CHAPTER I

FUNDAMENTALS OF MANAGEMENT

1.1. Definition Of Management

There are several definitions of Management; but they all are fundamentally the same. Among
the many, some are:
a) Management is the process of coordinating all resources through the five major functions of
planning, organizing, staffing, directing /leading and controlling to achieve organizational
goals/desired objectives.
In the above definition there are three key concepts
i) Coordination of all resources – managers should coordinate the resources of an
organization. These resources may be human or non human.
ii) The five managerial functions – To coordinate the resources of an organization a
manager should employ/use the five managerial functions.
iii) Objectives – are the reason for the establishment of organizations and management is
useful for achieving these goals. Managing/management is concerned with
productivity: effectiveness and efficiency. There are points to be meet, targets to be
shot or places to be reached. All organizations establish a variety of goals and direct
their energies and resources to achieve them.
- Profit oriented business → Return on Investment (ROI) goals
- Hospital → Patient care
- Educational institution → Teaching, research & community service.
All organizations also have resources that can be used to meet these objectives. Such resources
can be classified into: human and non-human, and management is the force that unifies these
resources. It is the process of bringing them together and coordinating them to help accomplish
organizational goals.
b) Management is the art of getting things done through other people by making the atmosphere
conducive for others. It is the process of getting things done through others, and this process
puts emphasis on both the objectives to be attained and the people who will be pursuing
them.
→ an effective manager focuses on both work and people.

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 → the job of every manager is to achieve organizational goals through the combined
efforts of people.
c) Management is the utilization of scientifically derived principles to examine and improve
collective efforts or production.
- Management applies to any kind of organization, to managers at all organizational
levels.
- Without management, virtually no business could survive.
- Management increases the values of our resources.
d) Management is the process of achieving organizational goals through engaging in the five
major functions of planning, organizing, leading, staffing and controlling. This definition
recognizes that:
- Management is an ongoing activity
- Entails reaching important goals, and
- Involves knowing how to perform the five major functions of management.
Managers – are those persons in the position of authority who make decisions to commit (use)
their resources and the resources of others towards the achievement of
organizational objectives.
* Everybody is the manager of his/her time, energy and talents.
Organization – is a group of two or more people brought together to achieve common stated
objectives.
Organization – two or more persons engaged in a systematic effort to produce goods and/or
services.
1.2. Significance Of Management
Why do we study management?
Management has been important to the daily lives of people and to the organizations. The
importance of management may be traces with the following.
1) Effective utilization of Resources: Management tries to make effective utilization of various
resources. The resources are scarce in nature and to meet the demand of the society, their
contribution should be more for the general interests of the society. Management not only
decides in which particular alternative a particular resource should be used, but also takes
actions to utilize it in that particular alternative in the best way.

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2) Development of Resources: Management develops various resources. This is true with
human as well as non-human factors. Most of the researchers for resource development are
carried on in an organized way and management is involved in these organized activities.
3) It ensures continuity in the organization: Continuity is very important in the organizations.
Where there are no proper guidelines for decision making continuity cannot be guaranteed. It is
quite natural that new people join while some others retire or leave the organization. It is only
management that keeps the organization continuing.
4) Integrating various interest groups: In the organized efforts, there are various interest
groups and they put pressure over other groups for maximum share in the combined output. For
example, in case of a business organization, there are various pressure groups such as
shareholders, employees, govt. etc. these interest groups have pressure on an organization.
Management has to balance these pressures from various interest groups.
5) Stability in the society: Management provides stability in the society by changing and
modifying the resources in accordance with the changing environment of the society. In the
modern age, more emphasis is on new inventions for the betterment of human beings. These
inventions make old systems and factors mostly obsolete and inefficient. Management provides
integration between traditions and new inventions, and safeguards society from the unfavorable
impact of these inventions so that continuity in social process is maintained.
1.3. Managerial Functions an Overview
Regardless of the type of firm and the organizational level, all managers perform certain basic
functions. These managerial functions are Planning, organizing, staffing, directing/leading/ and
controlling.
i. Planning is the primary function of management. It is looking ahead and preparing for
the future. It determines in advance what should be done. It is conscious determination of
future course of action. This involves determining why to take action? What action? How
to take action? When to take action? Planning involves determination of specific
objectives, programs, setting policies, strategies, rules and procedures and preparing
budgets.

Planning is a function which is performed by managers at all levels – top, middle and
supervisory. Plans made by top management for the organization as a whole may cover

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 periods as long as five to ten years, whereas plans made by low level managers cover much
shorter periods.
ii. ORGANIZING: is the process of distributing the work among the group members and
establishing the relationships that are needed to ensure smooth accomplishment of jobs. It
involves identification of activities to be carried out, grouping these activities into
working units, assignment of responsibilities to each unit with corresponding authority.
iii. STAFFING involves managing various positions of the organizational structure. It
involves selecting and placing the right person at the right position. Staffing includes
identifying the gap between manpower required and available, identifying the sources
from where people will be selected, selecting people, training them, fixing the financial
compensation and appraising them periodically. The success of the organization depends
upon the successful performance of staffing function.
iv. DIRECTING Planning, organizing and staffing functions are concerned with the
preliminary work for the achievement of organizational objectives. The actual
performance of the task starts with the function of direction. This function can be called
by various names namely “leading”, “directing”, “motivating”, “activating” and so on.
Directing involves these sub functions:
1.Communicating: It is the process of passing information from one person to
another.
2.Leading: It is a process by which a manager guides and influences the work of his
subordinates.
3.Motivating: It is arousing desire in the minds of workers to give their best to the
enterprise.
CONTROLLING Planning, organizing, staffing and directing are required to realize
organizational objectives. To ensure that the achieved objectives confirm to the preplanned
objectives controlling function is necessary.
Controlling is the process of checking to determine whether or not proper progress is being
made towards the objectives and goals and acting if necessary to correct any deviations.
Controlling involves three elements:
Establishing standards of performance.
Measuring current performance and comparing it against the established standard.
Taking action to correct any performance that does not meet those standards.

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 1.4. Levels of Management and Types of Managers
A. Levels of management
Levels here refer to hierarchical arrangement of managerial positions in an organization. The
number of levels of management, among other things, depends on the size of the organization. In
general, there are three managerial levels. These are listed below and presented graphically in
figure.
a) Top level management
b) Middle level management
c) First level (operating level) management

top level management

middle level management

perating level management

Top level management

Top-level managers are managers who are at the top of the organizational hierarchy and are
responsible for the entire organization. The top level management includes the board of directors
and the chief executives. They are usually few in number and include the organization‟s most
important managers - the CEO or the president and his/her immediate subordinates usually called
vice-presidents. This level determines the objectives of the Business as a whole and lays down
policies to achieve these objectives (making of policy means providing guide lines for action and
decision). The top management also exercises an overall control over the organization.

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They are few in number because of the nature of the work they perform and economic problem.
They deal with the big picture, not with the nitty-gritty. They are responsible for the overall
management of the organization. They establish company wide objectives or goals &
organizational policies. Furthermore, top management:
 Develop overall structure of the organization.
 Direct the organization in accordance with the environment.
 Are persons who are responsible for making decisions and formulating policies that affect
all aspects of the firm‟s operations.
 Provide overall leadership of the organization towards accomplishment of its objectives.
 They are responsible for the organization because objectives are established and policies
are formulated at the top. Top-level managers take the credit or blame for organizational
success and failures respectively.
 Represent the organization in community affairs, business deals, and government
negotiations.
 Spent much of their time in planning and dealing with middle level managers and other
subordinates.
 Work long hours and spend much of their time in meetings and on telephone.
ii. Middle Level Managers

Middle level managers occupy a position in an organization that is above first-line management
and below top management. They interpret and implement top management directives and
forward messages to and from first-line management.

Middle Level Managers:

 Receive broad/overall strategies from top managers and translate it into specific
objectives and plans for First-Line Mangers/operating managers.
 Are responsible for the proper implementation of policies and strategies defined by top
level managers. They interpret and implement top management directives and forward
messages to and from first-line management.
 Middle level managers are particularly concerned with the activities of their respective
departments.

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  Regardless of their title, their subordinates are managers.
 Often coordinate and supervise the activities of lower level managers.
 Their principal responsibility is to direct the activity that implement the policies of the
organization.
E.g. Academic deans, Division Head, Plant managers, Army captain
iii. First Level Managers/Supervisory Level managers
 Are those at the operating level or at the last level of management.
 Their subordinates are non managers.
 Are in charge of carrying out the day-to-day activities within the various departments to
ensure that short-term goals are met.
 They are responsible for overseeing and coordinating the work of operating employees.
 Assign operating employees to specific tasks.
 Are managers on which management depends for the execution of its plan since their job
is to deal with employees who actually produce the organization‟s goods and services to
fulfill the plan.
 Are directly responsible for the production of goods and services.
 Motivate subordinates to change or improve their performance.
 Serve as a bridge between managers and non-managers.
 Spent much of their time in leading and little in planning.
E.g. Section Heads, supervisory personnel, Sales managers, Loan officers, Foreman.
 - Are often neither fish nor fowl – neither management nor labor because they feel great
deal of empathy for their subordinates (which stems from close personal contact and the
fact that most supervisors have come up from the ranks of labor) and they are there to
reflect the company‟s point of view to their subordinates. And that is why First-Line
Mangers are called “People in the Middle”.
All managers carry out managerial functions. However, the time spent for each function varies
according to their managerial hierarchy. Top-level managers spend more time on planning and
organizing than lower-level managers. Leading, on the other hand, takes a great deal of time for
first-line managers. The difference in time spent on staffing and controlling varies only slightly
for managers at various levels.
B .Types of manager

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Based on the scope of responsibility/activities they manage, managers are divided into two:
i. Functional Managers
Functional managers are managers who are responsible for a department that performs a single
functional task and has employees with similar training and skills. Supervise employees
(managers + workers) with specialized skills in specific areas of operations such as accounting,
payroll, finance, marketing, production, or sales etc. They are responsible for only one
organizational activity; i.e. their responsibility is limited to their specialization/specification.
ii. General Managers
General Managers are managers who are responsible for several departments that perform
different functions. They are responsible for the entire operations of the organization without
being specific.
Oversee a complex unit, such as a company, a subsidiary, or an independent operating division.
S/he will be responsible for all activities of that unit, such as its production, marketing, sales and
finance.

1.5. Managerial Roles and Skills

A .managerial roles .Role is an organized set of behaviors that is associated with a
particular position or office. It is a pattern of behavior expected by others from a person
occupying a certain position in an organizational hierarchy. A role is any one of several
behaviors a manager displays as s/he functions in the organization.

When a manager tries to carryout the management functions, s/he must behave in a
certain way – to fill certain role. Managerial roles represent specific tasks that managers
undertake to ultimately accomplish the five managerial functions. Factors which affect
managerial roles are: manager‟s formal job description, and the values & expectations of
other managers, subordinates and peers.

Henry Mintzberg identified 10 managerial roles which are in turn grouped into three
categories: Interpersonal, Informational and Decisional Roles.
I. Interpersonal Roles involve developing and maintaining positive relationships with
significant others in the organization. It is communication oriented. It includes:

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 i. Figurehead Role: managers perform symbolic duties of a legal or social nature.
The manager is the head of his work unit, be it division, section or department.
Because of this “lead person” position the manager represents his work unit at
ceremonial or symbolic functions.
The top level managers represent the company legally and socially to those outside of the
organization. The superior represents the work group to higher management and higher
management to the work group.
E.g. Signing documents, presiding at a ceremonial event, greeting visitors, attending a
subordinate‟s weeding, taking a customer to lunch, university president hands out a diploma
for graduates – in all these cases the manager is representing his/her organization.
ii. Leadership Role: is directing and coordinating the activities of subordinates to accomplish
objectives. It includes some aspects like creating a vision that employees can identify with.
The manager is the environment creator – s/he makes the environment conducive for work by
improving working conditions, reducing conflicts, providing feedback for performance and
encouraging growth. The leader builds relationship and communicates with employees,
motivates & coaches them. As a leader, the manager is responsible for hiring, training,
motivating and encouraging employees/ subordinates. The leadership role is evident in the
interpersonal relationship between manager and his/her subordinates.
iii. Liaison Role: The liaison maintains a network of contacts outside the work unit to obtain
information. It refers to dealing with the member of the organization superiors, subordinates,
peer level managers in other departments, staff specialists and outside contacts such as
clients. It helps to seek support from people who can affect the organization‟s success.

The top management uses this role to gain favors and information, while the superiors use it
to maintain the routine flow of work. The manager serves as a link between the organization
and the informants who provide favors and information. S/he fulfills this role through
community service, conferences, social events, etc, participation is meetings with
representatives of other divisions.
II. Informational Roles: focuses on the transmission of important information to and from
internal and external sources. It involves the following activities:

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 i. Monitor role: is also called information gathering role. This role refers to seeking,
receiving, screening and getting information. The manager is constantly monitoring the
environment to determine what is going on. The monitor seeks internal and external
information about issues that can affect the organization. S/he seeks and receives wide
variety of special information to develop through understanding of the organization and
the environment. Information is gathered from news reports, trade publications,
magazines, clients, associates, and a host of similar sources, attending seminars &
exhibitions.
ii. Disseminator Role: What does the manager do with the information collected? As the
disseminator, the manager passes on to subordinates some of the information that would
not ordinarily be accessible to them. After the information has been gathered (by monitor
role), it has to be disseminated to superiors, subordinates, peers and other concerned
clients. The types of information to be forwarded to members could be facts, opinions,
interpretations, and influences.
iii. Spokesperson/representative Role: the spokesperson transmits information about
the organization to outsiders. The manger is the person who speaks for her/his work unit
to people outside the work unit.
One aspect of this role is to keep superiors well informed and a second aspect is to
communicate outside the organization like press, government agencies, customers and
labor unions. Although the roles of spokesperson and figurehead are similar, there is one
basic difference between them. When a manager acts as a figurehead, the manager‟s
presence is as a symbol of the organization, whereas, in the spokesman role, the manager
carries information and communicates it to others in a formal sense.
Thus, the manager seeks information in the monitor role, communicates it internally in
the disseminator role and transmits it externally in the spokesperson role. The three
informational roles, then, combine to provide important information required in the
decisional roles.
III. Decisional Roles: involve making significant decisions that affect the organization.
i. Entrepreneur Role: (initiator of change) the manager acting as an entrepreneur
recognizes problems and opportunities and initiates actions that will move the

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 organization in the desired direction. The entrepreneur acts as an initiator, designer, and
encourager of change and innovation.
In the role of entrepreneur, the manager tries to improve the unit. Often s/he creates new
projects, change organizational structure, and institutes other important programs for
improving the company‟s performance.
ii. Disturbance Handler Role: solution seeking role. In the role of disturbance handler, the
manager responds to situations over which s/he has little control, i.e. that are beyond
his/her control and expectation such as conflict between people or groups, strikes, breach
of contract or unexpected events outside the organization that may affect the firm‟s
performance.
The disturbance handler is responsible for taking corrective action when the organization
faces important, unexpected difficulties.
iii. Resource Allocator Role: deciding on the allocation of the organization‟s physical,
financial and human resources. As a resource allocator, the manager is responsible for
deciding how and to whom the resources of the organization and the manager‟s own time
will be allocated.
This involves assigning work to subordinates, scheduling meetings, approving budgets,
deciding on pay increases, making purchasing decisions and other matters related to the
firm‟s human, financial, and material resources. The resource allocator distributes
resources of all types, including time, funding (finance), equipment and human resources.
iv. The Negotiator Role: representing the organization in all important/major negotiations.
Managers spend a great deal of their time as negotiators, because only they have the
information and authority that negotiators require.

