PART I: INTRODUCTION

CHAPTER 1
FUNDAMENTALS OF MANAGEMENT
Management Key Concepts
 Organizations: A group of people working together in a structured and
coordinated fashion to achieve a set of goals.
 Goal: A desired future condition that the organization seeks to achieve.
 Management: The process of using organizational resources to achieve the
organization’s goals by...
 Planning, Organizing, Leading, and Controlling

Fig1.1 Management in Organization

Meanings of management
Management - A set of activities (including planning and decision making, organizing,
leading, and controlling) directed at an organization’s resources (human, financial,
physical, and information) with the aim of achieving organizational goals in an
efficient and effective manner.
 It is the process of setting and achieving organizational objectives (goal) by
using the five basic managerial functions by acquiring and utilizing human,
financial and other resources.

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  It is the process of attaining organizational goals in an effective and efficient
manner through the five basic managerial functions such as planning,
organizing, staffing, leading and controlling.
 Management is the process of working with and through others.

Organizational Performance
Measures how efficiently and effectively managers use resources to satisfy
customers and achieve goals.

Efficiency: A measure of how well resources are used to achieve a goal. It is

getting high out put or the same amount of output at the same amount of input or
lower input, respectively.
 Maximizing the organization’s productivity by wise utilization of
scarce resources.
 It is spending less & acquiring more by minimizing cost
 it is concerned with cost reduction
 it is doing things right
 Usually, managers must try to minimize the input of resources
to attain the same goal.
 Technical efficiency = Output quality / Input quantity

Effectiveness: A measure of the appropriateness of the goals chosen (are these

the right goals?), and the degree to which they are achieved.
 it is providing the right product for the right person or customer
 it is doing the right things at reasonable cost (efficiently)
 Determine the success of the organization b/c it is doing the right
things
 Organizations are more effective when managers choose the
correct goals and then achieve them.
 Effectiveness = Enterprise objectives/Input Quantity"

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Who are managers?
 Manager - someone whose primary responsibility is to carry out the
management process.
 Specifically, a manager is someone who plans, makes decisions, organizes,
leads, and controls human, financial, physical, and information resources.
 Managers are those who are responsible for achieving the organizational goals
in an effective and efficient manner through proper scarce resource utilization
 A good manager is the one who feel sense of responsibility, belongingness,
accountability…
 Who take initiative (innovator) for new things or discovery
 Who effectively & efficiently brings factors of production together

Fig 1.2 Becoming a manager

Significance of management
 management is significant because the coordination of resources is
impossible with out management
 It affects the establishment and re-establishment of many economic, social
and political goals of the country
 The success or failure of the organization mostly depends on the
management system

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  B/c it is the wise utilization of scarce resources for unlimited human
wants. `

To accomplish Objectives, while in actuality the members might be working in opposite

direction, to prevent this from occurring and to ensure coordination of work to
accomplish the objectives, management is needed. As 'a brain' of an organization
therefore, management gives direction for all other parts of organization.

1.3 Managerial Functions

Managers create and maintain an internal environment, commonly called the orga
nization, so that others can work efficiently in it. A manager's job consists of planning,
organizing, directing, and controlling the resources of the organization. These resources
include people, jobs or positions, technology, facilities and equipment, materials and
supplies, information, and money. Managers work in a dynamic environment and must
anticipate and adapt to challenges.

The job of every manager involves what is known as the functions of management:
planning, organizing, directing, and controlling. These functions are goal-directed,
interrelated and interdependent. Planning involves devising a systematic process for
attaining the goals of the organization. It prepares the organization for the future.
Organizing involves arranging the necessary resources to carry out the plan. It is the
process of creating structure, establishing relationships, and allocating resources to
accomplish the goals of the organization. Directing involves the guiding, leading, and
overseeing of employees to achieve organizational goals. Controlling involves verifying
that actual performance matches the plan. If performance results do not match the plan,
corrective action is taken.

Fig 1.3 Functions of Management

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Management Process

Managers are persons who are responsible for supervising the use of organizational
resources to achieve its goals, to do this manager at all levels in any organization perform
five basic functions:
 Planning
 Organizing
 Staffing
 Directing/Leading
 Controlling

Fig 1.4 Management Process

1. Planning
Planning is the process used by managers to identify and select appropriate goals
and courses of action for an organization.
3 steps to good planning:
1. Which goals should be pursued?
2. How should the goal be attained?
3. How should resources be allocated?
Is the first function that all managers engage in because it lays the ground work
for all other functions.
Is the process that managers use to identify and select appropriate goals and
alternative ways of attaining them.
The planning function determines how effective and efficient the organization is
and determines the strategy of the organization.

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 2. Organizing
Is the process of delegating and coordination tasks and recourses to achieve
objectives.
Includes the process of identifying tasks to be accomplished.
Includes grouping of similar tasks together to create departments.
Is process of delegating authority to the job holder and making the workers

responsible and accountable for the results of their work.

In organizing, managers create the structure of working relationships between
organizational members that best allows them to work together and achieve
goals.

Staffing
Is initially the process of recruiting potential candidates for the job, reviewing
the applicant's documents and trying to match the job demand with candidates'
abilities?
Involves acquiring, developing and maintaining human resource which is needed
to attain objectives set in planning.

3Directing/leading
In leading, managers determine direction, state a clear vision for employees to
follow, and help employees understand the role the play in attaining goals.
Involves influencing and motivation employees in one or another ways to make
them implement their job assignments willingly.
Aims at getting the members of the organization to move in the direction that
will achieve its objectives.

4. Controlling:
In controlling, managers evaluate how well the organization is achieving its goals and
takes corrective action to improve performance.
Controlling managerial functions involves:
1. Setting of standard against which work progress is measured.
2. Comparing actual performance against the standard.
3. identifying and initially examining causes of deviations between the standard and
the actual performance
4. Taking corrective actions to eliminate causes of unfavorable deviations.
Generally, these five functions of management are inseparable and often performed
continuously as an interactive process. However, the planning function is considered as

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primary function and the base for other functions by setting objectives up on which other
functions depend all the above functions are performed by all types of managers but
with different degree of considerations.

1.4 Levels of management and types of manager

Levels are Hierarchical arrangement of managerial positions in an organization.
The extent to which managers perform the functions of management - planning,
organizing, directing, and controlling - varies by level in the management hierarchy. The
term supervisor could be applied at all management levels of the organization to those
who direct the work of others. In common usage, however, the title tends to be used only
in the first level of the management hierarchy. If an organization were divided into top,
middle, and lower managerial levels, the term generally applies to the lower level.
The levels can be expressed by using pyramid shaped arrangement of an organizational
management structure.

Fig1.5 Levels of Management

Levels of management
1. Top level management (top Managers)

Top level management consists of highest rank managers of an organization with

different titles such as CEO, president, vice president; Top managers are responsible for

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managing the entire organization or major parts of it. They develop and define the
organization's purpose, objectives, strategies and long term plans. Besides this they deal
with external bodies such as government. And Responsible for the performance of all
departments and have cross-departmental responsibility. They establish organizational
goals and monitor middle managers.

2. Middle level management (middle Managers)

Middle level management consists of managers below rank of vice president but above
supervisory managers. Supervise first-line managers and they are also responsible to find
the best way to use departmental resources to achieve goals. Most common example is
Branch mangers.

The major functions of middle level management are:

 Acting as intermediary between top management and operating level

management.
 Translating long term plans to top management into medium range plans.
 Developing specific targets in their areas of responsibility
 Coordinating inputs, productivity and outputs of operating level managements.
 Achieving objectives set by top level management.

3. Operating(first level)management (first line Managers)

These are types of managers whose subordinates are non management workers or
operating employees. They are responsible for day-to-day operation. They supervise the
people performing the activities required to make the good or service the typical titles in
this level are: office manager, crew leaders' supervisor etc...........
The major functions of operating level management are:

 Planning daily and weekly activities and accomplishment based on the monthly,
quarterly, and yearly plans.
 Assigning operating employees to specific tasks.
 Issuing instructions at the work place, following up, motivating and evaluating
workers and reporting to their superiors.

To sum up, Supervisors are managers whose major functions emphasize directing and
controlling the work of employees in order to achieve the team goals. They are the only
level of management managing non-managers. Thus, most of the supervisor's time is
allocated to the functions of directing and controlling. In contrast, top managers spend
most of their time on the functions of planning and organizing. The top manager
determines the mission and sets the goals for the organization. His or her primary
function is long-range planning. Top management is accountable for the overall
management of the organization. Middle management implements top management
goals. Supervisors direct the actual work of the organization at the operating level

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1.5 Managerial Roles and skills.

A. Managerial Roles

Role is an organized set of behaviors.

There are about 10 roles identified that managers undertake to accomplish management
functions (planning, Organizing, leading, and controlling). These ten roles are classified
in to three major categories:

I. Interpersonal role
II. Informational role
III. Decisional role

To meet the many demands of performing their functions, managers assume multiple
roles. A role is an organized set of behaviors. Henry Mintzberg has identified ten roles
common to the work of all managers. The ten roles are divided into three groups:
interpersonal, informational, and decisional. The informational roles link all managerial
work together. The interpersonal roles ensure that information is provided. The decisional
roles make significant use of the information. The performance of managerial roles and
the requirements of these roles can be played at different times by the same manager and
to different degrees depending on the level and function of management. The ten roles
are described individually, but they form an integrated whole.

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Fig 1.6 Managerial Roles

I. Interpersonal role
When managers play interpersonal roles, they use their human and communication
management skills as they perform the necessary management function.

