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121483067 Principles of management notes

Business Strategic Behaviour and Leadership (Kenyatta University)

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NATURE OF MANAGEMENT
Unit Structure
1.0 Objectives
1.1 Introduction and Definition of Management
1.2 Features
1.3 Functions of Management
1.4 Importance of Management
1.5 Administration and Management
1.6 Manager
1.7 Functions of a Manager
1.8 Roles performed by managers
1.9 Summary
1.10 Exercise

1.0 OBJECTIVES

The purpose of this chapter is to introduce you to the field of

management in business. In this respect this chapter will
Introduce and define management.

Discuss the features, functions and importance of management.

The difference between administration and management will be

explained in detail

Finally the chapter will end with discussing the concept of manager,
manager‘s functions and the role played in running the
organization.

1.1 INTRODUCTION AND DEFINITION OF MANAGEMENT

Management is a universal phenomenon. It is a very popular and

widely used term. All organizations - business, political, cultural or social
are involved in management because it is the management which helps
and directs the various efforts towards a definite purpose. According to
Harold Koontz, ―Management is an art of getting things done through and
with the

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people in formally organized groups. It is an art of creating an
environment in which people can perform and individuals and can co-
operate towards attainment of group goals‖. According to F.W. Taylor,
―Management is an art of knowing what to do, when to do and see
that it is done in the best and cheapest way‖.

Management is a purposive activity. It is something that directs

group efforts towards the attainment of certain pre – determined goals.
It is the process of working with and through others to effectively
achieve the goals of the organization, by efficiently using limited
resources in the changing world. Of course, these goals may vary from
one enterprise to another, e.g.: For one enterprise it may be launching
of new products by conducting market surveys and for other it may be
profit maximization by minimizing cost.

Management as a discipline refers to that branch of knowledge

which is connected to study of principles & practices of basic
administration. It specifies certain code of conduct to be followed by
the manager & also various methods for managing resources efficiently.

Any branch of knowledge that fulfils following two requirements is

known as discipline:

1. There must be scholars & thinkers who communicate relevant

knowledge through research and publications.
2. The knowledge should be formally imparted by education and
training programmes.

Since management satisfies both these problems, therefore it

qualifies to be a discipline. Though it is comparatively a new discipline
but it is growing at a faster pace.

It cannot be denied that management has a systematic body of

knowledge but it is not as exact as that of other physical sciences like
biology, physics, and chemistry etc. The main reason for the inexactness
of science of management is that it deals with human beings and it is
very difficult to predict their behavior accurately. Since it is a social
process, therefore it falls in the area of social sciences. It is a flexible
science & that is why its theories and principles may produce different
results at different times and therefore it is a behavior science. Ernest
Dale has called it as a Soft Science.

1. 2 FEATURES

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Management is an activity concerned with guiding human and
physical resources such that organizational goals can be achieved.
Nature of management can be highlighted as: -
i) Management is Goal-Orientede The success of any management
activity is accessed by its achievement of the predetermined goals
or objective. Management is a purposeful activity. It is a tool
which helps use of human & physical resources to fulfill the pre-
determined goals. For example, the goal of an enterprise is
maximum consumer satisfaction by producing quality goods and
at reasonable prices. This can be achieved by employing efficient
persons and making better use of scarce resources.

ii) Management integrates Human, Physical and Financial

Resourcese In an organization, human beings work with non-
human resources like machines. Materials, financial assets,
buildings etc. Management integrates human efforts to those
resources. It brings harmony among the human, physical and
financial resources.

iii) Management is Continuouse Management is an ongoing process.

It involves continuous handling of problems and issues. It is
concerned with identifying the problem and taking appropriate
steps to solve it, e.g. the target of a company is maximum
production. For achieving this target various policies have to be
framed but this is not the end. Marketing and Advertising is also to
be done. For this policies have to be again framed. Hence this is an
ongoing process.

iv) Management is all Pervasivee Management is required in all

types of organizations whether it is political, social, cultural or
business because it helps and directs various efforts towards a
definite purpose. Thus clubs, hospitals, political parties, colleges,
hospitals, business firms all require management. Whenever more
than one person is engaged in working for a common goal,
management is necessary. Whether it is a small business firm
which may be engaged in trading or a large firm like Tata Iron &
Steel, management is required everywhere irrespective of size or
type of activity.

v) Management is a Group Activitye Management is very much less

concerned with individual‘s efforts. It is more concerned with
groups. It involves the use of group effort to achieve
predetermined goal of management of an organisation.

1.3 FUNCTIONS OF MANAGEMENT

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The functions of Management are common to all alike; weather a
business firm or a non-business firm. Management‘s primary function is
the satisfaction of the stakeholders. This typically involves making a profit
(for the shareholders), creating valued products at a reasonable cost (for
customers), and providing rewarding employment opportunities (for
employees). This can be achieved only when management accomplishes
its functions. A diagrammatic representation of the functions of
management is as under:

Figure 1

1.3.1 Following are the common Functions of Managemente

1. PLANNINGe

Planning means looking ahead and chalking out future courses of

action to be followed taking into consideration available & prospective
human and physical resources. It is a systematic activity which
determines when, how and who is going to perform a specific job. It is
rightly said ―Well plan is half done‖.

According to Koontz & O‘Donnell, ―Planning is deciding in advance

what to do, how to do and who is to do it. Planning bridges the gap
between where we are to, where we want to go. It makes possible things
to occur which would not otherwise occur‖.

Planning requires administration to assess appropriate course of

action to attain the company‘s goals and objectives. For management to do
this efficiently, it has to be very practical and simple. Planning is important
at all levels of management. However, its characteristics vary by level of
management.

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STEPS IN PLANNING FUNCTIONe

i) Establishment of objectivese
a. Setting of goals and objectives to be achieved.
b. Stated in a clear, precise and unambiguous language.
c. Stated in quantitative terms.
d. Should be practical, acceptable, workable and achievable.

ii) Establishment of Planning Premisese

a. Planning premises may be internal or external. Internalincludes
capital investment policy, management labour relations,
philosophy of management, etc. Whereas external includes
socio- economic, political and economical changes.
b. Internal premises are controllable whereas external are
noncontrollable.

iii) Choice of alternative course of actione

a. A number of alternative course of actions have to be considered.
b. Evaluated each alternative in the light of resources available
c. Chose the best alternative.

iv) Securing Co-operatione

After the plans have been determined, it is necessary rather
advisable to take subordinates or those who have to implement these
plans into confidence. This motivates them, valuable suggestions can
come and employees will be more interested in the execution of these
plans.

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Figure 3

v) Follow up/Appraisal of planse

After the selected plan is implemented, it is important to
appraise its effectiveness and correct deviations or modify the plan as
required.

Planning is basically a decision making function which involves

creative thinking and imagination that ultimately leads to innovation of
methods and operations for growth and prosperity of the enterprise

2. ORGANIZINGe

Organizing is the function of management which follows planning.

It is a function in which the synchronization and combination of human,
physical and financial resources takes place. All the three resources are
important to get results. Therefore, organizational function helps in
achievement of results which in fact is important for the functioning of a
concern. Hence, a manager always has to organize in order to get results.

A manager performs organizing function with the help of following steps:-

1. Identification of activities - All the activities which have to be
performed in a concern have to be identified, grouped and
classified into units.

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2. Departmentally organizing the activities - dividing the whole
concern into independent units and departments is called
departmentation.
3. Classifying the authority - Authorities bringing smoothness in a
concern‘s working.
4. Co-ordination between authority and responsibility:
Eachindividual is made aware of his authority and knows whom
they have to take orders from and to whom they are accountable
and to whom they have to report.

Thus an organization structure should be designed to clarify who is

to do what tasks and who is responsible for what results and to furnish
decision-making and communications networks reflecting.

3. STAFFINGe

The managerial function of staffing involves manning the

organization structure through proper and effective selection, appraisal
and development of the personals to fill the roles assigned to the
employers/workforce. Staffing pertains to recruitment, selection,
development and compensation of subordinates.

NATURE OF STAFFING FUNCTIONe

i) Staffing is an important managerial function ii) Staffing is a
continuous activity iii) The basis of staffing function is efficient
management of personals.
iv) Staffing helps in placing right men at the right job
v) Staffing is performed by all managers depending upon the nature
of business, size of the company, qualifications and skills of
managers, etc.
vi) Since, the success of the organization depends upon the
performance of the individual, staffing function of manager
deserves sufficient care & attention of the management.

4. DIRECTINGe
Directing is a process in which the managers instruct, guide and
oversee the performance of the workers to achieve predetermined
goals. Planning, organizing, staffing has got no importance if direction
function does not take place.
CHARACTERISTICS OF DIRECTIONe
i) Pervasive Function - Directing is required at all levels of
organization.
ii) Continuous Activity - Direction is a continuous activity as it
continuous throughout the life of organization.

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iii) Human Factor - Since human factor is complex and behavior is
unpredictable, direction function becomes important.
iv) Creative Activity - Direction function helps in converting plans
into performance
v) Executive Function - Direction function is carried out by all
managers and executives at all levels throughout the working of
an enterprise;

To sum up, the plans may be the best feasible ones, the activities
may be systematically organized, the staff may be highly efficient, but the
organization will not succeed, if there is no proper direction. Mere
planning, organizing and staffing are not sufficient to set the tasks in
motion. Directing involves not only instructing people what to do, but
also ensuring that they know what is expected from them.

5. CO-ORDINATIONe

Co-ordination tries to achieve harmony between individual‘s

efforts towards achievement of group goals and is a key to success of
management. Management seeks to achieve co-ordination through its
basic functions of planning, organizing, staffing, directing and controlling.

Co-ordination is achieved through planning, organizing, staffing,

directing and controlling. Co-ordination is life-line of management. It is
required in each and every function and at each and every stage and
therefore it cannot be separated.

Figure 4

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6. CONTROLLINGe

Controlling is measuring and correcting individual or

organizational performance to ensure that event confirm to plans. It
involves measuring performance against set goals and plans showing
where deviations from the standards exist and helping to correct those
deviations. The control process is cyclical which means it is never
ending. Employees often view controlling negatively No matter how
positive the changes may be for the organization,

Controlling is a four-step process of establishing performance

standards based on the firm's objectives, measuring and reporting
actual performance, comparing the two, and taking corrective or
preventive action as necessary.

1.4 IMPORTANCE OF MANAGEMENT

1. It helps in Achieving Group Goals – Management converts

disorganized resources of men, machines, money etc. into useful
enterprise. It arranges, assembles, organizes and integrates the
factors of production. These resources are coordinated, directed
and controlled in such a manner that enterprise work towards
attainment of goals.
2. Optimum Utilization of Resources – Management utilizes all the
physical and human resources productively. Management provides
maximum utilization of scarce resources by selecting its best
possible alternate use in industry from out of various uses. This
leads to optimum utilization of resources and avoid wastage.
3. Reduces Costs – It gets maximum results through minimum input by
proper planning and by using minimum input and getting maximum
output. Management uses physical, human and financial resources
in such a manner which results in best combination. This helps in
cost reduction.
4. Establishes Sound Organization –To establish sound organizational
structure is one of the objective of management which is in tune
with objective of organization and for fulfillment of this, it
establishes effective authority and responsibility relationship i.e.
who is accountable to whom, who can give instructions to whom,
who are superiors and who are subordinates.
5. Establishes Equilibrium – It enables the organization to survive in
changing environment. It adapts organization to changing demand
of market / changing needs of societies. It is responsible for growth
and survival of organization.
6. Essentials for Prosperity of Society – Efficient management leads to
better economical production which helps in turn to increase the

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welfare of people.. It improves standard of living, increases the
profit which is beneficial to business and society will get maximum
output at minimum cost by creating employment opportunities
which generate income.

CHECK YOUR PROGRESS

1. Define the following terms:
a. Management
b. Planning
c. Organizing
d. Directing
e. Coordinating
2. Give the chart of planning process.
3. ―Management is an art of knowing what to do, when to doand
see that it is done in the best and cheapest way‖. Explain.

1. 5 ADMINISTRATION AND MANAGEMENT

According to Theo Haimann, ―Administration means overall

determination of policies, setting of major objectives, the identification
of general purposes and lying down of broad programmes and
projects‖. It refers to the activities of higher level. It lays down basic
principles of the enterprise. According to Newman, ―Administration
means guidance, leadership and control of the efforts of the groups
towards some common goals‖.
Whereas, management involves conceiving, initiating and bringing
together the various elements; coordinating, actuating, integrating the
diverse organizational components while sustaining the viability of the
organization towards some pre-determined goals. In other words, it is
an art of getting things done through and with the people in formally
organized groups.

The difference between Management and Administration can be

summarized under two categories: -

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1. Functions 2. Usage / Applicability

Applicability It is applicable It is applicable

to business to non-
concerns i.e. business profit-making
concerns i.e.
organization. clubs, schools,
hospitals etc.
Influence The The
management administration
decisions are is influenced by
influenced by public opinion,
On the the values, govt. policies,

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Basis of opinions, religious
Usage beliefs & organizations,
decisions of customs etc. the
managers.
Status Management Administration
constitutes the represents
employees of owners of the the
enterprise who
organization earn return on who are
paid their capital remuneration
invested &
(in the form of profits in the salaries &
form of wages). dividend.

Practically, there is no difference between management and

administration. Every manager is concerned with both – administrative
management function and operative management function as shown in
the figure. However, the managers who are higher up in the hierarchy
denote more time on administrative function and the lower level denote
more time on directing and controlling worker‘s performance i.e.
management.

Figure 5
The Figure above clearly shows the degree of administration and
management performed by the different levels of management

1.6 MANAGER

1.6.1 DEFINITIONe

A Manager is the person responsible for planning and directing

the work of a group of individuals, monitoring their work, and taking

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corrective action when necessary. For many people, this is their first
step into a management career.

Managers may direct workers directly or they may direct several

supervisors who direct the workers. The manager must be familiar with
the work of all the groups he/she supervises, but does not need to be
the best in any or all of the areas. It is more important for the manager
to know how to manage the workers than to know how to do their work
well.

A manager's title reflects what he/she is responsible for. An

Accounting Manager supervises the Accounting function. An Operations
Manager is responsible for the operations of the company. The Manager
of Design Engineering supervises engineers and support staff engaged in
design of a product or service. A Night Manager is responsible for the
activities that take place at night. There are many management functions
in business and, therefore, many manager titles. Regardless of title, the
manager is responsible for planning, directing, monitoring and controlling
the people and their work.

1.6.2 SKILLS REQUIRED BY A MANAGERe

Not everyone can be a manager. Certain skills, or abilities to

translate knowledge into action that results in desired performance, are
required to help other employees become more productive. These skills
fall under the following categories:
Technicale This skill requires the ability to use a special proficiency or
expertise to perform particular tasks. Managers acquire these skills
initially through formal education and then further develop them
through training and job experience. Technical skills are most
important at lower levels of management.
Humane This skill demonstrates the ability to work well in cooperation
with others. A manager with good human skills has a high degree of
self-awareness and a capacity to understand or empathize with the
feelings of others. Human
skills are critical for all managers because of the highly interpersonal
nature of managerial work.
Conceptuale This skill calls for the ability to think analytically.
Analytical skills enable managers to break down problems into
smaller parts, to see the relations among the parts, and to recognize
the implications of any one problem for others. The higher the
management level, the more important conceptual skills become.

Although all three categories contain skills essential for

managers, their relative importance tends to vary by level of managerial
responsibility.

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Following are some of the skills and personal characteristics that a
manager should acquire through observation, formal training or on the
job:

Leadership — ability to influence others to perform tasks

Self-objectivity — ability to evaluate yourself realistically
Analytic thinking — ability to interpret and explain patterns
in information
Behavioral flexibility — ability to modify personal behavior to react
objectively rather than subjectively to accomplish organizational
goals
Oral communication — ability to express ideas clearly in words
Written communication — ability to express ideas clearly in writing
Personal impact — ability to create a good impression and instill
confidence
Resistance to stress — ability to perform under stressful conditions
Tolerance for uncertainty — ability to perform in ambiguous
situations

1.7 FUNCTIONS OF A MANAGER

Following are the main functions of managere

Planninge This step involves mapping out exactly how to achieve a
particular goal. Say, for example, that the organization's goal is to
improve company sales. The manager first needs to decide which
steps are necessary to accomplish that goal. These steps may include
increasing advertising, inventory, and sales staff. These necessary
steps are developed into a plan. When the plan is in place, the
manager can follow it to accomplish the goal of improving company
sales.
Organizinge After a plan is in place, a manager needs to organize his
team and materials according to the plan. Assigning work and
granting authority are two important elements of organizing.
Staffinge After a manager discerns his area's needs, he may decide to
beef up his staffing by recruiting, selecting, training, and developing
employees. A manager in a large organization often works with the
company's human resources department to accomplish this goal.
Leadinge A manager needs to do more than just plan, organize, and
staff her team to achieve a goal. She must also lead. Leading involves
motivating, communicating, guiding, and encouraging. It requires the
manager to coach, assist, and problem solve with employees.

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Controllinge After the other elements are in place, a manager's job is
not finished. He needs to continuously check results against goals and
take any corrective actions necessary to make sure that his area's
plans remain on track.

All managers at all levels of every organization perform these

functions, but the amount of time a manager spends on each one
depends on both the level of management and the specific organization.

1.8 ROLE PERFORMED BY MANAGERS

A manager wears many hats. Not only is a manager a team leader,

but he or she is also a planner, organizer, cheerleader, coach, problem
solver, and decision maker — all rolled into one. And these are just a few
of a manager's roles. In addition managers' schedules are usually jam-
packed. Whether they're busy with employee meetings, unexpected
problems, or strategy sessions, managers often find little spare time on
their calendars.

In his classic book, The Nature of Managerial Work, Henry

Mintzberg describes a set of ten roles that a manager fills. These roles fall
into three categories:
Interpersonale This role involves human interaction.

Informationale This role involves the sharing and

analyzing of information.
Decisionale This role involves decision making.
Mintzberg's Set of Ten Roles

Category Role Activity

Informational Monitor Seek and
receive information; scan
periodicals and reports;
maintain personal
contact with stakeholders.
Disseminator Forward information to
organization members via
memos, reports, and phone
calls.
Spokesperson Transmit information to
outsiders via reports,
memos, and speeches.
Interpersonal Figurehead Perform ceremonial and
symbolic duties, such as

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greeting visitors and signing
legal documents.
Leader Direct and motivate
subordinates; counsel and
communicate with subordinates.
Liaison Maintain information links
both inside and outside
organization via mail, phone
calls, and meetings.
Decisional Entrepreneur Initiate
improvement projects; identify
new ideas
and delegate idea responsibility
to others.
Disturbance Take corrective action handler
during disputes or crises; resolve conflicts
among subordinates; adapt to environments.
Resource Decide who gets resources;
allocator prepare budgets; set
schedules and determine
priorities.
Negotiator Represent department
during negotiations of union
contracts, sales, purchases, and
budgets.

Table 1

1.9 SUMMARY

―Management is an art of knowing what to do, when to do and

see that it is done in the best and cheapest way‖. It has to be done
through and with the people in formally organized groups. Some of its
features are: it integrates human, physical and financial resources, it is
goal-oriented, it is a continuous process, it is all pervasive and finally it is
a group activity.

There are six functions of management viz. planning, organizing,

staffing, directing, coordinating and controlling. All these functions are
unique in themselves and they assist in smooth functioning of an
organization.

Administration means setting of major objectives, and broad

programmes and projects. Whereas, management involves conceiving,
initiating and bringing together the various elements; together towards
meeting organization pre-determined goals. A Manager is the person

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responsible for planning and directing the work of a group of individuals,
monitoring their work, and taking corrective action when necessary.
Managers need to acquire technical, human and conceptual skills.
Manager has to perform all the functions of management. This is the first
step into a management career.

1.10 EXERCISE

i) Define and explain the concept of management. ii)

Explain the features of management.
iii) Discuss in detail the functions of management iv) Explain the
importance of management for an organization.
v) Practically, there is no difference between management &
administration. Justify
vi Who is called a manager? What skills does he need to be
successful?
vii) What functions do managers perform?
viii) Explain the role of a manager according to Mintzberg?


Chapter 2
DEVELOPMENT OF MANAGEMENT
THOUGHTS
Unit Structure
2.0 Objectives
2.1 Introductions
2.2 The Evolution of Management Thought
2.3 Contingency Approach to Management
2.4 Contribution of Frederick Winslow Taylor, Henri Fayol, Elton Mayo
2.5 Lessons for Management Theory & Practice from India: Gandhi‘s
Philosophy on Trusteeship the Concept of Seven Sins
2.6 Arthashastra - Lessons for Management Theory and Practice
2.7 Summary
2.8 Exercise

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2.0 OBJECTIVES

After studying the unit the students will be able to:

Know the evolution of management thoughts through various
schools of thoughts.
Discuss the System contingency approaches to management.
Understand the contribution of F. W. Taylor, Henri Fayol and
Elton Mayo to the development of management.
Elaborate the various management functions.
Discuss the responsibilities of
business/management to the society

2.1 INTRODUCTIONS

Through the practice of management and the continued

development of commerce and wealth we are transforming our lives.
While appreciating the past success of ‗management‘ we would also
recognise that today‘s accelerating pace of change is putting pressure
on our organisations to be at the forefront of management thinking.
In his comprehensive book ‗The Evolution of Management
Thought‘ Daniel A Wren writes, “Within the practices of the past there
are lessons of history for tomorrow in a continuous stream. We occupy
but one point in this stream. The purpose... is to present…the past as a
prologue to the future."

So with the aim of accelerating the development of our

management practice for the future let us examine that stream of
evolving management thought of the past.

2.2 THE EVOLUTION OF MANAGEMENT THOUGHT

The evolution of the discipline of management has helped to

develop a body of knowledge about the practice of management.
Within the field of management, eight schools of thought have
contributed significantly to the development of management.
The following table brings together the theories of management
and the issues that they address.

Theories of management and the problems they address

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Theories of management skills

The human relations The motivational problem school

The organisation Improving the integration of people behaviour school

into organisations

The information and The management decision-skills

decision school problem

Theories of management functions

Scientific management The human productivity problem

The quantitative school The application of objective functions

to management

The strategic management The organisation long-range

school planning problem

Theories of organisation systems

Administrative The organisation problem management

The organisation theory The organisation design problem
school
Table 1
In this chapter, we will focus on four well-established schools of
management thought: the scientific management school, the classical
organization theory school, the behavioral school, and the management
science school. Although these schools or theoretical approaches
developed historical sequence, later ideas have not replaced earlier
ones. Instead, each new school has tended to complement or coexist
with previous ones. At the same time, each school has continued to
evolve, and some have even merged with others.

2.2.1 THE SCIENTIFIC MANAGEMENT SCHOOLe

Scientific Management theory arose in part from the need to

increase productivity. In the United States especially, skilled labor was in
short supply at the beginning of the twentieth century. The only way to
expand productivity was to raise the efficiency of workers. Therefore,
Frederick W. Taylor, Henry L. Gantt, and Frank and Lillian Gilbert
devised the body of principles known as scientific management theory.

F W Taylor is considered to be the father of scientific

management. Henery Gantt, Frank and Lillian Gilberth and Harringto
Emerson supported Taylor in his efforts. Together with Taylor they
revolutionized management thinking. Scientific management is the

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name given to the principles and practices that grew out of their work
of Taylor and his followers and that are characterized by concern for
efficiency and systematization in management. Four basic part of a
series of ideas developed by Taylor are as follows:
Each person‘s job should be broken down into elements and
performed in a scientific way.
Workers should be scientifically selected and trained to do the
work.
There should be co-operation between management and workers.
And
There should be division of labour between managers and
workers.
Among the other significant contribution to this school of thought
was Henry L Grant. He emphasized the psychology of the worker and
the importance of morale in production. Grant devised a wage payment
system and developed a chart in system of control for scheduling
production operation which became the basis for modern scheduling
techniques like CPM and PERT.

Frank and Lillian Gilbert concentrated on time-and-motion study

to develop more efficient ways of performing repetitive tasks. Time-
and-motion study and piece-rate incentives are two major managerial
practices developed and widely in use today.

Harrington Emerson in his book ―Twelve Principles of Efficiency‖

states that a manager should carefully define objectives, use the
scientific method of analysis, develop and use standardized procedure,
and reward employees for good work.

2.2.2 CLASSICAL ORGANIZATION SCHOOLe

Scientific management theory concerned the optimization of

individual workers and work processes. During the same period,
classical organization theory complimented scientific management by
providing a framework for the structuring the organization. The leading
proponents of classical organization theory were Henri Fayol (a French
engineer), Lyndall Urwick (a British company manager), and Max Weber
(a German sociologist).

Classical organization theory is the ―B‖ in bureaucracy. Weber defined

the organization elements which comprised the ―ideal bureaucracy.‖
These included:
A clearly defined set of rules and procedures
Division of labor according to functional expertise
A clear chain of command

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Individual advancement based on merit Professional
managers

As you can see, many aspects of Weber‘s ―ideal bureaucracy‖ are

simply measures that ensure fairness and objectivity.
The Classic organizational theory has been derived from organizational
structures and procedures during the industrial revolution which
emphasis the Economic rationale for the factory system and believed
that all formal organizations are force multipliers. It main features:
Organizations exist to accomplish production-related and
economic goals.
There is one best way to organize for production, and that way can be
found through systematic, scientific inquiry.
Production is maximized through specialization and division of labor.
People and organizations act in accordance with rational economic
principles.

The Classic organizational theory is followed by Neoclassical

Organization Theory and the Modern Structural Organization Theory
which talked about the important source of the power and politics,
organizational culture, systems theory, specialization and division of
labor.

2.2.3 BEHAVIORAL MANAGEMENT SCHOOL:

The behavioral management theory is often called the human

relations movement because it addresses the human dimension of
work. Behavioral theorists believed that a better understanding of
human behavior at work, such as motivation, conflict, expectations, and
group dynamics, improved productivity.

The theorists who contributed to this school viewed employees

as individuals, resources, and assets to be developed and worked with
— not as machines, as in the past. Several individuals and experiments
contributed to this theory.

The Elton Mayo and Roethlisberger Hawthorne experiment in

Chicago from 1924 to 1932 concludes that human relations and the
social needs of workers are crucial aspects of business management.
Abraham Maslow, developed one of the most widely recognized need
theories, a theory of motivation based upon a consideration of human
needs. His theory of human needs had three assumptions:
Human needs are never completely satisfied.
Human behavior is purposeful and is motivated by the
need for satisfaction.

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Needs can be classified according to a hierarchical structure of
importance, from the lowest to highest.

The Two Factor theory of Douglas McGregor that, the Theory X

manager has a negative view of employees and assumes that they are
lazy, untrustworthy, and incapable of assuming responsibility. On the
other hand, the Theory Y manager assumes that employees are not only
trustworthy and capable of assuming responsibility, but also have high
levels of motivation.
As a group, these theorists discovered that people worked for inner
satisfaction and not materialistic rewards, shifting the focus to the role
of individuals in an organization's performance.