E.g. negotiations to buy firms, to get credit, with government, with suppliers, etc.
The Ten Managerial Roles
Category Role Activity
Interpersonal Figurehead Perform ceremonial and symbolic duties such as
greeting visitors, signing legal documents

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 Leader Direct and motivate subordinates; training,
counseling, and communicating with
subordinates.
Liaison Maintain information links both inside and outside
organization; use mail, phone calls, meetings.
Informational Monitor Seek and receive information, scan periodicals
and reports, maintain personal contacts.
Disseminator Forward information to other organization
members; send memos and reports, make phone
calls.
Spokesperson Transmit information to outsiders through
speeches, reports, memos.
Decisional Entrepreneur Initiate improvement projects; identify new ideas,
delegate ideas, delegate responsibility to others.
Disturbance Take corrective action during disputes or crises;
handler resolve conflicts among subordinates; adapt to
environmental crises.
Resource Decide who gets resources; scheduling, budgeting,
allocator setting priorities
Negotiator Represent department during negotiation of union
contracts, sales, purchases, budgets; represent
departmental interests.

B. Managerial Skills
In addition to fulfilling numerous roles, managers also need a number of specific skills if they
are to succeed. Skills are abilities to do something expertly and well, and they are necessary to
operate activities successfully. Management success depends both on: a fundamental
understanding of the principles of management and the application of skills. Consequently,
managers must be highly skilled to succeed. The skills managers need to possess can be
classified as:

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 1. Technical skill
2. Human Relations skill
3. Conceptual skill
1.TECHNICAL SKILL
Technical skill is the skills necessary to accomplish or understand the specific kind of work
being done in an organization or ability to perform work using specific knowledge, methods,
procedures, techniques and resources in a specialized field. For instance; engineers, market
researchers, accountants, musicians, and computer programmers etc…Technical skill is highly
important for first line managers. E.g. A surgeon, an engineer, a musician, a quality controller or
an accountant all have technical skill in their respective areas.
2 Human Relations /Interpersonal Skill the ability to interact effectively with people. It is the
ability to work with, understand and motivate other people, either as individuals or as groups.
Managers need enough of human relationships skill to be able to participate effectively and lead
groups. These skills are demonstrated in the way a manager relates to other people, including the
way s/he motivates, facilitates, coordinates, leads, communicates, and resolves conflicts. A
manager with human skills allows subordinates to express themselves without fear of ridicule
and encourages participation. A manager with human skills likes other people and is liked by
them. This skill is a reflection of the manager‟s leadership ability. Because all work is done when
people work together, human relation skills are equally important at all levels of management.
3.Conceptual skills – involve the formulation of ideas. It refers to the ability to see the big
picture – to view the organization from a broad perspective and to see the interrelations among
its components. It includes recognizing how the various jobs in an organization depend on one
another and how a change in any one part affects all the others. It also involves the manager‟s
ability to understand how a change in any given part can affect the whole organization, ability to
understand abstract relationships, solve problems creatively, and develop ideas.
Conceptual skills are more important in strategic (long range) planning; therefore, they are more
important to top-executives than middle managers and supervisors.
Although all three of these skills are essential to effective management, their relative importance
to specific manager depends on his/her rank in the organization. Technical skill is of greatest
importance at supervisory level; it becomes less important as we move up the chain of command.
Even though human skill is equally important at every level of the organization, it is probably

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most important at the lower level, where the greatest number of management–subordinate
interactions is likely to take place.

On the Other hand, the importance of conceptual skill increases as we rise in the rank of
management. The higher the manager is in the hierarchy, the more s/he will be involved in the
broad, long term decisions that affect large parts of the organization. For top management, which
is responsible for the entire organization, conceptual skill is probably the most important skill of
all.

 Technical skill deals with things, human skill concerns people and conceptual skill has to do
with ideas.

Conceptual Skills
Top
Technical Skills

Human Skills
Middle

First-line

Managerial Levels Managerial Skills

Fig. 1.1 Variation of skills necessary at different management levels

1.6 Is Management an art, Science, or profession?

Science is characterized by making conclusions based on actual facts and verifies knowledge
through cause-effect relationship. It can be generally learnt, thought, and researched to know the
universal truth. Managers can work better by using the organized knowledge about management,
and it is this knowledge that constitutes a science.
Art is characterized by using common sense, personal feeling, beliefs, impulses, etc.
Management/Managing, like all other practices- music composition, engineering, accountancy or
baseball- is an art. It is know-how, skill or how to accomplish the desired objectives with
insufficient data and information or when there is limited use of secondary sources of
information. It is doing things in the light of realities of a situation. Thus, management as a

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practice is an art; the organized knowledge underlying the practice may be referred to as a
science. In this sense/context science and art are not mutually exclusive but are complementary.
Therefore, management in actual sense is neither an art nor science, but it requires both to be
successful, i.e., it is not pure art because it uses scientific methods e.g. computer and it is not
pure science because it uses intuition, judgment, and creativity. Management is one of the most
creative arts as it requires a vast knowledge and the innovative skills to apply. Managers should
develop new ideas, techniques and strategies and be able to communicate them effectively in the
work environment. They should be able to make decisions even when there is shortage of data.
This leads us to the conclusion that „the art of management begins where the science of
management stops’. This underlines the importance of making managerial decisions in the
absence of sufficient data and information by using the decision maker‟s common sense.

1.7. Universality of Management

Regardless of title, position, or management level, all managers do the same job. They execute
the five managerial functions and work through and with others to set and achieve organizational
goals. Managers are the same whether the organization is private or public, profit making or non-
profit making, manufacturing or service giving, and industrial or small firms. Hence,
management is universal for the following reasons.

1. All managers perform the five managerial functions even if with different emphasis.
2. It is applicable for all human efforts; be it business, non-business, governmental, private. It
is useful from individual to institutional efforts.
3. Management utilizes scientifically derived operational principles.
4. All managers operate in organizations with specific objectives.
5. Management, in all organizations, helps to achieve organizational objectives.

In sum, management theories and principles have universal application in all kinds of organized
and purposeful activity and at all levels of management.

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 Chapter 2

Managerial planning

2.1. Concepts and Need for planning

Concepts of planning

Planning is the most fundamental function of management. An organization can succeed in

effective utilization of its human financial and material resources only when its management
decides in advance its objectives, and methods of achieving them. Without it purposive and
coordinated effort is not possible, and what results are chaos, confusion and wastage of
resources. Planning involves determination of objectives of the business, formation of
programmers and courses of action for their attainment, development of schedules and timings of
action and assignment of responsibilities for their implementation. Planning thus precedes all
efforts and action, as it is the plans and programmers that determine the kind of decisions and
activities required for the attainment of the desired goals. It lies at the basis of all other
managerial functions including organizing, staffing, directing and controlling. In the absence of
planning, it will be impossible to decide what activities are required, how they should be
combined into jobs and departments, who will be responsible for what kind of decisions and
actions, and how various decisions and activities are to be coordinated. And, in the absence of
organizing involving the above managerial activities, staffing cannot proceed, and directing
cannot be exercised. Planning is also an essential prerequisite for the performance of control
function, as it provides criteria for evaluating performance. Planning thus precedes all
managerial functions.

DEFINITION OF PLANNING

Planning is the process of deciding in advance what is to be done, who is to do it, how it is to be
done and when it is to be done. It is the process of determining a course of action, so as to
achieve the desired results. It helps to bridge the gap from where we are, to where we want to go.
It makes it possible for things to occur which would not other wise happen. Planning is a higher
order mental process requiring the use of intellectual faculties, imagination, foresight and sound
judgment. According to Koontz, O'Donnell and Weihrich, "Planning is an intellectually

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demanding process; it requires the conscious determination of courses of action and the basing of
decisions on purpose, knowledge and considered estimates". Planning is a process which
involves anticipation of future course of events and deciding the best course of action. It is a
process of thinking before doing. To plan is to produce a scheme for future action; to bring about
specified results, at specified cost, in a specified period of time. It is deliberate attempt to
influence, exploit, bring about, and control the nature, direction, extent, speed and effects of
change. It may even attempt deliberately to create change, remembering always that change (like
decision) in any one sector will in the same way affect other sectors.
Planning is a deliberate and conscious effort done to formulate the design and orderly sequence
actions through which it is expected to reach the objectives. Planning is a systematic attempt to
decide a particular course of action for the future, it leads to determination of objectives of the
group activity and the steps necessary to achieve them. Thus, it can be said that planning is the
selecting and relating of facts and the making and using of assumptions regarding the future in
the visualization and formulation of proposed activities believed necessary to achieve desired
results.
Planning is thus deciding in advance the future state of business of an enterprise, and the means
of attaining it. Its elements are :
1. What will be done – what are the objectives of business in the short and in the long run?
2. What resources will be required – This involves estimation of the available and potential
resources, estimation of resources required for the achievement of objectives, and filling the gap
between the two, if any.
3. How it will be done – This involves two things :(i) determination of tasks, activities, projects,
programmes, etc., required for the attainment of objectives, and (ii) formulation of strategies,
policies, procedures, methods, standard and budgets for the above purpose.
4. Who will do it – It involves assignment of responsibilities to various managers relating to
contributions they are expected to make for the attainment of enterprise objectives. This is
preceded by the breaking down of the total enterprise objectives into segmental objectives,
resulting into divisional, departmental, sectional and individual objectives.
5. When it will be done – It involves determination of the timing and sequence, if any, for the
performance of various activities and execution of various projects and their parts.

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Planning – is the dynamic process of making decisions today about future actions; and it is a
selection or choice among alternatives as to: What missions or objectives be achieved, What
actions should be taken, What organizational positions be assigned, How the end can be
achieved, When to achieve it, Who is to do it, Where to

Planning is a process of deciding what to do and how to do it before action is required. Planning
involves selecting missions and objectives and the actions to achieve to them; it requires
decision-making, i.e., choosing from among alternative future courses of actions. Managers who
develop plans but do not commit themselves to action are simply wasting time. The outcome of
the planning function is a plan, a written document that specifies the courses of action a firm will
take.

Nature of planning

Discussing the following points can highlight the nature of planning.

1.The contribution of planning to purpose and objectives

Every organization is established (exists) for the accomplishment of group purpose or objective.
So, the purpose of any plan and its derivatives or supporting plans is to facilitate the
accomplishment of organizational objectives.

2. The primacy of planning

All the five managerial functions - planning, organizing, staffing, directing and controlling- are
designed to support the accomplishment of organizational objectives. However, planning
precedes the execution of all other managerial functions, because all other managerial functions
must be planned if they are to be effective. This does not mean that planning is the most
important of all other managerial functions, because to be important or useful all other functions
have to accompany it.

Although in practice all the functions mesh as a system of action, planning is unique in that it
involves establishing the objectives necessary for all group effort. The entire gist of initiating,
exercising, and activating the managerial functions of organizing, staffing, directing and
controlling is to bring the objectives formulated during planning into fruition. In fact, the concept

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of especially control would be unthinkable without planning because any attempt to control
without plans is meaningless, since there is no way for people to tell whether they are going
where they want to go (the result of the task of control) unless they first know where they want
to go (part of task of planning). Plans thus furnish the standards of control. Since planning and
controlling are so much inseparable, they are treated as the Siamese twins of management.

3.Planning concerns all Managers It is the responsibility of every manager to set his goals and
operating plans. In doing so, he formulates his goals and plans within the framework of the goals
and plans of his superior. Thus, planning is not the responsibility of the top management or the
staff of planning department only; all those who are responsible for the achievement of results,
have an obligation to plan into the future. However, managers at higher levels, being responsible
for a relatively larger unit of the enterprise, devote a larger part of their time to planning, and the
time span of their plans also tends to be longer than that of managers at lower levels. It shows
that planning acquires greater importance and tends to the longer in the future at higher than at
lower management levels.

4. Planning and information; Basically no plan exists without information. To plan managers
have to gather relevant information from around the environment. Information is one of the
valuable resources for planning to exist.

5. Planning is a continuous process :Planning deals with the future and the future is full of
uncertainties. Hence, planning is subject to revision. It needs frequent revision in response to
changes in the internal and external environments of the organization. Therefore, so for as the
organization is in operation, planning is in continuous process. The more continuous the
planning is, the higher its efficiency is.

6. Planning is a means to an end :Planning is not an end by itself. It is a means to an end

(meeting objectives). Planning is an instrument that pushes people towards the achievement of
objectives.

7. Plans are arranged in a hierarchy; Plans are first set for the entire organization. The
corporate plan then provides the framework for the formulation of divisional, departmental, and
sectional goals. Each of these organizational components sets its plans, programs, projects,

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budgets, resource requirements, etc. Unit plans are summed up to form sectional plans and these
in turn form departmental plans. Finally, the different divisional plans when summarized at
corporate level, form corporate plan.

Importance of planning

1. It provides direction and sense of purpose

It is through planning that we can establish our objectives. Plans focus attention on sepicifc
targets and direct employees effort toward important outcomes. Once organizations known what
they can do and can't do over the future, they began to set objectives based on their capacity and
the order of activities needed to accomplish their objectives. It provides direction and a common
sense of purpose. This shared purpose enables both employees and managers to coordinate,
unite, and guide their actions.

2. It reduces uncertainties and anticipates the future/ preparing for change

Planning is based on systematic and careful forecasts of future states of the economy, markets,
technology, etc to reduce uncertainties to the extent they occur according to expectation. Thus, it
is while planning that the manager should consider the potential areas for changes in the future;
rather than merely reacting to it. Managers should cope with changes in their own organizations
and functions in their environment through planning. Anticipating and preparing for possible
future changes enables managers to control their environment. In so doing, planning answers
“what-if” questions. In planning, managers develop several "what if" questions in order to
reduce the risk of unpredictable future, so far as we plan for the future. By asking what if
questions managers develop alternatives.

3. It provides basis for controlling; Standards /controlling mechanisms/ are developed during
planning. It specifies what is to be accomplished and provides a standard for measuring
progress.

4. It forces managers to see the organization as a system; While planning managers have to
consider parts because the plan of one part (department) affects the operation of the whole
organization so far as parts of an organization are interdependent.

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5. It promotes efficiency: Planning provides the opportunity for a greater utilization of the
available organizational resources - because in planning we determine how many resources are
necessary to reach the goals, and how to use these resources.

6. It provides the base for cooperative and coordinated efforts; Management exists because the
work of individuals and groups in organizations must be coordinated, and planning is one
important technique for achieving coordinated effort. Planning provides the basis for
organized and coordinated effort by defining the objectives of the organization and the means
for their achievement.

7. Developing managers; The act of planning involves high level of intellectual activity. Those
who plan must be able to deal with abstract and uncertain ideas and information. Planners
must think systematically about the present and the future. Through planning, the future state
of the organization can be improved if its managers take an active role in moving the
organization toward that future. Planning then implies that managers should be proactive and
make things happen rather than reactive and let things happen. Through act of planning,
managers not only develop their ability to think futuristically but, to the extent that their plans
are effective, their motivation to plan is reinforced. Also, the act of planning sharpens
manager's ability to think as they consider abstract ideas and possibilities for the future. Thus,
both the result and the act of planning benefit both the organization and its managers.

8. It provides guideline for decision making

Decisions in an organization will be made in alignment with the plans and in accordance with
desired outcomes. Managers make decisions on problems of recurring nature based on strategies
and policies of the organization. Through specifying the actions necessary to accomplish the
goals of the organization, planning serves as a framework for decision-making. It forces
managers to make analytical thinking and evaluate alternatives through improved decisions.

Limitation of planning

a.Planning is risky; This is because of uncertainties in the future and absence of accurate and
adequate data.

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b.It is a difficult and complicated task; Planning involves complex and interdependent
decisions. Thus requires patience and commitment from those who are involved in the
planning process. In addition to this, rapid changes in technology and customers‟ tastes and
preferences will also make planning difficult and exceptionally complex.

c. It is expensive and time consuming; Planning requires financial, physical, human, and time
resources. The collection of the necessary data from various sources, the analysis, organizing
and interpreting data consume time and requires a huge amount of financial outlay.

d. It is affected by external factors; External factors can put strain on the success of planning.
These factors could be external impositions, government intervention, natural calamities,
import-export policies, taxation and labor laws that can limit the success of planning.

