MODULE - 1

Management Concepts
& Applications

NOTES
INTRODUCTION TO MANAGEMENT

A) 1.1 INTRODUCTION TO MANAGEMENT

Today, we are living in a world dominated by organisations. We are born in

hospitals, are educated in schools, are employed by corporations, worship in
temples, mosques or churches, vote for political parties and belong to
professional organisation. Whether we like it or not, most of our experiences are
controlled by or facilitated by organisations. Every organisation has two essential
ingredients – management and managers.
There is growing acceptance that traditional performance of management
is imperfect and inadequate for being competitive in the technology driven
information age. More than ever, the companies are acknowledging a need to
improve management in critical areas. It explores the increasing demand for
excellent management practices at all times. A company’s success often depends
on its management businesses and managing businesses has and will always be
complex.

1.2 DEFINITIONS OF MANAGEMENT

Every manager, Author or Professor has defined the term management in

different ways as follows:
1. Peter F. Drucker defines, “Management is an organ; organs can be
described and defined only through their functions.
2. Harold Koontz says, “Management is the art of getting thing done
through and with an informally organised group”.
3. F. W. Taylor, “Management is the art of knowing what you want to do
and then seeing that it is done in the best and cheapest way”.
4. One popular definition is by Mary Parker Follett, she says, is the “art
of getting things done through people”.
5. George R. Terry, define that, Management as “a process consisting of
planning, organising, actuating and controlling, perform to determine
and accomplish the objectives by the use of people and resources”.
Introduction
to Management 11
 Management Concepts 6. Henry Fayol, “Management is to forecast, to plan, to organize, to
& Applications command, to coordinate and control activities of others”
7. M P Follett defines that Management is the art of getting things done
NOTES through people”.
8. Ralph C. Davis has defined Management as, "Management is the
function of executive leadership anywhere."
9. Mc Farland, "Management is defined for conceptual, theoretical and
analytical purposes as that process by which managers create, direct,
maintain and operate purposive organization through systematic, co-
ordinated co-operative human effort."

1.3 CHARACTERISTICS OF MANAGEMENT

Change into function due to change in nature is called modification.

Likewise the nature of management has changed over a period of time. Following
are the extended characteristics of management at present.
1. Management is an Activity
Management as a process consisting of planning, organising, actuating
and controlling, perform to determine and accomplish the objectives
by the use of resources includes men, money, materials and machine.

2. Management is a Continuous Process

Management functions are in circular and continuous movement, there
is no clear demarcation when one ends and the other begins i.e.
planning, organising, directing and controlling.

3. Management is an Art as well as Science

Management artistically managing the organisational activities such
are leading, motivating, directing etc. Also, management is the science
because of developing and conducting research work for behavioural
approaches, principles for increasing organisational effectiveness and
efficiency.

4. Management is Purposeful
It acts with achievement of particular things known as ‘goals’.

5. Management is a Profession
Management poses different features of profession. Developed
principles of management are applied in practice.

Introduction For example: Agri-business consultant, Industrial consultant.

12 to Management
 6. Universality Management Concepts
& Applications
Management principles are applicable to each and every sector and
company. But the industries must modify and match and make suitable
them according to their requirements. NOTES

7. Multidisciplinary
It draws knowledge and concepts from various disciplines as a
sociology, psychology, anthropology, geology, statistics etc.
For example: Disaster management related to geological science
discipline.

8. Profit Maximisation
Effective utilisation of management principles helps economies in
using available resources resulted in profit generation.

9. Decision-Making
Aiming a degree of right decision for the success of organisation by
choosing a best alternative course of action.

10. Management as a Class or Team

A group of people sharing similar needs and wants and putting efforts
towards achieving a common goal is known as team or people from
same class. Management is also a group of people, were each member
striving to achieve a common predefined goal.

11. Need at all Level

All major functions of management performed at all level of
management such are planning, organising, directing and controlling.

1.4 FUNCTIONS OF MANAGEMENT

Management writers have coined four main functions of management as

planning, organizing, leading and controlling. Whereas, Henry Fayol defined five
functions of management namely planning, organizing, commanding,
coordinating and controlling. Luther Gulick states seven functions as planning,
organizing, staffing, directing, coordinating, reporting and budgeting
‘POSDCORB'. Warren Haynes and Joseph Massie classified management
functions as decision-making, organizing, staffing, planning, controlling,
communicating and directing. Koontz and O'Donnell divide these functions into
planning, organizing, staffing, directing and controlling.
Introduction
to Management 13
 Management Concepts There is enough disagreement among management researchers on the
& Applications classification of management functions:
1. Newman and Sumer recognise only four functions namely –
NOTES organising, planning, leading, controlling.
2. Henry Fayol identifies five functions of management viz., planning,
organising, commanding, co-ordinating and controlling.
3. Luther Gulick, states seven functions under the catch word
“POSDCORB” which stands for planning, organising, staffing,
directing, co-ordinating, reporting and budgeting.
4. Ernest Dale considered two additional functions i.e. innovation and
representation.
5. Professor Haimannsays, “He has rightly observed that it is helpful
to think of these managerial functions as circular, continuous
movement. They blend into each other like the flowing water of river
and at a time there is no clear demarcation when one ends and the
other begins.

• Planning
Planning is looking ahead of things and drawing a plan accordingly. It
is the most fundamental aspect and only based on the effective
planning the working groups will perform their activities. This clearly
specifies what is to be done and when it is to be done. Without which
there is no clarity and harmony in the organization. The set vision and
goals can only be achieved if proper planning is done else it works as
a tramp from which no organization can progress towards its
achievement of its set vision.
“Planning means deciding well in advance”.
What is to be done?
How is to be done?
Where is it to be done?
Who is going to perform?
What time it is going to be implemented?
In short, “Planning means determining the future course of action”.
Planning is a function which is performed by managers at all levels
i.e. top, middle and supervisory. Plans made by top management for
the organisation as a whole may be cover period as long as five or ten
years. Plans made by middle or first line managers, cover much shorter
periods.
Introduction
14 to Management
• Organising Management Concepts
& Applications
An organization can only function well if it is well-organized ie it
involves identifications of activities required for the achievement of
set plans. Which means that there must be sufficient capital, staff and NOTES
raw materials available, so that the organization can run effectively.
The organizational structure with an effective grouping of activities is
of crucial importance during the increase in functional level activities
both horizontally and vertically. Thus, organizing results in a network
of coordinating relationships.
(a) Organising clearly defines the flow of responsibilities and the
flow of authority.
(b) Finalising activities to achieve goals.
(c) Grouping these activities into forming sections or departments.
(d) Assigning/placing personnel/managers to different sections and
departments.
(e) Providing them information horizontally and vertically.

• Staffing
Staffing is a continuous and vital function of management. After the
objectives have been determined, strategies, policies, programmes,
procedures and rules are formulated for their achievement, activities
for the implementation of strategies, policies, programmes, etc.
identified and grouped into jobs, the next logical step in the 15
management process is to procure suitable personnel for manning the
jobs. Since the efficiency and effectiveness of an organization
significantly depends on the quality of its personnel and since it is one
of the primary functions of management to achieve qualified and
trained people to fill various positions, staffing has been recognized
as a distinct function of management.
It comprises several subfunctions
(a) Manpower planning involving determination of the number and
the kind of personnel required.
(b) Recruitment for attracting adequate number of potential
employees to seek jobs in the enterprise.
(c) Selection of the most suitable persons for the jobs under
consideration.
(d) Placement, induction and orientation.
(e) Transfers, promotions, termination and layoff.
(f) Training and development of employees.
Introduction
to Management 15
 Management Concepts As the importance of human factor in organizational effectiveness is
& Applications being increasingly recognized, staffing is gaining acceptance as a
distinct function of management. There is hardly any need emphasize
NOTES that no organization can ever be better than its people, and managers
must perform the staffing function with as much concern as any other
function.
(a) Staffing is also important function involved in building human
organisation.
(b) Staffing is the process of determining the manpower requirement
and the recruitment both managerial and non-managerial
personnel to various level.
(c) It involves such steps as inviting application, interviews,
selection, training and developing.
(d) Changes in the organisation creates new position and these must
be filled.

• Directing
Directing is the function of leading the employees to perform
efficiently, and contribute their optimum to the achievement of
organizational objectives. Jobs assigned to subordinates have to be
explained and clarified. They have to be provided guidance in job
performance and they are to be motivated to contribute their optimum
performance with zeal and enthusiasm.
Directing involves three sub-functions
(a) Communication
(b) Leadership
(c) Motivation.
(a) Communication: It is the process of passing information and
understanding from one person to other.
(b) Leadership: It is the process by which manager guides and
influences the work of his sub-ordinates.
(c) Motivation: It is the act of stimulating or inspiring workers will
to pull their weight effectively, loyalty towards enterprise and
carry their task effectively and efficiently.

• Coordination
Coordinating is the function of establishing relationships among
various parts of the organization that they all together pull in the
direction of organizational objectives. It is thus the process of tying
Introduction together all the organizational decisions, operations, activities and
16 to Management
 efforts so as to achieve unity of action for the accomplishment of Management Concepts
organizational objectives. & Applications

Coordination, as a management function, involves the following sub-

functions: NOTES

(a) Clear definition of authority-responsibility relationships

(b) Unity of direction
(c) Unity of command
(d) Effective communication and
(e) Effective leadership

• Controlling
Controlling is the function of ensuring divisional, departmental,
sectional and individual performances consistency with the
predetermined objectives and goals. Deviations from objectives and
plans have to be identified and investigated, and corrective action
taken. Deviations from plans and objectives provide feedback to
managers, and all other management processes including planning,
organizing, staffing, directing and coordinating are continuously
reviewed and modified, where necessary. Controlling implies that
objectives, goals and standards of performance exist and are known
to employees and their superiors. It also implies flexibility and
dynamism in the organization which will permit changes in objectives,
plans, programmes, strategies, policies, organizational design, staffing
policies and practices, leadership style, communication system, etc.,
for it is not uncommon that employees failure to achieve
predetermined standards is due to defects or shortcomings in any one
or more of the above dimensions of management.
(a) Establishment of standards of performance.
(b) Measuring current performance and comparing it against the
established standards.
(c) Taking action and compare the performance against standards.
Controlling should be systematic and conducted on regular basis which
will provide fruitful results to the organisation.
The above stated management functions planning, organizing, staffing,
directing, coordinating and controlling are not performed sequentially.
It is an integral process and all the functions are executed
simultaneously by the managers.

Introduction
to Management 17
 Management Concepts
& Applications
1.5 IMPORTANCE OF MANAGEMENT
NOTES
For merely, the word “Management” was used mostly in relation to circus
and restaurants. But of late, it has acquired much glory and significance.
Tremendous growth in science and technology enhance the possible
developments in management principles and practices.
Consequently, we all must understand the importance of management traced
in the following context.
1. Effective and optimal utilisation of resources.
2. Efficient accomplishment of pre-determined goals.
3. It helps in achieving group goals.
4. Incorporate innovation through adopting modern technologies.
5. Establishes equilibrium to survive in the changing environment
6. Sound organisation structure.
7. Integrating the management and employees and labour interests as well
as government.
8. Coordination and team spirit.
9. Tackling problems.
10. Builds corporate image.

1.6 MANAGEMENT AS A SCIENCE AND AN ART

Management as a Science
Science is a systematic body of knowledge that works on facts and
establishes cause and effect relationship between two or more variables and
underlines the principles governing their relationship. Like scientific principles
which represents basic truth, management also contains some fundamental
principles which can be applied universally to any type of organization. Example:
Principle of Unity of Command. Like Science management also establishes cause
and effect relationship. For example if a worker is given bonus, fair wages he
tends to work hard whereas, when he is not treated properly his productivity
decreases. One of the important features of science is its test of validity and
predictability, which is prevalent in management too. For example in organization
a worker getting instruction from one boss is supposed to work better than the
one who is getting instructions from two boss. Management is not as exact as
Introduction
18 to Management science as it deals with human beings and it is very difficult to predict behaviour.
Management as an Art Management Concepts
& Applications
Art states the application of knowledge and skills for obtaining desired
results. A person can never be successful just by obtaining degree; he should
understand various principles and apply where ever necessary. Like art NOTES
management is also personalised. Every manager has his own way of managing
things based on his knowledge, experience and personality that is why some
managers are known as good managers and others bad. Management is also
creative in nature like any other art. It combines human and non-human resources
in useful way so as to achieve desired results. Thus we can say that management
is an art.

Management is both an art and a science.

Management is both an art and a science. The above mentioned points
clearly reveal that management combines features of both science as well as art.
It is a science because it has an organized body of knowledge with universal
truth. It is called an art because managing requires certain skills which are
personal possessions of managers. Science provides the knowledge & art deals
with the application of knowledge and skills.
A manager to be successful in his profession must acquire both the
knowledge of science & the art of applying it. Therefore management is a
judicious blend of science as well as an art because it proves the principles and
the way these principles are applied is a matter of art. Science teaches to ’know’
and art teaches to ’do’. It is not sufficient for manager to know only the principles
but he must also apply them in solving various managerial problems that is why,
science and art are not mutually exclusive but they are complementary to
each other.

1.7 ADMINISTRATION AND ORGANIZATION

Administration
Administration is the core element for any enterprise, whether it is run for
profit or not it is concerned mainly with decision making, policymaking and
performing necessary adjustments. It is not concerned with the implementations
of policies rather it frames policies and helps in deciding the goals for achieving
it. Persons like owners or the Board of Directors are in charge of it.
According to Theo Haimann, “Administration means overall determination
of policies, setting of major objectives, the identification of general purposes and
laying down of broad programmes and projects”. It refers to the activities of
higher level. It lays down basic principles of the enterprise.
According to Newman, “Administration means guidance, leadership &
control of the efforts of the groups towards some common goals”. Introduction
to Management 19
 Management Concepts Features of Administration•
& Applications
• Administration is concerned with formulation of broad objectives, plans
& policies.
NOTES • Administration is a decision-making function.
• Administration decides what is to be done & when it is to be done.
• Administration is a thinking function because plans & policies are
determined under it.
• It is applicable to non-business concerns i.e. clubs, schools, hospitals etc.
• The administration is influenced by public opinion, govt. policies,
religious organizations, customs etc.
• Administration represents owners of the enterprise who earn return on
their capital invested & profits in the form of dividend.

