ORGANIZATION AND

MANAGEMENT
MODULE
DEFINITION OF MANAGEMENT

Management is a science as well as an art. It is a body of knowledge whose ideas and

principles have become the basis of organizational frameworks employed by many businesses
and organizations. It is considered a science because it is evolved from a number of theories that
involved extensive studies and experiments. The management principles practiced by business
people and professionals are based on scientific principles, scholarly studies, and statistical data.
the problem solving nature of management benefits greatly from methods and practices adopted
from scientific principles.

However, many management experts point out that management is not an exact science like
mathematics. despite the accuracy of data from statistics, the use of mathematical tools is only
one aspect of management. a good manager must be able to look at situations and use creativity
and imagination in coming up with solutions to problems. it is in this aspect that one can
consider management as an art. creativity and ingenuity are important traits of managers that
enable them to effectively use business strategies in any situation, And make innovations that
result in new products, services, and processes. the ingenuity can be drawn from the effective
application of knowledge and skills of decision makers.

Harold Koontz
In his book “The Management Theory Jungle”, “Management is the art of getting things
done through and with people in formally organized groups”

Henri Fayol
In his book “Industrial and General Administration”, “To manage is to forecast and to
plan, to organize, to command, to coordinate, and to control”.

Peter Drucker
In his book “The Principles of Management”, he described management as “a multi-
purpose organ that manages business and manages managers and manages workers and work”.

From these various definitions of management, planning, organizing, staffing, leading, and
controlling emerged as the essential functions that management people do as an individual in
accepting responsibilities to run as an organization.

Management is indispensable for the successful functioning of every organization. It is all the
more important in business enterprises. No business runs in itself, even on momentum. Every
business needs repeated stimulus which can only be provided by management.

Manager is someone who coordinates and oversees the work of other people in order to
accomplish organizational goals and objectives.

In order to achieve the targeted objectives, management must bring together all resources of the
firm known as Six Ms: Market, Machine, Method, Material,Money, Man
Efficiency:
 "Doing things right"
 Getting the most output for the least inputs

Effectiveness:
 "Doing the right things"
 Attaining organizational goals

The importance of management has been highlighted clearly in the following points:

► Achievement of group goals

A human group consists of several persons, each specializing in doing a part of the total task.
Each person may be working efficiently, but the group as a whole cannot realize its objectives
unless there is mutual cooperation and coordination among the members of the group.
Management creates team-work and coordination in the group.

► Optimum utilization of resources

Managers forecast the need for materials, machinery, money and manpower. They ensure that
the organization has adequate resources and at the sometime does not have idle resources. They
create and maintain an environment conducive to highest productivity.

► Minimization of cost
In the modern era of cut-throat competition no factor is the most important element in
management. According to Apply, “Management is the development of people not the direction
of things. A good manager is a leader not a boss. It is the pervasiveness of human element which
gives management its special character as a social process”.

► Management is multidisciplinary
Management has to deal with human behavior under dynamic conditions. Therefore, it depends
upon wide knowledge derived from several disciplines like engineering, sociology, psychology,
economics, anthropology, etc. The vast body of knowledge in management draws heavily upon
other fields of study.

► Management is a continuous Process

Management is a dynamic and an on-going process. The cycle of management continues to
operate so long as there is organized action for the achievement of group goals.

► Management is Intangible
Management is an unseen or invisible force. It cannot be seen but its presence can be felt
everywhere in the form of results. However, the managers who perform the functions of
management are very much tangible and visible.

► Management is an Art as well as Science

It is considered as a science because it has an organized body of knowledge which contains
certain universal truth. It is called an art because managing requires certain skills which are
personal possessions of managers.

► Survival and growth

Modern business operates in a rapidly changing environment. An enterprise has to adapt itself to
the changing demands of the market and society. Management keeps in touch with the existing
business environment and draws its predictions about the trends in the future. It takes steps in
advance to meet the challenges of changing environment.
► Generation of employment
By setting up and expanding business enterprises, managers create jobs for the people. People
earn their livelihood by working in these organizations. Managers also create such an
environment that people working in enterprise can get job satisfaction and happiness. In this way
managers help to satisfy the economic and social needs of the employees.

► Development of the nation

Management is the most crucial factor in economic and social development. Capital investment
and import of technical knowhow cannot lead to economic growth unless wealth producing
resources are managed efficiently. By producing wealth, management increases the national
income and the living standards of people. That is why management is regarded as a key to the
economic growth of a country.

B. FUNCTIONS OF MANAGEMENT

Management is not an unstructured exercise based on intuition. Effective managers

undertake specific functions, which when carried out increase a firm’s profitability. Managers
must have the ability to influence employees toward goal achievement, so the leadership style a
manager adopts can affect his success. Successful managers are most often persuasive leaders.

Planning
Planning entails the setting of goals and includes the creation of a blueprint to achieve them. It is
essential that managers create objectives, which serve to focus the efforts of employees, motivate
them and provide a standard against which performance can be measured. Plans also serve as a
guide to action and assist managers in resource allocation. For example, if growth is an objective,
a budget may include funds for expansion of facilities.

Organizing
Another important managerial function is organizing, which can be defined as the allocation of
resources to achieve goals. It is clear that this function relates to the planning function, as goals
must be set before organizational resources can be deployed to assist in the achievement of them.
An important component of organizing is the defining of the chain of command and the
utilization of human resources.

Leading
Without the ability to influence subordinates toward goal achievement, a manger cannot be
effective. No matter how well-crafted the objectives or how well-organized the resources,
nothing can be achieved if employees are unwilling or unable to work toward the objectives.
Managers who lack the ability to influence subordinates are often ineffective and find it difficult
to motivate their workers to increase productivity.

Controlling
Control can be defined as a methodical process through which managers monitor employees and
their activities to ensure that they are in alignment with the company’s objectives. Control is an
extremely important management function, as without it organizational activities would go
unchecked, leading to inefficiencies and unfulfilled targets. The control exercise allows
managers to take corrective action and contains an element of feedback so that there can be
continuous improvement.
 EVOLUTION OF MANAGEMENT THEORY
 Management as a field of study is estimated to be around 125 years old. However,
management practices and ideas have since been utilized from the earliest time of
documented history.
 Theories have been developed in response to the fundamental question of what is the best
way to manage an organization. Today, still the same theories are being applied to the
manager’s job.
 Management has been progressively evaluated through the following theories:

A. THE CLASSICAL MANAGEMENT THEORY

 The oldest and widely accepted viewpoint in management is the traditional or classical.
This theory emphasizes that there is “one best way” to manage by following definite
instructions. Under this theory are three main thoughts namely bureaucratic management,
scientific management, and administrative management.

a.) Bureaucratic Management

 Bureaucratic Management, proposed by German sociologist, Max Weber. Bureaucracy
for Weber is “the exercise of control on the basis of knowledge”. Bureaucratic
management focuses on the use of rules, dividing organizations into hierarchies, an
evident division of labor and through procedures to guarantee efficiency and
effectiveness.

There are seven advantageous attributes of bureaucracy namely:

1. Rules - serve as a norm for guiding or directing action or conduct of employees in

the workplace and provide discipline which the organization requires to attain its goals
and objectives.
2. Impersonality - provides equity and fairness for all employees.
3. Division of labor - is the clear splitting and defining of work based on specialization
and personal experience.
4. Hierarchical structure - categorizes jobs based on the level of authority.
5. Authority structure - refers to “who has the right to decide”. The amount of
authority amplifies with each level higher a person or organization is in. There are three
types of authority:
a. Traditional authority - is founded in custom, ancestry, gender, birth order
b. Charismatic authority - is visible in a leader whose mission and vision in life
encourage others
c. Rational-legal authority - is based on the uniform application of established laws
and rules
6. Commitment - is the visualization of employee and the organization as being loyal
to each other over the span of the working life of the employee.
7. Rationality - is attaining the organizational goals the most efficient way.

b.) Scientific Management

A. Fredrick Taylor
> Named the “Father of Scientific Management”, Frederick Taylor described scientific
management as “75% science and 25% common sense”. According to Taylor, “scientific
management means knowing exactly what you want men to do and seeing that they do it in the
best and cheapest way”.

The four principles of scientific management:

1. The development of a true science

2. The scientific selection of the workman
3. The scientific education and development of the workman
4. Intimate and friendly cooperation between the management and the men

B. Frank and Lillian Gilbreth

 The Gilbreths added more contributions in scientific management. Frank revolutionized
the use of motion pictures to study worker’s motions. On the other hand, Lillian, the first
woman to receive a Ph.D. in Industrial Psychology became noted for championing the
workers via standard days, scheduled rest breaks and normal lunch breaks which are now
being executed in today’s modern workplaces

C. Henry Grantt
 He is well known for his Gantt Chart, a visual representation of the progress being carried
out of each stage of work in a project. Gantt unlike Taylor believed that workers must not
be punished for lower production as they took time to learn to be productive. So, he
introduced the quota systems and daily bonuses for workers who exceeded their quotas.

c.) Administrative Management

 The manager and his basic functions is heart of administrative management.

A. Henri Fayol

 He is known as the Father of Modern Management. His work experience as a managing

director significantly shaped his thoughts and ideas in developing the five functions of
managers and the fourteen principles of management. These functions of management
include planning, organizing, coordinating, commanding, and controlling.
 Fayol strongly believed that management could and should be taught to others. That is
why principles of management are now being taught in colleges and universities.
Managers are now being molded through the combination of education and experience.

Fayol derived the following fourteen principles, to wit:

 14 PRINCIPLES OF HENRI FAYOL
1. Division of work indicates dividing each job into small and specialized tasks and assigning
responsibilities to a specialist of it.
2. Authority signifies the right to give order and power while responsibility means to realize
objective.
3. Discipline is making expectations understandable at every level in every organization. Discipline
could be in terms of obedience, application, and respect to superiors.
4. Unity of command means a subordinate should receive order from only one boss or superior.
5. Unity of direction connotes that all the works of an organization must perform jointly to achieve
a common objective under one plan and head.
6. Subordination of individual interest to common interest means worker prioritizes the common
interest of organizations rather than himself as an individual.
7. Remuneration both financial and non-financial incentives should be fair and adequate.
8. Centralization designates that there should be one central point in organization which exercises
general direction and control of all the parts.
9. Scalar chain is the chain or line of command and communication from superior to subordinates,
10. Order provides job and materials in place or in proper order for an efficient management and
organization’s direction.
11. Equity creates loyalty and devotion among the employees through fair discipline and order.
12. Stability of tenure personnel provides security of job for an employee in an organization which is
very significant and a requirement condition. Retaining industrious employees must constantly
be a higher priority of management.
13. Esprit de corps means management must promote a harmony of interest and appropriate
understanding among workers by working as a team.
14. Initiative suggests that a manger must encourage employees under him to act on their own in
support of the organizational objectives using creative means.