2.2. Types of plans

Plans can be classified on different bases or dimensions. These are:

- Scope/breadth dimension,

- Time dimension, and

- Use/repetitiveness

i. Scope/Breadth Dimension

Scope refers to the comprehensiveness of the plan, or it refers to the level of management where
plans are formulated. This dimension creates hierarchy of plans. Based on scope/breadth we can
classify plans into: Strategic, Tactical and Operational.

Strategic Plan: is organization wide plan that is formulated or developed by top-level

management in consultation with the board of directors and middle level management. It applies
to the entire organization.

- Looks ahead over the next two, three, five or more years.

- Develops the direction for the entire organization.

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 - Is primarily concerned with solving long-term problems associated with external
environmental influences.

- Establishes overall objectives and positions for an organization in terms of its environment.

The following are distinguishing characteristics of strategic plan.

1. It requires looking outside the organization for threats and opportunities.

2. It requires looking inside the organization for strengths and weaknesses

3. It takes a longer view, i.e. it covers a relatively long time horizon > 5 years.

4. It tends to be top management responsibility, but it reflects a mentality useful at

all levels.

5. It is expressed in relatively general non-specific terms.

Strategic plans address such questions as:

- What business are we in?

- What business should we be in?

- Where will we be in ten years if we continue doing what we are now doing?

The difference between firms would like to be (where we want to be) and where it will be if it
does nothing is called the Planning gap. Strategic planning is primarily concerned with closing
that gap.

 The success or failure of an organization depends up on the success or failure of strategic

plans. It makes premises for tactical plans.

Tactical Plan: refers to the implementation of activities and the allocation of resources necessary
for the achievement of the organization‟s objectives.

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- is an intermediate plan that helps to reduce long range planning into intermediate one by
increasing the amount of specificity and making the actions goal oriented. Tactical plans are
specific and more goal oriented than strategic plans. Middle level management in
consultation with lower level management develops them.

- Tactical plans are the means charted to support the implementation of the strategic plans and
achievement of tactical goals. They are concerned with shorter time frames and cover a
narrower scope (narrower range of activities).

- Structures a firm‟s resources to achieve maximum performance.

- Concerned with what the lower level units within each division must do, how they must do it,
and who will have the responsibilities for doing it.

- Tactical plans make premises for operational plans.

- is narrower in scope than strategic plan and wider than operation plan; but more detailed than
strategic plan and less detailed than operational plan

E.g. what is the best pricing policy? Which city or town is suitable for marketing our
products?

Operational Plan: is concerned with the day to day activities of the organization and is made at
the lower level management in consultation with middle level management. Operational plans
spell out specifically what must be accomplished to achieve specific/operational goals. It is
concerned with the efficient, day-to-day use of resources allocated to a department manager‟s
area of responsibility.

- Operational plans have relatively short time frame (< 1 yr). It is the most detailed (more
specific) and narrowest plan compared to the above two; because it is to be implemented day-
to-day.

E.g. –What production technique is best?

- What materials are needed for operation?

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  Unless operational goals are achieved in organizations, tactical and strategic plans will not
be successful and goals at those levels will not be achieved.

ii. Time Dimension

Time dimension refers to the time periods for which the planning is intended. Based on the
length of time a plan covers, we do have three types of plans: Long-range (five years or more),
medium-range (between one and five years) and short-range plans (one year or less).

 Time dimension and scope dimension are the same except the former is about the length
of time that the plan covers and the later about the level of management where the plan is
formulated.

All strategic plans are long-range plans.

All tactical plans are medium-range plans.

All operational plans are short-range plans.

iii. Use Dimension

Use dimension refers to the extent to which plans will be used on a recurring basis, i.e. based on
how repeatedly/frequently a given plan is used. Based on this dimension we do have two types of
plans: standing plans and single use plans.

Standing Plans: are plans that provide an ongoing guidance for performing recurring activities.

- They are plans which are formulated to be used again and again for the day-to-day operation
of the organization. That is, repetitive situations or actions require the development of such
plans. They become necessary when the same kinds of actions are to be taken over and over
again. Standing plans become valuable under relatively stable situations.

Once established, standing plans allow managers to conserve time used for planning and
decision-making because similar situations are handled in a predetermined, consistent manner.

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 E.g. A bank can more easily approve or reject loan requests if criteria are established in advance
to evaluate credit ratings, collateral assets, and related applicant information.

The major types of standing plans are policies, rules and procedures.

a. Policies: is a general guide that specifies the broad parameters within which organization
members are expected to operate in pursuit of organizational goals.

- Policies are general statements or understandings which guide or channel thinking and actions in
decision-making to achieve organizational objectives.

Not all policies are “statements”, they are often merely implied from the actions of managers.

Polies have the following characteristics :

1.Policies define an area within which a decision is to be made and ensure that the decision
will be consistent with and contribute to an objective.

2.Policies help to decide issues before they become problems; make it unnecessary to analyze
the same situation every time it comes up and unify other plans.

3.Policies tell us what to do in a general sort of way.

4.Policies provide discretion within limits since they are guides to decision-making. Policy is
a means of encouraging discretion and initiative, but within limits. The amount of freedom
will naturally depend up on the policy and in turn will reflect position and authority in the
organization.

5.Policies must be flexible.

 Policies are usually established formally and deliberately by top managers of the
organization. They can also emerge informally and at lower levels in the organization from a
seemingly consistent set of decisions on the same subject made over a period of time.

Policies are established at the top because:

a. They feel it will improve the effectiveness of an organization.

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 b. They want some aspect of the organization to reflect their personal values (E.g.
Dress codes)

c. They need to clear up some conflict or confusion that has occurred at a lower
level in the organization.

Examples of policy:

1. Except for token gifts of purely nominal or advertising value, no employee shall accept any
gift from any supplier at any time.

2. Hiring university trained engineers

3. To promote from within

4. We accept returned merchandise

b. Rules: spell out specific required action or non-actions, i.e., actions that must be or must not
be taken, allowing no discretion, in a given situation.

E.g. No smoking, cheating is prohibited.

 A rule is an ongoing, specific plan for controlling human behavior and conduct at work.

 The purpose of policies is to guide decision-making by marking off areas in which managers
can use their discretion. Although rules also serve as guides, they allow no discretion in their
application.

 Rules are the most explicit of standing plans and are not guides for thinking or decision-
making. Rather, they are substitutes for them. The only choice a rule leaves is whether or not
to apply it to a particular set of circumstances.

c. Procedures: are statements that detail the exact manner in which certain activities must be
accomplished. They put the precise order of activities to be carried out to do a task and thus,
procedures are chronological sequences of required actions. They provide detailed step-by-step

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instructions as to what should be done. Procedures prescribe exactly what actions are to be taken
in a specific situation and specify the chronological sequence of activities. For example, material
procurement, university admission, bidding, etc.

When we compare the above three, policies, procedures and rules, we can understand that all are
alike in the sense that they are directives to guide people‟s behavior to the desired ends and they
are plans which are to be followed in the future. Conversely, procedures and rules are different
from policies in that the formers are guides to actions while the latter are guides to thinking. So,
procedures and rules render no freedom and hence should be used when we want to discourage
initiative or repress thinking. But, policies must permit freedom within limits and hence are used
when people‟s involvement, participation or initiative is desired.

Though both rules and procedures repress thinking, they are different. Unlike procedures, rules
(1) guide actions without specifying a time sequence (2) spell out that a certain action must or
must not be taken. Procedures, however, specify a time sequence. In fact a procedure may be
looked upon as a sequence of rules. A rule, however, may or may not be part of a procedure.

Single use plans: are plans aimed at achieving a specific goal that, once reached, will most likely
not recur in the future and dissolved when these have been accomplished.

- Are designed to accomplish a specific objective usually in a relatively shorter period of time
and it is non repetitive.

- They are detailed courses of action that probably will not be repeated in the same form in the
future.

The major types of single use plans are programs, projects, and budgets.

E.g. A firm planning to build a new warehouse-location, construction costs, labor

availability, zoning restrictions.

a. Programs: is a comprehensive plan that coordinates a complex set of activities related to a

major non-recurring goal.

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 - Are a complex of goals, policies, procedures, rules, task assignments, steps to be taken,
resources to be employed and other elements necessary to carryout a given course of action

- Single use plans may use standing plans and other single use plans to be effective.

Single use plan = Standing plans + Single use plans

A program may be as large in scope as placing a person on the moon or as comparatively

small as improving the reading level of fourth grade students in a school district. Whatever
its scope, it will specify many activities and allocations of resources within an overall scheme
that may include such other single use plans as projects and budgets. A program may be
repeated with modification but not as it is.

b. Projects: is a plan that coordinates a set of limited scope activities that do not need to be
divided into several major projects in order to reach a major non-recurring goal.

- Projects are the smaller and separate portions of programs. Each project has limited scope
and distinct directives concerning assignments and time. Each project will become the
responsibility of designated personnel who will be given specific resources and deadlines.

E.g. Building a warehouse can be taken as a program. In the warehouse example, typical
projects might include the preparation of layout drawings, a report on labor availability,
and recommendations for transferring stock from existing facilities to the new
installation.

c. Budgets: are statements of expected results expressed in numerical terms.

- Are statements of financial resources set aside for specific activities in a given period of
time.

- Budget is a single use plan that commits resources to an activity over a given period. It may
be expressed in Birr, labor hours, units of product, machine hrs, or any other numerically
measurable term.

- It may be referred to as a “numberize” program.

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 Budgets are also control devices. However, making a budget is clearly planning.

The planning process

Like other managerial activities planning has its own processes or series of steps. These steps are
interrelated and there is no rigid boundary between or among these steps, and one is the base for
the other.

1. Establishing objectives

As objectives provide the direction for all other managerial functions, especially planning,
objective setting is an important first step in the planning process. Objectives specify the
expected results and indicate the end points of what is to be done, where the primary emphasis is
t be placed, and what is to be accomplished by the network of strategies, policies, procedures,
rules, budgets, and programs. They provide the direction necessary for achievement and without
them there is little to keep a manager from simply wandering in all directions. Objectives are
then, the „guiding light‟ for the entire management process.

Objective setting is a three steps process, which involves assessing the present situation,
anticipating future conditions, and then setting the objectives. It is only after the managers have
at least the rudimentary knowledge about their capabilities and available opportunities that
objective setting does make sense.

Organizations do not have one set of objectives, which each manager attempts to achieve.
Rather, setting objectives involves establishing objectives for the entire organization, each
subordinate work unit, and the long range as well as the short range. The hierarchy of objectives
starts at the top of the organization with overall organizational objectives and proceeds
downwards with narrower and more specific objectives for each level managers, derived from
the objectives at the level

Objectives developed by organizational levels and peer managers should be compatible with one
another. Top-level management should set the stage for goal setting by lower level management,
thereby ensuring maximum use of resources. Enterprise objectives give direction to the major

15
plans which define the objective of every major department. Major department objectives, in
turn, control the objectives of subordinate departments and so down the line.

2. Developing premises

Planning premises are assumptions about the environment within which the plan is to be carried
out. Once objectives are established managers have to investigate the company's environment to
know factors that facilitate or block the attainment of these objectives. This involves examining
the external and internal factors which affect the performance of the organization: the external
environment (for Treats and Opportunities) through PEST analysis and internal environment (for
Strengths and Weaknesses) through Self-Audit.

 Strengths are internal competencies possessed by the organization in comparison with the
competitors. These include structure and policies of the organization, location, financial
soundness, knowledge of personnel, qualities of facilities, and so on.

 Weaknesses are attributes of the organization which tend to decrease its competence in
comparison to its competitors.

 Threat is reasonably probable events which if it were to occur, would produce significant
damage to the organization.

 Opportunity is a combination of circumstances, time, and place which if accompanied by a

certain course of action on the part of the organization, is likely to produce significant
benefits.

The key element of planning at this stage is forecasting. It is based on the forecasts made in
different areas that premises are made.

Because the future is so complex, it would not be profitable or realistic to make assumptions
about every detail of the future environment of a plan. Therefore, premises are, as a practical
matter, limited to assumptions that are critical, or strategic, to a plan, that is, those that most
influence its operation.

3. Determining alternative courses of actions

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Alternatives are courses of actions that are available to a manager to reach a goal. In developing
alternatives, a manager should try to create as many roads to the objective as possible. Usually
the most common problem is not finding alternatives but reducing number of alternatives so that
the most promising may be analyzed.

4. Evaluating alternative courses of action

Having sought out alternative courses, managers evaluate the benefits, costs and effects of
alternative courses in light of their weight to goals and premises. Because there are so many
alternative courses in most situations and there are numerous variables and limitations to be
considered, evaluation can be exceedingly difficult. This is a step in planning process that
operations research and mathematical as well as computing techniques have their primary
application to the field of management.

5. Selecting a course of action

This is the point at which the plan to be adopted is chosen or selected. It is the real point of
decision-making. The analysis of each alternative‟s disadvantages, benefits, costs and effects
should result in determining one course of action that appears better than the others. If no one
alternative emerges as clearly the best, consideration should be given to combining parts or the
entire content of two or more alternatives. Whatever the course chosen, it should be one that
gives you the most advantages and the fewest serious disadvantages.

6. Formulating derivative plans

At step 5 planning is ended. Formulating derivative plans means formulating other plans based
on one major plan.

7. Numberizing plans by budgeting

Numberizing plans is converting them into budgets. Plans will have meaning when they are
changed into numbers. Budgeting is the means of adding various plans together and set
important standards against which planning process can be measured.

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8. Implementing the plan

After the optimum alternative has been selected, the manager needs to develop an action plan to
implement it. This is a step where by the entire organization will be in motion or real operation.
All the planning in the world will not help an organization realize objectives if plans cannot be
implemented. Implementation involves determining who will be involved, what resources will be
assigned, how the plan will be evaluated, and the reporting procedure.

9. Controlling and evaluating the results

Once the plan is implemented, the manager must monitor the progress that is being made,
evaluate the reported results, and make any modifications necessary. The environment that a plan
is constructed in is constantly changing, so the plans may have to be modified. Or modification
may be needed because a plan was not quite “perfect” when it was implemented. Hence,
managers need to make certain that the plan is going according to expectations and making
necessary adjustments.

2.4 Objectives

Types of objectives in organizations

Objectives can be separated in to two categories: Organizational and individual.

Organizational objectives are the formal targets of the organization and are set to help the
organization accomplish its purpose. They concern such areas as organizational efficiency,
productivity, and profit maximization.

Individual objectives, which also exist within organizations, are the personal goals each
organization member would like to reach through activity within the organization. These

Objectives might include high salary, personal growth and development, peer recognition, and
societal recognition.

A manager problem arises when organizational objectives and individual objectives are not
compatible. For example, a professor may have an individual goal of working at a university

18
primarily to gain peer recognition. Perhaps she pursues this recognition primarily by channeling
most of her energies it to research. This professor‟s individual objective could make a significant
contribution to the attainment of organizational objectives if she were at a university whose
organizational objectives emphasized research. Her individual objective might contribute little or
nothing to organizational goal attainment, however, if she were employed at a teaching oriented
university. Rather than improving her general teaching ability and the quality of her courses, as
the university goals would suggest, she would be secluded in the library writing research articles.

Goals and objectives commonly used interchangeably. They are closely related to planning.
Goals and objectives represent the end point towards which all management functions are aimed.
And also they are the desired future outcomes/ state end results. i.e. they represent not only the
end point of planning but also the end towards which organizing, staffing, leading and
controlling are aimed.

They specify the expected results and indicate the end point of what is to be done; where the
primary emphasis is to be placed and what is to be accomplished by the network of strategies,
policies, procedures, rules, budgets and programs.

Goals and objectives are the important ends towards which organizational and individual
activities are directed

Purposes of goals/Benefits

Goals serve four important purposes.

 To provide guideline and direction - They provide guidance and a unified direction for
people in the organization. They can help everyone understand where the organization is
going and why getting there is important

 To facilitate planning - Goal setting practices strongly affect other aspects of planning;
and good planning facilitates future goal setting. Goal settings & developing plans to
reach the goals should be seen as complimentary activities.