Organisation
Organization is a system with group of persons working together for
achieving its goals. It is concerned with building, developing and maintaining
the structure of working relationships in order to accomplish the objectives of
the enterprise. Thus, it works on determination and assignment of duties to
individuals. It also works on establishing and maintaining relationship among
the grouped activities.
Organising is concerned with various activities necessary for the attainment
of the objectives:
(i) Assigning people to various activities,
(ii) Providing suitable physical factors of environment, and
(iii) Delegating each individual with respective activity

B) 1.8 EVOLUTION OF MANAGEMENT THOUGHTS

The evolution of management refers to pre-history, development and

contribution of several researchers and management thinkers. Management has
developed since the time when the world came into existence. It can truly be said
that management is as old as civilization. Following table reflects some of the
earlier examples of practice of management.

Introduction
20 to Management
 Table 1.1: Historic Building Blocks Management Concepts
& Applications

NOTES

The period between 1700 and 1850 highlights the Industrial Revolution and
the writing of classical economists. Several economists during the period
explained in their writings the concepts and functions of management.
The situation started changing with the beginning of 20th century, especially
the Word War I created the situation where people started thinking of solution to
problem of how limited resources could be applied in better way. The World War
II added further problems to this end.
The further of evolution of management thought might best be explained
by approaches through understanding the different contributors and variety of
intellectuals – economists, sociologist, psychologists, anthropologists,
mathematicians and management practioners.
Introduction
to Management 21
 Management Concepts The evolution of management thought during the last hundred years can be
& Applications studied in three parts. Classification of management thoughts on the basis of time
specification.
NOTES (a) Early Classical Approach (Up to 19th Century): Represented by
scientific, administrative/operational approaches to management.
(b) Neo-classical Approach (1900  1970): Represented by human
relation movement, behavioural and social approaches, decision
theory approach, and management science approach.
(c) Modern Approach (1960 onwards): Represented by quantitative
system and contingency approach.

1.9 SCIENTIFIC MANAGEMENT SCHOOL AND

F. W. TAYLOR – (EARLY CLASSICAL
APPROACH – UPTO 19TH CENTURY)

Scientific management is “that kind of management which conducts a

business or affairs by standards established by facts or truth gained through
systematic observation, experiment and reasoning”.
At the beginning of the 20th century, there was considerable concern about
labour productivity. Although business was expanding fast and capital was
plentiful, labour was a scare factor. So, a primary goal of management was to
use its existing labour force more efficiently. Taylor’s main interest was in
developing solution to the problem of labour inefficiency.
Taylor’s idea mainly grew from his experience and experiment gained
from different companies in which he worked. He had great contribution to the
development of management. Frederick Winslow Taylor (1856 – 1915) is
considered father of scientific management.
He conducted series of experiment in three companies
1. Midvale steel company.
2. Simonds rolling machine.
3 Bethlehem steel.
After his retirement he devoted his time in writing and developing scientific
management. He published articles namely;
1. Peace Rate System – 1885.
2. Shop Management – 1903 (Workshop).
3. Art of Cutting Metals.
Scientific Management defined by F.W. Taylor in late 1800’s.
Introduction
22 to Management
Definition of Scientific Management Management Concepts
& Applications
1. “The systematic study of the relationship between people and the tasks
to redesign the work for higher efficiency”.
NOTES
– F. W. Taylor
2. “Scientific management is concerned with knowing exactly what you
want the men to do and then see that they do it in best and
cheapest way”.
Taylor sought to reduce the time a worker spent on each task by optimising
the way the task was done.

1. The Midvale Years

Taylor started his career as a foreman at the Midvale steel company in
Philadelphia.
(a) Observation
Taylor observed the workers closely and measured the exact time
required to complete each element of steel worker’s jobs. On the
basis of Adam Smith, concept of division of labour and
specialisation.

(b) Task
He determined what each worker should be producing and then
he designed the most efficient way of completing each part of the
overall task. Next, he implements an early form of Piece-rate pay
system (1885).Instead of paying all employees the same wage,
he began increasing the pay of each worker who met and
exceeded the target level of output set for worker’s job.

(c) Result Achieved

To improve labour productivity, Taylor had to introduce his
differential rate system, on the basis of which a worker’s wages
were tied to scientifically set performance standards for worker’s
job. The increased wage rate was carefully calculated so that the
company is achieving its specified production unit. It was
perceived that increase in productivity would make more profit
even though by paying higher wages and compensation.

2. The Consulting Years (Simonds)

In 1893, Taylor joined Simonds Rolling Machine Company as an
independent consulting management engineer. Taylor achieved spectacular
results in a short span of time.

Introduction
to Management 23
 Management Concepts (a) Task
& Applications
First he studied and redesigned jobs and timed the movements of
the most efficient workers. Then he trained the others in the
NOTES methods of their more highly skilled co-workers and transferred
or lay off the most inefficient workers. Finally, he introduced rest
period during the work day to reduce fatigue, along with his
differential pay rate system and other improvements.
(b) Result Achieved
The results of these experiments were really impressive: Costs
(expenses) fell sharply and workers productivity and quality of
output increased. Earnings and worker moral were also improved.

3. The Consulting Years (Bethlehem Steel)

In 1898, Taylor joined Bethlehem Steel Company as a consultant in order
to solve a capacity problem. Later with a team of assistants, management
principle established by Taylor was applied.

(a) Observation
He was entrusted with the task of maximising the work of the
company yard gang more efficiently. The workers of the yard
gang unloaded raw materials from incoming trailers and loaded
the finished product on outgoing cars. Each worker was earning
$ 1.15 per day for loading an average of 121/2 tons. The workers
were slow and were most reluctant to work faster.

(b) Task
Taylor studied the situation and timed the operations involving
unloading and loading the cars, arrived at the conclusion that the
frequent rest periods, each man could handle about 48 tons per
day. Setting 471/2 tons as the standard, Taylor fixed the daily
wages at $1.85 per day to those who could meet the standards.
This incentive pay system encouraged workers to adopt Taylors
work method, because the efficient workers could earn more.

(c) Result Achieved

Thus, by scientifically designing the work Taylor was able to
increase the output significantly.

1.9.1 F. W. TAYLOR’S CONTRIBUTION

Taylor’s idea, research and recommendations brought into focus,
technological and organisational issues in industrial management. Following are
the major contribution of Taylor to scientific management.
Introduction
24 to Management
 • Element and tools of scientific management. Management Concepts
& Applications
• Principles of scientific management.

1.9.2 ELEMENTS AND TOOLS OF SCIENTIFIC MANAGEMENT NOTES

Taylor’s industrial experiments help to improve the very essence of
scientific management. Scientific management has the following features:

1. Separation of planning and doing

Earlier days both planning function and executive function were
performed by one and the same worker. Taylor separated planning
from doing. Leave planning to management and doing to workers.

2. Functional specialisation
After separation of planning it results in development in supervisory
system. Taylor evolved the concept of functional foremanship based
on function (specialisation). Division of responsibilities between
management and workmen equally.

Fig. 1.4

3. Job analysis
Finding best way of doing things through Time-Motion-Fatigue study:
• Determine time and movement to complete a task which takes
minimum movement.
• Elimination of wasteful movement.
• Requirement of rest intervals in work to reduce exhaustion and
use fullest capacity of workers.

4. Rate setting
Taylor has also given importance to fair wages to workers and had
recommended differential piece rate system for motivating the less
efficient workers and retaining the efficient workers.
Introduction
to Management 25
 Management Concepts 5. Standardisation
& Applications
Standardisation is made in respect of tools and instruments, working
hours, volume of work, working condition and cost economies etc.
NOTES
6. Scientific recruitment and selection
Recruitment and selection started on the basis of workers qualification,
experience, physical and technical suitability for specific jobs.

7. Economy
While applying scientific management not only science and
technology is important, but adequate earning and profit through
controlling the cost should also be considered.

8. Mental revolution
Ensure close cooperation between management and labour for
maximising efficiencies and productivity. Both management and
labour should develop positive attitude for the successful use of
scientific management practices.

1.9.3 PRINCIPLES OF SCIENTIFIC MANAGEMENT

Taylor’s entire philosophy and ideas are available in his book “Principles
of Scientific Management” published in 1911. F. W. Taylor has given certain
basic principles of scientific management.

1. Replacing rule of thumb with science

It means the replacement of conventional method of doing work. Clear
cut determination of workers nature of work. Acquiring modern
methods such are differential piece rate system, standardisation, fair
work and good working condition.

2. Harmony in group action

Taylor emphasized industrial peace and joint action between
management and workers which directed towards harmonious relation.

3. Co-operation
Workers and management should unitedly co-operate with each other
for higher output. Greater co-operation can build confidence and
improve the quality of work.

4. Maximum output
Scientific management application is useful for bridging the gap
between management and employee through division of work, healthy
working condition, fair wages etc. So that it can result in larger profits,
Introduction
to Management better quality products and lower cost of production.
26
 5. Improvement of workers Management Concepts
& Applications
Under scientific management, workers should be recruited and
selected according to the task and their capability. Also Taylor
emphasizes on systematic training and development of workers for NOTES
physical, educational and psychological requirements of each job.

1.9.4 LIMITATIONS OF SCIENTIFIC MANAGEMENT:

1. Much of the ‘Mental Revolution’ by Taylor did not come true. There
was more conflict than co-operation between labour and management.
Employees or workers did not gain much from piece rate system.
Rather much of their gain can be traced through growing trade union
activity after World War II.
2. Scientific management principle was based on models of human
behaviour, which assumed that people were completely rational.
3. The scientific management overlook the desire for job satisfaction.
4. Managers often implemented only the increased output side of Taylor’s
plan.
5. They did not allow workers to share in increased output.
6. Specialised jobs became very boring and dull.
7. Workers ended up distrusting scientific management.
8. Workers could purposely ‘Under-perform’.
9. Management responded with increased use of machines.

1.10 HENRY FAYOL AND ITS PRINCIPLES (1841 – 1925)

Introduction
Fig. 1.5 to Management 27
 Management Concepts Henry Fayol is the French industrialist, before that he was working as
& Applications mining engineer. His contribution generally termed as operational
management/administrative management. He is father of Administrative
NOTES Management Principles. Fayol wrote the book titled ‘Administration Industrielle
at Generale’ in French language in 1916. English version of book was published
in 1949, USA. He has used the term ‘Administration’ instead of management.
His administration science can be applicable equally well to public and private
affairs. Fayol found that activities of an industrial organisation divided in
six group.
Fayol has divided his approaches into three parts
• Managerial qualities and training.
• General principles of management.
• Elements of management.

1.10.1 Managerial Qualities and Training

Fayol always stressed on the qualities of a manager for organisational
growth and success. He identified six qualities of manager. Which are
given below:
1. Physical quality
Manager must possess good physical health, alertness and stamina.

2. Mental qualities
To understand, learn judgement and adaptability.

3. Moral
Moral qualities for maintaining dignity, loyalty, tact, firmness etc.

4. General Education
For understanding other people’s opinion and general knowledge
regarding human behaviour of self and others.

5. Special knowledge
About technical, financial, commercial and managerial functions.

6. Experience
Arising by doing day-to-day activities at work.

Introduction
28 to Management
1.10.2 General Principles of Management Management Concepts
& Applications
Henry Fayol developed a set of 14 principles of management which are as
follows:
NOTES
1. Division of Labour
Division of labour is division and subdivision of work which leads for
job specialization. More and better works with same efforts are
possible by division of work. Application of work division process is
possible at all levels of management.

2. Authority and Responsibility

Authority means power to take the decision. That right of command
provides direction to the followers by superiors. Responsibility is the
obligation for doing the work. Wherever the authority is exercised,
responsibility follows.

3. Unity of Command
Employees should have only one boss to avoid confusion, delay and
misunderstanding.

4. Line of Authority/Chain of Command

A clear chain from top to bottom of the organisation mean hierarchy
of authority. This is known as ‘Scaler Chain’. The chain must be used
for vertical communication. Fayol has suggested ‘gang plank’ which
is useful for horizontal communication and co-operation, where it
facilitates co-ordination between people from different department in
same organisation. Thus, the direct contact can take little time and that
should be informed to superior in order to maintain the authority.

Fig. 1.6 : Scaler Chain and Gang Plank

Introduction
to Management 29
 Management Concepts The above Fig. 1.6, it clearly indicates the deal between D and H and
& Applications it is showing the communication with maintaining the order of
authority by D and H to C and G respectively.
NOTES
5. Centralisation
All the rights and power of decision-making at one position is called
as centralisation of authority and sharing of authority and power in
case of large organisation.

6. Unity of Direction
Organisational members having the same objectives, must have one
and only one head and one plan regarding work activity. One plan of
action to guide the organisation.

7. Equity
Treat all the employees fairly with justice and respect. It brings loyalty
in the organisation.

8. Order
Fayol emphasized on maintaining orderliness in work throughout
suitable organisation of men, machines and material. It means right
place for everything which ensures healthy industrial relations.

9. Initiative
Manager should encourage employees and workers by offering
freedom to think and freedom to execute. Develop zeal and energy in
employees by giving sufficient scope for their intelligence.

10. Discipline
Discipline is essential at all levels of management. According to
Koont’z and O’Donnell, “Discipline is the respect for agreements
which are directed at achieving obedience, application, energy and the
outward marks of respect.

11. Remuneration
Employees should get satisfactory and reliable remuneration.
Determine the fair wages on the basis of their performance. And the
payment of wages should be made within time.

