PRINCIPLES OF MANAGEMENT

www.eiilmuniversity.ac.in

Subject: PRINCIPLES OF MANAGEMENT

Credits: 4

SYLLABUS

Nature
Scope and process of management, historical evolution of management & its foundation.
Different approaches and systems of management,
Types of skills, roles and modern challenges.
Management Planning Process.
Managerial decision
Making
Introduction to Organizing
Organizational Structure and Its Dimensions.
Different Types of Organizational Design and Their Advantages and Disadvantages.
Nature and types of control in organizations.
Introduction to Controlling
Controlling Techniques, Types and its advantages & disadvantages. Control Process and its constituents.
Introduction to Human Resource Management
HRM planning & steps in planning process.
HRM process
Recruitment, selection, Training and development.
Performance Appraisal and issues in human resources
Leadership concept and some leadership theories.
Leadership theories. Leadership Models.
Leadership Development and Motivation.
Motivational theories
Suggested Readings:
1. Harold Koontz & Heinz Weihrich, Essentials of Management, Tata McGraw Hill
2. Stoner, Freeman, Gilbert Jr., Management, Prentice Hall
3. Bhatt & Kumar, Principles of Management, Oxford Publications

PRINCIPLES OF MANAGEMENT

PRINCIPLES OF MANAGEMENT

COURSE OVERVIEW

Management is the organizational process that aids us in

that many layers of management-particularly middle manage-

creating a service or product from the raw materials we have at

ment-are disappearing in modern organizations

hand. It is the sum of the input processes that allow us to

Managers, regardless of their particular job, generally all perform

mold something useful from what otherwise is a disarray of

some degree of the following activities-Planning, Organizing,

human resources and raw components. The output of this

Staffing, Leading, and Controlling.

controlled processing creates a valuable product or service which

someone (a customer) is generally willing to pay for. Simply
stated, the managers job is to help all these processes run
smoothly, and to address the roadblocks to successful output.
The need for leadership is a recurring theme in management.
Leadership is essentially the enabling qualities that a manager
possesses that help an organization to move toward a desirable
goal and to achieve it. It is a combination of the necessary
visionary skills, organizational skills, motivational skills, human
resource skills, and so-on, that are the right mix for the
particular goal at that place and time in the organizations
evolution. The concept of situational leadership suggests that
this particular mix (and management style) may vary for
different goals, and at different times and places. For example,
the particular leadership mix necessary for the start-up of a
company may be different in the companys more mature years

The skills to be a successful manager sometimes depend on

situational needs and goals, but generally we recognize technical
skills, human resource skills, and conceptual skills to be part of
the necessary mix.
As the chapters unfold, the text addresses the development of
modern management theory and trends, particularly the
necessity for visionary leadership, the need to embrace change,
the need for teamwork, and employee empowerment. It also
covers the history of management development and some of
the common catchwords of management theory like MBO
As society changes and technology increasingly affects the
workplace, it should be expected that managers roles and
responsibilities will be somewhat different than they may have
been in the past. How important do you think the role of
technology and ethics is in todays management world?

of sustained product delivery. Can you think of any examples

requiring different leadership needs from your own experience?
Historically management has relied on a series of hierarchical
levels of management. Today, technology (access to improved
decision making information) is rendering many of these levels
irrelevant, and even burdensome. Many companies using a
lean-mean management style are empowering decision
making at a much lower level in the hierarchy. The net result is

PRINCIPLES OF MANAGEMENT

PRINCIPLES OF MANAGEMENT

CONTENT
Unit No.

Lesson No.

Topic

Page No.

Chapter-1
Lesson 1

Introduction to management and Definitions

of management by various schools

Lesson 2

Management an Art or Science

Lesson 3

Functions of management in brief

Chapter-2
Lesson 4

Meaning of Principles, Nature and need

of Managemnt principles

Lesson 5

Evolution of management,Various schools of thought

Lesson 6

Difference between the tradtional and new organization

13

Lesson 7

Recent developments in management

16

Lesson 8

Rationality, Bounded Rationality

19

Lesson 9

Alternatives and their evaluation

21

Group decision making, Decision making

25

Chapter-3

Chapter-4
Lesson 10

under certainity
Lesson 11

Decision making under uncertainity,

26

Decision making under risk

Lesson 12

Nature of Planning, Significance of Planning,

27

types of planning

Chapter-5
Lesson 13

Mission and Objective , Strategy and the diffrence

28

between them
Lesson 14

Policy,plan, programs,budget and the difference

30

between them
Lesson 15

SWOT Analysis

33

Steps in planning

34

Chapter-6
Lesson 16

iii

PRINCIPLES OF MANAGEMENT

PRINCIPLES OF MANAGEMENT

CONTENT
Unit No.

Lesson No.

Topic

Page No.

Lesson 17

Forecasting

35

Lesson 18

Types/ Techniques of Forecasting

36

Lesson 19

Scheduling, work break down structure

37

Lesson 20

Fornal and Informal organization, organization

Lesson 21

Types of organization

40

Lesson 22

Power

42

Lesson 23

Responsibility, delegation

44

Lesson 24

Staffing principles

45

Lesson 25

Performance appraisal

47

Lesson 26

Carrer planning, turnover causes

48

Lesson 27

Theories of motivation

49

Lesson 28

Maslows need hierarchy

51

Lesson 29

Leadership and leadership styles

52

Lesson 30

Controlling, open loop, closed with feedback

54

MBO

56

Chapter-7

chart

38

Chapter-8

Chapter-9

Chapter-10

Chapter-11
Lesson 31

iv

CHAPTER:1
LESSON-1
INTRODUCTION TO MANAGEMENT AND
DEFINITIONS OF MANAGEMENT BY
VARIOUS SCHOOLS

Theres no doubt that the world has changed, is changing, and

continues to change. The dynamic nature of todays
organizations means both rewards and challenges for those
individual who will be managing those organizations.
Management is a dynamic discipline and a course pack on the
subject must undergo significant changes to prepare you to
manage under these conditions.
Management is the organizational process that aids us in
creating a service or product from the raw materials we have at
hand. It is the sum of the input processes that allow us to
mold something useful from what otherwise is a disarray of
human resources and raw components. The output of this
controlled processing creates a valuable product or service, which
someone (a customer) is generally willing to pay for. Simply
stated, the managers job is to help all these processes run
smoothly, and to address the roadblocks to successful output.
Objective
Introduction
Meaning of Management
Managerial skills and the organization hierarchy
Nature of management

management is universal in the modern industrial world and

there is no substitute for good management. It makes human
efforts more productive and brings better technology, products
and services to our society. It is a crucial economic resource and a
life-giving element in business. Without proper management,
the resources of production (men, machines and materials)
cannot be converted into production. Thus management is a
vital function concerned with all aspects of the working of an
organisation. Management is a must to accomplish desired
goals through group action. It is essential to convert the
disorganized resources of men, machines, materials, and
methods into a useful and effective enterprise. Thus
management is the function of getting things done through
people and directing the efforts of individuals towards a
common objective
Meaning Of Management

Management is relatively a new discipline. Being a new

discipline, it has drawn concepts and principles from economics,
sociology, philosophy, psychology, statistics, and so on. The
result is that each group has defined management differently.
For example, economists see management as a factor of
production; sociologists see it as a class or group of persons;
practitioners of management treat it as a process. In spite of no
clear unanimity, it is not difficult to identify the following
meanings of the term management.

i. Management is an art or technique of getting things

done.

PRINCIPLES OF MANAGEMENT

Overview of The Lecture

ii. Management is a process of planning, organizing,

staffing, directing and controlling.,
iii. Management is a distinct activity of any organisation.
iv. Management is a discipline, which represents a body of
knowledge.
v. Management denotes a group of people.
Lets start with the basic definition of management
Management is the process of designing and maintaining an
environment in which individual working together in groups
efficiently accomplish the selected arm.
The following points explain this definition.
1. Management functions: As Manager, person carry out the
managerial function of planning, organizing, staffing,
leading and controlling
2. Role of Mgmt: Mgmt is an essential for any kind of
organization. Manager are charged with the responsibility
taking actions that will make it possible for individuals to
make their best contribution to the group objective. Mgmt
thus applies to small and large organization, to profit and
non-profit organization to manufacturing as well as service
industry.
i. Small organization shop (organizer will be owner itself)
Large organization hierarchy is maintained separate depts.
Like HRD, Account Department
ii. Non-profitable society- charitable trust (used for welfare).
iii. Profit making organization Escorts industry.
iv. Service industry- Banks, life insurance, Courier, Hotel.
v. Manufacturing Automobile (Escorts), Refrigeration
industry (whirlpool).
3. Levels of Management - Management applies to managers
at all organizational levels. All managers carry out managerial
function. However the time spent for each function may
differ.
Planning Top level more involved lower level less
involvement.
Organizing Little bit higher in top.
Span of control No. of persons reporting a manager.
Leading more in top mgmt.
Top-level managers spent more time on planning and
organizing their lower level managers. Leading on the other
hand takes at great deal of time for lower level managers. The
difference in the amt of time spent on controlling varies only
slightly for the manager at various levels

PRINCIPLES OF MANAGEMENT

4. Management Concerned: - Management is concerned with

productivity i.e. the effectiveness and efficiency. Successful
company creates a surplus three productive open.
Productivity can be measured as the Output to Input ratios
within a time period with due consideration for quality.
Productivity =

O /P
I /P

(within time period and

considered) Productivity can be improved by

a. By increasing O/P with same I/P.

subordinates are non-managerial white-collar or blue-collar

workers.
Getting things done means to get tasks and activities
performed. Management gets things done through people both
as individuals and as members of the work group.
Getting things done through people is really an art. It
comprises a range of skills acquired and refined in the course of
practice. The skills which are required to get things done
through people consist of conceptual skills, technical skills,
administrative skills, social skills, and so on.

Human skills: It is the ability to work with the people. It is

the creation of an environment in which person feels secure and
free to express their opinion.

With a view to getting things done through people,

management has to first plan the things which are to be done.
The plans to be performed to attain the objectives are
determined and assigned to individuals and work units. Besides
planning and organizing tasks, management has to devise the
techniques and methods of getting things done. These are
effective leadership, team spirit, peoples participation,
appropriate system of cash and non-cash incentives, and so on.
Further, the obstacles, the problems and the distortions in the
work environment have to be removed or minimised. This art
of management is increasingly based on the Science of
management. Professor Harold Koontz agrees with this concept
of management. In the words of Harold Koontz
However, there is danger in defining management in terms of
getting things done through people. This definition is subject
to the following criticism.

Conceptual Skills: Ability to recognize the element in a

situation and to understand the relationship among the
elements.

i. The workers are merely treated as means of getting results. It

completely ignores the needs of the workers and does not
offer them human treatment.

Design Skills: It is the ability to solve the problem in such a

way that it will benefit the organization.

ii. The definition is quite vague. It fails to define the functions

which a manager has to carry out to get results from others.

The importance of these skills may differ at various levels in the

organization hierarchy.

iii. This gives the impression of the manipulative character of

the practice of management.

1. Lower level management: - For lower level managers

technical skill are of greatest importance, human skills are
also helpful in interaction with subordinate but conceptual
skills are normally not critical for them.
2. Middle management: - For middle management the need
for technical skills decreases, human skills are still essential
and the conceptual skills gain in importance.

iv. Management is treated as an art. But today, it has satisfied

the basic characteristics of science too. Thus management is
both an art and a science.

b. By decreasing I/P but maintaining same O/P.

c. By Increasing O/P and decreasing I/P to change the ratio
favorably.
The I/P can be labour, material capital etc. In the past
productivity improvement program were mostly aimed at
workers level but now it is for the management also.
Managerial skills and the organization hierarchy
Technical Skills:
It is the knowledge of and proficiency in activities involving
methods, process and procedures. Thus it involves working
with tools and specific work. E.g. supervisor should have the
ability to teach, how to use the tools for mechanical work.

3. Top management: - For top management conceptual and

human skills are very valuable but there is very less need for
technical abilities.This is true for large companies but in small
organization technical skills may still be quite important.
Management is an art of getting things done
through and with people
This definition emphasizes the accomplishment of tasks
through the efforts of people. It makes a distinction between
managers and non managers. Whereas managers guide and
coordinate the efforts of others towards certain specified goals,
the non-managers actually perform the task. A manager,
whatever may be his level in the organisation, has to get things
done through his subordinates. At higher levels, the
subordinates are themselves mostly managers. It means
management of managers. At supervisory levels, the

To conclude, let us point out that the techniques of getting

things done through and by the people may work for
sometime but people cannot be oppressed or befooled all the
time. Hence, management may be viewed as a technique of
getting things done through others by satisfying their needs. It
is not merely getting things done through others.
Nature of Management
The following are the important features or characteristics of
management.
1. Management is getting things done: A manager does not
do any operating work himself but gets it done through

Notes

PRINCIPLES OF MANAGEMENT

others. He must motivate the subordinates for the

accomplishment of the task assigned to them.
2. Management is an activity: Management is a process of
organized activity. It is concerned with the efficient use of
resources like men, money and materials in the organisation.
3. Management is a group activity: Management cannot
exist independent of the group or organisation it manages.
It is a cardinal part of any group activity and inspires workers
to put forth their best efforts.
4. Management is a universal activity: Management is a
universal phenomenon. However, management principles
are not universally applicable but are modified to suit the
given situation and the type of organisation.
5. Management is purposeful: Management is a goaloriented activity. It is concerned with the accomplishment of
goals through its various functions like planning, organizing,
staffing, directing, and controlling.
6. Management is a process: Management is a process which
involves planning, organizing, directing and controlling the
efforts of human resources in the use of material resources.
These are the basic functions which every manager performs
for the accomplishment of certain goals.
7. Management is an integrating process: Management
integrates men, machines and materials for performing
various operations and accomplishing the stated goals. Thus,
management acts as a catalytic agent in getting maximum
productivity from all the resources.
8. Management is intangible: Management is abstract and
cannot be seen with the eyes. It is evidenced by the quality of
the organisation and the results. Thus, feeling of
management is result-oriented.
9. Management is a profession: Management is a profession
because some of its established principles are being applied
in practice.
10.Management is a science and an art: Management has
developed certain principles and laws which have wide
applications. So it is treated as a science. It is also an art,
because it is concerned with the application of knowledge for
the solution of organisational problems.
11. Management is dynamic: Management is dynamic because
it adapts itself to the social changes and introduces
innovation in methodology.
12. Management involves decision-making: Management
process involves decision-making at various levels for getting
things done by others. It involves selecting the most
appropriate alternative out of the several.
13. Management applies economic principles. Management
is the art of applying the economic principles that underline
the control of men and materials in the organisation.
14. Management is concerned with direction and control:
Management is concerned with the direction and control of
the various activities. It deals particularly with the active
direction of the human effort.

PRINCIPLES OF MANAGEMENT

LESSON-2
MANAGEMENT AN ART OR SCIENCE

Overview of The Lecture

What is Management An art or a Science? Lets start our lecture
by finding the fact that what it is.
Management like all other practices, medicine, music
composition, engineering etc is an Art. It is doing thing in the
light of the realities of the situation.
Yet, managers can work better by using the organized
knowledge about management. It is this knowledge that
constitutes a science.
Thus management as practice is an art and the organized
knowledge about management is referred as science. In this
context science and art are not mutually exclusive, they are
complimentary.
Objective
Management as Science
Management as Art

As a Science

Science has been defined as a body of systematised knowledge,

which establishes a relationship between cause and effect. Such
systematised knowledge contains concepts, hypotheses,
theories, experimentation and principles. Mere knowledge or
collection of facts is not science. The knowledge so gathered
should be verifiable. A subject to be recognized as a science
should have the following features:
i. It should have a systematic body of knowledge.
ii. It should have a scientific method for observation.
iii. Its principles should have been evolved on the basis of
continued observation.
iv. Its principles should have universal applicability.
v. Its principles should be verifiable.
vi. Its principles should establish cause and effect relationship.
Now management has been given the shape of an organized
body of knowledge. Its study helps in gaining a rational
approach to the development of means for accomplishing
certain goals. That is why, management is called a Science.
Although management has been recognized as a science, it is
not exact like the biological and physical sciences. It falls in the
area of Social Science as it is a social process and deals with
complex human beings.
The theories and principles of management are situation
bound. It may produce different results in different situations.
That is why Ernest Dale has called management a Soft
Science.
As an Art
Art may be defined as the technique of applying the
principles to actual practice so as to achieve the desired
results with efficiency. It is concerned with the application of
4

knowledge and skills. If science is learnt, an art is practiced.

Thus, an art has the following features:
i. It demotes personal skills.
ii. It signifies practical knowledge.
iii. It helps in achieving concrete results.
iv. It is creative in nature.
The principles and techniques of management when applied in
the organization to achieve its objects become Art. In this
manner, management is also an art on account of the following
reasons:
i. It uses know-how and skills.
ii. Its direction is towards the accomplishment of concrete
results.
iii. It creates new situations needed for further improvement.
iv. It is personalized because the success of management task is
related to the personality of the manager.
From the above discussion, it is clear that management is both
a science and an art. It is considered a science because it has an
organized body of knowledge. It is called an art because
managing requires certain skills.
Science teaches one to know and an art to do hence science
and art are complementary. A manager is a scientist as well as an
artist. As a scientist, he relies heavily on the existing knowledge
and develops new knowledge and principles. As an artist, he
sometimes solely depends on his intuition, guesswork and
judgment. Just as a doctor uses his knowledge to cure is
patients; a manager should use his knowledge to solve the
problems in managing men, materials, machines, methods, and
money.

PRINCIPLES OF MANAGEMENT

LESSON-3
FUNCTIONS OF MANAGEMENT IN BRIEF

Overview of The Lecture

Management of a modern business organization is a complex
process. The term process refers to an identifiable flow of
information through interrelated stages of analysis directed for
the accomplishment of objectives. Thus management as a
process may involve several activities or elements. These
activities are called the functions of management. Many
management experts have mentioned functions of
management by studying different organizations from different
angles. But there is no unanimity among them about the
nomenclatures of the functions of management. According to
C.S. George, The management process is not a series of
separate functions which can be performed independently, it is a
complete process made up of these ingredients.
Henri Fayol is the most outstanding name among those who
have tried to analyse the functions of management. According
to him, To manage is to forecast and plan, to organise to
command, to coordinate and to control. Thus, the main
activities involved in managerial functions are:
a. Forecasting and planning
b. Organizing
c. Commanding
d. Coordinating
e. Controlling
Luther Gullick coined the word PODSCORB to describe the
functions of management. Each letter of this word denotes the
initial letter of a management function. Thus P stands for
planning 0 for organizing, D for directing, s for staffing,
CO for coordinating, R for reporting, and B for budgeting.
Of these, reporting is covered by the controlling function and
budgeting is a part of planning.
Objective is to Learn
Functions of Management

Functions Of Management
1. Planning.

Planning is a mental process requiring foresight and sound

judgement. It involves the laying of objectives and determining
the course of action to achieve the objectives. Objectives have to
be clarified before taking any other decisions. They provide the
basis for the future and for evaluating the performance with the
pre-determined standards.
Planning is based on future situations and is a must at all levels
of management. The success of a plan, therefore, lies in the
managers ability to forecast future situations correctly and
accurately. Thus planning implies, deciding in advance what to do,
when to do, where to do and how the results are to be evaluated.
Planning is a continuous process. It is required to ensure
effective utilisation of human and non-human resources to

accomplish the desired goals. The process of planning thus

involves the following activities:
1. Laying down objectives
2. Developing planning premises
3. Searching alternativ-e courses of action
4. Evaluation of various alternatives and formulation of a plan
5. Formulating policies and procedure
6. Preparing schedules, programmes and budgets.
2. Organising.

