Unit-1

Introduction to Management

1.0 Objectives of the Unit.

1.1 Introduction to Management.
1.2 Presentation of Subject Matter.
1.2.1 Meaning and Definitions of Management.
1.2.2 Characteristics and Significance.
1.2.3 Functions of Management.
1.2.4 Administration and Management.
1.2.5 Management as a Science or an Art.
1.2.6 Professional Management : The Concept.
1.2.7 Characteristics and Need of Professional Management.
1.3 Summary.
1.4 Terms to remember.
1.5 Check your progress.
1.6 Answers to check your progress.
1.7 Exercise.
1.8 Books for further reading.

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1.0 Objectives of the unit
After studying this unit, you will be able to:

Understand the meaning and definitions of Management.

Know the characteristics, significance and functions of Management.

Find relationship between Administration and Management.

Familiar with Management as a Science or an Art.

Acquaint with Professional Management.

Explain the characteristics and need of Professional Management.

1.1 Introduction to Management

In any business organization one of the most important activities is
management. It has its place not only in business organizations but also in charitable
trusts, religious bodies, politics, military, financial institutions, hospitals, hostels,
social and educational institutions etc. In fact, it has its place in any organized
activity. It is a group activity and not a one man show. Every organization has
objectives/goals of its own. These goals can be achieved with the group efforts of
several employees. The work of a number of persons is properly co-ordinated to
achieve the objectives through the management process. So, management can be
considered as the proper utilization of people and other factors of production in an
organization to attain the predetermined goals and objectives.
Management is a universal process. In the present era of increasing global
competition, rapid changes in technology, changes in business practices as well as
increasing social responsibility of business concerns, importance of management has
increased. Management plays an important role in the welfare of any organization,
people and the destiny of the country. This has been rightly stated by Marshall E.
Demock, “The management is not a matter of pressing a button, pulling a lever,
issuing orders, scanning profit and loss statements, promulgating rules and
regulation. Rather it is the process to determine what shall happen to the personalities
and happiness of entire people, the power to shape the destiny of a nation and all the
nations which make up the world.”

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1.2 Presentation of Subject Matter
Management is an essential activity of every organization. It is considered to be
the brain of business, which plans, co-ordinates resources of production, gets the
things done through other people and accomplishes objectives and predetermined
goals.
In the present era of globalization and changes in economic and business world
the real success of management lies in applying the professional management
techniques in all activities of management. Hence, success in management hinges on
thorough understanding of principles and practices of business management.
1.2.1 Meaning and Definitions of Management
Meaning of Management : No organization can run successfully unless there is
management. Harold Knoots says, “Management is the art of getting things done
through and with people.” It indicates that management is the essential part of any
group activity. It is important activity to control/manage men, machines, material and
money in direction towards predetermined objectives. Management is concerned
with planning, policy formulation and co-ordinating functions. It also includes
quality control of product. According to E.F.L. Brech “Management is the process of
controlling the whole productive machinery.”
So, management is an important factor in the business. It is considered as
important as brain in human body. Without brain human body is only collection of
bones and flesh which is of no use; likewise if management is not in business it is
only collection of money, machines, material and men which is not useful in
achieving the objectives.
From the above information we can understand the meaning of management that
it is the art of getting things done by a group of people with the effective utilization
of available resources.
The management is thus the dynamic life-giving element in each and every
organization. Without it the resources of production will remain resources only and
never change in the production.

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* Definitions of Management
The term ‘Management’ can be interpreted differently in different contexts. To
know a better and detail meaning of management, let us refer various definitions of
management contributed by different scholars.
A) According to the Theo Haimann the term management is used in three different
senses, viz. i) Management as a Noun. ii) Management as a Discipline and
iii) Management as a Process or group of functions.
i) Management as a Noun– In this sense the term ‘Management’ refers to the
‘group of persons’ managing the affairs of the organization. (i.e.- The governing
body of any Institution, Board of Directors of a company, Executive council or
Managerial council of an Institution etc.)
ii) Management as a Discipline– In this sense the term ‘Management’ is
described as a subject or faculty, which can be taught and learnt. Various
universities, commerce colleges, Business schools and Management Institution offer
the diplomas and degrees in the management discipline, e.g. BBA, BCA, B.Com.,
M.Com., MBA, C.A, C.S, DBM, DMM, DIT etc.
iii) Management as a Process / functions– In this sense the term ‘Management’
relates to the process of managing or managerial functions like planning, organizing,
staffing, directing, co-ordinating, communicating, reporting, budgeting and
controlling.
B) Functional Concept of Management – The management process/functions, has
been defined by different management experts in different ways, They are:
1) ‘Management is what management does’.
According to many management experts, management is the sum of all those
functions concerned with the working of an enterprise.
* Dr. James Lundy. * Stanley vance.
* Ordway Tead. * Henry Fayol.
* George Terry. * Mcfarland.
* Peter F. Drucker.

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2) ‘Management is a process for the utilization of minimum in-put for the
production of maximum profit’.
* John F. Mee. * Mary Cushing Niles.
3) ‘Management is the art of getting things done’
* Prof. Harold Koontz. * E.F.L. Brech.
* J.L. Haynes. * S. George.
* William Spriegel. * E. Peterson.
4) ‘Management is the function of executive leadership’.
* R.C. Davis * J.N. Schulze.
* James D. Mooney.
5) ‘Management is the development of people’
* In other words of Lawrence A. Appley,
‘Management is the development in people and not the direction of things. It is
personnel administration.’
* The Head of the American Corporation remarked,
“We do not build automobiles, airplanes, refrigerators, radios, shoe-strings. We
build men, the men build products.”
* Conclusion – Each definition emphasizes only a particular aspect of the term,
‘Management’. So, one can get a complete view of the concept of management only
by combining the various views.
In short, we can say, “From planning to control whatever functions are there in
process, all these functions together is called ‘Management ‘ – i.e.- POSDCORB+C

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The same can be explained by following diagram.

MANAGEMENT

CO-
STAFFING ORDINAT-
PLANNING ORGANI- & ING & REPORT- BUDGET- CONTRO-
SING DIRECTING COMMUNI- ING ING LLING
CATING

ORGANISATIONAL
OBJECTIVES

This Diagram indicates that all functions which together work for achievement
of organizational objectives are ‘Management ‘.
1.2.2 Characteristics and significance:
A) Characteristics of Management –
Following are the important characteristics of Management.
1) Management is universal-
Management is applicable to all forms of human organizations whether it is
profit- making or non- profit making.
2) Management is a social process-
To get things done from the people manager has to establish inter-personal
relations with them. He has to understand the behavior of all as individual members
as well as members of a group.

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3) Getting things done through people/ group-
In the words of Koontz and O’Donnell, “Management is the art of getting things
done through people or organized groups.”
4) Management is an integrating / unifying force.-
Management is integrating people into a single working force with available
physical resources.
5) Management is objective/ target oriented-
Management is purposeful or goal-oriented activity. The success of management
is measured by the extent to which organization goals are achieved.
6) Management is dynamic, and not static-
Management is not a stereotype activity but is ever changing. It is a complex
and dynamic activity. Management adapts itself to changes in environment, and also
initiates and introduces changes. i.e . innovations, change in methodology etc.
7) Management is a system of authority-
In management scalar- chain indicates system of authority. Every body in the
organization knows under whom he is working, whose orders he has to follow and to
whom he is answerable.
8) Decision-making-
Decisions are taken in all the activities of management. The success is judged by
the quality of decisions taken by the managers.
9) Continuous process-
Management is not one time activity, but it is continuous activity. The cycle of
management continues to operate so long as the organization continue to exist.
10) Management is born as well as acquired ability-
Management is considered not only as an inborn ability but also an acquired
ability by proper training.
11) Proper utilization of resources-
Management is concerned with the best and proper utilization of the resources.

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12) Intangible-
Management is intangible, it cannot be seen with eyes, It is evidenced or
measured only by the quality results of organization, such as increased productivity,
the increased morale of the employees etc.
13) Management is a science as well as an art.
14) Modern management can be regarded as a profession.
15) Management enjoys the separate status in the organization, so, management is a
distinct activity.
B) Significance / Importance of Management –
Management acts as a creative and life giving force in the organization.
Management by right men through right methods may give better results. It is
properly said that business is built not by the technical ability of specialists but
largely by good managers who can effectively utilize human skill, energy and
efficiency for transforming resources with higher productivity.
Management is considered to be the brain of business, which plans, co-ordinates
resources of production, gets the things done through other people and accomplishers
objectives. Hence, management is inevitable element in every enterprise. It is rightly
said that organization without management is like a temple without deity.
Management is every where like a god, like an air (without which we cannot live),
like shadow (it is always with us). Management is always with us without which, we
cannot live as a common person in society. Further more, the survival and success of
an organization largely depends on the competence of its management.
More significance or importance of management can be explained with the help
of the following points.
1) Management meets the challenge of change-
In the modern business world, there are frequent changes; business operates in
an environment created by demographic, political, legal, technological, social,
natural, economic and cultural factors. The business environment is highly dynamic
and it has far-reaching impact on business. The management can gear-up the
business in such a way that the opportunities are grabbed and threats are fought
against successfully.

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2) Accomplishment of various interests of different groups-
There are various groups such as shareholders, society, which have various
interest in the business. The survival of the business depends on the satisfaction of
these stakeholders. Management can skillfully integrates the interests of these
different groups and obtain their support .
3) Effective utilization of resources.-
The efficient management can make optimum use of resources, (i.e.- Men,
Money, Materials, Machines, Methods, Motivation, Markets and Management.)
Underutilization or over utilization of resources should be avoided and this can be
done by management only because Management has control oven other remaining
‘M’s.
4) Stability to society-
If there is no smooth supply of goods and services to the society, the society
becomes vibrant. There fluctuations in supply can be stabilized by the management.
5) Innovation-
New ideas are developed by the management and implemented in the business
for better performance.
6) Co-ordination and team-spirit-
Management co-ordinates the activities of different department and establishes
team- spirit to achieve the objectives.
7) Social responsibilities-
No organization can run its function in isolation from society. A number of
responsibilities have to be discharged for the upliftment of the society. The
management plays an important role in discharging the responsibilities towards
society.
8) Development of country-
The management helps in infrastructural development of the nation, in
increasing GDP, capital formation, national income etc.
To sum-up we can say, “Anything + Management = Success”

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1.2.3 Functions of Management :
As per ‘Theo Haiman’, one of the definition is “Management as a process or
group of organizational / Managerial functions”. The list of management functions
varies from scholar to scholar with number of functions ranging from three to eight.
Particularly ‘Luther Gullik states seven such functions; we can add one more
function as +‘C’ to the catchword ‘POSDCORB’ +‘C’. which stands for planning,
organizing, staffing, directing, co-ordinating / communicating, reporting, budgeting
and +‘c’ indicates ‘controlling’.
The important functions of management as per the catchword ‘POSDCORB’
+‘C’ are briefly explained below:
1) ‘Planning’- ‘P’
Planning is the primary function of management All other functions are based
on it. Planning is the beginning of all managerial work. Planning determines the
course of future action. It serves as a compass and shows the right direction that an
organization should take action to attain its goal. It is a blue print of future actions.
Planning means deciding in advance what to do in future. In other words it is looking
ahead. Planning is performed generally at all levels, but particularly at top level only.
It is an intellectual task; which is to be carried-out scientifically. For this every
organization is following 4-‘W’ formula. Following figure indicates this scientific
process.

1 2
‘what’ to ‘why’ to
do? do?

4 3
by ‘whom’ ‘where’
to do? to do?

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 The maxim in management is ‘First plan your work, and then work your plan.
Before making a plan, if manger is following this 4-‘w’ formula and after getting
proper/appropriate answers to these 4-‘w’s; planning will be scientific. This process
is very important because all other functions are following planning so, planning
should be based on reliable/authentic information and scientific. Then only you will
proceed towards success and can achieve it definitely.
2) Organising – ‘O’
Planning done by manager will remain on paper only if further steps are not
taken. Hence, the second function of management process ‘organising’ should be
followed. Organising means collecting/assembling factors of production together.
For this purpose organization creates order and system by bringing various elements
such as capital, machinery, materials, executive personnel, workers etc. together and
co-ordinating them.
3) Staffing – ‘S’
Staffing involves finding the right person for the right place, allotting the right
job and at right time. Staffing also includes training to personnel to increase their
efficiency and avoid waste of material and machinery.
4) Directing – ‘D’
The actual performance of a work starts with the function of Direction.
Direction deals with making the workers learn techniques to perform the job
assigned to them. Direction includes guidance, supervision and motivation of
employees.
5) Co-ordinating and communicating - ‘CO’
a) Co-ordinating : Co-ordinating is the process of harmonization of different
activities within the enterprise with reference to time, progress of work, performance
standards etc. It is the essence of management. All personnel and departmental
activities are directed towards achieving common goals of the organization.
b) Communicating : Communication is a mutual transfer of information and
understanding. Through proper communication by using simple, local and
unambiguous language, a manager can create a feeling of belongingness on the part
of the subordinates.

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6) Reporting – ‘R’
Informing about the work done, problem faced and results achieved to the
boss/head of Dept./ to management is called reporting. Reporting in proper timing
helps to solve problems; which makes easy process to achieve the target.
7) Budgeting – ‘B’
Budgeting means preparing a receipt/resources and payment/applications
statement in advance before starting any plan. It helps in numerical terms the
requirements of various resources such as money, men, materials, machinery,
methods and time with which the management deals.
8) Controlling - +’C’
Controlling is looking behind. Controlling function ensures that the achieved
objectives conform to pre-determined objectives. Necessary corrective action may be
taken if there is any deviation. The control is very easy when the organization has
fixed standards. According to Henry Fayol, “Control consists in verifying whether
everything occurs in conformity with the plan adopted, the instructions issued and
principles established.

1.2.4 Administration and Management:

Scholars of Management are having different opinions regarding the terms
‘Administration’ and ‘Management’. There are three different views holding three
different schools of thought, which are as follows.
1) ‘Administration’ and ‘Management’ are different functions:
According to American school of thought, Oliver Sheldon, W.R. Spriegel,
Milward, William Schulze, Tead, Lansberg and Florence have advocated the view
that there is distinction between these two terms.
They believe that ‘Administration’ involves the overall framing of major
objectives, deciding policies and taking decisions while ‘Management’ works as a
secondary function, which looks after the execution of these policies and decision
framed by the top administration.