2.2.4 MANAGEMENT SCIENCE SCHOOLe

During World War II the allies faced many complex problems and
to overcome these problems operational research teams were set up,
consisting of mathematicians, physicists and other scientists, who
pooled their knowledge to solve problems. After the war, their ideas
were applied to industrial problems which were previously
unsuccessfully solved by conventional means. With the aid of the
electronic computer, these procedures became known as the
―management science‖ school relying heavily on quantitative methods.

The contribution of the quantitative school was greatest in the

areas of planning and control. However, many doubted the ability of
this school to deal effectively with ―people.‖ The techniques in this
school consisted of capital budgeting, production scheduling, optimum
inventory levels and development of product strategies

The management science school differs from the classical and

behavioral schools in the following ways:
The classical or scientific management approach concentrates on
the efficiency of the manufacturing process. The management
science school places greater weight on the overall planning and
decision-making process.
It relies heavily on the use of computers and mathematical models
in planning;
It is focused on the evaluation of effectiveness of models like the
techniques of the use of models in managerial decision making: the
return on investment analysis for example. .

In essence, by using computers and quantitative analysis

techniques, the management science school has made it possible to
consider the effect of a number of variables in organizations which may
otherwise have been overlooked. It must be emphasized that statistical
evidence alone may not be sufficient to solve various management

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problems. The more comprehensive techniques of the behavioral school
or the administrative management approach may still be needed to
complement. Especially the behavioral school has the ability to look at
the welfare of staff and can identify the reasons behind certain
behavior.

2.3 CONTINGENCY APPROACH TO MANAGEMENT

The contingency approach believes that it is impossible to select

one way of managing that works best in all situations like promoted by
Taylor.

The contingency approach believes that it is impossible to select

one way of managing that works best in all situations like promoted by
Taylor. Their approach is to identify the conditions of a task (scientific
management school), managerial job (administrative management
school) and person (human relations school) as parts of a complete
management situation and attempt to integrate them all into a solution
which is most appropriate for a specific circumstance. Contingency
refers to the immediate (contingent or touching) circumstances.

The manager has to systematically try to identify which

technique or approach will be the best solution for a problem which
exists in a particular circumstance or context.

An example of this is the never ending problem of increasing

productivity. The different experts would offer the following solutions:
Behavioral scientist: create a climate which is psychologically
motivating;
Classical management approach: create a new incentive scheme;
Contingency approach: both ideas are viable and it depends on the
possible fit of each solution with the goals, structure and resources
of the organization.

The contingency approach may consider, for policy reasons, that

an incentive scheme was not relevant. The complexity of each situation
should be noted and decisions made in each individual circumstances.

It should be realized that the contingency approach is not really

new because Taylor already emphasized the importance of choosing the
general type of management best suited to a particular case. Henri
Fayol, in turn, also found that there is nothing rigid or absolute in
management affairs.

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Similar ideas were expressed in the 1920s, by Mary Parker Follett
(1865-1933) who was greatly interested in social work and was a genius
for relating individual experience to general principles. Her concept of
the law of the situation referred to the necessity of acting in accordance
with the specific requirements of a given situation. She noted that these
requirements were constantly changing and needed continuous efforts
to maintain effective working relationships.

The contingency approach seeks to apply to real life situations

ideas drawn from various schools of management thought. They claim
that no one approach is universally applicable and different problems
and situations require different approaches. Managers must try to find
the approach that is the best for them in a certain given situation, so
they can achieve their goals.

It is important to note that the contingency approach stresses

the need for managers to examine the relationship between the
internal and external environment of an organization. Critics of the
contingency approach have blamed it to lack theoretical foundation and
are basically intuitive. Managers today are advised to analyze a situation
and use ideas from the various schools of thought to find an appropriate
combination of management techniques to meet the needs of the
situation.

2.4 CONTRIBUTION OF FREDERICK WINSLOW TAYLOR, HENRI

FAYOL, ELTON MAYO

2.4.1 FREDERICK WINSLOW TAYLORe

Taylor was born in 1856 to a wealthy Quaker family in

Germantown, Philadelphia, Pennsylvania . After the depression of
1873 , Taylor became an industrial apprentice patternmaker, gaining
shop-floor experience at a pump-manufacturing company.

Taylor is regarded as the father of scientific management , In

Peter Drucker's description; Frederick W. Taylor was the first man in
recorded history who deemed work deserving of systematic observation
and study. On Taylor's 'scientific management' rests, above all, the
tremendous surge of affluence in the last seventy-five years which has
lifted the working masses in the developed countries well above any
level recorded before, even for the well-to-do.

Taylor believed that the industrial management of his day was

amateurish, that management could be formulated as an academic
discipline, and that the best results would come from the partnership
between a trained and qualified management and a cooperative and

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innovative workforce. Each side needed the other, and there was no
need for trade unions .
Taylor's approach is also often referred to, as Taylor's Principles,
or frequently disparagingly, as Taylorism. Taylor's scientific
management consisted of four principles:
1. Replace rule-of-thumb work methods with methods based on a
scientific study of the tasks.
2. Scientifically select, train, and develop each employee rather than
passively leaving them to train themselves.
3. Provide "Detailed instruction and supervision of each worker inthe
performance of that worker's discrete task" (Montgomery 1997:
250).
4. Divide work nearly equally between managers and workers, sothat
the managers apply scientific management principles to planning
the work and the workers actually perform the tasks.

Taylor had very precise ideas about how to introduce his system. It
is only through enforced standardization of methods, enforced adoption
of the best implements and working conditions, and enforced
cooperation that faster work can be assured. And the duty of enforcing
the adoption of standards and enforcing this cooperation rests with
management alone.

Taylor thought that by analyzing work, the "One Best Way" to do

it would be found. He is most remembered for developing the time and
motion study . Taylor's system was widely adopted in the United States
and the world until its demise in the 1930's as organized labor pushed
for a minimum wage based on hourly pay, as opposed to Taylor's
contention that pay ought to be based on performance. In practice
"Taylorism" too often fell short of collaboration between labor and
management and, frequently, was a mask for business exploitation of
workers. The enduring and unquestionable contribution of Frederick
Taylor is that management is firmly established as something done by
trained, professional practitioners and is elevated as the subject of
legitimate scholarship.

2.4.2 GEORGE ELTON JOHN MAYO ( 26 DECEMBER 1880 - 7

SEPTEMBER1949)e

Mayo was an Australian psychologist, sociologis t and

organization theoris t . He lectured at the University of
Queensland from 1911 to 1923 before moving to the University of
Pennsylvania , but spent most of his career at Harvard Business
Schoo l (1926 - 1947), where he was professor of industrial research.
Mayo is known as the founder of the Human Relations Movemen t ,
and is known for his research including the Hawthorne

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Studies , and his book The Human Problems of an Industrialized
Civilization (1933). The research he conducted under the Hawthorne
Studies of the 1930s showed the importance of groups in affecting the
behavior of individuals at work. However it was not Mayo who
conducted the practical experiments but his employees Roethlisberger
and Dickinson. This enabled him to make certain deductions about how
managers should behave. He carried out a number of investigations to
look at ways of improving productivity, for example changing lighting
conditions in the workplace. What he found however was that work
satisfaction depended to a large extent on the informal social pattern of
the work group. Where norms of cooperation and higher output were
established because of a feeling of importance, physical conditions or
financial incentives had little motivational value. People will form work
groups and this can be used by management to benefit the
organization. He concluded that people's work performance is
dependent on both social issues and job content. He suggested a
tension between workers' 'logic of sentiment' and managers' 'logic of
cost and efficiency' which could lead to conflict within organizations.

Flowing from the findings of these investigations he came to certain

conclusions as follows:
Work is a group activity.
The social world of the adult is primarily patterned about
work activity.
The need for recognition, security and sense of belonging is more
important in determining workers' morale and productivity than the
physical conditions under which he works.
A complaint is not necessarily an objective recital of facts; it is
commonly a symptom manifesting disturbance of an individual's
status position.
The worker is a person whose attitudes and effectiveness are
conditioned by social demands from both inside and outside the
work plant.
Informal groups within the work plant exercise strong social
controls over the work habits and attitudes of the individual worker.
The change from an established society in the home to an adaptive
society in the work plant resulting from the use of new techniques
tends continually to disrupt the social organization of a work plant
and industry generally.
Group collaboration does not occur by accident; it must be planned
and developed.

2.4.3 HENRI FAYOL, (1841-1925)e

Fayol's career began as a mining engineer. He then moved into

research geology and in 1888 joined Comambault as Director.

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Comambault was in difficulty but Fayol turned the operation round. On
retirement he published his work - a comprehensive theory of
administration - described and classified administrative management
roles and processes that became recognized and referenced by others
in the growing discourse about management. He is frequently seen as a
key, early contributor to a classical or administrative management
school of thought.

His aspiration for an "administrative science" sought a consistent

set of principles that all organizations must apply in order to run
properly.

F. W. Taylor published "The Principles of Scientific Management"

in the USA in 1911, and Fayol in 1916 examined the nature of
management and administration on the basis of his French mining
organisation experiences.

Fayol argued that principles existed which all organisations - in

order to operate and be administered efficiently - could implement. This
type of assertion typifies a "one best way" approach to management
thinking. Fayol's five functions are still relevant to discussion today
about management roles and action.
1. to forecast and plan – purveyance examine the future and draw
up plans of action.
2. to organise build up the structure, material and human of the
undertaking.
3. to command maintain activity among the personnel.
4. to bind together, unify and harmonise activity and effort.
5. to see that everything occurs in conformity with policy and
practice.

Fayol also synthesised 14 principles for organisational design and

effective administration as under:
1. Division of worke Division of work and specialization produces
more and better work with the same effort.
2. Authority and responsibility: Authority is the right to give orders
and the power to exact obedience. Authority creates
responsibility.
3. Discipline: Good discipline requires managers to apply sanctions
whenever violations become apparent.
4. Unity of command: An employee should receive orders from only
one superior.
5. Unity of direction: Organizational activities must have one central
authority and one plan of action.

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6. Subordination of individual interest to general interest: The
interests of one employee or group of employees are subordinate
to the interests and goals of the organization.
7. Remuneration of personnel: Salaries to employees should be fair
and provide satisfaction both to the employee and employer.
8. Centralization: The objective of centralization is the best utilization
of personnel.
9. Scalar chain: A chain of authority exists from the highest
organizational authority to the lowest ranks.
10. Order: The right materials and the right employees are necessary
for each organizational function and activity.
11. Equity: equity is a combination of kindliness and justice. Both
should be considered when dealing with employees.
12. Stability of tenure of personnel: To attain the maximum
productivity of personnel, a stable work force is needed.
13. Initiative: Zeal, energy, and initiative are desired at all levels of the
organizational ladder.
14. Esprit de corps: Teamwork is fundamentally important to an
organization.

2.4.4 PETER FERDINAND DRUCKER (NOVEMBER 19, 1909 –

NOVEMBER 11, 2005)e

The Man Who Invented Management He took

Schumpeter's advice to heart, beginning a career in consulting while
continuing his life as a teacher and writer. Drucker's most famous text,
The Practice of Management, published in 1954, laid out the American
corporation like a well-dissected frog in a college laboratory, with
chapter headings such as "What is a Business?" and "Managing
Growth." It became his first popular book about management, and its
title was, in effect, a manifesto. He was saying that management was
not a science or an art. It was a profession, like medicine or law. It was
about getting the very best out of people. As he himself put it: "I wrote
The Practice of Management because there was no book on
management. I had been working for 10 years consulting and teaching,
and there simply was nothing or very little. So I kind of sat down and
wrote it, very conscious of the fact that I was laying the foundations of a
discipline."

Drucker emerged as one of Corporate America's most important

critics. When conglomerates were the rage, he
preached against reckless mergers and acquisitions. When executives
were engaged in empire-building, he argued against excess staff and the
inefficiencies of numerous "assistants to." In a 1984 essay he
persuasively argued that CEO pay had rocketed out of control and

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implored boards to hold CEO compensation to no more than 20 times
what the rank and file made. What particularly enraged him was the
tendency of corporate managers to reap massive earnings while firing
thousands of their workers. "This is morally and socially unforgivable,"
wrote Drucker, "and we will pay a heavy price for it."

It was Drucker who introduced the idea of decentralization -- in the
1940s -- which became a bedrock principle for virtually every large
organization in the world. He was the first to assert -- in the 1950s --
that workers should be treated as assets, not as liabilities to be
eliminated.

He originated the view of the corporation as a human community --
again, in the 1950s -- built on trust and respect for the worker and
not just a profit-making machine, a perspective that won Drucker an
almost godlike reverence among the Japanese.

He first made clear -- still the '50s -- that there is "no business
without a customer," a simple notion that ushered in a new
marketing mind-set.

He argued in the 1960s -- long before others -- for the importance
of substance over style, for institutionalized practices over
charismatic, cult leaders.

And it was Drucker again who wrote about the contribution of
knowledge workers -- in the 1970s -- long before anyone knew or
understood how knowledge would trump raw material as
theessentialcapitaloftheNewEconomy.

CHECK YOUR PROGRESS

1. Match the following

The human relations Improving the integration of people

school into organisations

The organisation The motivational problem

behaviour school
The information and The human productivity problem decision school
Scientific management The management decision-skills
problem
The quantitative school The organisation problem
Thestrategic The organisation long-range management school
planning problem
Administrative The organisation design problem management

The organisation theory The application of objective

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school functions to management

2. Fill in the blanks:

a. -------------is regarded as the father of scientific management .
b. F. W. Taylor published --------------------------------------------------- in the USA
in 1911.
c. --------is known as the founder of the Human Relations Movemen t .
d. ---------- introduced the idea of decentralization in the 1940.

2.5 LESSONS FOR MANAGEMENT THEORY AND PRACTICE

FROM INDIAe GANDHI‟S PHILOSOPHY ON TRUSTEESHIP THE
CONCEPT OF SEVEN SINS

Gandhi has propagated the Philosophy of Trusteeship for the

people who practice entrepreneurship where he emphasized that the
wealth that they possess is not theirs, they are only trustees for the
common man. They are accountable for its use and misuse.

Similarly he dwells on the concept of Seven Sins which lays down

the ways to lead personnel, social and political lives for an individual.

2.5.1 THEORY OF TRUSTEESHIPe

Gandhiji said that everything belonged to God and was from

God. Therefore it was for His people as a whole, not for a particular
individual. When an individual had more than his proportionate portion
he became a trustee of that portion for God‘s people. God who was all-
powerful had no need to store. He created from day to day; hence men
also should in theory live from day to day and not stock things. If this
truth was imbibed by the people generally, it would become legalized
and trusteeship would become a legalized institution.
He further explained, ―Supposing I have come by a fair amount
of wealth – either by way of legacy, or by means of trade and industry –
I must know that all that wealth does not belong to me; what belongs
to me is the right to an honorable livelihood, no better than that
enjoyed by millions of others. The rest of my wealth belongs to the
community and must be used for the welfare of the community. I want
them (zamindars) to outgrow their greed and sense of possession, and
to come down in spite of their wealth to the level of those who earn
their bread by labour. The
labourer has to realize that the wealthy man is less owner of his
wealth than the labourer is owner of his own, viz., the power to
work.

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As for the present owners of wealth, they would have to
make their choice between class war and voluntarily converting
themselves into trustees of their wealth. They would be allowed to
retain the stewardship of their possessions and to use their talent to
increase the wealth, not for their own sakes, but for the sake of the
nation and, therefore, without exploitation. The State would regulate
the rate of commission which they would get commensurate with the
service rendered and its value to society. Their children would inherit
the stewardship only if they proved their fitness for it.

Gandhiji‘s talked of economic equality which did not mean that

everyone would literally have the same amount. It simply meant that
everybody should have enough for his or her needs. The real meaning of
economic equality was: ―To each according to his need‖. If a single
man demanded as much as a man with wife and four children that
would be a violation of economic equality.

PRACTICAL TRUSTEESHIP FORMULAe

The practical trusteeship formula endorsed by Gandhiji is as follows:

1. Trusteeship provides a means of transforming the presentcapitalist
order of society into an egalitarian one. It gives no quarter to
capitalism, but gives the present owning class a chance of reforming
itself. It is based on the faith that human nature is never beyond
redemption.
2. It does not recognize any right of private ownership of
propertyexcept so far as it may be permitted by society for its own
welfare.
3. It does not exclude legislative regulation of the ownership and use
of wealth.
4. Thus under State-regulated trusteeship, an individual will notbe
free to hold or use his wealth for selfish satisfaction or in disregard
of the interests of society.
5. Just as it is proposed to fix a decent minimum living wage,even so a
limit should be fixed for the maximum income that would be
allowed to any person in society. The difference between such
minimum and maximum incomes should be reasonable and
equitable and variable from time to time so much so that the
tendency would be towards obliteration of the difference.
6. Under the Gandhian economic order the character ofproduction
will be determined by social necessity and not by personal whim or
greed.

The philosophy of Trusteeship believes in inherent goodness of

human beings. It involves the capitalists and landlords in the service of

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society without any element of coercion. It doesn‘t want the destruction
of capitalists. Gandhiji himself believed that their destruction would
result in the end of the workers

2.5.2 THE CONCEPT OF SEVEN SINSe

Mahatma Gandhi said that seven things will destroy us. All of them have
to do with social and political conditions.
Wealth Without Work
Pleasure Without Conscience
Knowledge Without Character
Commerce (Business) Without Morality (Ethics)
Science Without Humanity
Religion Without
Sacrifice Politics
Without Principle

Wealth without Worke This means that a person gets something for
nothing by just manipulating markets and assets. There are
professionals and businessmen who are able to accumulate wealth
without working. Enjoy benefits from government programs without
any financial burden. No risk and no responsibilities.

Pleasure without Consciencee The pleasurable activities are devoid of

any social responsibility or accountability. We don‘t learn to give and
take, we live selflessly, we are not sensitive neither considerate. We are
just self-centered. We want to indulge and gratify ourselves. We are
least bothered about the effect of our acts on others.

Knowledge without Charactere Building character of students in

academics while imparting knowledge is one of the primary tasks of a
teacher. As dangerous as a little knowledge is, even more dangerous is
much knowledge without a strong, principled character. Inculcating the
concept of kindness, fairness, dignity, contribution, honesty and
integrity are worth in developing character. Knowledge with strong
inbuilt character will create people with conviction and empathy.

Commerce (Business) without Morality (Ethics)e If we ignore the moral

foundation and allow economic systems to operate without moral
foundation and without continued education, we will soon create an
amoral, if not immoral, society and business. Economic and political
systems are ultimately based on a moral foundation. Business and
ethics should go hand in hand for both to prosper i.e. business and
society.

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Science without Humanitye If science becomes all technique and
technology, it quickly degenerates into man against humanity.
Technologies come from the paradigms of science. And if there's very
little understanding of the higher human purposes that the technology
is striving to serve, we become victims of our own technocracy.

Religion without Sacrificee Practicing religion without sacrifice means

like reading the holy books for the sake of it but not putting it in
practice. It takes sacrifice to serve the needs of other people the
sacrifice of our own pride and prejudice, among other things. If this
happens than it can be called as real worship. Pride and selfishness will
destroy the union between man and god, between man and woman,
between man and man, between self and self. Humility is the hallmark
of inner religion.

Politics without Principlee We see politicians spending millions of

rupees to create an image, even though it's superficial, lacking
substance, in order to get votes and gain office. And when it works, it
leads to a political system operating independently of the natural laws
that should govern the society and the country. This leads to a society
with distorted values. In the best societies, natural laws and principles
govern - that's the Constitution - and even the top people must bow to
the principle. No one is above it.

2.6 ARTHASHASTRA - LESSONS FOR

MANAGEMENT THEORY AND PRACTICE

Arthashastra, the treatise on Economic Administration was

written by Kautilya in the 4th century before Christ. It consists of 15
chapters, 380 Shlokas and 4968 Sutras. In all probability, this treatise is
the first ever book written on Practice of Management. It is essentially
on the art of governance and has an instructional tone.

Kautilya wrote this treatise for his swamy (the king)

Chandragupta Maurya and stated in its preface that it has been written
as a guide for "those who govern".

As in the present day management, the importance of vision,

mission and motivation was captured in Arthashastra. Kautilya advise
his swamy to rule through Prabhu Shakti (vision), Mantra Shakti
(mission) and Utsah Sahkti (motivation). Kautilya's concepts of the
objectives of a king seem to be virtually adopted by Peter Drucker in his
book, Managing for Results.

Kautilya reminds his swamy that his objectives for his rule are:
1. Acquire power; (Making present business effective)

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2. Consolidate what has been acquired; (Making present business
effective)
3. Expand what has been acquired; and (Identify potential and
realize it)
4. Enjoy what has been acquired. (Making it a different business for a
different future)

On the organizational aspects, Kautilya evolves an elaborate

hierarchy under the king. The king appoints Amatya, the Prime Minister,
who operates the day-to-day machinery of the State through a council
of officials consisting of Mantris, the Ministers, Senapati, the warlord or
the Defence Minister, Purohit, the Chief Justice and Yuvaraj, the Heir
Apparent or identified successor to the throne

Arthashashtra has detailed policies for the society, individual

industries, labor and employment, calamities and control of vices. He
observes that the State, as an organization, is a social organization with
economic aim. Here again, Peter Drucker and Kautilya go hand in hand
as Drucker defines an organization as having 'social dimension and
economic objective'.

Finally, from the point of view of management of the kingdom,

Kautilya's advice to his Swamy is indeed introspective and valid to the
corporate world of the 21st century. His advice to his Swamy is as
under:
i. Run a diversified economy actively, efficiently, profitably and
prudently.
ii. Bear in his mind that a king with depleted treasury is a weak king
and the easiest target for a takeover. iii. Ensure enactment of
prudent policies. iv. Reign only with the help of others.
v. Take proper care in appointing advisors.
vi. An ideal Swamy is the one who has the highest qualities of
leadership, intellect, energy and personal attributes.
vii. Wealth lies in economic activities.
viii. Profitability should not only mean surplus over costs. It should
also mean provision of investment for future growth.
ix. Diversified economy should consist of productive forests, water
reservoirs, mines, productive activities, trade, markets, roads,
ports, and storages.
x. Efficient management means setting up of realistic targets and
meeting targets without using overzealous methods.

Arthashastra is the evidence of the intellectual capital India

possessed in its glorious past. We have the tradition of the past. We

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need the attitude for resurrecting and recreating the intellectual capital
for the future.

2.7 SUMMARY

Over the years various theories of management have addressed

various problems. Theories of Management Skills, Management
Functions and Organisation Systems have been developed. Further
various Management Schools have evolved such as Scientific
Management School, Classical Organization School, Behavioral
Management School and Management Science School.

Frederick Winslow Taylor, George Elton John Mayo, Henri Fayol,

Peter Ferdinand Drucker and others have contributed in furthering the
development of management thoughts and theories. Taylor's scientific
management of four principles, Mayo Human Relations Movement,
Fayol 14 principles for organisational design and effective
administration and Drucker‘s Management have all enriched the
process of management development.

Indian Management concepts and thoughts can be traced back

into the 4th century before Christ. Kautilya‘s Arthashastra, the treatise
on Economic Administration written for his Swamy Chandragupta
Maurya is relevant even today. Peter Druker has been influenced by it in
shaping his concepts and thoughts. Mahatma Gandhi‘s Philosophy on
Trusteeship the Concept of Seven Sins has influenced the entrepreneurs
to accept the concept of corporate social responsibility.

2.8 EXERCISE

1. Briefly explain the evolution of management thoughts along with

the theories of management and the problems they address
2. In a nut shell discuss the four management schools that you
have studied.
3. What is contingency approach to management?
4. Write a brief note on contingency approach management
5. Explain Taylor‘s Principles of management
6. Explain the findings of George Elton John Mayo regarding the
connection between cooperation and higher output
7. What are the five functions of Fayol
8. Discuss Fayol‘s 14 principles of management
9. Explain Taylor‘s Principles of management

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10. Explain the findings of George Elton John Mayo regarding the
connection between cooperation and higher output
11. What are the five functions of Fayol
12. Discuss Fayol‘s 14 principles of management
13. Discuss the contribution of Peter Drucker in the modern
thoughts of management.
14. Explain the Gandhi‘s Theory of Trusteeship.
15. Elaborate on the concepts of Seven Sins as propagated by
Gandhi.
16. Briefly explain Kautilya‘s Arthashastra.


CHAPTER 3
THE ENVIRONMENTAL CONTEXT OF
MANAGEMENT, SOCIAL RESPONSIBILITY AND
BUSINESS ETHICS
Unit Structure
3.0 Objectives
3.1 Introduction
3.2 Internal and External Business Environment
3.3 Organizational and Environmental Relationship
3.4 Social Responsibilities of Companies
3.5 Concept of Ethics and Business Ethics
3.6 Government Social Responsibilities
3.7 Summary
3.8 Exercise

3.0 OBJECTIVES

After studying the unit the students will be able to:

Understand the concept of environment, social responsibility and

business ethics.

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Know the role of Environment in the performance of
business.
Discuss the types of environment viz. internal and
external environment.
Discuss social responsibilities towards various strata‘s of business.
Explain the concept business ethics its relevance and importance in
running business.

3.1 INTRODUCTION

The formula for business success requires two elements – the

individual and the environment. Remove either value and success
becomes impossible. The term 'business environment implies those
external forces, factors and institutions that are beyond the control of
individual business organisations and their management and affect the
business enterprise. It implies all external forces within which a business
enterprise operates. Business environment influence the functioning of
the business system.

3.2 INTERNAL AND EXTERNAL BUSINESS ENVIRONMENT

3.2.1 MEANINGe

Thus, business environment may be defined as all those

conditions and forces which are external to the business and are beyond
the individual business unit, but it operates within it. These forces are
customer, creditors, competitors, government, sociocultural
organisations, political parties national and international organisations
etc. some of those forces affect the business directly while some others
have indirect effect on the business.

3.2.2 FEATURES OF BUSINESS ENVIRONMENTe

i) Totality of external forces: Business environment is the sum total

of all things external to business firms and, as such, is aggregative
in nature.

ii) Specific and general forces: Business environment includes both

specific and general forces. Specific forces affect individual
enterprises directly and immediately in their day-to-day working.
General force shaves impact on all business enterprises and thus
may affect an individual firm only indirectly.

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iii) Dynamic naturee Business environment is dynamic in that it keeps
on changing whether in terms of technological improvement,
shifts in consumer preferences or entry of new competition in the
market.

iv) Uncertaintye Business environment is largely uncertain as it is

very difficult to predict future happenings, especially when
environment changes are taking place too frequently as in the
case of information technology or fashion industries.

v) Relativitye Business environment is a relative concept since it

differs from country to country and even region to region. Political
conditions in the USA, for instance, differ from those in China or
Pakistan. Similarly, demand for sarees may be fairly high in India
whereas it may be almost non-existent in France.
3.2.3 TYPES OF ENVIRONMENTe

On the basis of the extent of intimacy with the firm, the

environmental factors may be classified into different typesinternal and
external.