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  To inspire motivation and commitment - Goals can serve as sources of motivation to
employees of the organization. They motivate peoples to work harder if attaining the goal
is likely to result in rewards.

 To promote evaluation and control - Goals provide an effective mechanism for

evaluation and control. This means that performances can be assessed in the future in
terms of how successfully today‟s goals are accomplished.

The difference between goals and objectives

Although goals and objectives commonly used interchangeably, they are differentiated as
follows.

 Goals are the refinements of an organization‟s mission where as objectives state end-
results and they are more specific and need to be supported by sub-objectives.

 Goals are broad where as objectives are narrow.

 Goals are general intentions; where as objectives are precise.

 Goals are intangible; where as objectives are tangible.

 Goals are abstract; where as objectives are concrete.

 Goals can't be validated as is; where as objectives can be validated.

 Goals can be likened to a mission and to complete the mission one has to complete
certain tasks.

 Objectives make up a goal and they are SMART (specific; measurable; attainable/
achievable; relevant and time bound)

Example:

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Goal: To speak English fluently
Objective: Take two college English courses in three months.
Objective: Work with a language tutor once a week

Hierarchy of objectives/ goals

Organizations establish different kinds of goals. Goals vary by level, area, and time frames.
Goals/ Objectives form a hierarchy reaching from corporate purpose & mission down to
individual goals as well as networks within an organization. Hierarchy of objectives is a series of
objectives linked to one another.

Top level

Middle level

Lower level

(Mission/ purpose; overall objectives; more specific overall objectives; division objectives;
department/ unit objectives individual)

Fig: The relationships of objectives and organizational hierarchy

Overall objectives need to be supported by sub-objectives. Each higher level objective is

supported by one or more lower level ones. Managers at different level are concerned with
different kinds of objectives.

o The top levels very much involve in determining the purpose/ mission & the overall
objectives of the firm as well as the more specific overall objectives in the KRAs.

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 o Middle levels are involved in setting of KRA objectives, division & department
objectives.

o Lower levels primarily concerned in setting objectives of department & units as well as
of their subordinates.

o Individual objectives consisting of performances & development of goals. Managers at

the top level should set objectives for their performance & development.

Key result areas (KRAs) are areas where performances are essential for the success of the
organization. They are operative objectives

Organizations can use to set objectives top–down approach or bottom–up approach. In top–down
approach the upper–level managers determine the objectives for subordinates where as in
bottom–up approach the subordinates initiated the setting of objectives for their position and
present them to their superiors.

Both approaches are important, but the emphasis should depend on the situation, i.e. the size of
the organization; the organizational culture; the leadership style and the urgency of the plan.

Management by objectives (MBO)

Definitions & applications of MBO differ widely. Some think it as an appraisal tool; others see it
as motivational technique; and others consider it as planning & controlling device.

MBO is a system of managing or a special planning technique. It is a comprehensive managerial

system that integrate many key managerial activities in a systematic manner and that consciously
directed toward the efficient & effective achievement of organizational & individual objectives.
MBO is the philosophy of management and an approach to planning. It emphasizes that the
management and the subordinates work together in identifying and setting up of objectives and
make plans together in order to achieve these objectives. And also it is based on the assumption
that involvement leads to commitment

MBO begins when employees with their managers establish a set of goals that serves as a basis
for the development of their work plan. Ones mutually agreeable goals are determined criteria

22
for assessing work performance are identified. Next/ then employees formulate & implement the
action plans necessary to achieve their goals & review their progress with their managers
periodically. At the end, the performance of the employees is compared with the goals
established at the beginning of the period. Performance rewards should be based on the goals
achieved.

MBO programs provide a foundation for a more integrated & system oriented approach to
planning and enhances communication between employees & their managers. And MBO
approach leads to a more participatory work environment and employees have a voice & can
have inputs into their jobs how it should be designed and what their performance targets should
be.

2.5 Planning techniques

Forecasting is one of the tools for planning and decision making. To plan, managers must make
assumptions about future events. Forecasting is the process of developing assumptions or
premises about the future that managers/ planners can use in planning and decision making.

Forecasting techniques

To carry out various kinds of forecasting, managers use different techniques. The common
models are the quantitative forecasting techniques and the qualitative forecasting techniques

 The quantitative forecasting techniques

They use mathematical analysis. The most quantitative techniques are Time-series analysis and
casual modeling.

 Time-series analysis - Time-series is analysis forecasting technique that extends past

information into the future through calculation of a best fit line. Time –series analysis
assumes that the past is the past is a good predictor of the future; it is most useful when
the manager has a lot of historical data are available, trends are stable, and patterns are
apparent.

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  Casual modeling - Casual modeling is a group of different techniques that determine
casual relationships between different variables. The common casual modeling
forecasting techniques are regression modes; econometric models and economic
indicators.

o Regression models are equations that use one set of variable to predict another variable, i.e.
o Econometric models are casual models that predict major economic shifts and the potential
impact of those shifts on the organization.
o Economic indicators are a key population statistic or indexes that reflect the economic well-
being of a population.

The qualitative forecasting techniques

Organizations also use several qualitative techniques to develop their forecasts. The qualitative
forecasting techniques are one of the several techniques that rely on individual or group
judgments or opinions rather than on mathematical analysis. Some of the widely used qualitative
approaches to forecasting are

o The Delphi method/ procedure - a mechanism for managing group decision making
activities; can also be used to develop forecast.

o The jury-of-executive/ expert-opinion approach - involves using the basic Delphi process
with members of top management. In this instant top management serves as a collection of
experts asked to make prediction about something.

o The sales-force-composition method - is the pooling of the predictions and opinions of

experienced salespeople. Their experience enables to forecast quite accurately what various
customers will do.

 The customer evaluation/expectation - Involves a survey of customers as to their future

needs. It is collecting data from costumers of the organization. The customers provide
estimate of their future needs for the goods and services that the organization supplies,
and then the managers combine, interpret and act on their information.

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 Chapter Three
Decision making

3.1.Meaning of decision making

Decision-making is a rational choice or selection of one alternative from among a set of

alternatives; i.e. it is the act of choosing one alternative from among a set of
alternatives.Decision-making is the management function that consists of choosing one course
of action from all the available alternatives.

Decision-making is part of every aspect of the manager‟s duties, which include planning,
organizing, staffing, leading and controlling, i.e. decision-making is universal. In all
managerial functions decision-making is involved. All managerial functions have to be
decided. For example, managers can formulate planning objectives only after making
decisions about the organization‟s basic mission.
Managers at all levels are engaged in decision making and make big & small decisions daily.
They make decisions while

 Planning a budget
 organizing a work schedule
 Interviewing a prospective employee
 Watching a worker on the assembly line
 Making adjustment to projects, etc.
Even though in all managerial functions decision-making is involved, the critical decision-
making is during planning because planning identifies the objectives of the organization i.e.
decision must be made to identify the objectives/missions of an organization. In the planning
process, managers decide such matters as what goals or opportunities their organization will
pursue, what resources will be used, who will perform each required task etc. The entire
planning process involves managers in a continual series of decision-making situations.

Decision-making has three elements (parts)

1
 1. When managers make decisions; they are choosing or selecting from among
alternatives.
2. When managers make decisions, they have available alternatives. When there are no
alternatives, there is no decision-making, rather it become mandatory.
3. When managers make decisions, they have purpose in mind. The purpose in mind is
organizational objectives.
3.2. RATIONAL DECISION-MAKING PROCESS
Decisions are organizational responses to problems. Every decision is the outcome of a
dynamic process that is influenced by multitude of forces. So decision-making has its own
processes / series of steps. The process is a sequential process rather then a series of steps.

1. Identifying problems
A necessary condition for a decision to exist is a problem - the discrepancy between an actual
and desired state; a gap between where one is and where one wants to be. If problems do not
exist, there will be no need for decisions; i.e. problems are prerequisites for decisions. How
critical a problem for the organization is measured by the gap between levels of performance
specified in the organization‟s goals and objectives and the level of performance attained; i.e.
it is measured by the gap between level of performance specified (standards set) and level of
performance attained. The problem is very critical when the gap between the standard set and
actual performance attained is very high. To locate problems, managers rely on several
different indicators:
- Deviations from past performance. A sudden change in some established pattern of
performance often indicates that a problem has developed. When employee turnover
increases, sales decline, selling expenses increase, or more defective units are produced, a
problem usually exists.
- Deviation from plan. When results do not meet planned objectives, a problem is likely.
For example, a new product fails to meet its market share objective, profit levels are lower
than planned, the production department is exceeding its budgets. These occurrences
signal that some plan is off course.
- Outside criticism. The actions of outsiders may indicate problems. Customers may be
dissatisfied with a new product or with their delivery schedules; a labor union may present

2
 a grievance; investment firms may not recommend the organization as a good investment
opportunity; alumni may withdraw their support from an athletic program.

Decision makers face three types of problems:

 A crisis problem is a serious difficulty requiring immediate action. An example of a crisis
is a severe cash flow deficiency that has a high potential of evolving into serious losses, and
a customer protest against the quality of a product.
 A non-crisis problem is an issue that requires resolutions but does not simultaneously have
the importance and immediacy characteristics of a crisis. Many of the decisions that
managers make center on non-crisis problems. Example of such problems is a factory that
needs to be brought into conformity with new state antipollution standards during the next
three years and an employee who frequently is late for work.
 An opportunity problem is a situation that offers strong potential for significant
organizational gain if appropriate actions are taken. Opportunities typically involve new
ideas and novel directions that could be used, rather than difficulties that must be resolved.
Non-innovative managers tend to focus on problems rather than opportunities.

Managers once they have identified problems, they have to try to diagnose the cause of the
problem. Causes unlike symptoms are seldom apparent.

This step has three general stages: scanning, categorization, and diagnosis.
Scanning stage: involves monitoring the work situation for changing circumstances that may
signal the emergence of a problem. At this point the manager may be only vaguely aware that
an environmental change could lead to a problem or that an existing situation constitutes a
problem.
Categorization stage: entailsattempting to understand and verify signs that there is some type
of discrepancy between the current state and the desired state. At this point the manager
attempts to categorize the situation as a problem and a no problem, even though it may be
difficult to specify the exact nature of the problem, if one exists.
Diagnosis stage: involves gathering additional information and specifying both the nature
and the causes of the problem. Without appropriate diagnosis, it is difficult to experience

3
success in the rest of the decision-making process. At the diagnosis stage, the problem should
be stated in terms of the discrepancy between current conditions and what is desired; the
cause of the discrepancy should be specified.

2. Developing Alternatives
Before a decision is made feasible alternatives should be developed. This is a search process
in which relevant internal and external environment of the organization are investigated to
provide information that can be developed into possible alternatives. At this point it is
necessary to list as many possible alternatives solutions to the problem as you can. No major
decision should be made until several alternative solutions have been developed. Decision-
making at this stage requires finding creative and imaginative alternatives using full mental
faculty. The manager needs help in this situation through brainstorming or Delphi technique.

3. Evaluating Alternatives
Once managers have developed a set of alternatives, they must evaluate them to see how
effective each would be. Each alternative must be judged in light of the goals and resources of
the organization and how well the alternative will help solve the problem. In addition, each
alternative must be judged in terms of its consequences for the organization. Will any
problems arise when a particular course of action is followed? Such factors as worker‟s
willingness
4. Choosing an Alternative
Based on the evaluation made managers are select the best alternative. In trying to select an
alternative or combination of alternatives, managers find a solution that appears to offer the
fewest serious disadvantages and the most advantages. The purpose of selecting an alternative
is to solve the problem so as to achieve a predetermined objective. Managers should take care
not to solve one problem and create another with their choice.

A decision is not an end by itself but only a means to an end. This means the factors that lead
to implementation and follow –up should follow solution selection.

5. Implementing and Monitoring the Chosen Solution

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For the entire decision-making process to be successful, considerable thought must be given
to implementing and monitoring the chosen solution. It is possible to make a "good' decision
in terms of the first five steps and still have the process fail because of difficulties at this final
step.

Implementing the Solution: A decision that is not implemented is little more than an
abstraction. In other words, any decision must be effectively implemented to achieve the
objectives for which it was made. Implementing a decision involves more than giving orders.
Resources must be acquired and allocated. Decisions are not ends by themselves they are
means to an end; so proper implementation is necessary to achieve that end.

Monitoring the solution:Monitoring is necessary to ensure that things are progressing as

planned and that the problem that triggered the decision process has been resolved. Effective
management involves periodic measurements of results. Actual results are compared with
planned results (the objective); if deviations exist, changes must be made. Here again we see
the importance of measurable objectives. If such objectives do not exist, then there is no way
to judge performance. If actual results do not much planned results, then the changes must be
made in the solution chosen, in its implementation, or in the original objective if it deemed
unattainable. The various actions taken to implement a decision must be monitored. The more
important the problem, the greater the effort that needs to be expended on appropriate follow
up mechanisms. Are things working according to plan? What is happening in the internal and
external environments as a result of the decision? Are subordinates performing according to
expectations? ……. must be closely monitored.

3.2.1 Decision-Making Conditions

When managers make decisions, the amount of information available to them or the degree of
knowledge they have about the likelihood of the occurrence of each alternative vary from
managers to managers or/and from situation to situation. To put it in other way, decisions are
made under three basic conditions. These are condition of certainty, condition of risk, and
condition of uncertainty.

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1.Decision-making under Certainty
When managers know with certainty what their alternatives are and what conditions are
associated with each alternative, a state of certainty exists. Decisions under certainty are those
in which the external conditions are identified and very predictable; i.e. we are reasonably
sure what will happen when we make a decision. The information is available and is
considered to be reliable, and we know the cause and effect relationships. In decision-making
under certainty there is a little ambiguity and relatively low chance of making poor/bad
decisions. Decision-making under certainty seldom occurs, however, because external
conditions seldom are perfectly predictable and because it is impossible to try to account for
all possible influences on any given outcome it is very rare.

2.Decision-making under Risk

A more common decision-making situation is under risk. Under the state of risk, the
availability of each alternative, the likelihood of its occurrence and its potential payoffs and
costs are associated with probability estimates; i.e. decisions under risk are those in which
probabilities can be assigned to the expected outcomes of each alternative. In a risk situation,
managers may have factual information, but it may be incomplete. There is moderate
ambiguity and moderate chance of making bad decision.
E.g. tossing a coin, metrology

3.Decision-making under Uncertainty

Under this condition the decision maker does not know what all the alternatives are, what the
probability of each will occur is or what consequences each is likely to have. This uncertainty
comes from the dynamism of contemporary organizations and their environment. Big multi-
national corporations assume these kinds of decisions. Decision-making under uncertainty is
the most ambiguous and there is high chance of making poor decisions. In decision-making
under uncertainty, probabilities cannot be assigned to surrounding conditions such as
competition, government regulations, technological advances, the overall economy, etc.
Uncertainty is associated with the consequences of alternatives, not the alternatives
themselves. The decision-making is like being a pioneer. Reliance on experience, judgment,
and other people's experiences can assist the manager is assessing the value of alternatives.