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2) ‘Management’ is a generic term, includes Administration :
British school of thought, E.F.L. Brech, Kimball and Kimball uses the term
‘Administration’ as a part of ‘Management.’ In first function of management (i.e.
planning) decisions are taken, plans and policies are made; these same functions
carried out by administration are inclusive in management that’s-why this school
regards as ‘administration’ as part of management. As ‘management’ is used in the
sense of an all inclusive function; management is regarded as the generic term.
3) ‘Administration’ and ‘Management’ are one/synonymous:
French school of thought, Henry Fayol, Koontz and O’Donnell, Allen, Strong,
Terry, Newman, Chester Barnard etc. make no distinction between the two terms and
use ‘Administration’ and ‘Management’ as one/synonymous or use these terms
interchangeably.
They hold the view that the term ‘Administration’ is used for the higher
executive functions in government and other non-business or social institutions,
whereas the term ‘Management’ is used for the same functions in the business world.
From the above discussion it is quite evident that there is no exact line of
demarcation between the functions of ‘thinking’ and ‘doing’.
Distinction between ‘Administration’ and ‘Management’

Sr. Sr.
‘Administration’ ‘Management’
No. No.

1. Nature – Administration is a 1. Nature – Management is an

determinative or thinking function. executive or doing function.
2. Scope – Administration is related with 2. Scope – Management is related with
the deciding of major objectives and the implementation of objectives and
policies. policies.
3. Level – Administration is mainly a top 3. Level – Management is largely a
level function. middle and lower level function.
4. Skills required – Conceptual and human 4. Skills required – Technical and human
skills. skills.
5. Main functions – Planning and control 5. Main functions – Directing and
are the main functions involved in it. organizing are the main functions in it.

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 6. Example – Minister, Commander, 6. Example – Managing Director,
Commissioner, Registrar, Vice- General Manager, Secretary Sales
Chancellor, Governer, Owner, Manager, Branch Manager, HOD,
Chairman, Board of Director etc. Supervisors, workers.
7. Usage – Used largely in government 7. Usage – Used mainly in business
and public-sector. organizations.

1.2.5 Management as a ‘Science’ or an ‘Art’

To answer this statement, it is necessary to find-out whether the management
possesses characteristics of science and art or it may be regarded both as a science
and an art.
* A science is a systematic body of knowledge containing particular branch of
study. It depends upon some particular rules, general principles or laws which are
capable of universal application.
Characteristics of science –
1) It is a systematic body of knowledge.
2) It uses the scientific methods of observation.
3) Its principles are evolved on the basis of continuous observation and
experiment.
4) Its principles are exact and have universal application.
Examples of Science – Physics, Chemistry, Maths, any physical science
(natural / core science).
Management as a science – To know whether the management is a science, it
would be appropriate to see how far the management fulfils the criteria of science.
1. Management has a systematized body of knowledge like Production
Management, Marketing Management, Financial Management, HRM, HRD,
Functions and Principles of Management, tools, techniques, theories and
methods etc. The literature on management has been systematically organised.
2. In management, the scientific methods are used.

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 i.e. – Quantitative techniques, PERT, CPM, BEP Analysis, Statistical Tools,
Cost and Accounting rules etc.
3. Management includes continuous observation and empirical verification. viz. F.
W. Taylor’s scientific management, Henri Fayol (Admn. Mgt.), Max Weber
(Bureaucratic Mgt.) Elten Mayo (Human Approach) Abraham Maslow’s need
hierarchy theory, Herzberg’s two factor theory etc.
4. Establishment of cause and effect relationship, as well as Management
principles are universally accepted and applied.
Is management a science? –
Taking into consideration above criteria, the management fulfils most of the
criteria of science but at the same time, there are some limitations on management.
Therefore it cannot be considered perfectly as a natural or physical science; but it is a
social science. (like Economics, Political Science, Behavioural Science etc.)
* An art is practical skill. It is a way of doing things for getting desired results. Its
application is guided by certain principles which are provided by science. Further, an
art is practice-based and perfection in it requires continuous practice over a long
period of time.
Examples of an art : Singing, Dancing, Drawing and Painting etc.
Characteristics of an art :
1) It is a personal skill required to put the acquired knowledge into practice.
2) It includes practical know-how.
3) It is result – oriented
4) It is creative
5) It results into realization of goals.
6) It needs constant practice aimed at perfection.
7) An artist needs high qualities such as initive, foresight, discipline,
dynamism, leadership, tacts etc.
Is Management an Art?

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 Management fulfils all important criteria of an art. Managers require certain
qualities and knowledge of psychology and so on.
* Conclusion : Management is both a science and an art.”
Explanation – Management is both a science and an art. Management science is
compared in a proper way with medical science. A surgeon or a physician without
the knowledge of medical science becomes a ‘witch-Doctor’. On the other hand,
mere reading of textbooks does not make a man a surgeon or a physician. Both the
theoretical knowledge and practical knowledge are essential for a man to become a
good surgeon or physician. Similarly, a manager without the knowledge of principles
of management cannot effectively, efficiently and successfully manage the affairs of
business. He has to just depend upon luck. Again mere possession of knowledge of
the principles of management cannot make a good manager unless he puts these
principles into practice. Thus, the manager’s task required the characteristics of both
a science and an art.
It is important to note that management is a social science and hence it cannot be
compaired with science like physics or chemistry because management science deals
with human behaviour, which is a subject with a numer of limitations and which is
always uncertain. Therefore, management science cannot be as exact as the physical
sciences, like physics or chemistry. Therefore, the management policies and
techniques will be adjusted with the changing circumstances in a dynamic world.
By way of conclusion, we can say that management is both a science and an art.
1.2.6 Professional Management : The Concept.
Due to increasing size, widening market, severe competition, changing
technology the need for proper management of four Ms. i.e. men, machine, material
and markets is underlined. Now-a-days it is no longer possible to manage the
organizations by experience, intuition or on trial and error method (i.e. traditional
mgt.). So, there is the necessity of trained managers to run the organizations on
professional base. The professional management is 20th century practice. Up to 19th
century, family management practice was followed. Today, professional
management is getting importance due to complex nature of business.
The Concept : In the words of Fredric Habison & Charls Mayor, “Professional
Management is a type of management in which major policy making positions and

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nearly all other positions in the hierarchy are held by persons on the basis of alleged
or demonstrated technical competence.”
According to L. M. Prasad, “Profession is an occupation for which specialized
knowledge, skills and training are required and use of these skills is not meant for
self-satisfaction but these are used for larger interests of the society and the success
of these skills is measured not in terms of money alone.”
It is understood that all professions are occupation. The reason is that they
provide means of livelihood. But at the same time, all occupations are not
professions because some of them lack certain characteristics of a profession.
1.2.7 Characteristics and Need of Professional Management :
a) Characteristics of Professional Management :
To decide whether management is a profession or not, it would be relevant to
have a clear understanding of the essential elements of profession. Houle has listed
fourteen characteristics which are associated with the continuous process of
organisation’s improvement. They are-definition of the occupation’s functions,
mastery of theoretical knowledge, capacity to solve problems, use of knowledge,
self-enhancement, public acceptance, ethical practice, penalties, relations to other
vocations, relations to the users of the service.
Especially, professional management has the following five characteristics-
1) Existence of systematised body of knowledge -
The development of knowledge, in management is emerged due to requirement
of managing complex and large organizations in a better way. So, management has to
fulfill the requirement of profession i.e. existence of knowledge.
2) Formal method of acquisition of knowledge -
An individual can enter into a profession only after getting knowledge and skills
through formal/practical training. Management can be regarded as profession since
the management graduates are also getting inplant training and familiar with the
various techniques of management.

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3) Professional Association
An individual is required to acquire knowledge of the profession of
management. There are certainly vigorous programmes of formal education for
management in existence. School of Business Administration in the U.S.A., Institute
of Management in the U.K., like wise All India Management Association (AIMA) in
India etc. All these institutions are developing professional activities and standardize
the profession. In this way, management is termed as profession.
4) Code of Ethics and Social Responsibility -
There are some ethical standards for every profession. Every one in organization
has to maintain conformity with these standards. In addition to this management
executives are supposed to be socially responsible and it is their duty to protect the
interest of all parties associated with the organization. (viz - customers, suppliers,
employees, financers, creditors, general public and the Government.)
5) Service Motive -
Service motive should prevail over the profit motive. It means that professionals
should keep social interest in their mind while charging fees for their services.
Considering the above discussion, it is concluded that the professional-
management has certain characteristics of profession.
b) Need of Professional Management -
Today in the present era, the competition has become increased and more
intensive than ever before. Business operations have been internationalized. So, in
this globalised economy, the business organizations in India need professional
management especially for the following reasons.
1. Major portion of our economy is unorganized.
2. Industrial/organizational poor infrastructure. Professional management can
cope with these complexities.
3. Yet, there is less utilization of modern technology. The professional
management can adapt to the fast developing technology.
4. As a result our industry is having low productive efficiency.
5. To reduce the wide spread poverty and unemployment in India.

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 6. For efficient management of funds invested by public in corporate sector.
7. The procurement and disbursement of funds has become IT based. The
rapidity of transactions has increased and their regulation has changed. The
professional management can successfully manage the finance function in
today’s environment.
8. LPG policy, has impacted almost all fields of human and business life. LPG
policy has offered a number of opportunities to business. The professionally
managed companies can take advantage of these opportunities at proper
time and can overcome from many problems.
After considering all above reasons and situation in this globalised era, the
importance and need of professional management has been constantly increasing.

1.3 Summary

Management : Management is an essential activity of every organization. Not
only in business organization but management is every-where in human and business
life. It is just like air without which we cannot live.
Management means getting things done successfully from others. Theo Haiman
has defined this term (1) Management as a noun, (2) Management as a discipline and
(3) Management as a process/functions. As per this third definition of Management,
it’s a functional term, Luther Gullik also stated this term in keyword
‘POSDCORB’+‘C’
It means from planning to control all functions together or group of these
functions is called management.

Characteristics of Management : Management is, (1) Universal (2) a social
process (3) getting thing done (4) unifying force (5) target oriented (6) dynamic (7) a
system of authority (8) Decision-making (9) continuous process (10) born as well as
acquired ability (11) proper utilization of resources (12) Intangible (13) science as
well as an art (14) regarded as a professional mgt. (15) a distinct activity.

Significance of Management : Management is considered to be the brain of
business. Without management a person or business can not live properly. In short
we can say; “Anything + Management = success” and “Anything – Management =
Nothing/ ‘O’.

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Functions of Management – ‘POSDCORB’ + ‘C’.

‘Administration and Management’ – There are three different views given by
three different schools of thoughts – (1) American – ‘Administration’ and
‘Management’ are different. (2) British – ‘Management’ is a generic term, includes
‘Administration’. (3) French – ‘Administration’ and ‘Management’ are one.

Management as a ‘Science’ or an ‘Art’?
1) Management is a social science
2) Management is an Art
3) Management is both a science and an art.
Management possesses characteristic of both a science and an art.

Professional Management : Concept – Management which possesses
professional characteristics is called professional Management.

Characteristics – (1) Existance of knowledge (2) Knowledge acquisition (3)
Professional Association (4) Ethics (5) Service motive.
Need – Professional mgt. is necessary in India due to the following reasons.
1) Major portion of our economy is unorganised.
2) Poor Infrastructure.
3) Less utilization of modern technology.
4) Low productive efficiency.
5) Wide spread poverty and unemployment.

1.4 Terms to Remember

Management : “Management means getting things done through other people
successfully.”

Functional Definition of ‘Management’ / ‘POSDCORB’ + ‘C’ : “From
planning to control whatever process / functions are; all these functions together
are called management.”

‘Administration’ : “Administration is mainly a top level function related with
the deciding of major objectives and policies.”

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Professional Management : “Management which possesses professional
characteristics is called professional management.”

‘LPG’ : ‘Liberalisation’, ‘Privatisation’ and Globalisation.

1.5 Check your progress

A) Fill in the blanks
1) ………………is getting things done, from others.
2) Luther Gullik has given catch word for definition of functional mgt. as
……………… + ‘C’.
3) ……………… + Management = ‘Success’.
4) ……………… is universal.
5) To survive in global competition ……… management is to be followed in
organization.
B) State True or False.
1) ‘Management’ is a functional concept.
2) ‘Administration’ implements policies and plans decided by lower
management.
3) Professional management is not necessary now-a-days.
4) Management is both a science and an art.
5) Professional Management is universally not accepted.

1.6 Answers to check your progress.

A) 1) Management 2) ‘POSDCORB’ 3) Anything 4) Management
5) Professional
B) 1) True 2) False 3) False 4) True
5) False

1.7 Exercise
A) Write short answers / notes
1) What is management?

21
 2) Importance of management.
3) ‘Administration’.
4) Professional Management.
5) Need of Professional Management.
B) Give answers to the following questions.
1) What do you mean by ‘Management’? Explain the characteristics of
Management.
2) Describe the functions of management.
3) Differentiate between the concepts ‘Administration’ and ‘Management’.
4) Is management a Science or an Art? – Discuss.
5) Define professional management and explain its characteristics.

1.8 Books for further reading.

1) Drucker P. F. – ‘Practice of Management’ (New Delhi : Allied, 1970).
2) Tripathi P.C. & Reddy P. N. – Principles of Management, Tata McGraw-
Hill Publishing Ltd., New Delhi, 2003.
3) Ramasamy T. – Principles of Management, Himlaya Publishing house,
2008.
4) Shukla M. C. – ‘Essentials of Management.’
5) Dr. Gupta C. B. – Organisation and Management.
6) Prasad L. M. – ‘Principles & Practice of Management.
7) ICFAI Centre for Management Research ‘Introduction to Management’,
Hyderabad.


22
 Unit-2
Contribution towards Development of Management Theory

1.0 Objectives
2.1 Introduction
2.2 Subject Matter
2.2.1 F. W. Taylor’s Scientific Management
2.2.2 Henri Faypl's Principles of Management
2.2.3 Max Weber’s Concept of Bureaucracy
2.2.4 Elton Mayo's Hawtrone Experiments
2.3 Summary
2.4 Terms to Remember
2.5 Check your progress
2.6 Exercise
2.7 Books for Further Reading

2.0 Objectives

After studying this unit you will be able to understand Taylor’s Theory of
Scientific Management.

Principles of Management as suggested by Fayol,

Weber’s Model of Bureaucracy.

