieving the objectives.

Step 3 • Grouping the similar activities.

Step 4 • Defining responsibilities of each employee.

Step 5 • Delegating authority to employees.

Step 6 • Defining authority relationship between superiors and subordinates.

Step 7 • Providing employees all requirements for achieving the objectives.

Step 8 • Coordinating efforts of all for achievig the objectives.







• Fixing the objectives

• Identifying activities required for acieving the objectives.

• Grouping the similar activities.

• Defining responsibilities of each employee.

• Delegating authority to employees.

• Defining authority relationship between superiors and subordinates.

• Providing employees all requirements for achieving the objectives.

• Coordinating efforts of all for achievig the objectives.







• Identifying activities required for acieving the objectives.

• Defining authority relationship between superiors and subordinates.

• Providing employees all requirements for achieving the objectives.

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5. Delegation of authority: A person who has some responsibility must be givingsome authority too. Authority means to take decision with freedom, guiding thesubordinates and the freedom of supervising and controlling. For example: themarketing manager has given the responsibility of advertising the product globallybut has not been given the authority to make investments in advertising agenciesthen global advertising is not possible.

6. Defining inter- relationship between employees: Inter-relationship should bedefined clearly in an organization when two or more than two persons are workingfor the attainment of common objective. Everybody should know who is superior andwho is subordinate.

7. Providing employees all requirements for achieving the objectives: It meansto achieve the organisational objective right environment should be provided to allthe employees so that they can work effectively. For example: the location of theorganization should be at proper place so that work performance of the employeescannot be affected. There should be proper arrangement of all the facilities which arerequired to enhance the productivity of the enterprise or which helps the organizationto achieve the common goal.

8. Coordinating all the efforts to achieve the objective: At last, all the steps of theorganizing process should be coordinated with each other. Because withoutimproper coordination any organization can fall down. Coordination is required ateach level whether it may be coordination between employees or coordinationbetween departments or may be coordination between top management and lowerlevel management.

___________________________________________________________________7.6 Organizational Structure

The organisational structure seeks to establish relationship among all the personsworking in the organisation. Under the organisational structure different posts arecreated to perform different activities for the attainment of the organizationalobjective. Relationships among different persons working in the different posts aredetermined. It is clearly defined who is superior and who is subordinate. Thisestablishment of relations among different persons working in the enterprise is calledorganizational structure.

Elements of Organization structure:

Organisation structure has the following elements:

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1. Objectives & Plans: Organization structure is designed to meet plans andobjectives of the organization. It gives formal shape to organisation activities thathelp to achieve its objectives.

2. Specialisation of activities: All organisational activities are broken into sub-unitsand grouped on the basis of similarity of characteristics. This results in formation ofdifferent departments.

3. Standardisation: Standardisation means uniformity and consistency. To enablethe members of different departments to work in a co-ordinated member,management lays down the policies, procedures and programmes which helps incarrying out the decision making processes.

4. Co-ordination : With specialisation of activities, workers develop a tendency todeviate from organisational goals and promote their individual goals. There is thus,need to integrate the tasks of different units to make them work towards a commongoal in co-ordinated manner.

5. Centralisation and decentralisation: Organisation structure where decisionmaking power vests with top managers is a centralised structure and a structurewhere decisions are made by middle and lower level managers is a decentralisedstructure.

6. Environment: No organisation structure can be the best structure. It is subject tochange depending upon changes in the environmental factors-economic, social,technological, political etc. Organisation structure is, thus, situational in nature.

7. Staffing: Organisation structure is designed to achieve goals which areaccomplished by human beings. The jobs and departments are therefore, staffedwith people and authority-responsibility relationships are established.

Factors affecting Organization Structure:

Organization structure is designed keeping in view the following factors:

1. Strategy: Strategy determines a course of action to direct various organisationalactivities. It makes plans to co-ordinate human and physical resources to workstowards a common objective. Strategy is a pre-requisite to organisation structure andalso follows it. The relationship between strategy and organisation structure isdepicted as follows:

Strategy Planning OrganisationStructure

OverallOrganisational

Goals

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2. Technology: The technology for manufacturing goods and services also affectsthe organisation structure. In one study it is analysed that there are three types oftechnology:

a) Mass production technology: This technology is used for producing sameproducts of a mass scale, for e.g., manufacturing vehicles.

b) Continuous production technology: This technology is used where inputs aretransformed into outputs in a continuous process, for e.g., production ofpharmaceuticals or paper. Most of these processes are automated and therefore,require very few workers.

c) Unit or small scale production technology: this type of technology is used tomanufacture goods which meet the constantly changing consumer preferences, fore.g. garments. Goods are produced in small quantities with individual productionruns. Customer orders, where separate production runs are required to meet theirdemands utilise small batch or unit technology.

3. People: Organisation structure defines work, group into departments and appointspeople to run those departments. People at different jobs must possess the skill,knowledge and efficiency to accomplish the related tasks.

4. Tasks: Activities performed by people which transform organisational plans intoreality are known as tasks. Various task characteristics are:

i) Skill Variety: It is the extent to which creativity and variety of skills and talents arerequired to do a task. People with high degree of task varieties (for example, a dressdesigner) perform tasks that increase their intellectual ability and give them high jobsatisfaction.

ii) Task identity: Whether to produce a product in whole or in parts determine itstask identity. When a product is produced as a whole, it has greater task identity.People perform tasks with high identity (for example: a computer programmer)perform various job functions related to that task from beginning to the end, derivejob satisfaction out of their work and feel motivated to repeat those tasks.

iii) Task significance: The importance of task affecting the well – being or lives ofpeople working inside and outside the organisation determines significance of thetask. People performing tasks with high task significance i.e., tasks which positivelyaffect the well being and safety of others (for example, a traffic police inspector), feelsatisfied with their job performance and perform work of high quality and esteem.

iv) Autonomy: Whether or not individual plans the task on his own determinesautonomy of the task. It determines the extent to which a person enjoys the freedomof performing various job activities and determines the steps or procedures to carrythem out.

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v) Feedback: It is the information that people receive about successful completion oftheir task.

5) Decisions: Questions like who makes decisions-top managers or lower levelsmanagers, how information flows in the organisation so that decision-making isfacilitated, affect the organisation structure.

6) Informal Organisation: Informal organisations are an outgrowth of formalorganisation. Social and cultural values, religious beliefs and personal likes anddislikes of members which form informal groups cannot be overlooked bymanagement.

7) Environment: Organisation structure cannot ignore the effects of environment.Organisations must adapt to the environment, respond to environmentalopportunities and satisfy various external parties such as customers, suppliers,labour unions etc.

___________________________________________________________________7.7 Types of Organization Structure

There are four types of organizational structure:

1. Functional Organizational

2. Divisional Organizational

3. Line Organization

4. Line and Staff Organization

a.) Functional Organization

Dividing the whole enterprise according to the major functions performed by it, isknown as functional organisation structure. This is the very simple and prevalentform of organisation structure. Under this all the functions of the similar nature aredivided in different units which are called departments. For example, marketingdepartment, finance department, human resource department, productiondepartment etc. this structure is suitable when the size of business unit is large,where the specialisation is required, where decentralisation of authority is needed.Functional authority is “the right to give orders in a department other than one’sown.”

Board ofDirectors

ManagingDirectors

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b) Divisional Structure :

These types of organizations divide the functional areas of the organization todivisions. Each division is equipped with its own resources in order to functionindependently. There can be many bases to define divisions. Divisions can bedefined based on the geographical basis, products/services basis, or any othermeasurement. This structure is suitable where the number of main products aremore than one. Where the size of the concern is large enough. And where thedifferent manufacturing technologies and marketing methods are required.

General ManagerProduction

General ManagerMarketing

General ManagerFinance

General ManagerPersonnel

Manager ConsumerGoods

ManagerIntermediate goods

Manager ProducerGoods

Assistant Manager

Supervisor

Worker

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c) Line Organization:

Line organization is the most oldest and simplest method of administrativeorganization. According to this type of organization, the authority flows from top tobottom in a concern. The line of command is carried out from top to bottom. Thisorganization is also known as scalar organization which means scalar chain ofcommand is a part of this type of administrative organization. In this type oforganization, the line of command flows on an even basis without any gaps incommunication. Proper co- ordination takes place in this type of organization.

d) Line and staff Organization

Line and staff organization is a modification of line organization and it is morecomplex than line organization. According to this organization, specialized andsupportive activities are attached to the line of command by appointing staff

Board of directors

Managing director

Production Manager Finance Manager Sales Manager

PurchaseManager

AccountsManager

AssistantManager

Supervisor Worker

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supervisors and staff specialists who are attached to the line authority. The power ofcommand always remains with the line executives and staff supervisors guide,advice and council the line executives. Personal Secretary to the Managing Directoris a staff official.

.

Workers Workers Workers

Check your progress III

QState whether the following statement is true or false :

1) Staff services are advisory in nature. (...........................)

2) Line and staff always maintain cordial relationships amongst themselves.

(...............)

___________________________________________________________________7.8 Basis of Departmentation___________________________________________________________________

Departmentation is the process of classifying and grouping all the activities of anenterprise into different units and sub-units. The aim is to facilitate the carrying out ofthe activities efficiently for achieving overall results. The management of theenterprise is made more effective by Departmentation.

Chief executive Officer

Economist Legal Advisor

Marketing Manager Production Manager Finance Manager

Foreman Foreman Foreman

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According to Pearce and Robinson, “Departmentalisation is the grouping of jobs,processes and resources into logical units to perform some organisational task.”

There are various forms or types of Departmentation. The first step in the division ofwork is the determination of the primary responsibilities of the enterprise, which isthe main purpose of the enterprise. The important methods of grouping activities are:functions, product, location, customers, process, equipment and time.

The creation of a series of smaller departments enables the executives to getthemselves specialised within a narrower range of activity. This helps theorganisation to assign the work only to those who are best suited. With this type ofassignment, the executives can focus their experience and interest only on that workassigned to them departmentally rather than concentrating on overall companyinterests and policies.

Importance of Departmentation: The following points highlight the importance ofDepartmentation.1. Organisation Structure: Division of work into units and sub-units createsdepartments. Supervisors and managers are appointed to manage thesedepartments. The departmental heads ensure efficient functioning of theirdepartments within the broad principles of organisation (scalar chain, unity ofcommand, unity of direction etc.). Thus, organisation structure is facilitated throughDepartmentation.2. Flexibility: In large organisations, one person cannot look after all the managerialfunctions for all the departments. He cannot adjust his organisation to its internal andexternal environment. Such an organisation would become an inflexible organisation.Creating departments and departmental heads makes an organisation flexible andadaptive to the environment.3. Specialisation: Division of works into departments leads to specialisation aspeople of one department perform activities related to the department only.4. Sharing of resources: If there are no departments, the organisational resources,physical and human, will be commonly shared by different work units.Departmentation helps in sharing resources by different departments according totheir need.5. Co-ordination: Creating departments with focus on departmental activitiesfacilitates co-ordination.6. Control: Managers cannot control organisational activities if all the activities haveto be collectively supervised. Departmentation facilitates control by eachdepartmental manger over the activities of his department only.7. Efficiency: Flow of work from one level to another and for every department i.e.vertical and horizontal flow of work in the organisation increases organizationalefficiency.8. Scope for growth and diversification: In the absence of departmentation,managers can supervise a limited number of activities, depending upon their skillsand abilities. Departmentation enables them to expand their area of operation into

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new product lines and geographical divisions. Departmentation provides scope fororganisation’s growth and expansion.9. Responsibility: Since similar activities are grouped in one department headed bydepartmental mangers, it becomes easy for top managers to fix responsibility ofrespective mangers for achieving the desired results.10. Development of managers: Departmentation enables departmental heads to usecreativity in making decisions with respect to their departmental activities. Thisdevelops their potential to be promoted to higher managerial positions in theorganisation. It also facilitates recruitment and selection of top managers from withinthe organisation rather than depending on outside sources.

___________________________________________________________________7.9 Conflict between Line and Staff Organisation___________________________________________________________________

If we study the various organisational problems of different companies, we shallcome to know about instances of friction and conflict between line and staff. Agenuine human conflict arises mainly due to the difference in view points andperception of the two parties. Each party has its own view point and when it fails tosee the view point of the other, a friction is bound to arise. To resolve any conflict,one has to understand the view point of both the parties and try to identify areas ofagreement as also the bridges which will reconcile both the view points. When aconflict between line and staff organization arises, both the parties try to explain thecauses of conflict in terms of the behaviour of the other.

Complaints of line managers and staff managers against each otherSr. No Line managers complaints Staff managers complaints

1 They feel that the staff managerinterferes in their work and tries totell them how to do their work.

The staff generally advises and thelines decides and acts, the staffmanager often complaints that helacks authority to have his ideasexecuted.

2 Line mangers think also feel thatstaff specialists are academiciansand they give their theories ratherthan practical and can never givesound practical advice.

Staff employees may be disliked fortheir specialised knowledge andexpertise.

3 There is a conflict about the degreeof importance between the line andstaff as far as the contributiontowards the growth of the companyis concerned.

Staff has generally easier access totop management, which is resentedby the line management.

4 Since staff men are not directlyaccountable for any result, they aregenerally overzealous andrecommend a course of actionwhich is not practicable.

Staff feel that the line managers donot make a proper use of staff. Theadvice and help of staff is soughtonly as last resort.

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___________________________________________________________________7.10 Ways to avoid line-staff conflict

So, it is very essential for an organisation to operate and progress, it is essential thatline and staff work harmoniously. In order to achieve cordial relations between lineand staff people, these steps should be taken.

1) The limits of line and staff authority should be laid down clearly.2) A line department must give serious consideration to advice given by the staff.3) The staff manager must operate within the policies and objectives of the companyand recognise the fact that all new ideas are bound to be resisted in the initialstages.4) Line and staff people should try to understand the orientation of each other.___________________________________________________________________7.11 Delegation of Authority___________________________________________________________________

Delegation is an important part of organisational process. It is needed when amanger is not in a position to perform his functions himself because of excessivework load. In this situation he divides his work among the subordinates with theauthority of taking decisions. Thus, dividing the work in this way and giving thenecessary authority for work performance is known as delegation and delegation ofauthority. For example: if head of the department of management is going to abroadfor attending the conference for ten days, then he/she will divide his/her work amonghis subordinates and also delegates the authority to take decisions regardingacademics and other departmental activities.

However, the power of taking decision in order to guide the activities of others iscalled authority. Authority has three basic elements which are:

1) To use one's wisdom and take decisions;2) To get the decisions implemented and3) To influence the conduct of subordinates.

___________________________________________________________________7.12 Responsibility and Accounting___________________________________________________________________

RESPONSIBILITY: When an officer because of his authority assigns some work tohis subordinate, it becomes his responsibility to complete it and he is accountable forthe work. In simple words, it becomes the responsibility of the subordinate to carryout the assigned task given by superior. Thus it can be said that responsibility meansdoing one's duty. Responsibility has the following three elements:

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1) It is always applicable to individuals who are called subordinates;2) Its essence is to perform one's duty and3) To influence the conduct of subordinates.

ACCOUNTABILITY: When a superior assigns some work to a subordinate, he isanswerable to his superior for its success or failure. So, accountability meansanswering the success or failure (performance) of one's work before one's superior.Accountability has following three elements:

1) Accountability is to a person delegating authority,2) Accountability is related to the superior-subordinate relations, and3) Accountability comes into existence because of delegation of authority.