1. INTERNAL ENVIRONMENTe

The internal environment is the environment that has a direct

impact on the business. Here there are some internal factors which are
generally controllable because the company has control over these
factors. It can alter or modify such factors as its personnel, physical
facilities, and organization and functional means, like marketing, to suit
the environment.

The important internal factors which have a bearing on the strategy and
other decisions of internal organization are discussed below
i) Value systeme
The value system of the founders and those at the helm of
affairs has important bearing on the choice of business, the mission and
the objectives of the organization, business policies and practices.

ii) Mission and vision and objectivese

Vision means the ability to think about the future with
imagination and wisdom. It is an important factor in achieving the
objectives of the organization. The mission is the medium through
which the objectives are achieved.

iii) Management structure and naturee

The organizational structure like the composition of board of
directors influences the decisions of business as they are internal

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factors. The structure and style of the organization may delay a decision
making or some other helps in making quick decisions.

iv) Internal power relationshipse

The relationship among the levels of the organization influences
business. The mutual co-ordination among them is an important need
for a business. The relationship among the people working in various
levels of the organization should be cordial.

v) Human resourcee
The human resource is the important factor for any organization as
it contributes to the strength and weakness of any organization. The
human resource in any organization must have characteristics like skills,
quality, high morale, commitment towards the work attitude, etc. The
involvement and initiative of the people in an organization at different
levels may vary from organization to organization. The organizational
culture and overall environment have bearing on them.

vi) Company image and brand equitye

The image of the company in the outside market has the impact
on the internal environment of the company. It helps in raising the
finance, making joint ventures, other alliances, expansions and
acquisitions, entering sale and purchase contracts, launching new
products, etc. Brand equity also helps the company in same way.

vii) Miscellaneous factorse

The other factors that contribute to the business success or failure are
as follows:

a) Physical assets and facilities: - facilities like production capacity,

technology are among the factors which influences the
competitiveness of the firm. The proper working of the assets is
indeed for free flow of working of the company.

b) Research and development: - Though R&D department is basically

done external environment but it has a direct impact on the
organization. This aspect mainly determines the company‘s ability
to innovate and compete.

c) Marketing resources: - Resources like the organization for

marketing, quality of the marketing men, brand equity and
distribution network have direct bearing on marketing efficiency
of the company

d) Financial factors:-factors like financial policies, financial positions

and capital structure are also important internal environment
affecting business performances, strategies and decisions.

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2. EXTERNAL ENVIRONMENTe

It refers to the environment that has an indirect influence on the

business. The factors are uncontrollable by the business. There are two
types of external environment.

a. Micro Environmente

The micro environment is also known as the task environment and

operating environment because the micro environmental forces have a
direct bearing on the operations of the firm. The micro environment
consists of the factors in the company‘s immediate environment that
affects the performance of the company. These include the suppliers,
marketing intermediaries, competitors, customers and the public. The
micro environmental factors are more intimately linked with the
company than the macro factors. The micro forces need not necessarily
affect all the firms in a particular industry in the same way. Some of the
micro factors may be particular to a firm. When the competing firms in
an industry have the same micro elements, the relative success of the
firms depends on their relative effectiveness in dealing with these
elements.

Following are the factors micro environment: i)

Supplierse
An important force in the micro environment of a company is
the suppliers, i.e., those who supply the inputs like raw materials and
components to the company. The importance of reliable source/sources
of supply to the smooth functioning of the business is obvious.
ii) Customere
The major task of a business is to create and sustain customers.
A business exists only because of its customers. The choice of customer
segments should be made by considering a number of factors including
the relative profitability, dependability, and stability of demand, growth
prospects and the extent of competition.
iii) Competitione
Competition not only include the other firms that produce same
product but also those firms which compete for the income of the
consumers the competition here among these products may be said as
desire competition as the primary task here is to fulfill the desire of the
customers..The competition that satisfies a particular category desire
then it is called generic competition.. iv) Marketing Intermediariese
The marketing intermediaries include middlemen such as agents
and merchants that help the company find customers or close sales with
them. The marketing intermediaries are vital links between the
company and the final consumers. v) Financierse

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The financiers are also important factors of internal
environment. Along with financing capabilities of the company
their policies and strategies, attitudes towards risk, ability to provide
non-financial assistance etc. are very important.

vi) Publice
Public can be said as any group that has an actual or potential
interest in or on an organization‘s ability to achieve its interest. Public
include media and citizens. Growth of consumer public is an important
development affecting business. b. Macro Environmente
Macro environment is also known as General environment and
remote environment. Macro factors are generally more uncontrollable
than micro environment factors. When the macro factors become
uncontrollable, the success of company depends upon its adaptability to
the environment. Some of the macro environment factors are discussed
below:

i) Economic Environmente
Economic environment refers to the aggregate of the nature of
economic system of the country, business cycles, the socio-economic
infrastructure etc. The successful businessman visualizes the external
factors affecting the business; anticipating prospective market situations
and makes suitable to get the maximum with minimize cost.

ii) Social Environmente

The social dimension or environment of a nation determines the
value system of the society which, in turn affects the functioning of the
business. Sociological factors such as costs structure, customs and
conventions, mobility of labour etc. have far- reaching impact on the
business. These factors determine the work culture and mobility of
labour, work groups etc.

iii) Demographic Environmente

Demography is the study of human populations in terms of size,
density, location, age, sex, race, occupation, and other statistics.
Changes in the demographic environment can result in significant
opportunities and threats presenting themselves to the organization.

iv) Political Environmente

The political environment of a country is influenced by the
political organizations such as philosophy of political parties, ideology of
government or party in power, nature and extent of bureaucracy
influence of primary groups etc. The political environment of the
country influences the business to a great extent.

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v) Legal Environmente
Legal environment includes flexibility and adaptability of law and
other legal rules governing the business. It may include the exact rulings
and decision of the courts. These affect the business and its managers
to a great extent. vi) Technical Environmente
The business in a country is greatly influenced by the
technological development.

The technology adopted by the industries determines the type

and quality of goods and services to be produced and the type and
quality of plant and equipment to be used. Technological environment
influences the business in terms of investment in technology, consistent
application of technology and the effects of technology on markets.

vii) Ecosystem Environmente

The ecosystem refers to natural systems and its resources that
are needed as inputs by marketers or that are affected by marketing
activities. To avoid shortages in raw materials, organizations can use
renewable resources (such as forests) and alternatives (such as solar
and wind energy) for nonrenewable resources (such as oil and coal).
Organizations can limit their energy usage by increasing efficiency.

3.3 ORGANIZATION AND ENVIRONMENTAL RELATIONSHIP

Organizations are open systems and must relate to their

environments. They must acquire the resources and information
needed to function; they must deliver products or services that are
valued by customers. Organizations can devise a number of responses
for managing environmental interfaces, from internal administrative
responses, such as creating special units to scan the environment, to
external collective responses, such as forming strategic alliances with
other organizations. Environment affects the organization followed by
the generation of a response from the organization, thus completing the
cycle. It implies that the effect of environment on the organization
cannot be fully understood without evaluating the organizational
response.

The change in the business environment brings both

opportunities and threats for the organization. To overcome this
business dynamism, companies require certain predictability
mechanisms which can guard them against the unanticipated threats or
overlooked business opportunities. The solution lies in environmental
scanning which refers to the process of monitoring and evaluating the
business environment. It helps in adjusting the business tactics in case
of a change in the business environment. The macro forces have a wide

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scope and tend to influence the micro environment of the business;
therefore, it seems advisable
to focus the research on the role of macro environmental forces to
reduce the accumulation of irrelevant data.

Organizational environments are everything beyond the

boundaries of organizations that can directly or indirectly affect
performance and outcomes. That includes external agents that directly
affect the organization, such as suppliers, customers, regulators, and
competitors, as well as indirect influences in the wider cultural, political,
and economic context. The general environment consists of all external
forces that can influence an organization. Each of these forces can affect
the organization in both direct and indirect ways. For example,
economic recessions can directly impact demand for a company's
product. The general environment also can affect organizations
indirectly by virtue of the linkages between external agents. For
example, an organization may have trouble obtaining raw materials
from a supplier because the supplier is embroiled in a labor dispute with
a national union, a lawsuit with a government regulator, or a boycott by
a consumer group. Thus, components of the general environment can
affect the organization without having any direct connection to it. The
task environment consists of the specific individuals and organizations
that interact directly with the organization and can affect goal
achievement: customers, suppliers, competitors, producers of
substitute products or services, labor unions, financial institutions, and
so on. These direct relationships are the medium through which
organizations and environments mutually influence one another.
Customers, for example, can demand changes in the organization's
products, and the organization can try to influence customers' tastes
and desires through advertising.

3.4 SOCIAL RESPONSIBILITIES OF COMPANIES

It is the duty of the businessmen to ensure good working

conditions and a good standard of living for workers, to supply
customers with goods of acceptable quality at reasonable prices and to
fulfill the obligations to the State by the prompt payment of taxes,
observance of rules, and cooperation in larger purpose of the society.
[J.M.Parsons].
In short the term social responsibilities can be defined as the
obligation of management towards the society and others concerned.

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3.4.1 Towards whom are the responsibilities that an enterprise should
look intoe

1. Responsibility towards ownerse

The primary responsibilities of management is to assure a fair

and reasonable rate of return on capital and fair return on investment
can be determined on the basis of difference in the risks of business in
different fields of activity. With the growth of business the shareholders
can also expect appreciation in the value of their capital.

2. Responsibility towards employeese

Management responsibility towards employees relate to the fair

wages and salaries, satisfactory work environment, labour management
relations and employee welfare. Fair wages should be fixed in the light
of labor productivity, the prevailing wage rates in the same or
neighboring areas and relative importance of jobs. Employees are
expected to build up and maintain harmonious relationships between
superior and subordinates. Another aspect of responsibility towards
employees is the provision of welfare amenities like safety and security
of working conditions, medical facilities, and housing, canteen, leave
and retirement benefits.

3. Responsibility towards consumerse

In a competitive market, serving consumers is supposed to be a

prime concern of management. In the event of shortage of supply there
is no automatic correction. Besides consumers are often victims of
unfair trade practices and unethical conduct of business. Consumer
interests are thus protected to some extent with laws and pressure of
organized consumer groups. Management should anticipate these
developments, satisfy consumer needs and protect consumer interests.
Goods must be of appropriate standard and quality and be available in
adequate quantities at reasonable prices. Management should avoid
resorting to hoarding or creating artificial scarcity as well as false and
misleading advertisements.

4. Responsibility towards the Governmentse

As a part of their social responsibility, management must

conduct business affair in lawful manner, honestly pay all the taxes and
dues, and should not corrupt public officials for selfish ends. Business
activities must also confirm to the economic and social policies of the
government.

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5. Responsibility towards the community and societye

The socially responsible role of management in relation to the

community are expected to be revealed by its policies with respect to
the employment of handicapped persons, and weaker sections of the
community, environmental protection, pollution control, setting up
industries in backward areas, and providing relief to the victims of
natural calamities etc.

3.4.2 Reason for Social Responsibilitiese

Business enterprises are creatures of society and should respond

to the demands of society. If the management does not react to
changes in social demands, the society will either force them to do so
through laws or will not permit the enterprise to survive. Therefore the
long term interests of business are best served when management
assume social responsibilities. For long term success it matters a great
deal if the firm has a favorable image in the public mind. Every business
enterprise is an organ of society and its activities have impact on the
social scene. Therefore, it is important for management to consider
whether their policies and actions are likely to promote the public good,
advances the basic values of society, and constitute to its stability,
strength and harmony.

Besides taking care of the financial interest of owners, managers

of business firms must also take into account the interest of various
other groups such as employees, consumers, the government and the
community as a whole.

3.4.3 Arguments in favor of social responsibilitiese

i) Businesses are unavoidably involved in social issues. Businesses

are either part of the solution or part of the problem.
ii) Businesses have the resources to tackle today‘s complex societal
problems. Private business sectors can play a decisive role in
solving society‘s more troubling problems.
iii) A better society means a better environment for doing business.
Business can enhance its long-run profitability by making an
investment in society today.
iv) Corporate Social action will prevent government intervention:
Government will force business to do what it fails to do
voluntarily.

3.4.4 Arguments against social responsibilitiese

i) Profit maximization ensures the efficient use of society‘s
resources.

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ii) Businesses generally lack the ability to pursue social goals.
Inefficiencies can be expected if managers divert their attention
from the pursuit of economic goals.
iii) Businesses already have enough power. There is no need to
hand them over more power. iv) Businesses should stick to
pursuing profit by producing marketable goods and services.

3.4.5 Some facts of social responsibilities to be taken care in India aree

i) Contribution towards economic development of backward
regions and weaker sections of the society and to recognize and
respect social values, business ethics and cultural heritage.
ii) Cooperate with Government in solving problems like
communalism, illiteracy, over population, concentration of
income, wealth etc.
iii) )Make the country economically self-reliant through export
promotion and import substitution. iv) Make the best of use of
national resources v) Protect national environment.

So responsibility towards society is no longer a matter of choice

for businessmen, but it is requisite and it is the foremost
responsibility of the Manager to ensure that social responsibilities are
met.

CHECK YOUR PROGRESS

1. Explain the following factors of Micro Environment:
a. Suppliers
b. Customers
c. Public
2. Explain the following factors of Macro Environment:
a. Economic Environment
b. Political Environment
c. Ecosystem Environment
d. Legal Environment
3. Explain the following terms in four to five sentences:
a. Business Environment
b. Micro Environment
c. Macro Environment
d. Social Responsibility
4. ―Business enterprises are creatures of society and should
respond to the demands of society‖. Discuss.

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3.5 CONCEPT OF ETHICS AND BUSINESS ETHICS

The words "ethics" which in Latin is called "ethic us" and in

Greek is called "ethikos" has come from the word ethos meaning
characters or manners. Ethics- Consists of moral principles governing
the right and wrongs of human conduct:

Is about the principles of right and wrong accepted by individuals

or social groups
A code of behavior considered morally correct
Code of moral principles that guide the action of people
and groups
Ethical behavior is doing what is morally right.

3.5.1 BUSINESS ETHICSe

Business ethics are the principles and standards that:

Define acceptable conduct in business: should

underpin decision making
An alternative definition is:‖the moral values which govern
business behavior and restrains companies from pursuing the
interest of the shareholder at the expense of all other
considerations‖
Some activities might be profitable and legal but nevertheless are
considered to be unethical
An ethical decision is one that is both legal and meets the shared
ethical standards of the community

3.5.2 CONCEPTe

In this era of globalization and multinational competition, Ethical

practices in business are assuming importance as relationships with
various suppliers and customers are shaped by ethical practices and
mutual trust, so ethical decision taking assumes importance in today's
corporate world. There are various issues relating to ethics and
corporate ethics in the corporate world. We shall first discuss those in
brief the two models, which are termed as models of ethical decision
making. They are as follows:

1) Joseph son institute Ethical decision making modele

This model is widely used in taking ethical decisions. It consists of 3
Steps:

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All decisions must take into account and reflect a concern for the interest
and wellbeing of all stakeholders.
Ethical values and principles always take precedence over non ethical
ones.
It's proper to violate an ethical principle only when it's clearly
necessary to advance another true ethical principle, which
according to the decision maker's conscience will produce the
greatest balance of good in the long run.

2) The Plus Decision –Making Modele

To make it easy to understand and apply these ethics filters, let us adapt
to mnemonic word "PLUS"
P = Policies (It is consistent with my organizations Policies,
Procedures and Guidelines?)
L = Legal (Is it Acceptable under the applicable laws and
Regulations?)
U = Universal (Does it conform to the universal principles values
my organizations has adopted?)
S = Self (Does it satisfy my personal definition of Right, Good and
Fair?)

3.5.3 CORPORATE ETHICSe

"Ethics is thus said to be the science of morals, a treatise on this

moral principles recognized rules of conduct. As applied to business
firms, ethics is the study of good and evil, Right and wrong and just and
unjust actions of businessmen. If protecting others from any harm is
considered to be ethical, then a company which recalls defective or
harmful products from the market is an ethical company. To be
considered ethical, business must draw their ideas about "What is
desirable Behavior "from the same source as any body else would draw.
People who are in business are bound by the same ethical principles
that apply to others. In common parlance the term "corporate ethics"
refers to the systems of principles rules of conduct applied to business.
In practice, the term has been used to describe the do's and don'ts for
the business the various things that business should or should not do viz
not violating any law, avoiding unethical practices, making donations to
charitable causes, taking up development projects in backwards areas,
paternalism towards employees, good public relations etc.
Business today far from being a profit making institution is largely
looked upon as a social institution pursuing a social mission and having
a far reaching influence on the way people live and work together.
Modern corporate do not operate in isolation. The resource they make
use of are not limited to those of the proprietors and the impact of their
operation is felt also by many a people who are in no way connected
with the business. The shareholders, the suppliers of resources, the

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consumers, the employees, the local community and the society at large
are affected by the way an enterprise functions.

The successful functioning of a firm requires social sanction. No

business can exist without the acceptance and sanction of the society in
which it carries out its activities. The organization is so dependent on its
social environment that it's very existence, survival and growth depends
on its acceptance and approval by the society. Given the mutual
relationship between the business and the society, Business cannot and
should not be allowed to conduct itself in a manner that may be
detrimental to the interest of the society. How the business should
conduct its multidimensional activities in order to pursue its social
obligations in a transparent manner forms the subject matter of
corporate ethics.

Ethics matters because it makes good business sense to 'do the right
thing'. Additionally good corporate Ethics result in: Attracting better
talent Retaining Employees.
Retaining customers
Attracting new Customers
A positive effect on Return on Investment.
A positive effect on corporate reputation.

3.6 GOVERNMENT SOCIAL RESPONSIBILITY

Government social responsibility is crucial for our society. The

people of a country expect their government to lead in a way that will
ultimately create the best environment for them to live in. The
government has a responsibility to do what is right for its people,
regardless if it benefits them or not. Government should
be selfless. Government should act ethically towards issues such as the
environment, economics, and culture. This way government would be
able to have a positive effect on society. Social responsibility is not
necessary, but it is an intelligent thing to do. It shows the people that
the government actually does care by taking the steps to benefit the
people in some way, as opposed to only trying to benefit itself.

Government social responsibility is important because the State

is a country of the people. A few men in government run things most of
the time, but when citizens unite under a common cause the country is
run by the people. Ultimately, the people have the final say. They elect
the representatives. This puts a great deal of power into the peoples‘
hands for changing. This is why it is important for the government to
look out for the peoples‘ best interests. In order to keep themselves

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happy, the government must keep the people happy. There are many
ways to do that, but none more important than changing the
environment that the people live in for the better. This is because it
helps preserve the Earth, it saves the people and the government
money, and it makes the world a healthier place to live. Social
responsibility is a necessary thing for keeping the balance. It maintains a
friendly and amiable relationship between a government and the
people that support it.

3.7 SUMMARY

Business operates within an environment. Business environment

consist of all those factors that have a bearing on the business. It is
dynamic, uncertain and relevant. Successful enterprises are those which
can use the environment for their advantage.

Environment is divided into internal and external environment.

Internal environment is within the organization and therefore it is
controllable. External environment is out of the reach of the
organization. Organizations need to adapt to external environment.
Further external environment is divided into micro and macro
environment. To a certain extend organizations can easily adapt to
micro environment, that cannot be said of macro environment.

Business does not operate in vacuum. It has to interact with the

community, the shareholder, the customers, the employees and the
government. Towards all of them business has responsibilities. So
responsibility towards various sections of the society is no longer a
matter of choice for businessmen, but it is requisite and it is the
foremost responsibility of the Manager to ensure that social
responsibilities are met.
Ethics consists of moral principles governing the right and
wrongs of human conduct. Business ethics are the moral values which
govern business behavior and restrains companies from pursuing the
interest of the shareholder at the expense of all other considerations.
Ethics matters because it makes good business sense to 'do the right
thing'. It also results in: attracting and retaining better talent, retaining
customer and developing corporate reputation.

3.8 EXERCISE

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i) Explain business environment and highlight its features.
ii) Briefly discuss the various forces that constitute internal
environment.

iii) Clarify the concepts of external environment with reference to

micro environment and macro environment.

iv) Discuss the importance of environment in operation of business.

v) Explain the concept of Social Responsibilities and identify the
responsibilities of a business enterprise towards various entities

vi) Elaborate on the social responsibilities towards owners,

employees, consumers, government, community and society

vii) Present your argument in favor and against social responsibilities

and what care should be taken to discharge social responsibilities

viii) Write a note on Social Responsibilities in India.ix) Explain the

concepts of ethics and business ethics.
x) Write short note on: Corporate Ethics and Government Social
Responsibility.


Chapter 4
PLANNING
Unit Structure
4.0 Objective
4.1 Introduction
4.2 Definition and Nature of Planning
4.3 Planning Process
4.4 Planning premises
4.5 Types of plan
4.6 Limitations of planning
4.7 Summary
4.8 Exercise

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4.0 OBJECTIVES

After studying the unit the students will be able to:

Discuss the concept of planning
Explain the planning process and its limitations.
Understand the characteristics of planning.
Know the types of plan.
Discuss the limitations of Planning.

4.1 INTRODUCTION

Planning is a primary function of management. Management process

starts with planning of activities. Planning provides directions for activities.
Planning is a continuous activity. It involves answering various questions like
why the action is taken, when it would be taken, how it would be taken, who
would take it and so on.

4.2 DEFINITION AND NATURE OF PLANNING

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4.2.1 DEFINITIONS

1. Koontz and O‘Donnell defines planning as, ―Planning is deciding in

advance what to do, how to do it, when to do it and who is to do it.‖
2. In the words of George R. Terry, ―Planning is a method or a technique of
looking ahead a constructive reviewing of future needs so that present
actions can be adjusted in view of the established goals.‖

4.2.2 CHARACTERSTICS OF PLANNINGe

Following are the important characteristics of planning:

1. Planning is primary functione

Management process starts with planning. So planning is a primary

function of management. Other functions of management i.e. organizing,
directing, and controlling are dependent on planning.

2. Planning is result orientede

Every plan is framed to achieve certain well defined objectives.
Planning is done to achieve goals. First targets are set and then planning is
done.

3. Planning is future orientede

Planning is always done for the future. The future can be short term,
medium term or long term. It is a programme for future by which
management tries to look ahead.

4. Planning is a continuous activitye

Planning is a continuous function of management. Managers are

required to formulate, modify and withdraw the plans according to business

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environmental changes. Planning is necessary as long as the business remains
in existence.

5. Planning is pervasivee

Planning is pervasive in nature. It is required for all the business

activities and by all the managers at all the levels. Planning is required
not only in business organizations but also in non-business organizations.

5. Inter-dependent activitye

Planning is inter-dependent activity. One departmental plans are

dependent on other departmental plans. Every plan is linked with other plans.

7. Intellectual processe
Planning requires imagination, intelligence, talent, vision etc. on part
of managers. Planning is based on practical considerations. Proper thinking is
required before finalizing a plan. The quality of plan depends upon mental
qualities of managers.

8. Planning requires past, present and future analysise

Planning requires proper analysis of past, present and future.

Managers need to check past performance, present targets and future
possibilities while planning.

9. Basis of controle

Planning provides base for control. The actual performance is

compared against planned targets. Plans provide basis for comparison of
actual and standard performance.

10. Flexible in naturee

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Planning is always flexible. It keeps on changing as per situation
changes. As business environment is dynamic in nature, planning needs to be
flexible in nature. Plans should match with environmental changes.

4.3 PLANNING PROCESS

Following steps are involved in the planning process:

1 Analysis of internal environment

2 Analysis of external environment

3 Establishment of objectives

4 Establishment of planning

5 Framing alternative plans

6 Evaluation of alternative plans

7 Selection of the best plan

8 Formulation of derivative plans

9 Implementation

1 Follow up

The stages of planning process are explained as follows:

1. Analysis of internal environmente

Planning process starts with analysis of internal environment. Internal
environment includes all the variables from the organization like manpower,

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plans and policies of top management, machines, materials etc. Planner needs
to study these variables properly to find out strengths and weaknesses of the
organization.

2. Analysis of external environmente

After the analysis of internal environment, planner needs to study
factors from external environment. External environment includes all those
factors which are outside the organization like government policies,
competition, internationalfactors, technological changes, consumer behavior
etc. This analysis is required to find out possible threats and opportunities for
the organization.
3. Establishment of objectivese
After the analysis of environment is over, planner should establish the
objectivesto be achieved. Objectives should be well defined to provide
guidelines for planning. Objectives should be SMART ie specific, measurable,
achievable, realistic and time bound.

4. Establishment of planning premisese

Planning premises are the assumptions which provide a framework
within which plans operate. Appropriate assumptions have to be made regarding
internal and external environment.

5. Framing alternative planse

Planner should always frame alternative plans instead of only one final
plan. For eg.: To improve product quality, planner can make alternative plans
such as,
i) Purchase of better quality raw material ii)
Installation of advanced technology iii)
Training to workers etc.

5. Evaluation of alternative planse

All the alternative plans should be evaluated by the planner. Evaluation
should be in terms of cost and returns possible from that particular plan.

7. Selection of the best plane

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Once the plans are evaluated, planner should select the best plan out of
all the alternatives. The plan which gives maximum returns at minimum cost
should be selected as the best plan.

8. Formulation of derivative planse

Derivative plans are sub-plans which are required for operational purpose.
For implementation of the final plan derivative plans are required.
Programmes, policies, schedules, budgets etc. are examples of derivative
plans.

9. Implementatione

With the help of derivative plans prepared, final plan should be

implemented. Plan should be communicated to all those people in the
organization who are required to implement them.

10. Follow upe

Periodic follow up is required to find out whether the actual performance

is matching with planned targets. If necessary certain changes can be done in
that plan.

4.4 PLANNING PREMISES

A premise is an idea that one accepts as true and use it as a

base for developing other idea. Planning premises thus are certain
ideas or assumptions which one makes while preparing a plan. For
example, if marketing planning has to be done foe next year then
certain assumptions have to be made like finished goods supple
will be normal, the demand is likely to be more or less, the cost of
selling and distribution would increase marginally and so on.

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While deciding the planning premises, one has to be very
careful that these premises are realistic in nature. It should be
more practical so that the plans can be made more effective.

Planning premises may be classified in various ways:

1. Planning premises exist both within and outside the company
i.e. internal and external premises.
2. Planning premises may be divided into tangible and
intangible ones.
3. Planning premises may be fully controllable, partly
controllable or absolutely uncontrollable.
4. Planning premises may be constant or variable in nature.

CHECK YOUR PROGRESSe

1. Define the following terms:

a. Internal environment
b. External environment
c. Planning premises
2. Write a note on planning premises.
3. Draw the chart showing stages of planning process.
4. ―Planning involves answering various questions like why the action is
taken, when it would be taken, how it would be taken, who would take it
etc.‖ Discuss.