It includes:
 Figure head role
 leader role
 liaison role
Figure head role Managers represent the organization or department in ceremonial
and symbolic activities. In the figurehead role, the manager represents the organization in
all matters of formality. The top level manager represents the company legally and
socially to those outside of the organization.
It is the most basic and the simplest of all managerial roles
Leader role_ Managers are assumed as leaders when they influence, initiate and
motivate the subordinates so that the subordinates achieve organizational goals. This is at
the heart of the manager-subordinate relationship and managerial power and pervasive
where subordinates are involved even where perhaps the relationship is not directly
interpersonal. The manager
 Defines the structures and environments within which sub-ordinates work
and are motivated.
 Oversees and questions activities to keep them alert.
 Selects, encourages, promotes and disciplines.

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  Tries to balance subordinate and organizational needs for efficient
operations.

Liaison role- the liaison role refers to dealing with people out side the organization, such
as clients, government officials, customers, and suppliers, it also refers to dealing with
mangers in other departments, staff specialists, and other departments' employees in
liaison role manager seeks support from people who can affect the department's and
organization's success.

II. Informational role

When managers play informational roles they build networks of contacts for
sharing information with others. It includes:

 Monitor role
 Disseminator role
 Spokesperson role

Monitor role Managers play monitor role when they read and talk to others to receive
information. It involves seeking out, receiving and screening information. It also
involves scanning of the environment.

Disseminator role: - in this role managers share information with subordinates and other
members of the organization that is managers play disseminator role when they send
information to others with in the organization. - The manager brings external views into
his/her organization and facilitates internal information flows between subordinates
(factual or value-based).

The preferences of significant people are received and assimilated. The manager
interprets/disseminates information to subordinates e.g. policies, rules, regulations.
Values are also disseminated via conversations laced with imperatives and signs/icons
about what is regarded as important or what 'we believe in'.

There is a dilemma of delegation. Only the manager has the data for many decisions and
often in the wrong form (verbal/memory vs. paper). Sharing is time-consuming and
difficult. He/she and staff may be already overloaded. Communication consumes time.
The adage 'if you want to get things done, (it is best to do it yourself' comes to mind.
Why might this be a driver of managerial behavior (reluctance or constraints on the
ability to delegate)?

Spokesperson role: - managers play spokesperson role when they provide information to
people out side the organization. - the manager informs and lobbies others (external to
his/her own organizational group). Key influencers and stakeholders are kept informed of
performances, plans & policies. For outsiders, the manager is an expert in the field in
which his/her organisation operates.

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III. Decisional role
When managers play decisional role they use their conceptual and decision-making
management skills.
It consists;
 Entrepreneur role
 Disturbance handler role
 Resource allocator role
 Negotiator role.

Entrepreneur Role: - Is the role of managers which focuses on innovation and initiation
of improvements by managers. It may include such activities as initiating new projects,
launch survey, test new markets etc..

Disturbance handler role: - managers play this role when dealing with problems and
changes beyond their immediate control and when they take corrective actions during
disputes or crisis situation. And it Is a generalist role i.e. taking charge when the
organization hits an iceberg unexpectedly and where there is no clear programmed
response. Disturbances may arise from staff, resources, threats or because others
make mistakes or innovation has unexpected consequences. The role involves stepping in
to calm matters, evaluate, re-allocate, support - removing the thorn -buying time.

Resource allocator role:- managers play recourse allocator role when they schedule,
request authorization and perform budgeting and programming activities. A manager
determines who in the work unit gets what recourses money, facilities, equipment and
access to manager. The manager oversees allocation of all resources (£, staff, reputation).
This involves:

1. Scheduling own time

2. Programming work
3. Authorizing actions

With an eye to the diary (scheduling) the manager implicitly sets organizational
priorities. Time and access involve opportunity costs. What fails to reach him/her, fails to
get support. The managerial task is to ensure the basic work system is in place and to
program staff overloads - what to do, by whom, what processing structures will be used.
Authorizing major decisions before implementation is a control over resource allocation.
This enables coordinative interventions e.g. authorization within a policy or budgeting
process in comparison to ad-hoc interventions. With limited time, complex issues and
staff proposals that cannot be dismissed lightly, the manager may decide on the proposer
rather than proposal. To help evaluation processes, managers develop models and plans
in their heads (they construe the relationships and signifiers in the situation). These
models/constructions encompass rules, imperatives, criteria and preferences to evaluate
proposals against. Loose, flexible and implicit plans are up-dated with new information.

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Negotiator role- is role in which managers’ work with suppliers, distributor, and labor
unions to reach on agreements about the quality and price of inputs, technical and human
resource, work with other organizations to establish agreements to pool recourses to work
on joint projects.
N.B: Negotiations are an integral part of managers' job. It takes charge over important
negotiating activities with other organizations. The spokesman, figurehead and resource
allocator roles demand this.

B. Managerial Skills.
 Skill is ability to do something expertly and well.
Managerial skills are enhanced through formal training, reading, and practice.
There are three principal skills that managers get through experience an education.

These are:
 Conceptual skills
 Human skills
 Technical skills.

1. Conceptual skills
 Conceptual skill involves the ability to view the organization as a whole
and recognize its relationships to large environment or business world.
 Are ability (or mental capacity) to conceive and manipulate ideas and
abstract relation-ships.
 the ability to analyze and diagnose a situation and find the cause and effect
 are more needed by top-level managers
2. Human skills
 Human skills include the ability to understand, alter, lead, and control
the behavior of other individuals or/and groups. Human skills focus on
working with people.
 The ability to understand, alter, lead, and control people’s behavior
 Are needed uniformly at three levels of management. That is the need
for human skills at three levels of management remains fairly constant.
3. Technical skills
 The job-specific knowledge required to perform a task. Common
examples include marketing, accounting, and manufacturing.
 Are greatly needed by first line managers.

A manager's level in the organization determines the relative importance of possessing

technical, human, and conceptual skills. Top level managers need conceptual skills in
order to view the organization as a whole. Conceptual skills are used in planning and
dealing with ideas and abstractions. Supervisors need technical skills to manage their area
of specialty. All levels of management need human skills in order to interact and
communicate with other people successfully. All managers need technical, human and
conceptual skills. However, the need for these skills varies with the level of
management. Thus, technical skill deals with things, human skill concerns people, and
conceptual skill has to do with ideas.

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Fig1.7 Skill Type Needed by Management Levels

Universality of management
Although the problems, other organizational constraints and nature of different
organizations vary widely, the functions performed by each manager are nearly the
functions performed by each manager are nearly the same. This means to successfully
attain the objectives of any organization, managers must plan, organize, staff, lead and
control. These are the basic managerial functions. Management is said to have universal
application because:
 Management is important for any organization or entity regardless of
objective(s) for which it is established to reach the stated goals or
objectives.
 Any person who holds managerial position in an organization performs
the five functions of management. That is first level, middle level, and
top level managers perform the functions.

Is Management an art, a science or a profession?

Basically management is an art, a science as well as a profession.

Management is an art as it requires the use of behavioral and judgmental skills that
cannot be quantified the way scientific information in field of chemistry, biology and

physics can be. Issues can be resolved using instinct and experience.
Requires use of: Conceptual, Communication, Interpersonal, andTime-Management
skills.

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Management is science, in that it requires the use of Technical, Diagnostic, Decision-
Making skills, logics and analyses. And In addition it uses computers and quantitative
formulas to problems on hand. Problems can be solved using systematic methods.

Management is a profession because to say a given field is a profession it must fulfill the
following criteria.
 Specialized knowledge
 Competent application
 Community application
 Social responsibility
 Self control
So, management is a profession because it fulfils the above criteria.

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 Chapter Two
Evolution of management thought
The practice of management can be dated back to thousands of years ago when human
beings started civilizations and divided into tribes. Historically, there were many
evidences indicating the existence of management in early human careers. Some of the
evidences are:

i. The Egyptian civilization was known for planning, organizing, and controlling
during the construction of pyramids
ii. Early Greeks were known for their management concepts such as
specialization
iii. The ancient Rome used to emphasis on personnel, selection and placement.
iv. The existence of strong military forces in early human activities.
Although management practice has a very old age, management as a systematic body of
knowledge and distinct discipline is the product of 20th C. When different schools of
management thought began to develop. The industrial revolution which began in 18th c
and run through 20th c. was the main reason that led to development of different
management theories. Industrial revolution resulted in economic growth of countries,
minimized dependency on agriculture, and expansion of many and giant industries which
needed many employees/workers.

As a result, shortage in labor force that was to work in the factories had arisen.
Consequently, practicing managers started to think about how to use the existing labor
forces efficiently. In response to this Robert Owen, for example, improved working
conditions in his factory by limiting working hours, and providing meal at the work place
for workers. Charles Babbage was interested in division of labor and other scientific
principles to have more work done by existing workers. These two individuals and other
similar persons are currently considered as forerunners to scientific management.

Starting from 20thc. Up to now different schools of management thought have been
developed. These schools can be classified as follows:
1. Classical Management Theory
 scientific management theory( F. Taylor)
 Administrative theory/Classical organization theory (H. Fayol)
 Bureaucratic theory (M. Weber)
2. Neo Classical Theory
 Behavioral or Human Relation movement theory (E. Mayo & Hawthorne
study)
3. Modern Approaches
 System approach
 Contingency Approach
 Management Science

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1. Classical management theory
Classical management theory is a theory that focused on finding the 'one best way' to
operate (perform) and manage tasks. Efficiency and productivity became a critical
concern of the Managers at the turn of the 20th century. Scientific management
concentrated on lower-level managers dealing with everyday problems of the workforce.
Classical organization theory concentrated on top-level managers dealing with the

everyday problems of managing the entire organization. Bureaucratic focuses on a

formal system of organization and administration to ensure effectiveness and efficiency.