Once planning is effected, the people in the organization have

to be organised. It is an important activity by which
management brings together the manpower and material
resources for the accomplishment of pre-determined goals.
Organising is the process of establishing relationships among
the members of the organization. This relationship
is created in the form of authority and responsibility. Each
member in the organization is assigned a specific duty to
perform and is granted the corresponding authority to do it.
In the words of Louis A. Allen, Organization is the process
of identifying and grouping the work to be performed and
dividing it among the individuals and creating authority and
responsibility relationship among them for the
accomplishment of objectives. The process of organising thus
involves the following activities:
1. Identifying the activities involved in achieving the objectives
2. Grouping the activities into a logical pattern
3. Assigning the activities to employees
4. Delegating authority and fixing responsibility
5. Coordinating the authority-responsibility relationships of
various activities.
3. Staffing.
Staffing is considered as a separate function in view of the need
to employ the right types of people and develop them for the
well being of the organization. Thus staffing involves manning
the positions created by the organization process. It is
concerned with the human resources of an organization.
In the words of Harold Koontz and Cyril ODonnell, Themanagerial function of staffing involves manning the
organizational structure through proper and effective selection,
appraisal and development of personnel to fill the roles
designed in the structure. Staffing function, thus involves the
following:
1. Manpower planning, i.e. determining the number and the
kind of personnel required
2. Recruitment of personnel
3. Selection of the most suitable personnel

PRINCIPLES OF MANAGEMENT

4. Placement and orientation of employees

5. Training and development of employees
6. Proper evaluation of employees
7. Transfer, promotion, termination, and layoff of employees.
4. Directing.

Directing is otherwise called management in action. It is

concerned with the actuating of the members of the
organization for the accomplishment of the enterprise goals. In
the words of George R. Terry, Directing means moving to
action and supplying stimulative power to the group. Directing
thus involves issuing instructions (or communication) to
subordinates, guiding, motivating and supervising them.
5. Controlling.

Controlling is the process of seeing whether the activities have

been performed in conformity with the plans. It helps the
management to get its policies implemented and to take
corrective actions if performance is not in accordance with the
planned objectives. In the words of E.F.L. Brech, Controlling
is the process of checking actual performance against the agreed
standards with a view to ensuring satisfactory performance.
The process of controlling thus involves the following:
1. Determination of standards for measuring work
performance
2. Measurement of actual performance
3. Comparing actual performance with the standard
4. Finding variance between the actual and the standard and the
reasons for the same
5. Taking corrective action to ensure attainment of objective
These functions are so interlinked, that in actual practice it is not
possible to separate them from another. Planning provides the
leases for control and control gives meaning to planning. An
efficient system of control helps to predict deviations well in
time and to initiate corrective steps before the loss occurs.

Exercise
1. Suppose u are working in a software development company
as a project leader, how can u use the function of
management in your environment. Explain:
Management
Planning
Organizing
Staffing
Directing
Controlling
Notes

CHAPTER-2
LESSON-4
MEANING OF PRINCIPLES, NATURE AND
NEED OF MANAGEMNT PRINCIPLES

A principle establishes the cause-and-effect relationship. For

instance, the principle of unity of command states that presence
of a single superior avoids confusion. Here, the presence of
unity of command is the cause and avoidance of confusion is
the effect. Management functions are based on certain principles.
Principles are basic elements of management theory, which is a
systematic grouping of interrelated principles. Lets start our
lecture
Objective is to Learn
Meaning Of Principle
Nature Of Management Principles
Need For Management Principles

Meaning Of Principle

A principle can be defined as a fundamental statement of truth

providing a guide to thought and action. In other words, it is a
statement, which reflects the fundamental truth about some
phenomenon. A fundamental statement tells what results are
expected when the principle is applied.
A principle establishes the cause-and-effect relationship. For
instance, the principle of unity of command states that presence
of a single superior avoids confusion. Here, the presence of
unity of command is the cause and avoidance of confusion is
the effect. Management functions are based on certain principles.
Principles are basic elements of management theory, which is a
systematic grouping of interrelated principles.
Principles are either descriptive or prescriptive. A principle is
descriptive if it merely describes the relationship between
variables. A principle is prescriptive if it indicates what a manager
should do. The principles of management are both descriptive
and prescriptive.
Nature Of Management Principles

The principles of management have the following distinct

features
1. Flexibility: The principles of management are flexible in
nature as they are adjustable in accordance with the situations
of the organisation. There are situations where the principles
may not be exactly applicable. For example, the principle of
division of labour may not be applicable in small
organisations to the same extent as in a large organisation.
2. Universal application: Most of the management principles
can be applied to all kinds of organisations. They are
applicable to any kind of organisation wherever there is a
need of coordinated efforts of human beings. This is
because the same managerial functions of planning,
organizing, directing and controlling are relevant to all
organisations. Moreover, they have utility in all kinds of
economics of the world.

3. Principles are relative, not absolute: Management

principles are relative in nature. They should be applied
carefully in accordance with the needs of the organisation.
The same managerial principle may differ in strength in
different organisations. Thus it may be used in a modified
form.
4. Based on situation: The application of management
principles depends upon the specific situation prevailing in
the organisation. Thus, principles can be modified and
applied in accordance with the situations faced.
5. General statements: Management principles have been
derived out of experience in managing organisations. They
have not been tested under laboratory or controlled
conditions. That is why; these principles have been expressed
in the form of general statements.
Need For Management Principles

Managers of business organisations have to deal with a number

of problems in their daily work. By following certain principles
or guidelines, they can solve these problems smoothly and
efficiently. They can also predict the results of their actions with
confidence. As said by G.R. Terry, Principles of management
are to a manager as a table of strength of materials is to a civil
engineer.
According to Koontz and ODonnell, the principles of
management are important and useful on account of the
following reasons:
1. To increase managerial efficiency: The principles of
management provide guidelines to managers as to how they
should function in different situations. This will facilitate
better functioning of the organisation and in turn increase
managerial efficiency.
2. To understand the nature of management: The
knowledge of management principles helps to analyse the
managers job and scope of his duties.
3. To train managers: In the words of Henri Fayol,
Management principles are necessary to train and educate
future managers. Without this organized body of
knowledge, it would not be possible to train people for
managerial positions.
4. To improve research: The principles of management help
to increase knowledge and carry out further research in the
field of management. It provides new ideas, imaginations
and visions to the organisation.
5. To coordinate material and human resources: The
principles of management help to make optimum
utilization of natural resources. They also help to coordinate
the material and human resources for the accomplishment of
common objectives.

PRINCIPLES OF MANAGEMENT

Overview of The Lecture

PRINCIPLES OF MANAGEMENT

6. To attain social objectives: Management itself is a part of

society. It takes the input from the society and gives the
output to the society. Principles of management help to
attain the social goals by efficient utilization of the scarce
resources.
Universality Of Management

The principles and concepts of management have universal

application. It means that managerial knowledge may be
transferred from one country to another and from one firm to
another within the same country. The concept of universality of
management is, therefore, subject to the following two
connotations: (a) Management principles can be successfully
applied to different kinds of organisations such as business
enterprises, clubs, hospitals, and so on, (b) Management
principles are applicable to, different economic systems of the
world. They have worldwide utility.
Notes

PRINCIPLES OF MANAGEMENT

LESSON-5
EVOLUTION OF MANAGEMENT, VARIOUS SCHOOLS OF THOUGHT

Overview of The Lecture

Figure A depicts the descriptive idea of management thought.

Objective is to Learn
Introduction
Pre-Scientific Management Era
Classical Management Era
Neo-Classical Management Era
Modern Management Era

Lets start our lecture with how the management came into
evolution.
Introduction
The development of management thought has been
evolutionary in nature under the following four parts:
1. Pre-Scientific Management Era (Before 1880)
2. Classical Management Era (1880-1930)
3. Neo-Classical Management Era (1930-1950)
4. Modern Management Era (1950 onwards)
The above periods are not exact and only signify the dominance
of different schools of thought. There are so many orientations
in the areas of studying and analysing management. But they
have neither unanimity over the number of schools of thought
nor clarity about what a particular school suggests. This
situation has been termed management theory of jungle by
Koontz.

Figure A: Evolution of Management.

I. II. Pre-Scientific Management School

During pre-scientific management era, valuable contributions

were made by Churches, Military Organizations and writers like
Charles Babbdge and Robert Oven. A school of thought that
emerged in this era is known as pre-scientific management
school.

Management in some form or the other has been practiced in all

organized efforts of man ever since the dawn of civilization.
Evidence of the use of principles of management is to be
found in the organizations of public life in ancient Greece, the
organization of the Roman Catholic Church, and the
organization of military forces. However, they were not much
used in the conduct of business affair1; till about the secondhalf of the nineteenth century, as the structure of industry was
simple.
In the later period, Robert Owen and Charles Babbage made
valuable contributions to the development of management
concepts.

The classical theorists like F.W. Taylor and Henri Fayol

concentrated on organizational structure for the
accomplishment of organizational goals. They developed certain
principles of management which hold good even today.
Scientific management school and process management school
gained prominence in classical management era.

Robert Owen was a textile mill manager in Scotland from 1800

to1828. During this period he made some remarkable
observations concerning the factors which influenced the
productivity of the personnel in his plants. He believed and
practiced the idea that workers should be treated as human
beings.

The neo-classical writers like Elton Mayo and Chester 1. Barnard

tried to improve upon the theories of classical writers. They
suggested improvements for good human relations in the
organization. The outcome of these developments is the
emergence of human relations school and behavioural science
school.

Charles Babbage, a British mathematician-teacher, advocated the

use of accurate observations, measurements and precise
knowledge for taking decisions in business concerns. In his
famous essay, The Economy of Machines and Manufacture,
he perceived that the methods o(science and mathematics could
be applied to the solutions of the problems of the factories.

The modern management thinkers like Robert Schlaifer and

Herbert Simon define organization as a system. They also
consider the impact of environment on the effectiveness of the
organization. The social system school, the decision theory
school, the quantitative management school, the systems
management school, etc. are the contributions of modern
management era.

The contributions of the above management thinkers were

limited mostly to the field of developing the concept to make
resources more effective at the shop floor level. Moreover, they
were made bit by bit and failed to stimulate management as a
distinct discipline for further study. However, the various ideas
stated by them have created an awareness about managerial
problems.

PRINCIPLES OF MANAGEMENT

III. Classical Management Era

5. Emphasis on managerial qualities.

Scientific Management School

F.W. Taylor along with his associates Gilberth, Gantt and
Emerson made tremendous contributions to the concept of
scientific management. Among them, F.W. Taylor suggested for
the first time, the need for a scientific approach to the task of
managing an enterprise. Thus, he is called the Father of
Scientific Management.

Comparison of Taylor and Fayol

Meaning of Scientific Management

The term scientific management contains two words-Scientific

and Management. Scientific means systematic, analytical and
objective approach, but Management means getting things
done through others. Hence scientific management means the
management based on careful observation, objective analysis
and innovative outlook. In other words, scientific management
is the art of knowing exactly what is to be done and the best
way of doing it. It implies the application of science to the
management of a business concern. In the words of F.W.
Taylor, Scientific management means knowing exactly what
you want men to do and seeing that they do it in the best and
the cheapest way.
Process Management School or Operational Approach
School
Process management school is also called the traditional or
universalist school. Henri Fayol is regarded as the Father of
this School. He defines management in terms of certain
functions and then lays down fourteen principles of
management, which have universal applicability.
The process school sees management as a process of getting
things done through and with people operating in organized
groups. It builds a theory of management and looks at
management as a process that remains the same in all kinds of
group activities. It also looks upon the management theory as a
way of organizing experience so that practice can be improved
through further research.
Fayol divided all activities of industrial enterprises into six
groups. They are as follows:
1. Technical activities concerning production.
2. Commercial activities of buying and selling.
3. Financial activities intended to seek optimum use of capital.
4. Accounting activities concerning final accounts.
5. Security activities relating to protection of property.
6. Managerial activities.
Unlike Taylor, Fayol considered management from a top
managers viewpoint. He not only recommended formal
teaching in management dealing with planning, organizing,
commanding, coordinating, and controlling but also practiced it
by founding the center for Administrative Studies in Paris. His
major contributions are the following:
1. Identification and classification of business activities.
2. Identification of management as a separate set of functions.
3. Classification of functions of management into five
elements.
4. Development of universal principles of management.
10

F. W Taylor
He is known as the father of scientific
management.

Henri Fayol
1. He is known as the father of functional
management.

He worked from bottom to top level.

2. He worked from top to bottom level.

He gave more emphasis to shop and factory

3. He gave more emphasis to the office and

management.
His main concern was to increase the
efficiency of workers and managers.

the management process as a whole.

4. His main concern was to evolve principles
of general management and the functions of
managers.

In short, Fayols contributions on management are much in

tune with the requirements of the present-day world. Thus,
they command acceptability even today. He has been rightly
called the father of general management.
IV. Neo-Classical Era
Human Relations School

George Elton Mayo is considered to be the founder of this

school. The human relationalists (neo-classists) conducted
some experiments to investigate informal groupings, informal
relationships, patterns of informal relationships, patterns of
communications, patterns of informal leadership, etc. of
industry. In the light of these experiments, they emphasised the
importance of human and social factors of industry, while
classical writers like Taylor and Fayol gave importance to job
content and management of physical resources.
In the 1930s, Elton Mayo and his associates conducted the
Hawthorne studies in the Hawthorne Plant of Western Electric
Company, Chicago, U.S.A. These studies sought to determine
the impact of factors in the physical environment (e.g. lighting
intensity) on the workers productivity. No relationship was
found. But the experiments proved that if supervisors had
developed effective human relation skills, employees
productivity would have got greatly enhanced. Thus, the direct
result of the Hawthorne studies was the development in the
field of human relations. Human relations may be described as
the study of human behaviour at work with a view to
developing higher levels of productivity and satisfaction. The
study further provides that- an organization is not merely a
formal arrangement of men and functions; more than that it is
a social system which can be operated successfully only with the
application of the principles of psychology and other
behavioural sciences.
This theory is criticised on the ground that there is no direct
connection between morale and productivity, therefore, the
research in the Hawthorne Plant had a management bias.
Moreover, the human relations theory focused attention on the
social side of the work and man, as opposed to the economic

PRINCIPLES OF MANAGEMENT

and technical aspects. In spite of all these criticisms, this theory

remains and is being applied even today.

Human relations approach

Behavioural Sciences School

Behavioural science movement started after 1940. It is a further

refinement of human relations movement and has drawn
heavily on the work of Maslow to explain human behaviour
and the dynamics of the motivational process. Here, the
knowledge drawn from behavioural sciences like psychology,
sociology and anthropology is applied to explain and predict
human behaviour. F. Herzberg, V. Vroom and D. McGregor are
the other important contributors to this field.
While human relationalists emphasised the importance of
individuals and their interpersonal relations, behavioural
scientists focused on human behaviour and laid emphasis on
the study of motivation, leadership, group dynamics,
participative management, and so on. Thus, the contribution
of behavioural scientists to management practices consists
primarily of producing new insights rather than new
techniques. The various propositions of this school are as
follows:
1. An organization is a socio-technical system.
2. As individuals differ with regard to attitudes, perceptions
and value systems, they behave differently under different
situations.
3. As individual needs may differ from organizational needs,
attempts should be made to achieve fusion between
organizational goals and human needs.
4. Interpersonal and group behaviour of people in an
organization depends upon a wide range of factors.
Distinction between Human Relations Approach and
Behavioural Sciences Approach

Human relations approach

1.

It focuses on interpersonal

Behavioural sciences approach

relationships.
2.

It lays emphasis on the

It focuses on group
relationships

individual, his needs and

It lays stress on groups

and group behaviour.

behaviour.
3.

It lays emphasis on job

satisfaction and morale.

It studies group
dynamics, informal
organization and
motivation

4.

Its scope is limited as it is

It has a wide scope as it

based on the Hawthorne

is a much more

Experiments

systematic study of
human behaviour in
organizations.

V. Modern Management Era

Empirical School

Ernest Dale, the founder of this school, identified management

.as a study of experience. The intention of studying experience
is to draw generalizations and to develop means of teaching
experiences to other practitioners and students. As such, it is
also called the case approach or management experience approach. The
unique features of this school are as follows:
1. Managerial experience can be passed from one person to
another.
2. Management can be taught best by the case method.
3. Theories of management can be developed by studying a
large number of experiences.
4. It is a study of success and failures in the application of
management techniques by managers in their practice.
Although the case method helps in developing diagnostic and
analytical skills in management students in classroom
situations, it may not be useful in dynamic situations.
Social System School

The social school stems from the application of behavioural

sciences to management. Vilfredo Pareto, a sociologist is the real
pioneer of the social system, i.e. a system of cultural
interrelationship. His ideas were later developed by Chester
Barnard who is regarded as the founding father of the social
system school. For the adherents of this school, an
organization is essentially a socio-cultural system composed of
groups of people who work in cooperation with one another.
The broad features of this school are as follows:

11

PRINCIPLES OF MANAGEMENT

1. An organization is a social system-a system of cultural

relationship.
2. Relationships exist among the external and internal
environments of the organization.
3. Cooperation among group members is necessary for the
achievement of organizational objectives.
4. For effective management, efforts should be made for
establishing
harmony between the goals of the
organization and the various groups functioning therein.
Barnard in his famous book, The Functions of an Executive, has
identified the following three types of functions of an
executive.
1. Maintenance of organizational communication through
formal interaction.
2. Achieving organizational purpose by securing essential
services from individuals in the organization.
3. Formulation and definition of the organizational purpose.
Barnard has also given a new concept of authority known as the
acceptance theory of authority. According to him, a person will
accept authority only when the following four conditions are
met simultaneously. .
1. He can understand the communication.
2. He believes that it is consistent with the organizational
purpose.
3. He believes it to be compatible with his own personal
interests.
4. He is mentally and physically able to comply with it.
The concept of informal organization is also a contribution of
this school. The supporters of this school advocate that efforts
should be directed towards establishing harmony between the
goals of the organization and the goals of the groups and
individual members.
Decision Theory School

Herbert Simon, Luther Gulick and Lyndall Urwick are the major
contributors to this school of thought. Decision theory
concentrates on rational approaches to decision making-the
selection of a course of action from various possible
alternatives. The manager is a decision maker and the
organization is a decision-making unit. Hence the basic problem
in managing is to make rational decisions. The main features of
this theory are as follows:
1. Decision making is central to the study of management.
2. The members of the organization are decision makers and
problem solvers. Thus management is the study of the
process of decision-making and the personalities and
behaviour of the decision makers.
3. The organizational effectiveness depends on the quality of
decisions.
4. All factors affecting decision making are the subject matter of
the study of management.
Although the decision theory school contributes to the
sharpening of managerial tools especially for making suitable
decisions in the organization, it does not take the total view of
management. As such, its scope is quite limited considering the

12

requirements of management. Decision-making is significant in

every school of management. This significant aspect cannot be
denied, but management is more than mere decision making.
Notes

PRINCIPLES OF MANAGEMENT

LESSON-6
DIFFERENCE BETWEEN THE TRADTIONAL AND NEW ORGANIZATION

Overview of The Lecture

Objective

Traditional Organization

New Organization

Organization concept

Stable

Dynamic

Universality Of Management

Inflexible

Flexible

Job focused

Skill Focused

Individual Oriented

Team Oriented

Command Oriented

Involvement Oriented

Rule Oriented

Customer Oriented

Managers always take decision

Managers work in organizations. If there were no

organizations, there would be no need for managers. What is
an organization? An organization is a deliberate arrangement
of people to accomplish some specific purpose. Your college or
university is an organization, so are fraternities and sororities,
government departments, churches, your neighborhood video
store.
First, each organization has a distinct purpose. This purpose is
typically expressed in terms of a goal or a set of goals that the
organization hopes to accomplish. Second, each organization is
composed of people. One person working alone is not an
organization, and it takes people to perform the work thats
necessary for the organization to achieve its goals. Third, all
organizations develop some deliberate structure so that their
members can do their work. That structure may be open and
flexible, with no clear and precise delineations of job duties or
strict adherence to any explicit job arrangements-in other words,
it may be a simple network of loose relationships. Or the
structure may be more traditional with clearly defined rules,
regulations, and job descriptions, and some members may be
identified as bosses who have authority over other members.
But no matter what type of structural arrangement an
organization uses, it does require some deliberate structure so
members work relationships are clarified. In summary, the term
organization refers to an entity that has a distinct purpose,
includes people or members, and has some type of deliberate
structure.
Although these three characteristics are important to our
definition of what an organization is, the concept of an
organization is changing. Its no longer appropriate to assume
that all organizations are going to be structured like Procter &
Gamble, Exxon Mobil, or General Motors, with clearly
identifiable divisions, departments, and work units. In fact, one
of GMs subsidiaries, Saturn Corporation, may be more
characteristic of what contemporary organizations look like,
with its flexible work arrangements, employee work teams,
open communication systems, and supplier alliances. Just how
is the concept of an organization changing? Below table lists
some differences between traditional organizations and
new organizations. As these comparisons show, todays
organizations are becoming more open, flexible, and responsive
to changes.