B. THE NEO - CLASSICAL MANAGEMENT THEORY

a.) Owen’s Theory

 Robert Owen, a Welsh social reformer, developed a theory based on his experience with
machines during the Industrial Age of the 1800s. The better a machine is taken care of,
maintained and looked after, the better it performs. This theory was revolutionary during
his time and has continued to be true. Management that places the workers’ needs and
desires as first priority will produce efficient and motivated people.

b.) Mary Parker Follet

 A social worker by profession believed that management is a continuous process. So, for
her if a problem has been given a solution, this solution could probably create another
dilemma for the company. Further, she made emphasis on the inclusion of workers in
decision-making and the dynamism of management.
 Follet is best known for her constructive conflict and coordination ideas. She suggested
three ways of dealing with conflict, namely:
1. Domination is a victory of one party over the other.
 2. Compromise is both sides giving up something in order to have peace.
3. Integrative conflict resolution is both parties considering their preferences and working
together to find the best option that meets the needs of both groups.

c.) Cherster Barnard

 He became the President of New Jersey Bell. His book “The Functions of Executives”
revealed two significant contributions:
 The organization as social systems needs cooperation and communication among workers
to be effective and achieve goals and objectives. The examination of the external
environment and adjusting the internal structure situation must be done for balance.

The acceptance theory of authority posited that a worker has free will to disobey the orders of his

d.) Theory X and Theory Y of Douglas McGregor

 The management theory an individual chooses to utilize is strongly influenced by beliefs

about worker attitudes. Managers who believe workers naturally lack ambition and need
incentives to increase productivity lean toward the Theory X management style. Theory
Y believes that workers are naturally driven and take responsibility. While managers who
believe in Theory X values often use an authoritarian style of leadership, Theory Y
leaders encourage participation from workers.

e.) Abraham Maslow’s Hierarchy of Needs

 Maslow’s hierarchy of needs identifies a person’s most basic needs on a progressive

pyramid, ending with a person’s least basic needs. Maslow’s theory states that only
unsatisfied needs can be used to motivate a person. For example, if a person makes a lot
of money, he no longer views money as a motivating factor in his work. The needs that
Maslow identified include physiological, safety, social, esteem and self-actualization.
According to this theory, management can motivate workers by meeting their most basic
human needs and building on them. For example, management should ensure that
employees are allotted a fair amount of time for food, social interaction and breaks.
f.) Two Factor Theory of Frederick Herzberg

 The two factor theory identifies two main sources of motivation for people in the
workforce. The first is hygiene factors, such as the working environment, a person’s
salary, job security and management styles. The second motivator in this theory is
satisfiers, which include achievement, status, recognition, responsibility and potential
growth. The more these factors are present in a worker’s environment, the more an
employee will be motivated.

g.) ERG Theory of Clayton Alderfer

 The ERG theory represents existence needs, relatedness needs and growth needs. This
theory is built on Maslow’s hierarchy of needs with a condensed understanding of human
needs and behaviors. Existence needs are desires for well-being, such as feeling
appreciated and valued. Relatedness needs are interpersonal desires, such as having a
strong social network and good relations with management. Growth needs include the
desire for personal and professional training and development, such as coaching and
continual training.
Management Science Theory
 Management Science Theory highlights the use of precise statistical model and
systematic mathematical techniques to help management solve problems on maximum
use of resources to produce goods and services. It helps the management in making
systematic decisions in operations. However, it can only suggest the alternatives based on
statistical date but not the final decision. The following are some branches of
management science that deals with a specific set of concerns:

a.) Quantitative Management

 Quantitative management is a science that makes use of mathematical approaches like

linear and nonlinear programming, modeling, and queuing theory to assist managers in
making accurate and better decisions on organizational situations like inventory
management, sales revenue, capital investment, and even profitability.

b.) Operations Management

 The practice of operations management has origins from gun manufacturing, particularly
from the famous Beretta firearms and gun barrels. Operations management engages
supervising the daily operations of the company in producing goods and services. It
usually uses a quantitative approach to look for ways in increasing productivity, improve
quality, and reduce costly inventories.

c.) Total Quality Management

 This is a philosophy on continuous quality improvement of inputs, process, and outputs.

Quality means how well a product or service function as it is supposed to be and how
close reliable it conforms to the specifications for which it is constructed.

d .) Management Information Systems

 A management information system (MIS) is a computerized database of financial

information organized and programmed in such a way that it produces regular reports on
 operations for every level of management in a company. It is usually also possible to
obtain special reports from the system easily. The main purpose of the MIS is to give
managers feedback about their own performance; top management can monitor the
company as a whole.

Organizational Environmental Theory

 Organizational environment are the set of uncontrollable forces and conditions that may
affect the manager’s ability to allocate the resources of the company. These resources
include raw materials and skilled manpower that the organization needs to create goods
and provide service. The theory focuses on the need to study the external environment of
the firm in a detailed manner in order to find success operating with rapidly changing
situations through flexibility in management strategies.

The Systems Management Approach of Herbert Simon

 Managers who understand systems theory recognize how different systems affect a
worker and how a worker affects the systems around them. A system is made up of a
variety of parts that work together to achieve a goal. Systems theory is a broad
perspective that allows managers to examine patterns and events in the workplace. This
helps managers to coordinate programs to work as a collective whole for the overall goal
or mission of the organization rather than for isolated departments.

Contingency Theory
 This theory asserts that managers make decisions based on the situation at hand rather
than a “one size fits all” method. A manager takes appropriate action based on aspects
most important to the current situation. Managers in a university may want to utilize a
leadership approach that includes participation from workers, while a leader in the army
may want to use an autocratic approach.
 The contingency theory is based around the idea there is no single right answer and that
the best choices in a given situation depend on numerous factors, which must be
considered. A company, according to contingency theory, should take into account all
aspects of a situation when making a decision, including which type of management
system it chooses. For instance, a leader using contingency theory may decide an
autocratic and hierarchical management system is the best when leading soldiers into
battle, but not necessarily the best if managing a group of scientists.
 FUNCTIONS, ROLES, AND SKILLS OF A MANAGER
FUNCTIONS OF MANAGEMENT

Managers perform the main managerial functions in the organization and

assume different roles in the performance of their duties. This results in the
assignment of diverse responsibilities to managers which in turn create the
different levels of organizational hierarchy. That is why they should be
equipped with the skills needed to manage the organization well.

A manager is someone who coordinates and oversees the work of other people
in order to accomplish organizational goals. He has the official authority to
assign resources of the organization though approval of other people

A. Main Management Functions

It is the management function wherein managers identify

and select the company’s goals and determine the
corresponding courses of action in order to achieve them.
Planning
As planners, the goal for managers is to improve the
company’s overall performance by formulating strategies
to be implemented.

It refers to structuring the business organization in such a

way that employees are grouped together to perform
efficiently and coordinate effectively to achieve the
Organizing
company’s goals. Each group of employees is assigned a
manager who oversees the employees as they perform
their assigned tasks.

Managers help the company achieve its objectives by

influencing their subordinates to perform the tasks
Leading assigned to them. Managers encourage the employees to
live the company’s vision in their job performance. They
also ensure the employee commitment to the organization.

It requires managers to identify any deviations from the

strategies and methods used in attaining the company’s
Controlling
objectives. The manager then implements corrective
actions to maintain or improve performance.
Know your Jargon:

 Stakeholders – groups of people that may be affected by the actions,

policies, or decisions of a particular organization.
 Examples are suppliers, customers, employees, government agencies, the
local community, and owners or investors.
 Subordinates – the employees under the authority or control of a superior or
manager in an organization.

B. LEVELS OF MANAGEMENT

1. Top level Management

This level is also called “senior management” or “upper management”. The

managers in this level have titles such as Managing Director, Chief Executive
Officer, Chief Operating Officer, Executive Vice President, and Chairman of the
Board, among others. These managers must have extensive knowledge in
management and must be multi-skilled and analytical. They must also be aware of
the business environment where their organization operates, especially its target
market. Senior managers are responsible for determining and implementing
strategic, long-term decisions for the company.

2. Middle-level Management

Middle-level managers are assigned to supervise specific units or

departments within the company, and are highly-specialized in managing the tasks
and operations of their assigned units. They are also responsible for carrying out
the decisions made by the top-level management and applying them to their units.
They also coordinate with lower-level managers in implementing strategies and
meeting the goals of the company. Middle-level managers have titles like
Department Head, Plant Manager, and Division Manager, among others.

3. Lower-level Managers

Managers in lower-level management are also called “frontline managers”

or “supervisors”. These managers usually directly oversee employees or workers
and are tasked with carrying out the decisions communicated by middle managers.
They also oversee the daily operations of their respective areas and handle routine
administrative tasks. These managers are often call Supervisor, Coordinator, and
Office Manager.
C. MANAGEMENT ROLES

In his book Strange World of Organizations, Henry Mintzberg identified ten

managerial roles, which he categorized as interpersonal, informational, and
decisional management roles.

a) Interpersonal Management Roles

Roles Description

As a figurehead, the manager performs social, inspirational,

legal, and ceremonial duties. The manager is a symbol and must
i. Figurehead
be on hand for people or agencies that only deal with him or her
because of status and authority.

The leader role is at the heart of manager-subordinate

relationship and managerial power. The leader is a pervasive
ii. Leader
presence among subordinates, although the relationship between
the leader and other members of the group tends to be indirect

As a liaison, the manager is an information and communication

center. A liaison builds and maintains relationships with other
companies. It is essential, therefore, that the manager possesses
iii. Liaison networking skills to maintain internal and external contacts for
information exchange. Liaisons use these contacts to gain access
to information that is vital for the company, such as facts,
requirements, and probabilities.

b) Informational Management Roles

 Roles Description

In monitoring role, manager scans the environment for

information. He is the one who collects the information which
i. Monitor
can affect the organizational activities. He reads magazines
and periodicals and reports from the departments.

As a disseminator, the manager communicates external

information to the organization and facilitates information
ii. Disseminator
exchange between subordinates. The information being
disseminated can either be factual or value-based.

In spokesperson role the manager represents his organization

iii. Spokesperson or unit with interacting with outsiders like customer, financer,
government suppliers or other agencies in society.

c) Decisional Management Roles

Roles Description

As an entrepreneur, the manager designs and initiates new

opportunities for the company. An entrepreneur is a risk-taker and is
i. Entrepreneur often involved in start-ups and new projects. The manager calculates
the risk in each opportunity and ensures that new projects are
carefully selected and implemented with minimum risks.

As a disturbance handler he has to take care of certain pressures and

ii. Disturbance
problems in organization especially those that are severe that demand
Handler
immediate attention and action.

As a resource allocator, the manager oversees and controls resource

allocation by evaluating major decisions involving resources.
iii. Resource Allocator
Managers develop appropriate models and plans in conducting their
evaluation.