12. Stability of Tenure

It means assurance of long term employment. The management of the
organization should ensure stability in the job and frequent changes
Introduction and shuffling of positions should be avoided. Human Resource is the
30 to Management
 back bone of any organization which gets weak when there is exists Management Concepts
insecurity in job, increases manpower turnover and it also increases & Applications
the administrative expenses.
NOTES
13. General Interest vs. Individual Interest
In industry more than hundreds of diverse people work together.
Individual interests represent fair wages, salary, good working
conditions, and kinds of benefits. And organisational interests are
profit, growth and expansion. So manager should match the interest
of management and worker to develop a common interest.

14. Espirit-de-Corps
This mean unity is strength, share enthusiasm or devotion to the
organisation. Management should create team spirit, harmony and
unity. All this can be made possible through removing
misunderstandings, distrust and by clarity in communication.

QUESTIONS
1. Explain the need and scope of management in every type of
organization.
2. Explain the management skills essential for efficient and effective
management with examples.
3. Explain the function of management
4. What do you understand by the term “Managerial Decision-Making”?
5. Discuss the various approaches to the theory of management.
6. Discuss the contribution of F. W. Taylor in the field of management.
7. “Henry Fayol is known as father of modern management.” Discuss.

*****

Introduction
to Management 31
MODULE - 2
 Management Concepts
& Applications

NOTES
Management Functions

1 MANAGEMENT FUNCTIONS

1.11 Definition of ‘POSDCORB’

POSDCORB stands for Planning, Organizing, Staffing, Directing,
Coordinating, Reporting and Budgeting. It was first coined in a paper on
administrative management that was written for the Brownlow Committee by
Luther Gulick and Lyndall Urwick. It is used as a systematic framework for
efficiently executing business processes in a company or by an individual.

1.12 Steps in POSDCORB

1. Planning
It is process of framing a broad picture of work and devise a course of
action to implement.

2. Organizing
It is classification of work done by effective synchronization of various
human and non-human resources to put the plan in to action.

3. Staffing
It involves selection of right candidates, their training and execution
of the stated work while working in harmony.

4. Directing
It involves decision making and delegation of task for its execution.

5. Coordinating
It involves interlinking of the various components of the work.

6. Reporting
It involves updating your superiors with progress of the activities
related to the work.

7. Budgeting

Management It involves activities performed under auditing, accounting and control.

32 Functions
 This helps a business in having a systematic framework of workings so that Management Concepts
higher outputs can be achieved by having minimum wastages of all resources. & Applications

Refer Functions of Management (Chapter 1(1.6)) for more details

NOTES

1.13 DECISION MAKING PROCESS

Decision making is a process of making choices among the alternative

course of action. It is a step by step process which helps in making more
deliberate, thoughtful decisions by organizing relevant information and defining
alternatives. This process helps in increasing the chances of getting more apt
alternatives possible.
The various steps involved in the process are

Fig. 1.7 : Decision Making Process

Step1 : Identify the decision
The first step in decision making process is to recognize the problems or
opportunity and they are thoroughly analysed. This is done by asking a couple
of questions like what exactly is the problem, why there is a need to solve the
above problem, who all will be benefitted if the problem is solved, is there any
dead line to make that decision.
Step2 : Gather relevant Information
Next step after identifying the problem is to gather relevant information,
which will help in understanding the situation better and appropriate facts and
data can be used for taking right decision.

Management
Functions 33
 Management Concepts Step 3: Identify the alternatives
& Applications
As soon as we are clear with the information gathered, it helps in clear
understanding of the issue. Thus it results in identifying various solutions. At this
NOTES stage range of options comes up with which a best course of action is prioritised
for achieving the set objectives.
Step 4 : Weigh the Evidences
In this step brainstorming is done to evaluate the set of decisions for its
feasibility, acceptability and desirability to understand the best alternative among
the available solutions. Thus by understanding the cause and effect of each
alternative, option with highest chance of success is selected.
Step 5 : Choose among the Alternatives
In this step, experience and effectiveness of the judgement principles come
into play. It is to understand the risk involved with the chosen option. Thus each
and every alternative is compared based on its positives and negatives.
Step 6 : Take Action
This is the stage where the planned decision is converted in to a sequence
of activities. This also involves the identification of resources needed for its
execution.
Step 7: Review your decisions and its consequences
Evaluation of the outcomes is done at this stage. It is often ignored but an
important step in the decision making process, as it is the core element in
evaluating the effectiveness of the decision taken.

1.14 CONCEPT OF LEADERSHIP

Leadership is a process of influencing a group to achieve goals.It is a ability

in a person to direct, guide and influence others towards accomplishment of
specific goals. A leader is the person who can create confidence and zeal in their
subordinates. He has the potential to influence behaviour of others towards
realization of the goal. They are the one who are clear with their vision and create
a want in the minds of their subordinates to achieve it.
According to Keith Davis, “Leadership is the ability to persuade others to
seek defined objectives enthusiastically. It is the human factor which binds a
group together and motivates it towards goals.”
Koontz and O’Donnell, Leadership is the ability of a manager to induce
subordinates to work with confidence and zeal.
Dubin, R.Leadership is the exercise of authority and making of decisions.
Management
34 Functions
 Allford and Beaty, Leadership is the ability to secure desirable actions from Management Concepts
a group of followers voluntarily, without the use of coercion. & Applications

Questions NOTES
1. Explain the decision making process in detail ?
2. How management functions are performed at Coca-Cola. Discuss ?
3. Imagine you are a practicing manager. Analyze the various skills you
have in relation to the level of your job ?
4. Give a detailed account of the different levels of management that are
commonly found in any large scale organization. What are the
important skills at each level ?

Case Study
Mr X is working as a manager in a company ABC Ltd. Due to financial
crises in the organization; the company was not able to pay the salary from last
three months. Due to this crisis employees felt insecure and started shifting
company. The company is facing this type of situation for the first time. There is
no past records and experience to tackle this situation. This needs an immediate
attention, if not handled properly may harm the reputation of the organization.
a) What steps should the manager take in this situation ?
b) “ Here a manager becomes a leader” comment
c) List down the qualities of a manager

*****

Management
Functions 35
MODULE - 3
 Management Concepts
& Applications

PLANNING & ORGANIZING

NOTES

3.1 PLANNING

3.1.1 Introduction of Planning

Today, businesses are aiming at moving target. Change is the rule of present
day business. A manager is supposed to operate in a dynamic economy where
there is no scope for complacency. Planning is the way of life. Planning is a tool
in the hands of manager who wants to face problem created by dynamic change.
Every enterprise which strives to survive and to expand qualitatively and
quantitatively must place heavy emphasis upon planning. Many organisations
are decentralising to improve long range planning, which is becoming more
critical every day.

3.1.2 Definition of Planning

1. “A plan is a trap laid to capture the future”.
Allan
2. “Planning is a process of deciding in advance, what is to be done,
whom is to do it, how it is to be done, when it is to be done”.
- K. H. Killen
3. “Planning is the intellectual process, conscious determination of,
course of action, the basis of decision on purpose, facts and considered
estimates”.
- Koontz and O’Donnell

3.1.3 Importance of Planning

• Planning provides Direction
Planning simplifies the predetermined course of action to provide
directions to the efforts of employees. It clarifies what employees have
to do, how to do and thus provides direction for action. It helps in
bringing synchronisation among the various tasks performed which
leads to unity in direction. If there is no planning employees would be
working in different directions on the contrary of the goals of the
organization.
Planning
36 & Organizing
 • It reduces the risk of uncertainties Management Concepts
& Applications
Every day organization faces unexpected situations. Planning helps
the manager to tackle the situation and again foresee the future by
making some assumptions based on the uncertainties. It helps in NOTES
coordinating the past experiences and scanning of business
environments to tackle the uncertainties of the present without losing
focus of the future needs. Many unexpected calamities that occur in
the organization are also included in the plans by keeping aside the
needed resources.

• It reduces duplication of activities

At every level and at every department there is a course of action that
is performed to achieve the goals of the organization. During this phase
there occurs a need of many tasks of similar nature to be done by
various departments, because of which duplication or over lapping of
works occurs. To avoid these wasteful activities the organizational
plans are made keeping in mind the requirements of the various
departments. This helps in bringing integration among the course of
action which helps in avoiding duplication of tasks. Plans ensure
clarity of thoughts and action and work can be carried out smoothly.

• It promotes innovative ideas

Planning is an intellectual process which demands high thinking. So,
there is a great scope of generating better ideas, better methods and
procedures to perform a particular job. It forces the managers to think
differently and assume the future conditions. Thus it makes the
managers innovative and creative.

• It Facilitates Decision Making

Planning facilitates managers to take various decisions. As goals are
set in advance and predictions are made for future planning helps
manager to take fast decisions.

• It establishes standards for controlling

Comparison between planned and actual output establishes standards
for controlling. If there is variation between both then the deviations
can be measured and altered to match the actual output. If there is no
planning done it becomes difficult to compare as there is no base to
identify the deviations.

3.1.4 Process of Planning

Planning process is a combinations of information handling, decision-
making system based on information inputs, outputs and a feedback loop.
Planning attracts the involvement of all managers. Planning process involves Planning
following steps: & Organizing 37
 Management Concepts 1. Setting a Goal/Objective
& Applications
The primary task of a manager is to decide objectives on the basis of
available problems and opportunities. Decided objectives should be
NOTES SMART  it mean specific, measurable, achievable, realistic and time
bound. Objectives should be achievable but not easily.

2. Collecting/Assembling and Analysing of Essential Information

The information is vital to the success for planning. Before actual
planning is initiated relevant facts and figures should be secured and
afterwards it should be analysed for the purpose of goal.

3. Establish Planning Premises and Barriers

The uncertainties about future events and happenings are
uncontrollable. So, plan should be based on considerable assumption
and prediction. The influence of certain internal variable or external
variable which are not under control of planning premises and
management could be:
(a) Internal Constraints
• Personal conflicts/Ego clashes.
• Unreliable data.
• Change in technology.
• Self-interest etc.

(b) External Constraints

• Government policy.
• Economical trend.
• Market trend.
• Consumer preferences.
• Natural calamities.

4. Finding Alternative Courses of Action

When objectives are set and premises are established, a number of
alternative course of actions have to be considered. For this purpose,
each and every alternative will be evaluated by considering its pros
and cons in the light of resources available and requirements of the
organization. The merits, demerits as well as the consequences of each
alternative must be examined before the choice is being made. After
objective and scientific evaluation, the best alternative is chosen.

Planning
38 & Organizing
5. Choosing Best Course of Action Management Concepts
& Applications
The stage is testing the positive and negative results of the actions of
all the alternatives, which means have detailed evaluation and analysis
of selected course of action. NOTES

For example : Among different alternative location offer, Tata selected

‘Jharkhand’ state for ‘Nano’ plant, which one is more advantageous
within all alternatives.

6. Developing Derivative Plan

The next step in planning is the formation of derivative plans in
support of basic plan. In simple words, derivative plan means which
help the main or principle plan to be implemented or carried out in an
effective and proper way.
For example : Basic plan is marketing plan and derivative/supportive
plans are advertisement plan, personal selling plan etc.

7. Fixing Timings of Introduction of Plan

Developing an action plan in proper sequence and timing.
For example : Raw material, man power and components must be
brought together in the right amount and sequences.
8. Monitoring the Implementation and Outcome
Monitor the progress of the plan and its implementation. Monitor and
control the unanticipated consequences. Appropriate feedback loop to
be present. What has been learned to modify and improve the planning
process.

Fig. 3.1 : Organisational Planning Process

For example : Akbar Khwaja opened his first US Pizza outlet in
Bangalore in the year 1996. He wanted to take the company beyond
serving just pizzas. In line with these new plans it is now called ‘United
Restaurants’. Planning
& Organizing 39
 Management Concepts • Organisation mission : United Restaurants wants to be number one
& Applications player in new fast food chain in India.
• Strategic plan and goal : Ambitious target to acquire local and
NOTES regional fast food brand and develop them into national player.
• Tactical plan and goal : Introducing new customised flavours for
different region, Khwaja’s new menu card has two new chains :
(i) Toasty Z : For sandwiches and salads etc.
(ii) Satvik : Which will offer Indian fast food items like samosa’s,
vada pau, katti rolls, parathas etc.
Through this tactical goal, Khwaja has set ambitious plan for his team.
• Operational Plan and Goal
Over the next three year :
(i) Plan to increase number of US pizza outlet upto 150.
(ii) Plan to increase 20 outlet of – Toasty-Z.
(iii) Plan to increase 200 outlet of – Satvik.
All these operational plan should carried out by operational people
(lower management).
Sources : Business India, August 10, 2008, P – 129.

3.1.5 Types of Planning

There are different types of planning based on different consideration. They are

Planning Fig 3.2 Types of Plan

40 & Organizing
[A] Based on Approach of Planning Management Concepts
& Applications
(i) Formal plan : Formal plans are implied and available in a document
form. Formal plans have great advantage.
NOTES
(ii) Informal plan : Those plans are expressive in nature or roughly
written and useful for short-term purpose.

[B] Based on Time Span Covered:

(i) Short-term plan: Planning for less than one year.
(ii) Middle-term plan: Planning for more than one year and less than
five year.
(iii) Long-term plan: Plan for five years and more.
Surprisingly it is observed that few large organisation have carried out plan
for twenty years.

[C] Based on Management Levels

(i) Strategic plans : A strategy is a special kind of plan typically
formulated by top level management. Strategic plan are vital for
survival, growth and success of an organisation.
For example : Pricing policies, distribution policies.
(ii) Tactical planning: Middle level management apply tactical
techniques to meet the objectives of organisation and following the
strategic plan.
For example : Motivational technique/tact.
Tactical planner decides the detailed resources for achievement of goal.

[D] Operational Planning

It constitutes the supervisors and worker who actually implement the action
plans assigned by superiors.
For example, salesman informing scheme plan to customer. Operational
planning are prepared for short-term.