Hawthrone studies and their findings.

2.1 Introduction
Management knowledge is as old as human civilization. But from the beginning
of the 20th century serious efforts were made to develop management as a separate
discipline. Contribution of F. W. Taylor, Gantt, Gilbreth, Emerson, Henri Fayol,
Sheldon, Mooney, Mary Parker Follet and Max Weber gave birth to the classical

23
approach to management. From this classical approach the development of
management thought started. Then the neo-classical approach evolved. The
contributors to this approach attempted to study the human relations and human
behaviour in the organization. Some advocates of this approach were Elton Mayo,
Douglus McGregor, Mary Parker Follett, Chester Bernard etc. After neo-classical
approach, there evolved the modern approach. The evolution of management thought
is a continuous process and newer approaches like system approach, contingency
approach are developed in present era. Our discussion, however, is confined in this
unit to the contribution of Taylor, Fayol, Weber and Mayo.

2.2 Subject Matter

2.2.1 F. W. Taylor’s Scientific Management
Frederick Winslow Taylor, known popularly as the ‘Father of Scientific
Management’ is one of the great contributors of the classical theory of management.
He was the first person to insist on introduction of scientific methods in
management. His contribution is largely regarding improvement of productivity at
shop level.
Born in 1856 at Philadelphia, Taylor took his early education at French and
German Schools. Later he obtained degree in engineering from Stevens Institute of
Technology at New Jersy. Taylor started his career as an apprentice in a small
machinery making shop. Afterwards he became the Chief Engineer in Midvale Steel
Company at Philadelphia. He also worked as a consultant engineer in Bethelham
Steel Company. He developed the scientific management theory from his
observations and experiments conducted mostly in Midvale and Bethleham Steel
companies. His famous works are Shop Management (1903) and Principles of
Scientific Management (1911). The great management thinker Taylor died in 1915.
While working in Midvale Steel Company, Taylor observed that neither
management nor workers knew their duties and responsibilities. Workers worked
slowly. They used different techniques to do the same job. No effective work
standards existed. Workers choosed their own work and trained themselves. They
were placed on jobs without considering their abilities and attitude. Management
depended on intuition and trial and error basis. This affected the output, increased
cost and wastages. Taylor, therefore, decided to correct the situation by applying
scientific method to the jobs on the shop floor. He devoted more than two decades

24
for defining ‘One Best Way’ for a job to be done. His book "Principles of Scientific
Management" was accepted all over the world. He did many experiments, introduced
new scientific methods.
Scientific management means “the use of scientific method to define ‘one best
way’ for a job to be done”. Taylor’s philosophy of scientific management is based on
the following principles.
1) Science, not rule of thumb :
The manager should develop a science for each element of man’s work and
replace the old rule of thumb method. Decisions should be based on facts and not on
intuition.
2) Harmony, not discord :
There should be complete group harmony in the organization. This can be
achieved through satisfying the needs of group members and eliminating their
dissatisfaction and frustration. Clashes or conflicts should be avoided as far as
possible and proper co-ordination should be established among the different
groups/departments.
3) Co-operation, not individualism :
For achieving the objectives of organization there should be co-operation
between the management and workers. Importance should be given to co-operative
efforts and not individual efforts.
4) Maximum, not restricted output :
Instead of giving restricted output, workers should be asked to give maximum
output. As output increases the cost per unit will decrease and productivity will
improve.
5) Development of each man to his greatest efficiency and prosperity :
The workers should be scientifically selected, properly trained and developed to
their maximum potential. This will not only increase workers' efficiency but also
their wages and prosperity. Prosperity to workers will bring prosperity to the
employers.
Techniques of Scientific Management :
Based on his experience at shop floor Taylor has suggested the following
techniques to bring the philosophy of scientific management into practice.

25
1) Scientific Study and Planning of Work :
The management should study each element of work scientifically and decide
the daily standard output for each worker. For this purpose time and motion study
should be conducted. Time study will help to determine the standard time required to
do a job. Motion study will help to remove unnecessary movements of workers in
doing the job. With the help of this technique the management can give precise idea
to the workers on what is to be done and how it can be done efficiently.
2) Scientific Selection, Placement and Training :
The workers should be selected by using scientific methods and not relying on
intuition and judgement of the foreman. They should be placed on the right job by
matching job requirements with their capacity and attitude. Further, they should be
trained on a regular basis to do the task in the best manner and give maximum output
at minimum cost.
3) Satandardisation :
Taylor alvocated the importance of standardization of tools, equipments, raw
materials, quality of work and physical working conditions.
4) Separation of Planning From Doing :
Planning function should be separated from doing function to secur the benefits
of division of work and specialisation. Planning of work should be the responsibility
of management. The management should plan, organize and direct the work where as
the workers should implement the plans.
5) Functional Foremanship :
Taylor was the first to introduce and practice the concept of functional
foremanship. According to Taylor, instead of having one foreman, there should be
four Supervisors in the shop room namely, the gang boss, the speed boss, the repair
boss and inspector. In the planning office there should be four specialists namely the
time and cost clerk, the instruction card clerk, the order of work and route clerk and
the shop disciplinarian. Under functional foremanship each worker should recieve
orders directly from these eight different supervisors dealing with different aspects of
his job.

26
6) Wage Incentives :
Taylor suggested to pay workers according to their efficiency. Workers
producing more should be given higher wages. He devised differential price rate plan
which implies different rates of wages for different levels of efficiency of workers.
The efficient worker should get more wages than the average worker. Introduction of
wage incentive scheme will reward the efficient worker and punish the inefficient
worker.
7) Mental Revolution :
For getting the desired results of scientific management Taylor emphasised the
need of a mental revolution i.e. a fundamental change of outlook on the part of both
employer and employees. The workers should change their attitude, outlook and
behaviour as to their duties, their work, their fellowmen and their amployer. At the
same time the management should change its attitude, outlook and behaviour
towards the workers and their problems. Instead of having a hostile attitude and
engaging in continuous conflict, management and workers should co-operate each
other and work for their mutual benefit. They should give up the perception that any
gain by one is at the expense of other. Their relationship should be cordial, co-
operative and positive. There should be no hostility, distrust and suspicion between
them.
Criticism on Scientific Management :
Taylor’s philosophy of scientific management was criticised on the following
grounds.
1. Taylor treated worker just as a factor of production. He neglected the social
and psychological needs of workers. Thus, he ignored the ‘human’ element.
2. Taylor concentrated on improving productivity at shop floor. His philosophy is
confined to operative personnel only. It is not concerned with the overall
organization and improving its effectiveness.
3. Functional foremanship would result into over specialisation and create
confusion in the minds of workers.
4. Adoption of principles of scientific management may result in exploitation of
workers. Hence, it may be opposed by workers and their union.
5. Scientific management is anti-democratic. It does not seek participation of
workers in decision making process.
27
2.2.2 Henri Fayol’s Principles of Management :
The credit of developing the administrative theory of management goes mainly
to Henri Fayol. Henri Fayol was born in 1841 in France. He studied engineering in
France. He worked first as a mining engineer in a large French mining and
metallurgical company. Later on he became its Managing Director. Based on his rich
administrative experience he wrote a monograph titled as General and Industrial
Management, published in UK. It is a short-book contaning four parts.
First part deals with classification or business activities.
Technical Activities - Manufacturing or Production
Commercial Activities - Buying, selling and exchange
Financial Activities - Raising and optimum use of capital.
Accounts Activities - Recording, costing and statistics
Security Activities - Protection of person and property.
Managerial Activities - Planning, Organizing, Command, Coordination
and Contribution.
Fayol devoted most of his book to analysis and explanation of management
activities.
Second part deals with basic functions of management performed by the
managers in all types of organization. According to Fayol management is a
continuous process beginning with planning and ending with controlling. He divided
management function into planning, organizing, command, co-ordinating and
control.
Third part deals with 14 principles of management.
Fourth part deals with the managerial qualities and skills.
Fayol’s Principles of Management :
Henri Fayol was the first thinker to point out basic principles of management.
He made a distinction between ‘General Principles of Management’ and ‘Elements
of Management’. According to Fayol these principles have universall application.
They are applicable to all types of oranization - business, government, military,

28
religious etc. They are fundamental or universal truiths and can be taught in schools
and universities. Fayol made it clear that these principles were flexible and capable
of adoption to every need. These principles are briefly discussed below :
1) Division of Work : It involves dividing the work among various departments
and employees according to their abilities and skills. The object of this principle
is to obtain the benefit of specialization i.e. produce more and better goods.
2) Authority and Responsibilioty : Authority must be in porportion to
responsibility. Authority and responsibility should go together. When managers
are given authority, their responsibility should also be decided.
3) Discipline : Discipline means obeying and respecting the rules of the
organization. Fayol considered discipline as absolutely essential for the smooth
running of business. For maintaining discipline there should be good supervisors
at all levels, clear and fair agreements with employees and judicious use of
penalties.
4) Unity of Command : This principle states that every employee should receive
orders from one Supervisor only. Dual command leads to confusion and
conflict.
5) Unity of Direction : According to this principle “there should be one head and
one plan” for a group of activities having the same objective.
6. Subordination of Individual Interests to General Interest : The interest of
any one employee or group of employees should not precede over that of the
concern. Individual employees should not give priority to their own interest,
rather they should work for the interest of the organization.
7) Remuneration : Employees should get fair remuneration for their services.
Fair remuneration provides satisfaction to both the employees and the firm.
8) Centralisation : This principle refers to the extent to which authority should be
centralized or decentralized in an organization. The degree of centralization
depends upon individual circumstances. It should be such as to give the best
results to the organization.
9) Scalar Chain : The line of authority from top management to the lowest
management is known as the scalar chain. Orders and feedback follow this
chain. It creates superior-subordinate relationship among the employees in the

29
 organization. For effective management the scalar chain should be as short as
possible.
10) Order : For ensuring smooth flow of work and efficient use of physical and
human resources, people and materials should be in the right place at the right
time. Everything and everyone should be in the right places.
11) Equality : This principle states that managers should give equal, fair and kind
treatment to their employees.
12) Stability of tenure of personnel : Since instability is both the cause and effect
of bad running, the management should provide stability of employment to its
personnel. This will create a feeling of security among the employees and
reduce their tension.
13) Initiative : Management should allow the employees to develop and use
initiative for ‘solving work-related problems'. This will help employees to
develop better in the organization.
14) Espirit Corps : According to this principle “unity is strength”. Managers
should, therefore, try to build team spirit and unity among the employees for
achieving the organizational goals.
Fayol’s ideas and thoughts received wide acceptance in the business world. His
famous book 'General and Industrial Management' is widely acknowledged. Fayol
was the first to highlight the equal need of management functions to all types of
organizations and for proper functioning all organizations should observe the same
general principles of management. Management principles have universal
application. Some of Fayol’s principles have stood the test of time and have been
reproduced in almost all standard books on general management and organization
theory.
2.2.3 Max Weber’s Concept of Bureaucracy
Max Weber, a German Social Scientist and Philosopher made valuable
contribution to the general administration theory through his concept of Bureaucracy.
According to Weber there are three types of authority systems as follows.
1) Charismatic Authority System : It is based on the extra-ordinary qualities or
magnetic personality of the leader, e.g. Henri Ford of Ford Motors. However,
this type of authority structure suffers from the problem of instability. It comes

30
 to end with the leader. People may not accept the successor of such person as a
leader.
2) Traditional Authority : Here a person enjoys authority because of his status
derived by inheritance. The extent of authority is decided by the custom.
Traditional authority system ignores whether the particular person has necessary
leadership qualities and competencies.
3) Bureaucracy : According to Weber both the charismatic and traditional
authority systems are not suitable to large business organizations because they
are person-centered and instable in nature. Hence, Weber has advocated
Bureaucracy model based on rationality and legality.
The model bureaucracy suggested Weber has the following characteristics.
1) Division of Labour : In bureaucracy jobs are broken into simple routine and
well-defined tasks and assigned to various employees on the basis of their
abilities, skills and aptitudes.
2) Hierarchy of authority : Bureaucracy works on a well-defined hierarchy of
authority. Higher officials or offices supervise lower officials or offices and the
lower officials/offices have the right of appeal.
3) Formal selection : All persons in the organization are selected and placed on
the basis of their technical qualifications.
4) Formal rules and regulations : The organization functions according to
formal rules and regulations. These rules and regulations are in written form and
communicated to all employees. Use of formal rules and regulations ensures
uniformity in action and helps the management to control the employees.
5) Impersonality : There is no place for emotions, sentiments and personal
attachment. Rules and regulations supersede the persons in the organization and
are applied uniformally avoiding involvement with personalities and personal
preferences of employees.
6) Career orientation : In bureaucratic organisation the officers are
‘professionals’ rather than owners of the organization. They derive authority
because of the office/post they hold and work for fixed salary. They have the
prospects of regular advancement in the organisation. They are appointed on full
time basis.