6
E.g.Innovation of new machine, journey of discoverers.

3.3.Types of Decisions
Decisions can be classified in to: programmed and non programmed.
1. Programmed Decisions
Programmed decisions are those made in routine, repetitive, well-structured situations through
the use of predetermined decision rules. The decision rules may be based on habit,
computational techniques, or established policies and procedures. Such rules usually stem
from prior experience or technical knowledge about what works in the particular type of
situation. Most of the decisions made by first line managers and many of those made by
middle managers are the programmed type, but very few of the decisions made by top-level
managers are the programmed type. Managers can usually handle programmed decisions
through rules, procedures, and policies.
E.g. Establishing a re-order point, Decide if students meet graduation requirements,
Determination of employee pay rates
2. Non-programmed Decisions
Non-programmed decisions are used to solve non-recurring, novel, and unstructured
problems. No well-established procedure exists for handling them, because it has not occurred
before managers do not have experience to draw up on, or problems are complex or
completely new. Because of their nature non-programmed decisions usually involve
significant amounts of uncertainty. They are treated through farsightedness. Most of the
highly significant decisions that managers make fall into the non-programmed category. Non-
programmed decisions are commonly found at the middle and top levels of management and
are often related to an organization‟s policy-making activities.
E.g. To add a product to the existing product line, to reorganize a company, to acquire another
firm
Types of Managerial Decisions
Type of Type of Procedures Examples
decisions problem
Programme Repetitive, Rules, Business: processing payroll vouchers
d routine standard College: processing admission applicants

7
 operating Hospital: preparing patient for surgery.
procedures, Government: using state owned motor
policies vehicle.
Non- Complex, Creative Business: introducing a new product.
programme novel problem College: constructing new classroom
d solving facilities
Hospital: reacting to regional disease
epidemic
Government: solving spiraling inflation
problem

In reality most decisions fall between the two; i.e. a continuum of decision situations exists
ranging from those that are highly structured to those that are unstructured. Situations
between the two extremes are partially structured. As the name suggests, in a partially
structured situation, only a part is well structured. Typically, although the manager has a great
deal of data available, the final choice is not obvious. Many intangibles are involved in the
final choice. Therefore, the manager must base the ultimate decision on the data and
supplementary factors, using judgment and experience.
E.g. A hospital wishing to improve patient care may adjust its patient-staff ratio
(programmable situation), reorganize its staff (a non programmable situation).

Why Do Managers Make Poor Decisions?

All managers recognize the importance of making sound decisions. Yet most managers
readily admit having made poor decisions that hurt their company or their own effectiveness.
Why do managers make mistakes? Making the wrong decision can result from any one of
these decision-making errors:
 Lack of adequate time
Waiting until the last minute to make a decision often prevents considering all
alternatives. It also hampers thorough analyses of the alternatives.
 Failure to define goals

8
 Objectives cannot be attained unless they are clearly defined. They should be
explicitly stated so that the manager can see the relationship between a decision and a
desired result.
 Using unreliable sources of information
A decision is only as good as the information on which it is based. Poor sources of
information always result in poor decisions.
 Fear of consequences
Managers often are reluctant to make bold, comprehensive decisions because they fear
disastrous results. A “play it safe” attitude sometimes limits a manager‟s effectiveness.
 Focusing on symptoms rather than causes
Addressing the symptoms of a problem will not solve it. Taking aspirin for a toothache
may provide temporary relief, but if an abscess causes the pain, the problem will
persist. Business managers too often foul on the results of problems instead of the
causes.
 Reliance on Hunch and Intuition
Intuition, judgment and „feel‟ are important assets to the decision maker. But a
manager who permits intuition to outweigh scientific evidence is likely to make a poor
decision.

Sometimes a manager‟s decision is not exactly “poor”, but it still doesn‟t produce optimal
results. Less optimal decisions can have three causes:

1. Bounded rationality imposes limits on a decision, such as that it should be

economical or logistically practical. This limit serves as a screening device,
eliminating some of the alternatives. The manager must choose from the options
that have filtered through the restrictions. The overall optimal decision may no
longer be a valid option when using this method. The decision maker simply
selects the best alternative, given various specifications that must be met.

2. Sub optimization is a manager‟s tendency to operate solely in the interests of

his/her department rather than in the interests of the company as a whole. In

9
 making a decision, the department manager cannot be so self-centered as to ignore
the effects of the action on other areas. The key is to improve the company‟s
performance, not just the performance of one department.

3. Unforeseen changes in the business environment also cause less than optimal
decisions.

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 CHAPTER FOUR

THE ORGANIZING FUNCTION

4.1 Concept of organizing and organization

In planning, managers set their objectives and determine exactly what to do to attain these objectives. Of
course, no one person can implement all the plans of a modern organization or one person cannot do
everything necessary to meet the goals set forth in those plans. Planning, consequently, requires
organizing the efforts of many people. It forces us to address several basic questions:
 What specific tasks are required to implement our plans?
 How many organizational positions are needed to perform all the required tasks?
 How should these positions be grouped?
 How many layers of management (Organizational levels) are needed to coordinate them?
 How many people should a manager supervise directly?
The answers to these and other questions enable us to create an organizational arrangement, a structure,
for putting plans into action.
Organizing - is a management function that involves arranging human and non-human (physical)
resources to help attain organizational objectives. It is the management function that establishes
relationship between activity and authority. Organizing is the process of identification, classification and
grouping of tasks that are necessary to achieve objectives and assigning of work to individuals and
designing hierarchy of decision making relationship. The end result of an organizing process is an
organization.
Organization - is the total system of social and cultural relationship among peoples who are joined
together to achieve some specific common objectives. It is a whole consisting of unified parts (a system)
acting in harmony to execute tasks to achieve goals effectively and efficiently.
The main objectives of organizing are;
 Determining what kind of activities should be performed to materialize objectives
 Classifying those activities and grouping them based on certain criteria
 Assigning the work to individuals and delegating authority
 Creating hierarchy of decision making
4.2 Types of organization
Organizations can be classified into formal and informal types.

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i. Formal organization
Formal organization is an organization that is deliberately and rationally designed and approved
by management through organizing process to achieve organizational goals/ objectives. It is
planned structure of an organization which is deliberately created to attain desired objectives. It
is a system with well-defined jobs, definite authority, responsibility, and accountability.
Common characteristics of formal organization are
1. Consciously designed
Formal organization are purposefully designed and established to attain certain end results.
2. Based on delegated authority
In a formal organization each employee has delimited authority; therefore there is superior-
subordinate relationship.
3. Organizational chart is drawn: Organizational chart shows jobs & departments, and it is
the most tangible depiction/ picture of an organizational structure.
4. Deliberately impersonal
Positions in an organization are not personal properties. They are always open to some one who
fit the position. People who meet the requirements of the job can fulfill the position.
ii. Informal organization
Informal organization refers to people in-group associations, but these associations are not
specified in the structure of the formal organization. They are not included or established
deliberately/ officially in the formal organization channel but formed adjacent to the formal
organization. They always exist in the formal organization; nothing can destroy them; they
cannot be avoided. They are natural grouping of people in the work situation based on their
behavioral patterns; interests; beliefs; objectives; etc.
No conscious attempt is made to create it. Informal organization may affect formal organizations
positively or negatively. Managers should recognize that it exists in a formal organization; and
should try to use it for the benefit of the formal organization.
Reasons for the formation of informal organization are
1. Mutual benefit
Members of an organization have their own personal interests that tied them to their colleagues
so as to meet these interests. Hence the communality of people’s interest in the formal
organizations leads to the formation of informal organization.

2
2. Friendship
 Members of an organization establish friendship among themselves due to different
reasons. This friendship among the members paves the way for the formation of informal
organization.
3. The need to fulfill social needs
 A need to be the member of a society put the workers in the organization together.
Therefore, one of the mechanisms through which people in the organization meet their
social needs is being the member of informal organization.
4. Physical work condition
 People working in the same unit are closely related. Hence, working in proximity or
together is one of the reasons for the formation of informal organization.
5. Administrative practice
 Some managers encourage while others suppress the formation of informal organization.
Thus the type of management entertained by managers is the result for the establishment
of informal organization.
Characteristics of informal organization
1. Group norms
This is the core behavior among the workers in the informal organization. There are
agreements/ rules and regulations which may not be written that govern the behavior of
members. The members act accordingly without showing any deviation.
2. Group cohesiveness
Members of the informal organizations basically have strong relationships. The more the
group sticks together the more they will be successful in attaining the objectives.
3. Group leadership
Members in the informal organization select someone who is most active among the others as
a leader, and such people are conventional leaders.

4. Communication network
It is also called grapevine. It is the network outside the formal communication channel
established by the organization;.

3
5. Lifespan and purpose
Informal organizations have short life span in comparison with formal organization.
Therefore they cease to exist when the members meet their interests and re-established when
another need arises.
6. Existence of a number of informal organizations in a formal organization
The divergent nature of people’s interest, their feeling, tradition, attitude, etc, lead to the
formation of different informal organizations in a big formal organization
7. Informal organizations gradually can develop into formal organization
Informal organizations gradually can be emerged as formal organization.
Advantages and disadvantages of informal organizations
Advantages
1. They are additional assets for the formal organization.
If informal organizations are properly associated to the formal organization, they are
additional assets for the formal organization because they may come up with
innovative ideas to promote the work of the organizations.
2. They could be useful channels of communication.
In the informal organization, information can be easily and rapidly reach the members
of the organization through their informal ways of communication.
3. They provide satisfaction and stability in the organization
When workers are given opportunity to establish the informal organizations, they
entertain their idea that leads them to be satisfied and stable in the organization.
4. Their existence alerts managers to plan and act accordingly than otherwise.
A manager becomes watchful more than any other time when there are informal
organizations to check whether they are out of line or not. And if the activities seem
against the interest of the formal organization, necessary measures are taken to
normalize or reverse the condition.
5. They inform managers sensitive issues that would be embarrassing if formally
released.
Some information may destruct the normal organizational climate if formally
released. In such cases, informal organizations informally disseminate the

4
 information to the group’s endurance and then the manager also becomes aware of
the consequences if formally communicated.
Disadvantages
1. Resistance to change
There is often a tendency to resist changes.
2. Role conflict
Bothe types of organizations have their own objectives. These objectives will not be
the same and this may arise role conflict in the organization.
3. Rumor
Managers may not equally release information to the members of the organization.
When there is too much secrecy or ambiguous situations informal organizations
disseminate distorted information.
4. Conformity
Some leaders of informal organizations may have hidden agenda or promote
destructive actions, hence such leaders may use the members as an instrumental to
create challenge to the leaders of formal organization.

4.3. Organization chart

The organizing process leads to the creation of organization structure, which defines how tasks
are divided and resources deployed. Organization structure is defined as (1) the set of formal
tasks assigned to individuals and departments; (2) formal reporting relationships, including lines
of authority, decision responsibility, number of hierarchical levels, and span of managers’
control; and (3) the design of systems to ensure effective coordination of employees across
departments.
The set of formal tasks and formal reporting relationships provides a framework for vertical
control of the organization. The characteristics of vertical structure are portrayed in the
organization chart, which is the visual representation of an organization’s structure.

Example: Organization chart for a soda Bottling Plant

President

5
Vice Director Vice Director
4.4 Departmentalization: Meaning and Bases
Departmentalization is the process of grouping/ combining jobs into groups or manageable
units. A manager must have basis for combining jobs. The main bases for departmentalization
are function; location or Geography; product; customer and process.
Hence the types of departmentalization are
1. Functional departmentalization
2. Geographic departmentalization

6
 3. Product departmentalization
4. Customer departmentalization
5. Process departmentalization and
6. Matrix departmentalization
Functional departmentalization
The common form where activities are grouped based on similarity in function or content. It is
grouping jobs according to the functions of an organization. It is common for business firms.
Within each department individuals perform specialized jobs.

General Manager

Marketing Production Finance Personnel R&D

Fig: Functional departmentalization for business firm

 Advantages
o It promotes specialization and organizational efficiency.
o Avoid overlap performing basic businesses
o It provides unity of direction. Among members of the department, there is job
interrelation.
o It facilitates staffing and training. If there are highly qualified staffs in a
department, other workers will be initiated or encouraged to fill the position.
o It promotes communication within departments.
o Create strong team sprit among people working in one department.
 Disadvantages
o It has problems of horizontal coordination, i.e. Lack of understanding of
interrelationship and dependency between all functions
o The tendency of “empire building”. Unhealthy competition will occur between/
among departments.

7
 o It frustrates the development of managerial talents from the organization as a
whole to top managerial position. There is a tendency for the manager who comes
to the position of organization’s to favor the workers in his department.
o focuses on departmental problems and objectives; and ignores organizational
issues and objectives, i.e. Narrows the understanding of employees about the
organization at large
o Create communication barrier among people with different specialization
o Department managers can not develop general managerial skills to take up higher
managerial position
o Lack of generalize and internal destructive competition among different
departments reduces the success of the entire organization
Geographic departmentalization
It is also called location departmentalization or departmentalization by territory. It is grouping of
jobs on the bases of geographic areas. It is established when a company has different branches
that are geographically dispersed. The operations are similar from region to region

General Manager

Region one Region two Region three

 Advantages
o It helps in exploiting local advantages.
o It provides a training ground for new managers, i.e. to place managers out of
territory and then asses their progress.
o It enables the firm to develop local market areas and adjust quickly to local
customers’ needs
o It helps the company to reach close to raw materials.
o It saves a substantial amount of transport costs.
o It provides chance to local people employment opportunity.
o Create customers goodwill and awareness of local feeling and desire.

8
 o Facilitate decision making
o It can provide a high level of service as employees know the local culture and
language.
 Disadvantage
o Difficulties in maintaining consistent adherence to company policy and practices
o Duplication of effort
o The necessity of having a relatively large number of managers
o It poses serious problems of coordination and control.
o It may create gaps between head offices and branch offices.
o It is costly to host many geographically dispersed departments.
A company uses territory as basis for departmentalization often needs a large head quarter’s
staffs to control dispersed operation.
Product based departmentalization
It is grouping on the bases of products (goods/ services). Such kind of departmentalization is best
to large and multiple product organizations.

General Manager

Shoe Dep’t Clothing Dep’t Cosmetic Dep’t

 Advantages
o Allows workers to identify with a particular product and develop team sprit.
o It results in high product visibility.
o It facilitates innovation; and also enhances specialization of production.
o Stem from the need to create relatively independent division
o Each division has its appropriate personnel
 Disadvantages
o Employees’ insecurity during time of turmoil.
o Pressure for highly qualified managerial resources.
o It results in poor coordination across the product lines.

9
 o Duplication of efforts among divisions
Customer based departmentalization
It is grouping of tasks based on the type of customers served. Customers are the key to the way
activities are grouped. Such forms of departmentalization are more common in banking, book
publishing and food industry.

General Manager

Women shoe Men shoe Kids shoe

 Advantages
o Customers’ interest and priority is respected;
o Helps to meet customers’ special needs by setting up separate departments
o Indicate the willingness to understand the business of its clients
o Workers are identified with a particular group of customers that create team sprit
 Disadvantages
o It is almost impossible to consider all the customers, their interests, habits and
customs.
o In the period of no or little demand for goods and services of an organization,
some sections may not be profitable.
o There is a problem of duplication of resources
o Creates difficulty in coordination between departments
o High competition among departments may deter the overall organizational
performance
o Requires manager and staff specialists similar with the customers’ situation
o Differentiation among the various customer groups might be difficult
Departmentalization by process
It is appropriate when departmentalization by production is inflow. Under it activities are
grouped on the basis of various manufacturing process.