As a negotiator, the manager takes charge of communicating and

iv. Negotiator negotiating with other organizations, and even among the members
of the company. Negotiation is a vital task of all mangers.

D. SKILLS OF A MANAGER
Whether at the top, in the middle, or low-level management, managers should
possess the following key management skills:

1. Conceptual skills. This refers to the manager’s ability to analyse a particular

situation, identify new opportunities and resources, and decide on the best
strategies and courses of action.

2. Human skills. This includes the manager’s capacity to motivate, lead, and
control the behavior of his or her subordinates. A manager should know how to
effectively communicate, coordinate, and relate with his or her employees.

3. Technical skills. These are the specific competencies that a manger should
have in relation to the type of task assigned to him or her. It is also related to the
specialization of a manger needed in a particular department, unit, or area where he
or she is assigned.

4. Diagnostic skill. It is the manager’s ability to visualize the most appropriate

response to a situation. Problem solving skills are also called as design skills. A
manager should know how to identify a problem. He should also possess an ability
to find a best solution for solving any specific problem.

5. Communication skill. These are required equally at all three levels of

management. A manager must be able to communicate the plans and policies to the
workers. Similarly, he must listen and solve the problems of the workers. He must
encourage a free-flow of communication in the organization.

6. Leadership skill. This is the ability to influence human behavior. A manager

requires leadership skills to motivate the workers. These skills help the manager to
get the work done through the workers.

ENVIRONMENT FORCES AND ENVIRONMENTAL SCANNING

A. ENVIRONMENTAL FORCES

The business firm’s environment refers to the conditions and elements that
define its operations and determine its success. There are two types of the firm’s
environment. These are the internal and external environment.

A. Internal Environment

This consists of elements that have a direct impact on the business

operations. These include the employees, the board of directors, and the
managers. The elements of the internal environment are directly controlled and
can be freely modified by the firm itself.

B. External environment

This consists of factors that have indirect but significant influence on the
operations of the business. These factors, however, cannot be controlled by the
firm. There are two types of external environment:

1. Microenvironment is also known as the “operating environment”. It

consists of the customers, suppliers, regulatory agencies, and
competitors. The factors in this environment have a direct relevance to the
business operations but are uncontrollable to a certain extent.

2. Macroenvironment is also known as the “general environment”. It

consists of the economic, political, social, legal, and technical
environment of the business organization. The factors in this environment
are beyond the control of the firm but are important determinants of success.

B. ENVIRONMENTAL SCANNING

Environmental scanning is the actual monitoring and evaluation of

information from the external and internal environment of a business
organization. The information is then provided to the key people to guide the
organization in its business operations and in preparing for target market
operations.
There are three modes of environmental scanning as follows:

1. Ad hoc environmental scanning

 This is not often done and it is usually applicable only during a crisis
situation. The firm does ad hoc scanning to determine whether a problem
is either external or internal.

2. Regular scanning
 This is usually done at least once a year or at regular intervals.

3. Continuous scanning
 This refers to the continuous collection of data on a broad range of
environmental factors. It is also referred to as continuous learning done
to monitor the components of an organization’s internal environment

SWOT AND PEST ANALYSIS

To adequately deal with the forces of the external environment, managers

and decision-makers apply certain techniques in gathering and analysing
information and subsequently conducting strategic planning. Strategic planning
techniques such as the SWOT analysis and PEST analysis consider the
elements of a firm’s internal and external environment in formulating
business plans and decisions.

DID YOU KNOW?

SWOT analysis is primarily used to analyze the microenvironment

PEST analysis is conducted to address the firm’s macroenvironment

SWOT ANALYSIS

SWOT analysis is a technique that identifies the Strengths and Weaknesses

of a company, as well as the Opportunities and Threats it faces. In conducting this
analysis, it is imperative to note that strengths and weaknesses are part of the
company’s internal environment, while opportunities and threats are part of
its external environment.

1. Strengths

This includes the company’s attributes that give a competitive edge over
others. The strengths of accompany contribute to its good performance and a
positive reputation in the business scene. Strengths may include being a market
leader, having a good brand image, providing quality products and services, and
having a good reputation in the business.

2. Weaknesses
 These are the attributes of a company that need to be improvised or changed.
These attributes may hinder the company’s growth and performance. Examples
of weaknesses are lack of access to technology, limited distribution channels, poor
location, lack of facilities and equipment, and poor transportation system.

3. Opportunities

These are factors or events that can give a positive impact to the company if
properly addressed. Opportunities come in different forms like new markets,
potential profits, additional sources of raw materials, increased purchasing power
of consumers, better location, and new users or customers.

4. Threats

These are external factors which may negatively impact the company. These
are trends, changes, or movements over which the company has no control but
should be addressed to maintain its status in business. Some examples are increase
in the price of resources, entry of new competitors, and high inflation rates.

PEST ANALYSIS

PEST analysis is a method used in analyzing the Political, Economic,

Social, and Technological forces affecting the company. This technique focuses on
the factors that define the macroenvironment of the business.

An organization’s macro environment consists of nonspecific aspects in

the organization’s surroundings that have the potential to affect the
organization’s strategies. When compared to a firm’s task environment, the
impact of macro environmental variables is less direct and the organization has a
more limited impact on these elements of the environment.

Macro environmental variables include sociocultural, technological,

political-legal, economic, and international variables. A firm considers these
variables as part of its environmental scanning to better understand the threats
and opportunities created by the variables and how strategic plans need to be
adjusted so the firm can obtain and retain competitive advantage.

a. Political and Legal Factors

The political-legal dimension of the general environment also affects

business activity. The philosophy of the political parties in power influences
business practices. The legal environment serves to define what organizations
can and cannot do at a particular point in time.

1. Attitudes toward Business

 Changes in sentiments toward smoking and its related health risks have
altered the public’s attitude toward the tobacco industry. These changes have
been reflected in many organizations by limiting smoking to designated areas or
completely prohibiting it at work. The transformation in attitude has also
caused firms within the tobacco industry to modify marketing strategies,
encouraging many to seek expansion opportunities abroad.

2. Legislation

The legal environment facing organizations is becoming more complex and

affecting businesses more directly. It has become increasingly difficult for
businesses to take action without encountering a law, regulation, or legal
problem. A very brief listing of significant laws that affect business would include
legislation in the areas of consumerism, employee relations, the environment, and
competitive practices.

b. Economic Factors

Economic factors refer to the character and direction of the economic

system within which the firm operates. Economic factors include the balance of
payments, the state of the business cycle, the distribution of income within the
population, and governmental monetary and fiscal policies. The impact of
economic factors may also differ between industries.

1. Business Cycle

The business cycle is another economic factor that may influence the operation
of a firm. Purchases of many durable goods (appliances, furniture, and
automobiles) can be postponed during periods of recession and depression, as
can purchases of new equipment and plant expansions.

2. Income Distribution

The distribution of income may differ between economic systems. Two

countries with the same mean (per capita) income levels may have dramatically
different distributions of income. The majority of persons in the United States
are considered middle income, with only a relatively small number of persons
having exceptionally high or low incomes.

c. Sociocultural Factors

The sociocultural dimensions of the environment consist of customs, lifestyles,

and values that characterize the society in which the firm operates. Socio-cultural
components of the environment influence the ability of the firm to obtain
resources, make its goods and services, and function within the society.

1. Population Changes
 Changes in population demographics have many potential consequences for
organizations. As the total population changes, the demand for products and
services also changes.

2. Rising Educational Levels

Rising educational levels also have an impact on organizations. Higher

educational levels allow people to earn higher incomes than would have been
possible otherwise. The increase in income has created opportunities to
purchase additional goods and services, and to raise the overall standard of
living of a large segment of the population.

3. Norms and Values

Norms (standard accepted forms of behavior) and values (attitudes toward

right and wrong), differ across time and between geographical areas. Lifestyles
differ as well among different ethnic groups.

4. Social Responsibility

Social responsibility is the expectation that a business or individual will

strive to improve the welfare of society. From a business perspective, this
translates into the public expecting businesses to take active steps to make
society better by virtue of the business being in existence.

d. Technological Factors

Technology is another aspect of the environment a firm should consider in

developing strategic plans. Changing technology may affect the demand for a
firm’s products and services, its production processes, and raw materials.
Technological changes may create new opportunities for the firm, or threaten
the survival of a product, firm, or industry. Technological innovation continues
to move at an increasingly rapid rate.

1. Demand

Technology can change the lifestyle and buying patterns of consumers. Recent
developments in the field of microcomputers have dramatically expanded the
potential customer base and created innumerable opportunities for businesses to
engage in business via Internet. Whereas computers were traditionally used only
by large organizations to handle data processing needs, personal computers are
commonly used by smaller firms and individuals for uses not even imagined
fifteen years ago.

2. Production Processes
 Technology also changes production processes. The introduction of products
based on new technology often requires new production techniques. New
production technology may alter production processes. Robotics represents one of
the most visible challenges to existing production methods. Robots may be
used in positions considered hazardous for people or that require repetitive,
detailed activities.

PEST Analysis of Jollibee

a. Political and Legal Factors

Several governments take a cautious initiative to improve the health of the

people for instance, Jollibee. Jollibee is required to indicate the nutritional
factors for each meal they offer. The government policies regarding the taxes can
plainly influence the fast food business. The organization has to fulfill the
requirements resulting from establishment of any political alliances. Other political
risks include the violence, corruption, war, and social unrest.

b. Economic Factors

The economic crisis in the Philippines brought changes in the economy as the
decrease in consumer demand and revenues and sales. The higher inflation rate in
the country disabled many families to afford the Jollibee products and they prefer
to eat at home. The cost of business production also increased compelling the
company to raise its prices. The change in exchange rates and currency fluctuations
are other factors which may have impact on the products and services of Jollibee.

c. Sociocultural Factors

Before entering into any region, the fast food company carries out a careful
analysis of the culture, religion, and social values. Jollibee is therefore required to
provide Halal products in countries like Saudi Arabia. Various marketing
campaigns have also been launched highlighting the healthy meal options at low
cost with increasing awareness among people. Jollibee is also providing financial
assistance to various welfare organizations helping the needy children of the
Philippines. Halal is an Arabic word that means permissible. A Halal certified
product means that the product is permissible or acceptable in accordance with
Islamic law.

d. Technological Factors

The technology is transforming the business like a force of nature. In order to

make its service more convenient and accessible online, Jollibee has recently
centralized its express delivery service through Globe Telecom. Sarah Geronimo’s
iconic advertisement, “#8-7000 Jollibee Delivery”, also known as The Hashtag
Project is another step to provide maximum customer benefit through the
technology innovation. With the changing fast food industry where customers are
signing the credit bills through the touchscreen, Jollibee has to keep up pace for
online orders. Social media presence is a must these days.