[E] Based on Use

(i) Standing plan (Repeated use plan)
The plans which are made once and used repeatedly are called
Standing plan or repeated use plan. Due to their repetitive nature they
don’t change often for considerable duration till it suits the
organizations needs. Policies, objectives, mission, strategy, methods,
rules and regulations etc form the part of standing plan. Every
individual in the organization has to follow the methods and
procedures to work in synchronization with every member in a planned Planning
and disciplined way. There are various advantages of standing plan. & Organizing 41
 Management Concepts • Efficiency
& Applications
It helps in quick decision making as there is no need to wait for
any instructions as everyone in the organization is aware of
NOTES policies, procedures, methods and other standing plans. It acts as
guidelines for an individual to work in their constraints without
depending on top management. Thus it helps in taking routine
decisions.

• Delegation of Authority
It helps in smooth delegation of authority. It helps a subordinate
to respond quickly on an issue as long as the issue fits in to their
standing plan.

• Control
Policies and procedures are designed in such a manner that it
automatically controls the operations and thus, helps manager
with a smooth time in directing and controlling them.

• Co-ordination
Standing Plan helps in bringing co-ordination between the
activities of the organization. Every individual’s efforts are thus
synchronised towards achieving common goals.
Thus standing plan helps in having an effective control over the
operation of the organization. It helps to create harmony in the
organization by helping in having a smooth operation.
(ii) Single use plan
Single use plans are useful for only one purpose and for one time.
Every situation has unique requirements and situations for which new
plan has to be made. Things like projects, budgets, standards,
schedules which are altered and modified as per the requirements of
the objectives. Single use plans are result oriented and provides
practical guidelines to managerial activities. Thus they provide a great
motivation to the managers. For example program is a plan to carry
out a special project within the organization. The project changes from
time to time as per requirement. It is made with some purpose and after
its achievement; it is altered in to a new project as per the demand of
the organization. Likewise, budget is a financial plan stating how funds
will be spent on various functional levels to get a needed result. Thus,
single use plan is a time-bound and helps in introducing definiteness
in planning.

Planning
42 & Organizing
 Management Concepts
& Applications
B 3.2 ORGANIZATION
NOTES
3.2.1 INTRODUCTION OF ORGANIZATION
Organisation is the form of human association for attainment of common
objectives. It is an arrangement by which a group of people would be brought
together to pool their efforts through functional division of duties, responsibility
and authority.
Organisations are found in all walks of life. Factories, trading concern,
shops, commercial establishments, government offices, banks, schools and
colleges, hospitals, charitable trusts, social work groups and political parties, all
find it necessary to build organisation to carry their activities. Organisation is the
formation of the effective machinery for handling men, materials and the process
of combining the work which individuals or group have to perform.

3.2.2 Definitions of Organisation

1. “Organisation is the form of every human association for the
attainment of a common purpose.”
Monney and Reiley
2. “A system of co-operative activities of two or more persons is called
organisation”.
 Chester Bernard
3. “An identified group of people contributing their efforts towards
attainment of goal is called an organisation”.
McFarland

3.2.3 Why study organization

Organization lays the foundation for how a company operates. It is a set of
policies and rules that determines:
• How an organization controls and delegates tasks and responsibilities
• How decisions are made and executed throughout every part of an
organization
• How information flows within an organization
Depending upon the need of the company, organizational structures can be
formed. Some common examples include the flat organizational structure, the
functional organizational structure, the product organizational structure, and the
geographical organizational structure.

Planning
& Organizing 43
 Management Concepts 3.2.4 Principles of organization
& Applications
• Unity of objectives

NOTES The company should clearly define its organizational goals,

departmental goals and individual goals. When these goals are clearly
defined it facilitates synchronization among the jobs done at various
levelwithout which goals can’t be achieved.

• Principle of authority
Authority is a kind of power that guides the actions of others for
achieving the goals of the organization. Appropriate decision making
is a key aspect of authority. It generally flows from higher level to the
lowest level of management. There should be sequence of line of
authority.

• Principles of Responsibility
The top level management directs the subordinates who take up the
task and perform effectively. Authority and obligation is provided to
the subordinates for their work so that they can perform the duties is
known as responsibility.

• Principle of Delegation
It is the process of transferring authority and creation of responsibility
between the superior and the subordinate to accomplish tasks. This is
called delegation of authority.

• Principle of efficiency
The organization facilitates different resources which should be used
efficiently. Things that are achieved with minimum resources is
effective. Thus, the organization always works on building efficiency.

3.2.5 Creating an organization structure

Organizational structure defines how various tasks in the organization are
formally divided, grouped and coordinated. It mainly depends on the philosophy
of the organization which helps in identifying the operations and its structure
accordingly. The various key elements for effective organization structure are
work specialization, departmentation, chain of command, span of control,
formalization and decentralization / centralization.

3.2.6 Process of Organisation

Organization is the process of establishing relationship among the members
of the enterprise. The relationships are created in terms of authority and
Planning
44 & Organizing responsibility. To organize is to arrange tasks in a logical and orderly manner.
Each member in the organization is assigned a specific responsibility or duty to Management Concepts
perform and is granted the corresponding authority to perform his duty. The & Applications
managerial function of organizing consists of achieving rational division of work
into groups of activities and tying together the positions representing grouping NOTES
of activities, so as to achieve a rational, well coordinated and orderly structure
for the accomplishment of work.
According to Louis A Allen, "Organizing involves identification and
grouping the activities to be performed and dividing them among the individuals
and creating authority and responsibility relationships among them for the
accomplishment of organizational objectives." The various steps involved in this
process are:

Fig 3.3 Process of Organization

a) Determination of Objectives
Organization always strives to perform based on their set objectives.
Therefore, it becomes essential for the management to identify the
objectives before starting any activity. Organization structure is built
on the basis of the objectives of the enterprise. This means, the
structure of the organization can be determined by the management
only after knowing the objectives to be accomplished through the
organization. This step helps the management not only in framing the
organization structure but also in achieving the enterprise objectives
with minimum cost and efforts. Determination of objectives will
consist in deciding as to why the proposed organization is to be set up
and, therefore, what will be the nature of the work to be accomplished
through the organization.
Planning
& Organizing 45
 Management Concepts b) Identification of Activities
& Applications
If the members of the group are to pool their efforts effectively, there
must be proper division of the major activities. The first step in
NOTES organizing group effort is the division of the total job into essential
activities. Each job should be properly classified and grouped. This
will enable the people to know what is expected from them as
members of the group and will help in avoiding duplication of efforts.

c) Classification of Activities
The next step will be to avoid duplication by classifying the activities
according to similarities and common purposes and functions and
taking the human and material resources into account. Then, closely
related activities are grouped into divisions and departments and the
departmental activities are further divided into sections.

d) Assignment of jobs
Job assignments are made to different subordinates for ensuring a
certainty of work performance. Each individual should be given a
specific job to do according to his ability and made responsible for
that. He should also be given the adequate authority to do the job
assigned to him.

e) Delegation of Authority
Authority without responsibility is a dangerous thing and similarly
responsibility without authority is an empty vessel. Everybody should
clearly know to whom he is accountable; corresponding to the
responsibility authority is delegated to the subordinates for enabling
them to show work performance. This will help in the smooth working
of the enterprise by facilitating delegation of responsibility and
authority.
Example - Tourism Organisation
(a) Objectives: To become a best tourism company through quality
service.
(b) Departmentation: Booking center, Reception, Organiser, Tour
guide, Finance department, Collection center, Advertisement.
(c) Key department: Booking center and collection center.
(d) Authority: Right to cancel the tour plan in bad condition of
nature.
(e) Span of control: Tour organiser control over the activities.
(f) Co-ordination: Co-ordination in between booking center, tour
Planning organiser, local guide and other department is necessary to
46 & Organizing achieve organisational objectives.
3.2.7 DEPARTMENTALISATION Management Concepts
& Applications
The first step in designing an organisation structure is to divide whole work
into number of jobs to ensure that no important activity is left out. The next step
is to bring together homogeneous jobs into groups and to decide their relation to NOTES
each other. This process is known as departmentation.
Organising process is to group the jobs in some logical arrangement, which
answers such questions as :
1. How should the workers be grouped together ?
2. How many people should be in each work unit ?
3. How many layers of management is best ?
4. Who should report to whom ?

Definition of Departmentation
“A departmentation is a process of dividing the large monolithic functional
organisation into small and flexible administrative unit.”Koontz and O’ Donnell

Needs and Importance of Departmentation

Recognised following needs and importance of departmentation :
1. Reason to specialisation.
2. For fixation of responsibility and authority.
3. Useful for managerial development.
4. For delegation of authority.
5. Departmentwise assessment and performance is possible.
6. Motivational to all organisational member.

Process of Departmentation
Example - Marketing Departmentalisation:
1. Identification of Work : What is the task ? (Marketing task)
2. Analysis of Task : What to do ? (Penetrate the market)
3. Description of Activities : (Advertising, Personal selling, Distribution,
Pre-post services)
4. Staff Provision (Grouping) : Allocate the manpower according to
key areas, (advertise manager, sales manager, distribution manager)
5. Provision of Authority and Responsibility.

Planning
& Organizing 47
 Management Concepts Basis (Pattern/Types) of Departmentation
& Applications
There are certain basic methods of dividing the duties and responsibilities
within organisational structure. They are given below :
NOTES
(a) Departmentation by numbers.
(b) Departmentation by functions.
(c) Departmentation by products/services.
(d) Departmentation by process.
(e) Departmentation by Region/Geography/Location/Territory.
(f) Departmentation by customers.
(g) Departmentation by time.
(h) Departmentation by marketing channel.
(i) Departmentation by combined base.

[A] Departmentation by Numbers :

Features
1. Rarely used.
2. Number of people are important.
3. Group is under the order of leader.
Example : Army includes Regiment, Battalion etc.

Limitations
1. Number is the base, therefore, if less number of member in group mean
less efficiency.
2. Departmentation by number is used at lower levels for unskilled job.
3. Not useful to big organisation.

[B] Department by Functions :

Features
1. Activities are grouped on basis of functions.
2. Departmentwise head.
3. Specialisation task develop effective and efficient organisation.
Example : Model of Departmentation of University.

Planning
48 & Organizing
 Management Concepts
& Applications

NOTES

Fig. 4.1

Advantages
1. Understand task.
2. Excellence in performance.
3. Improve in planning and control feasibility.
4. Proper utilisation resources.
5. Gives power and prestige to dept. head.
6. Simple in operation.

Disadvantages
1. Interdepartmental conflicts/disagreement.
2. Excessive centralisation of authority.
3. Less scope for development of manager.

[C] Departmentation by Product/Services

A single large organisation may manufacture and sell range of
products/services.
Example : Parle Products/Biscuits Ltd.

Planning
& Organizing 49
 Management Concepts
& Applications

NOTES

Fig. 4.2

Advantages
1. Exclusive attention to customer need.
2. Able to determine performance in product mix.
3. Adding or pruning of item in product range/line/width, is easier.
4. Each and every information related to product is make available.
5. Useful for complex and diverse product.
6. Fix the accountability of each product department.

Disadvantages
1. Many salesmen assigned to different product can confuse the customer.
2. Additional expenditure incurred for manufacturing and maintaining
different products and product departments.
3. Create conflict among salesman in different product divisions.

[D] Departmentation by Process :

Several discrete stages/process in manufacturing a product.
Example : Production of edible oil.

Fig. 4.3
Planning
50 & Organizing
 Example : Production of Biscuit. Management Concepts
& Applications

NOTES
Fig. 4.4
Example : Milk Processing Unit

Fig. 4.5

Advantages
1. Proper use of costly and heavy equipments in effective manner.
2. Follow the principles of specialisation, increase efficiency.
3. Suitable to process oriented manufacturing unit.
4. Chain of production help to take economic advantages.

Disadvantages
1. Useful to only small organisation.
2. More expensive to carry more number of departments.
3. No opportunity to managerial development.
4. Department become hostile.

Planning
& Organizing 51
 Management Concepts [E] Department by Region/Geography/Location/Territory :
& Applications
Production or marketing units are dispersed at various location.

NOTES

Fig. 4.6

Fig. 4.7

Advantages
1. Regional competition motivates for performance.
Planning
52 & Organizing 2. Expert with regional work.
 3. Provide training about regional work. Management Concepts
& Applications
4. Low cost of operation because of knowledge of area, opportunities,
customers and market conditions.
NOTES
5. Low absentism.

Disadvantages
1. Dispersed branches are difficult to control properly.
2. Higher cost in maintaining branch head in different locations.
3. Not suitable to production oriented units because availability of raw
material, labour and infrastructure in selected location.

[F] Deartmentation by Customers

Departments made on the basis of customer need, wants and preferences.

Fig. 4.8

Advantages
1. Earn goodwill through attention on customer needs.
2. Good management in peak demand.
3. Application of CRM concept is possible for developing strong
customer base.

Disadvantages
1. Improper utilisation of resources in case of limited customers.
2. Leads to duplication of activities by different department.
3. Unequal treatment is given to customers by different departments.
Planning
& Organizing 53
 Management Concepts [G] Departmentation by Time
& Applications
The business activities are grouped together on the basis of the time required
for the performance. Generally, this type of departmentation is used in case of
NOTES production activities.
Example : Shiftwise departmentation (Day shift, Night shift).

Advantages
1. Increase the output in available time.
2. Department by time helps in efficient performance.

Disadvantages
1. Accident or any kind of incidence may influence the shift wise work.
2. Part of work of one shift passes to next shift.
3. Unable to measure performance of particular shift.

[H] Departmentation by Marketing Channels

Departmentation is adopted on the basis of channel of distribution chosen
by the particular business unit.

Fig. 4.9

[I] Departmentation by Combined Base

Departmentation is done by combining two different bases :
Example : Lokmangal co-operative society.

Planning
54 & Organizing
 Management Concepts
& Applications

NOTES

Fig. 4.10

Advantages
1. Cost cutting.
2. Useful to understand regional knowledge.

Disadvantages
1. Critical to control for president.
2. Member less loyal to parent department.