4.5 TYPES OF PLAN

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Several plans are prepared while making a plan. These all plans are
classified as follows:
I) Standing plans: These plans are prepared for repeat use. They are used
again and again. Therefore they are referred as repeat use plans.
II) Single use plans: These plans are prepared to achieve specific objectives.
These are used only once. Once the purpose is served, plan becomes
obsolete.
Various components of plan can be explained with the help of following chart:

Mission

Objectives

Policies
Strategies
Procedures

Standing Plans Method

Rules

Programmes

Single use plans Projects

Schedules

Budgets

1. Missione
Every organization should have mission. Mission is the statement
which reflects purpose, philosophy and vision of the organization. Mission
guides the overall working of the enterprise.

2. Objectivese
Objectives are the goals or targets what management wants to
achieve. Objectives are drawn from mission. These are ends towards which all
the actions are directed.

3. Strategiese

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Strategy is a broad long term plan. It provides guideline for achieving
the objectives of the organization.

4. Policiese
Policy is considered as guideline for action. Policies provide a
framework within which the organization has to operate. It defines boundaries
for decision making.

5. Procedurese
Procedure is a series of activities required to be performed for
attaining objectives. It is the sequence of works to be done.

6. Methodse
Method describes the way of performing particular work. By following
a proper method, procedure is completed.

7. Rulese
Rules lay down specific actions to be done. It describes what is to be
done and what should not be done.

8. Programmee
Programme is a plan which is designed to implement the policies and
accomplish objectives. It is a combination of goals, policies, procedures, rules
to carry out activities.

9. Projectse
Projects are the plans which are required to complete complex and special
work. It requires expert knowledge from various departments.

10. Schedulese
A schedule is a time table for activities. It defines start time and
completion time of each and every activity. It ensures completion of work on
time.

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11. Budgetse
Budgets express the anticipated results in numerical terms. It is mainly
used for controlling the actual performance of activities.
CHECK YOUR PROGRESSe

1. Define the following terms:

a. Standing plan
b. Single use plan
c. Mission
d. Strategy
2. Draw the chart showing components of plan.

4.6 LIMITATIONS OF PLANNING

The limitations of planning can be explained as follows:

1. Time consuminge
Planning needs collection of data of past, present and future of the
organization. It requires consultation and discussion with other people in the
organization. It requires approval for higher authority. Therefore planning is a
time consuming process.

2. Paper worke
Lot of paper work is involved in planning function. Paper work is more
due to reports making, taking approvals, alternative plans etc.

3. Costly affaire
A good amount of money is required to be spent for collecting and
analyzing the data. So the companies who cannot offered such expenses avoid
planning.

4. Possibility of under-targetinge
Sometimes managers may under-target while planning. This is because,
they

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may think that they can achieve targets easily can get appreciation. This
happens mostly in public sector organizations.
5. Possibility of over-targetinge
Sometimes managers may target at higher level. This may be due to
wrong collection and interpretation of data.

6. Generates frustratione
If the managers are not able to achieve the planned targets in spite of
best efforts, it may lead to frustration.

7. Possibility of human errore

Plans require judgment and intelligence on the part of the managers. But
if managers have done wrong judgment about future, then it may lead to
wrong targeting.

8. Problem of changing situationse

Business environment is not constant. Changes are always taking place
and plans need to adjust with these changes. But every time it may not be
possible to adjust with every change.

9. Inter-departmental conflictse
Planning requires co-ordination between all the departmental managers.
But it is possible that, these managers may have conflicts due to which plan
may not give expected results.

10. Generates rigiditye

While carrying on actual performance, managers always focus only on
planned targets. It may be possible that, sometimes higher performance may
be possible. But managers tend to achieve only what has been planned.

4.7 SUMMARY

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From the above discussion the concept of planning is very much clear.
According to the requirement and situations in the organization various types
of plans can be made and implemented. We understood that planning is a
primary function of the management and therefore it has to be carried on
carefully. Before starting with planning function planning premises have to be
analyzed and fixed. Well planned activities of the organizations bring definite
success but at the same tine one has to remember that planning also has got
certain limitations.

4.8 EXCERICSE

1. Define planning. Explain the nature and characteristics of planning.

2. Explain the steps involved in planning process.
3. Enumerate the types of plans.
4. State and explain the limitations of planning.
5. Write a note on planning premises. 6. State and explain the various
steps involved in process of planning.



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Chapter 5
FORECASTING AND DECISION MAKING
Unit Structure
5.0 Objectives

5.1 Meaning and definition of Forecasting

5.2 Process of Forecasting
5.3 Importance of Forecasting
5.4 Methods of Forecasting
5.5 Meaning and definition of decision making
5.6 Process of decision making 5.7
Types of decision
5.8 Problems in decision making
5.9 Summary
5.10 Exercise

5.0 OBJECTIVES

After studying the unit the students will be able to:

Understand the concept of forecasting
Discuss the importance and methods of forecasting
Discuss the concept of decision
making Explain the types of
decision.
Understand the process of decision making
Know the problems in decision making

5.1 INTRODUCTION

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Forecasting can be broadly considered as a method or a technique for
estimating many future aspects of a business or other operation. There are
numerous techniques that can be used to accomplish the goal of forecasting.
For example, a retailing firm that has been in business for 25 years can
forecast its volume of sales in the coming year based on its experience over
the 25-year period—such a forecasting technique bases the future forecast on
the past data.

While the term "forecasting" may appear to be rather technical,

planning for the future is a critical aspect of managing any organization —
business, nonprofit, or other. In fact, the long-term success of any organization
is closely tied to how well the management of the organization is able to
foresee its future and to develop appropriate strategies to deal with likely
future scenarios. Intuition, good judgment, and an awareness of how well the
economy is doing may give the manager of a business firm a rough idea of
what is likely to happen in the future. Nevertheless, it is not easy to convert a
feeling about the future into a precise and useful number. Forecasting
methods can help estimate many such future aspects of a business operation.

5.2 PROCESS OF FORECASTING

Following steps are involved in process of forecasting.

1. Establishing the Business Neede

The managers need to clearly understand how their forecast will
influence business planning and decisions within their organization. Without
this important understanding, the resulting effort will very likely produce
adverse results. To establish the business need, these key questions should be
answered.

2. Acquiring Datae
For each business driver and influencing factor, the typical forecasting
effort should use at least two years, and ideally up to five years, of historical
data. When forecasting efforts have short time horizons in small time periods,
fewer data can be used. To collect the most accurate and robust data sets, all
available data sources should be used. By sourcing from multiple areas,
differences in organizational behavior can be balanced out to yield the best
data set.

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All data should be drawn incrementally in their pure form from
available data sources to build up the needed accuracy and
completeness. To ensure the richest representation of historical events, the data
should not be altered and quality issues should be addressed sooner in the process
rather than later.

3. Building the Modele

Once the business needs, drivers, and influencing factors have been
established with the associated historical data, a decision needs to be made
on the type of forecasting model to use. The forecasting model is the
technique or algorithm that determines the projections based on identified
business drivers, influencing factors, and business constraints. There are three
major categories of forecasting models: cause-andeffect, time series, and
judgment.

Many more forecasting models are also available, and there is no overall best
choice. In fact, forecasting models are often combined to produce the most
accurate results for a given business need, and it may be necessary to consult
with business and technical experts for advice when selecting the best model
for a given situation.

4. Evaluating the Resultse

Once the model has been built and executed, the resulting forecast
accuracy should be evaluated using the most recent time period. Overall
model accuracy should be measured using statistical functions.

5. Applying the Forecaste

Once all the work has been done to create a high-quality forecast, it
should be deployed to the stakeholders and end users in a manner tailored to
their use. The forecast should ideally be made accessible to all appropriate
business areas in reports and analyses packaged to unique end-user
perspectives.

5.3 IMPORTANCE OF FORECASTING

Forecasting has following advantages:

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1. Forecasting plays a key role in managerial planning and supplies vital
facts and crucial information.
2. Forecasting improves the quality of managerial personnel
bycompelling them to think through the future, to look ahead and to
make provision for it.
3. Forecasting ensures a better utilization of resources byextending the
frontiers of control in several directions and by revealing the areas
where control is lacking.
4. Employees are trained for accepting changes without anyserious
resistance as well as for facing unexpected occurrences courageously.
5. Forecasting steers the enterprise safely for reaching its fixed
destination, as outlined by the objectives of the organization.
6. By focusing attention on the future, forecasting helps themanager in
adopting a definite course and a set purpose in matters of planning.

5.4 METHODS OF FORECASTING

1. Genius forecastinge
This method is based on a combination of intuition, insight, and
luck. Psychics and crystal ball readers are the most extreme case of
genius forecasting. Their forecasts are based exclusively on intuition.

2. Trend extrapolatione
These methods examine trends and cycles in historical data, and
then use mathematical techniques to extrapolate to the future. The
assumption of all these techniques is that the forces responsible for
creating the past will continue to operate in the future. This is often a
valid assumption when forecasting short term horizons, but it falls short
when creating medium and long term forecasts. The further out we
attempt to forecast, the less certain we become of the forecast. The
stability of the environment is the key factor in determining whether
trend extrapolation is an appropriate forecasting model. There are
many mathematical models for forecasting trends and cycles. Choosing
an appropriate model for a particular forecasting application depends
on the historical data.

3.Consensus methodse
Forecasting complex systems often involves seeking expert
opinions from more than one person. Each is an expert in his own

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discipline, and it is through the synthesis of these opinions that a final
forecast is obtained.

4. Delphi techniquee
This method seeks to rectify the problems of face-to-face
confrontation in the group, so the responses and respondents remain
anonymous. The classical technique proceeds in welldefined sequence.
In the first round, the participants are asked to write their predictions.
Their responses are collated and a copy is given to each of the
participants. The participants are asked to comment on extreme views
and to defend or modify their original opinion based on what the other
participants have written. Again, the answers are collated and fed back
to the participants. In the final round, participants are asked to reassess
their original opinion in view of those presented by other participants.

5.Scenarioe
The scenario is a narrative forecast that describes a potential
course of events. Like the cross-impact matrix method, it recognizes the
interrelationships of system components. The scenario describes the
impact on the other components and the system as a whole. It is a
"script" for defining the particulars of an uncertain future.

6. Decision treese
Decision trees originally evolved as graphical devices to help
illustrate the structural relationships between alternative choices. These
trees were originally presented as a series of yes/no (dichotomous)
choices. As our understanding of feedback loops improved, decision
trees became more complex. Their structure became the foundation of
computer flow charts.

CHECK YOUR PROGRESSe

1. Explain the following terms:
a. Forecasting
b. Genius forecasting
c. Trend extrapolation
d. Consensus methods
e. Delphi technique
f. Scenario
g. Decision trees
2. Enlist the steps involved in process of forecasting.

5.5 MEANING AND DEFINITION OF DECISION MAKING

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Decision making is a process of identifying a set of feasible alternatives
and from these selecting the best course of action. It is a technique used to
find a solution to solve problem.

5.5.1 DEFINITIONe

1. James stoner defines decision making as, ―The process of identifying

and selecting a course of action to solve a specific problem.‖
2. According to Haynes and Massie, ―A decision is a course of action which
is consciously chosen for achieving a desired result.‖

5.5.2 IMPORTANCE AND ADVANTAGES OF DECISION MAKINGe

Decision making is an essential element of management process.
Manager needs to take sound decisions for conducting correct actions so that
objectives can be achieved. The importance of decision making can be
explained as follows:

1. Achievement of objectivese

Good decisions always facilitate attainment of all objectives in time.

Decisions direct the exact flow of activities and resources which results into
achievement of objectives.

2. Optimum use of resourcese

Due to sound decisions available resources are allocated properly for

productive activities. This facilitates optimum use of resources and minimizes
wastages.
3.Higher efficiencye

Decision making enables to attain higher results at same cost or at a

lower cost. This leads to higher efficiency in the organization.

4. Facilitates innovatione

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Decision making process generates new ideas, new products, new
methods etc. This results in innovation.

5. Motivatione

Sound decisions motivate employees to perform better. Sound

decisions require best efforts from employees which improves results.

6. Growth and expansione

Sound decisions lead to better performance in the organization.

Objectives are achieved in time. This leads to growth and expansion of the
organization.

7. Helps to face new challengese

Decision making facilitates decisions which are required to solve problems

created by constant environmental changes. Thus organization can face the new
challenges created by environment.

8. Encourages initiativee
Modern managers involve all the people from the organization in
decision making process. All employees involved in decision making contribute
new ideas and suggestions. This leads to encouragement of initiative.

5.6 PROCESS OF DECISION MAKING

Following are the steps in process of decision making:

Identification of Analysis or problem Generating

problem (1) (2) alternative

Decision Making
Process

Follow up (6) Implementation (5) Selecting the

best solution (4)

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1. Identification of probleme

Decision making process starts with identification of problem. The

problem has to be identified properly so that correct solution can be found
out. Company may be facing the problem of fall in sales.

2. Analysis of probleme

Once the problem is identified, the next step is to collect relevant facts
about it. Manager should know possible causes and effects of that problem.
For eg.: Fall in sales may be due to poor advertising strategy, poor quality of
product, increase in prices, poor distribution strategy etc.

3. Generating alternative solutionse

Once the possible causes for problem are listed out, manager has to
generate various alternative solutions to solve that problem. For eg.: Various
alternative solutions can be revision of prices, effective distribution strategy,
improving product quality etc.

4. Selecting the best solutione

After all the alternatives are evaluated properly, manager should

select the best alternative out of it. The best alternative is always that solution
which will generate maximum returns at minimum cost. For eg.: In our
example the best alternative can be improvement of product quality.

5. Implementatione
The selected best alternative will be practically implemented by managers
to solve the problem. Implementation should be done by having proper
allocation of resources. For eg.: for actual improvement in product quality, raw
material can be changed, advanced technology can be installed, labour can be
trained more etc.

7. Follow upe

Once the solution is implemented practically, managers should take a

follow up of actual performance of that solution. Managers should see that
implemented solution should solve the problem. If not, then again the
managers should find out possible alternatives to solve that problem.

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5.7 TYPES OF DECISION

Following are the various techniques of decision making:

1. Brain Storminge
Brain storming is just a process for identifying solutions to
problems and options to pursue. In Brainstorming session, all the
members discuss various ideas. These ideas are noted down and
evaluated. During evaluation process each idea is considered. The best
idea is selected after evaluating all the ideas. Brain storming is a time for
getting ideas out of people's head and therefore personal biases should
be avoided while considering the ideas.

2. Decision Treese
Under this technique, one identifies options, branching out of an initial
bipolar choice to make, by projecting likely outcomes. The limitation of this
technique lies mainly in that it forces you to address the problem from only
two possible avenues of solution right from the start.

3. The Delphi Techniquee

It is used as a multipurpose planning tool. The Delphi technique is a
group process that anonymously generates ideas or judgments from physically
dispersed experts. Unlike the NGT, experts' ideas are obtained from
questionnaires or via the internet as opposed to face- toface group
discussions. A manager begins the Delphi process by identifying the issue(s) he
or she wants to investigate. The Delphi technique is useful when face- to- face
discussions are impractical.

4. Nominal Group Technique (NGT)e

NGT is a decision making method for use among groups of many
sizes, who want to make their decision quickly, as by a vote, but want
everyone's opinions taken into account. Some Facilitators will
encourage the sharing and discussion of reasons for the choices made
by each group member, thereby identifying common ground, and a
plurality of ideas and approaches.

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5.Pros and conse
Another simple process for decision-making is the pros and cons list.
Pro means 'for', and con means 'against'. In other words advantages and
disadvantages. This method also applies to all sorts of problemsolving where
issues and implications need to be understood and a decision has to be made.

6. PERTe
PERT stands for programme evaluation review technique. PERT
is a method to analyze the involved tasks in completing a given project,
especially the time needed to complete each task, and identifying the
minimum time needed to complete the total project. PERT was
developed primarily to simplify the planning and scheduling of large and
complex projects. It was developed for the U.S. Navy Special Projects
Office.

CHECK YOUR PROGRESSe

1. Explain the following terms in four to five sentences:
a. PERT
b. Pros and cons
c. NGT
d. Brainstorming
e. Decision making
2. Draw the chart showing the steps in process of decision making.
3. ―Decision making is an essential element of management process‖.
Explain.

5.8 PROBLEMS IN DECISION MAKING

Following are the problems associated with decision making:

1. False decentralizatione

False Decentralization could take place when an authoritative

manager delegates accountability to a new manager for every new decision-
making problem, but not delegating any authority.

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2. Failure to define the probleme
This certainly lends to a wrong solution. Not knowing the problem, any
solution is wrong. If you know the problem then, your solution might be good.

3. Failure to understand the probleme

This is caused, among others, by subjectivity, irrational analysis,
lateness or procrastination, lack of sensitivity, and lack of focus.

4. Complexity of probleme
If the problem is of complex nature, then first it has to be simplified by
the decision makers. Then only it is possible to arrive at a proper solution. But
if the complex problem is solved without simplifying then it may lead to wrong
solution.

5. False informatione
Information gathered is not valid. Decisions are often made first and
information sought to support the solution, or much of the information
gathered is irrelevant to the decision-making.

7. Obligations of decision makere

Sometimes decision makers act against integrity to meet some critical
personal obligations. In such cases, there are major chances of failure of
decisions taken.

5.9 SUMMARY

From the above discussion the concept of forecasting is quite clear.

From the discussions, it is clear that forecasting forms a basis for planning.
Good and accurate forecasting will lead to effective planning. Forecasting can
be done by following various techniques, some of which are discussed in the
topic. Even if planning and forecasting are used alternatively still one has to
understand the difference between these two.

At the same time, topic also discusses the concept of decision making in detail.
Decision making is a core function of the managers.

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5.10 EXERCISE

7. Define forecasting. Explain the process of forecasting.

8. State and explain the various methods of forecasting.
9. ―Forecasting provides base for planning.‖ Discuss.
10. Differentiate between planning and forecasting.
11. Define decision making. Explain the process of decision making.
12. Discuss the various types of decisions.
13. State and explain the problems associated with decision making.


Chapter 6
OBJECTIVES AND MANAGEMENT BY OBJECTIVES

Unit Structure
6.0 Objectives
6.1 Introduction
6.2. Meaning and Definition of Objective
6.3 The features of a good objective
6.4. MBO - Management by Objectives
6.5 Summary
6.6 Exercise

6.0 OBJECTIVES

After studying the unit the students will be able to:

Define the concept Objectives.
Discuss the main features of good objectives.
Understand the concept MBO
Explain the Features, Process, Benefits and
Problems of MBO.

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6.1 INTRODUCTION

Objective is an end that can be reasonably achieved within an

expected timeframe and with available resources . In genera l , an
objective is broader in scope than a goal, and may consist of several
individual goals . Objectives are a basic tools that underlying all
planning and strategic activities. They serve as the basis for policy
and performance appraisals .

6.2 MEANING AND DEFINITION OF OBJECTIVE

Objective means the desired or needed result to be achieved by

a specific time. An objective is broader than a goal, and one objective
can be broken down into a number of specific goals.

A business objective is the map you will use to reach the goals
you have for your organization. If you are creating a business or
planning for your company's future, you will not garner much success
without clearly defined business objectives. A business objective will
create a union between the mission and the strategies of your
organization (i.e. marketing, productivity, projected profits, and results).
If you and your employees do not know where the organization is
headed---then everyone will just trave l in different "failing" directions.

6.3 THE FEATURES OF A GOOD OBJECTIVE

6.3.1 FEATURES OF OBJECTIVES

1. Objectives have to be very specific.

A good objective should be tested to ensure they are "SMART", i.e.

Specific
Measureable
Agreed
Realistic
Time bound

Specific – this means it must be clear what the firm is trying to achieve.
For example, mangers may want to increase sales, increase profit or
increase customer satisfaction.

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Measurable – this means that all objectives should include a
quantifiable element. For example, the firm might aim to increase profit
by 30 %. This means that the managers can easily check whether the
target has been achieved.

Agreed – targets need to be agreed by the different people who are

involved in the process so that it is voluntarily made achievable. There is
no point imposing a target on someone.

Realistic – a target should always be achievable. If you set an objective

which cannot be achieved people will not be motivated by it. It may
even discourage them, because they know the target can never be
reached anyway. To work well employees must believe that their efforts
can be successful.

Time specific – all objectives should state quite clearly when they
should be achieved. Managers need to know exactly how long they
have so that they can plan accordingly.

2. Hierarchy Of Objectivese

In many organizations objectives are structured in a hierarchy of

importance. There are objectives within objectives. They all require
painstaking definitions and close analysis if they are to be useful
separately and profitable and profitable as a whole. The hierarchy of
objectives is a graded series in which an organization‘s goals are
supported by each succeeding managerial level down to the level of the
individual. The objectives of each unit contribute to the objectives of the
next higher unit. Each operation has simple objective which must fit in
and add to the final objective. Hence no work should be undertaken
unless it contributes to the overall goal.

3. Objectives Form a Networke

Objectives interlock in a network fashion. They are interrelated

and inter-dependent. The concept of network of objectives implies that
once objectives are established for every department and every
individual in an organization, these subsidiary objectives should
contribute to meet the basic objectives of the total organization. If the
various objectives in an organization do not support one another,
people may pursue goals that may be good for their own function but
may be detrimental to the company as a whole. Managers have to trade
off among the conflicting objectives and see that the components of the
network fit one another.

4. Multiplicity of objectivese

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Organizations pursue multifarious objectives. At every level in
the hierarchy goals are likely to be multiple. For example the marketing
division may have the objective of sale and distribution of products. This
objective can be broken down into a group of objectives for the product
advertising, research, promotion managers. The advertising manager‘s
goals may include: designing product messages carefully, create a
favorable image of the product in the market etc. Similar goals can be
set for other marketing managers. To describe a single, specific goal of
an organization is to say very little about it. It turns out that there are
several goals involved. This may be due to the fact that the enterprise
has to meet internal as well as external challenges effectively. Internal
problem may hover around profitability, survival, growth and so on.
External problems may be posed by governments, society, stockholders,
customers etc. In order to meet the conflicting demands from various
internal and external groups, organizations generally pursue multiple
objectives. Moreover no single objective would place the organizations
on a path of prosperity and progress in the long run.

5. Long and short range objectivese

Organizational objectives are usually related to time. Long range

objectives extending over five or more years are the ultimate or dream
objectives for the organization they are abstractions of the entire
hierarchy of objectives of the organization. For example planning in
India has got objectives like eradication of poverty , checking population
growth through birth control etc. which reflect certain ideals the
government wishes to accomplish in the long run. Short range
objectives (one year goals) and medium range objectives (two to four
year period goals) reflect immediate attainable goals. The short range
and medium range objectives are the means for achieving long term
goals and the long term goals supply a framework within which the
lower level goals are designed. Thus, all these goals reinforce each other
in such a way that the total result is greater than the sum of the efforts
taken individually. That is why goal setting is called a synergistic process.
In order to remain viable, every organization needs to set goals in all
three time periods.

6. Verifiable and Non Verifiable Objectivese

Objectives should be measureable so you know whether or not

you have achieved the objective and whether you are making progress
in a positive trend towards meeting the objective.

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This is referred to as a verifiable objective. Objectives that are
not verifiable are counterproductive and a company may spend valuable
time and resources on the wrong initiatives.

Just stating "Increase Sales" without a strategy and set

objectives may not accomplish the goal. However if you identify that
you need to represent three additional territories that is verifiable when
accomplished, If you identify you need 6 more sales reps that is
verifiable. If you state that with 3 territories and 6 reps you should be
able to achieve X amount of sales that is verifiable.

7. Qualitative and Quantitative Objectivese

Qualitative Objectives are those objectives which cannot be

expressed in quantifiable terms; for example, a salesperson might set as
an objective in a specific period the acquisition of certain product
knowledge, or the forming of a close business relationship with the
buyer from a major account.
Quantitative Objectives are those objectives which can be
expressed in specific numerical terms; for example, a salesperson might
set as an objective for his or her territory "to increase sales revenue of
Product X by 10% in 2011".
CHECK YOUR PROGRESSe
1. ―A good objective should be tested to ensure they are
SMART‖. Explain.
2. Define the following terms:
a. Hierarchy Of Objectives
b. Multiplicity of objectives
a. Objective
c. Management by Objectives
d. Quantitative objectives
e. Qualitative objectives
f. Variable objectives

6.4 MBO - MANAGEMENT BY OBJECTIVES

The concept of „Management by Objectives‟ (MBO) was first

given by Peter Drucker in 1954. It can be defined as a process whereby
the employees and the superiors come together to identify common
goals, the employees set their goals to be achieved, the standards to be
taken as the criteria for measurement of their performance and
contribution and deciding the course of action to be followed.

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The essence of MBO is participative goal setting, choosing course
of actions and decision making. An important part of the MBO is the
measurement and the comparison of the employee‘s actual
performance with the standards set. Ideally, when employees
themselves have been involved with the goal setting and the choosing
the course of action to be followed by them, they are more likely to
fulfill their responsibilities.

It aims to increase organizational performance by aligning goals

and subordinate objectives throughout the organization. Ideally,
employees get strong input to identify their objectives, time lines for
completion, etc. MBO includes ongoing tracking and feedback in the
process to reach objectives.

6.4.1 Managerial Focuse

MBO managers focus on the result, not the activity. They

delegate tasks by "negotiating a contract of goals" with their
subordinates without dictating a detailed roadmap for implementation.
Management by Objectives (MBO) is about setting objectives and then
breaking these down into more specific goals or key results.

6.4.2 Main Principlee

The principle behind Management by Objectives (MBO) is to

make sure that everybody within the organization has a clear
understanding of the aims, or objectives, of that organization, as well as
awareness of their own roles and responsibilities in achieving those
aims. The complete MBO system is to get managers and empowered
employees acting to implement and achieve their plans, which
automatically achieve those of the organization.

6.4.3 MBO Systeme

An MBO system is based on mutually agreed objectives. A

manager will discuss with subordinates what needs to be achieved in
their particular section of the firm. They will agree specific targets for
each subordinate. For the MBO system to work effectively it is
important that the objectives are agreed by the subordinates and not
simply imposed on them. It is good practice, therefore, to allow staff to
set objectives for themselves subject to the superior‘s approval. They
are likely to be much more committed to them because they will feel
they own these targets themselves.

ADVANTAGES OF MBOe

1. Clarity of goalse With MBO, came the concept of SMART goals

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i.e. goals that are: Specific, Measurable Achievable Realistic,
and Time bound. The goals thus set are clear, motivating and there is
a linkage between organizational goals and performance targets of
the employees.

2. Future orientede The focus is on future rather than on past. Goals

and standards are set for the performance for the future with
periodic reviews and feedback.

3. Motivatione Involving employees in the whole process of goal setting

and increasing employee empowerment increases employee job
satisfaction and commitment.