___________________________________________________________________7.13 Importance of Organization as a Management Function___________________________________________________________________

Organising is important because of following reasons:

1. Facilitates administration: If all the activities are performed by the top managers,they will be overburdened to concentrate on strategic matters. It is essential that partof the workload is shared by the middle and lower level managers. Top executiveswill be relieved of managing routine affairs and can concentrate on company’seffective administration.

2. Growth and Diversification: A well organised institution is adaptive to change andresponsive to growth and diversification. It can multiply its operations.

3. Creates synergies: Division of work provides the benefits of synergies. Synergymeans the total task achieved by a group of people is more than the sum total oftheir individual achievements.

4. Establishes accountability: Unless each person know his boss and subordinates ,the organisation cannot function efficiently. Establishing limitations in the area ofoperations defines each person’s accountability to his immediate boss which gearsthe organisation towards its overall goals.

5. Optimum use of technology: It is the age of technological developments.Therefore, organisation depends upon how well-developed technology will not beable to compete in the market. Well organised structures enable the organisations tooptimally use and update their technology to remain competitive in the market.

6. Facilitates Communication: Communication is the essence of organisation.Efficiency of organisation depends upon how well the organisational memberscommunicate with each other.

7. Facilitates creativity: Creativity means creating something new. It is developingnew ways of doing existing things. A sound organisation enables the top

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management to improve the ways of doing things by delegating routine affairs topeople down the scalar chain.

8. Facilitates Teamwork: though all individuals are responsible for specific tasksassigned to them, they work collectively as a team and optimise the use of scarceorganisational resources to achieve the organisational goals. Thus, it facilitatesteamwork.

9. Facilitates control: Organisation provides sound direction to people’s activitiesand ensures that they work according to the plans. This facilitates control andachievement of organisational goals.

10. Increase in output: Sound organisation divides activities into variousdepartments . these departments specialise in their tasks and increase theorganisational output.

___________________________________________________________________7.14 Summary__________________________________________________________________

Organization is an art of defining and classifying activities for individuals working inan enterprise/organization for the attainment of a common goal as well as it is an artof creating sweet relationships between the people working together in anorganization.

___________________________________________________________________7.15 Glossary

Organization: an organized group of people with a particular purpose, such as abusiness or government department

Delegation: the action or process of delegating or being delegated.

Responsibility: the state or fact of being accountable or to blame for something.

Accountability: the fact or condition of being accountable; responsibility.

___________________________________________________________________7.16 Answers to Check your Progress

Answer to Progress I:1. Structure of relationships

2. i) False ii) True

Answer to Progress II:1. Informal Groups

2. All of these

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Answer to Progress III:1. True

2. False

References:

1. Koontz H. and Weihrich, H., Essentials of Management, McGraw Hill, New York.

2.Drucker, Peter F. Management: Tasks, Respponsibilities and Practices, WilliamHeinemann Ltd., London

Suggested Readings

1. Taxmann’s, Principles of Management with Case studies, by Dr. Neeru Vashishth.2. McGraw Hill, Essentials of Management, An International and LeadershipPerspective, by Harold Koontz, Heinz Weihrich.3. Pearson, Management, by Stephen P. Robbins, Mary Coulter & Neharika Vohra.4. Pearson, Management, by James A.F. Stoner, R. Edward Freeman & Daniel R.Gilbert, Jr.5. McGraw Hill, Management, concept, Practice & Cases, by Karminder Ghuman &K Aswathappa.6. Himalaya Publishing House, Management, Theory & Practice (Text and Cases),by P. Subba Rao

___________________________________________________________________7.16 Terminal and Model Questions:

1. Write short notes on:a) Span of controlb) Formal organizationc) Delegationd) Departmentation

2. Multiple Choice Question:Relationship between superior and his immediate subordinate isi) Direct relationship ii) Cross relationshipiii) Group relationship

3. Explain the principles of good organisation.4. Distinguish between formal and informal organisation. Do the informalorganisations necessarily emerge out of formal organisations?5. What is line and staff authority? What are the causes of line and staff conflict?6. Explain the need and importance of Departmentation.

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___________________________________________________________________

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Chapter-8

Delegation and Decentralisation

Structure

8.0 Objectives8.1 Introduction8.2 Features of Delegation8.3 What should be delegated8.4 Process of delegation8.5 Forms of delegation8.6 Importance of Delegation8.7 Principles of Delegation8.8 Elements of Delegation8.9 Reasons for failure of Delegation8.10 How to make delegation effective8.11 Decentralisation8.12 Limitations of Decentralisation8.13 Factors Affecting Decentralisation8.14 Difference between Delegation and decentralisation8.15 Summary8.16 Glossary8.17 Answer to Check Your Progress8.18 References8.19 Suggested Readings8.20 Terminal and Model Questions

___________________________________________________________________________8.0 Objectives________________________________________________________________________


Explain the concept of delegation.

Describe the process of decentralisation.

Classify the degree of decentralization.

Distinguish between delegation and decentralisation.

Learn about the role of authority and power.

___________________________________________________________________________8.1 Introduction : Delegation

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Delegation helps in co-ordinating organisational activities at various organisational levels. Itis an important way of increasing efficiency of the organisation. It helps managersconcentrate on important organisational matters and pass the routine matters to subordinates.

According to Pearce and Robinson,

“Delegation is the process by which a manager assigns tasks and authority to subordinateswho accept responsibility for those jobs.”

Delegation is the assignment of authority and responsibility to another person (normally froma manager to a subordinate) to carry out specific activities. It is one of the core conceptsof management leadership. However, the person who delegated the work remainsaccountable for the outcome of the delegated work. Delegation empowers a subordinate tomake decisions, i.e. it is a shift of decision-making authority from one organizational level toa lower one. Delegation, if properly done, is not abdication. The opposite of effectivedelegation is micromanagement, where a manager provides too much input, direction, andreview of delegated work. In general, delegation is good and can save money and time, helpin building skills, and motivate people. Poor delegation, on the other hand, might causefrustration and confusion to all the involved parties. Some agents however do not favour adelegation and consider the power of making a decision rather burdensome. Delegation ofauthority is one of the most significant concepts in management practice which affectsmanagerial functions. Management is the art of getting things done through others anddelegation means to get the results through subordinates. Now a day’s businesses areexpanded or diversified which makes it impracticable to handle all the business by a singlemanager. Therefore, the concept of delegation of some managerial authority to subordinatescomes into practice in present day business organizations. Here, the manager delegates someof his authority to his subordinates. This helps in developing a feeling of dedication to thework among the subordinates. The top level management plays only the role of a supervisorand visits them to provide guidance, suggestions and instructions. It minimizes the work loadon the top manager and also develops the overall working efficiency of the organization.Therefore, delegation of authority is assigning work to others and giving them the requiredauthority to perform the assigned task effectively.

Delegation in IT network is also an evolving field.

___________________________________________________________________________8.2 Features of Delegation

Delegation has the following features:

1. Delegation is a process: Managers delegate tasks to subordinates in a synchronizedmanner.

2. On-going process: It is a continuous process where managers continue to delegate tasks totheir subordinates and get them delegated by their superiors to achieve the organisationalgoals.

3. It is an art, not science: Delegating tasks to subordinates does not necessarily mean thatsubordinates will perform those tasks well. There is no cause and effect relationship between

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the task assigned to subordinates and their actual performance. Delegation is thus, not ascience. It is the art of how well and what the manager delegates to his subordinates.

4. Delegation of authority and not accountability: Managers can only delegate work andauthority to perform that work to subordinates. Delegation does not mean that managers arenot accountable to their superiors for the part of the task assigned to subordinates. Theyremain accountable for the tasks assigned to subordinates and are answerable to theirsuperiors for its performance.

5. Necessary Organisational Activities: Managers cannot avoid delegation. They cannotperform all the tasks themselves. They have to learn the art of delegation that is, how todelegate and what to delegate. Companies performance is judged by how good theirmanagers are in getting the work done through others by the process of delegation.

6. It has different forms: Delegation can take different forms. It can be downward, upward orlateral.

___________________________________________________________________________8.3 What should be delegated

The important managerial functions of planning, organising, staffing, directing andcontrolling are looked by managers themselves and routine activities with respect to eachfunctional area of production, finance, personnel and marketing should be delegated tosubordinates, i.e., responsibility assigned to lower level managers should be handling theroutine jobs in the specific functional area. For example, in finance department, the sourcesof raising funds, designing the capital structure, determining the optimum debt-equity ratio,apportioning funds between fixed and current assets are determined by top managers. Onceresponsibilities to be delegated are determined, authority to carry out those responsibilitiesmust also be delegated.

___________________________________________________________________________8.4 Process of Delegation

The process of delegation involves the following steps:

1. Determining the goals: The manager establishes the goal or objective of the position/postso that the person concerned knows what is expected of him. If delegation is to be initiated inthe sales department, the objective should be made clear, say sales promotion or salesretention.2. Define Responsibility: After determining the expected results or objectives themanagement assigns or gives task, duties and assignments to the lower levels or sub-ordinates.3. Define authority: In this steps top level management grants or transfer required power andauthority to the sub-ordinates to perform or execute the assign task or job.4. Motivation of sub-ordinates: the duty of manager does not end by delegating the authorityand responsibilities to subordinates. He makes sure that subordinates willingly contribute tothe job assigned so that organisational goals are optimally achieved. Managers motivate the

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subordinates to do their work with zeal and enthusiasm. They use financial and non-financialincentives to motivate the subordinates. The need for acceptance and recognition areimportant motivators that boost employees morale to perform the delegated tasks.5. Holding accountability: Whatever is the nature and extent of delegation, managerconstantly observes the activities of subordinates to review their progress and providesguidance, whenever necessary. He holds them accountable for the work assigned but remainsultimately accountable or responsible to his superiors for completion of each task and its co-ordination with the overall organisational work.6. Training of Subordinates: Despite giving the authority commensurate with responsibility,subordinates may not be able to effectively carry out the delegated tasks. Managers,therefore, organise training programmes to enhance their knowledge on the subject.7. Establishing control: Specific standards of performance are framed and communicated tosubordinates to enable them to assess their performance against standards, self-control theiractivities and co-ordinate them with overall goals of the organisation.


___________________________________________________________________________8.5 Forms of Delegation

Delegation can take three forms:1. Top to Bottom Delegation: the process of delegation where superiors delegate part of theirworkload to subordinates is top to bottom delegation.2. Bottom to top delegation: this form of delegation recognises the importance of informalgroups in the formal organisation structures. The force of attraction of group members is sostrong that if it comes to obeying the superior or group members.3. Lateral delegation: When managers delegate duties to subordinates in the hierarchy,subordinates further delegate the tasks informally to people at the same level in other units.For example: if general manager of sales department asks sales manager to compile thefigures of sales and sales personnel for the month of January, the sales manager will seek theassistance of finance managers and personnel manager.

___________________________________________________________________________8.6 Importance of Delegation

State true or false:

1. Delegation helps in achieving vertical coordination.

(.........................)

2. Managers can delegate any kind of job to their subordinates.

(..........................)

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Delegation is unavoidable. Managers have to be skilled in the art of delegation. It is becauseof the following advantages of delegation:

1. Relief to top managers: Delegation relieves top managers of the burden to carry out everyactivity on their own. By delegating routine activities to lower levels, top managersconcentrate on important policy matters and increase efficiency of the organisation.

2. Development of managers: The more the managers delegate authority and responsibility tosubordinates, more are the tasks and responsibilities they accept from their superiors. Bydelegating routine jobs down the hierarchy, they can take more challenging projects andexpand their skills and knowledge as competent managers.

3. Development of sub-ordinates: When routine and innovative tasks are delegated tosubordinates, their skill in handling the delegated tasks increases. Training facilities can alsobe provided to develop them as potential managers.4. Better decision making: Through Departmentation, decisions relating to routine matters aretaken by those who are closest to the decision-making situation. This increases the quality ofdecisions.

5. Faster decisions: Not only are the decision effective, they are also taken quickly assubordinates have the authority to do the jobs assigned to them without going to the superiorsevery time they face a problem. They have the authority to solve the problems on their own.

6. Specialisation: Division of work into sub-units and delegation of responsibilities accordingto skill, knowledge and competence of subordinates enhances specialistion on the job andresults in greater and better output.

7. Job-Satisfaction: Delegation provides job satisfaction to subordinates and motivates themto perform better when they achieve the delegated standards of performance.

8. Promotes inter-personal relationships: Delegation increases interaction of mangers withtheir subordinates and promotes healthy relationships amongst them.

The advantages of delegation rightly enable a manager to multiply himself.

___________________________________________________________________________8.7 Principles of Delegation

The following principles make the process of delegation effective:

1. Authority, responsibility and accountability: these are the elements of delegation that makeit an effective process.2. Parity of authority and responsibility: though authority exactly equal to responsibilitycannot be delegated. It must be correspond with the responsibility so that delegates can give

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instructions to their subordinates for getting the work done. Authority without responsibilityand responsibility without authority has no meaning.3. Scalar chain: Every member should know his position in the scalar chain to know hissuperiors who have the power to delegate duties to him and his subordinates to whom he candelegate the duties. The responsibility can be assigned if every person knows his position inthe hierarchy.4. Completeness of the delegation: No part of the total work should be left out from beingdelegated. If so done, gaps would arise in respect of the work not so assigned and the workwill not be completely properly.5. Unity of Command: Every individual should have one boss to whom he should report. Ifpeople have more than one boss, they develop the tendency of shifting the blame of their non-achievements to their bosses.6. Absoluteness of responsibility: Though the task and authority to carry out that task isdelegated to subordinates, the delegator continues to remain responsible for the acts of hissubordinates to his superiors. If the district manager cannot achieve the sales target of say1000 units of product A in one month, the branch manager remains responsible to the GeneralManager of sales department.

7. Delegation by results: Managers should first determine the objective of delegation, that is,what they want their subordinates to do and then delegate the tasks along with authority tothem. If the production manager wants to increase production of northern branch by 1000units per month he should delegate the task to his branch manager, northern region. Thebranch manager will carry out the tasks when things are clear to him.

8. Delegate within defined limits: Managers cannot delegate what they are themselves notauthorised to do. If a manager, for example, does not have authority to raise funds fromfinancial market without sanction of top managers, he cannot delegate this task to hissubordinates.

___________________________________________________________________________8.8 Elements of Delegation

Delegation has three important elements:

1. Responsibility: Responsibility is the activity or task ensured by the manager tosubordinates. Though delegated, the ultimate responsibility for completion of the task restswith the manager.

2. Authority: To carry out the responsibility assigned, there is need for authority to hire andfire people, spend resources, command people, issue directions and make decisions. Theauthority must, therefore, be delegated to subordinates to enable them to carry out theresponsibility assigned.

3. Accountability: When managers delegate a part of their work-load to subordinates, theyremain accountable for accomplishment of that task. The responsibility and authority, thuscannot be delegated but accountability cannot.

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___________________________________________________________________________8.9 Reasons for failure of delegation

There are various reasons for failure of delegation. The reasons may be related to superiors,subordinates and to organisation.

Reasons related to Superiors:

1. Wanting to do things personally: Some managers do not delegate because they feel theycan do the work better than others. Since ultimate responsibility is that of the delegator, theyprefer doing the work themselves rather than getting it done through others.