THE LOCAL AND INTERNATIONAL BUSINESS ENVIRONMENT OF

THE FIRM

The international business environment can be defined as the environment

in different sovereign countries, with factors exogenous (relating or developing
from external factors) to the home environment of the organization that influences
decision-making on resource use and capabilities. This includes the social,
political, economic, regulatory, tax, cultural, legal, and technological
environments.

The political environment in a country influences the legislation and

government rules and regulations under which a foreign firm operates. Every
country in the world follows its own system of law and a foreign company
operating within it has to abide by these laws for as long as it continues to operate
there.

The technological environment comprises factors related to the materials and

machines used in manufacturing goods and services. The organization’s
receptivity and willingness to adopt to new technology, as well as the willingness
of its consumers to do likewise, influences decisions made in an organization.

As firms have no control over the external environment, their success depends
upon how well they adapt to it. A firm’s ability to design and adjust its internal
variables to take advantage of opportunities offered by the external environment,
and its ability to control threats posed by the same environment, determines its
success.

Economic factors exert huge impacts on firms working in an international

business environment.

The economic environment relates to all the factors that contribute to a

country’s attractiveness for foreign businesses.

► Businesses rely on a predictable and stable mechanism. A monetary

system that acknowledges countries’ and economies’ interdependence and that
fosters growth, stability and fairness at a global level is important for prosperity,
and the operation and growth of companies.

► Inflation, interest rates, and the borrowing costs of companies also

contribute to a country’s attractiveness. If a country has a high rate of inflation,
its central banks will raise the interest rate, which increases the cost of borrowing
for firms. High inflation also makes the value of the revenue in domestic currency
fall, and this exposes firms to foreign exchange risks. It is even worse if firms
produce in countries of high inflation and then sell products to countries of
low inflation, since the input costs are on the rise while the revenue stays
stable.

PHASES OF ECONOMIC DEVELOPMENT

What are the Phases of Economic Development?

Before addressing the question of what are the phases of economic

development, it is useful to focus first on the main difference between economic
growth and economic development

The Difference Between Economic Growth and Economic Development

Obviously, sustained economic growth typically implies economic

development, but most development economists nevertheless use the two terms
differently. Economic growth typically refers to an increase in gross domestic
product (GDP), while economic development typically refers to a structural
transformation, mostly of the economy.

Stages of Economic Growth and Economic Development

Unlike the stages of economic growth (which were proposed in 1960 by

economist Walt Rostow as five basic stages: traditional society, preconditions for
take-off, take-off, drive to maturity, and age of high mass consumption), there
exists no clear definition for the stages of economic development. Still, most
development economists agree that the key stages of development are related to
three different transitions: a) a structural transformation of the economy, b) a
demographic transition, and c) a process of urbanization.

Breaking Down the Key Economic Development Stages

1. The Structural Transformation

This refers to a change in the composition of GDP. Initially, economic

activities and jobs are based in the agricultural sector. With development, the share
of agriculture in GDP decreases as economic activities and jobs shift towards the
industrial sector, especially manufacturing. After some decades of
industrialization, the service sector will slowly overtake the share of industry,
while the share of agriculture continues to decrease. In other words, at the final
stage of development, we typically have an economy in which people earn their
livelihood predominantly from the service sector and a still important but
diminished industry sector.

2. The Demographic Transition

 This is determined mostly by changes in the fertility rates (i.e., the number of
children per woman) and changes in life expectancy. Initially, fertility rates are
high, but due to relatively high death rates (especially high infant mortality
rates), population growth is limited. In the next stage, both fertility rates and life
expectancy are increasing, causing a sharp increase in the size of population. With
continuous development, life expectancy continues to increase, but sharply
declining fertility rates will limit population growth.

3. Urbanization

The main factors leading to the process of urbanization is the migration of

people from rural areas seeking jobs in the emerging urban centers, the
transformation of originally semi-urban suburbs into fully urban centers, and
differences in population dynamics between rural and urban areas.

An alternative, typically narrower definition of stages of development refers to

patterns of development, focusing on the structural change of an economy.
Two prominent World Bank economists, Hollis Chenery and Moises Syrquin
defined a pattern of development as a systematic variation in any significant
aspect of the economic or social structure associated with a rising level of
income or other index of development.

FORMS AND CLASSIFICATIONS OF BUSINESS ORGANIZATIONS

There are three forms of business organizations based on ownership

structure. These are sole proprietorship, partnership, and corporation. A wise
manager should consider the characteristics of the business organization that he
or she wishes to establish in making the business plan as each presents unique
advantages, opportunities, and challenges.

A. FORMS OF BUSINESS ORGANIZATIONS

1. Sole Proprietorship
3. Sole proprietorships are companies owned by one person who is usually
hands-on in managing the day-to-day activities. Many small business
starts in this type of business ownership. Sole proprietors own the entire
business, including all assets and profits. Since they own all the assets,
sole proprietors are also responsible for all the liabilities of the business.

Advantage of a Sole Proprietorship

The main advantage of sole proprietorship is that it is the most manageable

and least expensive form of ownership. Proprietors have complete control over
the business and can make decisions based on their own judgment. Thus, it is
easy to implement changes in the business setup. Furthermore, if desired by the
owner, the business can also be easily dissolved.

Disadvantages of a Sole Proprietorship

The disadvantage is that sole proprietors have unlimited liability since they
assume all the debts of the business. This may put personal assets at risk when
the business experiences losses. Obtaining additional capital is also difficult
because of a low guarantee of profitable returns to lenders. There is also a
possibility that highly skilled employees will not be attracted to work in the
business because of the low chance to advance in their careers and get attractive
compensation packages.

Know your Jargons:

a. Assets are resources with economic value that are owned and controlled by
the business owners.

b. Liabilities are debts or obligations which arise during the business operations.

c. Securities and Exchange Commission (SEC) – the government agency

tasked with regulating and monitoring business organizations and
corporations

d. Subsidiary – a company owned by another company or a parent company.

2. Partnership

Partnership is a form of business organization where ownership of

business is shared by two or more members. The partners mutually agree as to
how decisions will be made and how the profits and losses will be shared. They
also agree on how future partners will be admitted and how
misunderstandings will be resolved legally. The amount of contribution, the type
of work to be inputted, and the time to be devoted by each partner is also outlined
to ensure a clear distinction of responsibilities.

Partnership with a capital of more than three thousand pesos (P3,000.00)

should register with the SEC. Income tax computations for partnerships are the
same with corporations.

Forms of Partnership:

A. General Partnership
4. This is a form of partnership wherein the partners have unlimited liability
for the debts and obligations of the partnership.

B. Limited partnership
 5. This is a form of partnership wherein one or more general partners have
unlimited liability and the limited partners have liability that is only up
to the amount equal to their capital contributions.

Advantage of Partnerships

One of the advantages of a partnership is its wider capital base. Having

more partners involved in the business allows for diversification of the
contributed monetary funds, skills, and resources. Expansion is also easier
since there are more people who will manage the different branches of the
business.

Disadvantage of Partnerships

One disadvantage of a partnership is that partners are jointly liable for all
the obligations and effects stemming from the decisions of the other partners.
Unless the individual responsibilities and liabilities are clearly delineated, this may
cause disagreement among the partners. Partnerships have a limited life because
of its general instability. This instability is not referring to the business
unprofitability but rather to several internal factors which make the partnership
vulnerable to dissolution. These internal factors include the death, withdrawal,
or insolvency of a partner.

3. Corporation

The third form of business organization is the corporation. A corporation has

a distinct personality separate from its powers. This means that it is treated like
an individual person with benefits from certain rights as well as obligations and
responsibilities. A corporation can enter in to contracts, secure loans, sue and
be sued, hire employees, and pay taxes. A corporation has a minimum of five
and a maximum of fifteen owners who are called shareholders. Each
shareholder owns a part of the company and has some authority over its direction.
Shareholders elect a board of directors who oversee the major policies and
decisions of the corporation.

Advantage of a Corporation

One of the advantages of a corporation is its limited liability to its

shareholders. They can only be held accountable for their individual
investment of shares in the corporation. Another advantage is that a corporation
can deduct the benefits it provides to its employees and consider them as
expenses. It also has a general stability since the death or withdrawal of one
shareholder does not result in its dissolution.

Disadvantage of a Corporation
 The process of forming the corporation or incorporation is more
complicated than forming a sole proprietorship and partnership. A corporation is
closely monitored by the government and other local agencies like the SEC.
Thus, more paperwork is required of a corporation to comply with permits and
other legal requirements.

A. CLASSIFICATIONS OF BUSINESS

1. Service business

This is a type of business that provides labor and other services to

customers. Examples are transportation companies like airlines and shipping
lines; professional services like accounting, legal, engineering and customer
service; entertainment like amusement parks and movie houses; hotels and
restaurant; apartments.

2. Merchandising business

This is a type of business that purchases products from other businesses

like manufacturers and sells them to customers at a higher retail price.
Examples are grocery stores, supermarkets, car dealers, real estate dealers, and
electronic stores.

3. Manufacturing business

This is a type of business where raw materials are transformed into

finished goods through product-processing, labor, and other manufacturing
processes. Examples include manufacturers of soap and detergent, canned goods,
automobiles, and medical drugs.

There are other businesses that cannot be classified into any of the three
types like agriculture, aquaculture, and mining companies.

DEFINITION AND NATURE OF PLANNING

Planning

Planning is usually interpreted as a process to develop a strategy to

achieve desired objectives, to solve problems, and to facilitate action. Planning
is the part of management concerned with creating procedures, rules and
guidelines for achieving a stated objective. Planning is carried out at both the
macro and micro level. Managers need to create broad objectives and mission
statements as well as look after the day to day running of the company. It is a
basic management function involving formulation of one or more detailed plans
to achieve optimum balance of needs or demands with the available resources.

The planning process:

 Identifies the goals or objectives to be achieved

 Formulates strategies to achieve them
 Arranges or creates the means required
 Implements, directs, and monitors all steps in their proper sequence.

The word planning incorporates both ideas. It means determining the

organization’s goals and defining the means for achieving them. Planning
allows managers the opportunity to adjust to the environment instead of merely
reacting to it. Planning increases the possibility of survival in business by
actively anticipating and managing the risks that may occur in the future. In
short, planning is preparing for tomorrow, today. It is the activity that allows
managers to determine what they want and how they will achieve it. Not only
does planning provide direction and a unity of purpose for organizations, it also
answers six basic questions in regard to any activity:

o What needs to be accomplished?

o When is the deadline?
o Where will this be done?
o Who will be responsible for it?
o How will it get done?
o How much time, energy, and resources are required to accomplish this
goal?