4. Better communication and Coordinatione Frequent reviews and

interactions between superiors and subordinates helps to maintain
harmonious relationships within the enterprise and also solve many
problems faced during the period. Each manager knows exactly what
he has to do

5. Sense of Responsibility: Peter Drucker believed that the most

effective way to give people a sense of responsibility for their working
lives was to make them decide for themselves how to achieve their
objectives.

6. Target orientede The targets act as a control mechanism for the

organisation. Everyone‘s performance can be judged against the
targets.

7. Delegation of Authoritye MBO ensures that employees in every

department are all working towards common goals. MBO allows
delegation to be achieved in a coordinated way.

PROBLEMS OF MBOe

1. MBO system sounds appealing in theory, in practice it can become

bureaucratic and time consuming. Managers and subordinates can
spend hours in meetings trying to agree targets which may be
unrealistic anyway.

2. Setting targets does not guarantee that they are achieved. In some
cases, companies introduce MBO but individual managers are
unwilling to delegate fully to their subordinates. This results in
frustration as the executive feels they will be held responsible for
something they do not fully control.

3. Objectives can become out of date and inappropriate very quickly.

(Environment changes rapidly). With new competitors, new product
offerings, new technology and new legislation the world in which a

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firm operates can be very dynamic. Targets may soon become
irrelevant. Consequently some managers think it is more important
to set out the general direction the firm wants to move in. Not try to
be too specific about the exact route. Much better, some say, to let
the managers react for themselves to the situation in which they
operate.
THE MBO PROCESSe

Figure 1

These steps are explained belowe

1. Setting Objectivese

Goal-setting or objective setting is a multistage process. It starts

with the examining of the current state of affairs, level of efficiency,
threats, and opportunities. Then the key result areas are identified, such
as product markets, improved services, lowered costs, work
simplification, employee motivation, profitability innovation and social
responsibility. Peter Drucker says, ―Objectives are important in every
area where performance and results directly affect the survival and
prosperity of business‖.

Thereafter interacting or joint goal setting takes place.

Subordinates are actively involved in formulating goals at every level in
the organization such goals are finished with reference to the overall
objectives of the organization. Care is taken to establish goals that are
measurable and contribute to the element also. Such goals may be long
range, medium range, or short range. Further, resources availability also
becomes an important consideration in goal setting. There is always

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need to decide priorities among the different objectives keeping in view
the environment within which business operates as well as possible
further changes in it.
2. Developing Action Planse

Set objectives must be translated into action plans. It requires

assignment of specific responsibilities to different departments, division,
and individuals. It also requires allocation of necessary resources
needed to perform the assigned responsibilities. Time dimensions are
also to be decided in order that targets are reached without any
unwarranted delays.

3. Periodic Review or Monitoring the Progresse

After setting objectives and developing action plans, it is

necessary to establish a proper monitoring system with a view to
regularly keeping the activities. He progress is monitored without day
path leading to the ultimate objective. It is ensured that the deviations
found, if any, are thoroughly discussed and immediate corrective
actions are taken to set them right on the course. Such a regular
monitoring and periodic review not only provide feedback which is
essential for completion of work in time. But also motivates the
managers accountable for performance. Periodic review and monitoring
are done at departmental level generally.

4. Evaluate and Reward Performancee

This is the last phase of MBO program that evaluates

performance annually As goals have been defined in a specific,
measurable and time-based way, the evaluation aspect of MBO is
relatively straightforward. Employees are evaluated on their
performance with respect to goal achievement. All that is left to do is to
tie goal achievement to reward, and perhaps compensation, and
provide the appropriate feedback.

When you reward goal achievers you send a clear message to everyone
that goal attainment is valued and that the MBO process is not just an
exercise but an essential aspect of performance appraisal. The
importance of fair and accurate assessment of performance highlights
why setting measurable goals and clear performance indicators are
essential to the MBO system.

BENEFITS OF MANAGEMENT BY OBJECTIVES :

1. Better managing:

MBO forces managers to think about planning for results, rather

than merely planning activities or work. Managers are required to

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ensure that the targets are realistic and needed resources are made
available to subordinates to achieve the targets. Clearly set serve as
evaluation standards as well as motivators.
2. Better organisinge

Managers are required to clarify organisational roles and

structures to the subordinates. This results in focus on key result areas,
hence better organising.

3. Greater employee involvement & commitmente

The employees in a MBO program have clearly defined goals

which have been formalised through their own participation. Employees
are now not just doing work, following instructions and waiting for
guidance and decisions from above, they are themselves the guiding
force.

4. Orderly growth of organisatione

MBO provides for the maintenance and orderly growth of

organisation by means of predetermined set of objectives for everyone
involved. It provides for measurement of achievements as per
predetermined targets.

5. Development of effective controlse

Along with sharpening of planning MBO also develops effective

controls. It provides for periodic reviews and annual performance
appraisals creating a bridge for feedback and thus helping to further
streamline the objective or targets.

6. Generating of an ideal atmospheree

MBO provides a scientific basis for evaluation of a subordinate

performance, because goals are jointly set by the superior and the
subordinates. Each individual has the potential for development, the
capacity to assume responsibility and the readiness to direct behavior
towards organization goals.

USE OF MBOe

The MBO style is appropriate for knowledge-based enterprises

when your staff is competent. It is appropriate in situations where you
wish to build employees' management and self leadership skills and tap
their creativity, tacit knowledge and initiative. Management by
Objectives (MBO) is also used by chief executives of multinational
corporations (MNCs) for their country managers abroad.

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6. 5 SUMMARY

Objective means the desired or needed result to be achieved by

a specific time. An objective is broader than a goal, and one objective
can be broken down into a number of specific goals. Objectives have to
be very specific. A good objective should be Specific, Measureable,
Agreed, Realistic, and Time bound.

Featurese Hierarchy of Objectivese

Objectives are structured in a hierarchy of importance.

Objectives form a Networke Objectives interlock in a network fashion.
They are interrelated and inter-dependent.

Multiplicity of objectivese Organizations pursue multifarious

objectives. At every level in the hierarchy goals are likely to be multiple.
Long and short range objectivese Organizational objectives are usually
related to time. Long range objectives extending over five or more years
,Short range objectives (one year goals) and medium range objectives
(two to four year period goals) reflect immediate attainable goals.
Verifiable and Non Verifiable Objectivese Objectives should be
measureable. This is referred to as a verifiable objective. Objectives that
are not verifiable are non verifiable objectives. Qualitative and
Quantitative Objectivese Qualitative Objectives are those objectives
which cannot be expressed in quantifiable terms; whereas Quantitative
Objectives are those objectives which can be expressed in specific
numerical terms.

The concept of „Management by Objectives‟ (MBO) was first

given by Peter Drucker in 1954. It can be defined as a process whereby
the employees and the superiors come together to identify common
goals, the employees set their goals to be achieved, the standards to be
taken as the criteria for measurement of their performance and
contribution and deciding the course of action to be followed.

Advantages of MBOe

Clarity of goals, Future oriented, Motivation, Better communication

and Coordination, Sense of Responsibility, Target oriented, Delegation of
Authority:

Problems of MBOe

MBO system sounds appealing in theory, in practice it can

become bureaucratic and time consuming, Setting targets does not
guarantee that they are achieved, Objectives can become out of date

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and inappropriate very quickly. Benefits of Management by Objectives
:

Better managing and organising, Greater employee involvement

& commitment, Orderly growth of organisation, Development of
effective controls, Generating of an ideal atmosphere.

6.6 EXERCISE

1. Define and elaborate on the meaning of Objectives.

2. Discuss the features of objectives.
3. Briefly explain the concepts: Hierarchy of Objectives, Objectives
Form a Network, Multiplicity of objectives, Long and short range
objectives, Verifiable and Non Verifiable Objectives, Qualitative
and Quantitative Objectives.

4. Explain the concept of MBO, its principles and systems.

5. What are the advantages of implementing MBO?

6. Explain the process of MBO.

7. What are the benefits of MBO?


Chapter 7

ORGANIZATION

Unit Structure
7.0 Objective
7.1 Introduction
7.2 Importance of organizing
7.3 Principles of organizing
7.4 Formal and Informal organization
7.5 Process of organizing
7.6 Organization charts
7.7 Organization manuals

7.8 Summary

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7.9 Exercise

7.0 OBJECTIVES

After studying the unit students will be able to:

Understand the Meaning and definition of organizing
Know the importance of organizing
Explain the Principles of organization
Elaborate the concepts Formal organization and
informal organization
Understand the Process of organizing
Explain the Organization charts
Discuss the Organization manuals

7.1 INTRODUCTION

Organizing is an element of management process. Organizing is

basically concerned with allocation of duties and responsibilities among the
people so that work will be carried on systematically. Organizing simply means
arrangement of required resources and ways for conducting business
activities. It is a creation of administrative set up.
Definitione
1. Louis Allen defines Organization as ―The process of identifying
andgrouping of the work to be performed, defining and delegating
responsibility and authority, and establishing a pattern of relationships for
the purpose of enabling people to work most effectively together in
accomplishing objectives.‖

2. According to Henri Fayol ―To organize a business is to provide itwith

everything useful to its functioning – raw materials, tools, capital and
personnel.‖

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7.2 IMPORTANCE OF ORGANIZING

Effective organizing lead to following advantages:

1. Specializatione
Organizational structure is a network of relationships in which the
work is divided into units and departments. This division of work is helping in
bringing specialization in various activities of concern.

2. Well defined jobse

Organizational structure helps in putting right men on right job which
can be done by selecting people for various departments according to their
qualifications, skill and experience. This is helping in defining the jobs properly
which clarifies the role of every person.

3. Clarifies authoritye
Organizational structure helps in clarifying the role positions to every
manager (status quo). This can be done by clarifying the powers to every
manager and the way he has to exercise those powers should be clarified so
that misuse of powers does not take place. Well defined jobs and
responsibilities attached helps in bringing efficiency into managers working.
This helps in increasing productivity.

4. Co-ordinatione
Organization is a means of creating co- ordination among different
departments of the enterprise. It creates clear cut relationships among
positions and ensures mutual co- operation among individuals. Harmony of
work is brought by higher level managers exercising their authority over
interconnected activities of lower level manager.

5. Effective administratione
The organization structure is helpful in defining the jobs positions. The
roles to be performed by different managers are clarified. Specialization is

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achieved through division of work. This all leads to efficient and effective
administration.

6. Growth and diversificatione

A company‘s growth is totally dependent on how efficiently and
smoothly a concern works. Efficiency can be brought about by clarifying the
role positions to the managers, co-ordination between authority and
responsibility and concentrating on specialization. In addition to this, a
company can diversify if its potential grow. This is possible only when the
organization structure is well- defined. This is possible through a set of formal
structure.

8. Sense of securitye
Organizational structure clarifies the job positions. The role assigned
to every manager is clear. Co- ordination is possible. Therefore, clarity of
powers helps automatically in increasing mental satisfaction and thereby a
sense of security in a concern. This is very important for job- satisfaction.

8. Scope for new changese

Where the roles and activities to be performed are clear and every
person gets independence in his working, this provides enough space to a
manager to develop his talents and flourish his knowledge. A manager gets
ready for taking independent decisions which can be a road or path to
adoption of new techniques of production. This scope for bringing new
changes into the running of an enterprise is possible only through a set of
organizational structure.

7.3 PRINCIPLES OF ORGANIZING

The most commonly mentioned and well accepted principles of organizing are
as follows:

1. Objectivese
Every organization should have well defined objectives. Every department
in the organization should have their objectives. Every individual in the

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organization should know what to achieve. Finally there should be unity
among all the objectives.

2. Specializatione
Every department should be given a specific work to be performed.
Division of work leads to specialization. Every individual in the organization
should be given the work as per his skills.

3. Co-ordinatione
All the activities of all the individuals and departments should be interlinked
with each other. Co-ordination will lead to proper direction for work which will
result into better results.

4. Delegation of authoritye
The superior should pass on the authority to their subordinates.
There should be fixation of responsibility after the authority is delegated.

5. Short chain of commande

As far as possible there should be short chain of command in the
organization. This will lead to speedy work as well as chances of distortion will
be avoided.
6. Balancee
There should be proper balance in different aspects of the organization.
There should be balance between authority and responsibility, centralization
and decentralization, human and material resources etc.

8. Continuitye
Organizing is a continuous process. It will be over only after closure of the
organization. Therefore organizing should provide a framework which is long
lasting in nature.

8. Simplicitye
The structure of the organization should be as simple as possible. All
the people in the organization should be able to understand the structure.

9. Span of controle

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Span of control is number of subordinates who can be effectively managed
and supervised by manager. There should be limit of span of control.

10. Flexibilitye
The organization structure should not be rigid in nature. It should adjust
with the changing situations.

11. Authority and responsibilitye

Authority is a power to take decision. Responsibility is an obligation to
perform work. There should be a proper balance between authority and
responsibility.

12. Unity of commande

This principle suggests that subordinate should get orders only from one
boss at a time. There should not be duplication of orders which leads to
confusion.

7.4 FORMAL AND INFORMAL ORGANIZATION

In an organization there exist two types of internal structures or relationships

i.e.
i. Formal organization ii.
Informal organization

Formal Organizatione

Formal organization refers to structure of well defined jobs, having

definite authority and responsibility. This structure is specifically designed to
achieve common organizational goals. This is the structure to which everyone
in the organization has to adjust.

According to Chester Barnard, ―an organization is ‗formal‘ when two or more

persons are consciously coordinated toward a common objective.‖

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Features of Formal organizatione
i. It is a structure of well defined authority and responsibility.
ii. It is established to achieve well defined objectives. iii. There is a
balance between authority and responsibility.
iv. There is superior-subordinate relationship among all the people. v.
Rules and regulations are followed by all the people.
vi. It is stable in nature. It comes to an end only after closure of the
organization.
vii. Communication between people is a formal communication. viii.
There is system of co-ordination.

Informal Organizatione
The informal organization exists within the formal organization. It is a
network of personal and social relations existing in a formal organization.
People in the organization do not always follow formal lines. Employees in one
department know those in other departments. They may like to know what is
happening in each other department. In such cases informal organizations get
developed. It does not have any definite structure. So it cannot be shown by
any chart.

Informal organization refers to the relationships between the people

in the organization based on personal attitudes, emotions, likes, dislikes etc.
This structure comes into existence as per desire of the people.

According to Keith Davis, ―informal organization is a network of

personal and social relations not established or required by the formal
organization but arising spontaneously as people associate with another.‖

Features of Formal organizatione

i. It is a network of personal and social relations existing in a formal
organization.
ii. It is established to develop personal and social relations.
iii. There is no question of granting authority and deciding responsibility as
relations are social in nature.
iv. There are no well defined objectives to be achieved.
v. The relations are informal. Therefore there are no superiorsubordinate
relationships.
vi. There is no need for co-ordination.
vii. There are no rules and regulations to be followed.
viii. It is not stable in nature. Relationship can come to an end at any time.

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ix. Communication among the people is informal communication known as
Grapevine Communication.

Importance of informal organizatione

1. It assists a formal organization to become humanistic and prevents its
dehumanization.
2. It provides social satisfaction to group members. These are created to
satisfy the needs of friendship, companionship, sense of belonging,
security etc.
3. It provides the best means of human communication.
4. It acts as an effective agency for social control of human behavior.
5. It helps the formal organization to get the work done.
6. It increases co-operation among all the people in the organization.
7. It fills gaps in managerial abilities.
8. It provides a safety value for employee emotions.

CHECK YOUR PROGRESSe

1. List the advantages of Organizing.
2. Explain the following terms in four to five sentences:
a. Organising
b. Formal organization
c. Informal organization
3. Explain the following principles of organizing:
a. Objectives
b. Specialization
c. Delegation of authority
d. Short chain of command
e. Continuity
f. Span of control
g. Flexibility:
h. Unity of command
4. Distinguish between Formal organization and Informal organization.

7.5 PROCESS OF ORGANIZING

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The organizing process includes following stages:
1. Division of worke
The first process of organizing includes identification and division of
work which shall be done in accordance with the plans that are determined
previously.

2. Departmentatione
Once the work of identifying and dividing the work has been done
those are similar are to be grouped.
3. Linking departments:
When the process of departmentation was completed, linking of
departments has to be done so that those departments operate in a
coordinate manner which gives a shape to overall organization structure.

4. Assigning Dutiese
On completion of departmentation process assigning duties i.e.
defining authority and responsibility to the employees on the basis of their
skills and capabilities has to be done, which in consequence magnifies
efficiency with regard to their work.

5. Defining hierarchal structure:

Each employee should also know from whom he has to take orders
and to whom he is accountable/responsible.

7.6 ORGANIZATION CHARTS

An organizational chart is a diagram that shows the structure of an

organization as well as the relationships and relative ranks of its positions. The
term "chart" refers to a map that helps managers navigate through patterns in
their employees. Charts help organize the workplace while outlining the
direction of management control of subordinates. Increasingly a necessary
management tool, organizational charts are particularly useful when
companies reorganize, embark on a merger or acquisition, or need an easy
way to visualize a large number of employees.

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An organizational chart of a company usually shows the managers and
sub-workers who make up an organization. It also shows the relationships
between directors: managing director chief executive officer: various
departments. In many large companies the organization chart can be large and
incredibly complicated and is therefore sometimes dissected into smaller
charts for each individual department within the organization.
There are three different types of organization charts:
1. Hierarchical
2. Matrix
3. Flat or Horizontal.

BENEFITS OF ORGANIZATIONAL CHARTSe

1. Organization charts are an effective way to communicate

organizational, employee and enterprise information. An org chart
makes it easier for people to comprehend and digest large amounts
of information as a visual picture rather than as a table of names
and numbers.
2. Organizational charts provide the greatest value when used as a
framework for managing change and communicating current
organizational structure. When fully utilized, org charts allow
managers to make decisions about resources, provide a framework
for managing change and communicate operational information
across the organization.

3. Organizational charts provide managers with specific departmental

information that can then be used as a baseline for planning,
budgeting and workforce modeling.

4. Publishing and distributing org charts to an entire organization

communicates necessary and valuable organizational information to
all employees. Org charts are ideal for sharing the organization's
strategic vision, as well as defining responsibilities, dependencies
and relationships. Good charts also allow you to organize their
teams with clear responsibilities, titles and lines of authority.

LIMITATIONSe

1. If updated manually, organizational charts can very quickly become

out-of-date, especially in large organizations that changes their staff
regularly.

2. They only show 'formal relationships' and tell nothing of the pattern
of human (social) relationships which develop. They also often do
not show horizontal relationships.

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3. They provide little information about the managerial style adopted

4. The best structure for one type of business may not be the best for
another. The best structure for a new business may not be suitable
as the business expands.
CHECK YOUR PROGRESSe
1. Define organizational chart?
2. Explain how organizational chart is beneficial to the organization.
3. List out the stages included in the process of organizing.
4. Which are the types of organization chart?

7.7 ORGANIZATION MANUALS

Organization manual is a repository for organization data commonly

used by company managers. It has many values as an administrative tool to
help the manager to do his job more effectively. It enables him to visualize the
company organization as a whole and to see his own responsibilities as part of
the total picture. It also defines the relationships which will guide him in
developing teamwork and in working with other managers.

The organization manual should be made up as a permanent,

hardcover, loose-leaf volume. Individual position guides and organization
charts may be prepared by accountable mangers using a format prescribed by
company procedures. The manual itself should be maintained by the
organization planning function.

Contents of organization manuale

Manual should contain the following data:

1. Statement of company objectives and policies
2. Responsibilities and authorities at various levels
3. Delegation of authority existing in the organization
4. Nature of supervision
5. Span of control at various levels

Benefits of organization manuale

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1. It gives information about the company‘s planning and organizing
outlines.
2. It serves as position guide to the managers by showing their duties,
powers and relationships.
3. It becomes a helpful device for managerial training.
4. It facilitates co-ordination and control in the enterprise.
5. It encourages quick decision making by elaborating objectives and
policies as well as by indicating the limits of authority.

7.8 SUMMARY

From the above discussion the concept of organizing is clear. For

smooth functioning of organization well established principles of organizing
need to be followed. Within the every formal organization one informal
organization exists. Therefore management has to tactfully handle both of
them. An organization uses organization charts and manuals for the efficient
functioning.

7.9 EXERCISE

14. Define organizing. Explain the importance of organizing.

15. State and explain the principles of organization.
16. Distinguish between formal and informal organization.
17. Discuss the process of organizing.
18. Write a note on organization charts.
19. Write a note on organization manuals. 20. State the contents of
Organizational manual.


Chapter 8
ORGANIZATION STRUCTURE

Unit Structure
8.0 Objective

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8.1 Introduction
8.2 Line Organization
8.3 Functional Organization
8.4 Line and Staff Organization
8.5 Committee Organization
8.6 Project Organization
8.7 Matrix Organization

8.8 Summary
8.9 Exercise

8.0 OBJECTIVES

After studying the unit the students will be able to:

Understand the Meaning of organization structure
Explain Line organization
Discuss Functional organization
Explain Line and staff organization
Elaborate Committee organization
Explain Project organization
Understand Matrix organization

8.1 INTRODUCTION

An organization structure is a framework through which management

works to accomplish its objectives. It is primarily concerned with the allocation
of duties and responsibilities, and delegation of authority. It is a toll of
management to achieve organizational goals. The following are the various
forms of formal organizations found in many enterprises.

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8.2 LINE ORGANIZATION

8.2.1 MEANING AND DEFINITIONe

Line organization is the oldest and simplest form of formal

organization. In this organization the line of authority flows downward from
top to bottom level. The line of authority is straight and vertical. On the other
hand responsibility moves upward from bottom to top level.

According to James Stoner, ―Line authority is represented by the

standard chain of command, starting with the Board of Directors and
extending down through the various levels in the hierarchy to the point where
the basic activities of the organization are carried out.‖

8.2.2 CHART SHOWING THE STRUCTURE OF LINE

ORGANIZATIONe

Board of Directors

Managing Director / General Manager

Marketing Production Finance Manager

Works Manager
RESPONSIBILITY

Foreman

Supervisor

AUTHORITY

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Workmen

8.2.3 CHARACTERISTICSe
1. It is the oldest and simplest formal organization structure.
2. The flow of authority is downward i.e. from top to bottom level.
3. The flow of responsibility is upward from bottom to top level.
4. There is no presence of staff organization.
5. There are direct vertical relationships among superior and subordinates.
6. Principle of scalar chain and unity of command is strictly followed.
7. All departmental managers have equal status.
8. It is mainly suitable to small organizations.

CHECK YOUR PROGRESSe

1. Draw the chart showing the structure of Line organization.
2. What do you mean by line organization structure?
3. State the features of line organization structure.

8.3 FUNCTIONAL ORGANIZATION

This form was introduced by F.W. Taylor to bring about specialization

of management. It is not an independent form of organization. It is a mid-way
position between line and staff authority. Functional organization is a way of
putting specialists to work.

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CHARACTERISTICSe

1. All the organizational activities are divided according to specified

functions.
2. Each function is performed by specialist.
3. A superior specialist has a right to give orders relating to these specific
functions.
4. Functional authority is a limited form of authority as it covers only specific
task areas.
5. Unity of command principle is not followed.
6. It is mainly suitable for large organizations.
7. Functional authority should be established by prior agreement amongthe
line departments affected, preferably in written procedures that are
approved by middle management and finally by top management.

CHECK YOUR PROGRESSe

1. What do you mean by functional organization structure?
2. State the features of functional organization structure.

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8.4 LINE AND STAFF ORGANIZATION

8.4.1 MEANING AND DEFINITIONe

This type of organization tries to combine the activities of line and

staff executives. Line executives are “Doers” whereas the specialists are
“Thinkers”. Staff concentrates on planning of activities whereas staff is
involved in implementation of plans.

According to Louis Allen, ―Line refers to those positions and elements of the
organization, which have the responsibility and authority and are accountable
for accomplishment of primary objectives. Staff elements are those which
have responsibility and authority of providing advice and service to the line in
attainment of objectives.‖

Chief Executive Officer

Legal Advisor RffjD Manager

Marketing Production Manager Finance

Foreman

Workers

8.4.2 CHARACTERISTICSe
1. There are two aspects of administration in this organization i.e. planning
and execution.
2. The staff concentrates their attention upon the research and
planningaspects of business activities while the line executives
concentrate their attention upon implementation of policy matters.

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3. The staff provides guidance and advice to line executives. Such guidance is
offered whenever it is demanded by line.
4. This form of organization tries to retain the merits and to do away
withdemerits of both the line and functional organization.
5. It is mainly suitable for large organizations.

CHECK YOUR PROGRESSe

1. What do you mean by line and staff organization structure?
2. State the features of line and staff organization structure.

8.5 COMMITTEE ORGANIZATION

8.5.1 MEANING AND DEFINITIONe

Committee does not represent a separate type of organization like

line, line and staff or functional. It is a device which is used as supplementary
to existing organization structure. A committee may be defined as a group of
people performing some aspect of managerial function. A committee is a body
of persons appointed to meet on an organized basis for the consideration of
matters brought before it.

8.5.2 CHARACTERISTICSe
1. A committee is a formally organized group of individuals who meet
repeatedly to consider some problems.
2. Some committees perform managerial functions and make decisions.Some
committees are constituted to make recommendations to the managers.
Some committees are constituted just to receive information and pass it on
to the management.
3. Committees have defined structure. They have their own organization with
defined authority and responsibility delegated to them.
4. Committees are generally required to follow definite rules and procedures,
which are often written.
5. Committee organization is not only used in business organizations butalso in
social, religious, political and other organizations. For e.g. Educational
institutions mostly run their operations through committees.

There are three elements to ensure effective committee operations:

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1. A written statement describing purpose for which the committee is
established is essential.
2. The authority of committee must be clearly specified.
3. The chairman of the committee must have ability to conduct
efficientlymeetings of the committee.

CHECK YOUR PROGRESSe

1. What do you mean by committee organization structure?
2. State the features of committee organization structure.

8.6 PROJECT ORGANIZATION

A project organization is a temporary thing. It will only exist from the

projects start until its end. All the project team members are coming from
different organizations of part of the organization. They will all have a
temporary assignment to the project. So, they have not only a project boss but
also their 'normal' boss, who orders him around when the employee is not in
the project.

The project organization should be a result from the project strategy, it

should be constructed in such a way that the strategy can be implemented
within the environment of the project The project team that does the work
should be as small as possible. Small is beautiful and effective.

8.7 MATRIX ORGANIZATION

This type of organization was first developed in the United States in

the early 1960‘s. It was developed to solve management problems in
aerospace industry.

Matrix organization is a combination of two or more structures. It can be

combination of project organization and functional organization. Both the
organizational managers work in close co-operation with each other. The
authority of departmental managers flows downwards whereas authority of
project managers flows across.

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Departments Dept. Dept. Dept. Dept.
Dept. A
B C D E
Manag
Manag Manag Manag Manag
er
Projects er er er er

Project A
Manager

Project B
Manager

Project C
Manager

Project D
Manager

Project E
Manager

CHARACTERISTICSe
1. It is a hybrid structure. It is a combination of project organization and
functional organization.
2. This type of structure is mostly suitable for multi projects organization.
3. It is highly complex and most difficult form of organization to implement.
4. This type of organization offers more specialization as project managers
and functional managers specialize in their areas.
5. The responsibility of project managers is of administrative type. They
decide activities of project.
6. The responsibility of functional managers is of functional type. They decide
how the work is to be done.
7. Subordinates receive orders from two bosses so unity of command
principle is not followed.