2. Insecurity: If managers feel that subordinates perform better than them, they avoiddelegation. The exposure of their inabilities to take decisions creates a feeling of insecurityand therefore, they fear to delegate.

3. Retention of Power: Some managers like to take added responsibility, make theirimportance felt by everyone in the organisation and want the subordinates to come to them toget their problems solved. Their desire to retain power and dominate is a hindrance to theeffective delegation process.

4. Lack of confidence in subordinates: The reward for risk is return. Unless managers assumethe risk of subordinates not performing well, they cannot contribute to the development ofskilled managers in future. A manager who does not take risk in his subordinates and lacksconfidence in them will not be able to delegate effectively.

5. Unwillingness to set standards of control: Having delegated the duties, managers remainaccountable for overall performance of the work. They supervise the activities ofsubordinates to ensure that actual performance is according to planned performance. Amanager who fails to establish standards of control will not be able to effectively delegateduties to subordinates.

Reasons related to subordinates:

1. Lack of Confidence: Some subordinates do not want to take responsibility for the fear ofnot being able to perform well. They lack confidence and do not want to take any risk. Theyprefer to depend on their bosses to make decisions.

2. Fear of making mistakes: Some subordinates fear that if they make mistakes in carryingout the delegated responsibilities, their superiors will criticise and insult them in front ofothers. This fear discourages them from taking added responsibility.

3. Lack of incentives: motivation through financial and non-financial incentives makesdelegation effective. Subordinates are reluctant to accept delegation in the absence ofincentives.

4. Absence of access to various resources: If subordinates do not have access to resources tocarry out their work, the will not accept delegation of responsibilities. This happens whenthere is delegation of responsibility without commensurate authority.

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5. Convenience: sometimes, subordinates prefer the work is done by superiors rather thanassuming responsibility for the same, for the sake of convenience. They simply want theirbosses to make decisions.

Reasons related to organization:

1. Size of the organization: A small sized organisation will not have too many jobs todelegate to subordinates.

2. Degree of centralisation or decentralisation: Efficient delegation is affected by the degreeto which organisation distributes the decision-making power to various organisational units.A highly centralised organisation is obstructive to the process of delegation.

___________________________________________________________________________8.10 How to make delegation effective

Delegation can be made effective by adopting the following measures:

1. Accept the need for delegation: When superiors are reluctant to delegate because they wantto do everything themselves rather than allowing subordinates to do, they should realise theneed for delegation. Infact, more the delegation, more successful will be an organisation.

2. Develop confidence in subordinates: Rather than feeling that subordinates are not capableof accepting responsibilities so that delegator does not take the risk of delegation, thedelegator should understand that a man learns through mistakes and if he commits mistakes,he shall try to find out solutions to the problem also, if subordinates makes mistakes,superiors should guide them rather than not delegating at all.

3. Communication: Where delegation becomes ineffective because subordinates do not havethe information for making decisions, an effective system of communication should bedeveloped so that information flows freely from superiors to subordinates.

4. Motivation: Subordinates should be motivated to accept the responsibilities by providingfinancial and non-financial rewards like recognition, status etc.

5. Develop an effective system of control: the delegator must ensure that subordinatesperform well by setting reasonable standards of performance against which actualperformance should be measured. Delegator should keep check on the activities of delegateesrather than not delegate at all.

6. Choose the right person for the right job: lack of confidence in subordinates should beovercome by dividing the workload into sub-units and assigning each sub unit to personsmost suitable for performing them..

7. Freedom to sub-ordinates: When managers accept the need for delegation to subordinatesthey must also give freedom to make decisions with respect to the delegated tasks.

8. Clarity of tasks: the responsibilities or the tasks delegates to subordinates must be clearlydefined in terms of results expected out of those tasks. Knowing what is exactly expected ofthem will enable the subordinates perform the delegated tasks better.

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9. Matching the job with the abilities of the subordinates: Manager should assign the job tosubordinates which match with the ability of the subordinates.

10. Open communication: though delegatees are given the authority to solve problems relatedto the assigned tasks, yet they should be freely discuss the problems with their delegators.

11. Monitoring the critical deviations: Subordinates may make mistakes, however efficientthey are at work. The superiors should overlook minor deviations with respect to thedelegated tasks and pinpoint only major deviations in the tasks assigned. This promotes betterresponse and a sense of responsibility amongst the employees.

12. Develop trust and confidence in subordinates: Delegation should be a continuous process.Managers should appreciate the work of subordinates when they perform well. They shoulddelegate them more tasks and express trust and confidence in them. This will boost theirmorale to perform better in future.


___________________________________________________________________________8.11 Decentralisation

Decentralisation is passing of authority to make decisions to the lowest possible level in theorganisation hierarchy. Decentralisation is delegation of authority to the maximum possibleextent.

According to Allen, “Decentralisation refers to the systematic effort to delegate to the lowestlevels all authority except that which can only be exercised at central points.”

Importance of Decentralisation: Decentralisation is important because of the followingreasons:

1. Reduction in the burden of top managers: Managers who look after both strategic androutine matters often becomes so involved in handling routine problems that they do not havetime to look after strategic issues of the organisation. The time they should spend on strategicplanning is often not spent. Through decentralisation, routine decisions can be delegateddown the scalar chain and important decision can be retained at the top.

1. State true or false:

Delegation can be vertical or horizontal.

.............

2. Delegation and decentralisation are

i) same ii) different

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2. Development of the subordinates: Everybody learns through mistakes. If top executives donot delegate authority to subordinates for the fear that subordinates will make mistakes, theywill not be able to develop potential managers. The subordinates should be allowed to makemistakes and also rectify them so that they learn not to repeat them in future. This is possibleonly in a decentralised organisation.

3. Faster Decisions: In a decentralised organisation, people do not have to approach thehigher authorities every time they face a problem. As they closer to the problem area, theycan make decisions related to that problem. The decisions are thus, faster and better.

4. Promotes diversification: If top managers retain authority to make every decision, they willbe able to look after limited lines of products only. Decentralisation enables them to searchnew markets. They can diversify into new markets and add new products to the existing lineof products.

5. Promotes Motivation: Allowing subordinates to make decisions in their respective areas ofspecialisation serves as a better motivational force. Thus, decentralisation motivatesmanagers to promote the efficiency of workers resulting in higher production and sales.

6. Flexibility: A decentralised organisation is more flexible as managers at different levelscan change their policies according to the changes in environment.

7. Better Communication: A decentralised organisation has fewer levels in the scalar chain.Communication amongst people at different levels is faster nad efficient. Chances ofinformation distortions are reduced.

8. Control: Managers at different levels lay standards of performance for their respectiveunits and exercise control on those activities. This facilitates the process of control.

___________________________________________________________________________8.12 Limitations of Decentralisation

Decentralisation suffers from the following limitations:

1. Co-ordination: Managers find it difficult to co-ordinate the organisational activities whenthere is high degree of decentralisation.

2. Control: Difficulty in co-ordination also makes it difficult for top managers to control theorganisational activities.

3. Costly: Though useful, it is expensive since each department manages activities in its ownway. There is duplication of efforts and physical facilities in the organisation.

4. Adaptability: In the fast changing environment, unless strategic decisions are centralised,different units will react to changes differently and working of the organisation will becomedifficult.

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5. Lack of Uniformity: A highly decentralised organisation lacks the advantage of uniformpolicies followed by all the organisational units. Each unit formulates its own policies. Thepolicies are more uniformly followed in a centralised organisation.

6. Ability of lower level managers: In a decentralised organisation, decisions are taken bymanagers of different units at their respective levels. If lower level managers are notcompetent and skilled to make decisions, efficiency of a decentralised organisation will getreduced.

___________________________________________________________________________8.13 Factors affecting Decentralisation

The factors affecting decentralisation can be classified into two categories:

External Factors affecting Decentralization:

1. Environment: If firms are operating in an environment where customers and suppliers aredispersed, competition is not intense, markets provide wide area for company to penetrateinto, there is need for the organisation to decentralise.

2. Regulation of the Government: If the government lays strict policies and procedures forthe business firms, managers cannot take the risk of delegating the decision-making powersto people at lower levels. They have the fear of being penalised for not observing the rules.The tendency to decentralise in such cases is low.

3. Market features: If firms operate in a market where homogenous products are produced byall the firms, the power to make decisions can be decentralised to lower level managers.

4. Bargaining with trade unions: If trade unions agree to bargain with lower level managersfor their rights, decision making power can be decentralised but if trade unions bargain onlywith top management, the organisation tends to be more centralised.

Internal factors affecting Decentralisation:

The factors internal to the organization which affect decentralisation are as follows:

1. Size of the company: As size of the company increases, it becomes difficult for managersto take decisions single handedly. Decision making will be time consuming. Therefore, withincrease in size of the firms, the decision making power is delegated to functional managersand lower level managers. This increases efficiency of the organisation since top executivescan concentrate on strategic matters and routine matters can be managed at the lower levels.

2. Cost Control: Decisions which require huge amount of funds, for example, the decision tobuy a plant or machine, are normally taken by top executives and decisions where financialoutlay is not too large can be taken at lower levels. Thus, where firms want to maintain strictcost control over activities of the organisation, the degree of decentralisation is less.

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3. Philosophy of Management: Management philosophy refers to management’s desire tocentralise or decentralise. Some managers prefer to retain power and authority to makedecisions and therefore, believe in centralisation of authority. Others, who want the decisionsto be taken at lower levels, decentralise the decision making authority.

4. History of the enterprise: Enterprises which have always worked as centralisedorganisations continue to do so in future also. Past precedents are followed in future and arenot easily changed unless a strong desire or outside influence is created within or outside theorganisation.

5. Functional area: Some degree of centralisation or decentralisation is essential in everyfunctional area. However, some areas like finance and personnel tend to be more centralisedwhile others such as production and sales tend to be more decentralised.

6. Ability of Subordinates: If lower level mangers are inspiring and innovative, decisionmaking power can be given to them. There is greater tendency for decentralisation in suchenterprises.

7. Growth Rate of enterprise: Top managers of a growing enterprise in terms of financial andphysical parameters spend more time on important and strategic organisational matters. Thus,there is a greater tendency for decentralisation.

8. Communication system: An effective communication system helps to coordinate diverseorganisational activities. An organisation whose communication system is based on modernmanagement information systems can decentralise its operations.

9. Control System: An effective system of control where regular appraisal of actualperformance against planned performance is done facilitates decentralisation.

Process of Decentralisation:

The following steps make the decentralisation process:

1. Centralisation: Initially the organisation starts as a centralised structure. The power andauthority to make decisions vests with the top management. As it grows, the need fordelegating the opening authority arises while important decisions related to planning,organising, motivating etc. continue to be exercised by top management. This ensuresuniformity in the working of the organisation.

Following are the strategic areas where decision-making should remain centralised:

1) Centralisation of Planning: To ensure consistency and uniformity in the operations of theorganisation, the framework of planning consisting of policies, procedures, programmes,schedules etc. is developed by top managers, whatever the degree of decentralisation in theenterprise. It is within the overall planning that various units make sub-plans to synthesizewith the broader plans.

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2) Centralisation of Organising: The organisation structure is adopted by creatingdepartments, defining authority-responsibility relationships amongst members, the levels tobe created (span of control) are decided by top management and the task of actually workingwithin that structure is delegated to lower levels by dividing the overall work into sub-unitsand assigning each task to different individuals.

3) Centralisation of Co-ordination: more the degree of decentralisation, more the problem ofco-ordinating the activities. The chief executive should retain with him the power tocoordinate the activities of all divisions and departments. This avoids duplication of effortsexercised by different divisions.

4) Centralisation of Motivation: individuals are motivated by different factors. There aresome financial rewards or some non-financial rewards.

5) Centralisation of control: When authority for making the overall plans is reserved with topmanagement the task of ensuring the plans is adhered to is also the responsibility of topmanagers.

2. Development of managers: Once the basic framework of organisation is structured, variousplans and standards for measuring performance are made, techniques of co-ordination andmotivation are laid, top managers decentralise the enterprise by delegating operatingauthority to lower level managers. These managers frame policies for the units.

3. Communication and co-ordination: though co-ordination of different activities is the taskof top management, departmental managers must also ensure coordination of different workunits. This is possible through open system of communication where information flowsfreely.

4. Control: The measures of control are set by top management through techniques likebudgets, PERT and CPM to evaluate overall performance of the organisation.

5. Dispersion: Dispersion refers to geographic separation of central head office from theoperating units. This is done so that interference of top executives in the working of operatingunits is minimised.

___________________________________________________________________________

8.14 Difference between Delegation and Decentralisation

The following table highlights major points of difference between delegation anddecentralisation:

Delegation Decentralisation1. Delegation is complete when there istransfer of authority from one person toanother.

It is complete when authority is delegated tothe fullest possible extent. It is the end resultof delegation.

2. The delegator continues to exercise controlover the activities of subordinates.

The top management exercises control onlyover strategic issues. Control overroutine

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matters is exercised by lower level managers.3. Delegation is possible withoutdecentralisation.

Decentralisation is not possible withoutdelegation. Infact, delegation is a prerequisite to delegation.

4. Lower level managers of each unit carryout the plans framed by their superiors.

Managers of each unit frame their own plans.

5. Power to control the delegated tasksremains with the delegator.

Power to control is delegated to lower levelmanagers.

8.15 Summary

In short, delegation helps in coordinating organisational activities at various organisationallevels. It is an important way of increasing efficiency of the organisation. It helps managersconcentrate on important organisational matters and pass the routine matters to subordinates.

8.16 Glossary

1. Delegation - Delegation is the assignment of authority and responsibility to another person

2. Decentralisation: the spread of power away from the center to local branches

3. Authority: To carry out the responsibility assigned

4. Responsibility: Responsibility is the activity or task ensured by the subordinates

5. Accountability: When managers delegate a part of their work-load to subordinates

8.17 Answers to check your Progress

Answer to Progress I:1. True2. False

Answer to Progress II:

1. True2. Different

8.18 References


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2. Drucker, Peter F. Management: Tasks, Respponsibilities and Practices, WilliamHeinemann Ltd., London


1. Taxmann’s, Principles of Management with Case studies, by Dr. Neeru Vashishth.2. McGraw Hill, Essentials of Management, An International and Leadership Perspective, byHarold Koontz, Heinz Weihrich.3. Pearson, Management, by Stephen P. Robbins, Mary Coulter & Neharika Vohra.4. Pearson, Management, by James A.F. Stoner, R. Edward Freeman & Daniel R. Gilbert, Jr.5. McGraw Hill, Management, concept, Practice & Cases, by Karminder Ghuman & KAswathappa.6. Himalaya Publishing House, Management, Theory & Practice (Text and Cases), by P.Subba Rao

8.20 Model ad Terminal Questions

1. What do you understand by Decentralisation? What are those factors which determine thedegree of decentralisation? Explain.2. Distinguish between decentralisation and delegation.3. What is delegation of authority? How can you make delegation effective?4. “Authority and responsibility should be equal”. Discuss.5. What are the major obstacles to the delegation of authority? How will you overcome theseobstacles?