31
7) Continuity : The official business is conducted on continuous basis. The
organization enjoys continuity of operations because of rational-legal anthority
structure.
8) Separation between official business and personal affairs : The official
business of employees and their personal affairs are treated as two separate
things. There is separation between official revenue and personal incomes.
Officials do not own the resources required for performing their duties.
However, they are accountable for the use of official resources.
9) Rational-legal Structure : Weber’s bureaucracy model is characterized by
rationality and legality. It is rational in the sense that means are expressly
allotted for achieving predetermined goals. It is called ‘legal’ because authority
is attached to the office and is exercised impersonally through the system of
rules and regulations.
Criticism on bureaucracy model :
1. Bureaucracy fails to meet the need of job satisfaction and creativity and hence
it is not useful in modern times.
2. Bureaucracy is overridden by rules and regulations, loosing the ‘human
element’.
3. The rules and procedures may be misused by the higher authority to punish the
employees.
4. Officials give excessive importance to following rules and procedures. They
pay less attention to achievement of overall goals.
5. According to Peter Drucker, “procedures are wrongly considered as a
substitute for judgment”.
6. Bureaucracy does not consider the existence of informal organization and its
role in management.
7. The human resources may not be fully utilized due to district, fear of reprisals
etc.
Weber attempted to provide an ideal model for organizations in the days when
organisations were run on either traditional authority structure or charismatic
authority structure. Weber thought that his model bureaucracy will lead to precision,
speed, unambiguity, continuity, knowledge of files, reduction of friction and
depersonaisation. However, in modern times it is not popular because of its
32
autocratic nature and lack of human face. But many of its components are still found
in large organizations.
2.2.4 Elton Mayo’s Hawthrone Experiments:
George Elton Mayo (1880-1949) of Australia is one of the main contributors of
New-classical approach to management theory. Elton Mayo studied logic and
philosophy in Adelaide University and medicine in Edinburgh. He worked as a
lecturer in Logic, Ethics and Philosophy in Queensland University. He was also
researcher for Rockefeller Foundation. Later he served as Associate Professor at
Harvard from 1926 to 1929.
Mayo became famous on account of Hawthorne Experiments conducted in
Hawthorne plant of the Western Electric Company in Chicago, USA from 1924 to
1932. It is regarded that the human relations movement began with the Hawthorne
experiments. Initially in 1924 these experiments were started by the engineers of
Western Electric Company to measure the impact of lighting on productivity. Elton
Mato and his associates were invited to join the experiments in 1927. The
experiments continued till 1932. Mayo came to the conclusion that human relations
and group norms matter more than physical environment. This changed the
traditional thinking of managers.
Hawthorne experiments were conducted in three stages as follows :
1. Test Room Studies
2. Interviewing Studies
3. Observational Studies
1) Test Room Studies (1924-27) : The purpose of this study was to assess
the effect of lighting on the output of the employees. Two groups of employees were
selected for this experiment. One group was kept in a room where lighting remained
constant. The other group was kept in another room where lighting intensity was
changed periodically. The results were unexpected and surprising because production
increased in both the groups. It was, therefore, concluded that environmental factors
like lighting do not affect productivity. But the engineers conducting this experiment
could not explain “other factors” affecting the output.
Relay Assembly Test Room Experiment (1927-29) :
This experiment was conducted to remove the discrepancies in the previous
experiment. For this experiment a small group of six female telephone relay

33
assemblers was selected and assigned to work in a separate room. Some new
variables such as friendly and informal supervision, shorter working hours, piece-
work, rest pauses, improved working conditions were introduced and their effect on
output was measured. Then all improved physical conditions were withdrawn and
output was measured. It was found that output and morale of workers increased and
was maintained even after withdrawal of improved physical conditions. It was
therefore, concluded that social relationship among workers, participation in decision
making etc. had a greater effect on productivity. It was observed that the employees
formed a ‘group’ and worked without tension or coercion from the above. They
developed informal relations among themselves.
2) Mass Interviewing Programme (1928-30)
In this experiment 21000 employees were interviewed over a period of three
years to find out the reasons for increasing productivity. In the beginning direct
questions were asked on the subjects considered important by the interviewers. This
resulted in just comments of workers on the questions asked and did not serve the
purpose. The method of questioning was then changed and the workers were asked to
talk freely on matters important to them. This proved fruitful in understanding the
views and problems of workers. The interviewing programme revealed the following
things.
-- The opportunity given to the worker to talk freely and air his grievance created
a positive effect on his morale.
-- Complaints are often symptoms of some deeper dissatisfaction.
-- Worker's satisfaction depends on his status in the organization.
3) Observational Studies (1932) :
The Bank Wiring Observation Room Experiment was the last phase of
Hawthorne studies. Its purpose was to investigate the social pattern of a group of
fourteen workers and their supervisors. A group of 14 male workers in the Bank
Wiring Room was selected for this experiment and was placed under observation for
a period of 6 months. A worker’s pay depended on the performance of the group as a
whole. Researchers expected that efficient worker would put pressure on the less
efficient workers to complete the task. However, it was found that the group
established its standards of output, used various social pressures for restricting the
output and nobody was allowed to exceed the group output norm. It was also found

34
that a member of the group cared more for the opinion of the group than the financial
incentives offered by the management.
Findings of Hawthrone Studies :
The findings of Hawthorne studies underlined the importance of human
relations in management. They underlined the importance of human and social
factors in industrial relationships. The main findings of Hawthorne studies can be
summarized as follows :
1. Physical and environmental factors do not materially influence the workers
performance and their attitude to work. These factors have little consistent
relationship with productivity.
2. Worker is not merely an ‘economic man’ motivated solely by money. His
behaviour at work is more influenced by the social and psychological needs.
3. Workers respond to their total work situation of which social relations are an
important part.
4. Hawthorne studies for the first time highlighted the impact of informal groups
on the attitude and behaviour of workers. It is the informal relations among the
workers which affect their performance more than the formal relations.
5. Good communication between supervision and workers can improve the
relationships and productivity of workers.
6. Employees work better when they are allowed to participate in decision
making process affecting their interests.
7. The sense of security, recognition, morale and belonging is of crucial
importance in increasing the productivity of workers.
8. Complaints are often symptoms of more deep-rooted disturbances or
dissatisfaction of workers.
9. Group norms influence the attitude to work, behaviour with management and
level of production. It is the group which decides on its own the daily standard
of work and restricts the output. It puts social pressures on workers for not
exceeding the group output norm.
Hawthorne effect is a phenomenon where respondents change their behaviour
and perform better when they know that they are part of an experiment and are being
observed.

35
Criticism on Hawthrone Studies :
1) Lack of Validity : The Hawthrone experiments were conducted under
controlled situations. The workers under observation had an idea about the
experiment. Therefore, it is argued that workers might have improved their
productivity only for the experiments. Hence, the findings lack validity and they may
not work in real settings.
2) More importance to human aspects : It is also said that the Hawthrone
experiments gave too much importance to human aspects and neglected the
technological and other factors.
3) Not a Scientific Enquiry : No scientific research methodology and
techniques were followed in conducting the Hawthorne studies.
4) Lack General Application : Since the findings of Hawthorne studies were
based on the experiments on a small group of workers in one industry they may not
enjoy wide and general application in all kinds of work situations.
5) Pro-management bias : Some critics say that the Hawthorne studies had a
pro-management bias. It was assumed that management objectives were correct and
logical.
In spite of the above criticism, Hawthorne studies have become a milestone in
the development of human relations theory. They stimulated an interest in human
factor. They changed the dominant view prevailing in those times that people were
no different from machines. They changed the traditional thinking of management
from economic man to social man.
2.3 Summary
In this Unit a brief review of the contribution of select management thinkers is
taken. Taylor, Fayol and Weber laid the foundation of classical approach to
management theory. Mayo was one of those thinkers who developed the neo-
classical approach. Taylor concentrated on improving the productivity at shop floor
by adopting scientific methods. His scientific management theory proved to be an
eyeopener to the management which hither to depended on intuition, trial and error,
and rule of thumb methods. Taylor’s scientific management is concerned with
finding one Best way for doing a job. He has stated certain principles of scientific

36
management and also prescribed the techniques for putting scientific management in
practice. He has stressed the need of mental revolution on the part of both the
employer and employees. Henri Fayol, was the first thinker to point out basic
principles of management and their universal application in all types of
organizations. Fayol’s fourteen principles of management and functions of
management gave him recognition as father of principles of management. Max
Weber developed the ideal model of authority system based on rationality and
legality and called it as bureaucracy. It is an impersonalized authority structure
characterised by formal rules and regulations and professionalization. Mayo brought
to notice the importance of human relations and informal groups at work setting.
Hawthorne experiments conducted during the period from 1924 to 1932 provided
new insights into group norms and behaviour. These experiments made the
beginning of human relations movement in management and changed the traditional
thinking of management towards workers from economic man to social man.
2.4 Terms to Remember

Scientific Management : Use of Scientific methods to define ‘one best
way’ for the job to be done.

Unity of Command : The principle which tells that employees should
receive orders from one superior only.

Unity of direction : One head and one plan for a group having common
objective.

Espirit de corps : Unity is strength.

Bureaucracy : Weber’s authority structure model based on rational-legal
authority with formal rules and impersonal relationships.

Mental revolution : A basic change in the attitude of employer and
employees.
2.5 Check your progress
A) Fill in the blanks
1. .................... suggested principles of management.
2. Elton mayo is known for .................... studies.
3. .................... is regarded as the father of scientific management.
4. The concept of Bureaucracy is proposed by ................
5. ................... means unity in strength.

37
B) State True or false.
1. Henri fayol is called as the father of scientific management.
2. Bureaucracy model enjoys stability.
3. Scalor chain defines the superior-subordinate relations in the organisation.
4. Max webar is the pioneer of Hawthrone studies.
5. Bureaucracy is based on rationality and legality aspects.
2.6 Answers to check your progress
Ans. A) 1. Henri fayol, 2. Hawthrone, 3. Taylor, 4. Max Weber, 5. Espirit de corps.
B) 1. False 2. True 3. True 4. False 5. True
2.7 Exercise
A) Write short answers.
a) State any five principles of management suggested by Fayol.
b) What do you mean by scientific management ?
c) State any four characteristics of bureaucracy.
d) Describe the principles of scientific management.
e) What is the effect of informal group on productivity ?
B) Give answers to the following questions.
1. Describe the 14 principles of management suggested by Fayol.
2. What is Bureaucracy ? Explain the characteristics of bureaucracy.
3. Comment on Hawthorne experiments and their findings.
4. Explain Taylor’s concept of scientific management and its techniques.
2.8 Books for Further Reading
1. Moshal B.S., Management Theory and Practice, Galgotia House, New Delhi.
2. P. Subba Rao, Management and Organizational Behaviour. Himalaya Publishing
House, New Delhi.
3. Stephen B. Robbins and David A. Decenzo : Fundamentals of Management,
Pearson Education, Delhi.
4. Tripathi P.C. and Reddy P.H., Principles of Management.


38
 Unit-3
Planning and Decision-making

3.0 Objectives of the Unit

3.1 Presentation of Subject Matter
3.1. A.0 Planning
A.1 Definitions
A.2 Characteristics
A.3 Importance
A.4 Steps in Planning Process
A.5 Functional Types of Planning
A) Financial, B) Production, C) Personnel and D) Marketing Planning
3.1 B.0 Decision-Making
B.1 Definitions
B.2 Decision-Making Process
B.3 Techniques of Decision-Making
3.2 Summary
3.3 Terms to remember
3.4 Check your progress
3.5 Answers to check your progress
3.6 Exercise
3.7 Books for further reading

39
3.0 Objectives of the Unit
After studying this unit you will be able to:
a) Know the meaning, importance & process of planning.
b) Understand the different types of planning.
c) Understand the meaning of Decision-making & steps as well as techniques
of decision-making.

3.1 Presentation of Subject Matter

This unit focuses upon the primary and important functions of management.
This topic is about planning and Decision Making. It describes the concept,
characteristics and importance of planning. Further topic highlights on different steps
in planning – process. It also informs about significant types of functional planning
like Financial Planning, Production Planning, Personnel Planning and Marketing
Planning.
This topic helps to understand the concept of decision making and the steps
involved in decision-making process. It also explains the techniques of decision
making.
3.1.A.0 Planning :
The planning is the most important and primary function of management. Due to
planning the objectives of the organization can be achieved very easily. The work is
completed in time without disturbance because of proper planning. In this modern
business world the scale of business has become very large and so the planning is
becoming essential. Planning means predetermination of future work regarding how
and when to be done. Planning includes Time-table, scheduling and budgeting of
work to be done.
In short planning is a primary function of management. Which accelerates to
other functions of management.
A.1 Definitions : A few important definitions of planning are as below-
1. Theo Haiman : Planning is deciding in advance what is to be done. When a
manager plans, he projects a course of action for future, attempts to achieve a
consistent, co-ordinated structure of operations aimed at the desired results.”

40
2. Koontz & O’Donnell : “Planning is an intellectual process, the conscious
determination of course of action, the basing of decisions on purpose, facts and
considered estimates.”
3. Afford & Betty : “Planning is the thinking process, the organized foresight, the
vision for any organization.”
4. George Terry : “Planning is the selection and relating of facts and making and
using of assumptions regarding the future in the visualisation and of proposed
activities believed necessary to achieve desired goals.”
From the above definitions it is clear that planning bridges the gap between
where we are and where we want to go. It is the thinking process and organized
foresight based on past experience and analysis of present situation.
A.2 Characteristics/Features of Planning-

1. Primary 2. Intellectual
Function Work

6. 3.
Base for Characteristics of Related with
Control Planning Future

5. 4.
Continuous Objectives
Activity Based

1. Primary Function : Planning is a first and primary function of management.

Due to planning the control function is possible. The essence of planning is
assessing the future. Accurate forecasting leads to correct decisions about future
course of action.

41
2. Intellectual Process : Planning means forecasting of future and analysis of
present situation. Under the planning the work scheduling and budgeting is
done. For all this there is need of intellectual efficiency.
3. Related with Future : Planning deals with uncertainties in the future. Planning
decides in advance the future course of action. The exact future can seldom be
predicted.
4. Objectives Based : Each plan is based on objectives. In the planning process,
organizational objectives or goals play an important part. Planning includes
deciding of fore path based on certain concrete objectives.
5. Continuous Process : Planning is a continuous process. It is an activity related
to future. In every present movement we have to plan for future. Planning is a
never ending process. It is unending process to keep the organization as a going
concern.
6. Base for the Control Activity : Planning is a basic activity. It accelerates all
other activities of management. It helps to control process. Without planning
control is impossible. Under controlling actual results are compared with plans.
Planning co-ordinates the activities of various departments, sections and sub-
sections. It helps to control the future actions. The features of planning say that
planning is a primary function of management.
In any business organization planning includes–Forecasting, setting of
objectives, scheduling, work-flow, budgeting and detail work plan. To complete the
work in time, work-plan with all supplementary details has become essential in this
modern business world. Without planning the modern complex business can not run
smoothly. The sifting of objectives and setting of the path of its implementation is a
main part and parcel of planning.
A.3 Importance/Advantages of Planning
Planning is a basic and important function of management. Planning is very
important for any business organization. It helps to achieve goals of business and
maximize the use of business resources. Due to planning the cost of production can
be minimized and control on the activities can be possible. The following points
indicate the importance of planning function –

42
1) Attainment of objectives : A predetermined objectives can be achieved
through plans. Planning enables a purposeful set of activities instead of
random action. In short planning focuses attention on the objectives.
Objectives are set first and then the work plans are fixed.
2) Minimizes Uncertainty : Planning reduces the uncertainty of future. Due to
planning the manager can anticipate changes in technology, taste fashions
etc. Proper provision is made in the plans to attest these uncertainties. No
doubt, the future is uncertain but under planning expected and estimated
expenses leads to control over expenses and losses.
3) Better Utilization of Resources : There are many resources used in
business organization. Out of them material, machines, men, power, money
are prime manufacturing resources. Due to planning there is proper
scheduling for maximum use of resources. Planning set the actions and flow
of actions with its cost and time effects.
4) Minimizes Cost : Planning reduces wastages. Proper planning increase
speed and efficiency of the workers which indirectly affects the cost.
Planning is a base of control. Functional budgets are prepared under
planning which minimizes cost by controlling wastages. It reduces variances
between actual estimated cost.
5) Better Use of Technology Resources : In this modern age the business has
to cope up with advance technology. This is possible only when proper
planning for adoption of technology will be done. Human resources and
other infrastructure resources can be utilized up to their maximum capacity
only because of proper planning.
6) Facilitates Decision-Making : Decision – Making means selection of best
alternative out of many options. Planning includes the evaluation and
analysis of best option from so many options. Planning facilitates to decision
– making.
7) Facilitates Control : Control is the last function of management. Control
means comparison of actual results with the estimated or budgeted aspects.
The difference between actual and planed targets is required to be
redesigned again so indirectly planning facilitates to control.