CHECK YOUR PROGRESSe

1. What do you mean by matrix organization structure?
2. State the features of matrix organization structure.

8.8 SUMMARY

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In this chapter we discussed various organization structures used in
business organization. Every structure has got its own characteristics.
According to the requirements of the organization management has to
implement

8.9 EXERCISE

21. Explain the line organizational structure.

22. Explain the line and staff organizational structure.
23. Explain the functional organizational structure.
24. Explain the matrix organizational structure.
25. Write a note on committee organization
26. Write a note on project organization.
27. Define the following terms in four or five sentences:
a. Matrix organization
b. Project organization
c. Committee Organization
d. Line and staff organization
e. Functional organization
f. Line organization
g. Organization Structure


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Chapter 9
DELEGATION OF AUTHORITY
Unit Structure
9.0 Objectives
9.1 Introduction Meaning and definition of Forecasting
9.2 Concept of Authority
9.3 Responsibility

9.4 Delegation of Authority

9.5 Centralization and Decentralization
9.6 Summary
9.7 Exercise

9.0 OBJECTIVES

After studying the unit students will be able to:

Understand the Concept of Authority
Know the concept of Responsibility
Explain the Objective of Delegation
Discuss the Process of Delegation
Understand the Benefits of Delegation
Know the Problems in Delegation
Understand the concept
Centralization Know the
concept Decentralization

9.1 INTRODUCTION

A manager alone cannot perform the entire task assigned to

him. In order to meet the targets he should delegate the authority.
Delegation of authority means division of authority and powers
downwards to the subordinates. Delegation is about entrusting
someone else to do part of your job. How managers use their power,
influence, and authority can determine their effectiveness in meeting
the goals of the organization.

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Authority is the right or power assigned to an executive or a
manager in order to achieve certain organizational objectives. A
manager will not be able to function efficiently without proper
authority. Authority is one of the founding stones of formal and
informal organizations. An Organization cannot survive without
authority. It indicates the right and power of making decisions, giving
orders and instructions to subordinates. Authority is delegated from
above but must be accepted from below i.e. by the subordinates. In
other words, authority flows downwards.

Responsibility indicates the duty assigned to a position. The

person holding the position has to perform the duty assigned. It is his
responsibility. The term responsibility is often referred to as an
obligation to perform a particular task assigned to a subordinate. In an
organization, responsibility is the duty as per the guidelines issued.
Responsibility is the anchor of any satisfying job. Being held accountable
for work performed gives the employee a sense of trust and reward.
Without responsibility, a job is merely a list of duties with no bearing on
the real business.

9.2 CONCEPT OF AUTHORITY

Authority is the formal and legitimate right of a manager to

make decisions, issue orders, and allocate resources to achieve
organizationally desired goals. A manager's authority is defined in his or
her job description.

Organizational authority has three important underlying principles:

Authority is based on the organizational position, and anyone in the
same position has the same authority.
Authority is accepted by subordinates. Subordinates comply because
they believe that managers have a legitimate right to issue orders.
Authority flows down the vertical hierarchy. Positions at the top of the
hierarchy are vested with more formal authority than are positions
at the bottom.

In addition, authority comes in three types:

Line authority gives a manager the right to direct the work of his or her
employees and make many decisions without consulting others.
Line managers are always in charge of essential activities such as
sales, and they are authorized to issue orders to subordinates down
the chain of command.

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Staff authority supports line authority by advising, servicing, and
assisting, but this type of authority is typically limited. The
department head may also give the assistant the authority to act,
such as the right to sign off on expense reports or memos. In such
cases, the directives are given under the line authority of the boss.
Functional authority is authority delegated to an individual or
department over specific activities undertaken by personnel in
other departments. Staff managers may have functional authority,
meaning that they can issue orders down the chain of command
within the very narrow limits of their authority.

9.3 RESPONSIBILITY

9.3.1 MEANING AND DEFINITION

Responsibility can be defined as a duty or obligation to carry

forward an assigned task to a successful conclusion, or to satisfactorily
perform or complete a task that one must fulfill, and which has a
consequent penalty for failure. With responsibility goes authority to
direct and take the necessary action to ensure success.

9.3.2 RELATIONSHIP BETWEEN AUTHORITY AND RESPONSIBILITY:

Authority is the legal right of person or superior to command his

subordinates while accountability is the obligation of individual to carry
out his duties as per standards of performance Authority flows from the
superiors to subordinates, in which orders and instructions are given to
subordinates to complete the task. It is only through authority, a
manager exercises control. In a way through exercising the control the
superior is demanding accountability from subordinates. When the
marketing manager directs the sales supervisor for 50 units of sale to be
undertaken in a month, if the above standards are not accomplished, it
is the marketing manager who will be accountable to the chief executive
officer. Therefore, we can say that authority flows from top to bottom
and responsibility flows from bottom to top. Accountability is a result of
responsibility and responsibility is result of authority. Therefore, for
every authority an equal accountability is attached.

9.3.3 Difference between Authority and Responsibilitye

Authority Responsibility

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It is the legal right of a person It is the obligation of
or a superior to command his subordinate to perform the
subordinates. work assigned to him.
Authority is attached to the Responsibility arises out of position of a
superior in superior–subordinate
concern. relationship in which
subordinate agrees to carry out
duty given to him.
Authority can be delegated by Responsibility cannot be shifted a
superior to a subordinate and is absolute It flows from top to bottom. It
flows from bottom to top.

CHECK YOUR PROGRESSe

1. Distinguish between Authority and Responsibility.
2. Define the following terms:
a. Authority
b. Line authority
c. Staff Authority
d. Functional authority
e. Responsibility

9.4 DELEGATION OF AUTHORITY

9.4.1 MEANING AND DEFINITION

Definitione According to F. C. Moore, ―Delegation means

assigning works to the other and giving them authority to do so.‖
Delegation does not relinquish the responsibility of the delegator

A concept related to authority is delegation. Delegation is the

downward transfer of authority from a manager to a subordinate. Most
organizations today encourage managers to delegate authority in order
to provide maximum flexibility in meeting customer needs. In addition,
delegation leads to empowerment, in that people have the freedom to
contribute ideas and do their jobs in the best possible ways. This
involvement can increase job satisfaction for the individual and
frequently results in better job performance. Without delegation,
managers do all the work themselves and underutilize their workers.
The ability to delegate is crucial to managerial success. Managers need
to take four steps if they want to successfully delegate responsibilities
to their teams.

9.4.2 OBJECTIVES OF DELEGATIONe

The objective of delegation is to get the job done by someone

else. Not just the simple tasks of reading instructions

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and turning a lever, but also the decision making and changes which
depend upon new information. With delegation, your staffs have the
authority to react to situations without referring back to you.

To enable someone else to do the job for you, you must ensure that:
they know what you want they have
the authority to achieve it they know
how to do it.

These all depend upon communicating clearly the nature of the task,
the extent of their discretion, and the sources of relevant information
and knowledge.

9.4.3 PROCESS OF DELEGATIONe

Delegation of authority is the base of superior-subordinate relationship,

it involves following steps:-
1. Assignment of Duties – The delegator first tries to define the task and
duties to the subordinate. He also has to define the result expected
from the subordinates. Clarity of duty as well as result expected has
to be the first step in delegation.
2. Granting of authority – Subdivision of authority takes place when a
superior divides and shares his authority with the subordinate. The
managers at all levels delegate authority and power which is attached
to their job positions. The subdivision of powers is very important to
get effective results.
3. Creating Responsibility and Accountability –Responsibility is said to
be the factor or obligation of an individual to carry out his duties in
best of his ability as per the directions of superior. Responsibility is
absolute and cannot be shifted. Accountability, on the others hand, is
the obligation of the individual to carry out his duties as per the
standards of performance. Therefore, it is said that authority is
delegated, responsibility is created and accountability is imposed.

Delegation of authority is a process in which the authority and

powers are divided and shared amongst the subordinates. When the
work of a manager gets beyond his capacity, there should be some
system of sharing the work. This is how delegation of authority becomes
an important tool in organization function. Through delegation, a
manager, in fact, is multiplying himself by dividing/multiplying his work
with the subordinates.

9.4.4 IMPORTANCE OF DELEGATIONe

The importance of delegation can be justified by –

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1. Through delegation, a manager is able to divide the work and allocate
it to the subordinates. This helps in reducing his work load so that he
can work on important areas such as - planning, business analysis etc.
2. With the reduction of load on superior, he can concentrate his energy
on important and critical issues of concern. This way he is able to
bring effectiveness in his work as well in the work unit.
3. Delegation of authority is the ground on which the
superiorsubordinate relationship stands. An organization functions as
the authority flows from top level to bottom. This in fact shows that
through delegation, the superior-subordinate relationship become
meaningful.
4. Delegation of authority in a way gives enough room and space to the
subordinates to flourish their abilities and skill. Through delegating
powers, the subordinates get a feeling of importance. Delegation
motivates and also helps to break monotony.
5. Delegation of authority is help to both superior and subordinates.
This, in a way, gives stability to a concern‘s working. This helps in both
virtual as well as horizontal growth which is very important for a
concern‘s stability.

Therefore, from the above points, we can justify that delegation

is not just a process but it is a way by which manager multiples himself
and is able to bring stability, ability and soundness to a concern.

There are a few guidelines in form of principles which can be a

help to the manager to process delegation.

9.4.5 PRINCIPLES OF DELEGATION The

principles of delegation are as follows: -
1. Principle of result expected- suggests that every manager before
delegating the powers to the subordinate should be able to clearly
define the goals as well as results expected from them. The goals and
targets should be completely and clearly defined and the standards of
performance should also be notified clearly.

2. Principle of Parity of Authority and Responsibility-According to this

principle, the manager should keep a balance between authority and
responsibility. Both of them should go hand in hand.. The authority
should be given in such a way which matches the task given to him.
Therefore, there should be no degree of disparity between the two.
3. Principle of absolute responsibility- This says that the authority can
be delegated but responsibility cannot be delegated by managers to
his subordinates which means responsibility is fixed. The manager at
every level, no matter what is his authority, is always responsible to
his superior for carrying out his task by delegating the powers.

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4. Principle of Authority level- This principle suggests that a manager
should exercise his authority within the jurisdiction / framework
given. This principle emphasizes on the degree of authority and the
level upto which it has to be maintained.

9.4.6 THE BENEFITS OF DELEGATIONe

It is often impossible to do everything that needs to be done. Therefore, it is

often useful to delegate certain tasks to other people. As a result, it is useful to know
the four benefits of delegation before delegating any task.

1. First, delegation focuses attention and increasesproductivity. By

assigning lower priority tasks that are typically easier to do than
higher priority tasks, allows delegators to better focus on more
important and more difficult assignments. Keep in mind that
training and supervision may be necessary when delegating new
tasks, which leads to the second benefit of delegation.
2. Second, learn new skillse people with assigned tasks will learn
new and valuable skills when working on delegated tasks that that
they have never worked on before. Eventually, these newly
delegated tasks will not require any training or supervision, thus
increasing the productivity of the delegator and the entire team.
3. Third, delegation helps manage time effectively. For instance,
when less skilled employees work on less skilled tasks, this allows
skilled people to concentrate working on more skilled tasks. As a
result, delegation helps manage the limited time of more skilled
employees.
4. Eventually, delegation helps to accept challengese has the added
benefit to give employees more time to work on new assignments
and challenges, since it is always a good idea to prevent a job from
becoming repetitive and boring.

In conclusion, it may be difficult to start delegating work

assignments that you are familiar with and know will be done correctly
by you, but these advantages of delegating repetitive tasks is a great
motivator.

9.4.7 PROBLEMS OF DELEGATIONe


Complexity of Delegation of Authority and business processes

Misalignment of Delegation of Authority and business processes


Delegation of Authority not aligned with organizational structure / decision
making


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Ineffective decision making structures

Lack of staff awareness and inappropriate training


Failure to enforce (e.g. code of conduct breach)


Poorly managed when staff in temporary roles.

It has been observed by many authors that effective delegation

of authority is not observed by the Indian managers, even though most
managers know how and why to delegate. Many have concluded that
managers are ineffective delegators because they are reluctant to share
power, don't trust their subordinates‘ low level skill, knowledge and
efforts etc., their love for authority, desire to influence the
subordinates, personality factors of the senior managers, fear of
incompetence, or they are just plain afraid to delegate.

9.5 CENTRALIZATION AND DECENTRALIZATION

9.5.1 MEANING OF CENTRALISATIONe

Centralization is the process where the activity of an organization,

particularly those regarding planning and decision making gets
concentration in few hands. All the important decision and actions at
the lower level, all subjects and actions at the lower level are subject to
the approval of top management. According to Allen, ―Centralization‖
is the systematic and consistent reservation of authority at central
points in the organization. The implication of centralization can be:-
1. Reservation of decision making power at top level.
2. Reservation of operating authority with the middle level
managers.
3. Reservation of operation at lower level at the directions of the
top level.

Under centralization, the important and key decisions are taken by the
top management and the other levels are into implementations as per
the directions of top level. A centralized organization systematically
works to concentrate authority at the upper levels.

9.5.2 MEANING OF DECENTRALIZATIONe

Decentralization is a systematic delegation of authority at all

levels of management and in all of the organization. In a
decentralization concern, authority in retained by the top management

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for taking major decisions and framing policies concerning the whole
concern. Rest of the authority may be delegated to the middle level and
lower level of management.
The degree of centralization and decentralization will depend
upon the amount of authority delegated to the lowest level. According
to Allen, ―Decentralization refers to the systematic effort to delegate
to the lowest level of authority except that which can be controlled and
exercised at central points.

9.5.3 IMPLICATIONS OF DECENTRALIZATION:

1. There are fewer burdens on the Chief Executive as in the case of

centralization.
2. In decentralization, the subordinates get a chance to decide and act
independently which develops skills and capabilities. This way the
organization is able to process reserve of talents in it.
3. In decentralization, diversification and horizontal can be easily
implanted.
4. In decentralization, concern diversification of activities can place
effectively since there is more scope for creating new departments.
Therefore, diversification growth is of a degree.
5. In decentralization structure, operations can be coordinated at
divisional level which is not possible in the centralization set up.
6. In the case of decentralization structure, there is greater motivation
and morale of the employees since they get more independence to
act and decide.
7. In a decentralization structure, co-ordination to some extent is
difficult to maintain as there are lot many department divisions and
authority is delegated to maximum possible extent, i.e., to the
bottom most level delegation reaches. Centralization and
decentralization are the categories by which the pattern of
authority relationships became clear. The degree of centralization
and de-centralization can be affected by many factors like nature of
operation, volume of profits, number of departments, size of a
concern, etc. The larger the size of a concern, a decentralization set
up is suitable in it.

9.5.4 CENTRALIZATION VERSUS DECENTRALIZATIONe

The general pattern of authority throughout an organization

determines the extent to which that organization is centralized or
decentralized.

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A variety of factors can influence the extent to which a firm is
centralized or decentralized. The following is a list of possible
determinants:
The external environment in which the firm operates. The more
complex and unpredictable this environment, the more likely it is that
top management will let low-level managers make important
decisions.
The nature of the decision itself. The riskier or the more important the
decision, the greater the tendency to centralize decision making.
The abilities of low-level managers. If these managers do not have
strong decision-making skills, top managers will be reluctant to
decentralize. Strong low-level decision-making skills encourage
decentralization.
The organization's tradition of management. An organization that has
traditionally practiced centralization or decentralization is likely to
maintain that posture in the future.

In principle, neither philosophy is right or wrong. What works for

one organization may or may not work for another.

9.5.5 DISTINCTION BETWEEN DELEGATION AND DECENTRALIZATIONe

Decentralization is not the same as delegation. In fact,

decentralization is all extension of delegation. Decentralization pattern
is wider is scope and the authorities are diffused to the lowest most
level of management. Delegation of authority is a complete process and
takes place from one person to another. Decentralization is wider in
scope and the subordinate‘s responsibility increase in this case. On the
other hand, in delegation the managers remain answerable even for the
acts of subordinates to their superiors.

Distinction between Delegation and Decentralization

Basis Delegation Decentralization

Meaning Managers delegate some Right to take decisions is of
their function and shared by top authority
to their management and other
subordinates. level of management.
Scope Scope of delegation is Scope is wide as the
limited as superior decision making is
delegates the powers to shared by the the subordinates on
subordinates also. individual bases.
Responsibility Responsibility remains of Authority with the
managers and cannot responsibility is be delegated
delegated to
subordinates.
Freedom of Freedom is not given to Freedom to work can be

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Work the subordinates as they maintained by
have to work as per the subordinates as they are
instructions of their free to take decision and
superiors. to implement it.
Nature It is a routine function It is an important
decision of an enterprise
Need Delegation is important in Decentralization all concerns whether big
becomes more important or small. No enterprises in large
concerns and it
can work without depends upon the delegation. decision
made by the
enterprise, it is
not compulsory.
Grant of The authority is granted Authority with
Authority by one individual to responsibility is
another. delegated to subordinates.
Degree Degree of delegation Decentralization is total varies from concern to by
nature. It spreads concern and department throughout the
to department. organization i.e. at all
levels and all functions
Process Delegation is a process It is an outcome which
which explains superior explains
relationship subordinates relationship between
top management and all other departments.
Essentiality Delegation is essential of Decentralization is a all kinds of concerns
decisions function by nature.
Significance Delegation is essential Decentralization is
an for creating the optional policy
at the organization discretion of
top
management.
Withdrawal Delegated authority can It is considered as a be
taken back. general policy of top management
and is applicable to all departments
Freedom of Very little freedom to the Considerable freedom
Action subordinates
Decentralization can be called as extension of delegation. When
delegation of authority is done to the fullest possible extent, it gives use
to decentralization.

9.6 SUMMARY

Authority is the formal and legitimate right of a manager to

make decisions, issue orders, and allocate resources to achieve
organizationally desired goals. It is based on three important underlying
principles: Authority is based on the organizational position, It is
accepted by subordinates. It flows down the vertical hierarchy. There

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are three types of authorities i.e. line, staff and functional. Authority can
be delegated. This means assigning works to others and giving them
authority to do so.

There is the necessity to clearly lay down the objectives of

delegation of authority in a set process. It benefits the organization as it
divides work, reduces load on superiors and helps developing skills for
the subordinates. It may also bring in certain disadvantages like
complexity, misalignment, ineffective decision making structures and
Failure to enforce breach of conduct. If properly handled it benefits
both the organization and the personals.

Decentralization is a systematic delegation of authority at all

levels of management and in all organizations. Decentralization can be
called as extension of delegation. When delegation of authority is done
to the fullest possible extent, it gives use to decentralization.

9.7 EXERCISE

1. Explain the concept of authority and give the types of authorities.

2. What is responsibility and explain its relationship with authority
3. Discuss delegation of authority also discuss its benefits and problems.
4. Explain the concept centralization and decentralization.
5. What are the benefits of decentralization?
6. Distinguish between centralization and decentralization.
7. What is Decentralization and what are its benefits?
8. Explain in detail the concept of Delegation of Authority?
9. Distinguish between Decentralization and Delegation?
10. Write a note on Relationship between Authority and Responsibility.

11. Define the terms in four to five sentences:

a. Delegation of Authority
b. Centralization
c. Decentralization
d. Principle of result expected.
e. Principle of Parity of Authority and Responsibility
f. Principle of absolute responsibility
g. Principle of Authority level



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Chapter 10
DEPARTMENTATION
Unit Structure
10.0 Objective
10.1 Introduction
10.2 Meaning of departmentation
10.3 Factors influencing departmentation: book
10.4 Bases of departmentation
10.5 Advantages / Importance of Departmentation
10.6 Summary

10.7 Exercise

10.0 OBJECTIVE

After study of the unit the students will be able to:

Know the Meaning of departmentation
Discus the Factors influencing departmentation
Explain the Bases of departmentation
Understand the Importance of departmentation

10.1 INTRODUCTION

To achieve the goals, an organization has to divide labour among

its members and then coordinate what has been divided.
Departmentation by enterprise function means grouping of activities
according to the functions of an enterprise, such as production, selling and
financing. Departmantation is a means of dividing a large organization into
smaller, flexible units. One reason organizations exist is to do things that
would be hard for one person to do by themselves. For example, it's hard to
conceive of one person building an office building. Instead, we have
organizations of thousands of people with diverse skills that work together to
build buildings. However, coordinating, controlling and just keeping track of a
lot of individuals introduces its own problems. One way to solve these

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problems is to create a hierarchical system of supervision, so that small
groups of workers (up to say, 50 people) are supervised by coordinators
(managers). Depending on how many people there are in the organization,
the coordinators themselves need to be organized into groups supervised by
higher level managers, and so on. Part and parcel of this hierarchical
supervisory system is the cutting up of the organization into groups
(departments).

Departmentation is a process resulting out of choice to group

tasks according to some criterion. The resultant process of
departmentation includes decisions regarding segregating
organizational work, allocation of work to persons, telling all involved
who is in charge and provide for the support needed by those. Given the
nature of these choices and decisions, departmentation and the criteria
or bases used for creating departments can have serious impact on the
organization's effectiveness. Nine bases of departmentation are
common among managerial choices:

10.2 MEANING OF DEPARTMENTATION

Departmentation is a process of grouping all the organizational

activities into logical units. These logical units are known as departments. It is
grouping of activities and employees into departments for effective
management.

Definitionse
1. According to Pearce and Robinson, ― Departmentation is the grouping
of jobs, processes and resources into logical units to perform some
organizational task.‖

2. According to James and Stoner, ― Departmentation is the grouping of

work functions so that similar and logically related activities occur
together.‖

10.3 FACTORS INFLUENCING DEPARTMENTATIONe

BOOK

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While doing departmentation management should consider the
following factors:

1. Facility of controle

For facilitating control in the organization managers are confronted with four
aspects of the control problem in assigning activities.
I. First, activities which serve as an independent check on others are to be
separated and assigned to different units.
II. Secondly, to make definite persons accountable for performance results
there should a clear-cut division of activities between two departments.
III. Thirdly, for setting performance standards and comparing results, the
establishment of two or more deadly parallel operating units is of great
help.
IV. Finally, for effective policy control, managers who participate in policy
formulation should decide policy matters with a view to make
consistent and satisfactory application of policies.

2. Ease of co-ordinatione

Co-ordination raises three important issues that are to be weighed by

managers in assigning activities.
i. First, even dissimilar activities are required to be put under the care of
single executive when such activities need close and frequent co-
ordination for their effective performance.
ii. Secondly, activities having a specified common objective are to be
assigned to the same unit for co-ordinate action. iii. Thirdly, service
activities of miscellaneous character are to be put to that department
which makes most use of them.

3. Reduction in operating expensese

In assigning activities, the economy in operating expenses can be affected in

two different ways.
i. First, the creation of any new unit involves direct expenses by way of
executives pay and office facilities and indirect expenses by way of
interference to the work of other units.

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ii. Secondly, the assignment of activities should be made in such a way
that all the jobs of a unit do not require highly skilled persons with a
higher pay.

4. Benefits of specializatione

In assigning activities, benefits of specialization should be secured by

way of functional specialization and occupational specialization. The skill that
is acquired through experience in a particular job becomes a specialty on the
part of employees and such specialty ensures successful company operations.

5. Human considerationse

As organization has a social aspect in addition to its technical aspect,

human considerations affect the assignment of activities to some extent. The
availability of competent personnel, the existence of informal groups and the
prevailing employee behavior and attitude may have a significant influence on
departmentaion.

CHECK YOUR PROGRESSe

3. What do you mean by departmentation?
4. State and explain the factors affecting departmentation process.

10.4 BASES OF DEPARTMENTATION

Organization can follow various bases for departmentation from the following:

1. Departmentation by functions e

In this type similar activities are grouped under specific department.

This departmentation facilitates specialization and effective control.

General Manager

Production Finance Marketing Personnel

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2. Departmentation by area e

In this type departmentation is done according to market areas where

product is sold. This departmentation facilitates low cost of operations, better
services to customers etc.

General Manager

Mumbai Calcutta Chennai Delhi

3. Departmentation by Product e
This method is followed by those companies dealing in multi products.
Separate manager is in charge of separate brand. This facilitates better
marketing strategies of each product.

General Manager

Product X Product Y Product Z

4. Departmentation by Customer e

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This technique is followed when organization wants to offer maximum
customer satisfaction. Income, purchasing power, habits etc. are the main
factors considered in this departmentation.

General Manager

Customer A Group Customer B Group Customer C Group Customer D Group

5. Departmentation by Time e
In this method activities are divided on the basis of time. For example
there are morning shifts, night shifts etc.

6. Departmentation by numbers e

In this method each unit consists a particular number of persons. For

example in school or college students are divided in all the classes by fixing the
strength.

CHECK YOUR PROGRESSe

1. List out the various bases which can be followed for departmentation?

10.5 ADVANTAGES /
IMPORTANCE OF DEPARTMENTATION

1. Departmentation facilitates specialization as all the activities are

allocated as per the skills of the people.

2. Departmentation helps to fix authority and responsibility of each

department and thereby of each employee.

3. Departmentation facilitates better services to customers. This is possible

especially in departmentation by customers.

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4. Proper departmentation results into optimum utilization of resources as
resources are allocated for right things.

5. Departmentation facilitates controlling and supervision in the

organization.

6. If facilitates management development of the departmental managers

as they take all the departmental decisions.

7. It facilitates growth and expansion of the organization.

CHECK YOUR PROGRESSe

1. Do you feel departmentation is a useful process for the organizations?
Why?

10.6 SUMMARY

In this chapter we discussed the concept of departmentation. From

the above discussion we come to know that proper departmentation is
required to be followed in the organization for effective and smooth
functioning. It ensures systematic flow of work in the organization. We also
discussed the various bases which can be followed for the process of
departmentation. According to the requirement of the situation the proper
base has to be followed.

10.7 EXERCISE

1. What is departmentation? Explain the importance of departmentation

to the organization.
2. State and explain the factors influencing departmentation.
3. Explain the various bases for departmentation.
4. Explain the following terms in four to five sentences:
a. Departmentation
b. Departmentation by functions
c. Departmentation by area
d. Departmentation by Customer
e. Departmentation by Time

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
Chapter 11
SPAN OF CONTROL
Unit Structure
11.0 Objective
11.1 Introduction to span of control
11.2 Importance / advantages of span of control
11.3 Factors affecting span of control
11.4 Graicunas theory on span of control

11.5 Summary

11.6 Exercise

11.0 OBJECTIVE

After studying the unit the students will be able to:

Know the Meaning of span of control
Explain the Advantages of span control
Discuss the Factors affecting span of
control Discuss the Graicunas theory of
span of control

11.1 INTRODUCTION TO SPAN OF CONTROL

Span of control is also called as span of management or span of

supervision. This concept was introduced by Sir Ian Hamitton. It was supported
by V.A.Graicunas and Urwick. There is a limit on the number of persons that
can be managed by manager at a time. Span of control deals with this concept.