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Chapter 9

Coordination

Structure:

9.0 Objectives9.1 Introduction to Coordination9.2 Objectives of Co-ordination9.3 Principles of Coordination9.4 Types of Co-ordination9.5 Limitations in achieving coordination9.6 Techniques for effective coordination9.7 Co-operation and Co-ordination9.8 Co-ordination – Essence of Management9.9 Summary9.10 Glossary9.11 Answers to check your progress9.12 References9.13 Suggested Readings9.14s Terminal and Model Questions

9.0 Objectives

After studying this chapter you will be able to know:

Know the concept of co-ordination. Explain the techniques to achieve co-ordination.

Discuss the principles of co-ordination. Know the difficulties in coordination.

___________________________________________________________________________9.1 Introduction

Coordination is the act of organizing, making different people or things work together for agoal or effect to fulfill desired goals in an organization. Coordination is a managerial functionin which different activities of the business are properly adjusted and interlinked. Co-ordination is concerned with unifying the actions of a group of people for some commonpurpose. It is the job of harmonizing the activities of different people or groups as also ofreconciling conflicting interests or approaches.

According to Fayol, “to co-ordinate is to harmonise all the activities of a concern so as tofacilitate its working and its success.”

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According to Spriegel, co-ordination is defined as “a process of so arranging group activitiesin relation to time, place and effort that each item will take care of itself according to the needof the situation.”

In simple words, co-ordination is to unite all the activities of that business. Coordination isthe integration and synchronization of all the activities or group efforts in an organizationtowards the accomplishment of common objectives. Co-ordination creates a team spirit andhelps in achieving goals through collective efforts.

Features of Co-ordination

1. Dynamic & Continuous process: Through co-ordinated group efforts, co-ordination helpsin achieving organizational objectives. Organizational objectives are constantly changingaccording to the changing business environment, competitors, organizational budgets andpriorities. Budgets are made annually and priorities keep getting changed to keep pace withthe environmental forces.

2. Applies to group efforts: It is necessary for organization to ensure proper co-ordination.So, it is necessary to integrate group activities with the organizational objectives.Organizations integrate individual as well as group activities through vertical and horizontalco-ordination.

3. Integrates and harmonizes diversified efforts: To achieve organizational goals andobjectives, an organization divides the activities into different parts. Each part of an activityis taken care by individuals working in a group. Each group by performing their tasks leads toachievement of common goals. Thus, through effective co-ordination individual efforts needto be harmonized and integrated in order to accomplish organizational goals.

4. Basic responsibility of Managers: Irrespective of their functional specialization andhierarchical level, managers need to co-ordinate to achieve the goals and objectives of anorganization. Hence, co-ordination is the responsibility of all managers.

5. Essence of management: it is called as essence of management because it is an all-pervasive function of management which directly interlinked with planning, organizing,staffing, directing and controlling.

6. Maintenance of system: An organization is a system of group efforts. Only co-ordinationis the main function which helps the organization in recognizing the diversity and importanceof synthesizing individual and group efforts with organizational system.

7. Conscious Action: Co-ordination can only be achieved from the conscious and concertedaction of management.

8. Avoids Interruptions in Operations: Co-ordination helps in avoiding the interruptionsand in timely accomplishment of organizational goals.

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9. Eliminates Overlapping or Duplication of Work: Co-ordination can eliminate theproblems of overlapping and duplication and ensures optimal utilization of the resources ofan organization.

Elements of Co-ordination

1) It is an orderly pattern of group efforts.

2) It is a continuous process.

3) Its brings unity of action.

4) It has a common purpose.

5) It is a managerial responsibility.

___________________________________________________________________________9.2 Objectives of Co-ordination__________________________________________________________________________

The important objectives of co-ordination are:1) Harmony of Goals: There is always a danger of conflicts of goals in the minds of themanagers and workers because the perceptions vary from man to man. Thus, the mostimportant objective of co-ordination is to create harmony of objectives in the minds of theemployees.2) Total Accomplishment: The other objective is to achieve total accomplishment ratherthan individual effort. As one quotation well define this objective, that is, “individual playgame but team wins championships”. So in order to achieve this objective all the employeesof the organization should join their hands.3) Economy and Efficiency: The co-ordination among the various resources of input resultsin economy and efficiency in the organization.4) Good Social Relations: integration of individual interests and organizational goals is theprimary objective of the co-ordination. It provides job satisfaction and boosts morale of theemployees and also establishes good human relations in the enterprise.

___________________________________________________________________________9.3 Principles of Co-ordination

There are some principles which were given by Mary Parker Follet (Parker 1984) focusing onthe following aspects:

1) Direct Control: Direct personal contact helps to co-ordinate activities of individuals. Ithelps in bringing about agreement on different managerial actions and decisions which helpsin clarifying possible misunderstandings among employees.

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2) Early Start: In the early stages of planning and policy framing co-ordination is moreeffective. Through co-ordination, employees got involved in these two processes. Employeeparticipation enhances their sense of commitment to the organization.

3) Reciprocity: Reciprocal relationships must be established among the managers ofdifferent departments namely production, sales and finance etc. The activities of onedepartment affect the activities of other departments. Co-ordination becomes eaier whenreciprocal relationships are kept in mind, while taking the decisions.

4) Continuity: Co-ordination is a continuous process. It never ends. This is because theultimate aim of co-ordination is to achieve organizational goals and every organizationoperates in a dynamic environment.

5) Flexibility: The process of co-ordination should be flexible. It must be such that it changeswith the changing business environment.

6) Span of Management: It refers to the number of subordinates that a manager can manageeffectively. It is important to place only as many subordinates under direction of one managereffectively. It is important to place only as many subordinates under the direction of onemanager as can be effectively managed by him. It affects the manager’s ability to co-ordinatethe activities of subordinates working under him.

7) Unity of Command: Unity of command means one boss for one subordinate. It will bedifficult to achieve co-ordination if one individual has to report to more than one boss. Thus,unity of command helps in co-ordinating the activities of individuals and departments.

___________________________________________________________________________9.4 Types of Co-ordination

There are four types of co-ordination: vertical co-ordination, horizontal co-ordination,internal co-ordination and external co-ordination.

1) Vertical Co-ordination: Vertical co-ordination is between different levels of anorganization to ensure that all levels are in harmony and in line with the organizationalpolicies and programmes. This is achieved with the help of delegation of authority bydirecting and controlling. For example : if vice chancellor of an university gives authority tothe director of the department of management to take decision regarding admission procedurethan this is called vertical co-ordination. It is so because authority is flowing from top tobottom.

2) Horizontal Co-ordination: Horizontal co-ordination is between departments on the samelevel of managerial hierarchy. Co-ordination between department of management anddepartment of placement activities in the college at the same level of organizational hierarchyis an example of horizontal co-ordination.

3) Internal Co-ordination: When vertical and horizontal co-ordination are accomplishedwithin an organization, it is called internal co-ordination. It can be achieved through thefollowing techniques:a) Coordination through effective supervision.

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b) Coordination through organizational processes.c) Coordination through personal contact.d) Coordination through effective communication.e) Coordination through group meetings.f) Coordination through liaison officers.

4) External Co-ordination: The success or failure of an organization depends on a numberof external forces. External co-ordination facilitates such processes by integrating theorganization with dynamic external forces. Some external forces may be the changingexpectations of stakeholders, advancement of technology, changing government policies andregulations etc. To facilitate external co-ordination, a number of techniques are adopted by anorganization.


1. Which of the following is an element of co-ordination?

a) Continuous processb) Unity of Actionc) Common Purposed) Managerial Responsibilitye) All of the above

2. State true or false:Co-ordination among the various resources of input results in economy and efficiency inorganisation.------------------

___________________________________________________________________________9.5 Limitations in Achieving Coordination

There are some limitations in achieving co-ordination. Some of these are discussed below:

1. Increased Specialisation: Though specialisation helps to increase the productivity oforganization, it also creates the problem of co-ordination. Higher the degree of specialisation,therefore more difficult it is to co-ordinate the activities.

2. High interdependence amongst various departments: when there is high degree ofdependence of one unit on other, there is a greater need of co-ordination and it is moredifficult to co-ordinate.

3. Different approach towards the same problem: If different departments of theorganization look at the same problem in different ways, there will be problem of co-ordinating their activities.

4. Uncertainty about future: There are some environmental factors whether it may beexternal factors or internal factors. Internal uncertainties are like strikes and lockouts alsomake co-ordination difficult.

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5. Lack of Skill: Even in certain situations, where work flows smoothly, co-ordinationbecomes a problem if managers do not have the knowledge, skill and competence to co-ordinate.

6. Informal Groups: Informal groups which are strongly bonded by forces of culture, socialvalues and ethics can affect the ability of highly skilled managers to co-ordinateorganisational activities.

___________________________________________________________________________9.6 Techniques of Co-ordination

The following techniques help to achieve co-ordination:

1. Scalar Chain: is the formal structure where line of authority which moves from highest tolowest rank in the straight line. It also identifies the authority and responsibility attached toeach position in the scalar chain. When one knows clearly his position, the position of hisboss and subordinates, it facilitaes co-ordination.

2. Rules & Procedures: Rules and procedures provide established standards of performance.Members of an organisation perform according to rules without going to top managers everytime they face a problem. Thus, rules and procedures provide an effective way of achievingco-ordination.

3. Plans and goals: Well defined plans and goals help to achieve co-ordination by ensuringthat efforts of all individuals and departments are directed towards organisational goals.

4. Information System: People of different departments at all levels need information formaking various decisions. Effective information system like computers, networking andinternet facilitate free flow of information, thus facilitate co-ordination throughout theorganisation.

5. Lateral Relationships: Lateral relations refer to relations between peer groups of differentdepartments. People of different departments constantly interact with each other throughformal and informal communication systems. These relations refer to “coordination of effortsthrough communicating and problem solving with peers in other departments or units.” Thus,effective system of communication facilitates co-ordination by developing strongrelationships amongst people of different departments.

6. Slack Resources: It means keeping a backup of resources. If an organisation expectsdemand for its product to be 10,000 units every month, it should be produce 11,000 units tobe meet sudden unexpected increase in demand. In case it does not do so, it will have to waitto produce to meet the increased demand. Competitors can take advantage of this and divertthe firm’s customers to increase their customers. Maintaining stack resources, thus, facilitatescoordination amongst different departments and units.

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7. Co-operation: Co-operation is a way of achieving co-ordination. Co-operation refers tovoluntary actions of members to work collectively as a group. If all the members co-operatewith each other, it will result in co-ordination amongst their activities.

8. Independent Units: If organisation is structured in a manner that different units carry outall functional activities with respect to their units independently, the need for co-ordinationgets reduced. Though this will be financially costly, it will reduce top manager’s burden toco-ordinate the activities of these units.

9. Committees: Committees are usually formal organised groups with a designatedmembership and chairperson and regularly scheduled meetings. “Committees are formed tosolve specific organisational problems like leave committee. This committee looks into casesof absenteeism and transfer of workers and achieves co-ordination by keeping theorganisational work forces satisfied at their jobs.

10. Managerial Integrators: Managerial integrators are specially appointed managers whocontinuously co-ordinate the products, project or brand managers who co-ordinate theactivities of work groups carrying out different projects or different products.

___________________________________________________________________________9.7 Coordination and Cooperation

Though the terms ‘coordination’ and ‘cooperation’ are used interchangeably, they areconceptually different. Cooperation is a voluntary action of members to work collectively asa group, co-ordination is a deliberate attempt of managers to unify the actions oforganisational members. Co-ordination can be achieved if all the members co-operate witheach other and with top managers. Even when members co-operate with each other, there isneed for managers to co-ordinate their efforts to achieve the organisational goals. Forexample, the head of MBA department of the college wants to organize a placement activityin her department. All the members of her department cooperate with her in organising it.Despite their co-operation, the department head has to co-ordinate their activities by dividingthe work amongst them and giving them the authority

Difference between Co-ordination and Co-operation:

Nature ofDifference

Co-operation Co-ordination

1.Attempt It is a voluntary attempt ofmembers.

It is a deliberate attempt of managers.

2. Scope It is narrow in scope. It is wider in scope.3. Relationship Relationship amongst

members is informal.Relationship amongst members is formal.

4. Nature It is an important technique ofco-ordination.

It is not a technique to achieve co-operation.

5. Concept It is a collective effort ofgroup members that arises outof their need to work together

It is an attempted effort of managers tounify the actions of all the organisationalmembers.

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to attain a common goal.


1. ..........................................is the formal structure where line of authority which moves fromhighest to lowest rank in the straight line.

2. Co-operation refers to ------------------------------------------ of members to work collectively asa group.

___________________________________________________________________________9.8 Co-ordination – The Essence of Management

When the organisational structure is created and departments are made, managers co-ordinatethe activities of these departments to achieve organisational goals. Top managerscommunicate the organisational goals to departmental managers and help them carry out thefunctions of planning, organising, staffing, directing and controlling for their respectivedepartments. They integrate objectives of the organisation with the objectives and activitiesof departments through co-ordination, in order to harmonise departmental goals .

1. Planning and Co-ordination:

According to Harold Koontz and Cyril O’ Donnell, “Planning is deciding in advance ehatodo, how to do it, when to do it and what is to do it.’ There are so many departmental plans ina business. These include purchase plan, sales plan, production plan, finance plan, marketingplan etc. all these plans must be co-ordinated and one master plan must be made for the fullbusiness. Therefore, planning is affected by coordination.

2. Organising and Co-ordination

There are many steps in organising. All these steps must be co-ordinated , for achieving theobjectives of the business. The top level managers must co-ordinate the efforts of the middlelevel managers. Similarly, the middle level managers must co-ordinate the efforts of thelower level managers. Furthermore, the lower level managers must also co-ordinate theefforts of the workers. Therefore, organisation is affected by co-ordination.

3. Staffing and Co-ordination

Staffing involves recruitment and selection, training, placement, promotion transfer etc. Allthese steps must be properly coordinated. Similarly, the efforts of all the individuals, groupsand departments must be co-ordinated for achieving the objectives of business. Therefore,staffing is affected by co-ordination.

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4. Directing and Co-ordination

Directing means giving necessary information, proper instructions and guidance to sub-ordinates. The results in co-ordination. Therefore, direction is affected by co-ordination.

5. Communication and co-ordination

Many types of communication methods are used in a business. These methods include formalcommunication, informal communication, upward communication, downwardcommunication, oral communication, written communication, etc. It is important to note that,all these types of communication must be properly coordinated. Lack of proper co-ordinationwill hinder the smooth functioning of the communication process. Furthermore, it will alsorestrict the important information flow and cause many economic problems to the business.Thus, communication is affected by coordination.

6. Leading and coordination

Every manager must be a good leader. He must co-ordinate the efforts of his subordinatesforachieving the objectives. That is, he must coordinate the human resource. He must alsocoordinate the material and financial resources of the organisation. So, leadership cannot beperformed without coordination.

7. Motivating and Co-ordination

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There are many types of motivation. These are positive motivation, negative motivation,financial motivation, and non-financial motivation. All these types of motivation must beproperly co-ordinated. Therefore, motivation is affected by coordination.

8. Controlling and Coordination

In controlling the standards are first fixed. Then, the performances are measured.Performances are compared with the standards, and the deviations are found out. Then, thedeviations are corrected. So, controlling involves many steps. All these steps must beproperly co-ordinated. If co-ordination is not proper. Control will surely fail. Therefore,control is also affected by coordination.