43
 From the above points it is clear that planning ensures unity of direction. It helps
to control the business activities. Planning leads to budgeting, scheduling work-plan
etc. Planning is the essence of all management activities. Once the work is planned
well other activities of the business automatically follow.
A.4 Steps in Planning Process
To plan is to chart out the future course of action to achieve the desired goal. For
this purpose, the following major steps are involved in planning process.
Planning is a continuous process which is unending process which indicates the
following systematic procedure. The steps in planning include the segmental
procedure followed by the planning committee. The following are the steps.
1. Forecasting of Professional Opportunities : Planning needs to search for
professional opportunities in the business. The objectives can be set after
knowing the opportunities. The professional opportunity may be in the form of
units of production, sales units, profit in rupees, profit in percentage.
2. Establishment of objectives : Planning is closely associated with the objectives
of the organization. If there are no objectives there is nothing to plan. Objectives
must be laid down in the clearest possible item.
3. Forecasting : Forecasting means assessing the future on the basis of present
situation and past experiences. Accurate forecasting leads to correct decisions
about future course of action. Accurate forecasting helps to make accurate
planning.
4. Establishing the sequence of Activities : Planning includes the forecasting of
so many activities. The proper sequence for those activities is essential. In order
to have a successful execution of the basic plan as also of the derivative plans
proper sequence is decided.
5. Determing of Alternative Courses : There are several alternatives available for
achieving the organizational objectives. Therefore, the next step in the planning
process is to search for and examine alternative courses of action. However the
more common problem is not selection of alternative but reducing the number of
alternatives. So that the most promising option may be analysed.

44
6. Selection of Alternative Course : After having searched and examined the
alternative courses, the next step is to evaluate the alternatives taking into
consideration their favourable and unfavourable problem as one alternative may
have some favourable points and other alternative may have some other
favourable points.
7. Budgeting : A master budget for the whole enterprise and other departmental
budgets are prepared to give meaning to plans. Financial aspects are covered
under budgeting.
8. Follow-up : This is the last step in planning. After having adopted major and
expected plans and they are brought into execution.

1 2
Estimating Setting
Professional of
Opportuni objectives
Ties 3
8 Follow-up Forecasting

Establishing the
7 Budgeting sequence of 4
Select- Determi- Activities
ion of ining of
Alternative Alternatives
Course Courses

6 5
It is necessary to make a provision to check that the actual work is being
executed and results are obtained at each stage according to plans and in case of
variances or differences to actual, corrective steps are taken immediately.
A.5 Functional Types of Planning :
There are many types of planning on the basis of nature, period, objectives and
area of functions. Planning is a Primary, intellectual and important function of
management. Due to proper planning the objectives of organization can be achieved
very easily. According to Henry Fayol there are 14 principles of management. The

45
first and most important principle is of 'Division of Labour.’ On the basis of this
principle the entire process of the organization is divided into some
sections/departments and sub-sections. In any production organization Finance,
production, personnel and Marketing are some of the important departments.
Other than these there may be purchase, storage, advertising and accounting
departments, so depending upon the scope and size of the business. The planning of
these four functional departments need to be studied in detail.
Types of Functional Planning
↓ ↓ ↓ ↓
A) Financial B) Production C) Personnel D) Marketing
Planning Planning Planning Planning
↓ ↓ ↓ ↓
1) Procurement of 1) Production 1) Forecasting of no. 1) Marketing
Funds Targets of Employees forecasting
2) Investment of 2) Quality of 2) Recruitment 2) Customer Survey
Funds Products 3) Training 3) Sales Target
3) Funding Structure 3) Production 4) Employees 4) Sales Promotion
4) Return on Process Expenses 5) Advertisement
Investment 4) Production 5) Welfare of Branding etc.
5) Financial Shedule Employees
Budgeting 5) Production
Budget
A) : Financial Planning:
Capital is essential to start the business. Funds are also required to run and to
expand the business. In short the capital or funds are required at every stage of
business. For the constant flow of funds in business proper financial planning is
essential. Financial planning is related with how to raise the funds and how to invest
in any asset or resource so that maximum return can be gained from the capital.
Capital is raised in two ways. One is own capital and another is borrowed capital.
Own capital includes share capital, capitalization of reserves etc. Borrowed capital
includes issue of debentures, loans from banks and financial institute etc. When the
collected capital is invested in long-term fixed assets, it is called fixed capital and
when the funds are invested in short term needs this is called working capital. How
to raise the funds through proper financial structure and how to invest the funds in

46
different assets, what will be reserves, how will be the profit distribution, annual
budgeting etc. are the main factors of financial planning.
Financial planning is the process of estimating capital requirement and
determining its utilization. It is an activity of framing financial policies in relation to
procurement, investment and administration of funds of an enterprise.
This financial planning includes-
I) Estimating the amount of capital to be raised.
II) Framing different sources of capital from both owned and borrowed capital.
III) Setting the policies of application of raised capital in different resources so that
maximum return can be achieved by each investment.

Definations of Financial Planning:
1) Walker and Boughni:
“Financial Planning pertains only to the function of finance and includes the
determination of the firms financial objectives formulating and promulgating
financial policies and developing financial procedures.”
2) Henry Hagland:
“Financial planning of a corporation is its patterns of outstanding stocks and
bonds.”
From the above definitions it is clear that financial planning is the responsibility
of finance department. It is very useful to achieve the goals of the organization in
time.

Importance of Financial Planning:
Financial planning plays an important role in the success of any business
organization. Due to financial planning funds flows constantly without any obstacle.
The importance of financial planning in any business organization can be understood
from following points.
1) Forecasting of funds:
Financial planning helps to forecast the need of funds for different reasons in the
business. This helps to prepare different types of budgets.

47
2) Capital Structure:
Under the financial planning plans for how to raise own capital and how much
to collect borrowed capital is also decided. By issuing appropriate number of shares
the burden of fixed rate of interest on borrowed capital can be decreased.
3) Proper distribution of capital:
The collected capital can be distributed in to fixed capital and working capital. It
is possible due to financial planning only.
4) Maximum use of Resources:
Financial planning helps in deciding the investment of funds in different
resources. It also decides the return on investment in advance, which helps to
maintain optimum use of resources.
5) Economy in capital structure :
Financial planning helps in maintaining the lowest expenses while raising
capital funds. i.e. cost of capital factor is predetermined under financial planning.
6) Constant flow of funds:
Financial planning helps to maintain constant flow of funds in the business. This
reduces the risk of over liquidity and unsound insolvency position of the business. It
reduces the over-capitalisation and under-capitalisation.
B) : Production planning:
Production is a main and an important process of any business organization.
There is a need of raw material, machinery, men-power and oil-fuel etc. as factors of
production. There is a need to plan for all these production factors. Under the
production planning, schedule and production budget is prepared. Production
planning is the responsibility of production manager. Quality of production,
production cost control, production efficiency etc. are important things to be
considered while preparing production planning.
Production planning is an important to maintain the constant flow of production
process from raw material to finished goods and from finished goods to consumption
by the customer.

48

Definitions of production planning:
1) British Standard Booklet:
“The administrative process that takes place within a many factories, business
and which involves making sure that sufficient raw materials, staff and other
necessary items are procured and ready, to create finished according to the schedule
specified.”
2) J. Betty:
“Production planning is related with setting the production target, forecasting
the factors of production and making the arrangement for production resources.”

Importance of Production Planning:
1) Maximum use of Production Factors:
Due to production planning the factors of production (i.e. money, material, men,
machine etc.) can be used at its maximum level. As the production planning includes
the forecasting of schedule and standard quantity to be used in future while
production.
2) In time production:
Because of production planning the production processes go on without
disturbance continuously, which helps to complete the production in time.
3) Reduction in cost of production:
Production planning helps in reducing the cost of production. Production
planning includes production budget which also helps to maintain control on cost.
4) Best Quality of Production:
Production planning helps to maintain quality of production quality control
planning is a part of production planning.
5) Co-ordination Between Different Departments:
Production planning trys to maintain the co-ordination between purchase
department, storage and marketing departments. The planning of all these
departments co-ordinate between departments depending upon the production
planning.

49
6) Guideline to workers:
Production planning helps to workers while working in factory. Production
Schedule, Production Procedure, Production Cost, Production Budgets and targets
are helpful to know the direction of the work.
7) Forecasting of Sales:
Production planning helps to forecast the production and sales quality, sales
budget etc. The sales budgets are possible due to production planning.
8) Customers Satisfaction:
Customers or consumers are satisfied when they get the things as per their
needs. This is possible only through the production planning-market survey,
consumers survey is conducted. From the above points it is clear that production
planning is the backbone of any business. It plays an important role in the success of
business organization.
C) : Personnel planning/Human Resource planning:
In any business organization there are so many sections/departments. The
different employees are required with different skills at different positions. Personnel
Planning/Human Resource Planning helps to provide sufficient and proper human
resource supply to the organization. Personnel planning includes selection of
employees in proper numbers, training to employees, motivation, welfare activities
and resource development etc. The Human Resource Manager needs to plan for
every factor of the Human Resource Development. This means Human Resource
Planning is related with recruitment and thorough development of human resource.
So that it can be utilized at its maximum level. This ultimately effects on productivity
and quality of production.

Definitions of Personnel Planning:
1) According to Vettor:
“The process by which management determines how an organization should
move from its current man-power position to its desired manpower position.”
2) Wendell French:
“Human resource planning is defined as the process of assessing an
organisation’s human resources need in the light of organizational goals and

50
changing conditions and making plan to ensure that a competent, stable workforce is
employed.”

Importance of personnel planning:
1) Acceleration to other factors of production:
Due to personnel planning the men-power recruited is mostly of skillful and
efficient. Such Manpower always accelerates to the other factors of production. (i.e.
Materials, Money, Machinery etc.)
2) Increase in production quality and quantity:
Total success of institute is depending upon the manpower employed. The
employees are constantly and in time supplied for every department especially
production department helps to increase the quality and quantity of the production.
3) Able to adopt the new technological changes:
Under production planning advance training is planed for employees. Due to
this new advance technology can be adopted easily. Advance training helps to
employees to increase their efficiency.
4) Helpful to achieve goals:
Production planning helps to achieve the main goal of the business that is net
profit. Production planning increases the work efficiency of the workers. Proper
training increases the efficiency as well as mental satisfaction of the employees.
There is low rate of labour turnover. It reduces cost of production and increases the
net profit.
5) High employment opportunity:
Production planning helps to plan proper need of employees with specific skills
and education, with this proper plan employment opportunity can be generated.
From the above points the need of personnel planning is shown. This exposes
that the very important factor of production that is men power can be utilize at
maximum level with the help of production planning.
D) : Marketing Planning :
Marketing Planning helps to profit planning. Profit can be earned through proper
marketing of the products. Finished goods are handed over in time to the consumers

51
through effective marketing planning. Sustaining the present market as well as
market extension and sales promotion are the main objectives of marketing planning.
Marketing planning includes-planning for search of new market, branding, packing,
advertising, market division, market survey etc. Marketing planning has become
more complicated due to the changing market environment, competition, changing
trends and demands of customer and changes in fashion etc.

Definitions of Marketing Planning :
1) McDonald:
“A logical sequence of activities leading to the setting of marketing objectives
and formulation of plans for achieving them.”
2) American Marketing Association:
“Marketing is the performance of business activities that direct the flow of goals
and services from producer to consumer or user.”

Importance of Marketing Planning:
1) Fast/Quick stock turnover:
Because of proper marketing planning there is fast turnover of the stock of
finished goods. The final product is sold very quickly and it does not lay in stock for
long period.
2) Forecasting of many factors:
In the marketing planning the forecasting of many factors like – customers,
competitors, middlemen, publicity, packing etc. is done by marketing manager. It
may be done through market survey and research.
3) Guidelines to salesmen:
Marketing planning is helpful to sales officers and salesmen etc. It gives the
guidelines to them. As it includes sales targets, sales budgets, sales strategies etc.
4) Fulfillment of institutional objectives:
Because of long-term as well as short term marketing planning, the main
objectives of expected sales and profit can be achieved easily.

52
5) Easy to face new Environmental challenges:
The marketing planning is essential to face new environmental changes in the
market. Changes in demand, taste, fashion, competition etc. can be predetermined
and proper remedies can be decided in marketing planning.
6) Helpful to production department :
Marketing planning is helpful to co-ordinate with production function. The
production target depends upon marketing efficiency. Marketing forecasting,
marketing surveys etc. which helps to set production budget.
7) Marketing planning is the base of annual budget :
Annual budget includes proposed incomes and expenditures with profit and loss
estimation. Marketing planning contributes to budget for all expenses as well as
budgeted incomes through proposed profit and loss A/c.
Above all the few points which indicates the importance of marketing planning
in any business organization.
3.1.B.0 Decision – Making
Management includes a chain of functions like planning, Organization
Direction, Co-ordination and control. In case of every function the management
needs to take decisions. Decision- Making is a crucial and central Job. Decision is a
choice whereby a person comes to a conclusion about the solution of given problem.
It is the selection of a course of action from two or more alternative courses of
action.
It is an intellectual and continuous process. In case of industry to achieve the
objectives of the business and to face the problems of organizations management
needs to select the best alternative out of many alternatives. According to dictionary
meaning ‘Decision’ means to prepare concrete view on any fact. The word ‘decision’
has been derived from the Latin word ‘Decidere’ which means a cutting away or a
cutting off. Thus, a decision involves a cut off alternatives between those that are
desirable.
“A decision is an action chosen from the various possible course of action”.
Decision- Making is rational process to arrive at a decision. The process by
which an individual or organization chooses one action.