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Span of control or span of management is a dimension of
organizational design measured by the number of subordinates that report
directly to a given manager. This concept affects organization design in a
variety of ways, including speed of communication flow, employee motivation,
reporting relationships, and administrative overhead.

A small, or narrow, span of control results in each manager supervising

a small number of employees, while a wide span of management occurs when
more subordinates report directly to a given manager. A small span of
management would make it necessary to have more managers and more
layers of management to oversee the same number of operative employees
than would be necessary for an organization using a wider span of
management. The narrower span of management would result in more layers
of management and slower communications between lower level employees
and top level managers of the firm.

Meaninge

Span of control refers to number of subordinates that can be

effectively managed and supervised by a manager at a time.

11.2 IMPORTANCE / ADVANTAGES OF SPAN OF CONTROL

Span of control is very important principle of organizing. The importance of

span of control can be explained as follows:

1. Superior can concentrate on important worke

Due to proper span of control supervisor gets enough time to concentrate
on important activities. If span of control is unreasonably large then superior
may not be able to concentrate on important areas as his time will be spent
more for Supervision.

2. Good relationse
Proper size of span of control facilitates to maintain good relations
between managers and subordinates.

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3. Team worke
Proper span of control facilitates team work in the organization. As
relations are healthy, it develops good team spirit among all.

4. Quick actionse
Because of good co-ordination, relations and team spirit quick actions are
possible.

5. Increased efficiencye
Due to proper supervision efficiency of the organization increases.

6. Corporate imagee
Due to higher efficiency and good relations, corporate image of the
organization develops.

7. Motivates personnel e
Proper size of span of control motivates subordinates. As subordinates are
close to their superiors, they get proper guidance from time to time.

8. Reduces labor absenteeism and turnovere

As all the employees are part of co-coordinated team, it develops morale
of the employees. It results into less labor absenteeism and turnover.

CHECK YOUR PROGRESSe

5. What do you mean by span of control?

6. ―Span of control is very important principle of organizing.‖ Explain.

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11.3 FACTORS AFFECTING SPAN OF CONTROL

Various factors that affect size of span of control are explained as

follows:

1. Nature of worke
If the work to be performed is of routine nature, then span of control can
be large. But if work is complex and complicated then there should be few
subordinates in span of control as manager will have spend more time on
discussion rather on supervision.

2. Experience of subordinatese
If subordinates are enough capable and experienced then span can be
large whereas if there are less experienced subordinates then span should be
less. This is because less experienced people require more supervision.

3. Capacity and experience of superiore

If manager is experienced and capable enough, span can be large.
Whereas new managers with less experience should be given few number of
subordinates for supervision.

4. Extent of delegation of authoritye

If manager delegates more and clear authority then much of his time will
be saved which can be used for supervision. In this case span of control may
be large.

5. Personal assistancee
If manager is able to use assistance from personal staff like personal
assistant then he can handle more number of subordinates. As personal
assistant is available manager can spend more time on supervision.

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6. Superior subordinate relationse
If the relations between superior and subordinates are sound, then size of
span of control can be large. Good relations always develop good
communication and team work.

7. Use of standing planse

Standing plans are those plans which are used frequently. If the
organization has developed proper standing plans then subordinates can
follow the same. Then superior will not have to give more instructions and size
of span of control can be kept large.

8. Control system employede

Size of span of control also depends upon control system employed in the
organization. Good control system facilitates proper controlling of
subordinates performance. This reduces supervision work of manager.

CHECK YOUR PROGRESSe

1. What are the factors affecting size of span of control?

11.4 GRAICUNAS THEORY ON SPAN OF CONTROL

Graicunas distinguished three types of interactions – direct

single relationships, cross-relationships, and direct group relationships –
each of them contributing to the total amount of interactions within the
organization. According to Graicunas, the number of possible
interactions can be computed in the following way. Let n be the number
of subordinates reporting to a supervisor. Then, the number of
relationships of direct single type the supervisor could possibly engage
into is n.
Three basic kinds of relationships were described.
1. Direct single relationships between superior and individual
subordinates.
2. Cross relationships between individual subordinates.
3. Direct group relationships between superior and combinations of
subordinates.

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The number of interactions between subordinates (cross
relationships) he has to monitor is

n(n − 1)

and the number of direct group relationships is

n(2n / 2 + n − 1)

The sum of these three types of interactions is the number of

potential relationships of a supervisor. Graicunas showed with these
formulas, that each additional subordinate increases the number of
potential interactions significantly. It appears natural, that no
organization can afford to maintain a control structure of a dimension
being required for implementing a scalar chain under the unity of
command condition. Therefore, other mechanisms had to be found for
dealing with the dilemma of maintaining managerial control, while
keeping cost and time at a reasonable level, thus making the span of
control a critical figure for the organization.

The Graicunas formula is named after V.A. Graicunas, who gave

a mathematical formula to explain the complexity of span of control if
more subordinates are added to the executive. Every executive always
measures the burden of his responsibility to control the subordinates in
terms of single relationship between himself and his subordinates.
Graicunas feels that in any group, the relations between executive and
his subordinates cannot just be calculated based on single relationship
alone. According to him, there also exists cross relationships which
increase in mathematical proportion. The direct single relationships
always increase in the same proportion as the number of subordinates.
According to these formulae, in any organization if there are
three subordinates direct single relationships would be three, cross
relationships six and direct group relationships nine. But if one more
member is added there would not be any change in the direct single
relationships which would be four, but the cross relationships would
increase to 12 and direct group relationship, however, rise exponentially
to 28. This explains that addition of each member to the group under
the control of the executive would increase the number of direct group
relationships to such an extent that direct contribution becomes difficult
in some cases even impossible.

CHECK YOUR PROGRESSe

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1. According to Graicunas theory what are the types of relationships existing
among the superiors and subordinates?
2. State the formula on number of relationships as per Graicunas theory.

11.5 SUMMARY

In this chapter we discussed the concept of span of control. We

understood the importance of it in the organizations. The size of span of
control is affected by various factors and therefore while deciding span of
control all these factors need to be considered carefully. Proper span of
control ensures effective supervision which results into efficiency in the
organization. We also discussed the great theory on span of control
propounded by Graicunas.

11.6 EXERCISE

1. What is span of control? Explain the advantages of span of control.

2. Explain the various factors affecting size of span of control.
3. Discuss the theory on span of control by Graicunas.


Chapter 12 CONTROLLING

Unit Structure
12.0 Objective
12.1 Introduction
12.2 Meaning and definition of controlling
12.3 Purpose of controlling
12.4 Areas of control
12.5 Steps in controlling Process
12.6 Budgetary Control
12.7 Summary

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12.8 Exercise

12.0 OBJECTIVE

After studying the unit the students will be able to:

Understand the Meaning and definition of controlling
Explain the Purpose of control
Discuss the Areas of control
Know the Steps in controlling process
Explain the Techniques of control
Understand the concept Budgetary control

12.1 INTRODUCTION

Controlling Consists of verifying whether everything occurs in

conformities with the plans adopted, instructions issued and principles
established. Controlling ensures that there is effective and efficient utilization
of organizational resources so as to achieve the planned goals. Controlling
measures the deviation of actual performance from the standard
performance, discovers the causes of such deviations and helps in taking
corrective actions.
Controlling has got two basic purposes
1. It facilitates co-ordination
2. It helps in planning

12.2 MEANING AND DEFINITION OF CONTROLLING

Controlling is the end function of management. It is required at all the

levels of management. Controlling is a process of monitoring actual
performance and taking corrective measures if required. It is the process of
checking to determine whether or not plans are being properly implemented
and objectives are achieved.

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Definitione

1. According to George Terry, ―Controlling is determining what is being

accomplished, that is, evaluating the performance, and if necessary,
applying corrective measures so that the performance takes place
according to the plans.‖

2. According to Koontz and O‘Donnell, ―Control is measurement of

accomplishment against the standard and the correction of deviations to
assume attainment of objectives according to plans.‖

3. According to Brech, ―Controlling is a systematic exercise which is called as

a process of checking actual performance against the standards or plans
with a view to ensure adequate progress and also recording such
experience as is gained as a contribution to possible future needs.‖

12.3 PURPOSE OF CONTROLLING

Controlling is used for the various objectives. Some of them are as follows:

1. Controls are used to standardize performance for increasing efficiencyand

reducing cost by way of time and motion studies, inspections, written
procedures or work schedules.
2. Controls used to conserve company assets through allocation
ofresponsibilities, separation of operational, custodial and accounting
activities and adoption of proper authorization and record keeping.

3. Controls are used to standardize quality by way of inspection, statistical

quality control and product specifications.

4. Controls used for providing free limits to the use of delegated

authoritywithout any further top-management approval.

5. Controls are used to measure on-the job performance by way ofspecial

reports, internal audits, budgets, standard cost and output per hour or per
employee.

6. Controls are used for planning future operations through sales

andproduction forecasts, budgets, cost standards and other standards for
measurement.

7. Controls are used to permit top management for keeping various plans and
programmes.

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8. Controls are designed to motivate personnel through promotions,rewards
for suggestions, profit sharing and other methods of recognizing
achievements.

12.4 AREAS OF CONTROL

The work of the manager in controlling involves four specific areas. These
areas are as follows:

1. Establishing standard of accountabilitye

Manager should see to it that there are valid, understandable and
acceptable standards for measurement of work as it goes forward. These
standards are based on the plans established to initiate the work.

2. Measuring work in progresse

Record must be kept of work as it progresses so that performance can
be compared to the applicable standard. Measurement may be in terms of
amount spent, units sold, customers contacted, activities completed and so
on. Effective measurement also requires accurate reporting of the work
accomplished.

3. Interpreting resultse
The results accomplished must be evaluated in terms of the standards
by which work is being judged. Interpretation involves not only comparison of
actual against standard but also identification of discrepancies and analysis of
why these variances have occurred.

4. Taking corrective actione

When variations from plan occur, it is necessary to bring the work
going on back to the desired course. The manager himself must decide what is
required to attain the results he expects. Only he can give the orders which
lead to effective corrective action.

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12.5 STEPS IN CONTROLLING PROCESS

The steps in control process are explained as follows:

Setting targets

Follow up Implementati

Implementing Control Measurem

Corrective Comparison

Deviation
1. Setting targetse
Managers must fix the targets to be achieved. The standards are generally
fixed for a definite period may be for one month, one year etc. the standards
are required to be set properly because against these only the actual
performance compared. For e.g. The marketing manager may fix the standard
for his department to sell 10000 units in a particular month.

2. Implementation of targetse
Manager must make arrangement for actual implementation of targets.
For implantation proper arrangements of resources is required.

3. Measuremente
After implementation manager should count the actual performance of his
subordinates. For e.g. The subordinates may actually sell 9000 units in the
market in that particular month.

4. Comparisone

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Manager should compare the actual performance with the standard
performance. In our example Marketing manager will compare the actual
performance i.e 9000 units against standard performance i.e. 10000 units.

5. Deviatione
Deviation is difference between standard and actual performance.
Manager should then find out deviation if any. In our example deviation is
10000-9000=1000 units.

6. Corrective measurese
After finding out deviation, manager should list out possible reasons for
deviation. In our example reasons can be poor advertising, poor quality of
product, poor distribution strategy etc. Manager then list out the corrective
measures to overcome these reasons. The corrective measures can be
improvement in product quality, improving advertising strategies, improving
distribution network etc.

7. Implementing measurese
Manager then should select the best corrective measure out of all the
listed measures. This selection is done after doing cost benefit analysis of each
alternative. Manager should then implement the best selected corrective
measure.

8. Follow upe
After implementation manager should take a review of performance that
whether the selected corrective measure is able to solve deviation or not. If
there is no improvement then manager should again find out the other
alternative corrective measure.

12.5 TECHNIQUES OF CONTROLLING

Following are some of the techniques of managerial control:

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1. Budgetary controle

Budgets are statements of anticipated results either in e monetary terms

or in non- monetary terms. There are various types of budgets such as cash
budget, production budget, capital expenditure budget etc. Because of
quantitative nature budgets provide basis for measuring performance and
facilitate comparison across departments, between levels in the organization
and from one period to another. It follows the principle of control by
exception. The subordinates report only exceptional deviations to their
superiors.

2. Management audite

Management audit refers to the systematic evaluation of the

functioning and performance of management. It reviews the quality of
management. It is designed to make an assessment of management process. It
is a periodic evaluation of past and present managerial practices to identify
the adjustments necessary to make the organization more effective. It is
conducted by a team of experts. The team collects relevant data from
management, employees, customers, dealers and others. The data is
collected, analyzed and conclusions are drawn in respect of performance of
management.

3. PERT and CPMe

The two important network techniques are PERT (Programme Evaluation

Review Technique) and CPM (Critical Path Method). PERT was developed by
the Special Projects Office of the U.S.Navy in connection with the Polaris
Weapons System. CPM was developed by Du Pont company for facilitating
control of large,

complex and industrial projects. The PERT and CPM techniques are based on
the same principles. The only difference is that CPM is based on a single
estimate of time requires for the completion of activities

The CPM technique is used for projects like construction and

maintenance projects. PERT is based on expected completion time, computed
from three estimated times- the optimistic time, the pessimistic time and the
most likely time. The PERT technique can be used for more complicated
projects like engineering and tooling projects.

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4. MBOe

The concept of MBO (Management By Objectives) was first

popularized by Peter Drucker in 1950s. In MBO superiors and subordinates
jointly decide the goals, plan out the activities. The subordinate managers
implement the plan and finally there is a joint review of performance.

5. Direct supervisione

It is the oldest technique of controlling. In every organization

supervisors directly supervise and observe the subordinates performance. If
they found any deviation they can suggest immediate corrective actions.
6. Self controle

Self control means controlling the performance on own. This is

specially applicable at higher levels. Here the managers set their own targets,
observe the performance, find out the deviations and take necessary actions
to improve the performance.

7. Break Even Analysise

This technique analyses the cost-profit-volume relationship. It indicates

at what cost and volume a firm would make a profit. It helps to decide break
even point. The break even point is that point where cost is exactly same as
revenue ie no profit no loss point. With the help of this analysis a firm monitor
the activities so as to reach at least the break even point.

8. MISe

MIS (Management Information System) is a tool rather than a

technique of controlling. In MIS information is collected from internal and
external environment, analysis is done and then data is stored for future
reference. Managers can use this information whenever required.

CHECK YOUR PROGRESSe

7. Draw the chart showing Control process.
8. What do you mean by PERT and CPM?
9. What is MIS?

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10. What is break even analysis?
11. Explain the concept of MBO.

12.6 BUDGETARY CONTROL

12.6.1 MEANING OF BUDGETe

A formal statement of the financial resources set aside for carrying out
specific activities in a given period of time. A budget is a plan expressed in
quantitative, usually monetary term, covering a specific period of time, usually
one year. In other words a budget is a systematic plan for the utilization of
manpower and material resources. In a business organization, a budget
represents an estimate of future costs and revenues. Budgets may be divided
into two basic classes: Capital Budgets and Operating Budgets.

Different types of budgets are prepared for different purposed e.g. Sales
Budget, Production Budget, Administrative Expense Budget, Rawmaterial
Budget etc. All these sectional budgets are afterwards integrated into a master
budget, which represents an overall plan of the organization.

12.6.2 MEANING OF BUDGETARY CONTROLe

A control technique whereby actual results are compared with

budgets. Any differences (variances) are made the responsibility of key
individuals who can either exercise control action or revise the original
budgets.

12.6.3 CHARACTERISTICS OF A BUDGETe

A good budget is characterized by the following:

1. Participation: involve as many people as possible in drawing up a
budget
2. Comprehensiveness: embrace the whole organization.
3. Standards: base it on established standards of performance.
4. Flexibility: allow for changing circumstances.
5. Feedback: constantly monitor performance.
6. Analysis of costs and revenues: this can be done on the basis
ofproduct lines, departments or cost centers.

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7. It is prepared in advance and is derived from the long-term strategy
of the organization.
8. It relates to future period for which objectives or goals have already
been laid down.
9. It is expressed in quantitative form, physical or monetary units, or
both.

12.6.4 THE PROCESS OF BUDGETARY CONTROL

1. Preparation of various budgets.
2. Continuous comparison of actual performance with budgetary
performance.
3. Revision of budgets in the light of changed circumstances.

A system of budgetary control should not become rigid. There should

be enough scope of flexibility to provide for individual initiative and drive.
Budgetary control is an important device for making the organization. More
efficient on all fronts. It is an important tool for controlling costs and achieving
the overall objectives. No system of planning can be successful without having
an effective and efficient system of control. Budgeting is closely connected
with control. The exercise of control in the organization with the help of
budgets is known as budgetary control.

12.6.5 STEPS IN BUDGETARY CONTROLe

1. Organization for budgeting

2. Budget manual + Theory

"A document which sets out, inter alias, the responsibilities of the
persons engaged in, the routine of and forms and records required for
budgetary control."

The budget manual is a written document or booklet that specifies the

objectives of budgeting organization and procedures. Following are some of
the important matters covered in a budget manual:
1. A statement regarding the objectives of the organization and how they
can be achieved through budgetary control.
2. A statement regarding the functions and responsibilities of each
Executive by designation both regarding preparation and execution of
budgets.

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3. Procedures to be followed for obtaining the necessary approval of
budgets.
4. The authority of granting approval should be stated in explicit terms.
5. Whether one, two or more signatures are to be required on each
document
6. Should also be clearly stated.
7. Timetable for all stages of budgeting.
8. Reports, statements, forms and other records to be maintained.
9. The accounts classification to be employed. It is necessary that the
framework within which the costs, revenues and other financial
amount are classified must be identical both in accounts and the budget
departments.

12.6.6 ADVANTAGES OF BUDGETING AND BUDGETARY CONTROLe

There are a number of advantages to budgeting and budgetary control:

1. Compels management to think about the future, which is

probably the most important feature of a budgetary planning and
control system. Forces management to look ahead, to set out
detailed plans for achieving the targets for each department,
operation and (ideally) each manager, to anticipate and give the
organisation purpose and direction.
2. Promotes coordination and communication.
3. Clearly defines areas of responsibility. Requires managers of
budget centers to be made responsible for the achievement of
budget targets for the operations under their personal control.
4. Provides a basis for performance appraisal (variance analysis). A
budget is basically a yardstick against which actual performance is
measured and assessed. Control is provided by comparisons of
actual results against budget plan. Departures from budget can
then be investigated and the reasons for the differences can be
divided into controllable and non-controllable factors.
5. Enables remedial action to be taken as variances emerge.
6. Motivates employees by participating in the setting of budgets.
7. Improves the allocation of scarce resources.
8. Economizes management time by using the management by
exception principle.
9. It brings about efficiency and improvement in the working of the
organization.

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10. It is a way of communicating the plans to various units of the
organization. By establishing the divisional, departmental, sectional
budgets, exact responsibilities are assigned. It thus minimizes the
possibilities of buck passing if the budget figures are not met.

11. It is a way or motivating managers to achieve the goals set for the units.

12. It serves as a benchmark for controlling on-going operations.

13. It helps in developing a team spirit where participation in budgeting is

encouraged.
14. It helps in reducing wastage and losses by revealing them in time for
corrective action.
15. It serves as a basis for evaluating the performance of managers.

16. It serves as a means of educating the managers.

12.6.7 PROBLEMS IN BUDGETINGe

While budgets may be an essential part of any marketing activity they

do have a number of disadvantages, particularly in perception terms.

1. Budgets can be seen as pressure devices imposed by management,

thus resulting in: a) Bad labour relations
b) Inaccurate record-keeping.
2. Departmental conflict arises due to:
a) Disputes over resource allocation
b) Departments blaming each other if targets are not attained.
c) It is difficult to reconcile personal/individual and corporate goals.
3. Waste may arise as managers adopt the view, "we had betterspend
it or we will lose it". This is often coupled with "empire building" in
order to enhance the prestige of a department.
4. Managers may overestimate costs so that they will not be blamed in
the future should they overspend.

CHECK YOUR PROGRESSe

1. What do you mean by budget?
2. Explain the meaning of budgetary control.
3. State the characteristics of budgeting 4. State the advantages of
budgeting
5. State the limitations of budgeting.

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12.7 SUMMARY

From the discussion it is clear that controlling is an important tool of

management. It gives the clear picture about achievements of the
organization against its set standards. Organization can follow various
techniques of controlling as per the requirement of the situation. One of the
popular techniques of controlling is budgetary control, where various types of
budgets are prepared and actual are compared against these budgets.

12.8 EXERCISE

4. Define controlling. Explain the stages involved in process of controlling.

5. Discuss the areas of control.
6. Discuss the purpose behind controlling function.
7. State and explain the various techniques of controlling.
8. Discuss the process of preparing budget.
9. Write a note on types of budget.
10. Explain the following terms in four to five sentences:
a. Controlling b. budgetary control
c. Management audit d. PERT
e. CPM f. Break-even point
g. MIS


Chapter 13 CO-ORDINATION

Unit Structure
13.0 Objective
13.1 Introduction
13.2 Meaning of co-ordination

13.3 Need and importance of co-ordination

13.4 Principles of co-ordination

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13.5 Problems of co-ordination

13.6 Summary

13.7 Exercise

13.0 OBJECTIVE

After studying the unit the students will be able to:

Understand the Meaning of co-ordination
Explain the Need and importance of co-ordination
Discuss the Principles of co-ordination
Know the Problems of co-ordination
Coordination is the unification, integration,
synchronization of the efforts of group members so as to provide unity of
action in the pursuit of common goals. It is undertaken at every level of
management. It deals with the task of blending efforts in order to ensure
successful attainment of an objective. It is accomplished by means of
planning, organizing and controlling. It is a part of all phases of administration
and that is not a separate and distinct activity. It is a hidden force which binds
all the other functions of management. Management seeks to achieve co-
ordination through its basic functions of planning, organizing, staffing,
directing and controlling. That is why, co-ordination is not a separate function
of management because achieving of harmony between individuals efforts
towards achievement of group goals is a key to success of management. Co-
ordination is the essence of management and is implicit and inherent in all
functions of management.

13.1 INTRODUCTION

Coordination is the unification, integration, synchronization of the

efforts of group members so as to provide unity of action in the pursuit of
common goals. It is undertaken at every level of management. It deals with
the task of blending efforts in order to ensure successful attainment of an
objective. It is accomplished by means of planning, organizing and controlling.
It is a part of all phases of administration and that is not a separate and
distinct activity. It is a hidden force which binds all the other functions of
management. Management seeks to achieve coordination through its basic
functions of planning, organizing, staffing, directing and controlling. That is
why, co-ordination is not a separate function of management because

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achieving of harmony between individuals efforts towards achievement of
group goals is a key to success of management. Co-ordination is the essence of
management and is implicit and inherent in all functions of management.

13.2 MEANING OF CO-ORDINATION

Co-ordination refers to interlinking of various activities of management in

the organization. There is a need of co-ordination at all the levels.
Top level co-ordinates the activities of middle level.
Middle level co-ordinates the activities of
lower level. Lower level co-ordinates the
activities of workers.

According to Mooney and Reelay, ―Co-ordination is orderly arrangement of

group efforts to provide unity of action in the pursuit of common goals‖.

According to Charles Worth, ―Co-ordination is the integration of

several parts into an orderly hole to achieve the purpose of
understanding‖.

According to Tead, ―co-ordination is the effort to assure a smooth interplay

of the functions and forces of the different component parts of an
organization to the end that its purpose will be realized with a minimum of
friction and a maximum of collaborative effectiveness.‖

13.3 NEED AND IMPORTANCE OF CO-ORDINATION

Co-ordination is an essence of management. This is because there is a

need of co-ordination while carrying on every function of management. This
can be explained with the help of following chart.

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PLANNING
C
ORGANIZING
O
O STAFFING
R
DIRECTING
D
I MOTIVATING
N LEADING
A
T COMMUNICATING

CONTROLLING

From the above chart it is clear that co-ordination is required at every function
of the management.

1. Planning and co-ordinatione

Planning is deciding in advance what to do, how to do, when to do and
who will do it. While finalizing the plan all departmental activities need to be
co-coordinated with each other. A good plan requires interdepartmental co-
operation.

2. Organizing and co-ordinatione

Organizing is arrangement and procurement of all human and physical
resources requires for implantation of plan. It also includes deciding superior
subordinate relationships. While organizing coordination is required so that
resources will be utilized only as per requirement and there will be o wastage
of resources.
3. Staffing and co-ordinatione
Staffing is filling and keeping filled positions of organization structure.
It also includes training, transfer, promotion, selection etc of employees.
While carrying on staffing function co-ordination is required so that right
person will be selected the right post.

4. Directing and co-ordinatione

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Directing is giving orders and instructions to the subordinates so that
work will be carried on as per the plan. A good level of co-ordination is
required while issuing orders and instructions. There should not be any
confusion and duplication of orders.

5. Motivating and co-ordinatione

Motivation is encouraging the subordinates by giving monetary and
non-monetary benefits, to get desired results. Motivation will be successful if
co- ordination is maintained.

6. Leading and co-ordinatione

Leading is driving the entire force positively for achieving goals. A
leader should always co-ordinate the activities of his followers, so that
expected results can be achieved.

7. Communicating and co-ordinatione

Communication is the most important factor for co-ordination. Effective
communication always facilitates co-ordination in the organization. It generates
team work.

8. Controlling and co-ordinatione

Controlling is monitoring the performance of subordinates and
implementing corrective measures for improvement. While controlling
superior should try to have co-ordination among all the activities of
subordinates so that errors can be detected.

CHECK YOUR PROGRESSe

12. ―Co-ordination is an essence of management.‖ Discuss.

13. What do you mean by co-ordination?
14. Explain the importance of co-ordination.

13.4 PRINCIPLES OF CO-ORDINATION

Mary Parker Follett has laid out four principles for effective coordination;

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1. Direct personal contacte
According to this principle co-ordination is best achieved through
direct personal contact with people concerned. Direct face-to-face
communication is the most effective way to convey ideas and information and
to remove misunderstanding.

2. Early beginninge
Co-ordination can be achieved more easily in early stages of planning
and policy-making. Therefore, plans should be based on mutual consultation
or participation. Integration of efforts becomes more difficult once the
uncoordinated plans are put into operation. Early coordination also improves
the quality of plans.

3. Reciprocitye
This principle states that all factors in a given situation are
interdependent and interrelated. For instance, in a group every person
influences all others and is in turn influenced by others. When people
appreciate the reciprocity of relations, they avoid unilateral action and co-
ordination becomes easier.

4. Continuitye
Co-ordination is an on-going or never-ending process rather than a
once-for-all activity. It cannot be left to chance, but management has to strive
constantly. Sound co-ordination is not fire-fighting, i.e., resolving conflicts as
they arise.