9.9 Summary

Now we can conclude that all the functions of management are affected by coordination.Hence co-ordination is essential for achieving the objectives of the organisation. It is alsorequired for the survival, growth and profitability of the organisation. Co-ordinationencourages team spirit, gives right direction, motivates employees, and makes properutilisation of resources. Therefore, coordination is rightly called essence of management.

9.10 Glossary

1. Co-ordination - the organization of the different elements of a complex body or activity soas to enable them to work together effectively.2. Delegation - the action or process of delegating or being delegated.3. Decentralisation - the spread of power away from the center to local branches orgovernments4. Cooperation - Cooperation is a voluntary action of members to work collectively as agroup

9.11 Answers to check your Progress:

Answers to Progress I :

1. All of the above2. True

Answer to Progress II:

1. Scalar Chain2. Voluntary Action

9.12 References


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2. Drucker, Peter F. Management: Tasks, Respponsibilities and Practices, WilliamHeinemann Ltd., London

9.13 Suggested Readings1. Taxmann’s, Principles of Management with Case studies, by Dr. Neeru Vashishth.2. McGraw Hill, Essentials of Management, An International and Leadership Perspective, byHarold Koontz, Heinz Weihrich.3. Pearson, Management, by Stephen P. Robbins, Mary Coulter & Neharika Vohra.4. Pearson, Management, by James A.F. Stoner, R. Edward Freeman & Daniel R. Gilbert, Jr.5. McGraw Hill, Management, Concept, Practice & Cases, by Karminder Ghuman & KAswathappa.6. Himalaya Publishing House, Management, Theory & Practice (Text and Cases), by P.Subba Rao


1. Define Co-ordination. What are the main objectives of co-ordination?

2. “Coordination is the Essence of Management”. Comment.

3. Discuss the various limitations to achieve coordination.s

4. Which are the different techniques which help to achieve co-ordination? Discuss.

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Chapter 10

Controlling

Structure

10.0 Objectives10.1 Introduction10.2 Meaning of Control10.3 Planning – Control Relationship10.4 Process of Control10.5 Types of Control10.6 Importance of Control10.7 Summary10.8 Glossary10.9 Answers to check your progress10.10 References10.11 Suggested Readings10.12 Terminal and Model Questions

10.0 Objectives___________________________________________________________________


Explain the concept of control.

Describe the process of control.

Classify the types of control.

Describe the importance of control.

10. 1 Introduction

As we all know that business operations are continuing activity. Successful handling ofbusiness affairs requires effective planning, organizing, staffing and directing. Theperformance of the business must be assessed after every appropriate interval, so thatweaknesses, if any may be detected at an early stage and necessary corrective measuresapplied.So, proper controlling is required at every stage in an organization. In other words,proper controlling can locate deviations and offer suggestions.

10.2 Meaning of Control

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In management, control means that in order to achieve the desired objectives efficiently,economically and successfully the real progress of the work should be assessed from time totime so that the actual progress of the work is in accordance with the expected progress.

Under controlling, deviations are sought to be noticed in the actual progress and thestandards already determined, the causes of deviations are found out and corrective actions istaken so that in future the mistakes are not repeated. In short, the chief function of controllingis to ensure actual progress with relevance to the objectives. As such, it is an importantfunction of management and consists in all managerial functions.

Control provides the basis for future action. It reduces the chances of mistakes being repeatedin future by employing and suggesting preventive steps. It facilitates decision making andgoes hand in hand with planning.

Control is the process of checking actual performance against the agreed standards or planswith a view to ensuring adequate progress or satisfactory performance. In other words,controlling consists of those activities which are necessary to ensure that the performancetakes place in accordance with the targets laid down by management. It also involves takingcorrective actions in case the performance is not satisfactory.

Definition of control

In the words of Henry Fayol, ” Control consists in verifying, whether everything occurs inconformity with the plans adopted, the instructions issued and principles established. It hasfor its object to point out weaknesses and errors in order to rectify them and preventrecurrence.”

In the words of Philip Kotler, ” Control is the process of taking steps to bring actual resultsand desired results closing together.”

In the words of Koontz and O’Donnel, ” The managerial function of control is themeasurement and correction of the performance of subordinates in order to make sure thatenterprise objectives and the plan devised to attain them are accomplished.”

In the words of Dale Henning, ”Control is the process of bringing about conformity ofperformance with planned action.”

Control is a basic managerial function which implies measurement and correction ofperformance of subordinates to ensure that the pre-determined objectives are accomplished.

10.3 Features of control

(i) Pervasive Function- control is pervasive function of management. In fact, it is afollow-up action to the other functions of management. This function is performedby all the managers in the organization to control the activities assigned to them.

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(ii) Dynamic Process- Control is a dynamic process. It involves continuous review ofstandards of performance and results in corrective action which may lead tochanges in planning, organizing, staffing, etc.

(iii) Continuous process- Control is forward looking. It is related to future as pastcannot be controlled. It is usually preventive as the presence of control systemsleads to minimize wastages, losses and deviations from standards. It should benoted that control does not curtail the rights of the individuals. It simply keeps acheck on the performance of individuals.

(iv) Action Oriented- action or taking corrective steps is the essence of control. Thepurpose of control is achieved only when corrective action is taken on the basis offeedback information. It is only action which adjusts performance topredetermined standards whenever derivations occur. A good system of controlfacilitates timely action so that there is minimum waste of time and energy.

10.4 Planning-Control Relationship

“Planning is required at the very outset of management whereas control is required at thelast stages. If planning is looking ahead, control is looking back.”

Control and planning are interrelated so closely that they cannot be separated from eachother. Without control all the planning is fruitless because control consists of the steps takento ensure that the performance of the organization conforms to the plans.

Planning and Controlling are inter-related within any organization. Planning sets the goals forthe organization and controlling ensures its accomplishment. Planning decides the controlprocess and controlling provides sound basis for planning. In simple words, planning andcontrolling are basically dependent on each other. The relationship between them is explainedas under:

1. Planning Originates Controlling: In planning process, the objectives or targets are to be set,and to achieve those goals, control process is required. So we can say that Planning precedescontrol.

2. Control sustains planning: Controlling directs the course of planning. Controlling spots theareas where planning is required.

3. Controlling provides information for planning: In controlling, the performance is comparedwith standards and deviations, if any, are to be recorded. The information collected duringany type of control, is used for planning also.

4. Planning and control are inter-related: Planning is the initial step and controlling is in theprocess and required at every step. For the same both are dependent upon each other andinter-related.

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5. Both are forward looking: Planning is always for the future and control is forward looking.No one has the control on past, it is only the future, which can be controlled.

Planning and Controlling are concerned with the achievement of business goals. Theircombined efforts are to achieve maximum output with minimum cost effect. Both, systematicplanning and organized controlling are essential to achieve the organizational goals.

Check your Progress I

a) Controls are ineffective when:

1) There is an emphasis on accuracy and timeliness.2) There is an emphasis on strategic placement.3) They use multiple measures of performance.4) There is an emphasis on the exception.5) Following rules is emphasized at the expense of service to clients.

b) Direct Supervision is the most common form of feedback control.

1) True 2) False

10.5 Process of control

The control process involves carefully collecting information about a system, process, person,or group of people in order to make necessary decisions about each. Managers set up controlsystems that consist of five key steps:

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1. Establish standards to measure performance. The first step of controlling is to setperformance standard. Standards are those criteria on the basis of which the actualperformance is measured. Only standards tell individuals and departments about theirdestination. A manager evaluates the actual performance on the basis of thesestandards and finds out the deviations.

Types of Standards

Standards are of following types:

(i) Quantitative Standards- They are the standards which are shown with the helpoffigures, e.g., production of 10 units comes to 100 rupees, etc.

(ii) Quantitative Standards- They are the standards which cannot be shown in theform of figures, e.g., increasing the morale of the employees. Measuring themorale of the employees is a standard of qualitative nature. It cannot be measureddirectly.

2. Measure actual performance. The second step in the process of controlling is themeasurement of actual performance. The measurement of actual performance is doneon the basis of pre-determined standards. The measurement of actual performancetells the manager whether the work has been done according to the plan or not.

This step involves measuring of actual performance of various individuals, groupsor units and then comparing it with the standards which have already been set upat the planning stage. The quantitative measurement should be done in case

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where standards have been set in quantitative terms. In other cases, performanceshould be measured in terms of qualitative factors as in case of performance ofindustrial relations managers. Comparison of performance with standards iscomparatively easier when the standards are expressed in quantitative terms.

Most organizations prepare formal reports of performance measurements thatmanager’s review regularly. These measurements should be related to the standardsset in the first step of the control process. For example, if sales growth is a target, theorganization should have a means of gathering and reporting sales data.

3. Comparison of Actual performance with the standards. This step compares actualactivities to performance standards. When managers read computer reports or walkthrough their plants, they identify whether actual performance meets, exceeds, or fallsshort of standards. Typically, performance reports simplify such comparison byplacing the performance standards for the reporting period alongside the actualperformance for the same period and by computing the variance—that is, thedifference between each actual amount and the associated standard.

4. Take corrective actions. When performance deviates from standards, managers mustdetermine what changes, if any, are necessary and how to apply them. In theproductivity and quality‐centered environment, workers and managers are oftenempowered to evaluate their own work. After the evaluator determines the cause orcauses of deviation, he or she can take the fourth step—corrective action. The mosteffective course may be prescribed by policies or may be best left up to employees'judgment and initiative.

5. Follow Up : After taking corrective actions manager take follow up of the actionsperformed by the employees in the organization.

These steps must be repeated periodically until the organizational goal is achieved.

10.5 Types of control

As it is clear from the above discussion that management can implement controls before anactivity starts, while the activity is going on or after the completion of the activity. So, thefirst type of control is called feedforward control, the second is concurrent control and the lastis feedback control.

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1. Feedforward Controls

This is the most desirable type of control. It prevents anticipated problems because ittakes place in advance of the actual activity. It’s future directed. Whenever a processis performed, two factors are very critical namely the inputs and the outputs. Here wetake into account the various deficiencies of a process well in advancse, so that thesecan be cured or controlled at the initial stages. The shape of the feedback controls istaken by almost all the controls. It is advised by the various experts to have the bothfeed forward and the feed backward controls on the process. It Helps in theestablishment of a right direction and control right from the beginning. For example,few years back Mc’Donald’s opened its first restaurant in India, it started workingwith local Indian companies to develop products that would meet its rigorous qualitystandards. It even shared its advanced agricultural and drip irrigation technologieswith lettuce farmers in Ooty, Pune, Delhi and other regions to help them to grow highquality lettuce all the year around. Why? Because McDonald’s strongly emphasizesproduct quality no matter what the geographical location. It wants a cheeseburger inNew Delhi to taste like one in Hartford, Connecticut.

The feed forward control is used to anticipate problems before they arise so thatproblems do not occur later during the conversion process. That is giving stringentproduct specifications to suppliers in advance.

2. Concurrent Controls

Concurrent control as it name implies, takes place while an activity is in progress. Itinvolves the regulation of ongoing activities that are part of transformation process toensure that they conform to organizational standards. Concurrent control is designed toensure that employee work activities produce the correct results. It requires a thoroughunderstanding of the specific tasks involved and their relationship to the desired andproduct. it often involves checkpoints at which determinations are made about whether tocontinue progress, take corrective action, or stop work altogether on products or services.

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For example, you may have experienced concurrent control when using a computerprogram such as word processing that alerts you to a misspelled word or incorrectgrammatical usage. In addition, many organizational quality programs rely on concurrentcontrols to inform workers about whether their work output is of sufficient quality to meetstandards.

1. Give managers immediate feedback on how efficiently inputs are being transformedinto outputs.

2. Allows managers to correct problems as they arise.

3. Feedback Controls

This type of control focuses on the outputs of the organization after transformation iscomplete. It often is used when feed forward and concurrent controls are not feasibleor are too costly. Feedback provides managers with meaningful information on howeffective its planning effort was. For example, financial statements are an example offeedback controls. If feedback indicates little variance between standard and actualperformance, this is evidence that planning was generally on target. If the deviation isgreat, a manager can use this information when formulating new plans to make themmore effective.

a. Here the controls are put at the output end as the deviations that occur are notknown to us till the moment of the output.b. Very heavy cost is involved.c. Results into the customer dissatisfaction.

– Used to provide information at the output stage about customers’ reactions togoods and services so that corrective action can be taken if necessary.

Check your Progress II

1) Control that occurs while an activity is in progress is most accurately referred to as:

a) Bureaucratic Controlb) Feed forward Controlc) Concurrent controld) Feedback Control

2) Properly controlled computer monitoring is an effective and legal managerial control tool.

a) True b) False

10.7 The Importance of Control

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Planning can be done, an organizational structure can be created to efficiently facilitate theachievement of objectives; and employees can be directed and motivated. Still, anorganization has no assurance that activities are going as planned and that the goals, are,infact, being attained. Control is the final link in the functional chain of management. TheImportance of Control in management are as follows:

(1) Reduces Risk:

Control eliminates the risk of non-conformity of actual performance with the main goals ofthe organisation. Control is the function which regulates the operation to ensure theattainment of the set objectives.

Regular measurement of work in progress with proper adjustments in operations puts theperformance on the right track and helps in the achievement of goals.

(2) Basis for future action:

Control provides the information and facts to the management for planning and organisingwhen the work is completed and the result is evaluated. In fact, evaluation of results helps themanagement replant for non-repetitive operations and rewarding, punishing and discipline theworkers.

It would be better to say that future long term planning is not possible unless and until controlinformation is available in time to the managers for the operation of work.

(3) Size of the business:

In large scale business in the modem times it is quite impossible to work without properpolicies, procedures and quality of different varieties of goods. That is why in a large scaleorganisation there is always the need of a scientific system of control to solve the day to dayproblems.

(4) Indicator for managerial weakness:

In the organisation there will be certain unforeseen and unknown problems which cannot betraced out by mere planning, organising and staffing efforts. It is the control process that cantrace these out. That is why it is known as an indicator of the managerial weakness. Controlnot only finds out the weakness of managers but also provides solutions and remedial actionto solve the problems.

(5) Facility of coordination:

Management and coordination of the business activities and workers is a very important role.It binds all the workers and their activities and motivates them to move towards the commonobjectives through coordination.

Control will play the role of a middleman between the workers and management to providethe required information in time to the workers.

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(6) Simplifies supervision:

A systematic system of control helps in finding out the deviation existing in the organisationwhich also simplifies the task of the supervisor in managing his subordinates. So throughcontrol it becomes simpler for the supervisor to supervise and guide the workers to follow theright track and fulfil the required goals.

(7) Extension of decentralisation:

Control system helps the top management to extend the frontiers of decentralisation withoutthe loss of control. When proper procedures, policies, targets, etc, are clearly communicatedto the subordinates, they develop self-confidence and need not always refer to theirsupervisors with the problems.

10. 8 Summary

Control is a management function that focuses on the process of monitoring activities toensure that they are being accomplished as planned. Control also includes correcting anysignificant deviations that may exist between goals and actual results.