Employees participate in decision

making

Relatively homogeneous workforce

Diverse workforce

Work at specific hours

Work anywhere, anytime

Why are organizations changing? Because the world around

them has changed and is continuing to change. Societal,
economic, global, and technological changes have created an
environment in which successful organizations (those that
consistently attain their goals) must embrace new ways of
getting work done. Examples of how the world is changing
include the increased dependence on e-business models and
approaches, continuing spread of information technology and
its impact on workplaces, increasing globalization, and changing
employee expectations. Even though the concept of
organizations may be changing, managers and management
continue to be important to organization.
Universality Of Management
Just how universal is the need for management in
organizations? We can say with absolute certainty that
management is needed in all types and sizes of organizations,
at all organizational levels, in all organizational work areas, and
in all organizations, no matter in what country theyre located.
This is known as the universality of management. (See Figure
A) Managers in all these settings will plan, organize, lead, and
control. However, this is not to say that management is done
the same way in all these scenarios. The differences in what a
supervisor in a software applications testing facility at Cisco
Systems does versus what the president of Cisco does are a
matter of degree and emphasis, not of function. Because both
are managers, both will plan, organize, lead, and control.

Traditional Organization New Organization

13

PRINCIPLES OF MANAGEMENT

issues throughout this text in our Managing Workforce

Diversity boxes.
Entrepreneurship
Practically everywhere you turn these days youll read or hear
about entrepreneurs. If you pick up a current newspaper or
general news magazine or log on to one of the Internets news
sites, chances are youll find at least one story (and probably
many more) about an entrepreneur or an entrepreneurial
business. Entrepreneurship is a popular topic! But what exactly
is it?
Entrepreneurship is the process whereby an individual or a
group of individuals uses organized efforts and means to
pursue opportunities to create value and grow by fulfilling
wants and needs through innovation and uniqueness, no
matter what resources are currently controlled. It involves the
discovery of opportunities and the resources to exploit them.
Three important themes stick out in this definition of
entrepreneurship. First is the pursuit of opportunities.
Entrepreneurship is about pursuing environmental trends and
changes that no one else has seen or paid attention to. For
example, Jeff Bezos, founder of Amazon.com, was a successful
programmer at an investment firm on Wall Street in the mid1990s. However, statistics on the explosive growth in the use of
the Internet and World Wide Web (at that time, it was growing
about 2,300 percent a month) kept nagging at him. He decided
to quit his job and pursue what he felt were going to be
enormous retailing opportunities on the Internet. And the rest,
as they say, is history. Today, Amazon sells books, music, home
improvement products, cameras, cars, furniture, jewelry, and
numerous other items from its popular Web site.
The second important theme in entrepreneurship is innovation.
Entrepreneurship involves changing, revolutionizing,
transforming, and introducing new approaches-that is, new
products or services or new ways of doing business. Dineh
Mohajer is a prime example of this facet of entrepreneurship.
As a fashion conscious young woman, she hated the brilliant
and bright nail polishes that were for sale in stores. The bright
colors clashed with her trendy pastel colored clothing. She
wanted pastel nail colors that would match what she was
wearing. When she couldnt find the nail polish colors she was
looking for, Mohajer decided to mix her own. When her friends
raved over her homemade colors, she decided to take samples
of her nail polish to exclusive stores in Los Angeles. They were
an instant hit! Today, her company, Hard Candy, sells a whole
line of cosmetics in trendy and fashionable stores across the
United States-all the result of Mohajers innovative ideas.
The final important theme in entrepreneurship is growth.
Entrepreneurs pursue growth. They are not content to stay
small or to stay the same in size. Entrepreneurs want their
businesses to grow and work very hard to pursue growth as
they continually look for trends and continue to innovate new
products and new approaches.
Entrepreneurship will continue to be important to societies
around the world.15 For-profit and even not-for-profit
organizations will need to be entrepreneurial-that is, pursuing
opportunities, innovations, and growth-if they want to be
successful. We think that an understanding of entrepreneurship
14

is so important that at the end of each major section in this

book weve included a special entrepreneurship module that
looks at the topics presented in that section from I the
perspective of entrepreneurship.
Managing in an E-Business World
What a difference three years makes! The last time we revised
this book, the Internet and World Wide Web were still a novelty
to most managers and organizations. E-mail as a form of
communication was gaining in popularity, and occasionally you
saw Web addresses in company advertisements. Those days are
long gone! Now, everywhere you look, organizations (small to
large, all types, global and domestic, and in all industries) are
becoming e-businesses. Todays managers must manage in an ebusiness world! In fact, as a student, your learning may
increasingly be taking place in an electronic environment. What
do we know about this e-business world?
E-business (electronic business) is a comprehensive term
describing the way an organization does its work by using
electronic (Internet-based) linkages with its key constituencies
(employees, managers, customers, suppliers, and partners) in
order to efficiently and effectively achieve its goals. Its more
than e-commerce, although e-business can include e-commerce.
E-commerce (electronic commerce) is any form of business
exchange or transaction in which the parties interact
electronically. Firms such as Dell (computers), Varsitybooks
(textbooks), and PC Flowers and Gifts (flowers and other gifts)
are engaged in e-commerce because they sell products over the
Internet.
Not every organization is or needs to be a total e-business. Let
us illustrate three categories of e-business involvement? The
first type is what were going to call an e-business enhanced
organization, a traditional organization that sets up e-business
capabilities, usually e-commerce, while maintaining its
traditional structure. Many Fortune 500 type organizations are
evolving into e-businesses using this approach. They use the
Internet to enhance (not to replace) their traditional ways of
doing business. For instance, Sears, a traditional bricks-andmortar retailer with thousands of physical stores worldwide
started an Internet division whose goal is to make Sears lithe
definitive online source for the home. Although Sears Internet
division, Sears.com, represents a radical departure for an
organization founded in 1886 as a catalog-sales company, its
intended to expand, not replace, the companys main source of
revenue. Many other traditional organizations-for instance,
Merrill Lynch, Office Depot, Starbucks, Tupperware, and
Whirlpool have become e-business enhanced organizations.

PRINCIPLES OF MANAGEMENT

Notes

Another category of e-business involvement is an e-business

enabled organization. In this type of e-business, an organization
uses the Internet to perform its traditional business functions
better but not to sell anything. In other words, the Internet
enables organizational members to do their work more efficiently
and effectively. There are numerous organizations using
electronic linkages to communicate with employees, customers,
or suppliers and to support them with information. For
instance, Levi Strauss & Co. uses its Web site to interact with
customers, providing them the latest information about the
company and its products, but they cant buy Levis there. It also
uses an intranet, an internal organizational communication
system that uses Internet technology and is accessible only by
organizational employees, to communicate with its global
workforce. Other organizations are using enterprise-wide
software solutions that link together all organizational areas and
levels. For example, employees at Silicon Graphics can access
over 800 specialized internal Web sites containing more than
144,000 pages of technical information and can access all
corporate databases. Information that used to take days to get
can now be obtained in a matter of a few minutes simply by
linking, pointing, and clicking. These organizations have found
that being an e-business enabled organization makes them
more competitive.
The last category of e-business involvement is when an
organization becomes a total e-business. Many organizations such as Amazon.com, Yahoo, E*Trade, and eBay-started as
total e-business organizations. Their whole existence is made
possible by and revolves around the Internet. Other
organizations, such as Charles Schwab & Company, have
evolved into e-business organizations that seamlessly integrate
traditional and e-business functions. When an organization
becomes a total e-business, theres a complete transformation in
the way it does its work. For instance, at Schwab when
managers made the decision to merge its traditional and ebusiness operations, it had to reprice its core products, retrain all
of its employees, and renovate all of its systems. Was it worth
it? Analysts describe Schwab as the best positioned of all retail
brokerages in an e-business world.
Managing in an e-world, whether as an e-business enhanced, ebusiness enabled, or total e-business organization requires new
insights and perspectives.

15

PRINCIPLES OF MANAGEMENT

LESSON-7
RECENT DEVELOPMENTS IN MANAGEMENT

Overview of The Lecture

Where are we today? What current management concepts and
practices are shaping tomorrows history? In this lecture, well
attempt to answer those questions by introducing several trends
and issues that we believe are changing the way managers do
their jobs: globalization, workforce diversity, entrepreneurship,
managing in an e-business world, need for innovation and
flexibility, quality management, learning organizations and
knowledge management, and workplace spirituality.
Objective

Current Trends and Issues

Globalization
Workforce Diversity
Entrepreneurship
Managing In An E-Business World

Globalization
Management is no longer constrained by national borders.
BMW, a German firm, builds cars in South Carolina.
McDonalds, a U.S. firm, sells hamburgers in China. Toyota, a
Japanese firm, makes cars in Kentucky. Australias leading real
estate company, Lend Lease Corporation, built the Bluewater
shopping complex in Kent, England, and has contracts with
Coca-Cola to build all the soft-drink makers bottling plants in
Southeast Asia. Swiss company ABB Ltd. has constructed
power-generating plants in Malaysia, South Korea, China, and
Indonesia. The world has definitely become a global village!
Managers in organizations of all sizes and types around the
world are faced with the opportunities and challenges of
operating in a global market Globalization is such a significant
integrate discussion of its impact on the various management
functions throughout the text.
Workforce Diversity
One of the major challenges facing managers in the twenty-first
century will be coordinating work efforts of diverse
organizational members in accomplishing organizational goals.
Todays organizations are characterized by workforce diversity
a workforce thats more heterogeneous in terms of gender,
race, ethnicity, age, and other characteristics that reflect
differences. How diverse is the workforce? A report on work
and workers in the twenty-first century, called Workforce 2020,
stated that the U.S. labor force would continue its ethnic
diversification, although at a fairly slow pace.12 Throughout the
early years .of the twenty-first century, minorities will account
for slightly more than one-half of net new entrants to the U.S.
workforce. The fastest growth will be Asian and Hispanic
workers. However, this report also stated that a more significant
demographic force affecting workforce diversity during the next
decade will be the aging of the population. This trend will
significantly affect the u.s. workforce in three ways. First, these
16

aging individuals may choose to continue full-time work, work

part-time, or retire completely. Think of the implications for an
organization when longtime employees with their vast wealth
of knowledge, experience, and skills choose to retire, or imagine
workers who refuse to retire and block opportunities for
younger and higher-potential employees. Second, these aging
individuals typically begin to receive public entitlements (mainly
Social Security and Medicare). Having sufficient tax rates to
sustain these programs has serious implications for
organizations and younger workers since there will be more
individuals demanding entitlements and a smaller base of
workers contributing dollars to the program budgets. Finally,
the aging population will become a powerful consumer force
driving demand for certain types of products and services.
Organizations in industries of potentially high market demand
(such as entertainment, travel, and other leisure-time pursuits;
specialized health care financial planning, home repair, and other
professional services; etc.) will require larger workforces to meet
that demand whereas organizations in industries in which
market demand faces potential declines (such as singles bars, ski
resorts, etc.) may have to make I adjustments in their
workforces through layoffs and downsizing.
Workforce diversity is an issue facing managers of organizations
in Japan, Australia, Germany, Italy, and other countries. For
instance, as the level of immigration increases in Italy, the
number of women entering the workforce rises in Japan, and
the population ages in Germany, managers are finding they
need to effectively manage diversity.
Does the fact that workforce diversity is a current issue facing
managers mean that organizations werent diverse before? No.
They were, but diverse individuals made up a small percentage
of the workforce, and organizations, for the most part, ignored
the issue. Prior to the early 1980s, people took a melting pot
approach to differences in organizations. We assumed that
people who were different would somehow automatically
want to assimilate. But we now recognize that employees dont
set aside their cultural values and lifestyle preferences when they
come to work. The challenge for managers, therefore, is to make
their organizations more accommodating to diverse groups of
people by addressing different lifestyles, family needs, and work
styles. The melting pot assumption has been replaced by the
recognition and celebration of differences.13 Smart managers
recognize that diversity can be an asset because it brings a broad
range of viewpoints and problem-solving skills to a company.
An organization that uses all of its human resources will enjoy
a powerful competitive advantage. Many companies such as Levi
Strauss, Advantica, Dole Food, Avis Rent A Car, SBC
Communications, Avon Products, and Xerox have strong
diversity management programs. Well highlight many diversityrelated issues and how companies are responding to those

Entrepreneurship
Practically everywhere you turn these days youll read or hear
about entrepreneurs. If you pick up a current newspaper or
general news magazine or log on to one of the Internets news
sites, chances are youll find at least one story (and probably
many more) about an entrepreneur or an entrepreneurial
business. Entrepreneurship is a popular topic! But what exactly
is it?
Entrepreneurship is the process whereby an individual or a
group of individuals uses organized efforts and means to
pursue opportunities to create value and grow by fulfilling
wants and needs through innovation and uniqueness, no
matter what resources are currently controlled. It involves the
discovery of opportunities and the resources to exploit them.
Three important themes stick out in this definition of
entrepreneurship. First is the pursuit of opportunities.
Entrepreneurship is about pursuing environmental trends and
changes that no one else has seen or paid attention to. For
example, Jeff Bezos, founder of Amazon.com, was a successful
programmer at an investment firm on Wall Street in the mid1990s. However, statistics on the explosive growth in the use of
the Internet and World Wide Web (at that time, it was growing
about 2,300 percent a month) kept nagging at him. He decided
to quit his job and pursue what he felt were going to be
enormous retailing opportunities on the Internet. And the rest,
as they say, is history. Today, Amazon sells books, music, home
improvement products, cameras, cars, furniture, jewelry, and
numerous other items from its popular Web site.
The second important theme in entrepreneurship is innovation.
Entrepreneurship involves changing, revolutionizing,
transforming, and introducing new approaches-that is, new
products or services or new ways of doing business. Dineh
Mohajer is a prime example of this facet of entrepreneurship.
As a fashion conscious young woman, she hated the brilliant
and bright nail polishes that were for sale in stores. The bright
colors clashed with her trendy pastel colored clothing. She
wanted pastel nail colors that would match what she was
wearing. When she couldnt find the nail polish colors she was
looking for, Mohajer decided to mix her own. When her friends
raved over her homemade colors, she decided to take samples
of her nail polish to exclusive stores in Los Angeles. They were
an instant hit! Today, her company, Hard Candy, sells a whole
line of cosmetics in trendy and fashionable stores across the
United States-all the result of Mohajers innovative ideas.

is so important that at the end of each major section in this

book weve included a special entrepreneurship module that
looks at the topics presented in that section from I the
perspective of entrepreneurship.
Managing In an E-Business World
What a difference three years makes! The last time we revised
this book, the Internet and World Wide Web were still a novelty
to most managers and organizations. E-mail as a form of
communication was gaining in popularity, and occasionally you
saw Web addresses in company advertisements. Those days are
long gone! Now, everywhere you look, organizations (small to
large, all types, global and domestic, and in all industries) are
becoming e-businesses. Todays managers must manage in an ebusiness world! In fact, as a student, your learning may
increasingly be taking place in an electronic environment. What
do we know about this e-business world?
E-business (electronic business) is a comprehensive term
describing the way an organization does its work by using
electronic (Internet-based) linkages with its key constituencies
(employees, managers, customers, suppliers, and partners) in
order to efficiently and effectively achieve its goals. Its more
than e-commerce, although e-business can include e-commerce.
E-commerce (electronic commerce) is any form of business
exchange or transaction in which the parties interact
electronically. Firms such as Dell (computers), Varsitybooks
(textbooks), and PC Flowers and Gifts (flowers and other gifts)
are engaged in e-commerce because they sell products over the
Internet.
Not every organization is or needs to be a total e-business. Let
us illustrate three categories of e-business involvement? The
first type is what were going to call an e-business enhanced
organization, a traditional organization that sets up e-business
capabilities, usually e-commerce, while maintaining its
traditional structure. Many Fortune 500 type organizations are
evolving into e-businesses using this approach. They use the
Internet to enhance (not to replace) their traditional ways of
doing business. For instance, Sears, a traditional bricks-andmortar retailer with thousands of physical stores worldwide
started an Internet division whose goal is to make Sears lithe
definitive online source for the home. Although Sears Internet
division, Sears.com, represents a radical departure for an
organization founded in 1886 as a catalog-sales company, its
intended to expand, not replace, the companys main source of
revenue. Many other traditional organizations-for instance,
Merrill Lynch, Office Depot, Starbucks, Tupperware, and
Whirlpool have become e-business enhanced organizations.

The final important theme in entrepreneurship is growth.

Entrepreneurs pursue growth. They are not content to stay
small or to stay the same in size. Entrepreneurs want their
businesses to grow and work very hard to pursue growth as
they continually look for trends and continue to innovate new
products and new approaches.
Entrepreneurship will continue to be important to societies
around the world.15 For-profit and even not-for-profit
organizations will need to be entrepreneurial-that is, pursuing
opportunities, innovations, and growth-if they want to be
successful. We think that an understanding of entrepreneurship
17

PRINCIPLES OF MANAGEMENT

issues throughout this text in our Managing Workforce

Diversity boxes.