Planning is an intellectual activity directed toward anticipating,

predicting, and handling change. The output is the recommended course of
action to deal with probable future developments. Planning helps in risk
management; i.e., a manager can anticipate problems and how to deal with them
rather than be surprised by them (dealing with problems proactively rather than
reactively). Planning also creates a sense of mission which allows a manager to
motivate and measure the performance of people under him/her. Planning
bridges the gap between where an organization is and where it wants to be in the
future.

Specifically Planning is done for the following:

 Clearly define the target goals and objectives of the organization.

 Identify strengths, weaknesses, opportunities and threats.
 Review present environmental conditions and draw specific strategy or
course of action.
 Review present and past performance.
 Provide budgetary requirements for specific activities.
 Sets measures of control mechanism to achieve the desired results.
 Review periodically accomplishments against targets.

Importance of Planning in an Organization

Planning helps an organization chart a course for the achievement of its

goals. The process begins with reviewing the current operations of the
organization and identifying what needs to be improved operationally in the
upcoming year. From there, planning involves envisioning the results the
organization wants to achieve, and determining the steps necessary to arrive at
the intended destination--success, whether that is measured in financial terms, or
goals that include being the highest-rated organization in customer satisfaction.

a. Efficient Use of Resources

All organizations, large and small, have limited resources. The planning
process provides the information top management needs to make effective
decisions about how to allocate the resources in a way that will enable the
organization to reach its objectives. Productivity is maximized and resources are
not wasted on projects with little chance of success.

b. Establishing Goals

Setting goals that challenge everyone in the organization to strive for better
performance is one of the key aspects of the planning process. Goals must be
aggressive, but realistic. Organizations cannot allow themselves to become too
satisfied with how they are currently doing--or they are likely to lose ground to
competitors. The goal setting process can be a wake-up call for managers that
have become complacent. The other benefit of goal setting comes when forecast
results are compared to actual results. Organizations analyze significant variances
from forecast and take action to remedy situations where revenues were lower than
plan or expenses higher.

c. Managing Risk and Uncertainty

Managing risk is essential to an organization’s success. Even the largest

corporations cannot control the economic and competitive environment around
them. Unforeseen events occur that must be dealt with quickly, before negative
financial consequences from these events become severe. Planning encourages the
development of “what-if” scenarios, where managers attempt to envision
possible risk factors and develop contingency plans to deal with them. The pace
of change in business is rapid, and organizations must be able to rapidly adjust
their strategies to these changing conditions.

d. Team Building

Planning promotes team building and a spirit of cooperation. When the

plan is completed and communicated to members of the organization, everyone
knows what their responsibilities are, and how other areas of the organization
need their assistance and expertise in order to complete assigned tasks. They see
how their work contributes to the success of the organization as a whole and
can take pride in their contributions. Potential conflict can be reduced when top
management solicits department or division managers’ input during the goal
setting process. Individuals are less likely to resent budgetary targets when they
had a say in their creation.

e. Creating Competitive Advantages

Planning helps organizations get a realistic view of their current

strengths and weaknesses relative to major competitors. The management team
sees areas where competitors may be vulnerable and then crafts marketing
strategies to take advantage of these weaknesses. Observing competitors’ actions
can also help organizations identify opportunities they may have overlooked, such
as emerging international markets or opportunities to market products to
completely different customer groups.

PRINCIPLES OF PLANNING

A. Planning must be realistic - Objectives should be supported by available

resources like manpower, money, material, machines, and others.
B. Planning must be based on felt needs - If it is the felt needs of employees,
customers, suppliers, or the community, then they must be pursued.
C. Planning must be flexible - Planning must be adjustable and adaptive to
changing conditions and resources.
D. Planning must be democratic - Those who are responsible for the
implementation of the plan, the beneficiaries of the plan, and all others who are
 affected by the plan must be involved in the planning process. Such
participative planning ensures more success than planning without consultation
or involvement.
E. Planning must start with simple projects - This applies to organizations with
limited resources and experiences in their fields of operations. As the
organization develops and grows, then bigger projects can be planned and
implemented.
F. Planning must include social responsibility - Such corporate goal must be in
harmony with the interests of the employees, the customers, and the
community. In most cases, the price of economic growth is the destruction of
the environment, such as pollution and the disappearance of the pristine beauty
of nature.

STEPS IN PLANNING PROCESS

1. Establish objectives - Objectives specify the expected results and

indicate the end points to be done.
2. Evaluate the environment. - This refers to the existing conditions
within and outside the organization. Both internal and external environments
certainly affect the organizational objectives.
3. Determine alternatives - To look for and examine critically alternative
courses of action, especially those that are not apparently seen.
4. Evaluate alternative courses of action - To evaluate the alternatives by
weighing them in terms of premises and goals. Alternatives can be evaluated
by applying cost-benefit analysis.
5. Select a course of action - This is the crucial point when the plan is to be
adopted. This is the importance of decision-making. The best alternative is
one that has the most advantages in terms of cost or profits.
6. Implement the action plan - Implementing the best solution requires an
action plan which involves the use of money, manpower, materials, machines,
and methods. It also requires a time frame.
7. Evaluation of results - Close monitoring and control are extremely necessary
so that proper evaluation can be made to see the gap between plans and
execution, and to modify them if necessary.

Why Managers Failed in Planning?

 No good planning skills.  Short-sightedness.

 No realistic goal.  Dependence on the planning
 Incompetence in planning. department.
 Lack of dedication.  Resistance to change
 Incomplete and inaccurate
information.
TYPES OF PLANS AND PLANNING AT DIFFERENT LEVELS IN THE FIRMS

Planning a complex, comprehensive intellectual management process, focused on

proper selection of goals and objectives and developing a course of action on the tasks
and resources to be employed to achieve these goals and objectives for future
organizational performance.

Planning is a function of the top-level management but it has been carried out
throughout the organization so that is why even in the lower level managements,
management is needed.

Even us as a student, it is important to plan prior existing execution of projects and

actions.

A. TYPES OF PLANS

There are three main types of plans that a manager uses in devising strategies to
achieve company goals.

1. Strategic plans
 These plans are designed by the top management such as the CEO or president.
These are usually broad plans based on the company’s vision, mission, and values,
and address the company as a whole. They are used as bases for more specific plans
that will enable the company to achieve growth and profitability, boost productivity
and return on investment, and improve customer service.
 Strategic Plans is the blueprint of actions and resource distributions intended to realize
the vision and objectives of the organization. It is thought about the entire
organization and not just a specific area or department that is why it is encompassing

2. Tactical plans
 While strategic plans involve the company as a whole, tactical plans create specific
plans for specific areas of the company. These plans translate broader plans into
functional goals for each area or department. The elements of tactical plans include
budget, resources, and goals with specific deadlines.
 It is carried out by the middle-management level and is directed more for specific
areas. Examples are budget and designs in the business.

3. Operational plans
 These are specific procedures and processes made by frontline or low-level
managers. Operational plans often involve specific events such as marketing
campaigns, campus recruitment, and others. Operational planning also involves the
formulation of ongoing plans that define specific operations of the organization.
Ongoing plans can be in any of the following forms:
 More specific and explicit than tactical plans, it can be the section or in the simple
unit of the organization, yourself. It can be the process, the procedure.
 Procedures to withdraw or liquidate plans. How do we make the budget in the project
be more effective
 Policy – a set of principles that guide managers in addressing a particular issue
 Rule – a regulation which describes and regulates the function of an organization
 Procedure – a step by step process in accomplishing a task or achieving an objective

4. Contingency Planning
 Systematic way of identifying what could go wrong in a situation
 Involves identifying alternative courses of action that can be implemented when the
original plan proves a failure.
 It is the alternative plan, it is called “back-up” plan.

A. Vision

This is a commonly shared picture of what the organization wants and is

committed to become sometime in the future. It is the guiding and motivating compass of
the organization.

B. Mission

This is an enduring statement of purpose of an organization’s existence that

distinguishes itself from others. Identifies the basic function of the organization.

C. Goals

This is a general statement of what you want to achieve. Comprise mission and
purposes statements of the organization in a wider perspective.

SMART Goal:

SPECIFIC – Clearly define your goal. Make it as specific as possible and write down
exactly why you want to achieve this goal.

MEASURABLE – Whatever you want to achieve, make sure you have a way of
measuring when you meet your goal.

ACHIEVABLE – Is your goal achievable in the allotted time? What steps must you take
in order to achieve this goal?

REALISTIC – Be realistic about how long it will take to reach your goal, and the steps
you are taking to get there.
TIMELY – Set a deadline and timeline for reaching your goal and check in at time
points along your progress path as well.

D. Objectives

These are goals expressed in concrete terms that are readily measurable. It refers
to the goals that put into specific terms.

E. Ongoing plan

This is used for continuing situations, problems, and activities which are similar
and consistent.

F. Single-use plan

This is designed to meet the needs of a unique situation or activity that is no longer
needed when the activity is finished.

 Program – is a set of activities towards an objective, like a special program for

gifted children. These are plans or schedules to be followed.
 Budget – is a statement of itemized estimate of expected income and expenses
expressed in numerical terms.

C. PLANNING AT DIFFERENT LEVELS IN THE FIRM

Plans for a firm can be made at several different levels. At the corporate level, the
management considers the objectives of the firm as a whole. For example, Microsoft may
want seek to grow by providing high quality software, hardware, and services to
consumers. To achieve this goal, the firm may be willing to invest aggressively.

Plans can also be made at the business unit level. For example, although Microsoft
is best known for its operating systems and applications software, the firm also provides
Internet access and makes video games. Different managers will have responsibilities for
different areas, and goals may best be made by those closest to the business area being
considered. It is also more practical to hold managers accountable for performance if the
plan is being made at a more specific level. Boeing has both commercial aircraft and
defense divisions. Each is run by different managers, although there is some overlap in
technology between the two. Therefore, plans are needed both at the corporate and at the
business levels.

A. Firm-Level Planning
 A business owner has to choose a model of planning, such as strategic planning,
that will guide the entire business. Planning is about setting goals that can be
timed and measured to determine if a company meets the desired level of
performance. Without a strategic plan, a business owner will make more reactive
decisions in response to the market. With a strategic plan, all of the firm’s
employees will know what direction to take.

B. Department-Level Planning
  Once a business has grown to a certain point, a business owner or manager will
begin to organize employees into departments, teams or business functions.
Employees will support a specific product, perform a specific function or serve
customers in a defined market. At this level, regardless of business size, a
department or team manager must collaborate with the owner or company
manager and determine what part of the firm’s goals will require his department’s
tactical plan. This should be a two-way process so that the staff will buy into goal
setting and give their input.

C. Operational Planning
 It used to be that middle-level managers created a tactical plan, or how the
different units of the company will implement the goals in a broad sense, and that
lower-level managers created operational goals. Now, many organizations do not
have middle-level managers.
 Explain the planning at different levels in the firm
 Therefore, department-level managers end up doing tactical and operational
planning. This level of planning requires that a manager consider which
employee or group will be responsible for each department goal at the
operational level. This will include looking at the specific activities that
employees perform and how they interlace to support the department’s goals.