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 General Manager

Drilling Grinding Welding Assembling Finishing

Fig: departmentalization by process

Advantages
o It is appropriate for organizing certain types of work.
o It helps to group production facilities.
o It puts full responsibility of completing each stage of the job.
Disadvantages
o Failure in one of the process may adversely affect the whole job.
o Due to sub specialization a worker has, he cannot be shifted to another
department, i.e. it restricts flexibility.
Multiple bases for departmentalization
It is the combination of two or more departments discussed above. It helps to divide work
exhaustively. It is also a way of combining jobs into departments. E.g. matrix organizations
Matrix organization
They are also called grid organizations or project/ product management. They are combining
functional and project or product patterns of departmentalization in the same organization. They
are common in engineering and R& D, and also in product-marketing organization.
Typical problems of matrix organizations are
 Conflict exists between functional and project managers due to competition for limited
resources
 Role conflict, role ambiguity and role overload may result
 Imbalance of authority and power, and may result inefficiencies
 Managers protect themselves against blame by putting everything in writing which
increases administration cost because of potential conflicts
 Requires many time-consuming meetings

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Guidelines to make matrix management effective are
1. Define the objectives of the task/ project clearly
2. Clarify the roles, responsibilities and authority of managers and team members
3. Ensure influence based on knowledge and information rather than rank
4. Balance the power of functional and project managers
5. Select experienced manager who can provide leadership
6. Undertake organization and team development
7. Install appropriate cost, time and quality control that report deviations from standards in
timely manner
8. Reward project managers and team members fairly

4.5 Span of management

Manager cannot supervise unlimited number of employees. There should be a limited capacity to
control the work of different subordinates.
The manager’s ability to supervise a large number of subordinates is constrained by knowledge,
experience, tine, energy, etc.. To overcome this limitation, every manager has to delegate work
to subordinates.
Span of management/ control refers to the number of subordinates that single manager can
effectively supervise or should have to direct. There is no correct number for the span of control
or there is no exact formula to determine the span of control. It varies from one situation to
another.
As a general rule
 The more complex a subordinate’s job, the fewer will be the manager’s number of
subordinates.
 The more routine the work of subordinates, the greater will be the number of
subordinates that can be effectively directed and controlled.
Because of these general rule organizations have a narrow span of control at the top and wider
span at the lower levels. I.e. as one goes up the hierarchy, the fewer will be the number of
subordinates. A well trained person/ subordinate follows directions and routines; master tasks;
requires less supervisory of time and energy.
Factors those influence spans of control of a manager are

12
 1. The ability & the experience of a manager;
2. the complexity & variety of the subordinates’ work
3. the qualification of the manager and subordinates;
4. growth in competence and experience in personnel
5. The company’s philosophy towards centralization or decentralization in decision making
If the manager has
 Too many people to supervise, the subordinates will be frustrated by their ability to get
immediate assistance from their boss; time & other resources could be wasted; plans,
decisions& actions be delayed or made without proper control or safeguard.
 Too few people to supervise, the subordinates could become overloaded or over
supervised; and frustrated & dissatisfied.
 The more capable & experienced the subordinates, the more that can be effectively
supervised by one competent manager; the less time is needed to train & acclimate; the
more there is to devote to producing output.

4.6. Authority and power: Source of power

Authority
All managers in an organization have authority. They have different authorities based on the
management position they occupy. Authority is described as institutional power. It is the right to
act, or to give order/ command, or deploy resources in an organization. It is the power derived
from the rights that comes with position. Authority represents legitimate exercise of power in the
organization structure. Without authority a manager cannot perform tasks with confidence and
show results.
Essential features of authority
 It is the relationship between two individuals - one superior and the other subordinate.
 It is the right to act.
 It is the power to make decisions and seeing that they are carried out.
 It is used to achieve organizational goals.
Power
Power is the ability to affect the behavior of others or power is the ability to exert influence on
others, or the ability to do something.

13
In an organizational setting, there are different sources of power. Some of them are
1. Legitimate power
Legitimate power is Power granted through organizational hierarchy. i.e. power due to
position. All managers have legitimate power over their subordinates. A manager can assign
subordinates tasks, and subordinate who refuses to do them can be reprimanded or even fired.
Such outcomes stem from the manager’s legitimate power as defined and vested in her or
him by the organization. Legitimate power then is authority. All managers have legitimate
power over their subordinates. The mere possession of legitimate power, however, does not
by itself make someone a leader. Some subordinates only follow orders that are strictly
within the letter of organizational rules and policies. If asked to do something not in their job
description, they refuse or do a poor job. So, the manager of such employees is exercising
authority but not leadership.
2. Reward power
Reward power is the Power to give /withhold rewards. Rewards that a manager may control
include salary increases, bonuses, praise, recognition, and interesting job assignments. In
general, the greater the number of rewards a manager controls and the more important the
rewards are to subordinates, the greater is the manager’s reward power. If the subordinate
sees as valuable only the formally organizational rewards provided by the manager, then the
manager is not a leader. But if the subordinate wants and appreciates the manager’s informal
rewards, then the manager is exercising leadership
3. Coercive Power
Coercive Power is a Power to force compliance via psychological, emotional or physical
threat. In the past physical coercion in organizations was relatively common. In most
organizations today, however, coercion is limited to verbal reprimands, written reprimands,
disciplinary layoffs, demotion and termination. The more punitive the elements under a
manager’s control and the more important they are to subordinates, the more coercive power
the manager possesses. On the other hand, the more a manager uses coercive power, the more
likely he is to provoke resentment and hostility and the less likely he is to be seen as a leader.
4. Reference power
Reference power is the power based on identification, imitation or charisma i.e. followers may
react favorably because they identify in some way with a leader, who may be like them in

14
 personality, background, or attitudes. In other situations, followers might choose to imitate a
leader with referent power by wearing the same clothes, working the same hours, or espousing
the same management philosophy. Thus, a manager might have referent power, but it is more
likely to be associated with leadership.
5. Expert power
Expert power is the power derived from information & expertise. It is the power resulting from
a leader’s special knowledge or skill regarding the tasks performed by followers. When the
leader is a true expert, subordinates go along with recommendations because of his/her
superior knowledge. Leaders at supervisory levels often have experience in the production
process that gains them promotion. At top management levels, however, leaders may lack
expert power because subordinates know more about technical details than they do.
The relationship between power and authority
Authority is the power that has been legitimized by the organization, whereas power is ability to
exert influence on others, or the ability to do something. Like authority, power is
institutionalized and impersonal.
In organizations, it is necessary to keep a balance between power and authority. In some cases a
manager may have the authority (the right to do something), but may lack the power (ability to
do something) and vice versa. Failure to associate power and authority at all organization levels
may lead to disastrous consequence.
‘Power without authority may be abused and authority without power is totally meaningless.’

4.7. Line and staff authority

The process of accomplishing organizational objectives through people entails the establishment
of relationship among the members of the organization and different hierarchies of the
management. This results the presence of the two distinct types of authority in business
organization.
Line authority
Line authority is the relationship between superior and subordinates. It is directed supervisory
relationship. It enables the manager to tell subordinates what to do. It is represented by the chain
of command. It flows downward in an organization. A manager supervising employees or other
managers has line authority.

15
Staff authority
Staff authority is the right to give advice. It is advisory in nature. Thus the people in the staff
position assist and advise the line manager. People in these positions have the authority to offer
advice and recommendations. e.g. legal service; public Relation service. It is an advisory
authority for manager. Advisory authority doesn’t provide any basis for direct control over
subordinates or activities of other departments.

4.8. Delegation, centralization and decentralization

Delegation
Every manager must delegate duties to subordinates since management means getting work done
through others. Effective managers normally delegate as many operation tasks as possible to
subordinates and concentrate their efforts on core managerial tasks.
Delegation is authorizing subordinates to act in a certain manner independently. It is a concept
describing the passing of formal authority to another person or passing authority downward to
subordinates. It helps to facilitate work being accomplished. It is delivering to another the right
to act; to make decision; to requisition resources; and to perform other tasks in order to fulfill
jobs responsibility. Delegation is a two side relationship, i.e. the assigner and assignee. It is an
act of trust; an expression of confidence; requires necessary skills & strength, and requisite
application and dedication to duties.
Delegation occurs for two purposes
1. When managers are absent from their jobs - Subordinates act on behalf and exercise
authority.
2. To develop subordinates and facilitate decision making process
Process of delegation
Steps for delegation are
1. Assignments of tasks - Kinds of tasks to be performed by subordinate are identified and
assigned to the subordinate
2. Delegation of authority - A subordinate to carry out the activity, the necessary authority
should be given by the manager. A guideline for authority is that “no more no less”. i.e.
It has to be adequate to complete the task.

16
 3. Acceptance of responsibility - When subordinates are assigned with duties and delegated
authority, then they will be responsible or obliged to perform the tasks to the maximum
ability they can perform.
4. Creation of accountability - When subordinates are assigned for certain tasks and are
delegated a certain authority, and then they will be accountable for the actions taken.
Accountability
Accountability is just having an answer to somebody; answer for the actions taken with regard to
the tasks assigned and authority delegated. Accountability means taking the consequence - either
credit or blame. If one accepts assignments and authority, s/he is answerable for the actions
taken. A manager is accountable for the use of his/her authority and performance, and the
performances and actions of subordinates.
The process of delegation produces clear understanding on the part of manager and of the
subordinates.
 The manager should take time to think thoroughly what is being assigned and to confer
authority necessary to achieve results.
 The subordinate accepting the assignment, obliged (responsible) to perform and is
accountable for the results.
To delegate a manager must be able to consider the following issues.
1. Analyze how the manager spends his/ her time.
 This enables to list out the duties that the manager undertakes.
2. Determine the tasks that can be assigned.
 All duties of the manager cannot be delegated. The manager should identify which of
the duties should be delegated while doing so, and the manager should consider the
ability of the subordinates.
3. Decide which task can be handled by whom among the subordinates.
4. Delegate the authority and create the responsibility.
5. Control whether the delegated subordinates are performing the tasks to the expected
standard or not.
In delegation, managers are required to think the principle of parity that states “authority and
responsibility must coincide”; i.e. responsibility created should be equivalent to the authority
granted.

17
  If employees are assigned tasks without authority, they cannot perform tasks as
expected because the necessary authority is not granted for them. Therefore, this
creates frustration and anxiety.
 If employees are delegated more authority than the expected responsibility they
discharge, they will interfere on the job of others and hinder others job.
Both centralization and decentralization refers to the nature of authority within an organization
structure. Centralization and decentralization are merely the results of circumstances. Absolute
centralization or absolute decentralization is impossible in practice; it is a matter of the degree
along a con
Centralization
Centralization is a systematic and consistent reservation of authority at central point within the
organization. It is the concentration of authority for decision making within the hands of one or
few.
In centralization
 There is little delegation of authority
 Rules, power & discretion are concentrated at the top level
 Control & decision making reside at the top level of management
The more highly centralized the organization, the more control and decision making will be
exercised at the top.
Centralization is essential in case of small organizations to survive in a highly competitive world.
The larger the size of the organization, the more consent is the need for decentralization.
Special circumstances forcing managers to reserve/ keep authority and centralize decision
making power are
1. To facilitate personal leadership
Centralization generally works well in the early stages of organizational growth. Dynamic and
talented leader can derive advantages in a small firm in the form of quick decisions, enterprising
& imaginative action, and highly flexible.
2. To provide for integration
Under centralization the organization moves as a unit. It keeps all parts of the organization
moving together harmoniously toward a common goal. It assures uniformity of standards and

18
policies among organizational units. The manager acts like a unifying force and provides
direction to the activities. Duplication of effort and activity are also avoided.
3. To handle emergencies
Centralization is highly suitable in the time of emergency because it helps to mobilize resources
and information quickly. Centralization of decision making ensures prompt action necessary to
meet the emergencies.
Disadvantages of Centralization
 difficult for managers to process the bundles of data in time and take decision in an
appropriate manner
 the manager burdened with a great amount of detailed & exhaustive work
 managers to work painfully long hours
 forces top management to possess a broad view they may have beyond their capacity
 the vast amount of power given to a few people may be abused
 the organization is highly vulnerable to what happens to its dynamic and talented top
management people
Centralization floods communication lines to a few individuals at the top of the organization. As
a result the speed of communication upward and decision processes are slow. Centralization kills
the initiative; self reliance and judgment of lower level personnel.

Decentralization
Decentralization is a systematic effort to delegate all authority to the lowest levels except that
which can be exercised at central point. It is pushing down of authority and power of decision
making to the lower levels of organization. The essence of decentralization is the transfer of
authority from a higher level to the lower level. Nowadays decentralization has become to be the
fundamental principle of democratic management.
Some guidelines to identify the degree of decentralization in a company
1. The greater the number of decisions made at the lower level of management, the more the
company is decentralized.
2. The more important decisions are made at the lower level, the greater is the
decentralization.

19
 3. The more flexible the interpretation of the company policy at the lower levels, the greater
the degree of decentralization.
4. The more widely dispersed the operations of the company geographically, the greater the
degree of decentralization.
5. The less the subordinate has to refer to his/her manager prior to decision, the greater the
decentralization.
Advantages and disadvantages of decentralization
Decentralization is extremely beneficial but also dangerous unless it is carefully constructed and
constantly monitored.
Advantages
 It reduces the work load on overburdened manager.
 It brings the decision making process closer to the scene of the action.
 It facilitates product diversification. i.e. treats each product lines as separate and
important.
 It gives individuals an opportunity to learn by doing.
 It facilitates effective control. i.e. often results in improved controls & performance
measurements.
 It ensures participative management.
Disadvantages
 Conflict
o Decentralization puts increased pressure on each heads to realize profit at any cost. To
meet this each deviate or veer away from corporate objective. i.e. leads to competition
that may ultimately result in bitter individual rivalries.
 Cost or duplication
o Decentralization results in duplication of staff effort. To be independent each division
should have access to purchasing, personnel, etc. hence each carry a large group of
specialists at numerous cost.

4.9 Groups and committees

Groups

20
A group is any numbers of people who (1) interact with one another, (2) are
psychologically aware of one another, and (3) perceive themselves to be a group.
Kinds of groups in organization
Groups that exist in organizations typically are divided into two basic types: Formal and
informal.
 Formal group is a group that exists in an organization by virtue of management
decree to perform tasks that enhance the attainment of organizational objectives.
Organizations actually are made up of a number of formal groups that exist at
various organizational levels.
Formal groups commonly are divided in to command groups and task groups.
Command groups are formal groups that are outlined on the chain of command on an
organization chart. They typically handle the more routine organizational activities.
Task groups are formal groups of organization members who interact with one another to
accomplish most of the organization’s non routine tasks. Although task groups commonly
are considered to be made up of members on the same organizational level, they can
consist of people from different levels of the organizational hierarchy.
Committees
A committee is a group of individuals that has been charged with performing some type of
activity.. Committees are a more traditional formal group that can be established in
organizations. It usually is classified as a task group. From managerial viewpoint, the major
reasons for establishing committees are (1) to allow organization members to exchange
ideas, (2) to generate suggestions and recommendations that can be offered to other
organizational units, (3) to develop new ideas for solving existing organizational problems,
and (4) to assist in the development of organizational policies. Committees typically exist
within all organizations and at all organizational levels. However, the larger the
organization is,
The greater the probability that committees will be used within that organization on a
regular basis.
Informal groups
Informal groups, the second major kind of group that can exist within an organization, are
groups that develop naturally as people interact. An informal is defined as a collection of

21
 individuals whose common work experiences result in the development of a system of
interpersonal relations that extend beyond those established by management.
Informal groups generally are divided into two types: interest groups and friendship
groups.
Interest groups are informal groups that gain and maintain membership primarily because
of a special concern each member possesses about a specific issue. An example is a group
of workers pressing management for better pay or working conditions. Once the interest or
concern that causes an informal group to form has been eliminated, the group needs to
disband.
Friendship groups are informal groups that form in organizations because of the personal
affiliation members have with one another. Personal factors such as personal interests, race,
gender, and religion serve as foundations for friendship groups. As with interest groups, the
membership of friendship groups tends to change over time. Here, however, group membership
changes as friendships dissolve or new friendships are made.

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 CHAPTER FIVE

STATFING AND ORGANIZATION

5.1 The Staffing function
Staffing is the executive function of recruiting, selecting, training, developing, promoting, and
retiring subordinates. It is the responsibility of every manager. The benefits of staffing are:

ht job.

development of successive managers.

o Avoids over manning

o Avoids shortage of manpower in advance

assessmentand fair rewarding of their contributions.