PRINCIPLES OF MANAGEMENT

Notes

Another category of e-business involvement is an e-business

enabled organization. In this type of e-business, an organization
uses the Internet to perform its traditional business functions
better but not to sell anything. In other words, the Internet
enables organizational members to do their work more efficiently
and effectively. There are numerous organizations using
electronic linkages to communicate with employees, customers,
or suppliers and to support them with information. For
instance, Levi Strauss & Co. uses its Web site to interact with
customers, providing them the latest information about the
company and its products, but they cant buy Levis there. It also
uses an intranet, an internal organizational communication
system that uses Internet technology and is accessible only by
organizational employees, to communicate with its global
workforce. Other organizations are using enterprise-wide
software solutions that link together all organizational areas and
levels. For example, employees at Silicon Graphics can access
over 800 specialized internal Web sites containing more than
144,000 pages of technical information and can access all
corporate databases. Information that used to take days to get
can now be obtained in a matter of a few minutes simply by
linking, pointing, and clicking. These organizations have found
that being an e-business enabled organization makes them
more competitive.
The last category of e-business involvement is when an
organization becomes a total e-business. Many organizations such as Amazon.com, Yahoo, E*Trade, and eBay-started as
total e-business organizations. Their whole existence is made
possible by and revolves around the Internet. Other
organizations, such as Charles Schwab & Company, have
evolved into e-business organizations that seamlessly integrate
traditional and e-business functions. When an organization
becomes a total e-business, theres a complete transformation in
the way it does its work. For instance, at Schwab when
managers made the decision to merge its traditional and ebusiness operations, it had to reprice its core products, retrain all
of its employees, and renovate all of its systems. Was it worth
it? Analysts describe Schwab as the best positioned of all retail
brokerages in an e-business world.
Managing in an e-world, whether as an e-business enhanced, ebusiness enabled, or total e-business organization requires new
insights and perspectives.

18

Overview of The Lecture

Decision-making is basically a human process and a kind of
intellectual activity. But effective decision-making requires a
rational choice of course of action. Gross Bertram suggests
three dimensions to determine rationality. They are: (i) the
extent to which a given action satisfies human interests, (ii) the
feasibility of means to the given end, and (iii) the consistency.
Rationality means the ability to follow a systematical, logical and
thorough approach in decision-making. Thus, a decision which
is taken after thorough analysis and reasoning is called rational
or objective decision.
Rationality is ideal because rational decisions are usually perfect.
But it requires a complete knowledge of all the possible
alternatives and their consequences. In actual practice, a person
takes a decision which involves a combination of intuition
(without considering carefully all the alternatives) and rational
thinking.
Objective
To learn about Rationality
Assumptions of Rationality
Steps For Rationality In Decision Making
Bounded / Limited Rationality

Rationality

Means attempting to reach some goal that cannot the achieved

without action. Affective decision-making must be nationality.
In rationality the
1. Problem is clear and unambiguous.
2. Single goal.
3. All alternatives are known.
4. Clear and constant preferences.
5. Maximum payoff.
6. The decision is in the best interest of the organizationnot
the manager.
Managerial decision making is assumed to be rational. By that
we mean that managers make consistent, value-maximizing
choices within specified constraints. What are the underlying
assumptions of rationality, and how valid are: those
assumptions?
Assumptions of Rationality
A decision maker who was perfectly rational would be fully
objective and logical. He or she would carefully define a problem
and would have a clear and specific goal. Moreover, making
decisions using rationality would consistently lead toward
selecting the alternative that maximizes the likelihood of
achieving that goal.
The assumptions of rationality apply to any decision. Because
were concerned with managerial decision making, however, we

need to add one further assumption. Rational managerial

decision making assumes that decisions are made in the best
economic interests of the organization. That is, the decision
maker is assumed to be maximizing the organizations
interests, not his or her own interests.
How realistic are these assumptions about rationality?
Managerial decision making can follow rational assumptions if
the following conditions are met: The manager is faced with a.
simple problem in which the goals are clear and he alternatives
limited, in which the time pressures are minimal and the cost If
seeking out and evaluating alternatives is low, for which the
organizational culture supports innovation and risk taking, and
in which the outcomes are relatively concrete and measurable.
But most decisions that managers face in the real world dont
meet all those tests. So how are most decisions in organizations
usually made? The concept of bounded rationality can help
answer that question.
Steps For Rationality In Decision Making

1. There must be a clear understanding of alternative course by

which a goal can be reached under existing circumstances and
limitations
2. There must be an ability to analysis and evaluate the
alternative.
3. There must be a desire to come to the best solution by
selecting the alternative that most effectively satisfy the
achievement of the goal
In rationality for making it 100% more resources are required,
so practically it is not possible.
But managers cannot achieve complete rationality because fustily
decisions must operate for the future and the future involves
uncertainty and secondly, I t is difficult to recognize all the
alternative that must be followed to reach a goal.
Bounded / Limited Rationality

Bounded rationality is based on behavioural notions and upon

observations of the ways in which decisions are actually taken in
practice. Criticism of classical rationality led Nobel laureate
Herbert Simon (1972) to propose the notion of bounded
rationality. Bounded rationality assumes human rationality has
its limits, especially when operating in conditions of
considerable uncertainty. Bounded rationality has two
interlocking components
Limitations of the human mind. Models of human
judgement and decision making have to take into account
known limitations about the minds capacities. Because of
the minds limitations, humans must use approximate
methods to handle most tasks (Simon, 1990: 6). These
methods include recognition processes that largely obviate
the need for further information search, heuristics (mental
shortcuts) that guide search and determine when it should

19

PRINCIPLES OF MANAGEMENT

LESSON-8
RATIONALITY, BOUNDED RATIONALITY

PRINCIPLES OF MANAGEMENT

end, and simple decision rules that make use of the

information found.
Structure within which the mind operates.

Environmental structure is of crucial importance because it

can explain when and why simple heuristics perform well: if
the structure of the heuristic is adapted to that environment.
A heuristic is said to be ecologically rational to the degree that
it is adapted to the structure of an environment.
A manager must settle for limited or bounded rationality
because of the limitation of information and time. Since
managers cannot be completely rational in practice, they
sometime allow there dislike of risk to interfere with their
under the circumstance. They desire to play it safe.
Although many managerial decision are made with a desire to
get by as safely as possible, most manager do attempt to make
the best decision they can within the limit of rationality and in
light of size of the mature risk involved.
Despite the limits to perfect rationality, managers are expected to
follow a rational process when making decisions. Managers
know that good decision makers are supposed to do certain
things: identify problems, consider alternatives, gather
information, and act decisively but prudently. Managers, thus,
are expected to exhibit the correct decision-making behaviors. By
doing so, managers signal to their superiors, peers, and
subordinates that they are competent and that their decisions
are the result of intelligent and rational deliberation. However,
certain aspects of the decision-making process are not realistic
with respect to how managers make decisions. Instead,
managers tend to operate under assumptions of bounded
rationality; that is, they behave rationally within the parameters
of a simplified decision-making process that is limited (or
bounded) by an individuals ability to process information.
Because they cant possibly analyze all information on all
alternatives, managers satisfice rather than maximize. That is,
they accept solutions that are good enough. They are being
rational within the limits (bounds) of their information
processing ability.
Since most decisions that managers make dont fit the
assumptions of perfect rationality, they instead make those
decisions using a boundedly rational approach. That is, they
make decisions based on alternatives that are satisfactory.
However, keep in mind that their decision making also may be
strongly influenced by the organizations culture, internal
politics, power considerations, and by a phenomenon called
escalation of commitment, which is an increased
commitment to a previous decision despite evidence that it may
have been wrong. For example, studies of the events leading up
to the Challenger space shuttle disaster point to an escalation of
commitment by decision makers to launch the shuttle on that
fateful day even though the decision was questioned by certain
individuals. Why would decision makers want to escalate
commitment to a bad decision? Because they dont want to
admit that their initial decision may have been flawed. Rather
than search for new alternatives, they simply increase their
commitment to the original solution.

20

Notes

PRINCIPLES OF MANAGEMENT

LESSON-9
ALTERNATIVES AND THEIR EVALUATION

Overview of The Lecture

Management without decisions is like a man without backbone.
Every aspect of management functions, such as planning,
organizations, direction and control is determined by decisions,
the result of which is the performance in the organization. In
planning, the manager has to decide many things such as what
to produce, what to sell, where, when, how, and so on. In an
organization, decision-making relates to the structure, nature of
organization, division of work, etc. In direction, decisions relate
to determining the course of action, deciding the type of
motivation, deciding the orders and instructions to be given,
and so on, whereas in control, the decisions relate to
determining of standards, control points, procedures, etc.
Objective
Decision Making
Alternatives In Decision Making And Its Evaluation
Approaches For Selecting An Alternative

Decision Making
It is the core of planning. The decision making process consist
of following steps:
1. Identification of problem.
2. Identification of alternatives to solve the problem.
3. Evaluation of alternatives for solving the problem.
4. Choosing the best alternative.
e.g. (Restaurant menu) . What to eat, money, condition, best
food according to money.
Alternatives In Decision Making And Its Evaluation

Once appropriate alternative have been found, the next in

decision-making is to evaluate them and select the one that will
contribute the best to the goal. Following are the evaluation
methods to evaluate the alternatives
1. Quantitative And Qualitative Factors

While comparing the alternatives, manager are likely to think

exclusively of quantitatively factors. These are factors that can be
measured in Numerical terms such as time, fixed and operating
cost, No of resources required do.
This type of analysis is very important but its success would
not be possible if intangible or qualitative factors are ignored.
Qualitative factors are those factors that are difficult to measure
numerically such as the quality of labour relationship with
manager, the political climate et. There are many cases in which
an excellent quantitative plan was destroyed because the
qualitative factors are not taken care of.
Eg. A fine marketing plan was made unsuccessful by a long
transportation borrowing plan was not possible because of the
political.

The manager should give attention to both quantitative and

qualitative while comparing the alternative. For intangible
factors a manager should rate them in terms of their
importance, compare their influence on the out then made a
decision.
2. Marginal Analysis

This technology is mainly used to compare the additional

revenues arising from the additional cost. This techno can also
be used in comparing factor other than lost revenues for e.g. To
find the rest output of a machine, inputss could be varied
against the O/P, until the additional I/P equals to the
additional Output. This would them be the point of
maximum efficiency of the m/c.
3. Cost Effectiveness Analysis

Also known as cost benefit analysis. In this technology the rest

ratio of benefits cost are matched.
For e.g. finding the minimum costliest way of reading an
objective of sales target of Rs 5 lakhs.
Non quantifiable objectives can be given some specific measures
of affective ness for the general objective of improving
employees moral , a company can measure affectiveness by
certain verifiable factors such as employee turnover
absenteeism, volume of complaints etc and this can be
supplemented by subjective I./P such as the judgment of
qualified experts.
The major feature cost effectiveness analysis are that it focus on
the result of a program, evaluate the potential benefit of each
alternative against its potential cost of involve a comparison of
the alternative in term of overall advantage.

Approaches For Selecting An Alternative

There are three approaches, which are used for selecting an
alternative. They are
1. Experience
2. Experimentation
3. Research of analysis.
1. Experience

Reliance on the past experience plays a larger part than it

deserves in the decision making. Experience is the best teacher
to some extent. The very fact that managers have reached their
position appears to be justify their past decisions. Moreover the
process of thinking problems through making decision seeing
program succeed fail does make a degree of good judgment.
Relying on the past experience as a guide for future action can be
dangerous because :
1. Most managers do not recognize the underlying reason for
their mistakes or failures.

21

PRINCIPLES OF MANAGEMENT

2. The lesson of experiment may be entirely in applicable to

the new problem.
Good decision must be evaluated against future events while
experience belongs to the past.
On the other hand if a person carefully analysis experience rather
than blindly following it then experience can be useful as a basis
for decision making. A successful program , a well managed
company, a profitable product promotion or any other decision
that turns out well may give useful data for future decision.
3.

Experimentation

It is an obvious way to decide among alternatives by trying of

them and them see what happens. This technology is slightly
to he most expensive of all other techniques, specially if a
program requires heavy expenditure in capital and personal and
if the company cannot afford to by several alternatives besides,
after an experiment has been used, there may still be doubt
about what is proofed, since the future may not duplicate the
present. The technology therefore should be used only after
considering other alternatives. On the other hand there are
many decisions that cannot be meant until the best course of
action can be certained by experiment. A company may list a
new product in the its sales Nation wide. Original technologies
are often tried in a branch office or plant before being applied
over and entire company.
4.

Research and Analysis

One of the most effective technologies for selecting from

alternative when major decisions are involved i.e. research and
analysis. It is the penal and paper approach to decision making.
Solving a planning problem require breaking it into its
components part and studying the various competitive and
qualitative and quantitative factor. Study an analysis are likely to
be cheaper than experimentation. Hour of tune and planning
on paper is normally less costly them trying the various
alternative. Some of the most comprehensive research and
analysis approach is to operation research, market research etc.
Notes

22

CHAPTER-4
LESSON-10
GROUP DECISION MAKING, DECISION
MAKING UNDER CERTAINITY

Most managers duties involve making decisions of one kind or

another. A manager is oriented toward making decisions rather
than toward performing the actions personally; the actions are
carried out by others. Thus a manager can be viewed as a
specialist in the art of decision-making.
We then evaluate the types of decisions often made by groups
and state the basic guidelines for use of committees in decision
making. The last section of the chapter describes the most
generally used techniques for aiding in the decision-making
process in business firms. These techniques have been refined
by economists, accountants, and specialists in quantitative
methods.

interaction where as if the committee has 35 member it is most

possible to each member to participate freely.
Decision Making Under Certainity

When manager are reasonably sure that what will happens,

when they make a decision is called decision making under
certainty. In such cases the information is available is considered
to be reliable. The cause and effect relationship are also known
the technology used for such type of decision-making is linear
programming.
Characteristic of L.P

1. Linearity: all equations are of 1st order i.e. not squares,

cubes etc. so all the lines are straight line.

All human beings make decisions that affect their own actions.
Managers are chiefly concerned with making decisions that will
influence the actions of others. Thus, the decision-making
process of management is affected by the environment of the
decision makers and the role that they assume.

2. Proportionality: follows the law of proportionality i.e for

e.g. if , vehicle consume 100 liter of fuel then 2 vehicle
consume 200 liter of fuel.

The product of the process is a decision that can be defined as a

course of action consciously chosen from available alternatives
for the purpose of achieving a desired result. Three ideas are
important in this definition. First, a decision involves a choice;
if there is but on possible course of action, no decision is
possible. Second, a decision involves mental processes at the
conscious level. The logical aspects are important; yet,
emotional, non-rational, and subconscious factors do influence
the process. Third, a decision is purposive; it is made to facilitate
the attainment of some objective.

4. Deterministic: Works only on the case of certainty.

Objective
Group Decision Making
Decision Making Under Certainity

Group Decision Making

It is the process of making a decision by group instead by an

individual in company. Person may appear to have made the
decision but in fact may have performed only, step in the
process. Executive normally make decision in a social
environment. A may provide a fact; B may provide a value
judgment; C may supply one complete alternative; D may
supply the second alternative men if all are most present at the
time of final choice, each has had a defined path in the decision
making process.

3. Divisibility: As all the lines are straight line so the result

may be 2.5 etc which does not make a sense.
5. Single objective: Deals only with objective, which is
generally either to maximize the profit or to minimize the
profit.
Q1.A company manufactures 2 product X and Y each of these
products requires certain amount of time on the assembly
and a further amount of time on the assembly and a further
amount of the time on the finishing short each item of
type X requires 5 hrs for the assembly and 2hrs for finishing
and each item of type Y requires three hrs on assembly and
4 hrs for finishing. In any week the firm has available 105 hrs
on assembly line time and 70 hrs on the finishing line the
firm can sell all the items X and Rs 160 for each item Y.
Find the no. of items that the firm should produce each week
to maximize the profit.
Objective : maximize profit
Z= 200 X + 160 Y
Product assemblyfinish

profit

5 hrs

2 hrs

200

3 hrs

4 hrs

160

Total 105 hrs

70 hrs

No of item ?

In large company for complex problem, decisions are emerged

from the series of meetings. In such meetings executives jointly
takes the decisions. These group meetings are also called
conference, comities, boards, task force or staff meetings.

Maximum profit = ?

For group decisions making, the group size, general

atmosphere and physical layout are the important factors for
deciding the effectiveness of decisions making process. For e.g
if a committees has only 2 members, it may not have enough

5X + 3Y =105

5X + 3Y 105
2X + 4Y 70
X = 0Y = 0

Y = 35 X=21

23

PRINCIPLES OF MANAGEMENT

Overview of The Lecture

PRINCIPLES OF MANAGEMENT

(21,35)
2X + 4Y 70
X = 0Y = 0
Y = 17.5 X = 35
(35,17.5)
Z = 200X + 160Y
P(0,17.5) =

0+2800 =

2800

Q(15,10) =

3200 + 1600

R(21,0) =

4200 + 0 =

4200

4600

Item X = 15
Y = 10
Maximum profit is obtain when company manufacture 15 unit
of X and 10 unit of Y.
Notes

24

PRINCIPLES OF MANAGEMENT

LESSON-11
DECISION MAKING UNDER UNCERTAINITY, DECISION
MAKING UNDER RISK
Overview of The Lecture
Permanent

Objective
Decision Making Under Uncertainty

In many management decision the probability of the occurrence

of event can be assumed to be known even when a particular
outcome is unpredictable.
The technique used in such cases is Pay off Matrix

Production Succeed

10,000

.3
.2

Production Slow

2000

Production Failure

-20,000

Production Succeed

20,000

Production Slow

5000

Production Failure

-1000

9200

Group Decision Making under Risk

Decision making under uncertainty

In such cases the manager do not know whether the data
available to him is reliable or not and he is not very much sure
whether the situation changes or remains the same. Moreover
they cannot evaluate the interaction of different variable.

.5
1600

.4
Temporary
Tooling

9200

.3
.3

These are Probability

For permanent

.5*10000=5000
.3*2000=600
.2*-200000=-4000
A

Decision Making Under Risk

For such a cases decision tree approach can be used. In such

approaches it is possible to see at least the major alternative and
the subsequent decisions may depend upon events in the
future. We use Decision tree as a tool.
Q. Manager has to decide whether to install expansive
permanent equipment or to undertake cheaper temporary
tooling.

B
=1600
For temporary

In case of permanent tooling if production succeed gain is of

Rs. 10,000; If production become slow gain is of Rs. 2000

.4*20000=8000

In case of permanent tooling if production succeed gain is of

20,000; If production become slow gain is of 5000.

.3*-1000=-300

In case of production failure for permanent tooling there is a

loss of rs. 20,000 and for temporary tooling there is a loss of
Rs. 1000.
The probability of success is .5, the probability of production
go slow is .3 and the probability of production failure is .2 for
the permanent tooling.