3. Member may get frustrated and suffer because of ambiguity of

structure.

3.2.8 Line and Staff Organization

Line and Staff Organization perform two different functions in the
organization.

A Line function directly advances an organization in its core work. They

are revenue generators and their managers are responsible for achieving the
organizations main objectives by executing the key functions such as policy
making, target setting, decision making etc.They always include production, sales
and sometimes also marketing. Organizations start with line type of organization
where line managers have direct control over all activities, including the
administrative part. Later as the organization grows in size they add Staff
positions. Thus line managers have authority over those who directly report
to them.

Planning
& Organizing 55
 Management Concepts A staff function supports the organization with specialized advisory and
& Applications support function. For example, human resource, accounting, public relations and
the legal department generally come under staff function. Their function is to
NOTES create, develop, collect and analyse shop information and provide line workers
with appropriate advice. The Staff members act as an advisory group who are
not line managers but are more or less permanently detailed to special service or
to the study of some phases of operations. It has four kinds of authority

a) Advice authority
Line Managers seek advice from staff person and decide what to do
with the advice once they get it.

b) Compulsory advice or Compulsory consultation

The line manager must consider the staff persons advice, but can
choose not to regard it.

c) Concurrent authority
The line manager cannot finalize a decision without the agreement of
the staff person.

d) Functional authority

The staff person has complete formal authority over his other area of
specialty.

The line and staff system strikes a happy balance between the two. In an
organization “Line” is supplemented by “Staff”. This pattern of organization
came into being as a result of the departmental managers having to investigate,
think and plan and at the same time, they have to perform ordinary task of
production and selling. Consequently, the work of investigation, research,
recording, standardization and advising, i.e., the work of experts, is wholly
distinguished and separated from the routine process of manufacturing and
selling. Thus, there arose a clear demarcation between ‘thinking’ and ‘doing’. In
modern practice, however the difference in the two hierarchies is not clear-cut
and jobs often have elements of the both types of functions.

Planning
56 & Organizing
 Management Concepts
& Applications

NOTES

Fig. 4.14 : Line and Staff Management

Merits and Demerits of Line and Staff Organization

Merits
• Line and Staff organization have their own respective planned
specialization. Thus it aims at combining the merits of the two.
• The authorities and responsibilities are well-defined.
• The stability and discipline of the line organization are preserved, only
the specialist is added.
• The Staff system helps in providing expert knowledge and opportunities
to the line officers for adopting a multi-dimensional view towards facing
the problem.

Demerits
• The line and staff relationship often leads to numerous friction and
jealousies.
• When there is a difference of opinion between the line and staff
managers, it results in conflict of interest and prevents a harmonious
relationship.
• Expert advice can be misinterpreted by incompetent line workers.
Planning
& Organizing 57
 Management Concepts • The staff people feel themselves status-less without authority. They
& Applications remain ineffective because they don’t get the authority to implement their
recommendation.
NOTES
Questions
1. Define Organization and steps involved in performing Organizational
Activity?
2. What do you mean by Line & Staff organization, explain its features
and merits and demerits?
3. What do you mean by the Line organization its features and its merits
and demerits?
4. Explain Classification of Organization and explain its relation also?
5. What do you mean by Functional organization, explain its features and
merits and demerits?
6. Explain Delegation of Authority and its elements?
7. Discuss the steps perform by the manager in Delegation of Authority.
8. Distinguish between Authority and Responsibility?
9. What do you mean by Centralization & Decentralization?
*****

Planning
58 & Organizing
MODULE - 4
 Management Concepts
& Applications

NOTES
Directing and Coordinating

4.1 DIRECTING

4.1.1 Concept of Direction

Direction is the process of instructing, guiding, counselling, motivating and
leading the human resources to activate towards attainment of goal. Directing is
an essential element of management. Every manager gives direction to his
subordinates and vice- versa every subordinate’s gets a direction from his
respective manager.

4.1.2 Definitions of Direction

1. “Directing consists of the process and techniques utilizing in issuing
instruction and moving certain that operation are carried out as
planned.”
Haimann
2. “Directing is the guidance, the inspiration, the leadership of those man
and women that constitute the real core of the responsibilities of
management.”
Urwick and Breach

4.1.4 CO-ORDINATION
When organisation structure is designed and various units are to be
formed, the problem emerges that, how to integrate/synchronies the group efforts.
The best result can be achieved when all activities are performed in a coordinated
way and each activity contributes in positive way to others.

4.1.5 Definitions of Co-ordination

1. “Co-ordination is a set of human and structural mechanism designed
to link the parts of the enterprise together to help to achieve the
specified objectives.”
Glueck
2. “Co-ordination is the management of interdependence in work
situation”.
Directing and
Coordinating 59
 Management Concepts 4.3.2 Need for Co-ordination
& Applications
1. Large number of personnel

NOTES Every individual have different nature and own goal. Management
tries to integrate individual and group through co-ordination.

2. Specialisation/Division of work or labour

Functional differentiation means diversity of tasks to different
departments. There is a need for co-ordination to link all departments
and help in decreasing the waste of resources.

3. Interdependence
Co-ordination arises because of independence of organisational units
and sub-units. Performance of one unit affects the to other unit.
4. Individual interest vs. Organisational interest
Individual goals Earning (salary, bonus etc.), career.
Organisation goals Profit, growth, expansion.
Matching and integration of interest of both through co-ordination which
can reduce the conflicts.

Requisites/Principles of Co-ordination
Managers have to observe all principles, which facilitate co-ordination in
technology and application.
1. Principle of direct contact
Help to reduce misunderstanding, controversies among member or
group.

2. Co-ordination at early stage

Co-ordination in the beginning of planning of policy formulation,
procedure i.e. participation in decision-making to avoid conflict.

3. Principle of continuity
Co-ordination is treated as a continuous process, i.e. it means co-
ordination is a never ceasing and never-ending exercise.

4. Principle of dynamism
Co-ordination meets the changes according to the dynamism of
environment.

5. Principle of timing
Synchronising the timing of the work of all department.
Directing and
60 Coordinating
A 4.1.6 SPAN OF MANAGEMENT Management Concepts
& Applications
The Span of Management refers to the number of subordinates who can be
managed efficiently by a superior. Simply, the manager having the group of
subordinates who report him directly is called as the span of management. It can NOTES
also be named as span of control, span of authority, span of responsibility or span
of supervision. Based on the levels of the management the number of members
may be increased or decreased.

The Span of Management has two implications

1. Influences the complexities of the individual manager’s job
2. Determine the shape or configuration of the Organization

Classification of Span of Control

There are two types of Span of Control
1. Narrow Span of Control
2. Wide Span of Control

1. Narrow Span of Control

In Narrow span of control the work and authority is divided among many
subordinates. A manager does not supervise and control big group of people
under him. The manager according to a narrow span supervises a selected number
of employees at one time.
The features are
a. Work which requires tight control and supervision, for example,
handicrafts, ivory work, etc. which requires craftsmanship, there
narrow span is more helpful.
b. Achieving co-ordination is difficult.
c. Communication gaps can come.
d. Messages gets distorted.
e. Achievement of specialization in work.
f. More centralized in decision-making.

Directing and
Coordinating 61
 Management Concepts
& Applications

NOTES

Fig. 4.15 : Narrow Span of Control

Advantages
1. Close control and supervision on subordinate work.
2. Fast communication is possible.

Disadvantages
1. Resulted in too much control.
2. High cost because of many layers.
3. Excessive distance between highest and lowest.
4. Accidentally or deliberately/intentionally distortion is possible.

2. Wide Span of Control

Wide span of control means a single manager or supervisor oversees a large
number of subordinates. This gives rise to a flat organizational structure. It is
one in which a manager can supervise and control effectively a large group of
persons at one time.
The features of this span are
a. Less overhead cost of supervision
b. Prompt response from the employees
c. Better communication
d. Reduction of levels.
e. Better supervision
f. Better co-ordination
g. Suitable for repetitive jobs
h. More decentralized in decision-making
Directing and
62 Coordinating
 According to this span, one manager can effectively and efficiently handle Management Concepts
a large number of subordinates at one time. & Applications

Advantages NOTES
1. More delegation of authority.
2. More clear policy.

Fig. 4.16 : Wide Span of Control

Disadvantages
1. Overloaded supervisors.
2. May result in loss of control.
3. Need highly trained managers.

4.1.7 AUTHORITY
Authority is a concept that provides right to command or a legal power for
exercising decision. Authority is said to be one of the crucial aspect in
organization for decision making and implementation of those decisions. No
organization, whatever its nature may be, can function effectively without
authority. Authority is required to achieve desired objectives of an organisation.
Authority is essential to be able to discharge various managerial functions.

4.1.8 Definition of Authority

“Authority is the right to give orders and power to exact obedience”.
Henry Fayol
“Authority can most simply be defined as legitimate power. Authority is,
therefore, based on an acknowledged duty to obey rather than on any form of
coercion or manipulation. In this sense authority is power cloaked in legitimacy
or rightfulness”.
R. S. Peters’ definition is: “Authority is derived from the Latin word
auctoritas and auctor. An auctor is he who brings about the existence of any object
or promotes the increase or prosperity of it whether he first originates it, or by
his efforts gives greater permanence or continuance to it”.

Directing and
Coordinating 63
 Management Concepts 4.1.9 Views on Sources of Authority
& Applications
Authority derived from higher level. But there is a disagreement about
sources. Three different views on sources of authority are as given below:
NOTES
(A) Classical Theory/Formal Theory
1. Authority derived from formal organisation structure.
2. Authority flows from the top to the bottom level.

Example :

Flow of Authority

Shareholders

Board of Directors

CEO

Department Manager

Foreman

Workers
Fig. 4.17
(B) Acceptance Theory
Authority is just legitimate only. Sub-ordinate should accept the leader. Sub-
ordinate should be ready/willing to be directed by an authoritative person. If not
accepted by employees, he may lose control and power.
(C) Competency Theory
Authorized person must be competent and possess some personal qualities
such are technical/expert competencies. Leader should have more expertise than
subordinates, otherwise the subordinates take lead on the authoritative person.

Directing and
64 Coordinating
4.6.3 Features of Authority Management Concepts
& Applications
1. Right in Authority
Right given by a supervisor which enables the manager to regulate the NOTES
sub-ordinate’s behaviour.

2. Legitimate Right
Legal provision of right where the concern person socially and
ethnically agreed and accepted the right.

3. Help in Decision-Making
Authority helps to decide the Do’s and Don’ts in an organisation by
the manager.

4. Influence on Behaviour
Control the activity of subordinate.

5. Subjective Use
Objectivity of authority is to control, influence, coercion and
subjective use to perform work and attain goal.

4.1.10 Limitations of Authority

Use of Authority by superior over his sub-ordinates is restricted by various
factors. They are as given below :
1. Behavioural Limits
Tastes, trade, fashions, customs, habits and social belief influence in
exercising authority.

2. Biological Limit
Leaders cannot order subordinates to do things that are impossible by
human beings.

3. Natural Limit
Geographical situations, climate conditions and law of nature put limit
on order of authority.

4. Technological Limitation
Subordinates are unable to obey orders because of non-availability of
technology.

5. Economical Limitation
Financial conditions caused by competitors, market conditions, pricing Directing and
etc. restricted the authority to do the things. Coordinating 65
 Management Concepts 6. Law
& Applications
Law of land, Partnership agreement, Memorandum of association,
MOU, Articles of association, Factories act, Company law put
NOTES restriction on authority.

4.1.11 RESPONSIBILITY
Just as authority is the right of superior to issue commands, responsibility
is the obligation of a sub-ordinate to obey those commands. Responsibility arise
from the superior – sub-ordinate relationship. In an organization, responsibility
is the duty as per the guidelines issued.

4.1.12 Definition
“Responsibility is the obligation of an individual to carry out assigned
activities to the best of his ability”.
G. Terry
“Responsibility is an obligation of individual to perform assigned duties to
the best of his ability under the direction of his executive leader”.
– Davis
“The duties and activities assigned to a position or an executive”
– McFarland.

Example : Authority of Production Manager

• To allocate raw material.
• Allocate labour
• Use the production budget

Responsibility of Production Manager

• Reduce cost of manufacturing.
• Proper production process.
• Desired level of output.

Characteristics
1. Responsibility can be assigned to human being only.
2. Responsibility flow from bottom to top level.
3. It is absolute and cannot be delegated.

4.1.13 Authority and Responsibility

Directing and Authority and Responsibility go hand in hand, as appropriate authority
66 Coordinating should be delegated to meet the responsibilities. The two main reasons are
 • If a person is given some responsibility without sufficient authority he Management Concepts
will not be able to perform better, and thus he will not accomplish the & Applications
desired goal.
• If there is excess of authority being delegated to an individual without NOTES
matching responsibility then the delegated authority will be misused in
one way or the other.
This is an important and useful principle of management because if adequate
authority is not delegated to the employees they cannot discharge their duties
with utmost efficiency and this will in turn hamper the achievement of the
organizational goal. Sometimes the relation between management and employees
are also badly effected due tonon-delegation of proper authority.
Positive impacts of this principle are
• No misuse of authority.
• Helps to complete job effectively and efficiently.
• Individuals can be held accountable.
• Systematized and effective achievement of organizational objectives.

Consequences of violation of this principle

• Misuse of authority.
• Responsibility can’t be discharged effectively.
• No one can be held accountable.
• Conflicts between management and employees.

4.1.14 POWER
Many people confuse power with authority. Power is the ability to command
or apply, force and is not necessarily accompanied by authority. It has been an
important aspect of human civilization since history. Power might be physical,
political or social. In business, power dynamics tend to influence decisions and
people transactions heavily.

4.1.15 Definition of Power

“Power refers to a capacity that ‘A’ has to influence the behaviour of ‘B’,
so that ‘B’ does something he/she would not otherwise do”.