A. Scientific Management Theory (SMT)

I. Frederick Winslow Taylor

Scientific Management Theory was developed mainly by a person called F.W Taylor.
Who was a foreman at Betheleum Midval Steel Factory in America. Taylor's primary

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objective was to discover the most efficient way of doing a job and then train the workers
to do it that way. To do this he preferred scientific management principles or rules rather
than intuitions, judgments, experience generally called Rule of Thumb method. From his
experience Taylor observed that workers were inefficient.
The major reasons for inefficiency were as follows:
 Standards of performance were not properly determined.
 The existing pay system was not motivating
 There was no specialization as such.
 The responsibilities of management and other workers were not
clearly distinguished
 there were an antagonistic relationship between management and
subordinates
There fore, Taylor had attempted to find solutions to find for the above problems.
Consequently, the basic components of scientific management were profounder
(developed) by him. These include:
1. Determination of standards of performance scientifically
2. Differential and piece-rate payment system
3. Specialization of functional foreman ship
4. Identification of responsibilities of management
5. Mental revolution

1. Determination of standards of performance scientifically.

Taylor argued that standard of performances should not be determined on the basis of
'rule of Thumb' method rather scientific methods should be used. To determine standard
of performance scientifically, Taylor introduced his famous study known as time-motions
involved in performing a particular task. Taylor, then found ways enabling workers to
complete their job on time and avoiding unnecessary motions. He finally determined the
best method of performing Job.

2. The differential and piece rates payment systems:

Under these payment systems, there are two rates of wage payment: differential and
piece rates. The piece rate is normally less than differential rate and it was applied to
workers who had produced out put below the standard. The differential rate was
applied for workers who had produced an out put just to the standard or above the
standard.

Example standard of performance = 30

Piece rate = 0.5 Birr
Differential rate = 1 Birr
Case 1: if the worker produced less than 30 Units, he/she would be paid on the basis of
piece rate (0.5 Birr). Let say 29 units produced = 29x0.5 = 14.5 Birr
Case 2: if the worker produced 30 units or more, he would be paid on the basis of piece
rate (1 Birr). Let say 31 units produced= 31x1=31 Birr

3 Specialization of functional foremen ship

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During Taylor time workers were planning their own jobs. Taylor believed that this had
led them to inefficiency. Instead, he recommended the separation of planning g from
doing the jobs. He said there must be different functional specialists who would give
supervision for workers while they were doing their jobs. So workers could increase
efficiency since they didn't spend time on planning.
4. Responsibility of management

According to Taylor's Philosophy responsibility of management should be clearly

separated from other non-management workers'. He determined responsibilities of
management.
This includes:
 Studying each element of worker's job and developing scientific method of doing
them.
 Scientifically selecting, training and developing workers to the method developed.
 Heartily cooperating with workers to make sure that workers were doing their
jobs according to scientifically developed management
 Management should divide and take over all the jobs that it thought could fit
better than other workers and these responsibilities include planning, organizing,
and directing.

5. Mental Revolution
The scientific method of determining standards, the elimination of unnecessary
movements in workers’ job and the use of differential wage rate payment systems could
lead to increase in output and worker's payment, according to Taylor. If out put
increased, management would be happy with workers and if wage payments increased,
workers would be happy to management and conflict between management and workers
could be solved.

Principles of Scientific management Theory

1. Management should develop Scientific methods by which workers could do their
jobs.
2. Management should scientifically select, train, teach and develop each worker.
3. Management should cooperate with the workers in ensuring that all of the work is
done in accordance with the principles of scientific management.
4. Management should divide work responsibility between management and non-
management workers with fitness assumptions.

II. Frank (1868-1924) and Lillian (1878-1972) Gilbreth

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 Frank Bunker Gilbreth Lillian Moller Gilbreth

Frank and Lillian Gilbreth emphasized method by focusing on identifying the elemental
motions in work, the way these motions were combined to form methods of operation,
and the basic time each motion took. They believed it was possible to design work
methods whose times could be estimated in advance, rather than relying upon
observation-based time studies. Frank Gilbreth, known as the Father of Time and Motion
Studies, filmed individual physical labor movements. This enabled the manager to break
down a job into its component parts and streamline the process. His wife, Lillian
Gilbreth, was a psychologist and author of The Psychology of Work. In 1911 Frank
Gilbreth wrote Motion Study and in 1919 the couple wrote Applied Motion Study. Frank
and Lillian had 12 children. Two of their children, Frank B. Gilbreth, Jr. and Ernestine
Gilbreth Careyone, wrote their story, Cheaper by the Dozen.

One of Frank Gilbreth's first studies concerned bricklaying. (He had worked as an
apprentice bricklayer.) He designed and patented special scaffolding to reduce the
bending and reaching which increased output over 100 per cent. However, unions resisted
his improvements, and most workers persisted in using the old, fatiguing methods.

The Gilbreths believed that there was one best way to perform an operation. However,
this "one best way" could be replaced when a better way was discovered. The Gilbreths
defined motion study as dividing work into the most fundamental elements possible,
studying those elements separately and in relation to one another; and from these studied
elements, when timed, building methods of least waste. They defined time study as a
searching scientific analysis of methods and equipment used or planned in doing a piece
of work, development in practical detail of the best way of doing it, and determination of
the time required. The Gilbreths drew symbols on operator charts to represent various
elements of a task such as search, select, grasp, transport, hold, delay, and others. They
called these graphical symbols "therbligs" (Gilbreths spelled backwards).

III .Henry Gantt (1861-1919)

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Henry Gantt developed the Gantt chart, which is used for scheduling multiple
overlapping tasks over a time period. He focused on motivational schemes, emphasizing
the greater effectiveness of rewards for good work (rather than penalties for poor work).
He developed a pay incentive system with a guaranteed minimum wage and bonus
systems for people on fixed wages. Also, Gantt focused on the importance of the qualities
of leadership and management skills in building effective industrial organizations.

Contributions of scientific management theory

 Demonstrated the importance of compensation for better performance.
 indicated the importance of personnel selection, training-etc
 Developed management principles which have an application in modern
management system.

Limitations of scientific management theory

 Assumed that workers were motivated only by monitory reward.
 Concentrated only on how to increase efficiency of workers separately with
out giving emphasis on how to manage the entire organization as a whole.
 The fact that workers were receiving instructions from several functional
foremen could confuse workers.
 Considered workers as machines.
 Did not acknowledge individual difference

B. Classical Organization Theory.

Scientific Management Theory emphasized on how to increase productivity of individual

workers and management at work. But the classical organizational theory, also called
administrative management theory, was aiming at administration of entire organization.
Henry fayol, marry parkers Follet and James D. Mooney were among the great
contributors to the theory.

1. Fayol's Proposal

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Henri Fayol was a French man who had served in mining company as a president for
many years. He was interested in administrative side of operations in an organization. In
particular, he was concerned with the fact that different abilities were needed as one
moved up the management ranks. His experience led him to conclude that there were
five basic functions of administration: planning, organizing, commanding, coordinating
and controlling. He also set forth a series of administrative principles which could be
used as flexible guide lines for managing both people and work.

Fayol's 14 principles

Fayol believed that these principles were essential to increase the efficiency of
management process. The principles are:

1. Division of labor: work specialization could increase efficiency.

2. Authority and responsibility-Authority of a person should always be equal to his/
her responsibility.
3. Discipline- all workers and managers of a given organization should respect a
discipline which governs that organization No organization could prosper with out
discipline.
4. Unity of command- Every one should have one and only one boss.
5. Unity of direction- each group of activities with the same objective must have one
head and one plan
6. Equity- Every one in an organization should be treated fairly and justly.
7. Order- A place should exist for everything and every thing should be in its place.
8. General interest over individual interest: - The goals of organization and
departments should take priority over the goals of individual employees
9. Remuneration of personnel- compensation should be fair both to employees and
employers to motivate them to do good work.
10. Centralization- organizations tend to keep with in limits much of decision making
authority to the upper levels. Instead they should seek the balance of centralization-
decentralization that provides the greatest overall efficiency.

22
11. Scalar chain -there should be a clear-cut chain of command running from the top of
the organization to the bottom.
12. Stability of tenure personnel- reducing turn over of personnel will result in more

efficiency and fewer expenses. Long-term employment is important.

13. Initiative- people should be allowed the freedom to propose and execute ideas at all
levels of an enterprise
14. Esprit de corps’- In unity, there is strength. Managers should promote harmony and

discourage or avoid those things that disturb harmony. Share enthusiasm or devotion
to the organization.

2. Mary Parker Follett

His concepts included the universal goal, the universal
principle, and the Law of the Situation. The universal goal
of organizations is an integration of individual effort into a
synergistic whole. The universal principle is a circular or
reciprocal response emphasizing feedback to the sender (the
concept of two-way communications). Law of the Situation
emphasizes that there is no one best way to do anything, but
that it all depends on the situation.

Contributions of Classical Organization (administrative) Theory.

i. Demonstrated the importance of different skills at different levels of

management for managers.
ii. Systematically identified functions of management,
iii. Developed several important principles of management.