D. Employee Planning
 At the direction of their manager, individuals can write goals to illustrate
specifically how they will help achieve operational goals. These should be as
specific, measurable, achievable, and relevant and timed as the goals at the other
levels of planning. Individuals are also a good source of information about the
product or service they support. They can suggest ways for the company to
match the strengths of the business with current opportunities in the market.

Planning is a critical business responsibility that is often overlooked,

particularly by smaller companies with limited time and personnel resources. However,
the reason for this oversight is often the result of management’s lack of planning
techniques. Learning useful planning methods and factors eliminates this knowledge
gap.

Planning requires managers to develop and propose alternative courses of

action. Several qualitative and quantitative tools are used to ensure the selection of the
best course of action. There are three qualitative techniques that can be used in planning.
These are as follows:

PLANNING TECHNIQUES AND TOOLS AND THEIR APPLICATIONS

QUALITATIVE TOOL

A. Brainstorming
  This is a common technique used by groups of planners in selecting a common
solution for a problem. It stimulates thinking and allows the group to work
together in generating ideas.
 The moment ideas have come together, and there is exchange of ideas. But in
comparison with other tools, it is unstructured because anybody can speak and
answer. Ideas are being thrown to the group in an unstructured flow
 There are no restrictions to the flow of ideas and every member is encouraged to
give his or her thoughts regarding the plan. The free flow of ideas, however,
makes this technique more informal and unstructured.

B. Nominal Group Technique

 This is highly structured method that allows members to give their own inputs
based on an agenda. The structured and formal nature of this method restricts
personal discussion among group members and minimizes conflict during
discussions.
 You can’t just throw out an idea. An aspect is being discussed, and someone gives
an idea. It talks about an agenda one at a time. Agenda and input are involved.
 The risk of one member dominating the planning is also limited, since all opinions
in this method are equally important.

C. Delphi Technique
 This is also a highly structured technique similar to the nominal group technique.
However, the difference lies in the means of formulating courses of action.
 This technique does not require a group meeting. Rather, the group leader
distributes questionnaires to all group members to collect and assimilate their
ideas.
 It is useful in this pandemic, Delphi Technique does not require physical
appearance and has a non-personal approach. Its difference with brainwriting is it
can be applicable for online and offline. While on the other hand, brainwriting is
for online method only.
 Take note that, there is no interaction between the members or individuals while
Brainstorming involves interaction among the invidividuals.

Apart from qualitative techniques managers can also employ quantitative tools in
planning and decision making. these are the following:

QUANTITATIVE TOOLS

D. Decision Tree
 It is an excellent tool for weighing different alternatives. It consists of a
graph showing potential and alternative decision paths for the proposed
plan.
  This method is especially useful for decisions that involve a succession of
small decisions. all alternatives, from the most likely to the most unlikely
ones, are given equal weight. Afterwards, the possible consequences for each
proposed path are analyzed to guide in formulating the potential in alternative
paths for subsequent decisions.

E. Payback Method
 Managers use this method in evaluating alternatives in purchasing equipment,
furniture, and fixtures. Managers consider certain factors such as length of use
or utility, warranties, cost of repair, maintenance cost, and sales generated for a
specific period before buying the product. Usually, managers choose the
alternative that results in the quickest payback of the initial cost.
 Mathematical method that finds out how long the investment on an asset or project
will play for itself
 Payback Period = Initial Investment /Amount Net Cash Flow
 We need to realize where can we receive back the profit.

F. Critical Path Method

 This quantitative tool is a mathematical way of planning and scheduling for
programmed management to ensure a timeless and minimum use of resources.
 As future managers who will be handling various projects and programs, I think it
is just that we have a more in-depth discussion on one of the planning tools and
techniques, the critical path method. Further, this will help you later when you
 spearhead projects in the future as identifying the critical path may equip you
to better manage your expectations in accomplishing projects.
 The critical path is the set of activities connecting the start node with the finish
node and is the longest path in the network.
 We lay out all activities that need to be accomplished, we can monitor, employ,
and check through the plan.
 Critical Path is a set of activities connecting the start node to the finished node and
which is the longest duration. We identify which activities entails for the longest
activities for the organization.

For you to understand better, let’s take on the example below:

The table above is the sequence of activities (where the activities needed to do are laid-
out) for a project on computer solutions. In here, all activities are laid out with the
corresponding data:

A. Task: labels for all activities

 Usually, the labels indicated under the task are A, B, C or 1, 2, 3. This is indicated
not only to show the chronological order of the activities but also to easily
identify the activities and its predecessor (prerequisite or what we have to
accomplish before doing a particular activity at hand) without having to indicate
the entire title of the activity when plotting the network.

B. Duration: time period for the completion of the particular activity

 For the duration, we can indicate either the number of days, weeks, months, or
even years, depending on the activity. We have to specify this in order for us to
determine how long does a particular activity have to be accomplished. Moreover,
the duration will be one of our basis in identifying the critical path of the project.

C. Predecessor: indicates the pre-requisite activity that shall be accomplished first

 In identifying the predecessor, we simply refer from other activities which should
be done prior doing the next activities. Based on the given table, let’s discuss one
by one all the implications of all tasks.
 Prerequisite or what we must accomplish before doing a particular activity at
hand
  A becomes a predecessor because it is the beginning of the project.
 Since Task A (Design) is the first activity, there is no predecessor. This only
means that there is no activity that has to be accomplished first before doing Task
A.
 For Tasks B, C and D, their predecessor is Task A. This only means that before
you accomplish either the activity “Specify XML”, “Design Test Cases”, or
“Develop File Transmission”, you have to accomplish first activity “Design”.
Having various activities with only one predecessor can be possible even if it’s the
other way around.
 For Task E, its predecessor is Task B, which only means that before you do
activity “Develop XML File”, you have to accomplish activity “Specify XML”
first.
 Speaking of multiple activities, for Task F we have two predecessors, namely Task
C and E. This implies that before you accomplish activity “Test File Content”, you
have to accomplish first both activity “Design Test Cases” and “Develop XML
File”.
 In Task G, the predecessor is Task D which shows that activity “Develop File
Transmission” should be done prior activity “Make Infrastructure Changes”.
 Lastly, for Task H, this is similar with Task F having two predecessors which are
activity “Test File Content” and “Make Infrastructure Changes”.

D. Name: the activity that must be accomplished

 In indicating the names, we simply enumerate all activities that must be
accomplished for the project to be completed.

With reference to our sequence of activities, we now plot the network of all
activities. However, let me remind you that when you plot, make sure not to overlap
(crisscross) the arrows and don’t forget its arrowhead to indicate the flow / direction.

Since I’ve mentioned earlier that the critical path is the longest path in the network,
we try to compute for the total duration of all possible paths and then we identify our
critical path. In identifying all paths, we simply consider all connecting paths from the
start until the end. Based on our network, there are three paths that we can identify.

We need to identify the first activity which is Task A (Letters can be used in
replacement of the name of the activity). The connection between the starting node and
the finished node is the network

1) A + B + E + F + H
 2) A + C + F + H

3) A + D + G + H

With the paths identified, we now try to compute for the total duration of each path
by indicating the duration beside the task. We do it like this:

1) A2 + B5 + E10 + F2 + H2 = 21 days

2) A2 + C1 + F2 + H2 = 7 days

3) A2 + D2 + G1 + H2 = 7 days

Having computed now the total duration, we identify the longest path which entails
the longest period to accomplish the project.

1) A2 + B5 + E10 + F2 + H2 = 21 days → critical path

2) A2 + C1 + F2 + H2 = 7 days

3) A2 + D2 + G1 + H2 = 7 days

The identified path (A + B + E + F + H) would now indicate that this path will take
the longest to accomplish; hence, the critical path for the project. More people and
more resources are designated for the critical path.

DECISION MAKING

 Decision making involves the ability to collect, organize, and synthesize

information into a useful form for identifying and evaluating alternate
options.
 It takes knowledge and puts it into action

Another element of decision-making is risk taking. For example, a decision without

some risk is usually easy to make.

A decision with risk requires the use of judgment and good judgment is learned
through practice and experience.

One can certainly discuss decisions with the team, other managers, and mentors to
help lower risk, but must make the decision and help it to be a successful decision.
Decisions have some basic characteristics as given:

A. Futurity
 How long will the decision commit the organization? If the commitment is
quite long, then the decision should be moved up to higher levels.
B. Reversibility
 How fast can a decision be reversed and its consequences resolved? If the
decision would be hard to reverse, it should be moved up to higher levels.
C. Impact
 Are other areas or activities affected by the decision? If the decision would
have wide impact, it should be deferred to a higher level.
 D. Quality
 Are social, human, ethical, and other values involved in the decision? If many
qualitative factors are involved, move the decision to a higher level.
E. Periodicity
 How often is the decision made? Rare decisions should be made at higher
levels.

Decision Making Process

The process of decision making generally analyzes a problem in stages until a viable
solution develops. It involves choosing the best alternative after defining the issue and
identifying the desirable outcome. The process of decision making includes choosing an
action to reach a goal after weighing attributes of each alternative. Decisions might
be made by a group or one person who compares options. The final step is acting on the
information learned during the process of decision making.

Step 1: Identification of the Purpose of the Decision

 In this step, the problem is thoroughly analyzed. There are a couple of

questions one should ask when it comes to identifying the purpose of the
decision.
 What exactly is the problem?
 Why the problem should be solved?
 Who are the affected parties of the problem?
 Does the problem have a deadline or a specific time-line?

Step 2: Information Gathering

 A problem of an organization will have many stakeholders. In addition, there

can be dozens of factors involved and affected by the problem. In the process
of solving the problem, one will have to gather as much as information related
to the factors and stakeholders involved in the problem. For the process of
information gathering, tools such as ‘Check Sheets’ can be effectively used.

Step 3: Principles for Judging the Alternatives

 In this step, the baseline criteria for judging the alternatives should be set up.
When it comes to defining the criteria, organizational goals as well as the
corporate culture should be taken into consideration. As an example, profit is
one of the main concerns in every decision-making process.
 Companies usually do not make decisions that reduce profits, unless it is an
exceptional case. Likewise, baseline principles should be identified related to
the problem in hand.

Step 4: Brainstorm and Analyze the Different Choices

  For this step, brainstorming to list down all the ideas is the best option.
Before the idea generation step, it is vital to understand the causes of the
problem and prioritization of causes.
 For this, one can make use of cause-and-effect diagrams and Pareto chart
tool. Cause-and-effect diagram helps to identify all possible causes of the
problem and Pareto chart helps to prioritize and identify the causes with
highest effect.

Then, you can move on generating all possible solutions (alternatives) for the
problem in hand.