53
B.1 Definitions – Following are few important definitions-
1) According to Allen – “Decision making is the work which a manager performs
to arrive at conclusion and judgement”.
2) According to George Terry – “Decision Making is the selection based on some
criteria from two or more alternatives”.
3) According to E. Dale – “Management decisions are those decisions which are
always made in the course of one of the true management activities. : Planning,
Organising, Staffing, Directing. Controlling, Innovation and Representation”.
From the above definitions it is clear that decision- making is a function related
with all other functions of management. It is concerned with selection of best
alternative out of many options. In time decision- making helps the organization to
achieve its goals.
Features / Characteristics of Decision- Making
1) Selection of Best Alternatives – Decision- Making means selection of the best
alternative out of various alternatives. Decision making implies that a manager
selects the most desirable alternative to salve a problem.
2) Intellectual Activity – Decision- making is a rational and intelligent process. A
manager has to think seriously and then choose the most appropriate way of
doing a thing.
3) Goal- Oriented – Decision – making is goal-oriented activity. Every decision
has to solve a specific problem. Every problem has many solutions but the best
solution is based on a specific objective of the business.
4) Continuous Activity – Decision – making is a continuous activity. It is related
with many functions. In case of management functions from planning,
organizing, co-ordination and controlling there is decision- making involved.
5) Means to an end – A decision is a means to an end and not an end. it is a device
to achieve some results, Decision – making shows the results and effects in long
run.
6) Related to Situation – Decisions are different in different situations selection of
alternative changes as pen changing priorities and priorities changes as pen
situation.

54
 Present situation is based on present economic conditions climate social- needs,
changing habits and fashion etc.
The above are few important features of Decision- Making.
B.2 Process of Decision – Making – Process:
Decision- Making is defined as the selection of one course of action from two or
more alternative courses of action. Whatever manager does, he does it through
decision- making, so the management is basically a decision- making process. This
process passes through some sequencial steps.
The process of decision making has the following steps to be followed in
progression, so that a decision is arrived at. The following figure shows the steps
involved in decision- making –
Decision Making Process / Steps

1. Specific 2. Identification 3. Search for

Objective of Problem alternatives

5. Action & 4. Evaluation &

Follow-up Choice of alternative

1) Setting Specific Objective : There must be some specific objective. Every

business activity has some goals. Setting of objective is an essential step. There are
many objectives for a single problem. The objectives are set by top level
management. The management should be very careful while setting objectives of the
organization.
2) Identification of Problem : Identification of the problem is the real
beginning of decision-making. A manager tries to solve a problem but identification
of accurate problem is very important. If the objective is set specifically, it provides a
manager a clue in identifying the problem. For identifying a problem the analysis and
diagnosis of every aspect of the problem.
3) Searching for Alternatives : A detailed diagnosis and analysis help in
knowing the nature of the problem. Then the manager makes a search for possible
solution. The search for various alternatives helps in selecting the most appropriate

55
alternative. A manager may use several sources for finding alternatives for that he
can use his past experiences.
4) To Evaluate & select alternative : There are many alternatives for a single
problem. Sometimes some alternatives may not be significant. It is essential to
evaluate from different aspects like – cost economy, time factor, social effects etc. A
manager mostly make a list of the alternatives. The priority list must be prepared and
the best alternative must be decided on the basis major objectives.
The critical or strategic factors should also be taken into account. These factors
may be financial provision, technical know-how, political situation, govt. policy, etc.
On the basis of such factors the analysis and selection of best alternative is done.
5) Action & Follow-up : Once the best alternative is selected it is put in to
action. The implementation of decision shows the problems or hurdles in practice.
Sometimes these obstacles are not possible to reduce then the revision of whole
decision process is required to be done. A decision is made effective through the
action of the people in the organisation. If the action of implementing a decision is
helpful to achieve objectives of the organisation.
When a decision is put into action, it brings certain results. But if there is
differences between results and objectives the reasons of differences are being found
out and review of the decision is done. A follow-up system ensures the achievement
of the objectives.
B.3 Techniques of Decision Making:
To take the accurate decisions in business the management needs of follow few
steps. One of these steps is to select the best option out of many options on the basis
of few criteria. While selecting the best option the management has to consider some
techniques of decision-making. There are two types of techniques to take managerial
decisions. These techniques are as follows.

56
 Decision Making Techniques

1) Traditional 2) Modern techniques Or

Techniques Scientific Technique
a) Experimental Technique a) Analysis Technique
b) Majority Based Technique b) Financial Technique
c) Estimate / Forecasting c) Statistical Technique
Based technique d) Behavioral Technique
e) Special Technique
1) Traditional Techniques : These Techniques are useful for small business
concerns. These techniques are used by high experienced managers of the businesses.
In modern days these techniques are becoming out dated as the business scale is
increasing and many environmental factors are effecting on business operations.
2) Modern / Scientific Techniques : In modern business world has become
more dynamic and of large scale. In this advance technology age taking the decisions
on the basis of traditional method has become more risky. So modern scientific
techniques are developed and used in modern businesses. The few major techniques
are as below.
a) Analysis Technique : This technique makes an analytical study of
available options in present situation and tries to forecast for future. It is useful for
small business organizations where there are limited options available to select.
b) Financial Techniques : As any business decision affect directly or indirectly
to financial need of organsiation. Due to any decision what will be the capital
investment, return on investment and burden of loan etc. are the factors which are
required to be considered. The Break Even-point, Cost-Volume- Profit analysis etc.
required to be found out and based on that profit planning and cost control should be
done.
c) Statistical Technique : Under this technique Probability Theory, Operation
Research, Co- relation & Regression,Ratios, Mean, Medians Trend analysis etc. are
used to make analysis of the data. In modern business world these statistical
techniqhes can be used with special softwares with computers.
d) Behavioural Technique : This technique is used in selection of human
resource. To select a right person at right place there is need of Judgment of
behavioural factors like-choice,trend psychological, emotional quantum, thoughts

57
and nature of a person etc. The evaluation of behaviour aspects is done with some
psychological test under this technique .
e) Special Technique : In modern business world some new special
techniques of operation research,PERT,CPM and SWOT analysis techniques are
used while analysing the data in decision making process.
The above are few modern techniques used in decision making process.
3.2 Summary
A) Planning :
Planning means to look ahead and to estimate the future course of action on the
basis of past experience and the present situations. Planning decides in advance the
answers of the question of what to do, why to do, how to do, when to do, and who is
to it.
Planning is the primary and intellectual process. It is the base of controlling
l) Characteristics : Primary Function 2) Intellectual work
3) Related with Future 4) Objectives Based
5) Continuous Process 6) Base for control.

Importance of Planning
1) Attainment of objectives.
2) Minimizes Uncertainty.
3) Better Utilization of Resources
4) Minimizes Cost.
5) Better Use of technology.
6) Facilitates Decision Making.
7) Facilitates to control.

Steps in Planning process
1) Estimating professional opportunities
2) Setting of objectives.
3) Forecasting
4) Establishing the sequence of activities
5) Determining of Alternative courses

58
 6) Selection of Alter native courses
7) Budgeting
8) Follow-Up

Functional Types of Planning.
1) Financial Planning : It is the process of estimating capital requirement and
determining its utilization.
2) Production Planning : It is related with setting the production target,
forecosting and scheduling production process and arrangement of all production
resources.
3) Personnel Planning : It is related with guessing the need of people, making
plan for the recruitment and further development of human resource.
4) Marketing Planning : It is concerned with setting of marketing objectives
and planning the flow of goals and services form producer to consume.
B) Decision Making :
Decision making is rational process related with selection of option out of so
many options after analyzing the all options.

Characteristics of Decision Making:
1) Selection of Best Alternatives
2) Intellectual Activity
3) Goal Oriented
4) Continuous Activity
5) Means to an end.
6) Related to situation

Decision Making Process:
1) Setting specific objective
2) Identification of Problem
3) Search for alternatives
4) Evaluation & Choice of alternatives
5) Action & Follow -up

59

Techniques of Decision-Marking:
There are two types of techniques
1) Traditional Techniques : This type of decision - making techniques includes
Experimental Technique, Majority Based technique, Forecasting Based
technique etc.
2) Modern or Scientific Techniques -Under this category there are following few
modern techniques like Analytical, Financial, statistical, Behavioural and special
Techniques etc.
3.3 Terms to Remember
1) Forecasting 2) Intellectual Process
3) Goal - oriented 4) Identification
5) Professional 6) Opportunities
7) Establishing 8) Alternative courses
9) Uncertainties 10) Maximization
11) Resources 12) Utilization
13 facilitates 14) Technology
15) Traditional 16) Scientific
17) Break-Even-Point 18) Operation Research
19) Co- relation & Regression 20) Behavioural
21) Programme Evaluation & Review Technique (PERT)
22) Critical Path Method (CPM)
3.4 Check Your Progress
A) Fill in the blanks
l) The managerial Function involving an intellectual process before action is
called ................. .
2) To off set uncertainty and change -———is very important.
3) Selecting best alternatives out of many is called ——————
4) Operation research, probability theory, Averages etc. are —— analytical
technique.
5) ————— planning includes estimation of procurement and utilization of
capital.

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B) State Whether Statement is True of False
1) Planning is a base for control.
2) Planning is a primary function of Management.
3) Production Planning includes flow of goals & services form producer to
consumer.
4) Setting specific objective is the last step in decision making process.
5) There are two types of techniques of decision making
6) Selecting the best option out of so many options after analysing the each
option is called decision making .
3.5 Answers to check your Progress.
A) Fill in the blanks (Answer)
l) Planning 2) Planning 3) Decision Making
4) Statistical 5) Financial
B) True of False. (Answer)
1) True 2) True 3) False
4) False 5) True 6) True
3.6 Exercise
I) Answer in Short.
1) Explain the concept of ‘Planning’.
2) Give the importance of Planning .
3) Explain the Characteristics of Planning.
4) Give the steps in planning process.
5) What is financial planning?
6) What is production planning?
7) What is Personnel Planning?
8) What is Marketing Planning?
9) What is decision - Making?
10) Give the steps of decision making process.
11) Explain the modern techniques of Decision -making.

61
II) Answer in Detail
1) What is planning? Give its characteristics.
2) What is the importance of planning?
3) What are the functional types of planning?
4) Explain the steps involves in planning process.
5) What is decision-making? Give decision-making process.
6) What are the decision-making techniques?
7) What is maketing planning? Give its importance in brief.
8) What is financial planning? Give its importance in brief.
III) Write Short Notes.
1) Importance of Planning.
2) Steps in planning process.
3) Production planning.
4) Personnel planning.
5) Financial Planning.
6) Decision - Making.
7) Steps in Decision -making process.
8) Techniques of Decision-making
9) Modern techniques of decision-making.
10) Statistical technique of analysis SWOT analysis.
3.7 Books for further Reading:
1) Dr. P.M. Herekar “Principles of Management” Mehta Publishing House”
2) L.M. Prasad ‘Principles and Practice of Management’ Sultanchand & sons.
3) Hein weihrich & Harold Kootz “Management A Global Perspective”
(Tenth edition) Tata McGraw Hill.
4) R.K. Singla “Business studies” Global Publication Pvt .Ltd.


62
 Unit-4
ORGANIZING

4.0 Objectives of the topic

4.1 Subject Matter
4.2 Organizing: Introduction
4.2.1 Meaning and importance of organizing
4.2.2 Levels of management and their functions
(a) Top Level Management
(b) Middle Level Management
(c) Lower Level Management
4.2.3 Types of Organization
I) Line Organization
II) Line and Staff Organization
III) Functional Organization
IV) Committee Organization
4.3 Summary
4.4 Terms of Remember
4.5 Check your progress
A) Fill in the blanks
B) State ‘True’ or ‘False’
4.6 Answer to check your progress
4.7 Exercise:
I) Answer in short
II) Answer in detail
III) Write short notes
4.8 References
4.9 Books for further study

63
4.0 Objectives of the topic:
After studying this unit you should be able to:
• Know the meaning and importance of organizing.
• Analyze the structure and types of organization.
• Understand the different levels of management and their functions.

4.1 Subject Matter:

The present unit deals with organizing function of management and its integral
aspects, such as levels of management and different types of organization structure.
Organizing is considered to be the second important function of management.
Without organizing, planning made by the management will remain on paper only. It
means for the implementation of plans and achieving the objectives, an efficient
organizing function is indispensable. Organizing is an important element of
management because it is through organizing that a manager brings together the
material and human resources required for achievement of desired goals. The
organizing function is performed in varying degree by all levels of management. The
managerial hierarchy consists of a series of managerial positions in an organization
called levels of management. Organization structure is primarily concerned with the
allocation of tasks and delegation of authority. The organization structure is, of
course, not an end in itself but a tool for accomplishing enterprise objectives.

4.2 Organizing: Introduction

Modern society may be called an organizational society. We are born and
brought up in an organizational (family), we receive our education in organizations
(Schools and Colleges) we worship and find joy in organizations (temples & clubs)
and we buy most of our daily requirements from an organization (Retail Store). Each
one of us belongs to several groups which may be called organization, e.g. our
family, club etc. This proves the pervasiveness of organization. Organization affects
not only our daily life but also the pace and pattern of human civilization.
Organization has become an essential part and parcel of our daily life and of the
environment in which we work, play, relax or do just anything.
Organizing is the process of defining and grouping the activities of the business
enterprise and establishing the authority relationships among them. In performing the

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organizing function, the manager defines, departmentalizes and assigns activities so
that they can be most effectively executed. Organization is the foundation upon
which the whole structure of management is built. It is the backbone of management.
Without organization manager cannot function as manager. Organization is
concerned with development and maintenance of structure of working relations in
order to achieve the objectives of the enterprise. Organizing means determination
and assignment of duties to people, establishment and maintenance of relationships.
It is the structural framework within which the various efforts are coordinated and
related to each other.
The term organizing is also used as a process carried out for arranging the tasks
into manageable units and defining the formal relationships among the people
working on different tasks. It involves putting things and persons at proper places
and in relation to each other. The success or the failure of an enterprise depends
largely on the nature of organization. Describing the significance of sound
organization, Andrew Carnegie, a well known American industrialist, once said:
“Take away our factories, our trade, our avenue of transportation, our money, leave
us nothing but our organization and in four years we shall have re-established
ourselves.”
4.2.1: (a) Meaning of Organizing:
As a basic function of management, organizing is the continuous and dynamic
process involving the identification and grouping of activities to be performed and
defining and establishing the authority responsibility relationships. This enables
people to work most effectively together in achieving business objectives. It is
through the process of organizing that the tasks and responsibilities of people are
determined. In a general sense, organizing consists of determining and arranging for
men, material, machines and money required by an enterprise for the attainment of
its goals. In a restricted sense, the term organizing means defining the duties and
responsibilities of the people employed, and determining the manner in which their
activities are to be interrelated. It is the function of creating a structure of duties and
responsibilities of people in different position. The outcome of the organizing
process is the ‘organization’ consisting of a group of people working together for the
achievement of one or more common goals.