Limitation of classical organization

i. Assumed several difficult principles which are difficult to apply in management

of modern organizations`

C. Bureaucracy theory
Max Weber (1864-1920) known as the Father of Modern Sociology,
analyzed bureaucracy as the most logical and rational structure for
large organizations. Bureaucracies are founded on legal or rational
authority which is based on law, procedures, rules, and so on.
Positional authority of a superior over a subordinate stems from legal

23
authority. Charismatic authority stems from the personal qualities of an individual.
Efficiency in bureaucracies comes from: (1.) clearly defined and specialized functions;
(2.) use of legal authority; (3.) hierarchical form; (4.) written rules and procedures; (5.)
technically trained bureaucrats; (6.) appointment to positions based on technical
expertise; (7.) promotions based on competence; (8.) clearly defined career paths.

Fig 2.2 Bureaucratic Principles

Neo classical theory

Neo classical theory was built on the basis of classical theory. It modified, improved and
extended the classical theory.

A. Behavioral or Human relations approach

The behavioral theory of management has partly emerged because the classical theorists
failed to raise productivity and work place harmony although they had made a lot of
attempts. Behavioral school recognized employees as individuals with concrete human
need, as a part of work groups, and as a member of large society. It focused on human
dimension of organization. Elton Mayo, who was the psychologist, pioneered the human
relations movement. He headed a group of researchers in conducting the Hawthrone
studies. The objective of the behavioral theorists was to identify factors that will serially
affect productivity of employees. But the initial purpose of Hawthrone studies was to
determine the effect of illumination on outputs.

I. Hawthorne study
The study conducted at how throne works of western Electric company in Chicago, USA.
The study had four phases
i. Illumination Experiments
ii. The relay assembly Test Room Experiment
iii. The Interviewing program
iv. The bank wiring observation.

Phase I Illumination Experiment

24
This initial experiment was designed to study the effect of illumination on out put . But
at the end, the researchers found that there was no as such strong relation ship between
levels of out put and that of light. At different levels of light the out put remained
unchanged and they concluded that lightening was only one factor among several factors
affecting out put. To understand these other factors, they had conducted a more
controlled experiment and this experiment marked the 2nd phase.

Phase II the Relay Assembly Test Room Experiment

To obtain control sample, the researchers decided to isolate small group of employees
from the regular work force and study their behavior. Accordingly six women were
selected and made to work in separate room. Different supervisors were assigned to the
women and they were allowed to communicate freely with their supervisors and among
each other. After they adopted new work place, changes in several physical factors had
been made. The changes included rest time, lunch time number of working days, number
of working weeks etc. Regardless of these changes, productivity increased. Then the
researchers concluded that productivity was mainly affected by social, psychological and
nature of supervisions used. To get more information whether these factors were
affecting productivity the researchers decided to assess attitude of employees through
interviewing program which led to third phase of the study.

Phase III The Interviewing Program

During this phase more than 20,000 interviews were conducted. The employees were
asked about factors that might affect levels of their productivity. Finally the interviewers
had the importance of other important factor from the interview, i.e., informal groups in
an organization remained significant factor that affected the workers. To understand this
factor in better way they had conducted 4th phase study.
Phase IV The Bank Wiring Observation Room Study.
The researchers decided to study a small group at work and they chose to study the bank
wiring room, where workers were wiring and soldering bank terminals. After studying
behavior in the room for an extended time period, they had realized the workers' actions
were affected by many behavioral norms, which include factors like- individuals with
whom they were given job or to whom they offered assistance. So informal groups
affected strongly the performance of individuals by creating even standards of
performance which were greater than standards set by management

Hawthrone effects (conclusions)

From studies conducted at howthrone researchers concluded:

 Individual workers could not be treated in isolation, but must be seen as

members of groups
 Employee motivation was based not only on the satisfaction of physical
needs but also social and psychological needs.
 Democratic style of leadership is important for employees' satisfaction.
 Informal groups were important in organizational work environment.
II. Maslow’s Hierarchy of Needs ·

25
Maslow's Hierarchy of Needs identifies five levels of needs, which are best seen as a
hierarchy with the most basic need emerging first and the most sophisticated need last.
People move up the hierarchy one level at a time. Gratified needs lose their strength and
the next level of needs is activated. As basic or lower-level needs are satisfied, higher-
level needs become operative. A satisfied need is not a motivator. The most powerful
employee need is the one that has not been satisfied. Abraham Maslow first presented the
five-tier hierarchy in 1942 to a psychoanalytic society and published it in 1954 in
Motivation and Personality (New York: Harper and Row). Abraham Maslow, a
psychologist, proposed that all people seek to satisfy five basic kinds of needs;
physiological needs, safety needs, social needs, esteem needs and self-actualization
needs.

- Level I - physiological needs; includes basic needs such as need for food, cloth,
shelter, sex etc. The organization helps to satisfy employees' physiological needs
by a paycheck.
- Level II - Safety needs;- are needs to avoid financial and physical problems. The
organization helps to satisfy employees' safety needs by benefits
- Level III - Social needs; - are needs for friendship, affiliation, attraction etc. The
supervisor can help fulfill social needs by showing direct care and concern for
employees.
- Level IV - Esteem needs;-are needs for self respect, recognitions etc. The
organization helps to satisfy employees' esteem needs by matching the skills and
abilities of the employee to the job. The supervisor can help fulfill esteem needs
by showing workers that their work is appreciated.
- Level V - Self-actualization needs;-I s needs for maximizing ones skill, abilities,
and other potentials. It is a need for attaining the maximum possible
development. . The supervisor can help fulfill self-actualization needs by
assigning tasks that challenge employees' minds while drawing on their aptitude
and training.

Maslow’s theory is based on four premises (assumptions);-

1.Only unsatisfied need can influence behavior: satisfied need is not a motivator
2.A persons needs are arranged in a priority order of importance in hierarchical forms
3.A person will at least minimally satisfy each level of need before filling the need at the
next level
4.If need satisfaction is not maintained at any level the unsatisfied need will become
priority ones again.

How managers fulfill needs to the employees?

Types of Needs Ways of Fulfilling Needs

A. Physiological needs - Paying adequate wage and salaries

26
 So that employee can buy basic
necessities

B. Safety Needs - Providing quality work life – making

work environment smart, keeping
pension plans, purchasing protection
clothes (gloves)

C. Social Needs - Allowing employees to strengthen

informal groups and to communicate
each other at work place

D. Esteem Needs - Increasing responsibilities to workers

and appreciating them on their
performances

E. Self Actualization - Training employees who’s challenging

duties and making environment smooth
for employees

Fig 5.5 Hierarchy of Needs

27
 Self Actualization

Esteem Needs
Social Needs

Safety Needs

Physiological
Needs

Fig. 5.6 Abraham Maslow’s hierarchy of needs.

Contributions Of Behavioral/Human Relations Theory.

 Demonstrated the social context of organization
 Found out that the satisfaction of social and psychological needs
could result in more performance of workers.

Limitations of Behavioral (Human Relations Theory)

 Failed of develop an integrated theory of management as it
followed only the basic background laid by classical theorists.
 Their style was unethical as they used human beings as
experimental units in laboratory.

3. Modern Approach
This approach is the last approach to it consists:
A. the systems approach
B. The contingency approach
C. The management science approach
For the purpose of this course at this level, we are going to discuss only the
following theories.

B. The system approach

During the 1940s and World War II, systems analysis emerged. This viewpoint uses
systems concepts and quantitative approaches from mathematics, statistics, engineering,
and other related fields to solve problems. Managers find optimal solutions to
management problems by using scientific analysis which is closely associated with the

28
systems approach to management. A system is an interrelated and interdependent set of
elements functioning as a whole. It is an open system that interacts with its environment.
It is composed of inputs from the environment (material or human resources),
transformation processes of inputs to finished goods (technological and managerial
processes), outputs of those finished goods into the environment (products or services),
and feedback (reactions from the environment). Subsystems are systems within a broader
system. Interdependent subsystems (such as production, finance, and human resources)
work toward synergy in an attempt to accomplish an organizational goal that could not
otherwise be accomplished by a single subsystem. Systems develop synergy. This is a
condition in which the combined and coordinated actions of the parts of a system achieve
more than all the parts could have achieved acting independently. Entropy is the process
that leads to decline. System- is a group of interrelated and interdependent parts working
together to attain one common objective. Systems obtain input from the environment,
process the inputs and provide out puts to the environment it can be shown as follows;

Fig 2.3 Flow of System

Characteristics of systems
A system has several distinguishing features
i. A system can be open or closed
ii. System has boundary
iii. System has subsystems
iv. Failure in one subsystem can be considered as failure of the entire
system
A. A system can be open or closed
 Open system: is a system which interacts with its external environment to
survive. It is 'dependent system as it must obtain inputs from its
environment to attain its objective.

29
  Closed system: is a system which is self-contained and thus not affected by
changes that occur in its external environment. It doesn't interact with
external environment or interacts much less thus it is 'independent.
C. A system has boundary
System's boundary is a set of activates with which the system is distinguished from other
system. It is not related with the physical landmark, A boundary of open system is
permeable and flexible compared with boundary of closed system (rigid).

D. A system has subsystems

Subsystem refers to set of related parts that make-up the whole system. A subsystem can
be system and a system can also be system and a system can also be subsystem.