10.9 Glossary

1. Control – The process of monitoring performance, comparing it with goals, and correctingany significant deviations.

2. Feedback Control- control that takes place after an action

3. Feedforward control- control that prevents anticipated problem

4. Concurrent control- control that takes place when an activity is in progress.

10. 10 Answers to check your Progress

Answers to Progress I

a) there is an emphasis on strategic planning.b) False

Answers to Check your Progress II:

1)Concurrent Control2) True

10.11 References:


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2.Drucker, Peter F. Management: Tasks, Respponsibilities and Practices, William HeinemannLtd., Londonhttp://dailyojo.com/articles/relationship-between-planning-and-control-explained.html

http://rgrahulguptavijay1.blogspot.in/2008/06/relationship-between-planning-and.html

http://www.preservearticles.com/2012051932632/what-is-the-importance-of-control-in-management.html


1. Taxmann’s, Principles of Management with Case studies, by Dr. Neeru Vashishth.2. McGraw Hill, Essentials of Management, An International and Leadership Perspective, byHarold Koontz, Heinz Weihrich.3. Pearson, Management, by Stephen P. Robbins, Mary Coulter & Neharika Vohra.4. Pearson, Management, by James A.F. Stoner, R. Edward Freeman & Daniel R. Gilbert, Jr.5. McGraw Hill, Management, concept, Practice & Cases, by Karminder Ghuman & KAswathappa.6. Himalaya Publishing House, Management, Theory & Practice (Text and Cases), by P.Subba Rao

10.13 Model & Terminal Questions

1. What is the role of control in management?2. what are the benefits of feedforward control?3. How are planning and control linked? Is the control function linked to organizing andleading functions of management? Explain.4. Why do you believe feedback control is the most popular type of control? Justify.5. Explain the process of controlling function of management?

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Chapter 11

Styles of Management

Structure

11.0 Objectives11.1 Introduction11.2 Japanese Management11.3 Z-Culture of American Companies11.4 Japanese Management vs. Z-Culture of Management11.5 Chinese Style Management11.6 Summary11.7 Glossary11.8 Answers to check your progress11.9 References11.10 Suggested Readings11.11 Terminal and Model Questions

11.0 Objectives

After studying this chapter you will be able to learn:

The styles of management. Types of styles of management.

Japanese management . Chinese management.

11.1 Introduction

As we all know that the art of getting employees together on a common platform andextracting the best out of them refers to effective organization management.

Management plays an important role in strengthening the bond amongst the employees andmaking them work together as a single unit. It is the management’s responsibility to ensurethat employees are satisfied with their job responsibilities and eventually deliver their levelbest.

The management must understand its employees well and strive hard to fulfill theirexpectations for a stress free ambience at the workplace. Management involves control andorganization to get something done. In the course of business, managers use many differentskills. They:

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plan and organise people and resources. set and monitor budgets. control operations or services in order to meet customers' needs. The ability to

manage is essential at all levels in the organisation.

However, for a business to excel, leadership is vital. A leader is somebody who sets thedirection and inspires other people. A leader is able to influence others in meetings or whenmaking decisions. This helps to achieve the goals of the organization. Enterprise has leadersat all levels of its business, not just senior management. Some people are natural leaders. Forexample, the captain of a school football team will probably have the ability to influenceothers. Leaders can also develop through training and education.

Managers have to perform many roles in an organization and how they handle varioussituations will depend on their style of management. A management style is an overallmethod of leadership used by a manager. The way in which managers go about their workand interact with people.

What is Management Style

Every leader has a unique style of handling the employees (Juniors/Team). The various waysof dealing with the subordinates at the workplace is called as management style.

The superiors must decide on the future course of action as per the existing culture andconditions at the workplace. The nature of employees and their mindsets also affect themanagement style of working.

Management styles are characteristic ways of making decisions and relating to subordinates.This idea was developed by Robert Tannenbaum and Warren H. Schmidt (1958, 1973), whoargued that the style of leadership is dependent upon the prevailing circumstance; thereforeleaders should exercise a range of management styles and should deploy them as appropriate.

A management style most often describes the way a manager tends to made decisions.Management Styles and Skill will provide a solid foundation in the skills and behavioursrequired to be an excellent manager. These days managing processes and workloads is justnot enough. Today’s managers need to be able to manage change, motivate, deal withdifficult people, manage performance, they need to be able to coach and develop their staffand much more beside.

Different Management Styles

1. Autocratic style

An autocratic management style is one where the manager makes decisions unilaterally, andwithout much regard for subordinates. As a result, decisions will reflect the opinions andpersonality of the manager, which in turn can project an image of a confident, well managed

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business. On the other hand, strong and competent subordinates may chafe because of limitson decision-making freedom, the organization will get limited initiatives from those "on thefront lines", and turnover among the best subordinates will be higher.

There are two types of autocratic leaders:

A directive autocrat makes decisions unilaterally and closely supervises subordinates.

A permissive autocrat makes decisions unilaterally, but gives subordinates latitude incarrying out their work.

Application: It is used in times of crisis where the time for discussion is unavailable andthe managers are responsible to give orders only. These orders need to be obeyedimmediately by the staff so that further problems are not caused. This style is also used inthe military and police forces where instruction are given and need to be taken seriouslywithout hesitation or questions.

2. Consultative Style

Consultative management is a type of management in which employees at all levels areencouraged to contribute ideas towards identifying and setting organizational-goals, problemsolving and other decisions that may directly affect them. However, decisions do take intoaccount the best interests of the employees as well as the business. Communication is againgenerally downward, but feedback to the management is encouraged to maintain morale. Thisstyle can be highly advantageous when it engenders loyalty from the employees, leading to alower labor turnover, thanks to the emphasis on social needs. On the other hand for anautocratic management style the lack of worker motivation can be typical if no loyalconnection is established between the manager and the people who are managed. It sharesdisadvantages with an autocratic style, such as employees becoming dependent on the leader.

Consultative is characterized by:

In Consultative style of working, the leaders decide what is best for the employees aswell as the organization.

Policies are devised to benefit the employees and the organization. The suggestions and feedback of the subordinates are taken into consideration before

deciding something. In such a style of working, employees feel attached and loyal towards their

organization. Employees stay motivated and enjoy their work rather than treating it as a burden.

3. Persuasive style

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A persuasive management style involves the manager sharing some characteristics with thatof an autocratic manager. The most important aspect of a persuasive manager is that theymaintain control over the entire decision making process. The most prominent difference hereis that the persuasive manager will spend more time working with their subordinates in orderto try to convince them of the benefits of the decision that have been made. A persuasivemanager is more aware of their employees, but it would be incorrect to say that thepersuasive style of management is more inclusive of employees.

Just as there are occasions where the use of an autocratic management style would beappropriate, there are also instances where a company will benefit from a persuasivemanagement style. For example, if a task that needs to be completed but it is slightlycomplicated it may be necessary to rely upon input from an expert. In such a situation, theexpert may take time to explain to others why events are happening in the order in which theywill occur, but ultimately the way in which things are done will be that person'sresponsibility. In those circumstances, they are highly unlikely to delegate any part of thedecision making process to those who are lower down in the hierarchy.

Disadvantages to a persuasive style of management

1. There may not be enough or even an entire lack of support from employees formanagement. Seeing as how the employees will have no input into the decision makingprocess, they also may not trust the decisions that are made.

2. A system that has no input from employees minimises access to one of the most valuableresources that a business has; the ideas of the people who are working on the "front line". Asa result, employees will show no initiative, which can reduce productivity.

3. One-way communication models are unlikely to be effective when compared to two-waycommunication.

Democratic style

In a democratic style, the manager allows the employees to take part in decision-making:therefore everything is agreed upon by the majority. The communication is extensive in bothdirections (from employees to leaders and vice-versa). This style can be particularly usefulwhen complex decisions need to be made that require a range of specialist skills: for example,when a new ICT system needs to be put in place, and the upper management of the businessis computer-illiterate. From the overall business's point of view, job satisfaction and qualityof work will improve, and participatory contributions from subordinates will be much higher.However, the decision-making process could be severely slowed down unless decisionprocesses are streamlined. The need for consensus may avoid taking the 'best' decision for thebusiness unless it is managed or limited. As with the autocratic leaders, democratic leadersare also two types i.e. permissive and directive.

Characteristics of Democratic are:-

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In such a style of working, superiors welcome the feedback of the subordinates. Employees are invited on an open forum to discuss the pros and cons of plans and

ideas. Democratic style of working ensures effective and healthy communication between

the management and the employees. The superiors listen to what the employees have to say before finalizing on

something.

Chaotic Style

A very modern style of management, chaotic management gives the employees total controlover the decision making process. Some modern companies have adopted this style ofmanagement and in return have become some of the most influential and innovativecompanies.

‘Chaotic Management’ was described as a leader who trusted the people that reported to him.He knew that his team knew the intent of the exercise, and he then trusted them to get on withthe job.

Google is the poster child for “chaotic” management. Its employees are given great creativity– not only in meeting goals, but in setting them in the first place. This creativity can birth atremendously vital company and give it a huge advantage over competitors, but chaoticmanagement also requires the ability and willingness to fail (which is a stake your businessmay not be willing to cede).

However, by encouraging creativity and harnessing it with firm leadership, moderncompanies may still be able to harness the driving force of chaotic management withoutsuccumbing to its dangers.

Laissez-Faire

Laissez-faire leadership, also known as delegative leadership, is a type of leadership style inwhich leaders are hands-off and allow group members to make the decisions. Researchershave found that this is generally the leadership style that leads to the lowest productivityamong group members.

Employees in a local branch have a sense of ownership for many of their activities. At thesame time, they have the support and career structure of a large multinational company.

Derived from the French meaning 'leave alone', this is a loose leadership style. It allowsemployees to carry out activities freely within broad limits. It differs from the democraticstyle in that individuals are able to behave independently and make their own decisions,rather than coming together on an agreed course of action.

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Small entrepreneurial teams manage and lead local Enterprise offices. These teams aredecentralised and make many decisions on their own. This shows a type of laissez-fairestructure.

However, this management style has drawbacks. Some employees might not be able tomotivate themselves or make the right decisions alone. Therefore individuals withinEnterprise teams work to corporate guidelines for dealing with customers. Staff also receiveregular training and feedback.

Laissez-faire leadership is characterized by:

Very little guidance from leaders Complete freedom for followers to make decisions

Leaders provide the tools and resources needed Group members are expected to solve problems on their own.


a) Which type of leader believes workers should be involved in decision making?

Bureaucratic Democratic

Laissez Faire Authoritarian

2. Which of these is a disadvantage of democratic management? Staff are motivated through involvement Employees get closers to customers

Employees are more loyal to the business decision making likely to be slower

11.2 Japanese Management

Japanese Society is based on the principle of harmony and balance for the ultimate benefit ofthe people, the family, the business and the country. Everyone has a distinct place in thehierarchy with great respect shown for age and status. Most employees achieve status in theworkplace by working their way up from the bottom to the top levels of businesses. Japanesebusinesses hire employees for life and seniority in a company is achieved through theirexperience and longevity with the company. The Japanese prefer to do business on the basisof personal relationships, thus most business associations are achieved through introductionsand recommendations by those who already have a good relationship with a Japanesecompany. The Japanese know their employees and their clients intimately. Business decisionsare based on established ability and credibility in personal and business affairs. The value of a

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business enterprise is reflected in clients’ testimonials of a company’s quality service orproduct. The Japanese prefer long-term relationships with their business associates.

11.3 American Management

American management style can be described as individualistic in approach, in so far asmanagers are accountable for the decisions made within their areas of responsibility.American managers are more likely to disregard the opinions of subordinates than managersin other, more consensus or compromise- oriented cultures. This can obviously lead tofrustrations, which can sometimes seem to boil over in meeting situations

11.4 Japanese Management vs. Z-Culture of American Companies

Characteristic U.S.A JapanSpeed vs.Consistency

Generally U.S. Company’s decisionmaking is quick. Superiors givesome great leeway to subordinatesso that they can decide and makedecisions quickly. Unfortunatelythere are some errors that can comebecause of that.

Japanese company’s decisionmaking is in stages along theircorporate hierarchy. Theirdecisions are very cautious andconservative and sometimes slowerthan U.S. companies. These stagesare backed by plenty of meetingsand documentation. This minimizeserror and brings consistency at alllevels

Roles &Responsibilitiesfor Individualvs. Group

The U.S company’s roles are veryindividualized. Contribution ofindividual is very important aslinked to company goals.

Japanese companies requireindividual contribution to thewhole group but recognize that thewhole group must succeedotherwise the individual’scontribution has no meaning.

ROI of Revenuevs. ROI ofRelationships

US companies focus on return oninvestment or the end result. Theydon’t concern themselves on how itis achieved. US companies spendless time establishing their process.

Japanese also focus on ROI,however, they emphasize theprocess on how to get there. Forexample, they evaluate how tocreate the process for the project sothat they regard the cost includingthe value of establishing theprocess in total.

Risk Takers vs.Risk Adverse

If we ask something to achieve forthem, they’ll say “We can do it” 50-

If the Japanese feel that it’spossible to achieve most likely

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Cultures 70% probabilities. After theyaccepted, they try to achieve asclose to 100%.

100%, they don’t say “Yes”. Theiragreement is careful because theywant to be accurate. They makesure it is exactly 100%What theJapanese say is important. If theyare not right it will reflect bad onthem.

Heterogenousvs. Homogenouscultures

Since U.S. is multicultural, thecompany is consisted of a plenty ofnationalities, which means there areso many different way to think.Almost the all situations, they don’tprogress without say anything.

Basically a Japanese company isorganized by Japanese. Almosteveryone has same background torealize the situation so some of theunderstanding is in unspokenwords. This is one of the importantcommunication skills in Japan.

Time Spentcollaborating vs.Collaboratingtime spent

US companies aim to do meetingsefficiently as much as they can. Themeetings are fewer and less time. Ifmeetings are too plenty the peopleseem to resist them.

Meetings are very common in largecompanies. They value the processto agree with everyone who isrelated to their project, so theyhave many meetings and spend alot of time in meetings.

Remote vs.Face-to-FaceCommunications

Contacting clients by email or onthe phone seems to be more naturalin conducting businessrelationships.

They respect meeting each otherface to face. It is important to themfor conducting businessrelationships.

Loose vsStructuredWorking Styles

Basically the working style isalmost the same as Japan. It is veryflexible, where working from homeis very normal. They have acubicles for each employee whichfocuses on a persons independence-high walls, isolation, andspaciousness.

Most Japanese companies workregular office hours and they don’tpermit working at home. The workenvironment is set like a schoolclass where the head of thedepartment is at the top of a row ofdesks. There are group oriented- nowalls, no cubicles and closeness.

Self-Sponsoredvs. Company-SponsoredRetirementRewards

The 401k is entirely sponsored byemployee salary with the exceptionof matching funding by companies.This system is one of the things thatdoes not encourage people to staywith companies. One exception isthe pension systems in the US.

Japanese are encouraged to stay inone company by the monetaryrewards. These are companysponsored payments independentof the person’s salary. The longerthey stay the higher the companysponsored payout is to them.

Personal Life vs.ProfessionalLife

Family and personal time is thepriority in the US. Work-Lifebalance is a must. There is somesocializing outside of work but not

In Japan, priority is on the worklife. It is given work is the center oflife. There are many traditions thatre-enforce this. A newcomer to the

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as a group. company, hold the place forHanami to enjoy the cherryblossom in Spring for drinkingwith co-workers. Also a commonafter-work event is Nomikai(drinking party) and is used as avery important opportunity tocommunicate with each other forwork.