.3*5000=1500

=9200

out of A and B select maximum value that is 9200

For the temporary tooling the probability of success is .4, the

probability of production go slow is .3 and the probability of
production failure is .3.
Decision Point

Events (Different Condition)

25

PRINCIPLES OF MANAGEMENT

LESSON-12
NATURE OF PLANNING, SIGNIFICANCE
OF PLANNING, TYPES OF PLANNING
Overview of The Lesson
Planning is a rational action mixed with a little of forethought.
It is seen everywhere. In a business, planning is the primary of
all managerial functions as it involves deciding of future course
of action. Thus, planning logically precedes the execution of all
managerial functions.
Planning is the process of deciding in advance what is to be
done, where, how and by whom it is to be done. Planning as a
process involves anticipation of future course of events and
deciding the best course of action. Thus, it is basically a process
of thinking before doing. All these elements speak about the
futurity of an action. Koontz and ODonnell have defined
planning in terms of future course of action. They state that
Planning is the selection from among alternatives for future
courses of action for the enterprise as a whole and each
department within it.
Objective
Nature Of Planning
Significance Of Planning
Limitation of Planning
Requirements Of A Good Plan

Nature Of Planning
The nature of planning can be highlighted by studying its
characteristics.
They are as follows:
(a) Planning is a mental activity. Planning is not a simple
process. It is an intellectual exercise and involves thinking
and forethought on the part of the manager.
(b)Planning is goal-oriented. Every plan specifies the goals to
be attained in the future and the steps necessary to reach
them. A manager cannot do any planning, unless the goals
are known.
(c) Planning is forward looking. Planning is in keeping with
the adage, look before you leap. Thus planning means
looking ahead. It is futuristic in nature since it is performed
to accomplish some objectives in future.
(d)Planning pervades all managerial activity. Planning is the
basic function of managers at all levels, although the nature
and scope of planning will vary at each level.
(e) Planning is the primary function. Planning logically
precedes the execution of all other managerial functions,
since managerial activities in organizing; staffing, directing
and controlling are designed to support the attainment of
organizational goals. Thus, management is a circular process
beginning with planning and returning to planning for
revision and adjustment.
(f) Planning is based on facts. Planning is a conscious
determination and projection of a course of action for the
26

future. It is based on objectives, facts and considered

forecasts. Thus planning is not a guess work.
(g)Planning is flexible. Planning is a dynamic process capable
of adjustments in accordance with the needs and
requirements of the situations. Thus planning has to be
flexible and cannot be rigid.
(h)

Planning is essentially decision making. Planning is

a choice activity as the planning process involves finding the
alternatives and the selection of the best. Thus decision
making is the cardinal part of planning.

Significance Of Planning
According to G.R. Terry, Planning is the foundation of most
successful actions of all enterprises. An enterprise can achieve
its objectives only through systematic planning on account of
the increasing complexities of modern business. The
importance and usefulness of planning can be understood with
reference to the following benefits.
(a) Minimizes uncertainty. The future is generally uncertain and
things are likely to change with the passage of time. Planning
helps in minimizing the uncertainties of the future as it
anticipates future events.
(b)Emphasis on objectives. The first step in planning is to fix
the objectives. When the objectives are clearly fixed, the
execution of plans will be facilitated towards these objectives.
(c) Promotes coordination. Planning helps to promote the
coordinated effort on account of pre-determined goals.
(d)Facilitates control. Planning and control are inseparable in the
sense that unplanned actions cannot be controlled. Control
is nothing but making sure that activities conform to the
plans.
(e) Improves competitive strength. Planning enables an
enterprise to discover new opportunities, which give it a
competitive edge.
(f) Economical operation. Since planning involves a lot of
mental exercise, it helps in proper utilization of resources
and elimination of unnecessary activities. This, in turn, leads
to economy in operation.
(g)Encourages innovation. Planning is basically the deciding
function of management. Many new ideas come to the mind
of a manager when he is planning. This creates an innovative
and foresighted attitude among the managers.
(h)Tackling complexities of modern business. With modern
business becoming more and more complex, planning helps
in getting a clear idea about what is to be done, when it is to
be done, where it is to be done and how it is to be done.

(a)Financial and non-financial planning. Financial planning

relates to the monetary aspect of the concern. On the other
hand, non-financial planning relates to the physical resources
of the concern.

(a)Costly process. Planning is a costly process as time, energy

and money are involved in gathering of facts and testing of
various alternatives.

(b)Formal and informal planning. A planning in black and

white is known as formal planning. Informal planning is
only thinking about it and nothing more.

(b)Rigidity. Planning restricts the individuals freedom,

initiative and desire for creativity as it strictly adheres to -predetermined -policies and Programmes.

(c)Short-range and long-range planning. Short-term

planning relates to a period of less than one year. It is to
accomplish objectives in the near future. Medium-term
planning covers a period of over one year but less than three
years. A planning between three to five years is known as
long-term planning.

(c)Limited scope. The scope of planning is said to be limited

in the case of organizations with rapidly changing situations.
(d)Influence of external factors. The effectiveness of
planning is sometimes limited because of the external social,
political, economical and technological factors which are
beyond the control of the planners.
(e)Non-availability of data. Planning needs reliable facts and
figures. planning loses its value unless reliable information is
available.
(f)Peoples resistance. Resistance to change hinders planning.
Planners often feel frustrated in instituting new plans,
because of the inability of people to accept them.
Requirements of a Good Plan
An effective and sound plan should have the following features:
(a) Clear objective The purpose of plans and their
components is to develop and facilitate the realisation of
organizational objectives. The statement on objectives
should be clear, concise, definite and accurate. It should not
be coloured by bias resulting from emphasis on personal
objectives.

(d)Standing and ad hoc planning. Standing plans are

permanent in nature and are meant to be used over and over
again. They ensure quick decision and action whenever need
arises. On the other hand, ad hoc plans are generally for
specific matters and are prepared only when some need
arises.
(e)Administrative and operational planning. Planning is
generally done at various levels of management like top level,
middle level, and lower level. Administrative planning
associates with middle level managers and provides
guidelines to operational planning. On the other hand,
operational planning associates with lower levels of
management and deals with actual execution of operations.
Top level planning is concerned with fixing of objectives.

(b) Proper understanding. A good plan is one which is well

understood by those who have to execute it. It must be
based on sound assumptions and sound_;reasoning.
(c)Flexible. The principle of flexibility states that management
should be able to change an existing plan because of change
in environment without undue extra cost or delay so that
activities keep moving towards the established goals. Thus, a
good plan should be flexible to accommodate future
uncertainities.
(d)Stable. The principle of stability states that the basic feature
of the plan shouldltnot be discarded or modified because of
changes in external factors such as population trends,
technological developments, or unemployment.
(e)Comprehensive. A plan is said to be comprehensive when
it covers each and every aspect of business. It should
integrate the various administrative plans so that the whole
organization operates at peak efficiency.
(f)Economical. A plan is said to be good, if it is as economical
as possible, depending upon the resources available with the
organization.
Types Of Planning

Planning is of several kinds depending upon their nature. The

various types of plans are as follows:

27

PRINCIPLES OF MANAGEMENT

Limitations Of Planning
Although planning is a primary function of management and
facilitates various other management functions, it has many
barriers and limitations. Some of them are explained below:

PRINCIPLES OF MANAGEMENT

LESSON-13
MISSION AND OBJECTIVE , STRATEGY AND
THE DIFFRENCE BETWEEN THEM
Overview of the Lecture
The overall planning of an enterprise consists of a number of
sub-plans or derivative plans. They may be grouped into two
broad categories, namely standing plans and single-use plans.
The standing plans are made to be used over and over again
and lead to the development of objectives, policies, procedures,
methods, and rules. Standing plans are also known as repeateduse plans as they are formulated to guide managerial decisions
and actions on problems, which are of recurring nature. On the
other hand, single-use plans handle specific situations and
produce strategies, Programmes, projects, and budget
Objective
Types of plan
Mission or purpose
Objectives
Characteristics of Objectives
Strategies

Types of plan

plan of the firm where as dept. may also have their own
objective, which are inline with organization objective.
Objectives are a general declaration of purposes. They are the
ends towards which the activities of an enterprise are directed.
In the words of Robert C. Appley, Objectives are goals, they
are aims which management and administration wish
organisation to achieve.
Objectives are a part of the planning process. Planning has no
meaning unless it is related to objectives. P.F. Drucker states,
Objectives are important in every area where performance and
results directly affect the survival and prosperity of business.
He suggests eight specific areas in which objectives have to be
set in terms of performance and results. These areas are:
Market standing, innovation, productivity, physical and financial
performance and development, workers performance and
attitude, and public responsibility.
E.g. The objective of the business might be to make certain
profit by producing a given line of home entertainment
equipment, while the objective of manufacturing dept might be
to produce the required no. of T.V. sets of a given design and
quality at a given cost.
Characteristics of Objectives

The following are the important characteristics of objectives:

1. Hierarchy of objective. The objectives of an enterprise can
be structured into a hierarchy. Thus, the objectives at the
lower levels are the means for the higher levels. For example,
the enterprise objective of earning a certain rate of return on
the investment may, in turn, generate objectives for other
departments, sections, and individuals.
2. Multiple in nature: Objectives are required in all areas of
the enterprise on which its survival depends. Hence there
should be multiple objectives rather than a single one.

1. Mission Or Purpose

Identifies the basic function or task of an organization or any

part of it. Mission can be to produce and distribution of goods
and services or to serve a particular section of the society.
Eg. Mission of the oil company can be To search for oil and to
produce, refine and market. petroleum and its related variety of
products , from diesel fuel to chemicals.
2. Objective Or Goal

They are the ends toward which activity is aimed i.e. they are the
results to be achieved. Organization objectives are the basic

28

3. Long-range and short-range objectives: A business

should have both long-range and short-range objectives as it
is a continuous activity. Short-range objectives are normally
drawn for immediate future and relate to market standing,
maximisation of sales, product development, productivity,
and so on. On the other hand, long-range objectives are
drawn for distant years and relate to the survival and growth
of the enterprise. Short-range objectives are set to accomplish
the long-range objectives. Thus, short-range objectives are
more specific and detailed than long-range objectives. .
4. Objectives are interdependent: Since objectives are
interdependent and must support one another, they can be
attained simultaneously.
5. Objectives have priority: In an enterprise, sometimes the
accomplishment of one objective is relatively more
important than the other. This is what we call as priority of
objectives.

PRINCIPLES OF MANAGEMENT

6. Tangible and intangible objectives: Objectives which are

quantifiable are known as tangible objectives. They relate to
the areas of productivity, market standing, physical and
financial standing. Intangible objectives, on the other hand,
are not readily quantifiable and relate to the areas of
managers performance, workers morale, and so on
3. Strategies

The concept of strategy in business has been borrowed from

military. Strategy is the general program of action and
deployment of resources to attain the comprehensive objective.
It means to counter the movements of the enemy forces. In
modern times, the word strategy is also widely used in business
for the accomplishment of enterprise goals.
Strategies are single use plans as they change frequently in
accordance with the market conditions. They are the plans made
in the light of the plans of the competitors.
E.g. If the management sees the price cut by the competitor, it
may decide upon a strategy of launching and advertisement
campaign to educate the customer and to convince them of the
better quality of their product.
Notes

29

PRINCIPLES OF MANAGEMENT

LESSON-14
POLICY,PLAN, PROGRAMS,BUDGET
AND THE DIFFERENCE BETWEEN THEM
Overview of The Lecture
Policies are derived from objectives. They are designed to
operationalise objectives and hence policies are known as
operational objectives. A policy may be defined as, a guideline
that helps in attaining the objectives of the organisation. It is a
guide to thinking and action of those who have to make
decisions.
In this lecture we will continue with the types pf plan, that is we
will study about what is policy, its characteristics and distinction
etc. lets start with Policy
Objective

Policy
Characteristics of a Good Policy

3. It should be simple, definite, clear and flexible.

4. It should reflect sound judgement.
5. It should be in writing and compiled in a manual form.
6. It should ensure sequence, uniformity arid continuity.
7. It should prove an effective control device.
8. It should ensure elimination of friction and -disagreement
between different sections and personnel of the
organization.
Distinction between Policies and Strategy
Policy

Procedure

Guide to thinking and decision-

Characteristics of Procedures

making.

Rules

Standing plan for repitative us

Policies are general statement or understanding which guide or

channel thinking in decision making. Policies define an area
within which a decision is to be made and insure that decision
will be consistent with and contribute to an objective. It is
useful for manager to delegate authority and still maintain
control over what their subordinates do.
Policies are derived from objectives. They are designed to
operationalise objectives and hence policies are known as
operational objectives. A policy may be defined as, a guideline
that helps in attaining the objectives of the organization. It is a
guide to thinking and action of those who have to make
decisions. A policy tells the members of the organization how
to deal with a particular situation. It lays down the limits within
which decisions have to be made for accomplishing
organizational goals. Examples of policy are as follows:
a.
An enterprise may adopt a policy of employing only
local people.
b. It may have a policy not to employ any person over
sixty years of age.
Policy exists On all levels of the organization, ranging from
major company policies their major dept policies to minor
policies applicable to the smallest segment of the organization.
E.g. If the management has adopted the policy seniority based
promotion, the dept. manager need not to seek guidance from
the top management again and again with respect to promotion
decisions.
Characteristics of a Good Policy

The following are the features of a good policy:

1. It should help in accomplishing organizational objectives.

Strategy
Guide for allocation of resources.
Immediate plan according to
circumstances

Programs and Budget

POLICY

30

2. It should reflect the internal and external business

environment.

Formulated to deal with repitative

Formulate to meet environment

problems.

threat and opportunities

Concerned with a particular dept or

Concerned with the company as

company as a whole

a whole.

Distinction between Policies and Objectives

Policies.

Objectives

They are guidelines.

They are the ends.

They determine how the work

is to be done.

They determine what is to be

They are formulated by the

done.
They are determined by the
managers of top level.

managers of all levels.

They prescribe the manner in
which objectives are to be

They are the end points of

planning.

attained.

Procedures
It is a chronological sequence of steps to be undertaken to
enforce a policy and to attain a specific manner in which a
particular activity is to be performed. It is a planned sequence of
open for performing repitative activities uniformly and
consistently.
Eg. It may be laid down that promotion interview will be
taken by committee and executive at 1st and then the final

A procedure is a systematic way of handling regular events. It is

a guide to action and tells how a particular action is to be carried
out. According to Terry, a procedure is a series of related tasks
that make up the chronological sequence and the established
way of performing the work to be accomplished.
Procedures are clear-cut administrative specifications prescribing
the time sequence for work to be done. They can be established
for a wide variety of work such as recruitment of staff,
termination of staff, wage payment, etc. For example, various
steps of the procedure involved in recruiting the employees are:
(a) Preliminary interview

Rules
Rules are rigid and defined plan that specify what is to be done
or not done in given situation. A rule provides no scope for
judgement. No deviation is expected from the rule.
Rules are the specific regulations to be followed by the
employees in an organisation. They are the simplest and the
most specific type of standing plans. They are definite and rigid.
The breach of rules generally carries a penalty.
A rule may or may not be a part of procedure. E.g.
a) The rule that all orders must be acknowledge within 48 hrs
of receipt as a part of the procedure for processing orders.
b) The rule no smoking in the factory is not a part of any
procedure.

(b)Application blank

Difference between

(c) Reference check

(d)Employment test
(e) Final interview
(f) Medical examination
(g)Appointment letter
(h)Induction or orientation
Characteristics of Procedures

The following are the important features of procedures:

1. Procedures act as a guide to action.
2. They are established in keeping with the objectives, policies
and resource position.
3. They are concerned with establishing the time sequence for
work to be done.
4. Procedures are generally meant for repetitive work.
Distinction between Policies and Procedures

Program
Steps to be taken, resources, time frame.
A program specifies the steps to be taken resources to be used,
time limit for each step and assignment of task. It is a sequence
of action steps arranged in the priority necessary to implement a
policy and achieve an objective.
It defines the contents and scope of activities. Program are
prepared for various activities like development of new product,
training of emps , purchase of m/c etc.
Buget
It is a statement of expected results expressed in numerical
terms for a definite period of time in the future. Budget serves
as a mean of co-ordination and control.
Budgeting co-ordinates the activities of different depts. By
adjusting dept. budgets into master budget. It serve as
standard of measuring actual performance.
Budgets may be prepaid for various group of activities like
production , sales, personal, advertising etc. Budget may be
prepared in term of money, time & / or resources.
Cash budget, production budget, and master budget are the
important budgets in business.
Exercise
A large Indian co-operate house has decided to move into
automobile industry business. As a 1st phase, it has decided to
enter into passenger car business.
At that recently concluded board meeting, it was discussed that
multi national xyz has had immense success in India and that
the corporate house should immulate organization, systems
and procedures in the proposed setup.
Do you think this strategy would work ? if not why not? Give
justification for your answer. Assume that you are employed in

31

PRINCIPLES OF MANAGEMENT

interview will be with the CMD (chief managing director). This

may be called the procedure of promotions.

PRINCIPLES OF MANAGEMENT

a senior position in the marketing dept of your current

organization or an organization with which you are familiar.
The organization is reviewing its position in the market as
charged you with reporting to them on certain area of the
business produce a board in which you.
a) State and comment on the mission statement or the main
objective of the organization.
b) Review the strength, weakness opportunities and threat that
the organization is faced with.
c) Outline the major slake holders in the organization and give
a brief analysis of there slakes.
d) Discuss possible strategy that your organization could
employed to influence customer demand.

Notes

32

Overview of The Lecture

Objective

SWOT Analysis
It is the analysis of the strength, weakness, opportunity and
threat of a company.
Strength
Is the core area of the organization? It may be the strength of
the management in a particular functional area like in marketing
or in technical area, strength of infrastructures, strength of
distribution N/W, strength of R & D etc.
Weakness
Is that area of organization where the management feels that
they have certain limitation as compared to their competitors?
E.g. Some organization have the strength in manufacturing the
product but do not have the experience of marketing, or do not
want to invest for marketing at present, such organization well
take the help of other organization for the marketing of the
product, or develop the strategy to overcome the weakness in
order to take advantage of opportunity.
Opportunity
Locating the area of activities where the organization can
diversified or increased area of open. This includes of changes
in demand. Competition, technology, financed industrial
structure.

In this diagram the progress is on the vertical axis and the time
on the horizontal axis. Here x indicates where we are at present
(to) and y indicates where we want to be at a future time (tn ).
often we don not have all the data and the data but we start
panning any way. We may even have to start our planning
study at x. The line xy is the decision path.
If the future was completely certain, the line xy would be
relatively easy to draw. However in actual, lot of critical factors
may push us away from or towards the desired goal. We cannot
forecast or consider everything, so we try to develop out path
from x to y in light of most critical factors.
Goal setting also largely depends upon the time spent between
x and y . if the time spent is long, factors may be unclear, goal
may be more difficult to set and planning complexity may be
more as compared to short time spent between x and y.
The best way of goal setting is to be the nature and relationship
of the strength, weakness, opportunity and threats of the
alternatives and then select the best out of it.