E. Failure in one subsystem can be considered as the failure of entire system.

As the subsystems of a system are highly interdependent failure in one may cause
failure in other subsystems which can result in total system failure.
a. Entropy-Is system' principle which says that systems will die out unless they
interact with their environment.

b. Synergy_ Is principle which can be stated as the whole is greater than the sum
of its parts.

In organization context, it means that organizational elements will be more productive if

they work together rather than working separately (or individually).
Responsibility of management, according to system theory, is to keep a balanced
relationship between different parts of relationship and make its organization have
smooth relationship with the environment.

C. Contingency theory
In the mid-1960s, the contingency view of management or situational approach emerged.
This view emphasizes the fit between organization processes and the characteristics of
the situation. It calls for fitting the structure of the organization to various possible or
chance events. It questions the use of universal management practices and advocates
using traditional, behavioral, and systems viewpoints independently or in combination to
deal with various circumstances. The contingency approach assumes that managerial
behavior is dependent on a wide variety of elements. Thus, it provides a framework for
integrating the knowledge of management thought.
It was built on the main premises of systems theory which says that organization is an
open and organic system. According to contingency theory, since organization is an open
system, it interacts with several external environment factors. Because these factors in
environment change rapidly, it is not right to insist on only one way of managing an
organization. Therefore it rejected the idea of one best way of managing. Instead, it
supported situational management style. contingency theory is also known as situational
approach because it focused on the idea that supports all methods of management could
be good based on the situations in external environment and there is no one method of
management which is always right. Generally, it is more flexible, and needs

30
management to identify different techniques to be applied in different circumstances, at
different time.

Management Science
It uses rigorous quantitative techniques to maximize resources.
 Quantitative management: utilizes linear programming, modeling, simulation
systems.
 Operations management: techniques to analyze all aspects of the production
system.
 Total Quality Management (TQM): focuses on improved quality.
 Management Information Systems (MIS): provides information about the
organization.

Organization-Environment Theory
It considers relationships inside and outside the organization.
 The environment consists of forces, conditions, and influences outside the
organization.

Systems theory considers the impact of stages:

Input: acquire external resources.
Conversion: inputs are processed into goods and services.
Output: finished goods are released into the environment.

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 PART II: MANAGERIAL FUNCTIONS

Chapter III

Planning function

3.1. Concepts and need for planning

3.1.1. concepts of planning

Planning is the management of the organization's future in an uncertain

environment.
 Planning - is the process of setting objectives and determining the steps needed to
attain them.
 Is systematic preparation for tomorrow, today
 Is an orderly process that allows managers to determine what they want
and how they get it.
 Deals with ends (what is to be done).
 Planning answers six basic questions in regard to any intended activity
(objective). what ,when, where, who, how and how much
 in planning managers:

 Assess the future

 Determine objectives of the organization and develop the overall
strategies.

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  Determine resources needed to achieve the objectives
Leaders are proactive. They make change happen instead of reacting to change. The
future requires corporate leadership with the skills to integrate many unexpected and
seemingly diverse events into its planning. Every organization must plan for change in
order to reach its ultimate goal. Effective planning helps an organization adapt to change
by identifying opportunities and avoiding problems. It sets the direction for the other
functions of management and for teamwork. Planning improves decision-making. All
levels of management engage in planning.

3.1.2 Need for planning

Planning is important for every organization irrespective of its size, objectives, and
location. Because decisions without planning would become random this may lead to
failure of entire organization.

Planning is important for several reasons:

1. It provides direction for an organization by specifying objectives

2. It reduces risk and uncertain of the future
3. It allows organizational members to concentrate on common organization's
objective
4. It provides criteria for decision making
5. It provides basis for control or it facilitates control

Operating Guidelines
Successful organizations continually innovate and change based upon customer needs
and feedback. Values, mission, and vision form the foundation for the execution of the
functions of management. They are an organization's guidelines that affect how it will
operate. They work only if visible and used in everyday activities and decisions. An
organization's values are its beliefs or those qualities that have intrinsic worth and will
not be compromised. Its mission is its purpose for existing. The vision is the image of
itself in the future.

Values
Each supervisor's approach to management will reflect his or her values, as
well as those of the organization. Building trust starts with creating culture
based on shared values. Values are traits or qualities having intrinsic worth,

33
such as courage, respect, responsibility, caring, truthfulness, self-discipline, and fairness.
Values serve as a baseline for actions and decision-making and guide employees in the
organization's intentions and interests. The values driving behavior define the
organizational culture. A strong value system or clearly defined culture turns beliefs into
standards such as best quality, best performance, most reliable, most durable, safest,
fastest, best value for the money, least expensive, most prestigious, best designed or
styled, easiest to use. If asked, "What do we believe in?" or "List our organization's
values" all employees in the organization should write down the same values. For
example, McDonald's values were captured in its motto of "Q.S.C. & V." which stands
for quality, service, cleanliness, and value.

Supervisors need to appreciate the significance of values and value systems. Values
affect how a supervisor views other people and groups, thus influencing interpersonal
relationships. Values affect how a supervisor perceives situations and solves problems.
Values affect how a supervisor determines what is and is not ethical behavior. Values
affect how a supervisor leads and controls employees. Since employees often base
behavior on perceived values it is critical to ensure their perceptions reflect
organizational values. Supervisors must communicate, encourage and reinforce the
desired values and related behaviors to integrate them into the organizational culture.

Geert Hofstede identified a work-related value framework that has four dimensions:
power distance, uncertainty avoidance, individualism, and polarization. Power distance
is the attitude to human inequality and relationships to superiors and inferiors in any
hierarchy. Uncertainty avoidance is the tolerance for uncertainty that determines choices
and rituals to cope with it in social structures and belief systems. Individualism is the
relationship between the individual and the collectivity, especially in the way individuals
choose to live and work together. Polarization is the extent to which differences such as
masculinity or femininity have implications for social organization and the organizations
of beliefs. Every person has a different mental program, based on patterns of thinking,
feeling, and acting, which are learned throughout a lifetime. The effects of these
differences have many practical implications for those who work or are managers in
multinational business and for those involved in international negotiations.

Mission
A mission is a broad definition of a business that differentiates it from all other
organizations. It is the justification for the organization's existence. The mission
statement is the "touchstone" by which all offerings are judged. In addition to the
organization's purpose other key elements of the mission statement should
include whom it serves, how, and why. The most effective mission statements are
easily recalled and provide direction and motivation for the organization.

Since an organization exists to accomplish something in the larger environment, its

specific mission or purpose provides employees with a shared sense of opportunity,
direction, significance, and achievement. An explicit mission guides employees to work
independently and yet collectively toward the realization of the organization's potential.

34
Thus, a good mission statement gets the emotional bonding and commitment needed. It
allows the individual employee to say; "I know how I should do my job differently."

Vision
Erich Fromm pointed out; "The best way to predict your future is to create
it." A vision might be a picture, image, or description of the preferred
future. A visionary has the ability to foresee something and sees the need
for change first. He or she challenges the status quo and forces honest
assessments of where the industry is headed and how the company can best
get there. A visionary is ready with solutions before the problems arise.

Managers require more vision than ever because change is coming faster than ever.
Leaders have the ability to make their vision real by engaging the minds, as well as the
hearts of others.

Microsoft's early vision statement was "A Computer on Every Desk and In Every Home."
Microsoft's vision has evolved [1998 the "Connected PC and the Connected TV"- the
idea of integrating the intelligence and interactivity of PCs with the video and sound of
TV] to 2002 "to enable people and businesses throughout the world to realize their full
potential."

Mission, Vision, Goals, Objectives, and Targets

These words are often the most confusing words in management field. They are some
what similar but not exactly the same in their meanings.

Mission _ refers to the main reason why the organization is established. or it indicates
purpose for existence of an organization
 Relates organization to external environment.

Goal _ is expected (desired) performance to be accomplished but it is not set specifically-

is desired future outcome that an organization strives to achieve generally. Goal is an end
that the organization strives to attain. However, the supervisor cannot "do" a goal.
Supervisors break down processes, analyze them, set objectives and then drive hard to
achieve them. Doing the same thing and expecting different results doesn't work. E.g.to
increase profit.

Target _ is expected performance set for specific individual in an organization.

 is more specific in nature than objectives.

Objective An objective is simply a statement of what is to done and should be stated in

terms of results. A mnemonic aid to write objectives is SMART (Specific, Measurable,
Attainable, Result-oriented, Time-limited).

35
Characteristics of good (effective) objective (SMART)

There are some characteristics of effective objectives, so effective

objectives are mostly:

Specific; Objectives should state the exact level of performance

expected specifically. An objective must be specific with a single key
result. If more than one result is to be accomplished, more than one
objective should be written. Just knowing what is to be accomplished is
a big step toward achieving it. What is important to you? Once you
clarify what you want to achieve, your attention will be focused on the
objective that you deliberately set. You will be doing something
important to you.

Measurable- as much as possible objectives should be expressed quantitatively,

therefore, it is possible to easily determine whether or not goals have been achieved. An
objective must be measurable. Only an objective that affects behavior in a measurable
way can be optimally effective. If possible, state the objective as a quantity. Some
objectives are more difficult to measure than others are. However, difficulty does not
mean that they cannot be measured. Treatment of salespeople might be measured by
looking at the absenteeism and turnover rates among the sales force. Also, salespeople
could be asked to fill out a behavioral questionnaire anonymously giving their
observations of the supervision they receive. Customer service could be measured by
such indices as the number of complaints received, by the number of customers lost, and
by customer interviews or responses to questionnaires. Development of subordinates
could be measured by determining the number of tasks the subordinate has mastered.
Cooperation with other functions could be measured by length of delay in providing
requested information, or by peer ratings of degree of cooperation.