4.1.16 Types of Power

Different types of power are derived from different base.
1. Legitimate power
Legitimate power is a traditional power where a manager, or other
leading official in a company has due power to perform their task. This
Directing and
type of power emanates from an official position held by someone, be Coordinating 67
 Management Concepts it an organization, beurocracy or government etc. This type of power
& Applications is short lived, i.e. it lasts until the time the position is held by the
concerned person.
NOTES
2. Reward power
In this type of power, a leader has the authority to reward their
employee or team members with perks, money, praise, new project or
training opportunities, better roles and monetary benefits etc. However,
an interesting aspect of this type of power is that, it is not powerful
enough in itself, as decisions related to rewards do not rest solely with
the person promising them, because in organizations, many other
people come into play like senior managers and board.

3. Coercive power
It is the opposite of reward power. In this type of power, the leader has
the authority to punish an employee or team member. Sometimes threat
and punishment is a weapon used to persuade an employee to act in a
certain way. In the organizational set up, it translates into threatening
someone with transfer, firing, demotions etc. It forces people to submit
to one’s demand for the fear of losing something.

4. Expert power
Knowledge is power. People who have more knowledge or experience
than other members do, in their team possess this type of power.
This is a kind of power, which owes its genesis to the skills and
expertise possessed by an individual, which is of higher quality and
not easily available. In such a situation, the person can exercise the
power of knowledge to influence people. Since, it is very person
specific and skills can be enhanced with time. This type of power has
more credibility and respect.

5. Reference power
This is a power wielded by celebrities as they have huge following
amongst masses who like them, identify with them and follow them
based on identification. This power is all about “who you know.” A
leader with lots of referent power may have many connections or a
large social network they can use to their advantage. Someone
with referent power may also be close to an executive with
legitimate power.

Directing and
68 Coordinating
4.1.17 POWER AND AUTHORITY Management Concepts
& Applications

NOTES

4.1.18 Centralization and Decentralization

Are two opposite types of structures, that can be found in the organization,
government, management and even in purchasing.
Centralization of authority means the process where the concentration of
decision-making is exclusively in the hands of top management. It adverts to the
concentration of all the powers at the apex level.All the important decision and
actions at the lower level are subject to the approval of top management.
According to Allen, “Centralization” is the systematic and consistent reservation
of authority at central points in the organization.
Decentralization refers to the dissemination of powers by the top
management to the middle or low-level management. It is the delegation of
authority, at all the levels of management. In this type, the decision-making has
been moved to lower levels or tiers of the organization, such as divisions,
branches, departments or subsidiaries.

Directing and
Coordinating 69
 Management Concepts
& Applications

NOTES

Delegation of Authority, Advantages of Effective Delegation, What to

delegate &what not to delegate?-Barriers to effective delegation-Guidelines for
effective delegation-Distinctions between Delegation & Decentralization

4.2.1 DELEGATION OF AUTHORITY

When the duties of a manager increases in volume, he has to divide it among

his subordinates. This process of dividing the work with others and giving them
authority to do it, is referred to as delegation.Delegation of Authority means
division of authority and powers downwards to the subordinate. Delegation is
about entrusting someone else to do parts of your job. Delegation of authority
can be defined as subdivision and sub-allocation of powers to the subordinates
in order to achieve effective results.

4.2.2 Elements of Delegation

There are three vital elements of delegation. They are Authority,
Responsibility and Accountability.
Authority - Authority can be defined as the power and right of a person to
use and allocate the resources efficiently, to take decisions and to give orders so
as to achieve the organizational objectives. Authority must be well-defined. All
people who have the authority should know what the scope of their authority is
and they shouldn’t misuse it. Authority is the right to give commands, orders and
get the things done. The top level management has greatest authority.
Authority always flows from top to bottom. It explains how a superior gets
work done from his subordinate by clearly explaining what is expected of him
and how he should go about it. Authority should be accompanied with an equal
amount of responsibility. Delegating the authority to someone else doesn’t imply
Directing and escaping from accountability. Accountability still rest with the person having the
70 Coordinating utmost authority.
 Responsibility - is the duty of the person to complete the task assigned to Management Concepts
him. A person who is given the responsibility should ensure that he accomplishes & Applications
the tasks assigned to him. If the tasks for which he was held responsible are not
completed, then he should not give explanations or excuses. Responsibility NOTES
without adequate authority leads to discontent and dissatisfaction among the
person. Responsibility flows from bottom to top. The middle level and lower
level management holds more responsibility. The person held responsible for a
job is answerable for it. If he performs the tasks assigned as expected, he is bound
for praises. While if he doesn’t accomplish tasks assigned as expected, then also
he is answerable for that.
Accountability - means giving explanations for any variance in the actual
performance from the expectations set. Accountability cannot be delegated. For
example, if ’A’ is given a task with sufficient authority, and ’A’ delegates this
task to B and asks him to ensure that task is done well, responsibility rest with
’B’, but accountability still rest with ’A’. The top level management is most
accountable. Being accountable means being innovative as the person will think
beyond his scope of job. Accountability, in short, means being answerable for
the end result. Accountability can’t be escaped. It arises from responsibility.
For achieving delegation, a manager has to work in a system and has to
perform following steps : -
1. Assignment of tasks and duties
2. Granting of authority
3. Creating responsibility and accountability
Delegation of authority is the base of superior-subordinate relationship, it
involves following steps:-
1. Assignment of Duties
The delegator first tries to define the task and duties to the subordinate.
He also has to define the result expected from the subordinates. Clarity
of duty as well as result expected has to be the first step in delegation.
2. Granting of authority
Subdivision of authority takes place when a superior divides and shares
his authority with the subordinate. It is for this reason, every
subordinate should be given enough independence to carry the task
given to him by his superiors. The managers at all levels delegate
authority and power which is attached to their job positions. The
subdivision of powers is very important to get effective results.

3. Creating Responsibility and Accountability

The delegation process does not end once powers are granted to the
subordinates. They at the same time have to be obligatory towards the
Directing and
duties assigned to them. Responsibility is said to be the factor or
Coordinating 71
 Management Concepts obligation of an individual to carry out his duties in best of his ability
& Applications as per the directions of superior. Responsibility is very important.
Therefore, it is that which gives effectiveness to authority. At the same
NOTES time, responsibility is absolute and cannot be shifted. Accountability,
on the others hand, is the obligation of the individual to carry out his
duties as per the standards of performance. Therefore, it is said that
authority is delegated, responsibility is created and accountability is
imposed. Accountability arises out of responsibility and responsibility
arises out of authority. Therefore, it becomes important that with every
authority position an equal and opposite responsibility should be
attached.
Therefore every manager,i.e., the delegator has to follow a system to finish
up the delegation process. Equally important is the delegate’s role which means
his responsibility and accountability is attached with the authority over to here.
The downward pushing of authority to make decision is known as
delegation of authority.
Example :High Court delegated authority to District Court to declare a final
judgement of respective court.

4.2.3 Advantages of Delegation

1. It relieves the manager of his heavy workload.
2. It leads to better decision.
3. It speeds up decision-making.
4. It improves confidence of subordinates.
5. Helps to create a formal organisation structure.

4.2.4 What to Delegate and What not to Delegate?

The key points to remember while deciding whether a task should be
delegated or not is to make sure the importance of the task. It should be based on
the free time that a manager will get due to delegation and how he/she use it for
future planning and strategizing.But while delegating the task it should not be
the case that the manager has delegated all the task that as per protocol he/she is
supposed to do.Give your team tasks that they could do better or tasks they need
to develop. If a boring task is to be given, explain them the importance of it. It
has to be made sure that the teammates understand what the task is before
delegating it to them.
What to Delegate?
1. Routine Tasks
These are certain tasks that need to be done once a week, once a month,
or once every time a project is completed. Before delegating these
Directing and tasks, make sure that they are necessary. Unnecessary tasks should be
72 Coordinating eliminated.
 2. Interesting Tasks Management Concepts
& Applications
The manager should delegate interesting and fun task to his team mates
else it may offend teammates and cause them to resist the boring task
given to them. NOTES

3. Tasks Others Could Do Better

A manager should understand the skills and abilities of his team mates
and based on the understanding appropriate tasks should be allotted.
So that the work gets completed in an effective way. Do not compete
with the team members, if they can do the task better, let them do it.
This in turn will provide the manager with free time to be devoted on
other important things.

4. Tasks Others Might Enjoy

If a team mates volunteers for a certain task, it should be positively
welcomed. If the manager feels the boredom with repeated tasks, he
may shuffle the tasks among the teams so that they would enjoy doing
the work.

5. Tasks good for development

Delegate tasks to team members who would benefit from the
additional skill development. If you are already good at completing a
certain task, let someone else have a chance to try it.

6. Whole Tasks
Try to delegate whole tasks instead of dividing them into pieces. In
this way, your team members will see the development and outcome
of the task and enjoy it more. This will also prevent you from having
to worry about keeping the pieces together.

7. Time-Consuming Tasks
If you need to spend more time planning and strategizing, delegate
your most time-consuming tasks. This will free up the time you need
to do your job.

8. Tasks for Which You Are Not Responsible

People often keep tasks that they enjoy most for themselves even if
the task is not their responsibility. These tasks are not the best way to
spend your time and energy.
These are the eight tasks that a manager should try to delegate as often as
possible.

Directing and
Coordinating 73
 Management Concepts What not to be Delegated?
& Applications
The following seven tasks that a manager should avoid delegating.
1. Boring Tasks
NOTES
Before delegating any task it should be made interesting or interesting
task should be delegated to others. If a boring task is to be delegated
then its importance and after effects created due to the task should be
cleared before delegating it.

2. Crises
During crisis situation there occurs a need for expertise to resolve the
issue. These issues should be resolved by a person with appropriate
background and experience.

3. Ill-Defined Tasks
Make sure that the task is explained appropriately before its delegation,
so that it will avoid wastage of time. Ill-defined task also leads to
duplication of work.

4. Confidential Matters
Leaders must deal with confidential matters at times. Do not delegate
these tasks to others as it may lose its intensity and trust of your team.

5. Praise or Reprimand
Take time out to praise a teammate for a job well done. Getting
recognition for the work done motivates and improves the morale of
the employee. If a team member needs a reprimand or needs help
getting back on track, it is best if it is dealt with that person yourself
and in private.

6. Planning the Development of Your Team

Planning and strategizing are the two core jobs of a team leader. Do
not delegate the control of the team, and remember that you are
ultimately responsible for the team’s success or failure.

7. Tasks for Which You Are Responsible

Again, do not delegate strategy and planning. Also, do not delegate a
task that someone has asked you to do personally. There may be a
special reason for why they want you to complete the task. If you want
to delegate this task, first discuss it with the person who requested that
you do it.
We have covered the types of tasks that you should and should not delegate
Directing and to your teammates. We have prepared a worksheet to help you determine which
74 Coordinating tasks you should delegate to others.
4.2.5 Barriers to effective delegation Management Concepts
& Applications
Despite the fact that delegation is one of the most important functions in
the organization, there are several factors that prevent effective delegation. These
obstacles can be categorised in three ways NOTES
1. Obstacles due to Superiors
2. Obstacles due to Subordinates
3. Obstacles due to Organizing Weakness

Obstacles due to Superiors

• Autocratic managers may think delegation of tasks will lead to
reduction of their influence in the organization.
• Some managers are so optimistic for self and feel no one else can do
that particular task.
• An incompetent manager may not delegate his authority for the fear
of being exposed. These people are unwilling to calculate the risk.
• Sometimes due to lack of confidence in subordinates a manager may
not delegate thinking that they are not capable for that particular task.
• A manager will hesitates to delegate authority if he has no proper
means of control to ensure that the authority is being properly used by
his subordinates.

Obstacles due to Subordinates

• When there is a lack of self-confidence the subordinate may be
reluctant to accept the delegated authority.
• Some sub-ordinates have attitude of spoon feeding and they depend
excessively on the manager for every task. They lack in deciding things
in their preview.
• When the sub-ordinate is already burdened with other duties, he may
not take the additional responsibility willingly.
• Lack of proper availability of resources also creates obstacles in
delegation.
• Providing recognition to a subordinate for the work done plays an
important role in motivating the employees for further involvement in
task. If no incentives are provided they may reject the delegation of
authority.

Obstacles due to organizing weakness

• If the management lacks in adequate planning process, both manager
and sub ordinate can’t give their best.
Directing and
• If there is a splintered authority it becomes difficult to delegate task.
Coordinating 75
 Management Concepts • Sometimes delegation is hampered due to weakness in the unity of
& Applications command in the organization.
• For effective delegation and its completion, competent managers
NOTES should be appointed.
• If there persists an internal distrust in the organization, no effective
delegation is possible.

4.2.6 Guidelines of Effective Delegation

Following guidelines should be followed for effective delegation
• Defining the Assignments
The work of every person should be properly defined. The results
expected from them should be made clear. They should be given
sufficient authority to accomplish the given results.

• Proper selection of persons

Every person has his own strengths and weaknesses.It is also
influenced by the qualification of the person. Along with the
assignment of task appropriate authority for decision making should
be given.The manager should keep in mind the above things without
which the purpose will not be complete.

• Proper Communication
There should be freeflow of information between the manager and the
subordinate.T0he subordinate should be furnished with all necessary
information to carry out the task effectively. Necessary resources
should also be provided to avoid the hindrance in the process. Proper
communication is necessary for making delegation effective.

• Establishing Proper controls

The manager cannot let go responsibility, delegation should be
accompanied by adequate controls. The performance of subordinates
should be regularly assessed to access things that are going as per
plans. If interference of controls is to be avoided then steps should be
taken to get information about deviations.