Exercise
1. Do the SWOT analysis of yourself.
Notes

Threats
Are the difficulties in achieving the company objective the threat
may be from outside or external , like competition, political or
may be from the internal, like workers, improper systems.
Goal Setting
Also known as objective setting. For goal setting, First do the
SWOT analysis and then identify the opportunity, match it with
the strength of company. The company should utilize the
strength to take advantage of opportunities. Also use the
strength of the company to avoid the threats and try to
overcome the weakness to avail the opportunities.
Planning is a rational approach to accomplish the goals. The
process of goal setting can be shown with the help of
following diagram.
Various critical f actors
y
x
PROGESS

X1

t-n

t0

tn

TIME

33

PRINCIPLES OF MANAGEMENT

LESSON-15
SWOT ANALYSIS

CHAPTER:6
LESSON 16:
STEPS IN PLANNING

PRINCIPLES OF MANAGEMENT

Overview of The Lecture

Till now we have studies about and learnt the concept of plan,
but when the implementation part comes into the picture,
certain steps need to be followed for making the plan successful.
In this lecture we will study about, the steps in planning.
Objective is to Learn

Steps In Planning
Steps In Planning

The various steps involved in the planning process are as

follows

1. Establishing objectives. They should be established for the

organization as a whole and then broken down into
departmental and sectional objectives.
2. Identifying and defining the real problem. Every
organization has to identify and define the problem which
may arise in course of time.
3. Collecting and analyzing information. Before actual planning
is initiated all relevant information and data relating to
planning problems are collected and analyzed.
4. Determining planning premises (forecasting): The
assumptions on which plan are based are known as planning
premises. They are a forecast of future conditions.
Assessment of future demand, customers taste, and
competition in the market can be made with the help of
forecasting
5. Identifying alternative course of action: usually, there are
several alternative plans. The planner should therefore try to
find out all of the possible alternative and their porobable
consequence.
6. Evaluation of alternative courses of action: evaluation
means the study of performance of various actions. Once
alternative action plans have been decided they should be
evaluated in the light of cost, speed, quality and so on.
7. Selecting the best course of action: at this stage, the manger
selects the course of action which will prove to be the best in
terms of achieving organizational objectives

34

8. Follow up action: the last step in the planning process is to

put the selected course into practice and develop its derivative
plans such as policies, procedures, schedules, methods,
budgets etc.
Notes

Overview of the Lecture

Haimann felt that the success of any business is dependent
largely on the skills of management in forecasting and preparing
for future events, Fayol said Forecasting as the essence of
management. Its techniques are used in every type of
organisation may it be government or private, production or
service and social or religious.
Each manger must identify how the future condition will effect
the open the condition in the external environment are out of,
but they must be establish so that the organization can quickly
adopt to changes that are occurring rapidly.
E.g. The forecast of demand for a particular product can be
viewed as sale of product to New customers, sale of additional
product to the old customer, replacement sale for the product
of the existing customer and sale effected by recent improved
technological development etc.
Objective is to Learn

Definition
Steps in Forecasting
Method of Forecasting
Definition
McFarland feels forecasts are predictions or estimates of the
changes if any in characteristic economic phenomena, which
affect ones business plan. Barnes says Business forecasting is
the calculation of reasonable probabilities about the future,
based on toe analysis of all the latest relevant information by
tested and logically sound statistical and econometric techniques,
as interpreted, modified and applied in terms of an executives
personal judgement and social knowledge of his own business
and his own industry or trade. Sulton felt that it is the
calculation of probable events.
Steps in Forecasting

Redfield has suggested four steps in the process of forecasting

First is to build a structure on which future estimates can be
based. This is done by carrying out a proper investigation of
products, company, and industry to judge how each has
progressed in the past separately and in relation with each other.
Secondly the key executives are to sit together and mutually
develop a forecast of future expectancies, in the form of mutual
understanding, in a step-by-step process. This one will bind
them to co-responsibility and also individual accountability for
any deviations of actual from estimated results as may occur.
The third and fourth steps are simple. Compare the actual with
estimated results and then learn from experience, sharpen the
approach and refine the procedure. Anticipated status of the
business is to be checked periodically to locate the major
differences. For this purpose mile stones are to be marked for
measuring gains or losses. Reasons can be found out on the
spot. One gets proficiency in forecasting only after familiarity

and practice of the process and insistence on constant

improvement as more experience is gained.
To make forecasting as much a success, the data obtained must
be adequate and accurate and it should be prepared properly for
use. Then use this data in as many different ways as possible by
applying sound judgement and, intuition to make forecasts.
Normally present has a, close causal relation with the future, ego
construction expenditure can be forecasted by having data
contracts already made earlier. This strategy is known as
Deterministic strategy. In addition to this or by itself one can
watch the present signs, which show how the future is
developing. They will reveal the process of change, which is
already taking place. This strategy called Symptomatic, spots the
leading indicators whose movements foreshadow rise or decline
in business activity. The other Strategy called Systematic,
assumes that in even in accidental or chaotic changes in the
world one can see underlying regularities.
Method Of Forecasting
Chou has classified these into three categories.
1. Native method - The assumption is that the future will
resemble the present and the plans are made based on
forecasts that lack rigid theoretical basis. It is as simple as
throwing a coin up to decide an outcome or mechanical
projection of a time series into future.
2. Barometric method - It is based on the theory that past
historical patterns tend to repeat themselves in future and
the future can be predicted from that. The statistics of the
past may show regular fluctuations in certain events in series
or in general business. There will be use of leads and lags,
which are to be found out before the past statistics can be
used.
3. Analytical method - It requires analysis of all causative
forces operating currently on the variables to be predicted.
The future can be judged on the pattern shown in this Cause
and effect picture, these can be nonmathematical or
mathematical, ranging, from simple to most sophisticated
ones.
In addition to above we can classify those into short term,
midterm and long term forecasts. It will be obvious that short
term ones will be more accurate than others, as these are not
beyond two years. Yet it is more difficult to make short-term
forecasts. Mid term ones may be between two to five years and
beyond that will be long term. In long-term forecasts many
events, which are slow moving and are nondiscernable are to be
considered, like basic trends of population. But all of them
need to be linked properly to have consistency. Normally this is
achieved by having a forecasting committee and a coordinator. A
corporate computer model will be prepared to show
relationship between various budgets whose periods will have
been extended to cover long term plans.

35

PRINCIPLES OF MANAGEMENT

LESSON 17:
FORECASTING

PRINCIPLES OF MANAGEMENT

LESSON 18:
TYPES/ TECHNIQUES OF
FORECASTING
Overview of The Lecture
In this lecture we will study the techniques used in forecasting.
Since the prediction has to be done, so there must be some
methods available, which will assist in doing it.
Objective is to Learn

Forecasting Techniques
Forecasting Techniques
1. Quantitative Time series analysis/ Exponential
smoothing
In this method, study of past data such as last year sale, last
month sale or last year shipment trend are analyzed by the
company based on the previous trend. Forecasting can be
done by keeping in view the present factors
2. Derived Forecast or Regression method
In this technique, forecast is derived from the data published
by government agency or experts.
For e.g. Computer Society India (CSI) disclosed that export
of software has increased by 68%. This information will help
the software development Company in forecasting the
planning.
3. Casual Model
If an underline cause for the variable can determine the
forecast can be handled mathematically and produce quite
accurate results.
E.g. One might find that sales are the direct result of
number of contacts by the sales executive and predict that
from every 5 contact 1 sale will result.
4. Users expectations
One way to find out about likely sales is to ask the customers
themselves as to how much they need. Although it is not a
commitment, it is good enough for a small company who
can not use other methods because of its costs and
customers are few. Also they should be easy to locate and be
cooperative.
5. Sales force estimates
Salesmen in the field are the best to know the market
conditions as they operate there every minute. All the
estimates in various areas are collected and with little
adjustment averaged mostly the over and under errors
cancel out each other. Although it appears to be perfect, there
can be some drawbacks. Salesmen will have to be trained to
be forecasters and to influence all the factors that affect the
sales. Their participation should be encouraged provided that
they are cooperative and unbiased. This will give them more
confidence in themselves and they will take the responsibility
of proving their worth. As the sample will be large it will

36

give stability to figures. This helps in developing of product,

territory, customer or salesmen breakdown.
Forecasting is not yet a science and no fool proof method
has yet been found. Independent and intuitive appraisal by
intelligent and experienced brain is still valid. One cannot get
too precise answers in an environment characterized by
uncertainty. One should combine all the methods to get
answers. If several different forecast indicators based on
independent approaches and data, point to same result,
forecaster can be assured of fairly reliable future
Notes

CHAPTER:7
LESSON-19
SCHEDULING, WORK BREAK DOWN
STRUCTURE
PRINCIPLES OF MANAGEMENT

Overview of The Lecture

Objective is to Learn

Work Breakdown Structure

Work Breakdown Structure

System

Subsystem 1

Task

Subsystem 2

Task

Subtask
Work package

Task

Task

Subtask
Work package

Work breakdown structure is created in a level-by-level

breakdown
1. System to Subsystem
2. Subsystem to Task
3. Task to Subtask and
4. Subtask to work package (work package is a paragraph
description of the work to be done
The manner in which the system is broken down is into sub
system, task etc is shown by the diagram above.

Notes

37

PRINCIPLES OF MANAGEMENT

LESSON-20
FORNAL AND INFORMAL ORGANIZATION,
ORGANIZATION CHART
Overview of The Lecture
Organizing means insuring that all the activities necessary to
accomplish the goal are assigned to a person who can do them
best. For this an effective organization structure is required.
In this lecture we will study about the Formal and Informal
Organization
Formal organization means the intentional structure or roles
in a formally organized company.
Informal organization means a network of personal and
social relationships not established or required by the formal
organization but arising spontaneously as person associate with
each other.
Objective is to Learn

Meaning and definition

Significance of organization
Formal and Informal organization
Organization Chart
Benefits of Organization Chart

Meaning and Definition

Organization is the backbone of management and a means of
multiplying the strength of an
individual. It takes the knowledge of individuals and uses it as
the resource. To organize manpower means to build a structure,
not of wood and steel, but of human beings. The people are
the material for the construction, their loyalty is the foundation
and their cooperative spirit the moral that holds the structure
together and gives it vitality.
The concept of organization has been perceived differently by
different persons. The biologists consider the human body as
an organization. The sociologists think of society as an
organization and the political scientists think of government as
an organization. To a top executive, the term organization
means the weaving together of functional components in the
best possible combination so that the enterprise can accomplish
its objectives. Generally speaking, an organization is the rational
coordination of the activities of a number of people for the
accomplishment of some common goals, through division of
labour and function, and through a hierarchy of authority and
responsibility.
Some writers on management have defined organization as a
structure of relationship between the various positions in the
concern. This relationship is in the form of well-defined
authority and responsibility in the formal structure. McFarland
has defined organization, as an identifiable group of people
contributing their efforts towards the attainment of goals.
Thus, the term organization represents a particular group of
individuals engaged in accomplishing common goals.

38

Organization as a group has certain features. They are as

follows:
i. It is a cooperative relationship of two or more persons.
ii. Its purpose is to accomplish certain goals.
iii. Its members can communicate with each other.
iv. The behaviour of the group is regulated through their own
bye-laws.
In the words of Koontz and ODonnell, Organization
involves the grouping of activities necessary to accomplish goals
and plans, the assignment of these activities to appropriate
departments and the provision for authority delegation and
coordination. Organization as a process, therefore, is an
executive function that consists of:
i. Breaking up the entire work into different segments
ii. Assigning each segment to the qualified individuals, and
iii. Coordinating the efforts of jobholders to attain the
organizational goals.
Formal Organization
The formal organization refers to the structure of jobs and
positions with clearly defined functions and relationships as
prescribed by the top management. This type of organization is
bound by rules, systems and procedures and is deliberately built
by the management to accomplish organizational goals. But the
degree of its success depends on the attitudes and capacities of
the people within the organization.
The formal organization is built around the key pillars of
division of labour, scalar process, structure, and span of
control. These may also be called the principles of formal
organization. Its structure is designed to enable its members to
work together for accomplishing common goals. An individual
should adjust himself to the formal organization. It tells him
to do certain things in a specified manner, to obey orders from
designated individuals and to cooperate with others.
Coordination also proceeds in accordance with the prescribed
pattern.
Formal organization is deliberately impersonal and is based on
the ideal relationship between persons in terms of authority
and responsibility. The authority and responsibility of each
individual is well defined, obviating any chance of overlapping
of authority. The basic features of formal organization are as
follows:
1. It is a prescribed structure of roles and relationships
consciously coordinated towards a common goal.
2. It is based on division of labour and specialization.
3. Its structure is pre-determined by the top management.
4. It does not consider the emotional aspect.
5. The authority and responsibility relationships created by the
organization structure need to be honoured by everyone.

Informal organization refers to the relationships between

people in an organization based not on procedures and
regulations but on personal attitudes, whims, prejudices, likes,
dislikes, etc. It arises from the personal and social relations of
the people, which cut across formal channels to communicate
with one another. Sometimes, it is afflicted with rumours and
offers resistance to the new ideas of management.
Informal organizations are small groups and arise
spontaneously along with the formal organizations. The
groups can overlap since a person can be a member of more
than one informal group. A manager cannot abolish the
informal organization, as it is not created. Sometimes, informal
relations can be used to support the formal organizations. For
example, a superior weak in planning may accept the advice of
an experienced subordinate. The following are the vital features
of informal organization:
1. It arises spontaneously.
2. Its formation is a natural process.
3. It reflects human relationships.
4. Its membership is voluntary.
5. It is based on common taste, whims, prejudices, etc.
Informal organization

1.

It originates automatically.

2.

It has no pre-determined purposes.

3.

Its structure is based on personal attitudes, whims, and

friendships.

4.

It does not last too long.

5.

It reflects human emotions.

6.

It does not follow a fixed chain of command.

time. Thus the main features of an organization chart are as

follows

PRINCIPLES OF MANAGEMENT

Informal Organization

i. It is a diagrammatical presentation.
ii. It shows the relationship between different authorities.
iii. It shows the kind of relationships prevailing in the
organization.
iv. It shows the authority and responsibility of various
authorities.

Benefits of the Organization Chart

The main advantages of the organization chart are the
following
1. It facilitates organizational planning and manpower
planning.
2. It helps to avoid overlapping of authority.
3. It enables the executives to know and appreciate their own
position vis-a-vis others in the organization.
4. It is a source of authoritative information about the
organization.
5. It helps to analyse an organization for effecting
improvement
Exercise
The overall in charge of ABC Ltd is Managing Director. There
are 3 Vice President who report to the Managing Director. These
Vice presidents are head of department of Sales, Production,
and Finance respectively. Under each Vice president there is 1
senior manager. Under each senior manager, there are 2
managers and under each manager there are 5 executives. Draw
the organization structure/ chart.

Formal Organization vs. Informal Organization

Formal organization

1. It is deliberately formed.
2. It has pre-determined purposes.
3. It is a structure of well-defined authority and responsibility
relationship.
4. It is usually stable.
5. It does not consider human sentiments.
6. It follows a fixed chain of command.

Organization Chart
An organization chart is a diagrammatic representation of
the structure of an organization. In other words, it is a
graphic portrayal of positions in the organization and of
formal lines of communication among them. The organization
chart provides a birds eye view of the relationship between
different departments of an organization as well as the
relationship between the executives and the subordinates at
various levels. In the words of Louis A. Allen, The
organization chart is a graphic means of showing organization
data. Organization charts are snapshots; they show only the
formal organization and depict it only at a given moment in

39

PRINCIPLES OF MANAGEMENT

LESSON-21
TYPES OF
ORGANIZATION
Overview of The Lecture

In this case activities in a given area or physical location are

grouped and assigned to a manager.

Objective is to Learn

When the activities of an organisation are (physically or

geographically) widely dispersed, territorial divisions may be
created. Such divisions take the advantage of the intimate
knowledge of the local conditions possessed by the executives.

Types of Organization
Choosing the Pattern of Department
Types of Organization

Ex. CBSE (Delhi Zone, Allahabad zone, Chennai zone etc) area
wise is divided; function of each zone will be different.

1. Departmentation by simple number

2. Departmentation by tune

5. Customer Departmentation
In customer-based departmentation, departments are created
around the markets served or around marketing channels.
Wholesale, retail, and export customers are examples of such
departmentation Ex TCS has dealer N/W co-operate marketing
( more volume of sale ) institutional market (sale related to
education), direct marketing (door to door).

3. Departmentation by function
4. Departmentation by territory
5. Customer Departmentation
6. Process or Equipment Departmentation
7. Departmentation by product
8. Strategic Business Unit (SBU)
1. Departmentation by simple number
This method is used to total the no. of persons who are
performing the same duties and are under the supervision of a
manager.
In this method the main limitation is that it is assumed that
the success of work depends only upon the no of person
involved. But actually it also matters that what these people do
where they work or what they (workers with computers, pen,
clock etc.) work with. Moreover it is important to know how
many specialized persons are there on a group instead of
(skilled and unskilled) total no. of persons in a group. This
method is not used at present.
MD

Mkt.

15

Prodn

20

Fin.

10

Sales

15

2. Departmentation by time
In this the activities are grouped on the basis of time the
example of this kind of departmentation is Hospital where
round the clock patient care is essential.
3. Departmentation by function
In this case activities are grouped according to the similarity
within the function of the organisation.
The organisation may be divided into departments on the basis
of functions such as production, marketing, finance, personnel,
and-so-on. These functions can further be divided into subfunctions in accordance with the need of the organisation.
4. Departmentation by territory
40

In this case the activities are grouped on the basis of nature of

customer.
6. Process or Equipment Departmentation
In process departmentation, various manufacturing processes
are taken as the basis for dividing the activities. Spinning,
weaving, dyeing, etc. can form the examples for such a
departmentation. In this case the activities are grouped around a
process or a type of equipments.
Ex. Fan Blades( cutting, painting, attachment.)

Marketing Direct, Tele Marketing, Dealership etc

7. Departmentation by product
When the activities associated with each product or group of
closely related products are combined into relatively
autonomous and integrated units within the overall framework
of the company, such an organisation is described as product
departmentation. It enjoys the advantage of specialised product
knowledge and promotes coordination of different activities
connected with a particular product. Activities are grouped on
the basis of product line.
Bajaj (Scoter, motorcycle, Auto, Mopeds Divisions)
8. Strategic Business Unit
In this case the product line or a product is promoted and
handled as an independent business. Normally this concept is
used for large organization to ensure that a product will not get
lost among other products.
A SBU must have its own mission, may be different from the
mission of other SBU and prepare its own plans to achieve the
objective.
E.g. Hindustan Lever (dealing with soaps, food division etc)
each division has different targets.

Choosing the Pattern of Department

PRINCIPLES OF MANAGEMENT

There is no single best way to organise the most appropriate

pattern depends on various factors on a given situation. These
factors includes
1. The kind of job to be done (line etc.)
2. The way the last must be done.(repetitive etc)
3. Kind of persons involved/skilled or unskilled persons
4. The technology
5. The customer service type and
6. Other internal and external considerations.
The selection of a specific department pattern should be done
so that organisation objectives can be achieved affectively and
efficiently.
Notes

41

CHAPTER:8
LESSON 22:
POWER

PRINCIPLES OF MANAGEMENT

Overview of The Lecture

Power is the ability to exert influence. When a person is able to
change the behaviour or attitudes of other individuals, it is said
that he has power. Thus, a managers power is his ability to
cause subordinates to do what he wishes them to do. Lets start
our lecture with the basics and then in details about the power
Where does power come from? What is it that gives an
individual or a group influence over others? The answer to
these questions is a five-category classification scheme identified
by John French and Bertram Raven. They proposed five types
of bases, or sources, of power: coercive, reward, legitimate,
expert, and referent

instance, job descriptions, group norms, organizational rules

and regulations, as well as community laws and standards
constrain peoples choices. As a nurse, you may be dependent
on your supervisor for continued employment. But, in spite of
this dependence, youre unlikely to comply With her request to
perform heart surgery on a patient or steal several thousand
dollars from petty cash: Your job description and laws against
stealing constrain your ability to make those choices.
Power is the ability to exert influence. When a person is able to
change the behaviour or attitudes of other individuals, it is said
that he has power. Thus, a managers power is his ability to
cause subordinates to do what he wishes them to do.