Avoid statements of objectives in generalities. Infinitives to avoid include to know, to

understand, to enjoy, and to believe. Action verbs are observable and better communicate
the intent of what is to be attempted. They include to write, to apply, to recite, to revise,
to contrast, to install, to select, to assemble, to compare, to investigate, and to develop.
How will you know you've progressed?

Appropriate- objectives should be prepared in suitable, acceptable. And achievable

manner.

Realistic and challenging- objectives should be attainable or real rather than fantasy. An
objective must be attainable with the resources that are available. It must be realistic.
Many objectives are realistic. Yet, the time it takes to achieve them may be unrealistic.
For example, it is realistic to want to lose ten pounds. However, it is unrealistic to want to
lose ten pounds in one week. What barriers stand between you and your objective? How
will each barrier be overcome and within what time frame? It also better to have
challenging objectives as far as they could motivate workers if attained.

36
Time bound _ objectives should be set with in specific time limits or target dates for
their attainment. The objective should be traceable. Specific objectives enable time
priorities to be set and time to be used on objectives that really matter. Are the time lines
you have established realistic? Will other competing demands cause delay? Will you be
able to overcome those demands to accomplish the objective you've set in the time frame
you've established?

Write Meaningful Objectives

Although the rules are difficult to establish, the following may be useful when writing an
objective.

1. Start with an action or accomplishment verb. (Use the infinitive form of the verb. This
means to start the with "to.")

2. Identify a single key result for each objective.

3. Give the date of the estimated completion.

4. Be sure the objective is one you can control.

5. To test for validity of SMART objectives, ask yourself the following questions.

» S = Exactly what is my objective?

» M = What would a good job look like?

» A = Is my objective feasible?

» R = Is my objective meaningful?

» T = Is my objective traceable?

3.5 PLANNING TECHNIQUE

Managers Can Improve the Quality of their planning by applying variety of Planning
tools and techniques .The important fanciful of planning is management by objectives
(MBO).

Management By Objective (MBO)

MBO is a system in which specific performance objectives are jointly determined by
subordinates and their superiors, progress toward objectives is periodically reviewed, and
rewards are allocated on the basis of this progress. An effective planning tool to help the
supervisor set objectives is Management by Objectives (MBO). MBO gained recognition
in 1954 with the publication of Peter Drucker's book The Practice of Management. MBO
is a collaborative process whereby the manager and each subordinate jointly determine

37
objectives for that subordinate. To be successful MBO programs should include
commitment and participation in the MBO process at all levels, from top management to
the lowest position in the organization.

MBO begins when the supervisor explains the goals for the department in a meeting. The
subordinate takes the goals and proposes objectives for his or her particular job. The
supervisor meets with the subordinate to approve and, if necessary, modify the individual
objectives. Modification of the individual's objectives is accomplished through
negotiation since the supervisor has resources to help the subordinate commit to the
achievement of the objective. Thus, a set of verifiable objectives for each individual are
jointly determined, prioritized, and formalized.

The supervisor and the subordinate meet periodically to review the latter's progress.
Communication is the key factor in determining MBO's success or failure. The supervisor
gives feedback and may authorize modifications to the objectives or their timetables as
circumstances dictate. Finally, the employee's performance is measured against his or her
objectives, and he or she is rewarded accordingly.

Elements of MBO

1. Top level goal setting effective MBO begins with the objective being set by top
managers which is open for discussion by managers and subordinates to reach up on
the common objectives.
2. Individual targets- in an effective MBO each manager and subordinate has clearly
defined responsibilities or expected results
3. Participation- both managers and subordinates are participating in objective setting.
4. Autonomous of individuals- Once the objective is set, subordinates have a right to
select methods of attaining the objectives.
5. Performance review- managers and subordinates periodically meet to review progress
toward the objectives
6. Reward- those individuals who meet the objectives in performance review are
rewarded. The rewords may be recognition, praise, pay increase etc-------

Shortly MBO Principles

Cascading of organizational goals and objectives
Specific objectives for each member
Participative decision making
Explicit time period
Performance evaluation and feedback.

Steps in MBO
Effective MBO passes through different steps:
1. Setting individual objectives and plans

38
 with each subordinate the manager jointly set objectives the participation
of subordinates in the objective setting process is away of strengthen their
commitment to achieve their goals.
2. Giving feedback and evaluating performance
Employees must know how much they are progressing toward their
objectives. Thus, managers and subordinates should meet frequently to
review progress and evaluate performance communication is key factor in
determining success of failure of MBO
3. Rewarding according to performance
employees' performance should be measured against their objectives.
Employees who meet their objectives should be rewarded through
recognitions, praises. Pay rises and so on.

Fig 3.1

Management By Objective

Research has demonstrated that when top management is committed and personally
involved in implementing MBO programs, they significantly improve performance. This
finding is not surprising when one considers that during the MBO process employees
determine what they will accomplish. After all, who knows what a person is capable of
doing better than the person does him or herself?

Benefits and limitations of MBO

39
 Benefits
1. MBO uplifts workers motivation
2. MBO allows managers and subordinates share experience

Limitation
1. It consumes much time

3.2 Types of Plans

Plan can be classified in to different types based on various criteria (basis):
repetitiveness, time dimension and scope or breadth dimension.

A. Classification of plans based on repetitiveness

On the basis of repetitiveness plans can be classified in to three:

i. Single use plans

ii. Standing plans

i. Single use plans

Single use plans are those plans which have no more use after objective is
accomplished. Once activity for which they have been made is over, single use plans
have little or no use at all. They include: programs, projects, and Budgets.

Program- is set of goals, policies, procedures, rules, job assignments, resources to be

employed, and other elements necessary to carry out a given course of action.
 Is set of activities used to accomplish objectives or used to solve some problem.

Project- is specific action plan formulated to complete various aspects of a program

which can be distinctly identified as a clear-cut grouping of activities with definite
objectives and completion time.

Budget - is a statement of expected results expressed in numerical terms. Budget which

is a plan that shows how money will be spent over a certain period of time. Even if

40
budget is often thought as control technique, it is also a plan since it sets forth objective
to attain. Some times called as 'numerical plan' as they are quantitative in nature.

ii. STANDING PLANS

Standing plans are type of plans which can be used again and again once they made.
They remain useful for long period in dealing with repetitive situations.
They include: policies, procedure, and rules.

Policy- is a general statement designed to guide employees' actions in recurring

situations. It establishes broad limits, provides direction, but permits some initiative and
discretion on the part of the supervisor. Thus, policies are guidelines.
 Policies are guidelines to decision making. Policies establish abroad framework
with in which managers at different levels make decisions.
 are general guide to thinking and action

Policies are important for an organization as they:

 provide guidance to decision making

 Channels all decisions toward the attainment of objectives.
 Ensure consistency and uniformity in decision making.

Procedures _ are sequences of steps or activities involved in making decisions or

performing other tasks. A procedure is a sequence of steps or operations describing how
to carry out an activity and usually involves a group. It is more specific than a policy and
establishes a customary way of handling a recurring activity. Thus, less discretion on the
part of the supervisor is permissible in its application. An example of a procedure is the
sequence of steps in routing of parts. Procedures aim at laying down a mechanism for
orderly performance and coordination of various organizational activities so as to avoid
random actions and operations. Like policies, procedures also contribute in consistency
of organizational activities by providing steps.

Rules; are on-going specific plans influencing human behavior or conducts at work
place. A rule is an established guide for conduct. Rules include definite things to do and
not to do. There are no exceptions to the rules.
 Rules are fixed plans and define what should and what should not be done.
(Guide to action).
 Unlike polices, rules don't allow for interpretation or decisions. Decisions are
needed only in making the rules. . An example of a rule is "No Smoking

B. Classification of plans based on time dimension

Taking time in consideration a plan can be categorized in to three. Basically planning

deals with future and the future is measured in time. Hence it is convenient and
acceptable to think of different kinds of planning in terms of the time periods for which
the planning is intended.

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I. Long range plans
Long range plans are those plans which have longer time horizon; they are concerned
with distant future than immediate future. The time may range from 5 to 10 years based
on the size and the type of organizations.

II Intermediate plans
Intermediate range plans are those plans with a time horizon between one and five years.
They range between long and short-term plans.

III. Short range plans

Short range plans are those plans with time dimension it is not possible to have aright
time horizon guide line. For a plan to be short range or long range, it depends on the size
of an organization and nature of business of an organization. So short range plan for one
organization may be an intermediate or long range plan for the other organization.

C. Classification of plans based on scope (Breadth)

Based on their scope or breadth plans can be classified in to three types: strategic plans,
tactical plans, and operational plans.

(i) Strategic plans

Strategic planning produces fundamental decisions and actions that shape and guide what
an organization is, what it does, and why it does it. It requires broad-scale information
gathering, an exploration of alternatives, and an emphasis on the future implications of
present decisions. Top level managers engage chiefly in strategic planning or long range
planning. They answer such questions as "What is the purpose of this organization?"
"What does this organization have to do in the future to remain competitive?" Top level
managers clarify the mission of the organization and set its goals. The output needed by
top management for long range planning is summary reports about finances, operations,
and the external environment.