65
 The components of organization structure include men, materials, machines,
money, methods, functions, authority and responsibility and organizing is the
determining, grouping and arranging of the various activities deemed necessary for
the attainment of the objectives, the assigning of people to those activities, the
providing of suitable physical factors of environment and the indicating of the
relative authority delegated to each individual charged with the execution of each
respective activity.
Definition of Organizing:
1. Louis Allen. ‘Organizing as the process of identifying and grouping the work to
be performed, defining and delegating responsibility and authority and
establishing relationship for the purpose of enabling people to work most
effectively together in accomplishing objectives.’
2. Alvin Brown. ‘Organizing defines the part where each member of an
enterprises is expected to perform and the relations between such members, to
the end that their concerted endeavour shall be most effective for the purpose of
the enterprises’
3. Koontz and O’Donnell. ‘Organizing involves the grouping of activities
necessary to accomplish goals and plans, the assignment of these activities to
appropriate departments and the provision for authority delegation and
coordination.’
4. Oliver Sheldon. ‘Organizing is the process of combining the work which
individual and groups have to perform with the faculties necessary for its
execution, so that they provide the best channels for efficient systematic,
positive and coordinated application of the available effort.’
These definitions, if looked at carefully, point to some of the basic elements of
organizing, involves, determination of objectives, identification and grouping of
activities, allocation of duties and developing relationships.
4.2.1. (b) Importance of Organizing:
Sound organization is essential for the continuity and success of every business.
It is indeed the backbone / foundation of effective management. Since ages and in
every walk of life, organization has been playing a very vital role. Obviously, the

66
better the organization the fuller would be the achievement of the common
objectives. Some of the principal advantages of organizing may be outline as below:
1. Optimum Utilization of Technological Innovations- A good organization
succeeds in adjusting to the new and changing situation. The technological
improvements are taking place every time; the management is requiring making
use of them to exist in competitive world. Power should be delegated for making
best utilization of technological changes.
2. Smooth Management /Administration- A balanced organization facilitates
both management and operation of the business. It is the mechanism through
which management coordinates and controls the business. It serves as an
effective instrument for realizing the objectives of the business. It is through the
framework of organization that plans are put into practice and other managerial
functions are carried out. It helps to focus the attention and action of
management on the accomplishment of objectives.
3. Facilitates Growth and Diversification- A well-designed organization
provides for systematic division of work and permits necessary change. It is a
framework within which the organization /company grows. Therefore, it enables
the enterprise to enter new lines of business. The enterprise possesses necessary
adaptability to face new challenges. Scope for innovation and diversification is
increased.
4. Training and Development – A good organization offer an opportunity for the
training and development of human resources. A clearly defined authority
provides a scope for the use of talent. The new entrants are attached to
experienced persons who guide them for undertaking various jobs. It facilitates
sufficient opportunity for the training of new trainees and development of
existing human capital.
5. Stimulates Creativity- Sound organization encourages creative thinking and
initiative on the part of employees. Delegation of authority provides sufficient
freedom to lower level executives for exercising discretion and judgment.
Individual objectives can be integrated with organizational goals. New and
improved ways of working can be developed.
6. Ensures Optimum Use of Resources- A good organizational set-up permits
adoption of new technology. It helps to avoid duplication of work, overlapping

67
 efforts and other types of waste. As a result it facilitates the best possible
utilization of human and physical resources.
7. Foster Coordination- The organizing process fosters coordination by supplying
the framework for holding together the various functions in an orderly pattern. It
is an important means of integrating individual efforts. It helps in putting
balanced emphasis on different departments and divisions of the enterprise.
8. Facilitates Continuity- A well established organization provides for training
and development of employees at all levels. It provides opportunities for
leadership and helps in ensuring the stability of the enterprise through executive
development. It makes for cooperation and harmony of actions.
9. Improves Efficiency and Quality of work- It is to improve efficiency and
quality of work for an organization through synergism. Synergism can result
from division of labour, better utilization of human talent, optimum use of
technological improvement, and above all increased coordination, all of which
are product of good organization.
10. Effective Control- A good organization helps in achieving organizational goals
through the exercise of effective controls. It provides a channel for better
management.
11. Better Human Relations: Human relations improve in a good organizational
set up. Proper coordination and mutual cooperation encourage developing
healthy relation among the people. An organization consists of human beings
and their satisfaction helps in improving human relations.
4.2.2 LEVELS OF MANAGEMENT:
In an organization, there exists a chain of command or scalar chain from the
ultimate authority to the lowest rank. This chain is made up of superior-subordinate
relationships. It means structure of organization established hierarchical relations
between superior and subordinate. This chain or hierarchy of management consists of
a series of managerial positions called ‘levels of management’. It is determines the
authority and status of managers. The levels of management means a line of
separation between different positions held by seniors and juniors to distinguish each
other, in respect of their duties, responsibilities, rights and authority. The term
‘Managerial Level’ (Hierarchy) stands for the arranged managerial positions in an

68
organization. Since management essentially implies taking work from others as per
the plan, there will have to be superior-subordinate relation, whereby the former
exercise his authority to get the work done from the later as per specific directives.
All the management functions cannot perform by an officer at the top; actually they
have to be entrusted to different executive officers all along the enterprise. In short,
authority has to be delegated and responsibility diversified in order to achieve
optimum results. Each level of management is an integral part of the chain of
command. An individual at any level gets orders from his immediate superior. Power
and authority are delegated downwards. On the other each level acts as a channel for
upward communication of reports on results or grievance, reaction etc. All important
decisions are made by the top level managers and policies are communicated through
successive level. At each lower level the policies are spelled out in increasing details
and transformed into operating instructions.
Number of management levels: There is no fixed number of management
levels. The number of managerial levels depends upon the size and complexity of
organization. As a company becomes larger and more complex, there is a natural
tendency for the chain of command to lengthen. Hence, the number of management
levels is varying in different organization. However, the recommendation of most of
the experts and for the convenience of study, the levels of management may be
classified into three categories: (1) Top Management, (2) Middle Management and
(3) Lower Management.

(1) a) Top Level Management

(Board of directors, managing director,
General Manager, senior executive etc.)

(2) b) Middle Level Management

(Department & Assistant department head, section
officers, branch manager, purchase officer etc.)

(3) c) Lower Level Management

(General foremen, supervisors, sales
& account office workers etc.)
(Fig. 4.1)

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a) Top Level Management:
Top management is at the head of the organization. It consists of the
representatives of the shareholders, viz., the Board of Directors and Chief Executive.
Chief executive may be known as Managing Director / General Manager, President,
Chairman cum managing director senior executive, etc. Top management is the
ultimate source of management authority and it is accountable for overall
management to the shareholders of the company. This management confronts great
uncertainties and spends much of their time dealing with environmental influences.
They set the objectives, define the goals, establish the policies, see that the policies
are put into effect and judge the results. It is often described as the policy making
group responsible for the overall direction and success of all company activities.
Top management integrates the functions of the whole organization. It is responsible
for the performance of the entire organization through the middle management. They
do take or make vital decision regarding plant and investment, research and
development, production and marketing, innovation and other facilities. They work
hard for long hours and spend much time in meeting or on the communication lines.
To discharge its functions effectively, the members of the top management must
possess conceptual, decision making and human skills more than technical skill.

Functions of Top Level Management:
The main functions of top management are as follows:
1. Determining Objectives: The top management has to keep in view the general
objectives viz-survival, profit, business growth, prestige and social acceptance.
It help to identify the exactly nature and type of business organization and is its
ultimate mission. Similarly, specific objectives may relate to type of activities,
specialty of employees, competition, method of marketing, areas of sales,
relations with different stake holders etc.
2. Framing the Policies: To frame the policies and chalk out plans to carry out the
objectives is one of the important functions of top management. Policies may be
relate to different aspects of the organization i.e. production, marketing,
financial, human resource etc. Top management has to devise plans and schemes
for execution of policies within a given time.

70
3. Set up the organizational Framework: All operations are carried on within the
functional structure of the organization and authority is delegated from the top
officers to the subordinates. Hence, top management is responsible for
determines the organizational structure for execution of the plans. It ensures
smooth flow of work from one section to another.
4. Mobilization of Resources: The top management has to assemble necessary
resource prior to execution of the plans. Preparing the plans are mental
processes, but to bring them into practice. Physical resources like machine,
tools, building, furniture, power, material etc have to be assembled. This is the
task of top management.
5. Controlling: The top management used to maintain general control over the
entire enterprise to ensure that the middle and the lower managements function
according to plans. This control is possible through checks or comparisons of
actual results with planned targets.
6. Selection and motivation of right manpower: Sound manpower management
start with selection of right kind and right number of people in the organization
by top management. They contribute their best qualities and abilities to
achievement of organization goal through the proper motivational function of
top management.
7. Develop business relation with Other organization: It is needful function of top
management to create and maintain good relations with various groups and
factors in the society. These include Government, NGO, supplier, trade
associations, trade unions, financial institutions etc.
b) Middle Level Management:
Middle management stands between the top management and the lower
management. It is largest group of managers in most of the organization. Middle
management includes department and section officers such as plant manager, area
sales manager or branch manager, office manager, accountant, purchase officer etc.
This level of management is responsible for implementing the policies developed by
top management and supervising and coordinating the activities of various
departments. They are involved less in physical activity and more in paper work and
meeting than the operating managers. However, new information technology has

71
reduced the number of middle level executives by providing on line technical
assistance to bottom level management. Thus, middle management plays a role of
intermediary between top and operating management and to coordinate inputs,
process and outputs.

Functions of Middle Level Management: Of course in degrees the functions
of middle level management differ from one organization to another. Some of the
functions are:
1. Direction for execute plan and policy: Middle management attempt take effort
to proper use of all resources of the organization to execute the plans and
policies. They direct all activities of the organization so that the top management
is made free from direction and supervision.
2. Framing departmental organization: Basically middle management is more
responsible for the success or failure of their departments. They develop sound
departmental organization structure with proper authority and responsibilities
for smooth functioning of whole organization without hindrance of any kind.
3. Division of work and specialization: After getting the review of organization
structure. The middle management prepare a departmental work chart to assign
the task to right man at right place and time to secure better performance in the
organization.
4. Effective Coordination: Coordination is the central problem of organization and
middle manager are the key people in achieving it; they affect and are in turn
affected by three way movement of coordinative forces-upward, downward and
sideways throughout the organization.
5. Motivating and Development of Staff: This level of management deals with
various employees both as individual and groups of organization. They create a
duty-loving, responsible, satisfied, honest, efficient and skilled team of workers.
Their aims at motivating and develop the employees for getting best results from
them.
6. Prepare work completion report: The middle management collect statistical
data and necessary information in connection with work of the respective
departments /sections and prepare the reports for submission it, to the top
management. It helps to take needful action for further improvement.

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c) Lower Level Management:
This is bottom /lowest level of management hierarchy. It is also known as
‘Supervisory Management’. It consists of plant superintendent, senior foremen and
front line supervisors, sales officer, account officer etc. They are concerned with
technical routine and day to day problems. Though classified at the low level, the
importance of functions of the personnel employed at the operational level cannot be
overemphasized. The plan and policies of the top management will fail if the
foreman do not fully realized the spirit of sustained work. This level of management
represents the workers before top management. They maintain personal contact with
operatives. They direct, lead, motivate and coordinate the activities of the operating
employees. They serve as the link between management and workers. Their authority
and responsibility are limited but the quality of workmanship and quantity of output
depend on their efficiency and effectiveness. This, management is expected to get
work done from the staff under their control. They are responsible for the
implementation and control of the operational plans developed by middle level
management. Thus, it is a group that puts the plans of management into effective
action. They are responsible for directly managing operatives and resources.

Functions of Lower Level Management:
The lower level management performs:
1. To plan day to day work within the goals lay down by higher authority.
2. To assign jobs to workers and to make arrangement for their training and
development.
3. To arrange for the necessary equipment, materials, tools etc., for the workers.
4. To supervise and control workers and maintain personal contact with them.
5. To advise and assist workers by explaining work procedure, solving their
problems etc
6. To maintain discipline and good human relation among workers.
7. To build up a high group morale and develop team spirit among the workers.
8. To report the progress to higher authorities in response to their instruction and
directives.

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4.2.3 TYPES OF ORGANISATION:
The organization of any business represents the network of vertical and
horizontal authority relationships between various positions. The exact form / type of
internal organization depend upon the nature, size and objective of the particular
business. Hence, the organization structure is primarily concerned with the allocation
of tasks and delegation of authority. There are several ways of division of work and
distribution of authority. However, there are four main types of organization given
below:
I. Line Organization
II. Line and Staff Organization
III. Functional Organization
IV. Committee Organization
I. Line Organization:
This is simplest and oldest type of organization. It is also known as Military /
Scalar / Hierarchical organization. In this type of organization, there is vertical line
of authority flow from the top to bottom and the line of responsibility flow up from
bottom to the top uninterrupted. Such type of organization found in military sector.
The head of each section is supreme so far his department is concerned and is
responsible directly to the person above him. He controls persons below him by
virtue of his position.