Step 5: Evaluation of Alternatives

 Use judgment principles and decision-making criteria to evaluate each

alternative. In this step, experience and effectiveness of the judgment
principles come into play. One needs to compare each alternative for their
positives and negatives.

Step 6: Select the Best Alternative

 Once you go through from Step 1 to Step 5, this step is easy. In addition, the
selection of the best alternative is an informed decision since one has already
followed a methodology to derive and select the best alternative.

Step 7: Execute the Decision

 Convert the decision into a plan or a sequence of activities.

 Divisional Structure is a type of organizational structure that groups each
organizational function into a division.

Step 8: Evaluate the Results

 Evaluate the outcome of decision. Whether there is anything one should learn and
then correct in future decision making. This is one of the best practices that will
improve the decision-making skills.
DEFINITION AND NATURE OF ORGANIZATION

In general way the term organization can be defined as a group of individuals

who are interacting with each other and contributing their efforts towards the
attainment of certain goals or objectives. In other words, organization may be defined
as a co-operative and healthy relationship amongst the groups which is built up by them
through proper network of communication system with a view to achieve their specific or
common goals.

Organizing may be defined as such process which is made by any business firm
for the purpose of achieving its own goals or objectives in smooth way. It is the
process of ensuring healthy relationship among the departments by the proper channel of
communication so that the personnel (employees) of every department can give their
hundred percent contributions in the accomplishment of desired goals.

Organizing management functions allow business professionals to effectively plan

activities that enable their businesses to achieve their strategic goals. To direct work,
managers usually prioritize, schedule, coordinate, motivate, focus and set goals for
employees.

Evaluating organizing functions involves assessing whether the employees

assigned to particular jobs complete their tasks in the time allowed. Evaluating the
organizing functions of management involves identifying tasks, observing work,
validating roles and responsibilities and prioritizing workflow improvements.

The second function of the management is getting prepared and getting

organized. The management must organize all its resources beforehand, to follow the
course of action decided during the planning process

There are two essential concepts regarding with organizing:

a. Organization as a Process

 The concept of organizing can be considered as a process, because a large number

of events or activities are done under the process of organizing with-a-view to
accomplish the preset goals in an appropriate way.
 In fact, organizing involves division of works, determination of activities, grouping
of activities, delegation of authority and the establishment of proper co-ordination
and balance among various departments of individuals towards the attainment of
predetermined goals.
 Overall, it is clear that the objectives of business firm cannot be obtained by doing
single activity, so organizing is set to be a process.

b. Organization as a Structure of Relationship

 Organization refers to a structure of relationship due to involvement of a large number

of groups.
 Under the process of organizing the relationship of departments to departments,
groups to groups and individuals to individuals are analyzed carefully through the
process of communication system with a view to establish proper unity and co-
 ordination among them. So that everyone can take initiative for the welfare of
enterprise. Thus it is clear that organization can be considered as a structure of
relationship.

CHARACTERISTICS OF ORGANIZING

1. Organization is a Group of Individuals

 Organization can consider as a group of individuals who comes together and make co-
operative relationship with each-other and contributing their efforts with a view to
attain pre-set goals. Infect, in the absence of group of individuals there is no existence
of organization. Thus it is clear that organization is a group of individuals.
 The feature of organization can put to be as a process, because a large number of
events are done under organizing process towards the attainment of predetermined
goals, such as determination of various activities, grouping of activities, allocation of
work amongst the employees and delegation of authority as well. Hence, organization
is a process.

2. Organization is a ‘Means’ not an ‘End’

 Organization is a means to reach out the goals of an enterprise. In fact organization
provides such platforms to enterprise where all the activities are clearly predefined, as
a result of this enterprise easily obtain its goals. Thus it is proved that organization is
a ‘Means’ not an ‘End’.

3. Organization is an important Function of Management

 It is an essential feature of organization. Organization refers to an important function
of management because all other functions of management like staffing, directing,
controlling etc. will become ineffective in the absence of this function.

4. Organization is related to its Objectives Organization

 It is directly concerned with the objectives of enterprise. In the absence of objectives
there is no life of organization. If there is an organization then the objectives must be
attached with it. Hence, Organization is related with its goals.

5. Communication is the Life of Organization

 It is also an important feature of organization. Communication can be treated as a life
of organization, because in the lack of proper network of communication there is no
existence of organization. Infect the foundation of an organization properly depends
on communication. On the whole it is clear that organization is the system of
communication.

Organizing is the function of management which follows planning. It is a function

in which the synchronization and combination of human, physical and financial resources
takes place. All the three resources are important to get results. Therefore, organizational
function helps in achievement of results which in fact is important for the functioning of
a concern. According to Chester Barnard, “Organizing is a function by which the concern
is able to define the role positions, the jobs related and the co-ordination between
authority and responsibility. Hence, a manager always has to organize in order to get
results.

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

1. Identification of Activities

All the activities which have to be performed in a concern have to be identified first.
For example, preparation of accounts, making sales, record keeping, quality control,
inventory control, etc. All these activities have to be grouped and classified into units.

2. Departmentally Organizing the Activities

In this step, the manager tries to combine and group similar and related activities into
units or departments. This organization of dividing the whole concern into independent
units and departments is called departmentalization.

3. Classifying the Authority

Once the departments are made, the manager likes to classify the powers and its
extent to the managers. This activity of giving a rank in order to the managerial positions
is called hierarchy.

The top management is into formulation of policies, the middle level management
into departmental supervision and lower level management into supervision of foremen.

4. Co-ordination between Authority and Responsibility

Relationships are established among various groups to enable smooth interaction

toward the achievement of the organizational goal.

Everyone is made aware of his authority and he/she knows whom they have to
take orders from and to whom they are accountable and to whom they have to report. A
clear organizational structure is drawn, and all the employees are made aware of it.

ORGANIZATION LEVELS AND SPAN OF MANAGEMENT

Span of management refers to the number of subordinates that a manger can

efficiently manage. Number of subordinates directly reporting to a manager is known as
span. Span of management is important for:

a. Determining the complexity of an individual manager’s job

b. Determining shape and structure of the organization, fewer the number of
subordinates reporting to a manger larger the number of managers required.
Therefore, span for control should be fixed.
 This factor deals with grouping the people in hierarchical form, determining the levels
in the organization. The levels get determined by the span of control, i.e., in the
organization how many subordinates a superior can manage. This number can vary
anywhere between four to eight in higher levels of management and eight to fifteen in
lower levels of management.

The span of control is determined on the basis of the task to be performed, decisions to
be taken, and the strengths and weaknesses of the people and the degree of the delegation
of the responsibilities that superior is willing to attain.

IMPORTANCE OF ORGANIZING FUNCTION

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

2. Well defined jobs

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

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

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

5. Authority responsibility
 Relationships can be fruitful only when there is a formal relationship between the two.
There should be co-ordination between different relationships. Clarity should be made
for having an ultimate responsibility attached to every authority. There is a saying,
“Authority without responsibility leads to ineffective behavior and responsibility
without authority makes person ineffective”.

6. Effective Administration
 The organization structure is helpful in defining the jobs positions. The roles to be
performed by different managers are clarified. Specialization is achieved through
division of work. This all leads to efficient and effective administration.

7. Growth and Diversification

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

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

9. Scope for New Changes

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

DIFFERENT TYPES OF ORGANIZATIONAL STRUCTURE

 Organizations are set up in specific ways to accomplish different goals, and the
structure of an organization can help or hinder its progress toward accomplishing
these goals.
 Organizations large and small can achieve higher sales and other profit by properly
matching their needs with the structure they use to operate.

There are three main types of organizational structure: functional, divisional and
matrix structure.

1. Functional Approach

 Functional structure is set up so that each portion of the organization is grouped

according to its purpose. In this type of organization, for example, there may be a
marketing department, a sales department and a production department.

 The functional structure works very well for small businesses in which each
department can rely on the talent and knowledge of its workers and support itself.
 However, one of the drawbacks to a functional structure is that the coordination
and communication between departments can be restricted by the organizational
boundaries of having the various departments working separately.
 ADVANTAGES DISADVANTAGES
As the organization grows in terms of
It makes supervision easier. location and product lines, quick decisions
become more difficult to get.

It is easier to mobilize It is harder to pinpoint accountability and

specialized skills. judge performance.

Top managers encounter difficulties in

It is helpful in the efficient use
coordinating the functions of the members of
of specialized resources.
the entire organization.

2. Geographic Approach

 This is applicable to big organizations and giant business enterprises.

 The most suitable when different laws, policies, currencies, and cultures exist among
the various regions.
 The plans and strategies of the regional branches have to be different.

ADVANTAGES DISADVANTAGES

A business enterprise with a geographic

It is expensive because it requires more
structure can immediately respond to the
facilities and personnel.
needs of consumers.
3. Product Approach

 Most large Multiproduct Corporations are structured on product organization,

particularly for product which requires unique strategy, production process, or
distribution system.

ADVANTAGES DISADVANTAGES

Faster decisions, better coordination, and

Higher cost of operations.
higher product visibility.

4. Customer Approach

 These are groups of customers which are different in their demands, preferences,
or needs.

ADVANTAGES DISADVANTAGES

Such differences among customers It may result in overspecialization which limits

require different suitable strategies in the areas of competence of individual
order to maximize customer satisfaction. managers.

5. Matrix Approach

 This combines the functional organizational structure with a project team structure
in which an employee has two bosses.
 He reports to the department manager and to the project manager.
  This type of organizational structure is found in high-technology, project-based
enterprises.

ADVANTAGES DISADVANTAGES

It allows experts to be assigned in crucial Requires high interpersonal skills due to

areas. constant interaction among team members.

It may also encourage power struggle between

It stimulates interdisciplinary cooperation the functional manager and the project
among the members of the team. manager which may also create conflicts in
terms of loyalty among the employees.

Challenges employees.

ORGANIZATIONAL THEORIES AND APPLICATION

Although organizations have existed for thousands of years, the history of

organization theory begins only in the early part of this century. In spite of an enormous
amount of research effort being expended, especially in the last three decades, theory has
developed with great difficulty and slowness.

To date, most organization theories are of the middle range and each is incomplete
in itself. An overall synthesis has yet to be produced.

In parts of the domain, progress in this direction has occurred: Mintzberg has
produced an excellent synthesis of theory and research on the structuring of
organizations, and Miner has described and evaluated over thirty theories of
organization behavior from the point of view of their scientific contribution and
usefulness in application.
 Through the years, management has uncovered several theories applicable to
organizations. These theories establish standardized approaches in defining the basic
structures, processes, components, objectives, and environments of organizations.

The various theories of organization are given below:

I. Classical Theory
II. Neo-Classical Theory
III. Modern Theory
IV. Motivation Theory
V. Decision Theory

A. Classical Theory
 The classical theory mainly deals with each and every part of a formal organization.
The classical theory was found by the father of scientific management, Frederick W.
Taylor. Next, a systematic approach to the organization was made by Monney
and Reicey.