Strategic planning is the process of developing and analyzing the organization's

mission, overall goals, general strategies, and allocating resources. A strategy is a course
of action created to achieve a long-term goal. The time length for strategies is arbitrary,
but is probably two, three, or perhaps as many as five years. It is generally determined by
how far in the future the organization is committing its resources. Goals focus on desired
changes. They are the ends that the organization strives to attain. Traditionally strategic
planning has been done annually. However, many companies are doing away with annual
business plans altogether and moving to a system of continuous planning, to permit
quicker response to changing conditions. Thus, the strategic plan involves adapting the
organization to take advantage of opportunities in its constantly changing environment.

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Generally, Strategic plans _ Performed by top-level management
 Mostly long range in its time frame
 Expressed in relatively general terms
 Type of planning that provides general future based direction to organization.

(ii) Tactical plans

Top level managers set very general, long-term goals that require more than one year to
achieve. Examples of long-term goals include long-term growth, improved customer
service, and increased profitability. Middle managers interpret these goals and develop
tactical plans for their departments that can be accomplished within one year or less. In
order to develop tactical plans, middle management needs detail reports (financial,
operational, market, external environment). Tactical plans have shorter time frames and
narrower scopes than strategic plans. Tactical planning provides the specific ideas for
implementing the strategic plan. It is the process of making detailed decisions about
what to do, who will do it, and how to do it. Tactical planning is the process of
developing action plans through which strategies are executed. Tactical plan- is a plan
used to develop means needed to activate and implement strategy.

Generally, Tactical plans:

 performed by middle level managers

 Have shorter time frame, more detail and narrower scope than strategic plans
 Guide submits of an organization

(iii) Operational plans

Supervisors implement operational plans that are short-term and deal with the day-to-
day work of their team. Short-term goals are aligned with the long-term goals and can be
achieved within one year. Supervisors set standards, form schedules, secure resources,
and report progress. They need very detailed reports about operations, personnel,
materials, and equipment. The supervisor interprets higher management plans as they
apply to his or her unit. Thus, operational plans support tactical plans. They are the
supervisor's tools for executing daily, weekly, and monthly activities. Operational
planning is the process of setting short-ran objectives and determining in advance how
they will be accomplished.

To sum up, Operational plans:

 Are first line managers' tools for exciting daily, weekly, and monthly activities.
 Performed by operational level managers.
 Are Specific and more detail than others.

3.3 Planning process

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 Planning is not something which is made all once at a time. The planning process is
rational and amenable to the scientific approach to problem solving. It consists of a
logical and orderly series of steps. A person involved in planning pass through number
of steps to make effective plans. Process of planning indicates the major steps taken
place in planning. The steps generally involved in planning are:

Step-1 Establishing objectives

The first step in planning is to establish objectives for the enterprise and then for each
subordinate work unit. Objectives are the driver of planning processes. Objectives are
established at all levels of the structure, beginning at the top level and running down to
first line managers. Strategic goals and objectives are developed to bridge the gap
between current capability and the mission. They are aligned with the mission and form
the basis for the action plans. Objectives are sometimes referred to as performance goals.
Generally, organizations have long-term objectives for such factors as return on
investment, earnings per share, or size. Furthermore, they set minimum acceptable
standards or common-sense minimums. In addition, certain limitations, either explicit or
implicit, such as "must provide jobs for existing employees" may exist. Objectives
elaborate on the mission statement and constitute a specific set of policy, programmatic,
or management objectives for the programs and operations covered in the strategic plan.
They are expressed in a manner that allows a future assessment of whether an objective
has been achieved.

Step 2. Environmental Analysis and forecasting

The next point for planning is an awareness of environment, both internally and
externally. Organization should maintain a continual assessment of the environment to
determine its own weaknesses and strengths internally and to be aware of opportunities
and threats in external environment. . Based on this analysis of internal and external
environment forecasting (predicting) of different environmental factors such as
economics, technological, political etc can be made to assist real planning. Conduct a
situation or SWOT analysis by assessing strengths and weaknesses and identifying
opportunities and threats. A situation or SWOT (Strengths, Weaknesses,
Opportunities, and Threats) analysis is critical to the creation of any strategic plan. The
SWOT analysis begins with a scan of the external environment. Organizations must
examine their situation in order to seek opportunities and monitor threats. Sources of
information include customers (internal and external), suppliers, governments (local,
state, federal, international), professional or trade associations (conventions and
exhibitions), journals and reports (scientific, professional, and trade).

SWOT is the assumptions and facts on which a plan will be based. Analyzing strengths
and weaknesses comprises the internal assessment of the organization. Assess the
strengths of the organization. What makes the organization distinctive? (How efficient is
our manufacturing? How skilled is our workforce? What is our market share? What
financing is available? Do we have a superior reputation?) Assess the weaknesses of the
organization. What are the vulnerable areas of the organization that could be exploited?
(Are our facilities outdated? Is research and development adequate? Are our technologies
obsolete?) What does the competition do well?

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Analyzing opportunities and threats comprises the external assessment of the
environment. Identify opportunities. In which areas is the competition not meeting
customer needs? (What are the possible new markets? What is the strength of the
economy? Are our rivals weak? What are the emerging technologies? Is there a
possibility of growth of existing market?) Identify threats. In which areas does the
competition meet customer needs more effectively? (Are there new competitors? Is there
a shortage of resources? Are market tastes changing? What are the new regulations?
What substitute products exist?) The best strategy is one that fits the organization's
strengths to opportunities in the environment.

The SWOT analysis is used as a baseline for future improvement, as well as gap analysis.
Comparing the organization to external benchmarks (the best practices) is used to assess
current capabilities. Benchmarking systematically compares performance measures such
as efficiency, effectiveness, or outcomes of an organization against similar measures
from other internal or external organizations. This analysis helps uncover best practices
that can be adopted for improvement. (See Camp, R. C. Benchmarking: The search for
industry best practices that lead to superior performance. Norcross, GA: Industrial
Engineering and Management Press, 1993.) Benchmarking with other organizations can
help identify a gap. Gap analysis identifies the progress required to move the organization
from its current capabilities to its desired future state. In this way, the organization can
adapt to the best practices to improve organizational performance.

Step 3. Determining alternative course of Action

Once objectives are set, the management must identify alternative ways for reaching
them. When developing alternatives. A manager should try to create as many roads to
each objective as possible. In fact, in most cases the challenging is not to find alternative
ways but to decide which ones are best. To decide on best ones it requires evaluation.

Step 4. Evaluating the alternatives

Each alternative needs to be evaluated to determine which one best achieves the
objectives. In evaluating managers should assess cost (disadvantages) and benefits
(advantages) of all alternatives. The assessment may include both financial and non
financial considerations.

Step 5. Select the best alternatives

After evaluating all possible alternatives, managers will select alternative that remains
better than others. It may be an alternative with least disadvantages and most advantages.

Step 6. Implementing the plan

After the alternative course of action selected, it is important to develop an action plan to
execute the plan. In this step method for implementation will be suggested.

Step 7. Controlling and evaluating the results

Once the plan is implemented it needs monitoring. Managers should monitor the
progress being made, evaluate the reports made based on results, and make any necessary

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modifications, because factors in environment are constantly changing, plans must be
modified to cope up with changes.

Decision Making

Meaning of decision-making
Supervisors constantly make decisions that affect the work of others. Day-to-day
situations involving supervisory decisions include employee morale, the allocation of
effort, the materials used on the job, and the coordination of schedules and work areas.
The supervisor must recognize problems, make a decision, initiate an action, and evaluate
the results. In order to make decisions that are consistent with the overall goals of the
organization, supervisors use guidelines set by top management. Thus, it is difficult for
supervisors to make good decisions without good planning. An objective becomes a
criterion by which decisions are made. A decision is a solution chosen from among
alternatives. Decisions must be made when the supervisor is faced with a problem.
Decision-making is the process of selecting an alternative course of action that will solve
a problem. The first decision is whether or not to take corrective action. A simple
solution might be to change the objective. Yet, the job of the supervisor is to achieve
objectives. Thus, supervisors will attempt to solve most problems. A problem exists
whenever there is a difference between what actually happens and what the supervisor
wants to have happen. Some of the problems faced by the supervisor may occur
frequently. The solutions to these problems may be systematized by establishing policies
that will provide a ready solution to them. In these repetitive situations, the problem
solving process is used once and then the solution (decision) can be used again in similar
situations. Exceptions to established routines or policies become the more difficult
decisions that supervisors must make. When no previous policy exists, the supervisor
must invent a solution. Problem solving is the process of taking corrective action in
order to meet objectives. Some of the more effective decisions involve creativity. To get
better ideas, the supervisor follows the steps in the problem solving process. The steps are
built on a logical analysis. The supervisor can think through all aspects of the problem by
answering the following questions. What seems to be the trouble? Why is it causing the
trouble? What are the causal factors? What can be done in all possibilities? Are all these
possibilities workable? What are the probabilities of success for each of the solutions?
What are the appropriate alternatives? What is the correct choice? Have I logically
eliminated the other choices? When and how can the solution be implemented? What is
the best way to implement the solution? Has the solution solved the original problem?
Have I planned, organized, and provided for the control of actions leading to solutions?

Universality of Decision-making
Decision-making is a part of all managers’ jobs. A manager maker decisions constantly
while performing the functions of planning, organizing, staffing, directing, and

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controlling. Decision-making is not a separate, isolated function of management but a
common core to the other functions.
Managers at all levels in the organization are engaged in decision-making. The decisions
made by top management, dealing with the mission of the organization and strategies for
achieving it, have an impact on the total organization. Middle level managers, in turn
focus their decision making on implementing the strategies, as well as on budget and
resources allocating. Finally, first levels management deals with repetitive day to day
operations. So it can be said that decision making is universal.