• Rewards for proper Implementation

Rewards should be given for effective delegation and successful
assumption of authority. The manager should keep a watch over the
performance of various persons. Those who are successful in
delegating properly and those showing good results with delegated
authority should be acknowledged. This will encourage more and more
Directing and persons to improve performance.
76 Coordinating
4.2.7 Distinction between Delegation and Decentralization Management Concepts
of authority & Applications

NOTES

QUESTIONS
1. Define organisation. Explain the process of organisation.
2. Define the term organisational structure. Explain division of work and
departmentation as important requisites of sound organisation
structure.
3. Give brief about organisational design.
4. Write short notes on :
(a) Departmentalisation.
(b) Authority and Responsibility.
(c) Delegation of Authority.
(d) Co-ordination.
(e) Span of control.
(f) Difference between power and authority.
Directing and
***** Coordinating 77
MODULE - 5
 Management Concepts
& Applications

CONTROL
NOTES

5.1 INTRODUCTION

5.1.1 Concept of Controlling

Control is one of the important functions of management. Its essential
features consists of verifying whether everything occurs in conformities with the
plans adopted, instructions issued and principles established. Thus it measures
the progress towards the accomplishment of goals by ensuring deviation of actual
performance from the standard performance. It also ensures that there is an
optimum utilization of organizational resources.
The term ‘control’ is used by different people in different ways owing to its
non-standardised use in the diverse fields. In managerial technology, control is
ensuring work performance according to plans. It is the process through which
managers assume that actual activities confirm to planned activities.

5.1.2 Definitions of Controlling

1. “Control is checking current performance against pre-determined
standards contained in the plans with a view to ensuring adequate
progress and satisfactory performance”.
Breach
2. “Control consists in verifying whether everything occurs in conformity
with the plan adopted, the instruction issued and the principles
established”.
Henry Fayol
3. “Just as a navigator continually takes reading to ensure whether he is
relative to a planned action, so should a business manager continually
take reading to assure himself that his enterprise is on right course.”
-Donnell

Controlling has got two basic purposes

1. It facilitates co-ordination
2. It helps in planning

78 Control
 Management Concepts
& Applications
5.2 RELATIONSHIP BETWEEN PLANNING & CONTROLLING
NOTES
Planning and controlling are two separate functions of management, yet
they are closely interdependent in any organization.Planning is the initial step
and controlling is a part of the process and is required at every step. Without the
appropriate planning, controlling activities become baseless and without effective
controlling, planning becomes meaningless task. Therefore, activities of both are
overlapping to each other.
In the present dynamic there are many factors in the environment which
affects the organization, which demands a strong relationship between the two.
When planning fails due to some unforeseen events, controlling comes to rescue.
Once controlling is done effectively, it give us stimulus to make appropriate
changes for the betterment of the plan. Therefore, planning and controlling are
meaningless without eachother.
Controlling does not exist without planning as actual work performance is
compared with the standards. If standards are not determined there is no
justification left for control and the standards are determined during planning.
Planning is like looking forward and predicting what is to be done. Whereas
controlling is looking backwards about how the specified things have been
achieved.
Planning and Controlling are concerned with the achievement of business
goals. Their combined efforts are to achieve maximum output with minimum
cost effect. Both, systematic planning and organized controlling are essential to
achieve the organizational goals.

5.3 STEPS IN CONTROL PROCESS

Control techniques and systems are basically the same. Regardless of what
is being controlled, the basic control process involves four steps:

Control 79
 Management Concepts [A] Establishment of Standards of Performance
& Applications
Establishment of standards is the first step in control process.
1. It is to establish standards against which result can be measured.
NOTES
2. Each organisation must first develop its own key areas.
3. Some key areas in all business organisation are profitability, public
responsibility, market position, productivity, personnel development,
employee attitude etc.
4. Common standards for control includes following types:
(a) Physical Standards:Such as labour hours, per unit of output, units
of production etc.
(b) Cost Standards:Such as Direct and indirect cost per unit, material
cost per unit, selling cost per unit.
(c) Capital Standards:Such as ROI, ratio of current asset or
liabilities etc.
(d) Intangible Standards:Such as Competence of managers and
employees, success of public relation programme etc.
Setting of standards are basis for evaluation of performance. Standardising
is desired outcome/expected in three key areas which are time standard, quality
standard, and quantity standard.

[B] Measurement of Performance:

Once the standards have been set, the workers perform their activities
according to these standards. The activities which have been performed, how
many units have actually been produced, at what cost, within what period is
monitored by the managers.
1. It is to measure the performance and compare it with the predetermined
standards.
2. The quantitative measurement should be done in case the standards
have been set in numerical terms and in other case the performance be
measured in terms of qualitative factor.
3. The activities resulting into intangible result i.e. sales performance,
production etc. are easy to measure.
4. The standards of performance relating to human behaviour such as
efficiency, morale etc. cannot be quantified.
5. It is difficult to measure such intangible activities in concrete terms.

[C] Comparison of Performance against Standards:

After having evaluated the performance, it required to be compared with
the standards laid down to find out whether the standards have been achieved
or not.
80 Control
Two possible situations can arise Management Concepts
& Applications
1. Actual Performance
Standards of Performance: In this situation, no corrective action is
NOTES
required and manager must be rewarded by superior.

2. Actual Performance
Standards of Performance:In the second situation, where there are
deviations from the standard performance, the deviation may be
significant or insignificant. If the deviations are serious, they must be
brought to the notice of the top managers.
If the performance is according to exceptions, there does not arise the
necessity of control, it means manager may use of the principle of exceptions.

[D] Corrective Actions

After the cause/deviation is identified problem-solving measures can be
taken by manager:
1. The actual comparison of performance with the desired standards,
corrective actions are to be taken to prevent finding the deviation in
future.
2. The correction of deviation by managers may be immediate or
permanent.
3. This will involve taking decision on important matters like – changing
of standards, improvement in working method etc.
4. The nature of corrective action depends on specific reasons for
deviation from the standard.
5. Corrective action should be taken without wasting much time, so that
the normal position can be restarted.
6. Corrective action may require revision of standards, change in task,
training to employees.

5.4 REQUIREMENTS FOR EFFECTIVE CONTROL SYSTEM

The following are the essential or basic requirements of an effective

management control system:
• Suitable
The control system should be appropriate for the kind of activity
intended to serve. This system varies from department to department
and from one level in the organization to the other based on the need
of the organization. The need of the system is different at higher level
Control 81
 Management Concepts of management to that of the operational level. Several techniques like
& Applications budgets, break-even points, financial ratios help in bringing control.
These tools when effectively used helps a manager to track the
NOTES effectiveness of the activities involved.

• Understandable
The system must be understandable, i.e., the control information
supplied should be capable of being understood by those who use it.
A control system that a manager cannot understand is bound to remain
ineffective. The information available is predicted differently by
different managers. It is, therefore, the duty of the manager concerned
to make sure that the control information supplied to him is of a nature
that will serve his purpose. As an illustration, it is quite possible that
top managers may understand a complicated system of control based
on statistical break-even charts and mathematical formula whilst to the
lower level manager such information would be of very doubtful
utility, being beyond their powers of comprehension. In this sense, the
data supplied as information must be understandable and helpful.

• Economical
Economy is another requirement of every control. It should be
economical in operation, i.e., the cost of a control system should not
exceed the possible savings from its use. The extent of control
necessary should be decided by the standard of accuracy or quality
required. A very high degree or standard of accuracy or quality may
not really be-necessary. Undue complexity of the control system
should be avoided to keep a check on the costs of control. It, therefore,
becomes necessary to concentrate the control system on factors, which
are strategic to keep the costs down and the system economical.

• Flexible
The system of control must be flexible so that it can be adjusted to suit
the needs of any change in the environment. i.e. it should be workable
even if the plans are changed. If the control system works only on the
basis of one specific plan, it becomes useless if the plan breaks down
and another has to be substituted. However thoroughly the plans may
have been formed or the planning premises established, unforeseen
circumstances can upset the best-laid plans. A good control system
would be sufficiently flexible to permit the changes so necessitated.

82 Control
• Expeditious Management Concepts
& Applications
Nothing can be done to correct deviations, which have already
occurred. It is, therefore, important that the control system should
report deviations from plans expeditious. No useful purpose can be NOTES
served by a deviation detected months after its occurrence. The
objective of the control system should be to correct deviations in the
immediate future. This requires that the lime-lag between the
occurrence of a deviation and its reporting be kept at the minimum
possible.

• Forward Looking
The control system must, therefore, be forward looking, as the
manager canno1 control the past. In fact, the control system can at
times be so devised as to anticipate possible deviations, or problems.
Thus deviations can be forecast so that corrections can be incorporated
even before the problem occurs. Cash forecasts and cash control is an
example in point where a financial manager can forecast the future
cash requirements and provide for them in advance.

• Organizational Conformity
Since people carry on activities, and events must be controlled through
people, it is necessary that the control data and system must conform
to the organizational pattern. The control data must be so prepared that
it is possible to fix responsibility for the deviations within the areas of
accountability. For example, where factory costs are accumulated in a
manner other than on me basis of areas of responsibility, they may lose
much of their values as an instrument of control. In this case, the actual
costs in a department may be out of line with the standards set without
the department knowing whether the deviation has been caused by
something within its control. In this sense, organization and control
are difficult to separate, being dependent on one another for effective
management.

• Indicative of Exceptions at Critical Points

The management principle of exception should be used to show up not
only deviations but the critical areas must also be fixed for most
effective control.

• Objectivity
As far as possible, the measurements used must have objectivity. While
appraising a subordinate’s performance, the subjective element cannot
be entirely removed. Here the personality of both the manager as well
as his subordinate would be reflected in the final judgment. The use
of indefinite terms can frustrate the subordinate like being told that he
is not doing a good job.
Control 83
 Management Concepts • Suggestive of Corrective Action
& Applications
Finally, an adequate control system should not only detect failures
must also disclose where they are occurring, is responsible for them
NOTES and what should be done to correct them. Overall summary
information can cover up certain fault areas. For instance, it is
insufficient to show merely a decline in the profits. The reason for such
declined or which also be indicated, such drop in the sales volume or
an increase in the costs. Even this is insufficient. The information
should also disclose in which market areas the sales decline which
specific costs had increased. Where a system merely detects deviations
but does not indicate corrective action, the control system becomes an
exercise in futility.
Fumeler suggests the following characteristics of an effective control
system:
1. Specific and precise activity to be controlled so that one can locate and
report deviations accurately.
2. Applies to the critical points in the organisations, systems.
3. Adheres to objectivity and is realistic in nature.
4. Flexibility, allowing operations to continue when problems arise.
5. Appropriate to overall organisational structure.
6. Economical in operation.
7. Easily understandable.
8. Not likely to become obsolete swiftly.
9. Allowing employee’s participation.
10. Including comprehensible instructions for corrective action.

5.5 CONTROL TECHNIQUES

These techniques help the managers to effectively control the organizations

activities. There are number of control techniques available to facilitate the
manager to deal with different situation. The Control techniques are broadly
classified into:
a) Traditional Technique
b) Modern Techniques

84 Control
 Management Concepts
& Applications

NOTES

a) Traditional Technique
Traditional Techniques are those techniques that have been used by the
business organization for a longer period of time.
• Personal Observation
This is the most traditional technique of control. It helps a manager to
collect first-hand information about the performance of the employees.
It creates psychological pressure on the employees to improve their
performance as they are aware that they are being observed personally
by the manager. However, this technique is not to be effectively used
in all kinds of jobs as it is very time consuming.

• Budgeting
These are the quantitative statements that provide us with expected
results, from the future. It is also flexible and can be altered as per
requirement. Thus it act as a controlagent where standards are
compared with the actual performance and take necessary actions for
any deviation from attaining organizational goals. There are various
types of budgets like sales budget, production budget, material budget,
capital budget, research and development budget etc. This also ensures
optimum utilization of resources.

• Break Even Analysis

It deals with the relationship between cost, volume and profit for
determining the likely profit and losses at different levels. The sales
volume at which there is no profit or loss is said break-even point.

Control 85
 Management Concepts • Financial Statements
& Applications
Financial statements show financial position of a firm over a period
of time.These are prepared along with previous year statement so that
NOTES the firm can compare its current performanceand improve accordingly.

• Statistical Data Reports

Statistical analysis provides useful information regarding the
performance of the organization in a simplified form of percentages,
ratios, averages etc. Which makes it easier for the manager to interpret
and extract useful information out of that.

• Setting Examples
Managers are the role model for their sub ordinates. They set example
by their style of working. Manager, can thus have control over their
subordinates and get work out of them as per needs specified.

• Standard Costing
Standard costing is a method used to control cost in the organization.
Actual cost incurred by material, labour and overheads are compared
with the standard cost and variance is observed. This works as an
effective control technique to control cost.

• Written instructions
They are some additional control agents which are provided as per the
change in the rules and regulations of the company. These instructions
guide the members to work in a specified way and controls the whole
process.

b) Modern Technique
Modern Techniques are those techniques which are very new in the world.
They provide various new aspects of controlling in organization.

• Return on investment
Organization does lots of investment in creating the fixed assets and
on working capital requirements. Profits obtained on these investment
done is the reward for the business. If the returns are high the company
is doing good and if its low they have to take necessary steps to
increase the return on investment. Thus provides a scope for correcting
actions performed.

• Management Audit
Management Audit is another modern technique of control where it
critically examines the management process for its efficiency. Team
86 Control
 of experts are appointed who evaluate the managerial performance and Management Concepts
efficiency. & Applications

• Management Information System

NOTES
MIS collects both internal and external information related to the firm,
processes it and provides meaningful information to the managers. It
provides the managers with the accurate information to understand the
problem and find solutions accordingly.

• PERT/CPM
Any activity in the organization undergoes a series of processes
interdependent to each other. PERT and CPM are two such techniques
which the help the management to identify the critical activities, time
and cost consumed by them. Since it divides a task in to subtask, it
brings in more clarity to the manager to minimize the cost and time
consumed.

5.6 USE OF I.T. FOR CONTROLLING

It deals with the processing of information to develop various systems

by using different tools and specialised technology. Computers today have totally
changed the image of business. More transparency with stakeholders has become
possible because of IT. IT industry has created a revolution in industry and on
human being, but with that it has increased lot of pressures and demands for
creativity from the employees. IT has simplified many tedious task done for
controlling. Today the same work can be performed with utmost efficiency
without interference of human being.