74
 Line organization may be two types. In pure line organization, all individuals at
given level perform the same type of work and departments are created only to
facilitate effective supervision and control. In departmental line organization, work
performed in each department is of different nature. Thus line organization is
unbroken chain command from general manager to the worker at the floor level. The
diagram given below makes it clear:
Board of Directors

General Manager

Marketing Production Finance Human Resource

Manager Manager Manager Manager

Production
Engineer

Plant Super-
intendent

Foreman

Workers

(Fig. 4.2)

Characteristics of line organization:
(1) Lines of authority are vertical flowing from the top to bottom.
(2) The unity of command is maintained in a straight and unbroken line.
(3) All persons at the same level are independent of each other.
(4) The authority and responsibility of each position is clearly specified.
(5) It is flexible nature, but no staff specialization

75

Advantages:
1. It is simple: This organization is quite simple in both understanding and
implementation. Every person is clear about what is expected of him. There are
no complicated relationships.
2. Clear division of duties and authority: Duties and responsibilities of every
employee are clearly defined with reference to work so assigned. Thus work
proceeds uninterruptedly without any confusion.
3. Prompt decision: Every manager can take decisions independently without
consulting others. This makes the decision making process easier and less time
consuming.
4. It provides unity of command: It is the fundamental principle of any viable
organization. As a result where the subordinates are made accountable to only
one superior. It facilitates unity of control and effective supervision.
5. Better discipline: Unity of command and unity of direction foster discipline
among the people in the organization.
6. Economical: It is very economical because no staff specialists are required.
7. Executive Development: As every manager has to perform a variety of
functions, there is an opportunity for the development of all round executives.

Disadvantages:
1. Lack of specialization: There is no scope for specialization. Each personnel are
responsible for both planning and execution of work. This encourages the
overloading person that affects badly the efficiency of the organization.
2. No. initiative: A authority is concentrated at the top level, the departmental
heads and subordinates lose flair of initiative and drive and dynamism, which is
a must to motivate the subordinates.
3. It has instability: The success of this type of organization depends on the ability
of managers. Succession problem is acute and there may be little continuity. A
chain broken anywhere in the unit is total break-down.

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4. Autocratic Approach: This organization is based upon autocratic approach.
Each manager has monopoly of decision making and he may not listen to the
suggestions of his subordinates.
5. Problem of coordination: Each department concentrates on his own work
ignoring the happening in the sister department. This self centre feeling that
affects working is worst.
Thus, line organization is suitable for small concerns employing few persons
and carrying on routine work.
II. Line and Staff Organization:
Both ‘line’ and ‘functional’ types of organization are not free from the limitation.
The line type believes in too much of centralization of authority while the functional
type in too much of decentralization. Therefore, this line and staff organization has
been evolved to achieve the advantages of above both the organization. Line and
staff organization is a combination of line and functional structure. Line and staff
organization refers to a pattern in which staff specialist advice line managers to
perform their duties. Under this line authority flows in a vertical line in the same
manner as in the line organization. In addition, staff specialists are attached to line
position to advise them on important matters. These specialists do not have power of
command over subordinates in other departments. They are purely on advisory
nature. When the work of line executives increases, they need advice, information
and help of staff specialists. Therefore staff positions are created to support the line
managers. The line and staff idea is shown in the following diagram.

77
 Board of Directors

Secretary General Manager Public Relation

-----------
Officer

Production
Production Chief
------------- Manager
Controller Chemist

Plant Super- Officer: Repair &

Quality Control
intendent Maintenance
Inspector

Foreman
Line Authority

Workers Staff Authority

(Fig. 4.3)

Advantages:
1. Full scope for specialization: Operational efficiency is through expertise of the
staff which is highly qualified and experienced. Therefore, there will be sound
decision and proper implementation of the same.
2. Sound decisions: As experts are consulted before taking any decision it
provides a base for sound managerial decisions.
3. Relief to top executives: Staff carryout detailed investigation and supply
information to line executives. It reduces the workload of line executives who
get ample chance for creative thinking to generate new ideas.
4. Better discipline and control: As there is clear-cut definition of duties and
responsibilities of, line and staff officers, one is bound to respect the orders of
higher officers by virtue of their status and this guarantees better control.

78
5. Flexibility: Line and staff organization is more flexible. As the organization
expands, more staff may be added to help the line. Because of availability of job
there is more opportunity for advancement.
6. Expert advice: Line manager receive specialized advice and assistance from
staff experts. They are enabled to discharge their responsibilities more
efficiently.

Disadvantages:
1. Conflict between line and staff: The main problem of line and staff
organization is that conflict often arises between line manager and staff
specialists.
2. Staff has neither authority nor responsibility: Staff officers become ineffective
as they do not have any authority to implement their plans. They do not
command influence as they cannot force to accept their very best.
3. Uneconomical: This type of organization is costlier. It is not suitable to medium
and small sized business.
4. Ineffective staff: Staff personnel are not accountable for the results. Therefore,
they may not take their tasks seriously. They may also be ineffective due to lack
of command authority.
5. Dominance of line authority: Line authority dominates the staff where the
actual and important work is brushed aside. Some of the line officers rely too
much on the staff officers because, they are staff officers and they are to advice.
Thus, line and staff organization is very suitable for large business organization.
It provides ample scope for specialization without violating the unity of command.
Its success depends upon the degree of harmony that is maintained among line and
staff.
III. Functional Organization:
As organization grows in size, line organization proves inadequate and it
becomes necessary to introduce specialization. The functional organization is based
on the concept of ‘functional foremanship’ suggested by F.W. Taylor. According to
him none is to be over-loaded with too many tasks. Under functional organization,
the whole organization is divided into a number of functional areas. Each function is

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managed by an expert in that area. Every functional area serves all other areas in the
organization. For example, the purchase department handles purchases for all
departments. The executive in charge of a particular function issues orders
throughout the organization with respect to his function only. Every functional expert
enjoys functional authority over subordinates in other departments. Within a
functional department every operating executive receives orders from several
functional specialists. In fact, the concept of functional authority is very appropriate
for functional structure. The following diagram makes it more clear.

Board of Directors

General Manager

Marketing Production Finance Human Resource

Manager Manager Manager Manager

Workmen Workmen Workmen

(Fig. 4.4)

Characteristics of functional organization:
(1) The whole task of the enterprise is divided into specialized functions.
(2) Each function is performed by a specialist.
(3) Specialists operate with considerable independence.
(4) Functional authority relationships among various departments.
(5) Line and staff division.

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Advantages:
1. Benefit of specialization: It is the system that gives fullest scope for realizing
the benefits of specialization. Each foreman is to look after only a limited set of
activities and hence is expected to do well.
2. Reduction of workload: Every functional head looks after one function only and
therefore, burden on top executive is reduced. Mental and manual functions are
separated.
3. Easier Staffing: Recruitment, selection and training of manager is simplified
because each individual is required to have knowledge of one functional area
only.
4. Improved efficiency: Every individual concentrates on one function only and
receives the expert guidance from specialists. Therefore efficiency of workers
improves at all levels of functional organization. This facilitates better
utilization of manpower.
5. Large scale production: Functional organization facilitates large scale
production through specialization, standardization and availability of expert’s
specialized and technical knowledge.
6. Better control: One man control is done away with and there is joint supervision
of work. As a result control becomes more effective.

Disadvantages:
1. No unity of command: A person is accountable to several superiors. As a result
his responsibility and loyalty get divided. Workers are generally not prepared
mentally to accept the authority of so many persons.
2. Complexity: There are many cross-relationships which create confusion. Worker
may receive conflicting orders. He cannot understand his place in the
organization easily.
3. Lack of coordination: Several experts create the problem of coordination
because no one in the organization is responsible for cost and profit. They think
only in terms of their own department rather than of the whole enterprise.

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4. Delay in decision making: A decision problem requires the involvement of
several specialists. Therefore decision making process in functional organization
is slow.
5. Problem of succession: Lower level executive do not get opportunity of all
round experience. This may create problem in succession to top executive
positions.
Thus, this type of organization is generally suitable for large and medium sized
concerns. But it should be applied at higher levels because it does not work well at
the lower levels.
IV. Committee Organization:
A committee is a group of persons formed to discuss and deliberate on problems
and to recommend or decide solutions. In other word, it is a group of persons to
whom certain managerial functions are assigned or from whom certain advisory and
exploratory services are expected. It is that method of management which permits
collective thinking, corporate and common judgment. The committee is a group to
which a matter is committed. It may be authorized to deal with all or specific
activities. Member of the committee have authority to go into details of the problems.
This authority is expressed in terms of one member one vote. Committee is an
important instrument of management in modern organization. They may used to
achieve different objectives, such as, to secure viewpoint and consultation of various
persons in the organization, to coordinate the activities of different department, to
review the performance of certain units, to facilitate communication and cooperation
among diverse groups, to give participation and presentation to different group of
interest etc. Thus, committee type of organization gives democratic touch to the line
of thinking and the way of acting upon.

Types of committees: Some of the popular kinds of committees are given below:
1. Advisory or Executive Committee
2. Standing or Ad hoc Committee
3. Line or Staff Committee
4. Formal or Informal Committee.

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Advantages:
1. Sound Decision: Problem is analyzed thoroughly from different angles by the
committee members of various specialized areas. The decisions arrived at are
the outcome of group thinking and judgment. Finally, the results from such
decisions are excellent.
2. Effective coordination: Committees serve as an important technique of
integrating various points of view by bringing together manager from different
departments.
3. Democratic Touch: Committees are the tool of making decision on democratic
lines. Such approach is necessary to secure the commitment and cooperation of
people. Group authority makes for diffusion of power and democratic
leadership.
4. Motivation through participation: By allowing the people to participate in the
decision making process, committee help to improve the loyalty, cooperation
and commitment of employees.
5. Executive development: By putting the young and experienced hands on the
committees, it is possible to train them in group by exposing them to the realities
of practical life in each specialized area.
6. Effective communication: It is useful for quick transmission of information
throughout the organization. The objectives, policies and programme of the
organization can be effectively communicated through committee meetings.

Disadvantages:
1. It is Expensive: Committee type has proved quite costly. The time and monetary
costs are not justified by the quality of the decision taken at the meeting.
2. Inordinate Delay: Red-tape is the main draw-back of committee organization.
Decisions on urgent matters are not taken right in time due to lengthy and
sometimes meaningless discussion and debate. Very often they meet and eat and
do not resolve at all.
3. Divided Responsibility: The responsibility of wrong decisions by a committee
cannot be fixed on any one individual. It is so because; committee works on the
principle of collective responsibility. Every member feels unaccountable.

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4. Dominance by a few: Committees are often dominated by some aggressive
individuals who are more particular by nature to grind their own views.
5. Lack of Secrecy: It is difficult to maintain secrecy regarding the decisions and
actions taken by a committee. A large number of persons participate in
committee meetings.
Thus, although there are weaknesses of committee organization, but it is vital
important in the modern era of business organization. A committee scores over
individuals because people in a group interact differently than individuals. Therefore,
the use of committee is widespread in most of the organizations even in most
autocratic organizations.

4.3 Summary:
This unit discusses the organizing function of management. Organizing is the
process or function of identifying, classifying, grouping and assigning various
activities necessary to achieve objectives and prescribing authority relationships in
the enterprise. The outcome of the organizing process is the ‘organization’ consisting
of a group of people working together for the achievement of one or more common
goals.
The organizing function is performed in varying degrees by all levels of
management. The level of management means a line of separation between different
positions held by seniors and juniors to distinguish each other, in respect of authority
and responsibilities. The number of management levels is varying in different
organization. Generally there are three levels of management i. e., Top, Middle and
Lower Management. All important decisions are made by the top level managers
and policies are communicated through successive level.
The organization structure is the result of organizing process. It represents the
network of vertical and horizontal authority relationships between various positions.
Hence, the organization structure is primarily concerned with the allocation of tasks
and delegation of authority. However, there are four main types of organization
namely, Line organization, line and staff organization, functional organization and
committee Organization.

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4.4 Terms of Remember:

Organizing: Process of identifying and grouping the work to be performed and
establishing relations between persons and granting necessary authority to them

Levels of management: A line of separation between different positions held by
seniors and juniors to distinguish each other, in respect of their authority and
responsibilities.

Organization Structure: The authority and responsibility relationships between
various positions in the organization showing who reports to whom.

Line and staff organization: It is a combination of line and functional type of
organization. It is a pattern in which staff specialist advice line managers to
perform their duties.

4.5 Check Your Progress:

A) Fill in the blanks.
1. It is through the process of organizing that the ………… and ………. of
people are determined.
2. The structure of organization established hierarchical relations between
……… and ………….
3. Hierarchy of management consists of a series of managerial positions called
……………… of management’.
4. In the line organization ………..flow from top to bottom and forms a chain
of command.
B) State ‘True’ or ‘False’
1. The outcome of the process of organizing is an ‘organization’ consisting of
a group of people working together for the achievement of common goals.
2. Top level management must possess conceptual, decision making and
human skills more than technical skill.
3. Functional organization increases the workload of top executives.
4. Military organization is example of line organization.

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4.6 Answers to check your progress:
A) 1. task and responsibilities
2. superiors and subordinates
3. levels
4. authority
B) 1. True 2. True 3. False 4. True

4.7 Exercise:
I) Answer in short:
1. What do you understand by organizing?
2. What are the levels of management?
3. What is line and staff organization?
4. What is committee organization?
5. Explain the functional organization.
II) Answer in detail:
1. Define organizing. Explain the importance of organizing.
2. What do you mean by top level management? Explain its functions.
3. What is meant by middle level management? Explain its functions.
4. Explain the functions of lower level management.
5. Explain various types of organization in brief.
6. What is meant by line organization? Explain its merits and demerits.
7. Explain the merits and demerits of functional organization.
III) Write short notes:
1. Lower level management.
2. Concept of organizing.
3. Merits of line and staff organization.
4. Committee organization

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4.8 References:
1. C. B. Gupta (2004) ‘Business Management’ Sultan Chand & Sons, New
Delhi.
2. S. C. Saxena (2006) ‘Principles & Practice of Management’ Sahitya
Bhawan Publications, Agra.
3. Lele R.K and Mahajan J.P (1994) ‘Principles of Management’ Pitambar
Publishing Company, New Delhi.
4. C. N. Sontakki (2003) ‘Principles of Management’ Kalyani Publishers,
New Delhi.
5. R. D. Agarwal (2004) ‘Organization and Management’ Tata McGraw-Hill
Publishing Company Limited. New Delhi.

4.9 Books for further study:

• P. Subba Rao (2008) ‘Management and Organizational Behaviour’ Himalaya
Publishing House, New Delhi.
• Bhushan Y.K (1995) Fundamentals of Business Organization and Management.
Sultan Chand & Sons: New Delhi. (Chapter 4,5)


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