Rational decision making process

The decision making process involves the following steps:

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Fig. Steps in problem solving and decision making

I. Identifying the problem

The initial and most critical step in decision making is to define the problem as all other
steps in the process depend on the nature of the problem. The accuracy of this step affects
all steps that follow. Managers need too assess carefully symptoms of the problems to
arrive at real problem. This means that the supervisor must correctly define the problem.
Problem identification is not easy. The problem statement can be too broad or too narrow.
Supervisors are easily swayed by a solution orientation that allows them to gloss over this

48
first and most important step. Or, what is perceived, as the cause of a problem may
actually be a symptom.

The supervisor must solve the right problem. In order to define the problem, the
supervisor must describe the factors that are causing the problem. These are the
symptoms, visible as circumstances or conditions that indicate the existence of the
problem -- the difference between what is desired and what exists. By not clearly
defining the problem, ineffective action will be taken.

II. Identify the limiting or critical factors

Once the problem is defined, the manger needs to develop the limiting or critical factors
of the problem. Limiting factors are those constraints that rules out certain alternative
solutions. The supervisor determines what is relevant in making a decision by isolating
the facts pertinent to the problem. Since there is no single best criterion for decision
making where a perfect knowledge of all the facts is present, a set of criteria must be used
for the problem at hand. These decision criteria identify what will guide the decision-
making process. They are the important facts relevant to the problem as defined. It is
important that decision criteria be established early in the problem solving process
because if the criteria are developed as analysis of data is taking place, the chances are
good that the data will determine the criteria. Thus, setting the criteria early introduces
objectivity. These facts can be tangible as well as intangible. Tangible facts might include
the work assignments, the work schedules, or work orders. Intangible facts could include
morale, motivation, and personal feelings and perceptions.

This process is somewhat subjective, because what serves as important criteria for one
supervisor may be less important for another. For instance, the decision-making criteria
used to hire employees differs across departments; the sales department uses the number
of new store openings in different geographic areas, while the manufacturing department
uses how many units of the product needs to be produced and how quickly.

Key uncertainties, the variables that result from simple chance, must be identified.
Regardless of the solution chosen, key uncertainties are important because they can be
plusses or minuses. What are the chance variables? Which way would these variables
fall, relative to each of the workable solutions?

Not all criteria have the same importance. (Criteria weights can vary among different
supervisors as well.) Assigning weights indicates the importance a supervisor places on
each criterion for resolving the problem and helps establish priorities. Criteria that are
extremely important can be given more weight, while those that are least important can
be given less weight. Time, finance, facilities etc. are the most common limiting factor
(critical factor) that narrows down the range of possible alternatives.

III. Develop alternative solutions.

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At this point the decision maker lists all of the possible solutions to the problems. When
developing alternatives, the goal is to be as creative and wide ranging as possible. The
supervisor must identify all workable alternative solutions for resolving the problem. The
term workable prevents alternative solutions that are too expensive, too time-consuming,
or too elaborate. The best approach in determining workable solutions is to state all
possible alternatives, without evaluating any of the options. This helps to ensure that a
thorough list of possibilities is created.

Generating alternative solutions requires divergent thinking (deviating from traditional.)

Groups can be used to generate alternative solutions. Brainstorming is the process of
suggesting as many alternatives as possible without evaluation. The group is presented
with a problem and asked to develop as many solutions as possible. When brainstorming,
employees should be encouraged to make wild, extreme suggestions. They build on
suggestions made by others. None of the alternatives are evaluated until all possibilities
are exhausted.

IV. Analyze the alternatives.

The purpose of this step is to decide the relative merits of each of the alternatives, to
identify the positive and negative or advantage and disadvantage of each. All of the
alternative solutions are examined in terms of out come. The supervisor must judge what
would happen with each alternative and its effect on the problem. The strengths and
weaknesses of each alternative are critically analyzed by comparing the weights assigned
and then eliminating the alternatives that are not workable. Probability factors -- such as
risk, uncertainty, and ignorance - must be considered. Risk is a state of imperfect
knowledge in which the decision-maker judges the different possible outcomes of each
alternative and can determine the probabilities of success for each. Uncertainty is a state
in which the decision-maker judges the different possible outcomes of each alternative
but lacks any feeling for their probabilities of success. Ignorance is a state in which the
decision-maker cannot judge the different possible outcomes of each alternative, let alone
their probabilities. Investigating all the possible alternatives helps to prevent eliminating
the most appropriate one, because a decision is only as good as the best alternative
evaluated.

V. Select the best alternative solutions.

Once the set of alternative solutions has been carefully evaluated, the next task is to rank
the various alternatives based on each alternative’s advantage and disadvantages and
choosing best alternative. The supervisor must make a choice among the alternatives. The
alternative that rates the highest score should be the preferred solution. The decision can
be assisted by the supervisor's experience, past judgment, advice from others, or even a
hunch. Timing impacts the decision. The probable outcome and its advantages versus its
disadvantages are affected at any given time. Which alternative is most appropriate at a
given time?

Decisions are made by consensus when solutions are acceptable to everyone in the
group, not just a majority. Everyone is included, and the decision is a win-win situation.

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Consensus does not include voting, averaging, compromising, negotiating, or trading
(win-lose situations). Every member accepts the solution, even though some members
may not be convinced that it is the best solution. The "right" decision is the best
collective judgment of the group as a whole.

Consensus gives every person a chance to be heard and have their input weighed equally.
All members accept responsibility for both listening and contributing. Disagreements are
viewed as helpful rather than hindrances in reaching consensus. Each member monitors
the decision-making process and initiates discussions about the process if it becomes
ineffective. The smallest minority has a chance to change the collective mind if their
input is keener.

Group members do not give in just to reach an agreement. They support only those
solutions that they can truthfully accept. If people exercise this power to go against the
majority, they must have listened to the collective wisdom in good conscience. A block
should not be used to place an individual's will above the group's.

Consensus works in an environment of trust, where everyone suffers or gains alike from
the decision. Everyone must listen, participate, get informed, be rational, and be part of
the process from the beginning. Thus, consensus can be time consuming long and
exhausting to the participants. Yet, consensus will result in synergism. Synergy is the
combined action of the group, greater in total effect than the sum of their effects. The
combined problem solving/decision making abilities of the group members produce a
better decision than that of the individual member.

Taking action requires self-confidence or courage. Only a person who is willing to take
risks is able to assume responsibility for a decision involving action. The fact remains
that the supervisor is held accountable for the outcome of the decision. Thus, he or she
must be confident that the right problem has been defined and the most workable solution
has been chosen. Self-confidence is the best element for a supervisor to possess at this
stage. The best choice is the one that offer the fewest serous disadvantage and the most
advantages. Managers should take care not to solve one problem and create other with
their choice.

VI. Implement the chosen alternative.

After a decision has been made or alternatives selected, the alternatives must be put in to
action and many subsequent and related decisions must be made. Ultimately, human
beings will determine whether or not a decision is effectively implemented. If this fact is
neglected, the solution will fail. Thus, implementation is a crucial part of the decision-
making process. Including employees who are directly involved in the implementation of
a decision, or who are indirectly affected by that decision, will help foster their
commitment. Without their commitment, gaining support and achieving outcomes
becomes increasingly difficult. With this commitment, the supervisors have a reasonable
degree of assurance that the decision will be accepted and have the necessary support.

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In order to implement the decision, the supervisor must have a plan for communicating it
to those directly and indirectly affected. Employees must understand how the decision
will affect them. Communication is most effective when it precedes action and events. In
this way, events conform to plans and events happen when, and in the way, they should
happen. Thus, the supervisor should answer the vital questions before they are asked.
Communicating answers to these questions can overcome much of the resistance that
otherwise might be encountered. Effectiveness of decision in achieving the desired goal
depends on its implementation, so managers need to give emphasis on best
implementation `of the alternatives.

VII. Establish a control and evaluation system

The final step in decision making process is to create a control and evaluation system.
This system should provide feed back on how well the decision is being implemented,
what the positive and negative results are ,and what adjustments are necessary to get the
results that were desired when the solution has been chosen. The main function of the
follow up is to determine whether or not the problem has been resolved. Usually follow
up requires a supervisory visit to the work area affected by the decision. The supervisor
may have to repeat the entire decision process if a new problem has been generated by
the solution. It is better to discover this failure during the follow up period rather than
remain unaware of a new problem provoked by the implemented solution.

Types of Decisions
There are two types of decisions: Programmed and non-programmed decisions.
1. Programmed decisions- are decisions that involve solving of problems or situations
occur often enough that both the circumstances and solutions are predictable; made in
response to recurring organizational problems.
They are traditionally made using standard operating procedures or other well defined
methods. Some standard modern techniques include the use of operating research,
mathematical analysis, and computer simulation. Programmed decisions are the easiest
for managers to make because they can rely on predetermined patterns or programs to
provide an answer.

2. Non programmed decisions-are decisions made in response to problems that have

unique circumstances, unpredictable results, and significant consequences for the
company etc.
They are unique or out of ordinary. They are often less structured, one-shot decisions.
Traditionally they have been handled by techniques such as: judgment, intuition, and
creativity. More recently decision makers have turned to other problem solving
approaches in which logic, common sense, and trial and error are used to deal with
problems that are large or too complex to be solved through quantitatively or
computerized approaches. Generally non programmed decisions are decisions that deal
with unexpected and irregular problems.
To sum up,
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