For effective co-ordination following techniques can be followede The main

techniques of effective co-ordination are as follows. 1. Sound planninge
Unity of purpose is the first essential condition of co-ordination.
Therefore, the goals of the organization and the goals of its units must be
clearly defined. Planning is the ideal stage for co-ordination. Clearcut
objectives, harmonized policies and unified procedures and rules ensure
uniformity of action.

2. Simplified organizatione
A simple and sound organization is an important means of
coordination. The lines of authority and responsibility from top to the bottom

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of the organization structure should be clearly defined. Clear-cut authority
relationships help to reduce conflicts and to hold people responsible. Related
activities should be grouped together in one department or unit. Too much
specialization should be avoided as it tends to make every unit an end in itself.

3. Effective communicatione
Open and regular communication is the key to co-ordination. Effective
interchange of opinions and information helps in resolving differences and in
creating mutual understanding. Personal and face-toface contacts are the
most effective means of communication and coordination. Committees help to
promote unity of purpose and uniformity of action among different
departments.

4. Effective leadership and supervisione

Effective leadership ensures co-ordination both at the planning and
execution stage. A good leader can guide the activities of his subordinates in
the right direction and can inspire them to pull together for the
accomplishment of common objectives. Sound leadership can persuade
subordinates to have identity of interest and to adopt a common outlook.
Personal supervision is an important method of resolving differences of
opinion.

5. Chain of commande
Authority is the supreme co-coordinating power in an
organization. Exercise of authority through the chain of command or hierarchy is
the traditional means of co-ordination. Co-ordination between interdependent
units can be secured by putting them under one boss.

6. Indoctrination and incentivese

Indoctrinating organizational members with the goals and mission of
the organization can transform a neutral body into a committed body.
Similarly incentives may be used to create mutuality of interest and to reduce
conflicts. For instance, profit-sharing is helpful in promoting team-spirit and
co-operation between employers and workers.

7. Liaison departments:

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Where frequent contacts between different organizational units are
necessary, liaison officers may be employed. For instance, a liaison
department may ensure that the production department is meeting the
delivery dates and specifications promised by the sales department. Special
co-coordinators may be appointed in certain cases. For instance, a project co-
coordinator is appointed to co-ordinate the activities of various functionaries
in a project which is to be completed within a specified period of time.

8. General staffe
In large organizations, a centralized pool of staff experts is used for co-
ordination. A common staff group serves as the clearing house of information
and specialized advice to all department of the enterprise. Such general staff is
very helpful in achieving inter-departmental or horizontal co-ordination. Task
forces and projects teams are also useful in co-ordination.

9. Voluntary co-ordinatione
When every organizational unit appreciates the workings of related
units and modifies its own functioning to suit them, there is selfco-ordination.
Self-co-ordination or voluntary co-ordination is possible in a climate of
dedication and mutual co-operation. It results from mutual consultation and
team-spirit among the members of the organization. However, it cannot be a
substitute for the co-coordinative efforts of managers.
CHECK YOUR PROGRESSe
1. List out the important principles of co-ordination.

13.5 PROBLEMS OF CO-ORDINATION

Problems of co-ordination exist both horizontally and vertically in the

organization. The impact of horizontal co-ordination is much higher than that
of vertical co-ordination.

Under horizontal co-ordination, the dissimilar activities of many hybrid

units are to be harmonized and unified with overall objectives and fixed
patterns of behavior of the enterprise.

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Vertical co-ordination on the other hand demands the symmetrical
action of people at various levels for accomplishing enterprise objectives
through the linkage of individual contributions to the total performance.

13.6 SUMMARY

From the discussion it is clear that co-ordination is an essence of

management. Without proper co-ordination, not a single function of
management can be carried on successfully. For effective co-ordination some
principles need to be followed. But at the same time one should not forget the
problems associated with co-ordination.

13.7 EXERCISE

11. What is co-ordination? Explain the principles for effective coordination.

12. ―Co-ordination is an essence of management.‖ Discuss.
13. Discuss the problem associated with co-ordination.
14. Explain the term coordination in four to five sentences.





Chapter 14
TOTAL QUALITY MANAGEMENT AND
QUALITY CIRCLES
Unit Structure
14.0 Objectives
14.1 Introduction
14.2 Meanings of Quality

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14.3 The Principles of Quality Control
14.4 Quality Circles
14.5 TQM
14.6 Benchmarking
14.7 International Organization for standardization (ISO)
14.8 Indian Standards Institute (ISI)
14.9 Summary
14.10 Exercise

14.0 OBJECTIVES

After studying the unit the students will be able to:

Understand the meaning of Quality.
Know the importance of Quality control.
Understand the Quality Circle.
Explain the meaning, importance and features of
TQM.
Understand the concept Benchmarking.
Explain the process and types of Benchmarking.
Discuss the importance of ISO and
criticise on ISO Know the advantages of
taking ISI certificate.
Distinguish between original and duplicate ISI mark.

14.1 INTRODUCTION

Companies that do not make quality a priority risk long-run

survival. Quality is the key to competitive advantage in today's business
environment. As more organizations opt for Total Quality Management
(TQM), the choices open to those wanting to set up a quality system are
becoming increasingly varied. Total quality management is a
management system for a customer focused organization that involves
all employees in continual improvement of all aspects of the
organization. TQM uses strategy, data, and effective communication to
integrate the quality principles into the culture and activities of the
organization. Total Quality Management (TQM) is an approach that
seeks to improve quality and performance which will meet or exceed

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customer expectations. This can be achieved by integrating all
qualityrelated functions and processes throughout the company. TQM
looks at the overall quality measures used by a company including
managing quality design and development, quality control and
maintenance, quality improvement, and quality assurance. TQM takes
into account all quality measures taken at all levels and involving all
company employees.

14.2 MEANING OF QUALITY

Definition and Meaninge

1. General Measure of excellence or state of being free from defects,
deficiencies, and significant variations. ISO standard defines
quality as ―the totality of features and characteristics of a product
or service that bears its ability to satisfy stated or implied needs
2. Manufacturing : Strict and consistent adherence to measurable
and verifiable standards to achieve uniformity of output that
satisfies specific customer or user requirements.

General the common element of the business definitions is that

the quality of a product or service refers to the perception of the degree
to which the product or service meets the customer's expectations.
Quality has no specific meaning unless related to a specific function
and/or object. Quality is a perceptual, conditional and somewhat
subjective attribute.

14.3 THE PRINCIPLES OF QUALITY CONTROL

Successful businesses inevitably place great emphasis on managing

quality control - carefully planned steps taken to ensure that the products
and services offered to their customers are consistent and reliable and
truly meet their customers' needs.

It is said that when the Japanese business that later became

Sony Corporation was founded, the co-founder Mr. Ibuka established
the company philosophy by stating that "If it were possible to establish
conditions where persons could become united with a firm spirit of
teamwork and exercise to their hearts' desire their technological
capacity, then such an organization could bring untold pleasure and
untold benefits." For decades, Japanese businesses have pioneered
management techniques intended to improve quality continuously.
American and European companies have spent years catching up.

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Krister Forsberg summary of quality management principlese
1. Customer-Focused Organization. Organizations depend on their
customers and therefore should understand current and future
customer needs, meet customer requirements, and strive to
exceed customer expectations.

2. Leadership. Leaders establish unity of purpose, direction, and the

internal environment of an organization. They create that
environment in which people can become fully involved in
achieving the organization's objectives.
3. Involvement of People. People at all levels are the essence of an
organization and their full involvement enables their abilities to be
used for the organization's benefit.

4. Process Approach. A desired result is achieved more efficiently

when related resources and activities are managed as a process.

5. System Approach to Management. Identifying, understanding,

and managing a system of interrelated processes for a given
objective contribute to the effectiveness and efficiency of the
organization.

6. Continual Improvement. Continual improvement is a permanent

objective of the organization.

7. Factual Approach to Decision Making. Effective decisions and

actions are based on the logical and intuitive analysis of data and
information.

8. Mutually Beneficial Supplier Relationships. Mutually beneficial

relationships between the organization and its supplier enhance
the ability of both organizations to create value.
All management personnel, starting with the owner, must
understand and agree that quality management is essential to the
success of the business. Once that agreement has been reached, every
employee must be involved in the process. All too often, employees are
reluctant to report quality problems, feeling that they would be "rocking
the boat" or seen as criticizing co-workers to management. Every effort
must be made to convince each employee that jobs and prosperity
depend on quality products and services, and that teamwork and
cooperation are essential in ensuring quality.

Every process required to satisfy a customer needs to be

analyzed with the goal of improving customer satisfaction. Profitability
will inevitably follow. Functions such as sales, extending credit, ordering
materials, measuring and templating, shop fabrication, delivery,
installation, billing and collection can't be seen as separate, unrelated
functions. Problems resulting in customer dissatisfaction or financial
losses most often occur when information is being passed from one

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such process to another. Special care must be taken to ensure that
every process connects reliably to the adjacent processes.

14.4 QUALITY CIRCLES

Quality circles were first established in Japan in 1962;

Kaoru Ishikawa has been credited with their creation. The movement
in Japan was coordinated by the Japanese Union of Scientists and
Engineers (JUSE). The first circles were established at the Nippon
Wireless and Telegraph Company but then spread to more than 35
other companies in the first year. By 1978 it was claimed that there
were more than one million Quality Circles involving some 10 million
Japanese workers. There are now Quality Circles in most East Asian
countries; it was recently claimed that there were more than 20 million
Quality Circles in China.

A quality circle is a volunteer formal group composed of

workers (or even students), usually under the leadership of their
supervisor (but they can elect a team leader), who are trained to
identify, analyze and solve work-related problems and present their
solutions to management in order to improve the performance of the
organization, and motivate and enrich the work of employees. They
meet at least once a week on company time. When quality circle
matures, true quality circles become selfmanaging, having gained the
confidence of management.

Quality circles are an alternative to the dehumanizing concept of

the division of labor, where workers or individuals are treated like
robots. They bring back the concept of craftsmanship, which when
operated on an individual basis is uneconomic, but when used in group
form (as is the case with quality circles), it can be devastatingly powerful
and enables the enrichment of the lives of the workers or students and
creates harmony and high performance in the workplace. Typical topics
are improving occupational safety and health , improving product
design , and improvement in the workplace and manufacturing
processes .

Principlese

The term quality circles derive from the concept of PDCA

(Plan, Do, Check, Act) circles developed by Dr. W. Edwards Deming
. The Plan – Do – Check – Act (PDCA) cycle is the operating principle
of ISO's management system standards.

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Plan – establish objectives and make plans (analyze your organization's

situation, establish your overall objectives and set your interim targets,
and develop plans to achieve them).

Do – implement your plans (do what you planned to).

Check – measure your results (measure/monitor how far your actual

achievements meet your planned objectives).

Act – correct and improve your plans and how you put them into
practice (correct and learn from your mistakes to improve your plans in
order to achieve better results next time).

Quality circles have been implemented even in educational

sectors in India, and QCFI (Quality Circle Forum of India) is promoting
such activities. However this was not successful in the United States, as
it (was not properly understood and) turned out to be a fault-finding
exercise although some circles do still exist.

14.5 TQM

14.5.1 MEANING AND DEFINITIONe

Total Quality Management (TQM) is a structured system for

meeting and exceeding customer needs and expectations by creating
organization-wide participation in the planning and implementation of
improvement (continuous and breakthrough) processes.
14.5.2 IMPORTANCE OF TQMe

In a global marketplace a major characteristic that will

distinguish those organizations that are successful will be the quality of
leadership, management, employees, work processes, product, and
service. This means that products must not only meet customer and
community needs for value, they must be provided in a continuously
improving, timely, cost-effective, innovative, and productive manner.

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Total Quality Management is an approach to the art of
management that originated in Japanese industry in the 1950's and has
become steadily more popular in the West since the early 1980's.

Total Quality is a description of the culture, attitude and

organization of a company that aims to provide, and continue to
provide, its customers with products and services that satisfy their
needs. The culture requires quality in all aspects of the company's
operations, with things being done right first time, and defects and
waste eradicated from operations

14.5.3 FEATURESe

1. Customer-driven qualitye
TQM has a customer-first orientation. Customer satisfaction is seen as
the company's highest priority. The company believes it will only be
successful if customers are satisfied. In the TQM context, `being
sensitive to customer requirements' goes beyond defect and error
reduction, and merely meeting specifications or reducing customer
complaints.

2. TQM leadership from top managemente

Attempts to implement TQM often fail because top management
doesn't lead and get committed - instead it delegates and pays lip
service. Commitment and personal involvement is required from top
management in creating and deploying clear quality values and goals
consistent with the objectives of the company, and in creating and
deploying well defined systems, methods and performance measures
for achieving those goals.
3. Continuous improvemente
Continuous improvement of all operations and activities is at the heart
of TQM. Once it is recognized that customer satisfaction can only be
obtained by providing a high-quality product, continuous improvement
of the quality of the product is seen as the only way to maintain a high
level of customer satisfaction.

4. Fast responsee
To achieve customer satisfaction, the company has to respond rapidly to
customer needs. This implies short product and service introduction
cycles. These can be achieved with customer-driven and process-
oriented product development because the resulting simplicity and
efficiency greatly reduce the time involved.

5. Actions based on factse

The statistical analysis of engineering and manufacturing facts is an
important part of TQM. Facts and analysis provide the basis for

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planning, review and performance tracking, improvement of operations,
and comparison of performance with competitors. The TQM approach is
based on the use of objective data, and provides a rational rather than
an emotional basis for decision making.

6. Employee participatione
A successful TQM environment requires a committed and welltrained
work force that participates fully in quality improvement activities. Such
participation is reinforced by reward and recognition systems which
emphasize the achievement of quality objectives. Employees are
encouraged to take more responsibility, communicate more effectively,
act creatively, and innovate.

14.5.4 TQM CULTUREe

It's not easy to introduce TQM. An open, cooperative culture has to
be created by management. Employees have to be made to feel that
they are responsible for customer satisfaction. They are unlikely to
behave in a responsible way if they see management behaving
irresponsibly - saying one thing and doing the opposite.

14.5.5 PRODUCT DEVELOPMENT IN A TQM ENVIRONMENTe

Product development in a TQM environment is customerdriven and
focused on quality. Teams are process-oriented, and interact with their
internal customers to deliver the required results. Management's focus
is on controlling the overall process, and rewarding teamwork.
14.5.6 ADVANTAGESe
1. Encourages a strategic approach to management at the
operational level through involving multiple departments in

cross-functional improvements and systemic innovation

processes
2. Provides high return on investment through improving efficiency
3. Works equally well for service and manufacturing sectors
4. Allows organizations to take advantage of developments that
enable managing operations as cross-functional processes
5. Fits an orientation toward inter-organizational collaboration and
strategic alliances through establishing a culture of collaboration
among different departments within organization

14.6 BENCHMARKING

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14.6.1 DEFINITIONe
Benchmarking is the process of identifying "best practice" in
relation to both products (including) and the processes by which those
products are created and delivered.

The objective of benchmarking is to understand and evaluate the

current position of a business or organisation in relation to "best
practice" and to identify areas and means of performance improvement.

Dimensions typically measured are quality, time and cost.

Improvements from learning mean doing things better, faster, and
cheaper.

Benchmarking involves management identifying the best firms in

their industry, or any other industry where similar processes exist, and
comparing the results and processes of those studied (the "targets") to
one's own results and processes to learn how well the targets perform
and, more importantly, how they do it.

14.6.2 THE BENCHMARKING PROCESSe

Benchmarking involves looking outward (outside a particular

business, organisation, industry, region or country) to examine how
others achieve their performance levels and to understand the processes
they use. In this way benchmarking helps explain the processes behind
excellent performance. When the lessons learnt from a benchmarking
exercise are applied appropriately, they facilitate improved performance
in critical functions within an organisation or in key areas of the business
environment.

Application of benchmarking involves four key steps:

(1) Understand in detail existing business processes.
(2) Analyse the business processes of others.
(3) Compare own business performance with that of others analysed.
(4) Implement the steps necessary to close the performance gap.

Benchmarking, to be effective, it must become an ongoing, integral

part of an ongoing improvement process with the goal of keeping abreast
of ever-improving best practice.

Proceduree

1. Identify your problem areas – Carefully and systematically

identify the area where benchmarking is required.

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2. Identify other industries that have similar processes – Through
external sources identify other organizations and industries where
similar processes are ongoing.
3. Identify organizations that are leaders in these areas Look for the
very best in any industry and in any country. Consult customers,
suppliers, financial analysts, trade associations, and magazines to
determine which companies are worthy of study.
4. Survey companies for measures and practices Companies target
specific business processes using detailed surveys of measures
and practices used by leading companies.
5. Visit the "best practice" companies to identify leading edge
practices - Companies typically agree to mutually exchange
information beneficial to all parties in a benchmarking group and
share the results within the group.
6. Implement new and improved business practices - Take the
leading edge practices and develop implementation plans which
include identification of specific opportunities, funding the project
and selling the ideas to the organization for the purpose of
gaining demonstrated value from the process.

14.6.3 TYPESe

 Process benchmarking - the initiating firm focuses its observation

and investigation of business processes with a goal of identifying
and observing the best practices from one or more benchmark
firms.
 Financial benchmarking - performing a financial analysis and
comparing the results in an effort to assess your overall
competitiveness and productivity.
 Performance benchmarking - allows the initiator firm to assess
their competitive position by comparing products and services
with those of target firms.
 Product benchmarking - the process of designing new products
or upgrades to current ones. This process can sometimes involve
reverse engineering which is taking apart competitors products to
find strengths and weaknesses.
 Strategic benchmarking - involves observing how others
compete. This type is usually not industry specific, meaning it is
best to look at other industries.
 Functional benchmarking - a company will focus its
benchmarking on a single function to improve the operation of
that particular function.
 Operational benchmarking - embraces everything from staffing
and productivity to office flow and analysis of procedures
performed.

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 Internal Benchmarking: involves benchmarking businesses or
operations from within the same organisation (e.g. business units
in different countries).
 External Benchmarking: involves analysing outside organisations
that are known to be best in class. External benchmarking
provides opportunities of learning from those who are at the
"leading edge".
 International Benchmarking: involves identification and analyses
of best practitioners elsewhere in the world, perhaps because
there are too few benchmarking partners within the same
country to produce valid results.

CHECK YOUR PROGRESS

1. ―Successful businesses inevitably place great emphasis on

managing quality control.‖ Explain.
2. Draw the Quality circle and explain it.
3. Explain the following terms in four to five sentences.
a. Quality
b. Quality circle
c. Total Quality Management
d. Benchmarking
e. Process Benchmarking
f. Financial Benchmarking
g. Product Benchmarking
h. Strategic Benchmarking
i. International Benchmarking
j. External Benchmarking

14.7 INTERNATIONAL ORGANISATION FOR

STANDARDISTION (ISO)

14.7.1 MEANING
The International Organization for
Standardization widely known as ISO is an internationalstandard-
setting body composed of representatives from various national
standards organizations. The organization which today is known as ISO
began in 1926 as the International Federation of the National
Standardizing Associations (ISA). This organization focused heavily on
mechanical engineering. It was disbanded in 1942 during the Second
World War but was re-organized under the current name, ISO, in 1946. Founded on
February 23, 1947, the organization promulgates worldwide proprietary industrial and
commercial standards . It has its headquarters in Geneva ,
Switzerland . While ISO definesitself as a non governmental

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organization , its ability to set standards that often become law, either
through treaties or national standards, makes it more powerful than
most non-governmental organizations. In practice, ISO acts as a
consortium with strong links to governments.

14.7.2 MEMBERS
ISO has 163 national members , out of the 203 total countries in the
world.

ISO has three membership categories:

 Member bodies are national bodies that are considered to be the
most representative standards body in each country. These are the
only members of ISO that have voting rights.
 Correspondent members are countries that do not have their own
standards organization. These members are informed about ISO's
work, but do not participate in standards promulgation.
 Subscriber members are countries with small economies. They pay
reduced membership fees, but can follow the development of
standards.
Participating members are called "P" members as opposed to
observing members which are called "O" members.

14.7.3 ADVANTAGESe

It is widely acknowledged that proper quality management

improves business, often having a positive effect on investment, market
share, sales growth, sales margins, competitive advantage, and
avoidance of litigation. Any company competitive implementing ISO
often gives the following advantages:

Create a more efficient, effective operation

Increase customer satisfaction and retention

Reduce audits

Enhance marketing

Improve employee motivation, awareness, and morale

Promote international trade

Increases profit

Reduce waste and increases productivity.

The ISO standards relate to quality management systems and are

designed to help organizations ensure they meet the needs of
customers and other stakeholders.

14.7.4 CRITICISMe

A common criticism of ISO certification is the amount of money, time
and paperwork required for registration.

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
ISO certification is not in any way an indication that products
produced using its certified systems are any good. A company can
intend to produce a poor quality product and providing it does so
consistently and with the proper documentation can put an ISO
9001 stamp on it.

The added cost to certify and then maintain certification may not
be justified if product end users do not require ISO certification.
The cost can actually put a company at a competitive
disadvantage when competing against a non ISO certified
company.

The standard is seen as especially prone to failure when a

company is interested in certification before quality. Certifications

are in fact often based on customer contractual requirements
rather than a desire to actually improve quality.

Another problem reported is the competition among the numerous
certifying bodies, leading to a softer approach to
the defects noticed in the operation of the Quality System of a
firm.

14.7.5 GROWTHe

The growth in ISO certification is shown in the table below. The

worldwide total of ISO certificates can be found in the ISO Survey of
9001 in 2003, 2007, 2008 and 2009.

Sourcee ISO Survey 2009

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In recent years there has been a rapid growth in China which

now accounts for approximately a quarter of the global certifications.

14.8 INDIAN STANDARDS INSTITUTE (ISI)

14.8.1 ISI CERTIFICATIONe

Indian Standards Institute now known as Bureau of Indian

Standard (BIS) is a registered society under Government of India. BIS
main functions include the development of technical standards, product
quality and management system certi fications and consumer affairs.
Founded by Professor P.C. Mahalanobis in Kolkata on 17th December,
1931, the institute gained the status of an Institution of National
Importance by an act of the Indian Parliament in 1959.

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To maintain the service and quality of a product is the main job
of Bureau of Indian Standards (BIS). BIS allot the ISI mark to any product
as third party guarantee after ensuring its quality, reliability and safety.
Another job of BIS is to take action on the consumer complaints after
making proper inquiry.

14.8.2 BENEFITS OF ISI MARK PRODUCTe

The quality and standards of products with ISI mark are set up as this
mark is issued after proper investigation.
Products having ISI Certification mark are not required to be
inspected by any agency.
These products do not fall within the purview of the export
inspection agencies network.
The Customs Authorities allow export of such goods even if not
accompanied by any pre-shipment inspection certificate.

If you are not satisfied with the quality of product with ISI mark,
then the company will give you new product in return to it.
An action can be taken against the manufacturer of the product with
ISI mark in case of its bad quality.

14.8.3 HOW TO DISTINGUISH BETWEEN ORIGINAL AND DUPLICATE ISI

MARK?
• Products with 'As per ISI standards', 'Confirmed to ISI standards'
or 'As per ISI specification' are duplicate.
• The logo on original ISI products is of rectangular shape. The
ratio between its length and breadth is 4e3. Number ISe is
written upon with followed by a number. IS: is written on all
products but the number varies.
This number specifies the category of the
product. CM/L along with a seven digit license number is
written below the logo. This number helps in identifying the unit
where it was produced.

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Images of duplicate ISI mark

8.8.3 Image of original ISI mark

14.8.4 SOME IMPORTANT POINTS TO CONSIDERe


Always take the bill of item purchased. Also ask the seller to mention
the fact on the bill that the product is with ISI mark.

Complaint in BIS if you are not satisfied with the quality of
product with ISI mark. While making the complaint, specify the
name of the product, details of the shop, date of purchasing,
manufacturing date and the fact that whether you are having the
bill or not.

BIS takes action from time to time against the people misusing the ISI
mark.

The time duration of three months is fixed for the investigation of
complaints received against quality of products with ISI mark.

A punishment of one year or a penalty of up to Rs. 50,000 or both can
be levied on the person misusing ISI mark.

The investigation lab of BIS is situated in many cities all over the
country. You can check the quality of any product after paying the
fees as specified by BIS.

14.9 SUMMARY

Quality can be defined as the adherence to measurable and

verifiable standards to achieve uniformity of output that satisfies
specific customer or user requirements. Quality brings about customer
orientation in the organization, develops leadership, involves people
and instills continual improvement and factual approach to decision
making.

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Quality Circles are volunteer formal group composed of workers
(or even students), usually under the leadership of their supervisor (but
they can elect a team leader), who are trained to identify, analyze and
solve work-related problems and present their solutions to
management in order to improve the performance of the organization,
and motivate and enrich the work of employees. It operates on the
Plan-Do-Check-Act principles.

Total Quality Management (TQM) is a structured system for

meeting and exceeding customer needs and expectations by creating
organization-wide participation in the planning and implementation of
improvement (continuous and breakthrough) processes.
It encourages a strategic approach to management at the
operational, provides high return on investment through improving
efficiency and works equally well for service and manufacturing sectors.

Benchmarking is the process of identifying "best practice" in

relation to both products (including) and the processes by which those
products are created and delivered.

It can be put into application through four key steps: Understand

in detail existing business processes, analyse the business processes of
others, compare own business performance with that of others and
Implement the steps necessary to close the performance gap.

There are various types of benchmarking such as process,

financial, performance, product , strategic, functional, operational,
internal and external benchmarking .
The International Organization for
Standardization widely known as ISO is an international standard -
setting body composed of representatives from various national
standard organizations. Its advantages are that it creates a more
efficient, effective operation, increases customer satisfaction and
retention, reduce audits, enhances marketing, improve employee
motivation, awareness, and morale, promote international trade and
reduce waste and increases profit

ISI Certificatione Indian Standards Institute now known as

Bureau of Indian Standard (BIS) is a registered society under
Government of India. BIS main functions include the development of
technical standards, product quality and management system
certifications and consumer affairs.

To maintain the service and quality of a product is the main job

of Bureau of Indian Standards (BIS). BIS allot the ISI mark to any product
as third party guarantee after ensuring its quality, reliability and safety.

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Another job of BIS is to take action on the consumer complaints after
making proper inquiry.

14.10 EXERCISE

1. Define quality and explain its importance.

2. Explain Krister Forsberg quality management principles. 3.
Discuss the concept of Quality Circles and its principles.
4. What is TQM?
5. What are the features of TQM and give its advantages.
6. What is benchmarking?
7. Explain the steps of setting-up benchmarking?
8. Give the different types of benchmarking.
9. Explain ISO. Give its advantages and present its criticism.
10. What is ISI? What are the benefits of adhering to ISI?
11. Explain the following terms:
a. ISO
b. ISI certificate
c. Performance Benchmarking
d. Functional Benchmarking
e. Operating Benchmarking
f. Internal Benchmarking


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