Objective is to Learn

It may be weighed in terms of the managers ability to

What is Power

(i)

Give rewards,

Types of Power

(ii)

Promise rewards,

Power
POWER refers to a capacity that A has to influence the behavior
of B so that B does something he or she would not otherwise
do. This definition implies (1) a potent that need not be
actualized to be effective, (2) a dependence relationship, and (3)
that B has some discretion over his or her own behavior. Lets
look at each of these points more closely.

(iii)
(iv)

Withdraw current rewards,

Threaten to withdraw current rewards,

(v)

Punish, and

(vi)

Threaten punishment.

Power may exist but not be used. It is, therefore, a capacity or

potential. One can have power but not impose it.
Probably the most important aspect of power is that it is a
function of dependence. The greater Bs dependence on A, the
greater is As power in the relationship. Dependence, in turn, is
based on alternatives that perceives and the importance that B
places on the alternatives that A controls. A person can have
power over you only if he or she controls something you
desire. If you want a university degree, have to pass a certain
course to get that degree, and your current instructor is the only
faculty member in the university who teaches that course, he or
she has power over you. Your alternatives are definitely limited,
and you place a high degree of importance on obtaining a
passing grade. Similarly, if youre attending university on funds
provided entirely by your parents, you probably recognize the
power they hold over you. Youre dependent on them for
financial support. But once youre out of school, have a job, and
are making a solid income, your parents power is reduced
significantly. Who among us, though, has not known or heard
of the rich relative who is able to control a large number of
family members merely through the implicit or explicit threat of
writing them out of the will?
For A to get B to do something he or she otherwise would not
do means B must have the discretion to make choices. At the
extreme, if Bs job behavior is so programmed that he is
allowed no room to make choices, he obviously is constrained
in his ability to do something other thin what he is doing. For

42

Types of Power

John French and Bertram Raven have identified the following

sources of power at all levels of the organisation.
1. Coercive power

It is the ability of the manager to punish the subordinate for

not obeying orders. The coercive power base is defined by
French and Raven as being dependent on fear. One reacts to this
power out of fear of the negative results that might occur if
one failed to comply. It rests on the application, or the threat of
application, of physical sanctions such as the infliction of pain,
the generation of frustration through restriction of movement,
or the controlling by force of basic physiological or safety needs.
2. Reward power

It is the ability of the manager to reward the subordinate for

obeying orders. e.g. Defense authorities, School Principle,
Teacher(marks to be granted in Viva voice) etc.
The opposite of coercive power is reward power. People comply
with the wishes or directives of another because doing so
produces positive benefits; therefore, one who can distribute
rewards that others view as valuable will have power over them.
These rewards can be anything that another person values. In an
organizational context, we think of money, favorable
performance appraisals, promotions, interesting work
assignments, friendly colleagues, important information, and
preferred work shifts or sales territories.
Coercive and reward power are actually counterparts. If you can
remove something of positive value from another or inflict
something of negative value on him or her, you have coercive
power over that person. If you can give someone something of

Notes

PRINCIPLES OF MANAGEMENT

positive value or remove something of negative value, you have

reward power over that person. As with coercive power, you
dont need to be a manager to be able to exert influence
through rewards. Rewards such as friendliness, acceptance, and
praise are available to everyone in an organization. To the degree
that an individual seeks such rewards, your ability to give or
withhold them gives you power over that individual.
3. Legitimate power

Legitimate power corresponds to the term authority. It exists

when a subordinate acknowledges that the manager is lawfully
entitled to exercise authority. It normally arises from position
and derives from our cultural system of rights, obligations, and
duties.
E.g. Traffic Officer can stop 1 at signal and cut challan, Judge can
give his judgement by hearing the problem.
In formal groups and organizations, probably the most
frequent access to one or more of the power bases is ones
structural position. This is called legitimate power. It represents
the power a person receives as a result of his or her position in
the formal hierarchy of an organization.
Positions of authority include coercive and reward powers.
Legitimate power, however, is broader than the powers to
coerce and reward. Specifically, it includes acceptance by members
of an organization of the authority of a position. When school
principals, bank presidents, or army captains speak (assuming
that their directives are viewed to be within the authority of
their positions), teachers, tellers, and first lieutenants listen and
usually comply.
4. Expert power

This power comes from the expertness of a person or group.

This is the power of knowledge.Expert power is influence
wielded as a result of expertise, special skill, or knowledge.
Expertise has become one of the most powerful sources of
influence as the world has become more technologically
oriented. As jobs become more specialized, we become
increasingly dependent on experts to achieve goals. So, just as
physicians have expertise and hence expert power-most of us
follow the advice our doctor gives us so too do computer
specialists, tax accountants, solar engineers, industrial
psychologists, and other specialists.
5. Referent power

Comes because public believes in them and their ideas The last
category of influence that French and Raven identified was
referent power. Its base is identification with a person who has
desirable resources or personal traits. If I admire and identify
with you, you can exercise power over me because I want to
please you.
Referent power develops out of admiration of another person
and a desire to be like him or her. In a sense, then, it is a lot like
charisma. If you admire someone to the point of modeling
your behavior and attitudes after him or her, that person
possesses referent power over you. Referent power explains why
celebrities are paid millions of dollars to endorse products in
commercials. Marketing research shows that Regional Guru,
Astrologers, Movie stars have the power to influence your
choice.
43

PRINCIPLES OF MANAGEMENT

LESSON-23
RESPONSIBILITY, DELEGATION

Distinction between Authority and Responsibility

Overview of The Lecture

Objective is to Learn

Authority

What is Authority

It is power to command.

Distinction between Authority and Power

Responsibility
It is the obligation of a subordinate to
carry out the jobs assigned to him.

What is Responsibility
Distinction between Authority and Responsibility

It arises on account of a formal

It arises on account 'of the superior-

Delegation of Authority

position.

subordinate relationship.

Authority
Functional authority is the right, which is delegated to an
individual or a department to control specified processes,
policies or other matters related activities undertaken by persons
in other department. It arises from the power of position i.e.
from legitimate power.

It can be delegated.

It cannot be delegated.

It always moves downwards.

It always moves upwards.

Distinction between Authority and Power

Authority

Power

(a) It is the right to

command.

1. It is the capacity to
command.

(b) It is legitimised by certain

rules, regulations, laws,
and practices.

2. In the case of
power, there is no
such legitimisation.

(c) It is institutional and

originates because of
structural relationships.

3. It emerges because
of personal factors
and varies with the
individuals.

(d) It exists in the context of

organisational
relationship.

4. It may exist
between any two
persons and
organisational
relationships may
not be necessary.

It is a downward flowing concept.

It flows in all directions.

Delegation of Authority
Delegation of authority is an elementary art of management as
it has certain working rules or fundamentals. It is the basis of
administration in all spheres of life and involves sharing of
authority and also the responsibility thereof. Delegation means
devolution of authority on subordinates to make them
perform the assigned duties or tasks. Thus, delegation is the
process of entrusting part of the work by the superior to his
subordinates.
In the words of Theo Haiman, Delegation means the granting
of authority to subordinates to operate within the prescribed
limits. L.A. Allen defines delegation as the ability to get
results through others. These definitions indicate that the
question of delegation arises when the volume of work to be
done is in excess of an individuals capacity. Thus, a chief
accountant in an organisation may delegate his duty to prepare
the budget to one of his subordinates. He also delegates
authority to him consistent with the performance of the duty.
Boss-subordinate relationship is the result of delegation.
Without delegation, a subordinate may receive orders from
many superiors and would not be able to comply with any of
them.
Notes

Responsibility
Responsibility means obligation to perform a task. It refers to
the mental and physical activities, which should be performed
to carry out a task. It originates from the superior-subordinate
relationship and cannot be delegated or transferred. According
to Koontz and ODonnell, Responsibility is the obligation of
a subordinate to perform the assigned and implied duties. The
duty should be expressed either in terms of functions or in
terms of objectives. When a subordinate is asked to control the
operations of a machine, the duty is in terms of the function.
On the other hand, when a subordinate is asked to produce a
particular number of pieces of a product, the duty is in terms
of the objective.

44

Overview of The Lecture

An organization requires the services of human beings. They
are the dynamic elements of it. Without the right kind of
persons, an organisation structure is only an unproductive
empty shell. Thus, any person occupying a position should
have enough talent to meet its requirements. Staffing basically
involves matching jobs and individuals. It involves a number
of functions such as planning, selection, training and appraisal
of the individuals in the organisation.
Objective is to Learn
Meaning of Staffing
Need and importance of Staffing
Steps in staffing process
Principles of staffing

Meaning of Staffing

The term staffing stands for manning various positions in the

organisation. It is defined as the process involved in
identifying, assessing, placing, evaluating and developing
individuals at work. According to Theo Haiman, Staffing
function is concerned with the placement, growth and
development of all those members of the organisation whose
function is to get things done through the efforts of other
individuals. In the words of Koontz and ODonnell, The
staffing function pertains to the recruitment, selection,
development, training and compensation of subordinate
managers.
The staffing function of management pertains to the
determination of manpower requirements of the organisation
and providing it with adequate number of competent people at
all its levels. Thus manpower planning, recruitment, training
and development, appraisal and remuneration of workers are
included in staffing.
Need and Importance of Staffing
Since efficient managers are an asset in every enterprise, the need
for them is increasing day-by-day. Several reasons which have
increased the importance of the staffing function of
management are as follows:
1. Better performance. Since performance of an organisation
depends on the quality of the persons employed, the
function of staffing is very significant.
2. Use of technology. With technological changes taking place
everyday, the right type of persons are required to make use
of the technology.
3. Development of manpower. In order to avoid a sudden
disruption in the enterprise activities, the manpower
requirement should be decided beforehand.
4. Optimum use of manpower. Although every concern
spends some money on its personnel by way of recruitment,

selection, training, wages, and salaries, it can enjoy optimum

results only through efficient staffing.
5. Recognition of human relations. Human factor
determines the success of a business enterprise to a great
extent. Thus, the morale of the employees should be kept
high through various financial and non-financial incentives
and the right kind of working conditions
Steps in the Staffing Process

The various steps in the staffing process are as follows:

1. Manpower planning. It is the determination of the future
requirement of personnel.
2. Recruitment and selection. It involves selecting the best
candidates from among the applicants to fill various jobs in
the organisation.
3. Placement. It is assigning the right job to the right person
in the organisation.
4. Training and development. Every organization has some
special jobs that need certain specialised skills. Thus, the staff
appointed has to be trained and their abilities have to be
developed commensurate with the organisational objectives.
5. Compensation or remuneration. It is concerned with
developing a system of adequate and equitable remuneration
of personnel commensurate with their contribution to the
objectives of the organisation.
6. Performance appraisal. It deals with the appraisal of the
workers performance.
Principles of Staffing

1. Principle of the Objective of Staffing

The objective of staffing is to ensure that organization roles are

filled by those qualified employees who are able and willing to
occupy them.
2. Principle of Staffing

The clearer the definition of organization roles and their human

requirement and the better the technique of manager appraisal
and training employed, the higher the managerial quality.
3. Principle of Job Definition

The more precisely the results expected from managers are

identified, the more clearly their position can be defined
4. Principle of Managerial Appraisal

The more clearly, verifiable objectives and required managerial

activities are identified the more precise can be the appraisal of
mangers against these criteria

45

PRINCIPLES OF MANAGEMENT

LESSON-24
STAFFING PRINCIPLES

PRINCIPLES OF MANAGEMENT

5. Principle of Training Objective

The more precisely the training objectives are stated; the more
likely are the chances of achieving them.
Notes

46

CHAPTER:9
LESSON-25
PERFORMANCE APPRAISAL

Objective
Performance Appraisal

(ii)

Sometimes, proper weightage may not be given to the

different qualities to be rated.

(iii)

The actual rating of subjective factors like initiative and

personality of the employees may not be on scientific
lines.

(iv)

Sometimes, supervisors do not possess the critical

ability in assessing the staff.

(v)

The methods of performance appraisal are unreliable.

Objectives of Performance Appraisal

Limitations of Performance Appraisal

Performance Appraisal
Performance appraisal is also known as employees appraisal or
merit rating. The rating of a person by another person is as old
as mankind. But formal merit rating systems are of relatively
recent origin. It is a systematic evaluation of the personality and
performance of each employee by his supervisors or some
other qualified persons. According to Scott and Spriegal, Merit
rating of an employee is the process of evaluating the
employees performance on the job in terms of the
requirements of the job. It is a technique of assessing the
worth of an employee with reference to the job requirements.
In the words of Yoder, Performance appraisal refers to all
formal procedures used in working organisations to evaluate
personalities and contributions and potential of group
members. Thus performance appraisal is a formal programme
in an organisation which is concerned with not only the
contributions of the members who form part of the
organisation, but also aims at spotting the potential of the
people.

Notes

Objectives of Performance Appraisal

Merit rating has a wide range of uses in an organisation. It
helps management to accomplish the following objectives:
(i)
To unify the rating procedure so that all employees are
rated on the same qualities by the same method of
measurement.
(ii)

To maintain a record of each employees performance

in order to determine wages, incentive pay, salary
increase, transfer, and promotion.

(iii)

To determine the need for training programmes for

employees and to decide the correct placement of
workers.

(iv)

To let an employee know his performance level so that

he can take steps to develop himself.

(v)

To provide a check at the end of the probationary

period for new employees.

(vi)

To eliminate personal prejudices and develop a better

knowledge and understanding of its employees.

Limitations Of Performance Appraisal

The major limitations of performance appraisal are:
(i) The results of merit rating will not be accurate unless the
factors in the assessment are relevant.

47

PRINCIPLES OF MANAGEMENT

Overview of The Lecture

PRINCIPLES OF MANAGEMENT

LESSON-26
CARRER PLANNING,
TURNOVER CAUSES
Overview of The Lecture

8. Development of contingency Plans

Career Planning

Contingency Plans based on alternative assumption should be

prepared. It includes the future, which cannot be predicted with
great accuracy.

Process of formulation of career strategy

9. Implementation of career plans

Turnover Causes

Career goals and personal ambition can be considered while

implementing the career plans.

Objectives

Career Planning
Job (at present vs. career (long term) tool is performance
appraisal The appraisal performance should identify the
strength and weaknesses of an individual. This identification
can be the stating point for a career plan.
Affective performance appraisal should also recognize the desire
of employee for progress management is one way to integrate
organisation demand and individual needs.
Process of formulation of career strategy
1. Preparation of a personal profile

Management should know about themselves and prepare their

own achievements. This will help them in decoding their
professional career.
2. Development of large range personal and professional
goals

10. Monitoring Progress

Monitoring the progress of evaluating progress towards career

goals and making necessary in the career plans.
Turnover Causes
Employee turnover is caused because of
1. Improper environment
2. Better compensation
3. Bad Management
4. Better Job opportunity
5. Better job prospects
6. Better career
7. Better future
8. Personal ethics problem

Management should know why they need and what they want
to be in future. ie. decision about his own goal selling up of
performance goal help the managers to identify career goals.
3. Analysis of the environmental threats and opportunity

Environment affects career, therefore analysis of factor inside

and outside the organisation must be taken into account. For
eg. Joining an expanding company (IT and IT industry)
normally provide more career opportunities.
4. Analysis of personal strengths and weaknesses

Analyse your strengths and weaknesses to know the +ve and

ve points, about your self.

Personal Profile

Long range personal and Professional goals

Environmental threats
and opportunity

Personal strength and

weaknesses

Career alternative

Consistency testing and strategic choices

5. Development of a career alternative

Opportunitys and threats must be matched with strength and

weaknesses so that the capabilities can be categorized as
technical, human, conceptual, managerial etc. develop the career
alternative once strength and take advantage of the available
opportunities.
6. Consistency testing and strategy choice

Choice should be made taking into account the personal

preference, personal values, and ambition. But rational choice is
not always fulfilled.
7. Development of short-range career objective and
Action plans

Objective must be supported by action plans. These action

plans should be of short terms

48

Short range career objective and action plans

Contingency Plans

Implementation of career Plans

Monitoring Progress

Overview of The Lecture

Objective is to Learn
Meaning and definition
Need and importance of motivation
Theories of Motivation

Meaning and Definition

Motivation is an integral part of the process of direction and
the core of management. In the course of direction, the
manager has to try to create in his subordinates the willingness
to pursue organisational goals enthusiastically. It is an effective
instrument in the hands of management for inspiring the
workforce and creating a confidence in it. Motivation deals with
actuating the people to work for the accomplishment of
enterprise goals. Thus it is a performance factor in an industry.
The performance of an industry is determined by two factors.
They are:
(a) Level of ability to do certain work
(b)

Level of motivation expressed as:

Performance = Ability x Motivation

The performance level would be high if both these factors are

high. While motivation can be enhanced by the factors
governing human behaviour in the organisation, the ability to
do work is governed by education and training.
Motivation is an act of energising the people to satisfy their
needs. It has its roots in motives, which induce a person to
behave in a particular manner. Motive is defined more often as
needs, wants, drives, impulses, etc. within the individual.
Whatever may be the behaviour of a person, there is some
stimulus behind it. Stimulus depends on the motive of the
person concerned. Motive can be known by studying his needs
and desires.
On the basis of analysis of these definitions, it is clear that
motivation is a process consisting of (i) the motive (ii) the
needs, drives, desires, aspirations, etc. and (iii) the Objectives.
Need And Importance Of Motivation

Motivation is an effective instrument in the hands of

management for inspiring and creating confidence in the
workforce that they are capable of achieving, sparkling results.
Only the will to work is to be created, which certainly the
management has to do. Thus, every superior in the organisation
should motivate his subordinates for the right types of
behaviour. The need for motivation in an organisation may be
summed up as follows:

1. Helps in realising organisational goals:

motivated employees cooperate voluntarily with the

management and thus contribute their maximum towards
the organisational goals.
2. Helps in increasing productivity: Since motivation brings
about satisfaction to employees, they work whole-heartedly.
This results in increased productivity.
3. Helps in reducing employees turnover and absenteeism:
The rate of turnover and absenteeism comes down on
account of the attractive motivational schemes.
4. Helps in maintaining good industrial relations: A proper
system of motivation reduces friction among the employees
and between the employees and the management. This
results in good industrial relations between the management
and the employees.
5. Helps in getting right personnel: Attractive motivational
schemes help in attracting highly talented and competent
persons from external sources.
6. Helps in reducing employees grievances: Good
motivational schemes also help in reducing the number of
complaints and grievances.
Theories of Motivation
1. Herzbergs Two Factor Theory
According to this theory there are 2 sets of motivation
factors. In one set, there are DISATISFIERS which are not
satisfied related to the job context. In another set, there are
SATISFIERS or MOTIVATORS which are satisfied
related to the context of the job
According to Herzbergs for both the set of people, same
approach is not useful to motivate them. In case of
DISATISFIERS set of people, we have to identify the
factors for there dissatisfaction. Try to overcome their
problem or dissatisfaction so that they will shift to the set of
satisfiers set.
2. Vrooms Expectancy Theory
It suggest that people are motivated to reach a goal if they
think that goal is worthwhile and can set that activities which
will help them to achieve the goal.
3. Reinforcement Theory
It was developed by Skinner who suggested that people
are motivated by Praise of Desirable behaviour. People
should participate in setting their goals and should receive
regular feedback with recognition and praise.
4. Mcclellands Theory
This theory is based on the need for power and the need for
achievement of status. According to this theory the person is
motivated if he is getting more power and more status.