11.5 Chinese Style Management

According to Confucian philosophy, all relationships are deemed to be unequal. Ethicalbehavior Ethical behavior demands that these inequalities are respected. Thus, the olderperson should automatically receive respect from the younger, the senior from thesubordinate. This Confucian approach should be seen as the cornerstone of all managementthinking and issues such as empowerment and open access to all information are viewed bythe Chinese.

Thus, in China, management style tends towards the directive, with the senior manager givinginstructions to their direct reports who in turn pass on the instructions down the line. It is notexpected that subordinates will question the decisions of superiors – that would be to showdisrespect and be the direct cause of loss of face for all concerned.

The manager should be seen as a type of father figure who expects and receives loyalty andobedience from colleagues. In return, the manger is expected to take a holistic interest in thewell being of those colleagues. It is a mutually beneficial two-way relationship.

It is often said that China has a lack of good-quality, experienced managers – this is typical ofa rapidly growing and modernizing economy – and that good managers who are available arevery expensive. There is enormous emphasis on any company’s recruitment and retentionpolicies – you have to be able to recruit the best and keep them.

The Guanxi

The Chinese are more committed than in the West at the so-called “guanxi” – relationships.Indeed, this principle of recommendation from one person to another because of their good“guanxi” is very common, or even the fact of rendering a service to a person who is the friendof the friend of the good “guanxi”. The danger is that in doing business in China is conductedmainly at two levels.

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You can meet the case of the supplier who will recommend one another because both havegood relations with each other or that one is indebted to another, but that does not attest to thequality of all new suppliers, so act prudently. Another scenario that could pose more of aproblem, if one of your employees that builds and maintains good relations with supplierspersonally, and may be corrupted very quickly, either by being offered gifts, watered, andeven monetary commissions on purchases evenings! So vigilance is recommended whereverthere are “guanxi” a priori unsuspected.

People with a good network will be more influential than others. This can be an asset to havesuch people in your business.

Individualism and collectivism

Finally, the Chinese agree in their representation of the business and professionalenvironment certain behaviors that could be described as inconsistent in our Westernperspective. However, individually, these behaviors are obvious.

The difficulty therefore lies in our acceptance of their ability to think white and black at thesame time, and their even more to make a combination of the white and the black that is asincomprehensible to our impeccable ability eyes.

How to design the fact that the Chinese are so individualistic but do yet still part of a group,or “unit of work”? How to design them seem to support the group and yet they practice verycommon denunciation? How to understand that there are still rewards systems for group workwhen they have a rare concept of team spirit in the effort?

In general, the Chinese see only his personal interest in the positive that a particular action tobe taken would bring consequences. If a colleague has made a difference, he denounced if hehas nothing to lose but as long to win back recognition of loyalty from his manager, saying itcontributes to save the group. Similarly, a Chinese will not help his colleague at the task if itallows him to profit for himself, but by no means simply cooperate or improve a certainprofitability of the group work or the business.

Check your Progress II

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1. What management style means that all decisions are made centrally ? Authoritarian

Laissez Fire Democratic

Bureaucratic2. A possible advantage of sing authoritarian management is :

Allows for new ideas or suggestions

Change can be implemented quickly Highly inflexible

Staff motivation is low

11.6 Summary

A management style most often describes the way a manager tends to made decisions.Management Styles and Skill will provide a solid foundation in the skills and behavioursrequired to be an excellent manager. American management style is an individualistic inapproach, in so far as managers are accountable for the decisions made within their areas ofresponsibility. Japanese Society is based on the principle of harmony and balance for theultimate benefit of the people, the family, the business and the country American managersare more likely to disregard the opinions of subordinates than managers in other, moreconsensus or compromise- oriented cultures.

11.7 Glossary

1. Management Style: Characteristic ways of making decisions and relating to subordinates.

2. Autocratic: Where leader makes all decisions unilaterally.

3. Democratic: Where the manager allows the employees to take part in decision-making

4. Laissez Faire: is a type of leadership style in which leaders are hands-off and allow groupmembers to make the decisions.

5. Persuasive : Where manager has to maintain control over the entire decision makingprocess.


Answers to Progress I

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1 Democratic

2 Decision making likely to be slower

Answer to Progress II

1 Authoritarian

2 Change can be implemented quickly

11.10 References

http://www.tutor2u.net/business/quiz/leadership/quiz.html

http://businesscasestudies.co.uk/enterprise-rent-a-car/using-a-range-of-management-styles-to-lead-a-business/leadership-and-management.html#axzz30d5ma64e

http://www.tutorialspoint.com/management_concepts/management_styles.htm

http://managementstudyguide.com/management-style.htm

http://wheniwork.com/understanding-your-unique-management-style/

http://blog.btrax.com/en/2010/12/15/10-cultural-contrasts-between-us-and-japanese-companies-a-personal-view/

http://bizshifts-trends.com/2011/01/10/management-styles-u-s-europe-japan-china-india-brazil-russia/

http://www.insidebusiness360.com/index.php/differences-between-american-and-japanese-management-systems-4722/


Understanding and Changing Your Management Style (Jossey-BassBusiness/Management Series) by Robert C. Benfari

The Big 3 Management Styles by Paul B. Thornton


1. Define style of management.

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2. What are the different types of styles in management ? Which is the best style in thesituation of crisis when time is unavailable for discussion ?

3. List some characteristics of democratic style?

4. Define laissez faire style of management?

5. Distinguish between cultural contrasts of Japanese and American Firms.

6. Describe in brief about Chinese culture of management.

7. What is Guanxi in the Chinese context ?

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Chapter 12

Modern Management Techniques

Structure12.0 Introduction12.1 Business process reengineering12.2 Business outsourcing12.3 Benchmarking12.4 Knowledge Management12.5 E-Business Management12.6 Total Quality Management12.7 Process of TQM12.8 McKinsey’s 7-S Approach12.9 Summary12.10 Glossary12.11 Answers to Check your Progress12.12 References12.13 Suggested Readings12.14 Model & Terminal Questions

12.0Objectives

After studying this chapter you will be able to

Learn new techniques related to management. Learn benchmarking.

Know the process of TQM. Explain McKinsey’s 7-S Approach.

12.1 Introduction

There are some latest techniques in the area of management which helps the organisation tomaintain and control quality.

12.2 Business Process Reengineering

Business process re-engineering is a business management strategy originally pioneered inthe early 1990s focusing on the analysis and design of workflows and business

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processes within an organization. BPR aimed to help organizations fundamentally rethinkhow they do their work in order to dramatically improve customer service cut operationalcosts and become world-class competitors.

Business process reengineering seeks to help companies radically restructure theirorganizations by focusing on the ground-up design of their business processes. Re-engineering emphasized a holistic focus on business objectives and how processes related tothem, encouraging full-scale recreation of processes rather than iterative optimization of subprocesses.

Business process re-engineering is also known as business process redesign, businesstransformation, or business process change management. Business Process Reengineering(BPR) is the practice of rethinking and redesigning the way work is done to better support anorganization's mission and reduce costs. Reengineering starts with a high-level assessment ofthe organization's mission, strategic goals, and customer needs. Within the framework of thisbasic assessment of mission and goals, re-engineering focuses on the organization's businessprocesses—the steps and procedures that govern how resources are used tocreate products and services that meet the needs of particular customers or markets. As astructured ordering of work steps across time and place, a business process can bedecomposed into specific activities, measured, modelled, and improved. It can also becompletely redesigned or eliminated altogether. Re-engineering identifies, analyzes, and re-designs an organization's core business processes with the aim of achieving dramaticimprovements in critical performance measures, such as cost, quality, service, and speed.

Re-engineering recognizes that an organization's business processes are usually fragmentedinto sub processes and tasks that are carried out by several specialized functional areas withinthe organization. Often, no one is responsible for the overall performance of the entireprocess. Re-engineering maintains that optimizing the performance of sub processes canresult in some benefits, but cannot yield dramatic improvements if the process itself isfundamentally inefficient and outmoded. For that reason, re-engineering focuses on re-designing the process as a whole in order to achieve the greatest possible benefits to theorganization and their customers. This drive for realizing dramatic improvements byfundamentally re-thinking how the organization's work should be done distinguishes re-engineering from process improvement efforts that focus on functional or incrementalimprovement.

Business process reengineering (BPR) is the analysis and redesign of workflow within andbetween enterprises.

Hammer and Champy felt that the design of workflow in most large corporations was basedon assumptions about technology, people, and organizational goals that were no longer valid.They suggested seven principles of reengineering to streamline the work process and therebyachieve significant levels of improvement in quality, time management, and cost:

1. Organize around outcomes, not tasks.2. Identify all the processes in an organization and prioritize them in order of redesign

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urgency.3. Integrate information processing work into the real work that produces the information.4. Treat geographically dispersed resources as though they were centralized.5. Link parallel activities in the workflow instead of just integrating their results.6. Put the decision point where the work is performed, and build control into the process.7. Capture information once and at the source.

By the mid-1990's, BPR gained the reputation of being a nice way of saying “downsizing.”According to Hammer, lack of sustained management commitment and leadership, unrealisticscope and expectations and resistance to change prompted management to abandon theconcept of BPR and embrace the next new methodology, enterprise resource planning.

Features of BPR

The following are some features of re-engineered processes:

Several jobs in an organisation are combined into one. Workers make real decisions and work is performed where it makes most sense. Checks and controls in an organisation are reduced. Reconciliation processes are reduced. A case manager provides a point of contact.

Advantages and Disadvantages of BPR

BPR revolves around customer needs and helps to give an appropriate focus to thebusiness.

BPR provides cost advantages that assist the organisation's competitive position. BPR encourages a long-term strategic view of operational processes by asking radical

questions about how things are done and how processes could be improved. BPR helps overcome the short-sighted approaches that sometimes emerge from

excessive concentration on functional boundaries. By focusing on entire processes theexercise can streamline activities throughout the organisation.

BPR can help to reduce organisational complexity by eliminating unnecessaryactivities.

Criticisms of BPR

BPR was sometimes seen as a means of making small improvements in existingpractices. In reality, it should be a more radical approach that questions whetherexisting practices make any sense in their present form.

BPR was often perceived as a single, once-for-all cost-cutting exercise. In reality, it isnot primarily concerned with cost cutting and should be regarded as on-going ratherthan once-for-all. This misconception often creates hostility in the minds of staff whosee the exercise as a threat to their security.

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BPR requires a far-reaching and long-term commitment by management and staff.Securing this is not an easy task, and many organisations have rejected the whole ideaas not worth the effort.

In many cases business processes were not redesigned but merely automated. In some cases the efficiency of one department was improved at the expense of the

overall process. To make BPR work requires a focus on integrated processes (asdiscussed above) that often involves obliterating existing processes and creating newones.

Some companies became so focused on improving internal processes that they failedto keep up with competitors' activities in the market.

Most companies are now more likely to talk about 'business process redesign' instead.

The influence of BPR on systems development

BPR results in more automation and greater use of IT/IS to integrate processes. Some of thekey technologies that allow fundamental shifts in business operations to occur are:

There are shared database access from any location Expert systems (a database system providing expert knowledge and advice) to

devolve expertise Powerful communication networks for remote offices Wireless communication for on-the-spot decision making Tracking technology for warehouses and delivery systems Internet services to re-engineer channels of distribution.

12.3 Business Outsourcing

Business process outsourcing (BPO) is a subset of outsourcing that involves thecontracting of the operations and responsibilities of specific business functions (or processes)to a third-party service provider. Originally, this was associated with manufacturing firms,such as Coca Cola that outsourced large segments of its supply chain.

BPO is typically categorized into back office outsourcing, which includes internal businessfunctions such as human resources or finance and accounting, and front office outsourcing,which includes customer-related services such as contact center services.

BPO that is contracted outside a company's country is called offshore outsourcing. BPO thatis contracted to a company's neighbouring (or nearby) country is called nearshoreoutsourcing.

Outsourcing can be divided into two broad categories. They are:

1. Business Process Outsourcing:

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In business Process Outsourcing a particular process task is outsourced. An example wouldbe payroll. BPO work could be either back office related or front office work. By front officefunctions we mean customer oriented work life marketing, answering calls, technical supportand so on, whereas internal work like billing and purchase come in the office category.Multimedia/animation, book keeping, business consultancy, CAD/CAM, Call Center, DTP,data entry, proof reading and editing, typesetting, handwriting services, marketing, medicalbilling and transcription, web design and development etc. are all services that could be putunder the BPO category.

2. Knowledge Process Outsourcing

Knowledge process outsourcing describes the outsourcing of core information-relatedbusiness activities which are competitively important or form an integral part of a company’svalue chain. KPO requires advanced analytical and technical skills as well as a high degree ofspecialist expertise, additional value creation the potential for cost reductions, and a shortageof skilled labour. Regions which are particularly prominent in Knowledge ProcessOutsourcing include India and Eastern Europe.KPO (Knowledge Process Outsourcing) services include all kinds of research andinformation gathering, e.g. intellectual property research for patent applications; equityresearch, business and market research, legal and medical services; training, consultancy,and research and development in fields such as pharmaceuticals and biotechnology; andanimation and design, etc.

12.4 BenchmarkingBenchmarking is the method of comparing the cost, cycle time, productivity, or quality of aparticular process or method to another that is extensively considered to be an industrystandard or best function. The result is often a business case for making changes in categorizeto make improvements. The term benchmarking was first used by cobblers to measure one’sfeet for shoes. They would place the foot on a ‘bench’ and mark to make the pattern for theshoes. Benchmarking is most used to measure performance using a specific indicator (costper unit of measure, productivity per unit of measure, cycle time of x per unit of measure ordefects per unit of measure) resulting in a metric of performance that is then compared toothers.Thus, benchmarking is a systematic tool that allows a company to determine whether itsperformance of organizational processes and activities represent the best practices. Abenchmark is a point of reference for a measurement. The term ‘benchmark’ presumablyoriginates from the practice of making dimensional height measurements of an object on aworkbench using a gradual scale or similar tool, and using the workbench as the origin for themeasurements. It is also referred to as “best practice benchmarking” or “processbenchmarking”, it is a practice which used in management and generally strategicmanagement, in which organizations evaluate various aspects of their processes in relation tobest follows, usually with in a peer group defined for the purposes of comparison.

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Benchmarking is defined as the continuous process of measuring products, services andpractices against the toughest competitors or those companies recognized as industry leaders(best in class)’.

The essential elements of benchmarking are that :1. Continuous: Benchmarking should not be treated as ‘one-off’ exercise. It should beincorporated into the regular planning cycle of the organization and management of keyprocesses.2. Systematic: It is important to ensure that a consistent methodology is adopted by theorganization and that it is actually followed. It is equally important that processes are in placeto ensure that good practice is shared across the organization.3. Implementation: Benchmarking helps to identify the gaps that exist between currentperformance and ‘Best Practice’ and also how ‘Best Practice’ performance has been achievedbut in order for improvement to occur, a set of actions must be implemented.4. Best Practice: It is not necessary to identify the absolute ‘Best Practice’ in the world inorder for benchmarking to be successful. ‘Good or Superior’ practice is probably a moreaccurate phrase.


1. Benchmarking is a ................................ process of measuring products, services andpractices against the toughest competitors.

2. Business process reengineering has no start or end – it is an evolutionary process.a) Trueb) False

3) Name two types of outsourcing.