Different Forms of Information Technology

1. Computerisation : Operations or processing of data is done with the
help of computers.
For example : Management Information System, CRM.
2. Internet : Access to the global technology and information is possible
by internet. It is the fastest way to gain access to information.
For example : Accessing information of suppliers detail, world market
opportunities.
3. Digital Economy : E-activities are present in almost every part of our
life, e-mail, e-commerce, e-makret, e-banking, e-business etc. This has
provided to be more advantageous to manufacturer or customer due
to the introduction of concept of cost reduction through advanced
technology.
Control 87
 Management Concepts 4. Wireless Technology and E-technology : M-commerce i.e. mobile
& Applications commerce and wireless technology have the leading edge today.
The applications includes financial transactions, business talk, video
NOTES conferencing, on-line information. Industries like Tata Tele, Bharti Air-Tel, Idea,
Nokia all have future.

Use of Computers
The vast number of applications of computers helps in:
• Financial statements
• Budget
• R&D
• Analysis
• Planning
• Communication
• Time management
• Decision-making
• Computerised manufacturing process
• Updating daily transactions
• Administrative activities
(Payroll, attendance, leave, appraisal, salary, calculation etc.)

New System of Controlling

A variety of techniques are used by manager to control. All the above
activities are possible to be controlled through ERP (Enterprise Resource
Planning).
ERP means the techniques and concepts for integrated management of
businesses as a whole from the viewpoint of the effective use of management
resources to improve the efficiency of enterprise management.
ERP software is made up of many software modules. The common ERP
modules include:
1. Financial module
2. Manufacturing module
3. HR module
4. Material management module
5. Production planning module
6. Plan maintenance module
88 Control
 7. Quality management module Management Concepts
& Applications
8. Purchasing module
9. Marketing module
NOTES
10. Sales and distribution module.
ERP software produces dramatic result. It is the integration and automation
of various business functions.
Amongst the new system by using PERT, CPM, BPR (Business Process Re-
engineering) the cost of production and total time required to complete the cycle
has come down drastically. By adopting BPO’s, we can control costs and at the
same time check on quality.
It has contributed in almost all the areas of the service industry,
manufacturing sectors, governmental institutions etc. The use of IT is tailored to
suit the specific needs and includes routine information.

B 5.7 ZERO BASE BUDGETING

Zero base budgeting is an approach of making budget without using

previous data. It purely starts from zero without having any base. In this type of
budgeting every expenses should be justified before adding it to the official
budget.The goal of zero based budgeting is to reduce spending by looking at
where cost can be cut.Budget is build around what is actually needed for the
upcoming period, regardless of whether each budget is higher or lower than the
previous one.
It allows implementation of strategic goals into the budgeting process by
tying them to specific functional areas of the organization, where costs can be
first grouped and then measured against previous results and current expectations.
It can help lower costs by avoiding abrupt increase or decrease in the previous
budget. It is, however, a time-consuming process that takes much longer than
traditional, cost-based budgeting.

5.8 MANAGEMENT AUDIT

Management Audit is a process of systematic evaluation of management

activities at all levels to ascertain the functions, efficiency and achievement of
the management as compared to standards set by the company.
According to L. R. Howard, "Management audit is an investigation of
business from the highest level downward in order to ascertain whether sound
management practices prevails throughout, thus facilitating the most effective
Control 89
 Management Concepts relationship with outside world and smooth running of internal organization."The
& Applications scope of management audit is much greater than financial audit, as it examines
the overall aspects of the management. It helps in evaluating efficiency and
NOTES effectiveness of the management at all levels of the organization. It also assess
the ability of the managers to take vital decision and help in rectifying the defects.
It also contributes in increasing profitability by giving remedies to maximize the
organizations resources in an efficient way.

QUESTIONS
1. Define controlling. Explain the process of controlling.
2. What is the relation between planning and controlling?
3. Explain various control techniques.
4. Write short note on :
(a) Types of control.
(b) Requisites for effective control.
(c) Zero Base Budgeting
(d) Management Audit

*****

90 Control
MODULE - 6
 Management Concepts
& Applications

NOTES
FUNCTIONAL DEPARTMENTS
AND SECTIONS

6.1 FUNCTIONAL DEPARTMENTS AND SECTIONS

Business Management and its functional departments function in exactly a

similar manner to how different organs that regulate and perform a specific job
in a human body. Every function within the organization has a special expertise
which helps in building efficiency, effectiveness and synchronises business as a
whole. The various functional departments are as follows:

• Human Resource Management

A human resources department is an essential, if not critical,
component of any business regardless of the organization's size.The
heart of an organization lies in its human capital. This department is
responsible for recruiting the right people with the required skills, Functional
Departments
qualifications and experience.It also responsible for determining the
and Sections 91
 Management Concepts salaries of different positions in the company and is also involved in
& Applications
training the company’s employees for their further development. HR
needs to keep in mind various compliance with labour law and
NOTES employment standards, administration of employee benefits, and some
aspects of recruitment and dismissal.
Human resource in the company is charged with finding, screening,
recruiting and training job applicants, as well as administering
employee-benefit •programs. It reorganizes to gain a competitive edge,
and plays a key role in helping companies deal with a fast-changing
environment and the greater demand for quality employees.
It is primarily focused on maximizing employee productivity and
protecting the company from any issues that may arise from the
workforce. HR responsibilities include recruitment, compensation,
providing benefits, motivating, firing and keeping up to date with any
laws that may affect the company and its employees.

• Marketing
Marketing is everything a company does to acquire customers and
maintain a relationship with them. It plays a vital role in promoting
the business and mission of an organization.Their job is to reach out
to prospects, customers, investors and/or the community, and create a
dominating brand image that represents the company in a positive light
among its customers. Effective Marketing and promotional activities
will drive long-term success, profitability and growth in market shares.
Its function involves creating the various marketing strategy and
planning promotional campaigns by using modern technological
advancements. They are also responsible for monitoring competitor’s
activities. Even a small tasks like writing thank-you letters, answering
calls promptly and meeting with a past prospective client for coffee
comes under the horizon of marketing. The ultimate goal of marketing
is to match the company's products and services to the needs and wants
of the people, thereby ensuring profitability of the business.

• Sales
In every business organization, sales department plays the biggest role
in its success. It is responsible for generating revenue. Its job is to
ensure that the sales of products and services result into profit. This
department coordinates with the marketing department in terms of
brand awareness, product launching and makes sure they are
contributing to each other effectively. From the time the product leaves
the production department, the sales department needs to find and
Functional develop ways to sell the product to its target customers.
Departments
92 and Sections
• Accounting Management Concepts
& Applications
The accounting department is responsible for recording and reporting
the cash flows, both in and out, of a company. This department is
responsible for all administrative functions in an organization. Though NOTES
considered "back office" activities, these functions are essential for the
proper operation of a business. The most common responsibilities of
the accounting department are billings, collections, financial
statements, internal reporting, payables, payroll and taxes.

• Finance
Finance is responsible for creation and study of money, banking, credit,
investments, assets and liabilities and also takesa lead role in studying
financial instruments for making a business. Without finance
department, no business can promote or create a business, gain assets,
develop products, run market surveys, advertise. It thus focuses on
being reactive, efficientand quantitative and risk-averse and assist the
top management to take key strategic decisions. It thus pertains to three
major decisions a) Investment Policies b) Methods of financing c)
Dividend Decisions.

• Distribution
The distribution department is responsible for receiving orders and
delivering orders to the customerat the right place, at the right time. If
the goods are not suitable for the distribution channel, expenses
involves in the distribution will be wasted.
It also includes methods of selling as well as finding appropriate
locations. The methods include direct sales, wholesalers and retailers.
Direct sales involve selling directly to the end user with no middleman.
Using a wholesaler involves a distributor to get the product into a
variety of channels where it might not be feasible for the producer to
reach their prospective end users. The stores and other outlets are used
to sell the product and make profits in retail markets.

• Research and Development

Innovation is the key to the future of every business and its success. It
plays an integral role in the life cycle of a product. Innovation helps
in opening new competitive advantage for the firm. It is searching new
ways of producing their products by being updated with regards to the
latest technological and economic trends. All the other departments
like sales, production, finance etc. often require collaboration with
R&D to help them come out with an effective product to maximize
the business. The major functions of this department are innovation of
a new product, develop a product, and update the existing product, Functional
quality checks. Departments
and Sections 93
 Management Concepts • Administration
& Applications
The administrationis the backbone of the business which plays a key
role in making the rules and regulations and applies it to an
NOTES organization. They are followers who take direction and oversee the
flow of work. Their work is to oversee the activities of the business,
planning, decision making and also undertake financial reviews from
time to time. This department is a link with other departments to ensure
the smooth flow of information and operations. It concentrates on the
practical side of the business as to how to employ various authorities
to fulfil their strategies. Thus it refers to the broader management
function, including the associated finance, personnel and MISservices
and sees to it that there occurs efficient performance of all departments
in an organization. They act as a connecting link between the senior
management and the employees.

• Management
Management encompasses decision-makers who often run the
company. The duties of the management team often involve organizing
the operations and overseeing its continuity. Business management
typically looks at the big picture to ensure that the company remains
profitable and may adjust administrative duties to reflect market
changes, handle an increase in business or reduce the workforce when
income decreases. Management usually defines company goals and
prepares strategic plans for growth. They supervise department heads
and often serve as the face of the company in public. Management
typically functions above external (political and economic) issues that
affect the business. They make decisions and goals and provide the
drive and cultural environment under which the company operates.

• Productions
The productions department is concerned in manufacturing the
products, where inputs (raw material) is converted into finished output
through a series of a production process. This department’s function
is to ensure that the raw materials are made into finished product
effectively and efficiently and in good quality. This department should
also maintain the optimuminventory level.Selection of product design,
production process, selecting right production capacity, production
planning and control, Quality and cost control, inventory control,
maintenance and replacement of machines are various tasks performed
by this department.

• Operations
Functional
The operations department is responsible for managing people,
Departments
equipment, designing, technology, information and in controlling the
94 and Sections
 process of production. In a manufacturing company, operations Management Concepts
department designs processes in the production of goods and services. & Applications
It is the core function of every company regardless of the size of the
company. This department is also responsible for acquisition of NOTES
materials ensuring a functional flow of the entire business.

• IT Support
Today, no business can be imagined without IT support. It has become
crucial and an integral part of every business plan. It is responsible for
creating software for other departments as per their needs, providing
and direct operating assistance in software use and data management
of all functional areas in the organization. It has dramatically changed
how every task is performed in the business like Communication,
inventory Management, data management, Management Information
System, Customer Relationship Management etc. No business in this
age can attain long-term goals without leveraging the benefits of
information technology.

• Purchase Department
This department is responsible for the procurement of rawmaterials,
machinery, equipment and suppliesat minimum possible price based
on the company policy. This department ensures that the materials are
in the right quantity, withthe right price, made available at the right
time, for the right suppliers. It is their task to make sure the changes
in the price or material required that affects the company’s sales and
regularly inform the top management about these changes. Thus it
involves purchase requisition, quotation, order, receipt, invoice,
payment details, issue of goods etc. Thus, this department makes sure
the buying terms and conditions, negotiation, checking contracts,
scheduling orders, obtain discounts and coordination with the finance
department for these activities. It also assists with preparation of
material expenditure/purchasing budget.

• Legal Department
The legal department is responsible for providing legal services and
advice to the company in all possible manners. The various matters
handled by this department are business development, real estate
transactions, contract management, customer claims against the
company for product damages and defects, employment law, sales and
leases matters, debt collection, bankruptcy, litigation, case prosecution,
and much more. All these activities create the workflow of legal
department etc. Thus this department’s function is to provide legal
advice and guidance. Litigation management and document Functional
preparation and drafting is also done by this department. They may Departments
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 Management Concepts also offer training and assistance with employee’s manuals to ensure
& Applications that the company and its employees are kept up to date on workplace
law. This department also involves handling customer’s complaints in
NOTES a professional style and represent the company if sued. They also
handle the filing of legal documents with all government agencies.

6.2 INTRODUCTION TO BUSINESS SECTORS

Business differs with the type of activities and products and services that it
caters to. There are three broad sectors:
• The primary sector that involves extracting and harvesting of natural
products from the earth (for example, agriculture, fishing and mining).
• The secondary sector consists of processing (for example, the
processing of stuffs produced by agriculture), manufacturing and
construction. Thus the secondary sector takes the products from the
primary sector and does something more with them.
• The tertiary sector provides services, such as retail services,
entertainment or financial services.

• Manufacturing Sector
The manufacturing sector comprises of the task involved with the
transformation of substances intoa new product. The processing
requires the use of tools, techniques and a specific process to convert
raw material in to a finished product. It is a value-add process, where
funds are generated by selling the finished products at a premium price
compared to the value of the raw materials used. Based on the
forecasted demand the inventory levels are maintained to meet the just-
in-time delivery of the product. Today manufacturing process is
automated to reduce their labour requirements whereas some
manufacturing organizations are labour intensive, based on the
countries labour cost. For this sector it a must to have a physical
location for their production and stock inventories. Production does
not necessarily take place on the manufacturer's own site; it can take
place at any point in the supply chain.

• Service sector
The Service sector, unlike manufacturers, does not hold inventory;
they create a service when a client requires it. It does not result in
ownership and it may or may not be attached with the physical product
Functional aswell. It is in terms of consultancy, training or maintenance. It is
Departments intangible in nature. Employees in a service firm are equipped with
96 and Sections specific knowledge and skills in the disciplines that it offers its
 services. Service delivery is labour intensive and cannot be easily Management Concepts
automated, although knowledge management systems enable a degree & Applications
of knowledge capture and sharing. They do not require a physical
production site. They can be located anywhere. NOTES

Questions
1) Explain the role of Finance department?
2) What is the role of Legal department in business?
3) How does IT department help in business process?
4) Distinguish between manufacturing sector and service sector?
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Functional
Departments
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