Generally, the purpose of staffing function is to ensure that the right number and the right type of
people are working on the right jobs at the right time and right place.
ACTIVITIES IN STAFFING FUNCTION

The major activities in the staffing function include:

1.Manpower planning.
2.Recruitment
3.Selection
4.Placement
5.Induction/ orientation
6.Training and development
7.Performance appraisal.
8. Separation, Promotion, Transfer & Layoffs

1. Human Resource planning/Man power planning

Manpower refers to the quantity and quality of workforce. Manpower planning is the process of

1
forecasting the number and type of personnel whom the organization will have to hire, train, and
promote in a particular period in order to achieve its objectives. It involves determining
objectives, policies, programs, and procedures in relation to human resources. It refers to
planning for the future personnel needs of the organization.
Why human resource planning is needed?
 To carry out the work of the organization, skilled and qualified manpower is needed. A
good human resource plan would help the management in recruiting and selecting the
best available personnel to carry out the activities of the organization effectively and
efficiently.
 People leave organizations for a number of reasons like retirement, transfer, better
opportunities in other organizations and it is the duty of the human resource department
to replace them.
 A good human Resource plan would go a long way in trying to predict when the
vacancies would be created and when the recruitment and selection should be carved
out.
 Labor turn over and absenteeism seem among workers are also factors which make
human resource planning important.
 In order to meet the requirements of expansions and diversification programs of the
organization human resource is important.
 The present situation of fast paced change in technology and changing needs of the
work force has also necessitated creation of an effective human resource plan to cope
up with future uncertainties.
 Human resource planning will help the management in identifying the areas where
there are surplus personnel. These surplus personnel can be transferred to other
departments or can be assigned some other duties.
Manpower planning process

The process of manpower planning consists of the following steps:

1. Forecasting manpower requirements: This refers to anticipation of the requirements of
manpower for a particular future period of time in terms of the number, type and quality of
people. Three stages are involved in projecting future manpower needs.
A.Determine replacement of lost manpower. Based on past experience, the human

2
resource manager should calculate the rate of loss of manpower due to leave,
retirements, quits, transfers, deaths, discharges etc.
B.Determine the need for new manpower. Based on workload analysis,' the manager
needs to determine the new manpower required.
C.Determine the abilities/ skills required for the efficient performance. Job
specifications and job descriptions are prepared to determine job requirements and the
quality of needed personnel. Job description is an organized, written and factual
statement of job contents in the form of duties and responsibilities of a particular job.
Job specification is a formal statement of minimum acceptable human qualities required
for the successful performance of a job.
2. Preparing manpower inventory/manpower audit. It refers to the analysis and assessment of
the current human resources in terms of the size and quality of personnel available.
3. Identifying man power gaps: In order to identify the manpower gap, the existing number of
personnel and their skills are compared with the forecasted manpower requirement
4. Formulate manpower Plans: This involves developing appropriate and detailed policies,
programs and strategies for recruitment, selection, training, promotion, retirement, and
replacement.
Example
Production budget......................................................................................... 100,000 tons
Standard man hours / ton……………………………………………….. 50 hours
Productive hours per worker in the year........................................................ 2,000 hrs
Allowance for absenteeism and turnover...................................................... 500 workers
Existing manpower……………………………………………………..… 2,200 workers
Determine the new manpower
Solution
Total planned hours = 100,000 x 50 = 5,000,000
Number of workers required = 5,000,000/2000 = 2500 workers
Number of workers required ............................................ 2500
Add: allowance for absenteeism and turnover ................. 500
Total requirement ......................................................... ...3000
Less: existing manpower.............................................. ...2200

3
New workers ................................................................ …800 workers

2. Recruitment and selection

Recruitment
It is the process of searching for prospective employees and stimulates them to apply for jobs
in the organization. the main purpose of recruitment is to identify sources of
manpower so as to satisfy the man power requirement of the organization. It
can be considered as the most important function of the personnel department.
The process of recruitment is considered to be both positive as well as negative.
Positive because, stimulates people to apply for the vacancies created in the
organization and negative because, it screens out or rejects the majority of
applicants who don’t match the broad job requirements. So, during
recruitment the potential candidates will be pooled together throu8gh the
advertisement of vacancies on mass media. The vacancy to be announced to
the candidates should incorporate at least the two statements.
1. The job description statements and
2. The job specification statement
Job description- is the written record of duties, responsibilities and
requirements of a particular job. It gives information of about the title,
locations, duties, working conditions and hazards. It is the description of job
quality characteristics.
Job Specification -It is a statement giving the requirements of personnel who
should be made responsible for a given job. It gives information regarding the
characteristics, qualities (physical, psychological and demographic),
qualifications, experience, etc, of the worker who is most suitable to carry out
the activities mentioned in the job description. So it is a statement specifying
the characteristics of the worker occupying the position.

Sources of Recruitment
The sources of recruitment are generally categorized in to two, internal and
external.

4
1.Internal sources
These consist of transfers and promotions of present employees. A transfer refers to the shifting
of an employee from one job to another without a drastic change in the responsibilities and status
of the employee. On the other hand, promotion involves shifting an employee to a higher
position carrying higher responsibilities, higher status and more pay. Transfer is a horizontal
shifting while promotion is a vertical shifting.
Advantages
oImprove employees' motivation, loyalty and security and morale
oLess expensive (no induction training)
oSimplifies the process of selection and placement
oLower level employees are encouraged to look forward to higher ranks.
oDevelops better employee-employer relationships
Disadvantages
oInvolves danger of in breeding by stopping infusion of new blood into the organization
oReduces the area of choice
oLimits the pool of talents
oDoes not provide an equal opportunity to all people to compete for jobs
oEncourages favoritism and nepotism
oEncourages complacency
2. External sources
Where all vacancies cannot be filled from within, external sources are used to fill the positions.
The advantage of extern sources is that it provides wide choice and brings new blood to the
organization. However, it is not without limitation. The major limitation is that it is expensive
and time consuming. The various external sources of recruitment are:
a. Advertisements
b. Employment agencies
c. Educational institutions
d. Recommendations by other people
e. Causal callers
f. Direct recruitment
The advantages of external sources are:

5
  The management need not compromise in their recruitment; they can get
the best professionals available in the market with the required
experience, skill, education etc.
 Recruitment can be done which might include all sections of the society
 Fresh blood can be pumped in to the organization personnel who are
creative and who are specialists can be attracted.
The disadvantages can be:
 Adequate time and money needs to be spent on training and induction
 Chances of brain drain or the employees being recruited by other
organizations increase
 The whole process of external recruitment is more expensive than
internal
Methods of recruitment
Direct method recruitment:- The recruiters are sent directly to the colleges, universities,
educational institutions, and contact the graduating students and select the best among them. The
recruiters also contact the prospective employees directly, the recruiters may hold conference
and seminars for the prospective employees and encourage them to apply for vacancies, and the
recruiters may participate in job exhibitions or job fairs to attract prospective employees.
Indirect method: - In this method the organization encourage prospective employees to apply
for vacancies through advertisements in newspapers, magazines, journal etc. Generally the
advertisements for top-level position are given in national newspapers and for lower level and
workers advertisements are given in regional newspapers. The advertisements could be detailed
(name of the organization, type of the job, salary and other benefits etc)or bind (only the type of
job and p.o.box number).
Third party method: - There are many private employment agencies which carry out the
recruitment process of an organization for a fee. Governments also have employment exchange
which provide organizations with man power. Placement services of colleges and universities,
trade unions etc., are also part of the third party method of recruitment.
Selection
Selection involves screening or evaluation of applicants to identify those who are best suitedto
perform the jobs. It divides the candidates in to two categories.

6
 1. Those who will be employed
2. Those who will not be employed
Selection is described as a negative process. The proper selection of employees will go a long
way towards building a stable work force and eventually reducing labor costs. When selected
personnel are suitable to the job requirements, their efficiency and productivity will be high.
Such personnel will have job satisfaction and high morale. Rates of absenteeism and labor
turnover will be low.
Steps in selection procedure
In order to achieve the purpose of selection, a well-planned and suitable selection procedure is
required. This procedure involves the following steps:
1. Application Blank: It is a brief written resume of the name, age, address, education,
occupation, interests, experiences etc of the candidates. It provides basic information about the
prospective employee, which is helpful at the time of interview. It reflects the candidate's
personality and his/her desire for the job. First inference about the candidate can be made.
2. Employment test: It is designed to measure selected aspects of the candidate's personality
and to predict how well the applicant is likely to perform the job (the fitness of a person to a job)
Some of the employment tests include:
a. Intelligence test: It is used to measure the mental capacity of an applicant in terms of
his memory, reasoning ability, power of understanding, verbal comprehension, word fluency
etc.
b. Aptitude test: Aptitude refers to the latent ability or the capacity of individuals for
learning the skills required performing the job. Aptitude test is used to measure an
individual potential for development.
c. Personality test: It measures the temperament, maturity, initiative, judgment, emotional
balance and other personality traits of an individual. It helps in weeding out candidates
who may not be able to go along with other people.
d. Proficiency test: It is designed to measure the level of knowledge, proficiency or skill
already acquired by an individual in a particular job. It is also called performance, ability,
achievement, or trade test.
e. Interest test: It is designed to identify the likes and dislikes of the applicant for
different jobs.

7
 3. Employment interview
4. Physical / medical examination
5. Checking references
6. Final approval
2 Preliminary interview: - This is generally done by a junior executive of the human resource
department where in the general information about the company and the job/po0sition is given
and brief information about the applicants, educational and professional qualifications and
obtained. Observation is also made of the general physical feature and physical fitness of the
applicant.
3 Final Interview: - Interview is the most widely used selection tool. It is a complex
process in which the interviewer tries to form an opinion about the interviewee’s
personality, intelligence, technical competence, interests, attitudes etc. through face-to-
face interaction. It is an attempt to secure maximum amount of information from the
candidate concerning his/her suitability for the job under consideration. This technique
can also be used for purposes other than selection like, in performance appraisal, in
grievance handling, in disciplinary action, for counseling and other general problem
solving.

The basic objectives of interviews would be as under

 To properly judge an applicant’s qualifications and characteristics
 To give the applicant important and relevant information about the job and the
organization
 To establish a good rapport with all the candidates attending the interview
 To promote the good will of an applicant towards the organization, immaterial of the
outcome to the selection process
 To help the management in grievance handling in conduction of disciplinary actions and
in interactions with the workers union
 To observe the applicants, appearance personality, confidence level etc.
 To solve the problems arising out of the various interactions seen inside the organization
Types of interviews
1. Patterned or structured interview:-

8
This is a very common type of interview in which the focus is on asking structured
predetermined questions in a strict sequence. There is little or no deviation of the sequence of
questions and most of them are job/skill oriented.
2. Non-directive or free interview:-
These interviews are unstructured and unplanned. The basic aim of this type of interview is to
judge the real nature of the applicant. General, unstructured questions are asked and the
candidate is given adequate time to answer in detail. The discussions in the interview may be
regarding various subjects unrelated to the job under consideration.
3. Depth or Action interview
This interview is semi structured, where structured questions are asked in intervals of
unstructured questions or conversations. It is a combination of the patterned and free interview
styles. The aim of this interview is to obtain detailed information about both the personal as well
as the professional life of the interviewee.
4. Group or Discussion interview:-
The interview is held for more than one candidate and the role of the interviewer becomes that of
the observer, wherein he tries to identify the persons with the required qualities for the concerned
job. The group of candidates is given a topic or a problem for discussion and the observers
identify the persons who are having good leadership skills, who influence the discussion, who
are good analyzers, who have good communication skills etc. and select the ones most suitable
for the given job.
5.Panel or board interview
It is an interview in which the number of interviewer would be many and the interviewee will be
one. The panel (board) consists of expertise of different areas.
6. Stress interview
It is in which the interviewer pretends to be hostile & provokes the candidate by asking questions
rapidly by criticism & trying to annoy him. It is conducted to find out the reaction of the
candidate under pressures & also to observe the presence of the mind of the candidate when he is
angry or confused.
Physical examination
It is checking the physical fitness of the candidates

9
Medical examination of the candidate before employment is a necessary step in the selection
process. To prevent the existing employees from the communicable diseases & unwarranted
claims in the form of medical & insurance expenses
Also needed to identify the disabilities/ handicaps the candidates have so as to help the
management in allocation of the jobs.
This step is necessary for 3 vital reasons: to assure that the applicant is fit to work in the
organization, to assure that the candidate is physically fit for placement in a particular job, to
provide base against which later physical examination may be compared. (- is important in the
disability claims that may occur during the job assignments).
Referenceletters/ Reference check & background investigation
Verification of information obtained from the candidates application form & selection interview.
After a candidate has passed successfully all the above stages in the process of selection, a
reference check is made where in the HR manager gets in touch with the current or previous
employer of the candidate and find out relevant details. This is done to see whether the
candidate has furnished correct details & also to cross check the suitability of the candidate for
the given position. Include: letter of recommendation; references; testimonials, etc… from the
former employers so that it is possible to know the competence of the candidates.
Final selection & communication (Job offering)
After getting a positive reference, a final list of selected candidates is made & this information is
passed on to the candidates, the concerned line managers & other people.
1. Decision making and Placement
The candidates who have been selected should be given placement letters that state their
employment and specific positions, and other employment related matters.
2. Induction & Orientation (Socialization)
When the candidate is selected and offered a job, it is necessary to introduce the new employee
to the organizations philosophy, rules, policies, etc…..then the new employee begins his work.
He should be assimilated to the job & organizational environment.
Induction & orientation have to do with familiarizing the new employee with the organization.
They can be done by oral communication and physical observation, written media like manuals,
guidelines and others.

10
The employee will be given information on the organizations history, products, operations,
policies & rules, services available, opportunities & other issues.
Induction & orientation are the two important tasks to be accomplished to ensure smooth
organizational membership of a new employee. They are assimilation & socialization of a new
employee.
Induction- Refers to the process of familiarizing a new employee with the overall organizational
environment through the provision of adequate information to bring about change in new
employee’s expectation, behavior, and attitude in order to assure the best match with
organizational interest. It involves providing information about the organization’s history,
purpose, operations, products/services and his contribution to the organization and needs &
benefits for the new entry. It is done through the interaction of the employee, the immediate
supervisors & personnel.
Orientation-It is designed to enable new employee to familiarize with working environment
through the provision of adequate information. It involves discussion between a manager &
employee regarding the job assignment including specific location, rules and procedures of the
work as well as the materials, equipments needed to do the job.
The purposes of induction & orientation
 Reduce the start-up cost -enable a new employee to meet performance standards sooner.
 Reduce anxiety - employee fear of failure on the job can be avoided, and he develops self
confidence.
 Decrease turn over - provision of all kinds of information during the entry time make new
employee stable in the organization.
 Save time to supervision - reduce the time of a supervisor to supervise and observe the
performance of an employee.