12.5 Knowledge Management

Knowledge management (KM) is the process of capturing, developing, sharing, andeffectively using organisational knowledge. It refers to a multi-disciplined approach toachieving organisational objectives by making the best use of knowledge.

Many large companies, public institutions and non-profit organisations have resourcesdedicated to internal KM efforts, often as a part of their business strategy, informationtechnology, or human resource management departments. Several consulting companiesprovide strategy and advice regarding KM to these organisations.

Knowledge management efforts typically focus on organisational objectives such asimproved performance, competitive advantage, innovation, the sharing of lessons learned,integration and continuous improvement of the organisation. Knowledge management effortsoverlap with organisational learning and may be distinguished from that by a greater focus on

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the management of knowledge as a strategic asset and a focus on encouraging the sharing ofknowledge.

12.6 E-Business Management

E-business management is managing the electronic business transactions. e-business, is theapplication of information and communication technologies in support of all the activitiesof business. Commerce constitutes the exchange of products and services between businesses,groups and individuals and can be seen as one of the essential activities of any business.Electronic commerce focuses on the use of ICT to enable the external activities andrelationships of the business with individuals, groups and other businesses.

There are some potential concerns which are related to e-business management.

Electronic commerce may be responsible for consolidation and the decline of mom-and-pop, brick and mortar businesses resulting in increases in income inequality.

Security

E-Business systems naturally have greater security risks than traditional business systems,therefore it is important for e-business systems to be fully protected against these risks. A fargreater number of people have access to e-businesses through the internet than would haveaccess to a traditional business. Customers, suppliers, employees, and numerous other peopleuse any particular e-business system daily and expect their confidential information to staysecure. Hackers are one of the great threats to the security of e-businesses. Some commonsecurity concerns for e-Businesses include keeping business and customer informationprivate and confidential, authenticity of data, and data integrity. Some of the methods ofprotecting e-business security and keeping information secure include physical securitymeasures as well as data storage, data transmission, anti-virus software, firewalls, andencryption to list a few.

Privacy and confidentiality

Confidentiality is the extent to which businesses makes personal information available toother businesses and individuals. With any business, confidential information must remainsecure and only be accessible to the intended recipient. However, this becomes even moredifficult when dealing with e-businesses specifically. To keep such information secure meansprotecting any electronic records and files from unauthorized access, as well as ensuring safetransmission and data storage of such information. Tools such as encryption and firewallsmanage this specific concern within e-business.

Authenticity

E-business transactions pose greater challenges for establishing authenticity due to the easewith which electronic information may be altered and copied. Both parties in an e-businesstransaction want to have the assurance that the other party is who they claim to be, especially

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when a customer places an order and then submits a payment electronically. One commonway to ensure this is to limit access to a network or trusted parties by using a virtual privatenetwork (VPN) technology. The establishment of authenticity is even greater when acombination of techniques are used, and such techniques involve checking "something youknow" (i.e. password or PIN), "something you need (i.e. credit card), or "something you are"(i.e. digital signatures or voice recognition methods). Many times in e-business, however,"something you are" is pretty strongly verified by checking the purchaser's "something youhave" (i.e. credit card) and "something you know" (i.e. card number).

Data integrity

Data integrity answers the question "Can the information be changed or corrupted in anyway?" This leads to the assurance that the message received is identical to the message sent.A business needs to be confident that data is not changed in transit, whether deliberately orby accident. To help with data integrity, firewalls protect stored data against unauthorizedaccess, while simply backing up data allows recovery should the data or equipment bedamaged.

Non-repudiation

This concern deals with the existence of proof in a transaction. A business must haveassurance that the receiving party or purchaser cannot deny that a transaction has occurred,and this means having sufficient evidence to prove the transaction. One way to address non-repudiation is using digital signatures. A digital signature not only ensures that a message ordocument has been electronically signed by the person, but since a digital signature can onlybe created by one person, it also ensures that this person cannot later deny that they providedtheir signature.

Access control

When certain electronic resources and information is limited to only a few authorizedindividuals, a business and its customers must have the assurance that no one else can accessthe systems or information. Fortunately, there are a variety of techniques to address thisconcern including firewalls, access privileges, user identification and authenticationtechniques (such as passwords and digital certificates), Virtual Private Networks (VPN), andmuch more.

Availability

This concern is specifically pertinent to a business' customers as certain information must beavailable when customers need it. Messages must be delivered in a reliable and timelyfashion, and information must be stored and retrieved as required. Because availability ofservice is important for all e-business websites, steps must be taken to prevent disruption ofservice by events such as power outages and damage to physical infrastructure. Examples toaddress this include data backup, fire-suppression systems, Uninterrupted Power Supply(UPS) systems, virus protection, as well as making sure that there is sufficient capacity tohandle the demands posed by heavy network traffic.

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12.7 Total Quality Management

Total quality management is a management system for a customer-focused organization thatinvolves all employees in continual improvement. It uses strategy, data and effectivecommunications to integrate the quality discipline into the culture and activities of theorganisation.

1. Customer – focused: The customer ultimately determines the level of quality. No matterwhat an organization does to foster quality improvement – training employees, integratingquality into the design process, upgrading computers or software, or buying new measuringtools – the customer determines whether the efforts were worthwhile.

2. Total employee involvement: All employees participate in working toward commongoals. Total employee commitment can only be obtained after fear has been driven from theworkplace, when empowerment has occurred, and management has provided the properenvironment. High performance work systems integrate continuous improvement efforts withnormal business operations. Self managed work teams are one forms of empowerment.

3. Process – centred: A fundamental part of total quality management is a focus on processthinking. A process is a series of steps that take inputs from suppliers and transforms theminto outputs that are delivered to customers. The steps required to carry out the process aredefined and performance measures are continuously monitored in order to detect unexpectedvariation.

4. Integrated system: As we know that organization may consist of many differentfunctional specialities often organized into vertically structured departments. It is thehorizontal process interconnecting these functions that are the focus of TQM. Micro-processes add up to larger processes, and all processes aggregate into the business processesrequired for defining and implementing strategy. Everyone must understand the vision,mission, and guiding principles as well as the quality policies, objectives and criticalprocesses of the organization. Business performance must be monitored and communicatedcontinuously. Thus, an integrated system connects business improvement elements in anattempt to continually improve and exceed the expectations of customers, employees andother stakeholders.

5. Strategic and systematic approach: A critical part of the management of quality is thestrategic and systematic approach to achieving an organization’s vision, mission and goals.This process, called strategic planning or strategic management, includes the formulation of astrategic plan that integrates quality as a core component.

6. Continual improvement: A major thrust of TQM is continual process improvement.Continual improvement drives an organization to be both analytical and creative in findingways to become more competitive and more effective at meeting stakeholder expectations.

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7. Fact-based decision making: In order to know how well an organization is performing, dataon performance measures are necessary. TQM requires that an organization continuallycollect and analyze data in order to improve decision making accuracy, achieve consensus,and allow prediction based on past history.

8. Communications: During times of organizational change, as well as part of day-to-dayoperation, effective communications plays a large part in maintaining morale and inmotivating employees at all levels. Communications involve strategies, method andtimeliness.

These elements are considered so essential to TQM that many organizations define them, insome format, as a set of core values and principles on which the organization is to operate.

12.8 Process of TQM

TQM requires a new process thinking mindset. We must realize that everything we do is partof a process. Our focus shifts from managing outcomes to managing and improvingprocesses; from what to do to how to do the processes better. Quality performance expands toinclude how well each part of the process works and the relationship of each part to theprocess. Also, process improvement focuses on continuously achieving the greatest potentialbenefit for our customers.

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No two organizations have the same TQM implementation. There is no recipe fororganization success; however, there are a number of great TQM models that organizationscan use. These include the Deming Application Prize, the Malcolm Baldrige Criteria forPerformance Excellence, the European Foundation for Quality Management, and the ISOquality management standards. Any organization that wants to improve its performancewould be well served by selecting one of these models and conducting a self-assessment.

1. The simplest model of TQM is shown in this above TQM diagram. The model begins withunderstanding customer needs. TQM organizations have processes that continuously collect,analyze, and act on customer information. Activities are often extended to understandingcompetitor's customers. Developing an intimate understanding of customer needs allowsTQM organizations to predict future customer behaviour.

2. TQM organizations integrate customer knowledge with other information and use theplanning process to orchestrate action throughout the organization to manage day to dayactivities and achieve future goals. Plans are reviewed at periodic intervals and adjusted asnecessary. The planning process is the glue that holds together all TQM activity.

3. TQM organizations understand that customers will only be satisfied when they consistentlyreceive products and services that meet their needs, are delivered when expected, and arepriced for value. TQM organizations use the techniques of process management to developcost-controlled processes that are stable and capable of meeting customer expectations.

4. TQM organizations also understand that exceptional performance today may beunacceptable performance in the future so they use the concepts of process improvement toachieve both breakthrough gains and incremental continuous improvement. Processimprovement is even applied to the TQM system itself!

5. The final element of the TQM model is total participation. TQM organizations understandthat all work is performed through people. This begins with leadership. In TQMorganizations, top management takes personal responsibility for implementing, nurturing, andrefining all TQM activities. They make sure people are properly trained, capable, and activelyparticipate in achieving organizational success. Management and employees work together tocreate an empowered environment where people are valued.

All of the TQM model's elements work together to achieve results.

12.9 McKinsey’s 7-S Approach

“McKinsey 7s model is a tool that analyzes firm’s organizational design by looking at 7 keyinternal elements: strategy, structure, systems, shared values, style, staff and skills, in order toidentify if they are effectively aligned and allow organization to achieve its objectives.”

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Understanding the toolMcKinsey 7s model was developed in 1980s by McKinsey consultants Tom Peters, RobertWaterman and Julien Philips with a help from Richard Pascale and Anthony G. Athos. Sincethe introduction, the model has been widely used by academics and practitioners and remainsone of the most popular strategic planning tools. It sought to present an emphasis on humanresources (Soft S), rather than the traditional mass production tangibles of capital,infrastructure and equipment, as a key to higher organizational performance. The goal of themodel was to show how 7 elements of the company: Structure, Strategy, Skills, Staff, Style,Systems, and Shared values, can be aligned together to achieve effectiveness in a company.The key point of the model is that all the seven areas are interconnected and a change in onearea requires change in the rest of a firm for it to function effectively.Below you can find the McKinsey model, which represents the connections between sevenareas and divides them into ‘Soft Ss’ and ‘Hard Ss’. The shape of the model emphasizesinterconnectedness of the elements.

The model can be applied to many situations and is a valuable tool when organizationaldesign is at question. The most common uses of the framework are:

To facilitate organizational change. To help implement new strategy. To identify how each area may change in a future.

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To facilitate the merger of organizations.

7s factors In McKinsey model, the seven areas of organization are divided into the ‘soft’ and

‘hard’ areas. Strategy, structure and systems are hard elements that are much easier toidentify and manage when compared to soft elements. On the other hand, soft areas,although harder to manage, are the foundation of the organization and are more likelyto create the sustained competitive advantage.

Hard Ss Soft Ss

Strategy Style

Structure Staff

Systems Skills

Shared Values

Strategy is a plan developed by a firm to achieve sustained competitive advantageand successfully compete in the market. What does a well-aligned strategy mean in 7sMcKinsey model? In general, a sound strategy is the one that’s clearly articulated, islong-term, helps to achieve competitive advantage and is reinforced by strong vision,mission and values. But it’s hard to tell if such strategy is well-aligned with otherelements when analyzed alone. So the key in 7s model is not to look at your companyto find the great strategy, structure, systems and etc. but to look if its aligned withother elements. For example, short-term strategy is usually a poor choice for acompany but if its aligned with other 6 elements, then it may provide strong results.

Structure represents the way business divisions and units are organized and includesthe information of who is accountable to whom. In other words, structure is theorganizational chart of the firm. It is also one of the most visible and easy to changeelements of the framework.

Systems are the processes and procedures of the company, which reveal business’daily activities and how decisions are made. Systems are the area of the firm thatdetermines how business is done and it should be the main focus for managers duringorganizational change.

Skills are the abilities that firm’s employees perform very well. They also includecapabilities and competences. During organizational change, the question often arisesof what skills the company will really need to reinforce its new strategy or newstructure.

Staff element is concerned with what type and how many employees an organizationwill need and how they will be recruited, trained, motivated and rewarded.

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Style represents the way the company is managed by top-level managers, how theyinteract, what actions do they take and their symbolic value. In other words, it is themanagement style of company’s leaders.

Shared Values are at the core of McKinsey 7s model. They are the norms andstandards that guide employee behavior and company actions and thus, are thefoundation of every organization.


1. A successful TQM program incorporates all of the following excepta. continuous improvementb. employment involvementc. benchmarkingd. centralized decision making authority

2. Who developed 7 S model?a) McKinsey & Companyb) Chester Bernardc) Michael Porterd) F.W. Taylor

12.10 Summary

Thus, business managers have realized that the customer is supreme or there is need to renderpersonalized services. Keeping in view the needs of the customer, now-a-days companies areadopting some modern management techniques which focus on the quality of the product andservices so that customer should be satisfied. They are using some strategic planning toolswhich lead to positive organizational changes and facilitate the merger of organizations.

12.11 Glossary

1 Shared Values: norms and standards that guide employee behavior and company actions

2 Skill : Abilities that firm’s employees perform very well.

3 Systems: Process and procedures of the company

4 Structure: organizational chart of the firm

5 Strategy: plan developed by firm to achieve sustained competitive advantage

6 Quality: conformance to requirements

7 Knowledge management: it is a process of capturing, developing, sharing and effectivelyusing organisational knowledge

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8 Benchmarking: method of comparing the cost, cycle time, productivity, or quality of aparticular process

9 Business process outsourcing: method of comparing the cost, cycle time, productivity, orquality of a particular process

10 Business process re-engineering: is the practice of rethinking and redesigning the waywork is done to better support an organization's mission and reduce costs.


Check your Progress I:1. Continuous2. True3. Business Process Outsourcing & Knowledge Process Outsourcing

Check your Progress II:a) Centralized decision making authorityb) McKinsey & Company

12.13 References

1. Encyclopaedia of Modern Management Techniques by A.K. Chaudary2. A Handbook of Management Techniques : The best selling guide to modern managementmethods3. https://www.google.co.in/search?q=total+quality+management+process&biw4. http://asq.org/learn-about-quality/total-quality-management/overview/overview.html

5.http://highered.mcgrawhill.com/sites/0072853182/student_view0/chapter31/multiple_choice_quiz.html6. http://www.fpsc.gov.pk/icms/admin/webpages/docs/Business%20Administration-10.pdf7.www.mbaskool.com 7-S Framework McKinsey | Definition and Concept | HR | MBA Skool-Study.Learn.Share.

8. Read more:http://www.knowledge-management-tools.net/km-books.html#ixzz33BFXyE5b


1. Coping with Continuous Change in the Business Environment: Knowledge Managementand Knowledge Management Technology by Derrick Kourie, Retha Snyman, and AntonieBotha (2008)

2. Knowledge Management by Gamble & Blackwell (2001)3. Total Quality Management by Poornima M Charantimath ; Pearson.

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1. Discuss total quality management.2. What is 7-S Model? Comment on Hard S and Soft S.3. What is business process re-engineering? What are its advantages and disadvantages.4. Write short notes on:a) Knowledge Managementb) Business Process Outsourcing Examplesc) Knowledge process outsourcing

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