49

PRINCIPLES OF MANAGEMENT

LESSON-27
THEORIES OF MOTIVATION

PRINCIPLES OF MANAGEMENT

5. Equity Theory
It refers to an individual subjective judgement about the
fairness of the reward received for input, in comparison with
the reward of others.
Notes

50

CHAPTER:10
LESSON-28
MASLOWS NEED HIERARCHY

Objective is to Learn
Maslows Need Hierarchy Theory

Maslows Need Hierarchy Theory

Need can be defined as a condition requiring supply or relief.
It is the basis of behaviour change and the starting point in
motivation. When the needs of the employees are identified
and satisfied, they will be happy and show improvement in
performance. But all the needs of the employees cannot be
satisfied at the same time, as some of the needs are more
complex than others.
Abraham Maslow, an eminent U.S. psychologist mentioned two
important characteristics of human needs. In the first place,
mans needs depend completely on what he already has. Because
of this, satisfied needs do not motivate behaviour. In the
second place, human needs are arranged in a hierarchy of
importance. As soon as mans needs of the lower level are
reasonably satisfied, those of a higher level emerge and demand
satisfaction. Maslow categorized human needs into five types
(see Figure):

Esteem and status needs. These needs relate to the desire for
recognition and respect from others. Man wants to be
considered not only as a member of the team, but also as an
important member. The feeling of self-confidence, prestige and
power are examples of esteem needs.
Self-realization needs. Self-realization need is the need of the
highest order. It refers to mans desire of accomplishing
distinction in his chosen area by maximizing his potential.
Maslow states this as what a man can be, he must be.
According to him, this need is found in a person whose first
four needs have already been satisfied.
Notes

Figure: Maslows levels of human needs.

Physio1ogical needs. Physiological needs relate to the survival
and maintenance of human life. The basic requirements of
food, clothing and shelter are included in them. Satisfaction of
these needs is highly essential for the preservation of life.
Before a person pursues any other objectives or activities, he will
work to fulfill these needs.
Safety needs. These needs relate to protection from physical
danger and assurance for economic security. Man wants to be
assured of a continuing income so that he can reasonably meet
his demands for necessities in days to come. For example, a
house to live in, security of job, pension for old age, insurance
for accidents and death, compensation for layoff and
retrenchments, etc.
Social needs. Mans desire to love and be loved is included in
the social needs. He wants to develop meaningful relations with
others. Loyalty to a small work group and the need to belong to
that group are included in social needs.

51

PRINCIPLES OF MANAGEMENT

Overview of The Lecture

PRINCIPLES OF MANAGEMENT

LESSON-29
LEADERSHIP AND LEADERSHIP STYLES

Overview of The Lecture

Characteristic of Leadership

7. It involves an unequal distribution of authority among

leaders and group members. Leaders can direct some of the
activities of group members and the group members obey
the leaders directions. But the group members cannot
similarly direct the leaders activities.

Importance of Leadership

Importance of Leadership

Qualities of Good Leader

Leadership is a process of influence on a group. Thus effective

leadership is highly essential in inspiring the people for
accomplishing specified objectives. According to P.F. Drucker,
good leadership is a must for the success of a business but
business leaders are the scarcest resources of any enterprise.
John G. Gloves, in his book, Fundamentals of Professional
Management, states that more failures of business concerns are
attributable to poor leadership than to any other cause. All
these emphasise the importance of leadership in achieving the
organisational goals.

Objective is to Learn
Meaning and definition

Leadership Styles

Leadership
Meaning and Definition
Leadership is a part of management and one of the most
significant elements of direction. A leader mayor may not be
manager but a manager must be a leader. A manager as a leader
must lead his subordinates and also inspire them to achieve
organisational goals. Thus leadership is the driving force, which
gets the things done by others.
Leadership represents an abstract quality in a man. It is a
psychological process of influencing followers or subordinates
and providing guidance to them. Thus the essence of
leadership is followership. It is the followers who make a
person as leader. An executive has to earn followers. He may get
subordinates because he is in authority but he may not get a
follower unless he makes the people to follow him. Only
willing followers can and will make him a leader.
According to Chester Barnard, leadership is the quality of
behaviour of individuals whereby they guide people or their
activities in organising efforts. A leader interprets the objectives
of the people working under him and guides them towards the
accomplishment of those objectives. In the words of Koontz
and ODonnell, Leadership is the ability of a manager to
induce subordinates to work with zeal and confidence. Thus
the primary job of a leader is to build a team for the
achievement of organisational goals.
Characteristics of Leadership

The various features of leadership are as follows

1. It is a personal quality of character and behaviour in man,
which enables him to exert internal personal influence.
2. It pre-supposes the existence of a group of followers.
3. It is concerned with the laying down of objectives and
policies for the followers, motivating them and coordinating
their efforts to accomplish the objectives.
4. Its style may differ from situation to situation.

The importance of leadership in management will be more clear

if the following functions performed by the leaders are known:
1. Determination of goals: A leader carries out the creative
function of laying down goals and policies for the followers.
2. Organisation of activities: A good leader divides
organisational activities among the employees in a systematic
way. It helps to reduce the chances of conflict between them.
3. Accomplishing coordination: A leader directs and unifies
the efforts of the individuals of a group for the
accomplishment of organisational goals.
4. Providing guidance: A good leader guides the subordinates
and is available for advice whenever they face any problem.
5. Building employees morale: A good leader builds
employees morale, which in turn ensures high productivity
and stability in the organisation.
6. Facilitating change: Dynamic leadership is the corner stone
of organisational change. A dynamic leader can facilitate
change, as he is able to overcome resistance to change on the
part of the employees.
Qualities of a Good Leader
A leader to be effective must possess the following basic
qualities.
1. Intelligence
2. Initiative and creative ability
3. Power of judgement
4. Vision and foresight

5. It is the ability to persuade others and to motivate them to

work for accomplishing certain objectives.

5. Mental and emotional maturity

6. It is a process of influence exercised by the leader on

members of a group.

7. Technical competence

6. Flexibility
8. Self-confidence
9. Human relations attitude

52

Leadership style refers to a leaders behaviour. Behaviour

pattern which the leader reflects in his role as a leader is often
described as the style of leadership. It is the result of the
philosophy, personality, and experience of the leader. It is the
art or process of influencing people so that they contribute
willingly towards group goal. The important leadership styles
are described below.
I. Autocratic or Authoritarian Leaders

Under the autocratic leadership style, all decision-making powers

are centralised in the leader as shown in Figure A. Such leaders
are dictators. They do not entertain any suggestions, or
initiative from subordinates. They give orders and assign tasks
without taking subordinates into confidence. Such leaders
generally attract the hostility of the subordinates.

A free rein leader does not lead, but leaves the group entirely to
itself as shown in Figure C. Such a leader allows maximum
freedom to subordinates. They are given a free hand in deciding
their own policies and methods. Here, the leader acts as an
umpire and coordinator of information. This type of
leadership style is also known as the permissive style of
leadership, where there is least intervention by the leader,
abdication of authority and letting the group cooperate entirely
on its own. This type of direction can produce good results if
the subordinates are highly educated.

Figure C: Free rein leadership style.

Figure A: Autocratic leadership style.
The autocratic management has been successful as it provides
strong motivation to the manager. It permits quick decisionmaking as only one person decides for the whole group. In
industry this style is quite common and has been successful in
such situations where subordinates are reluctant to take
initiative.

Free rein leadership style is considered better than the

authoritarian style. But it is not so effective as the democratic
style.

II. Participative or Democratic Leaders

The democratic leadership style favours decision-making by the

group as shown in Figure B. Such a leader gives instructions
after consulting the group. He can win the cooperation of his
group and can motivate them effectively and positively. Thus,
the number of complaints, employees grievances, industrial
unrest and strikes can be reduced.
The decisions of the democratic leader are not unilateral as with
the autocrat because they arise from consultation with the group
members and participation by them.

Figure B: Participative leadership style.

III. Laissez Faire or Free Rein Leaders

53

PRINCIPLES OF MANAGEMENT

Leadership Styles

PRINCIPLES OF MANAGEMENT

LESSON-30
CONTROLLING, OPEN LOOP,
CLOSED WITH FEEDBACK
Overview of The Lecture
Objective is to Learn
Meaning and definition
Importance of Controlling
Types of control

Meaning and Definition

It is the process that measures current performance and
guidance towards some predetermined goals. The essence of
control lies in checking existing actions against some desired
results determined in the planning process.
Managerial functions commence with planning and end at
controlling. The other functions like organizing, staffing, and
directing are the connecting links between planning and
controlling. Controlling men at work is as old a function as the
human civilization is. It is a fundamental function in every
sphere of life-the family, the academic institutions, the trade,
commerce and industry, the government and even religious
places. Thus control is a never-ending activity just as planning
and motivating activities are.
The managerial function of controlling implies, measurement
of performance against the standard and the correction of
deviations to ensure accomplishment of goals as per plan.
Thus control is the process that measures current performances
and guides them towards some predetermined objectives. In
the words of Koontz and ODonnell, Controlling is the
measuring and correcting of activities of subordinates to ensure
that events conform to plans.
From the above definitions, the following elements or features
of control are evident:
(1)

Control is closely linked with planning.

(2)

It is a comparison and verification process.

(3)

It maintains a balance in activities directed towards a set

of goals.

(4)

It corrects imbalance if any.

(5)

It is a means to detect deviations from plans policies

programmes, schedules, etc. (6) It is a means to
implement corrective action.

Importance of Controlling

Control is an important function of management as it

smoothen the working of an organisation. Without control, a
manager cannot do his job. It helps him in verifying whether
everything occurs in conformity with the standard set.
Moreover, an effective system of control helps in realising the
following benefits:

1. Basis for future action: Control helps the management to

avoid repetition of past mistakes and provides the basis for
future action.
2. Facilitates decision-making: Control is fundamental to
decision making. It helps in determining the future course of
action whenever there is a deviation between the standard
and the actual performance.
3. Facilitates decentralization: The modern trend of
business organisations towards decentralization calls for a
systematic attempt towards controlling. Without proper
control, decentralization cannot succeed.
4. Facilitates supervision: The existence of a proper control
system should have a positive impact on the behaviour of
the employees. It facilitates supervision.
5. Improves efficiency: Since a good control system
smoothes away wrinkles in the working of an organisation,
the morale of the employees remains high.
6. Facilitates coordination: Control helps in integration of
activities through unity of action. It provides unity of
direction.
Types of Control
1. Open Loop Control

In this just check, that the output is generated or not

2. Closed Loop Control/Feedback Control

Managerial control is essentially the same basic process as is

found in physical, biological and social systems. In electrical
systems such as a voltage regulator, the principle of feedback is
used. In the human body, a number of systems such as the
control of temperature, blood pressure and other conditions
are in accordance with the principle of feedback. So also in social
systems, one finds feedback.
Management control is usually perceived as a feedback system.
The manager receives the feedback information regarding the
actual performance. He can then compare it with the standard
performance. In case the comparison is revealed unsatisfactory,
corrective action is taken. This can be seen more clearly by
looking at the feedback process involved in the management
control system as shown in Figure A

Figure A: Feedback process involved in the management

control system
3. Feed Forward Control

54

PRINCIPLES OF MANAGEMENT

In this type of control the system should tell in advance to take

corrective action i.e. if they do not do something about a
problem at present the problem may occur in future. The
feedback is taken at each and every step.
Notes

55

PRINCIPLES OF MANAGEMENT

LESSON-31
MBO

Overview of The Lecture

Goal-setting theory has an impressive base of research support.
But as a manager, how do you make goal setting operational?
The best answer to that question is: Install a management by
objectives (MBO) program.
The concept of management by objectives was introduced by
Peter Drucker in 1954 and later developed by various writers like
John Humble, George Ordiorne and Douglar McGregor. It is
also known as management by results and goal-setting
approach. Management by objectives is a comprehensive
management planning and control technique and calls for
regulating the entire process of managing in terms of
meaningful, specific and verifiable objectives at different levels
of the management hierarchy. It is closely associated with the
concept of decentralisation because decentralisation cannot work
well without the support of management by objectives.

There are four ingredients common to MBO programs: goal

specificity, participative decision making, an explicit time period,
and performance feedback. The objectives in MBO should be
concise statements of expected accomplishments. It is not
enough, for example, merely to state a desire. to cut costs,
improve service,- or increase quality. Such desires have to be
converted into tangible objectives that can be measured and
evaluated. To cut departmental costs by 7 percent, to improve
service by ensuring that all telephone orders are processed within
24 hours of receipt, or to increase quality by keeping returns to less
than 1 percent of sales are examples of specific objectives.
Figure A: Cascading of Objective

Objective is to Learn
What Is Managements By Objectives
Features of MBO
Process of MBO
Benefits of MBO
Limitation of MBO
MBO in Practice

What Is MBO?
MBO is a technique and philosophy of management based on
converting an organisational objective into a personal objective
on the presumption that establishing personal objectives makes
an employee committed, which leads to better performance.
Koontz and others have defined MBO as follows:
MBO is a comprehensive managerial system that integrates
many key managerial activities in a systematic manner,
consciously directed towards the effective and. efficient
achievement of organisational objectives.
Thus, MBO is a system for integrating managerial activities.
As depicted in Figure A, the organizations overall objectives are
translated into specific objectives for each succeeding level (that
is, divisional, departmental, individual) in the organization. But
because lower-unit managers jointly participate in setting their
own goals, MBO works from the bottom up as well as from
the top down. The result is a hierarchy of objectives that links
objectives at one level to those at the next level. And for the
individual employee, MBO provides specific personal
performance objectives. Each person, therefore, has an
identified specific contribution to make to his or her units
performance. If all the individuals achieve their goals, then their
units goals will be attained and the organizations overall
objectives will become a reality.

56

Each objective has a specific time period in which it .is to be

completed. Typically that period is 3 months, 6 months, or 1
year. So managers and employees have not only specific
objectives but also stipulated periods in which to accomplish
them.
The final ingredient in an MBO program is feedback on
performance. MBO seeks to give continuous feedback on
progress toward goals so that individuals can monitor and
correct their own actions. Continuous feedback, supplemented
by more formal periodic managerial evaluations, takes place at
the top of the organization as well as at the bottom. The vice
president of sales, for instance, has objectives for overall sales
and for each of his or her major products. He or she will
monitor ongoing sales reports to determine progress toward
the sales divisions objectives. Similarly, district sales managers
have objectives, as does each salesperson in the field. Feedback in
terms of sales and performance is provided to let all these
people know how they are doing. At formal appraisal meetings,
managers and their employees can review progress toward goals
and further feedback can be provided.
Features of MBO
In the light of the above definitions of MBO, the following
features of it can be identified.
1. It is a technique and philosophy of management.

3. Objectives are established for all levels of the organisation.

4. It is directed towards the effective and efficient
accomplishment of organisational objectives.
5. It is concerned with converting an organisational objective
into a personal objective on the presumption that
establishing personal objectives makes an employee
committed which leads to better performance.
6. The basic emphasis of MBO is on objectives. MBO tries to
match objectives with resources.

objective setting is a joint process through interaction

between the superior and the subordinates.
The three aspects involved in the recycling process consist of
setting of objectives at various levels, action planning in the
context of those objectives, and performance review (Figure B).
Each of these aspects provides the base for others.

7. Objectives in MBO provide guidelines for appropriate

systems and procedures.
8. Periodic review of performance is an important feature of
MBO.
9. MBO provides the means for integrating the organisation
with its environment, its sub-systems and people.
10.Employees are provided with feedback on actual
performance as compared to planned performance.
Process of MBO
MBO is a process for accomplishing enterprise objectives,
enhancement of employees commitment and participation.
This process consists of a number of steps. They are:
1. Setting of organisational objectives. The first step in
MBO is to set verifiable objectives for the organisation. The
objectives that are set also indicate the measures for achieving
the objectives. The objective setting usually commences at
the top level of the organisation and moves downwards to
the lowest managerial levels. It goes in sequence like this:
(a)

Defining the purpose of the organisation

(b)

Long-range and strategic objectives

(c)

Short-range organisational objectives

(d)

Departmental objectives

(e)

Individual managers objectives.

2. Setting of subordinates objectives. Since organisational

objectives are accomplished through individuals, each
individual manager should know in advance what he is
expected to accomplish. The objectives of the subordinates
are set by the superior with their consultation and agreement.
This process makes them committed.
3. Matching resources with objectives. When objectives are
set, there should be a connection between objectives and
resources. This helps the organisation in allocating the
resources in an economical manner.
4. Appraisal. Appraisal is the periodical review of performance
to measure whether the subordinate is accomplishing his
objective or not. If not, what are the problems and how
these problems can be overcome.
5. Recycling. The process of objective setting involves
recycling. It means that first of all objectives are set in
consultation with the subordinates, then the subordinates
set objectives for their subordinates, and so on. Thus,

Figure B: Recycling aspects of MBO.

Benefits of MBO
An effective system of MBO leads to the following results in
the organisation.
1. MBO helps in improving productivity as the management
team concentrates on the important task of reducing costs.
2. MBO helps in making a more systematic evaluation of
performance.
3. It provides greater opportunity to managers for personal
satisfaction on account of participation in objective setting
and rational performance appraisal.
4. It helps in locating weak and problem areas because of
improved communication and organisation structure.
5. It serves as a device for organisational control integration.
6. It stimulates the subordinates motivation.
7. It is the basis for organisational change as there is a constant
process of interaction between the superiors and the
subordinates.
Limitations of MBO
Although MBO is generally taken as the panacea for all the
problems of an organisation, it is not without weaknesses or
limitations. The following are the limitations of MBO:
1. MBO cannot be implemented effectively on account of
difficulty in setting verifiable objectives.
2. Open atmosphere for appropriate objective-setting is absent
because of differences in the status of subordinates.
3. Managers may not get time to do even their normal work as
MBO involves much paperwork and holding of many
meetings.
4. There is a tendency on the part of the managers to
emphasise short-term objectives and to become more precise
in objective setting and accomplishment.
5. MBO is a philosophy of managing an organisation in a new
way. However, many managers fail to understand and
appreciate this new approach.
6. MBO represents the danger of inflexibility in the
organisation, particularly when the objectives need to be

57

PRINCIPLES OF MANAGEMENT

2. Objective setting and performance review are made by the

participation of the concerned managers.

PRINCIPLES OF MANAGEMENT

altered. In a dynamic environment, a particular objective may

not be valid for ever.
In spite of all these weaknesses, MBO is considered as one
of the unique techniques of managing the organisation.
However, the full benefits of it can only be derived if the
following basic requirements are taken into account.
MBO in Practice

Youll find MBO programs in many business, health care,

educational, government, and nonprofit organizations. Most
organizations, in fact, make some use of MBO features because
managers find that goals give people direction and it doesnt
make sense to establish goals and then fail to evaluate whether
or not theyre being achieved.
MBOs popularity should not be construed to mean that it
always works. There area number of documented cases in which
MBO was implemented but failed to meet managements
expectations. A close look at those cases, however, indicates that
the problems rarely lie with MEOs basic components. Rather,
the culprits tend to be factors such as unrealistic expectations
regarding results, lack of commitment by top management, and
an inability or unwillingness by management to allocate rewards
based on goal accomplishment. Nevertheless, MBO provides
managers with the vehicle for implementing goal-setting theory.
Notes

58

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