The classical theory is based on the following four principles:

1. Division of Labor
 This theory fully depends upon the principle of division of labor. Under the division
of labor, the production of a commodity is divided into the maximum number of
different divisions.
 The work of each division is looked after by different persons. Each person is
specialized in a particular work. In other words, the work is assigned to a person
according to his specialization and the interest he has in the work.
 The division of labor results in the maximum production or output with minimum
expenses incurred and minimum capital employed.

2. Scalar and Functional Processes

 The scalar process deals with the growth of organization vertically. The functional
process deals with the growth of organization horizontally.
 The scalar principles refer to the existence of relationship between superior and
subordinate. In this way, the superior gives instructions, or orders to the
subordinates (various levels of management) and gets back the information from the
subordinate regarding the operations carried down at different levels or stages. This
information is used for the purpose of taking decision or remedial action to
achieve the main objectives of the business.
 The Scalar chain means the success of domination by the superior on the
subordinate from the top to the bottom of organization. The line of authority is
based on the principle of unity of command which means that each subordinate does
work under one superior only.

3. Structure
 The organizational structure may be defined as the prescribed patterns of work
related behavior of workers which result in the accomplishment of organizational
objectives.
 The organizational structure is used as a tool for creating a relationship among the
various functions which make up the organization.
 Specialization and co-ordination are the main issues in the design of an
organizational structure. The term specialization includes the division of labor and
the usage of special machines, tools and equipment.

Specialization is obtained when a person is requested to do a single work and it

results in the increase in productivity. The facilities or advantages of suitable training,
easy allocation of work, job scheduling and effective control are also obtained from
specialization.

Co-ordination means an orderly performance in operations to achieve

organizational objectives. Normally, the business units are organized on a functional
basis. The functions are performed by different persons of different nature. It is also
necessary to co-ordinate the various functions to achieve the main objectives and at the
same time a function does not conflict with any other function.

4. Span of Control
 Span of control means an effective supervision of maximum number of persons by
a supervisor.
 According to Brech, “Span refers to the number of persons, themselves carrying
managerial and supervisory responsibilities, for whom the senior manager retains his
over-embracing responsibility of direction and planning, co-ordination, motivation
and control.”

From the above discussion, we can know that the classical theory emphasized unity
of command and principle of co-ordination. Most of the managers’ time is wasted in
the coordination and control of the subordinates. In many organizations, a single
supervisor supervises the work of 15-20 workers and does not follow the principle of
span of control.

Some of the experts told that a manager can supervise 4-8 members at higher
levels and between 8-20 members at the lower levels of the organization. But
according to Lyndall Urwick, a maximum of 4 members at higher levels and between
8-12 members at lower levels can be supervised by the superior to constitute an ideal
span of control.

CHARACTERISTICS OF CLASSICAL THEORY

 It is based on division of labor.
 It is based on objectives and tasks of organization.
 It is concerned with formal organization.
 It believes in human behavior of the employees.
 It is based on co-ordination of efforts.
 Division of labor has to be balanced by unity of command.
 It fixes a responsibility and accountability for work completion.
 It is centralized.

CRITICISM OF CLASSICAL THEORY

  This theory is based on authoritarian approach.
 It does not care about the human element in an organization.
 It does not give two-way communications.
 It underestimates the influence of outside factors on individual behavior.
 This theory neglected the importance of informal groups.
 The individual is getting importance at the expense of the group.
 It also ignores the influence of outside factors on individual behavior.
 The generalizations of the classical theories have not been tested by strict
scientific methods.
 The motivational assumptions underlying the theories are incomplete and
consequently inaccurate.

B. Neo-classical Theory
 This theory is developed to fill up the gaps and deficiencies in the classical
theory.
 It is concerned with human relations movement. In this way, the study of
organization is based on human behavior such as – how people behave and why
they do so in a particular situation.
 The neo-classical scholars used classical theory as the basis for their study and
modified some of the principles for the study. The neo-classicals have only
given new insights rather than new techniques.
 The main contribution of this theory highlights the importance of the
committee management and better communication. Besides, this theory
emphasized that the workers should be encouraged and motivated to evince
active participation in the production process. The feelings and sentiments of
the workers should be taken into account and respected before any change is
introduced in the organization.

The classical theory was production-oriented while neo-classical theory was

people- oriented.

CONTRIBUTIONS OF NEO-CLASSICAL THEORY

 Person should be the basis of an organization.

 Organization should be viewed as a total unity.
 Individual goals and organization goals should be integrated.
 Communication should be moved from bottom to top and from top to bottom.
 People should be allowed to participate in fixing work standards and decision-
making.
 The employee should be given more power, responsibility, authority and control.
 Members usually belong to formal and informal groups and interact with others
within each group or sub-group.
 The management should recognize the existence of informal organization.
 The members of sub-groups are attached with common objectives.

CRITICIMS OF NEO-CLASSICAL THEORY

 A survey conducted by American Management Association (AMA) indicates
that most of the companies reported found little or nothing useful in behavioral
theory. According to Ernest Dale, “neither classical theory nor neo-classical theory
provides clear guidelines for the actual structuring of jobs and provision for co-
ordination.”

C. Modern Theory
 The other name of Modern Theory is Modern Organization Theory. According
to one authority, it was organized in the early 1950s.
 This theory composed of the ideas of different approaches to management
development.
 The approach is fully based on empirical research data and has an integrating
nature. The approach reflects the formal and informal structures of the
organization and due weightage are given to the status and roles of personnel in an
organization.

Like the general system theory, modern organization theory studies:

 the parts (individual) in aggregates and the movement of individuals and out of the
system;
 the interaction of individual with the environment found in the system; and
 the interaction among individual in the system.

ESSENTIALS OF MODERN THEORY

 It views the organizations as a whole.

 It is based on systems analysis.
 The findings of this theory are based on empirical research.
 It is integrating in nature.
 It gives importance to inter-disciplinary approach to organizational analysis.
 It concentrates on both quantitative and behavioral sciences.
 It is not a unified body of knowledge.

CRITICISMS OF MODERN THEORY

 This theory puts old wine into a new pot.

 It does not represent a unified body of knowledge. There is nothing new in this
theory because it is based on past empirical studies.
 This theory forms only the questions and not the answers.
 It is based on behavioral, social and mathematical theories. These are
management theories in themselves.

D. Motivation Theory
 It is concerned with the study or work motivation of employees of the
organization. The works are performed effectively if proper motivation is given
to the employees.
 The motivation may be in monetary and non-monetary terms. The inner
talents of any person can be identified after giving adequate motivation to
 employees.
 Maslow’s hierarchy of needs theory and Honberg’s two factor theory are
some of the examples of motivation theory.

E. Decision Theory
 The other name of decision theory is decision making theory. This theory
was given by Herbert. A. Simon. He was awarded Nobel Prize in the year of
1978 for this theory.
 Simon regarded organization as a structure of decision makers. The
decisions were taken at all levels of the organization and important decisions
(policy decisions) are taken at the higher levels of organization.
 Simon suggested that the organizational structure be designed through an
examination of the points at which decisions must be made and the persons
from whom information is required if decisions should be satisfactory

DELEGATION

Simple delegation refers to the allocation of tasks to employees.

 Delegation of authority allows subordinates to do tasks or responsibilities outside of

their regular work, enabling them to exercise a certain level of authority beyond
their position.
 Delegation of authority involves mutual trust’s managers and trusts their employees
to commit to the external task the same way as to their regular one. In line with
this, there is an implied set of instructions and protocols to be followed by the
employee concerned.
 Delegation enables managers to unload some of their tasks so other more
important matters can be addressed. However, while it is the responsibility of the
employee to finish the delegated task, the accountability still rests with the
manager.

There are three elements of delegation. These are the assignments of duties,
grant of authority, and creation of obligation. These elements are interdependent and
essential for the proper conduct and success of the delegated tasks.

A. DUTY
 Each employee in the organization is bound by the duties expressed in the functions
and objectives of the organization.
 For a manager to delegate properly, the duties should be expressed clearly in writing.
In doing so, the overlapping of duties and authority between the employee and
management is avoided.

B. AUTHORITY
 The manager's authority over his subordinates should be clearly defined. Authority
should emanate from the official position of the manager and not from personal
influence or other informal sources of power.
 Managers can only act within the limits of their official function. The nature and
limitations of the managers’ authority should be expressed in writing and approved
 by top management.
 The formal and official institution of authority on managers help subordinates
follows their superiors without hesitation.

C. OBLIGATION
 Delegation is made easier when subordinates express willingness to fully accept their
responsibilities. Responsible subordinates know their obligations clearly and will
exert effort in accomplishing their tasks.
 Managers should still recognize the subordinates have limits with regard to their
responsibilities. The tasks should be, at the very least, relevant to their regular
work or skills.

FORMAL AND INFORMAL ORGANIZATIONS

Formal Organization

• When the managers are carrying on organizing process then as a result of

organizing process an organizational structure is created to achieve systematic
working and efficient utilization of resources. This type of structure is known as formal
organizational structure.

• Formal organizational structure clearly spells out the job to be performed by each
individual, the authority, responsibility assigned to every individual, the superior-
subordinate relationship and the designation of every individual in the organization. This
structure is created intentionally by the managers for achievement of organizational
goal.

FEATURES OF FORMAL ORGANIZATION

 The formal organizational structure is created intentionally by the process

of organizing.
 The purpose of formal organization structure is achievement of organizational goal.
 In formal organizational structure, everyone is assigned a specific job.
 In formal organization, every individual is assigned a fixed authority or
decision- making power.
 Formal organizational structure results in creation of superior-subordinate
relations.
 Formal organizational structure creates a scalar chain of communication in
the organization.

INFORMAL ORGANIZATION

 In the formal organizational structure individuals are assigned various job

positions. While working at those job positions, the individuals interact with each
other and develop some social and friendly groups in the organization. This network
of social and friendly groups forms another structure in the organization which is
called informal organizational structure.

• The informal organizational structure gets created automatically and the main purpose
of such structure is getting psychological satisfaction. The existence of informal
structure depends upon the formal structure because people working at different job
positions interact with each other to form informal structure and the job positions are
created in formal structure. So, if there is no formal structure, there will be no job
position, there will be no people working at job positions and there will be no informal
structure.

FEATURES OF INFORMAL ORGANIZATION

 Informal organizational structure gets created automatically without any

intended efforts of managers.
 Informal organizational structure is formed by the employees to get
psychological satisfaction.
 Informal organizational structure does not follow any fixed path of flow of
authority or communication.
 Source of information cannot be known under informal structure as any person can
communicate with anyone in the organization.
 The existence of informal organizational structure depends on the formal
organization structure.