5.2 Training and development

Having qualified and well trained personnel, to perform various jobs is a very basic necessity for
any organization. Training becomes necessary because of changing technology, up production of
skills and knowledge of the workers, the need to increase the productivity of the workers etc, so
as to retain the competitive edge. Training and development seem to indicate the same meaning
but a detailed examination would real some differences. Training is a process of leaving a
sequence of programmed behavior, which help the trainees in improving their job performance

11
and better apply their knowledge where as development covers not only performance
improvement activities but also those, which enhance personality, gain better attitudes, values
and behavior.
The scope of development is wider than training. To understand the difference between training
and development more clearly we need to look at their impact on the learning dimensions.
Training
Training becomes necessary because of the changing technology, up-production of skills &
knowledge of workers, the need to increase the productivity of the workers, etc.
Training is any process by which the aptitudes, skills and abilities of employees to perform
specific jobs are increased. It is the act of increasing the knowledge & skills of employee for
doing a particular job; and a process of learning a sequence of programmed behavior which help
the trainees in improving their job performance and better apply their knowledge.
Training is designed to improve a person’s skills to do the current job at high level from the first
day they start working. To ensure improvement in person’s skills & knowledge to perform the
work through training, effective training system should be designed.
Objectives of Training
 To make the workers perfect in their work
 Proper training would help the worker in producing quality product
 Training will help the management in developing personnel for future expansion or
diversifications
 A good and well-planned training program will help in improved performance
 Proper training will help the worker in adopting safe work procedures
 Proper training will help the worker in adopting safe work procedures
 Training will help the worker in avoiding them from being obsolete
Importance of training

It is important that the employee be indicated into training programs to improve their knowledge,
skills and future performance. The need for proper training is increased by the following
considerations.
 Increased productivity
 Improvement in employee moral

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  Availability for the future personnel needs of the organization
 Improvement in health and safety
 Reduced supervision
 Personal growth
 Organizational stability
Steps in designing effective training
1. Need assessment-assess the needs for training based an organizational analysis, person
analysis & task analysis.
2. Assessment of employee readiness-Consider whether employees are motivated to learn.
3. Creation of learning environment -Lay a foundation for successful training by creating
the conditions under which employee will learn best.
4. Ensuring transfer of training -Ensure that employee will be able to apply what they have
learned to their jobs.
5. Selection of training methods-Consider the possible training methods & select those that
will be most appropriate.
6. Evaluation of the training program-Evaluate the outcome of the training program.
Methods of training
Organizations can use training methods that they believe appropriate to satisfy their training
needs & accomplish objectives. The commonly used training methods are classified into:
 On-the- job training
 Off- the-job training
 Vestibule/ Simulated training

On-the-job-training:- In this type of training, an employee is put on the work floor directly and
is assigned to a superior to an experienced co-worker who teaches/guides him in how to do the
work practically. These methods are parts of the every day job activity of the organization. This
is the most common method of training, because it is practical it is practical oriented, less
expensive and the focus is on the job. The various techniques used under this method are,
coaching (understudy) apprenticeship, where the super visor or an experienced worker gives
personal and in-depth guidance to an employee or subordinate.
Off the job-training- This type of training is given to the trainees away from the work floor and
is not the everyday activity of the organization. The trainees are imparted theoretical knowledge

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in a classroom or a training center and the most popular kind of off the-job training methods are
lectures, conferences, group discussions, case studied, role-play, programmed instructions, etc.
Vestibule/Simulated training: - This is a combination of on the job training methods. In this
method identical machines and equipment, which are used on the work floor, are installed in a
training center and also an effort id made to implicate work atmosphere found on the actual work
floor. This method tries to give the trainees a chance of getting trained in a situation that is as
close to the original work situation as possible. Here the work environment is almost similar to
the actual environment, but is not the rest environment. E.g.Training, given for a pilot.
3. 3 Maintenance and Utilizations
Performance Appraisal and Compensation
Performance appraisal is a process of evaluating an employee’s performance of the job assigned.
Performance appraisal is a step which tells the management how effective their processes of
recruitment, selection, and training are. It basically involves the estimation of the value,
excellence and quality of the personnel of the organization. Performance appraisal is also called
as merit ratings, employee evaluation, progress report, staff assessment etc.
Objectives of performance Appraisal
 It helps the management in maintaining the inventory of man power along with their
quality and worth for the organization
 A good performance appraisal helps the management in identifying and meeting the
training need of the employee
 It helps the management in deciding about salary increments, incentives and in deciding
who should get promotions, transfers and demotions.

Performance Appraisal Process

The steps to be followed during the evaluation of workers performance are:-
 Establishing performance standards:- performance standards are developed at the time
of developing job descriptions and job specifications. These standard should be clear,
precise, and objective oriented.
 Communication of standards to employees:- Performance standards should be
fcommunicated to all the concerned employees, because unless and until the employees
are aware of the standards, they will not be in a position to meet them.

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  Measurement of the actual performance:- In this third stage the actual performance of
the employees is noted and the information about the employees performance is collected
through personal observation, written report, oral report etc.
 Comparison of the actual performance with that of the standard:- An objective and
impartial comparison of the actual performance with the standard perfomance is carried
out short falls, if any of the employees are identified and deviations, if any, are noted
down. This comparison is also used to identify the most promising employees who have
the potential for growth and =advancement.
 Communication of the results: - These results are communicated to the concerned
employees and discussions are held with them to identify their strengths and weaknesses
and also to identify the difficulties in carrying out their activities. Objective discussions
and accurate information about the performance will help the employee in bettering his
performance.
 Corrective actions: - If there are any short falls in the performance of the employees the
management along with the concerned employees should identify the reasons of the short
falls. After the reasons are properly identified, the ways and means of overcoming these
difficulties are devised and implemented.
Compensation
People work in organizations for the sole purpose of earning enough money to live comfortably
and satisfy all their needs. Wage and salary administration is the establishment and
implementation of sound policies and practices of employee compensation. Compensation is just
the reward for the work done by an employee and it should be balanced so as to keep the parties,
the employer and the employee happy and satisfied. Compensation includes the money paid as
reimbursement.
Factors affecting compensation policies of the organization
 Organizational ability to Pay:- The organization should have enough funds to pay
enough salary or wage to the employee.
 Supply and demand of labor:- If the supply of labor is more than the requirement then
the management can pay less wages and salaries to its employee and reverse in case of
less supply

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  Prevailing market rate: - The going wage rate or salary in the industry also influences
the wage and salary policy of the organization. An organization cannot give less
salary/wage than the average salary of the industry.
 Cost of living:- The cost of living differs in different cities
 Productivity: - The level of productivity of the workers also has an impact on the kind of
wage/salaries they get; more productive workers get more salaries.
 Bargaining Power of the worker’s unions:- Powerful workers union generally have a
lot of influence on kinds of wages and salaries given by the organization
 Job requirement: - Some jobs are more hazardous and dangerous than others and the
employees understating them would get more pay than others who are in relatively safer
positions.
 Managerial attitude: - The top management has a lot of influence on the wage and
salary administration because they can choose whether to pay the industry average salary,
above or below the average salary, the kind of working conditions to be provided to the
employees, the length of work hour etc.
Types of incentives
Intrinsic rewards: - These are rewards which a worker receives for himself and are totally
dependent on the kind of work done by him. These individual incentives could be in the form of
participation in decision-making , job freedom, more responsibility, more interesting work
assignment, opportunity for personal growth etc.
Extrinsic rewards: - These incentives are meant for all the employees of the organization and
they can be follows.
 Direct compensation: - These incentives are given to all employees of the organization
and basically are monetary in nature and the payment is made immediately like salaries
or wages paid to the employees , over time earning’s, holding premiums, performance
bonus, profit-sharing, stock options etc.
 Indirect Compensation:-These incentives are realized at a later period of time, generally
once in a year or at the time of retirement like group insurance schemes, contribution for
provident fund services etc.
The time and mode to payment
There are two basic methods of payment:

16
  payment by time and
 payment by output
The relative advantages of each of the two basic methods of payment; by time or by output are
summarized in terms of the circumstances or situations under which each is preferable:-
1. Payment on a time basis is more satisfactory when
 Units of output are not distinguishable and measurable
 Employees have little control over the quantity of output or there is no clear-cut relation
between effort and output, as on some machine-paced jobs.
 Work delays are frequent and beyond employees’ control
 Supervision is good, and supervisors know that constituter’s a fair day’s work
2. Payment on the basis of output is more satisfactory when:-
 Units of output are measurable
 A clear relation exists between employee effort and quantity of out put
 The job is standardized, the flow of work is regular, and break downs are few or if many
consistent
 Quality considerations are somewhat less important than quantity of out put
 Supervision is unsatisfactory, or supervisors cannot devote enough attention to individual
performance
 Competitive conditions and lost control make it imperative that labor costs per unit be
definite and fixed in advance, as in the shoe and clothing industries

5.4 Separation, Promotions, Transfers and Layoffs

Separation

Separation refers to the discontinuation of the relation between employee & the employer. It is
the final HRM function. Like other functions it requires preparation & planning.
Separation can be initiated by
 the employers like - mandatory retirement; dismissal; layoff
 the employees like - resignation; voluntary retirement; quit
 the agreement - when the contract ends; or they can also be caused by things outside the
will of both the employer & the employee (accidents, death)
Causes for separation

17
Causes for separation of employee from the organization mainly are retirement; layoff;
dismissal; permanent; disability; resignation; quit; outplacement; …
Promotion
Promotion is the advancement of an employee to a better job. Characteristics of ' better job' to
which an employee seeks promotion are greater responsibilities, more prestige or status, greater
skill, and specially increased rate of pay or salary, better hours or better locations or working
conditions.
If the job doesn’t involve greater skill or responsibilities & high pay, it should not be
considered as promotion. Upgradingrefers to a practice related to promotion, but it amounts to
a small scale advance in status. It is the movement of an employee to a more responsible job
within the same occupational unit and with a corresponding increase in pay. Both upgrading &
promotionare ways of recognizing & developing the abilities of employees within the
organization instead of filling skilled and responsible positions from outside. They should be
distinguished from transfer.
Transfer
Transfer is the movement of an employee from one job to another on the same occupational level
of wage/ salary. No appreciable increase or decrease in duties and responsibilities involved but
there may be a change in their specific nature and in working conditions. Some transfers entail a
decrease in job duties and especially in pay, and called downgrading or bumping. It is more
frequently used to protect employment opportunities for employees displaced from higher rated
jobs. It is moving to less desirable jobs.
Layoff
Layoff occurs when there is lack of business or budget curtailment/ shortage. It is forced
reduction of the number of employees. It is the most frequent type of separation of employees
from the employed workforce.
Layoff is unlike quits, retirements or deaths, it doesn’t necessarily involve a permanent
separation from the payroll. Laid-off employees normally expect to be rehired by their employer
when conditions improve.
Quits-Quit refers to the voluntary movement of the worker from the organization such as health
problem resignation.

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 CHAPTER 6
THE DIRECTING / LEADING
FUNCTION

6.1 MEANING AND THE NEED FOR LEADERSHIP

MEANING:
Leading is the management function aimed at setting the members of an organization move in the
direction that will achieve its objectives. Directing builds a climate, provides leadership and
arranges the opportunity for motivation. Leading is not deriving or pushing from behind; it is
placing oneself before the group and facilitating progress and inspires followers to accomplish
organizational (group) objectives.

Leadership can be defined in different ways according to different writers. Some are:
 Leadership is the process of influencing others toward the achievement of organizational
objectives. This definition recognizes that leadership is typically an on going activity, is oriented
toward having an impact on the behaviors of others, and is ultimately focused on realizing the
specific aims of the organization.

 Leadership is the process of influencing a group or individual to set a goal or achieve a goal. It is a
process involving the leader, the led (group or individual), and a practical goal or a situation. It is
behavioral in nature and involves personal interaction.

 Leadership is the art or process of influencing people so that they will strive willingly and
enthusiastically toward the achievement of organizational or group goals.

 Leadership is the ability to secure desirable actions from a group of followers voluntarily without
the use of coercion or force.

1
 As we can see from the above definitions, leadership has three ingredients: leader, led (follower) and
goal (situation) – organizational Environment.

Leader- the one with the ability/capacity to understand others‟ motivation and to inspire them with the
ability to create a climate for motivation.
Follower (led) - the individuals being led or influenced
Environment- the working environment in which the leader interacts with the followers.

THE NEED FOR LEADERSHIP

The need for leadership can be explained by the fact that organizations will never be successful unless
they have effective and efficient leaders. Whatever amount of capital invested and technology an
organization has, without effective leadership the organization will not be successful.

The importance of the directing function in the organization can be presented as follows:
• Directing initiates actions by giving directives and guidance to employees.
• Directing integrates employees‟ effort by coordinating actions of the members and leading toward the
objectives.
• Directing attempts to get the maximum output of individuals by providing ways to fully utilize the
potentials and capabilities of employees.
• Directing facilitates changes by incorporating (adopting) environmental and internal changes into the
organization
• Directing provides stability by balancing the different parts of the organization so that it exists for a long
period and its parts work in a harmonious ways.

The directing function enables subordinates to contribute their best to attain the goal of the organization.
Thus, managers should try to integrate both organizational and individual objectives in order to get the
work done by subordinates. Managers must be good leaders (by providing effective leadership) to guide,
counsel, and influence subordinates so as to win their confidence and acceptance.

How leaders influence others?

Why do people accept the influence of a leader? One major reason is that leaders have power. Power is
the capacity to affect the behavior of others, in other words, power is the ability of individuals or groups

2
 to induce or influence the beliefs or actions of other persons or groups. It is a resource or patronage an
individual has at his/her disposal to stage-manage others towards a wanted behavior. Having power can
increase the effectiveness of a manager by enabling the manager to influence people to what is wanted.
Leaders in organizations typically rely on some or all of five major types of power: legitimate, reward,
coercive, expert and referent.

1. Legitimate power/position power refers to the power a leader possesses as a result of occupying a
particular position or role in the organization, i.e. it is a power that stems from a position‟s placement
in the managerial hierarchy. It corresponds to authority. Legitimate power exists when a subordinate or
the influenced acknowledges that the influencer has a “right” or is lawfully entitled to influence within
certain bounds. It is related to the position, rather than to the person personality, so it is clearly a
function of the leader's position in the organization and is completely independent of any of the
leader's personal characteristics. Thus, the higher a manager is in the organizational hierarchy, the
greater is the “perceived power” thought by subordinates.

2. Reward Power refers to the leader's capacity to give or withhold rewards for followers. It is based on
the capacity to control and provide valued rewards to others. Rewards that may be under the control of
individual manager include salary increases /pay raises, bonus, interesting projects, promotion
recommendations, a better office, support for training programs, assignments with high responsibility
in the organization, recognition, positive feedback etc. Purchasing agents, with little position power;
might be able to exercise considerable influence by their ability to expedite or delay a much-needed
spare part. Or University professors have considerable reward power; they can grant or withhold high
grades. The greater a manager‟s control over valued rewards, the greater the manager's reward power
and the more power to influence.

3. Coercive Power is a power based on fear. It is the negative side of reward power. Coercive power is
the ability to coerce or punish the influencees/followers when they do not engage in desired behaviors.
Forms of coercion or punishment include criticisms, terminations, reprimands, suspensions, warning
letters that go into an individual‟s personnel file, negative performance appraisals, demotions and
withheld pay raises; (punishment may range from loss of a minor privilege to loss of one's job).

3
 Coercive power is usually used to maintain a minimum standard performance or conformity among
subordinates. The greater the freedom to punish others, the greater a manager‟s coercive power. And
the more coercive power a manager uses, the more resentment and opposition s/he faces from
subordinates.

4. Expert Power refers to power that a leader possesses as a result of his or her knowledge and expertise
regarding the tasks to be performed by subordinates. It is power based on the possession of expertise,
knowledge, skill or information. To the extent that a leader possesses expertise and information that is
needed or desired by others, the leader has expert power. Physicians, lawyers, and university
professors may have considerable influence on others because they are respected for their special
knowledge. A manger who is capable of achieving an important methodological break through that no
other companies dreamed of and a secretary who knows how to unreveal or reveal bureaucratic red
tape all have expert power over any one who needs that information.

5. Referent Power / Charismatic Power is power that results from being admired, personally identified
with or liked by others. When we admire people, want to be like them, or feel friendship toward them,
we more willingly follow their directions and exhibit loyalty toward them. For example, a Movie Star,
a Great Athlete, a Great Football Player, a Musician or a Military Hero might possess considerable
referent power.

 The strength of referent power is directly related to such factors as the amount of prestige and
admiration the influence confers up on the influencer.

 The more that a leader is able to cultivate the liking, identification, and admiration of others, the
greater the referent power.

 The more power a leader has at his/her disposal, the more likely that s/he will be successful in
influencing followers to do the work assigned to them except coercive power.

Although all five types of power are potential means of influencing others, in actual usage they may
engender somewhat different levels of subordinate motivation. Subordinates can react to a leader‟s

4
direction with commitment, compliance, or resistance. With commitment, employees respond
enthusiastically and exert a high level of effort toward organizational goals. With compliance, employees
exert at least minimal efforts to complete directives but are likely to deliver average, rather than stellar,
performance. With resistance, employees may appear to comply but actually do the absolute minimum,
possibly even attempting to sabotage the attainment of organizational goals.

Types of outcome
Source of Basis for power Commitment Compliance Resistance
Leader
influences
Referent Admiration and Likely* Possible Possible
power liking by others. If request is believed If request is If request is
to be important to perceived to be something that
leader unimportant to will harm leader
leader
Expert Possession of Likely* Possible Possible
power valued expertise If request is If request is If leader is
persuasive and persuasive but arrogant and
subordinates share subordinates are insulting or
leader‟s task goals apathetic about task subordinates
goal oppose task
goals
Legitimate Hierarchical Possible Likely* Possible
power position and If request is polite If request or order If arrogant
authority and very appropriate is seen as legitimate demands are
made or request
does not appear
proper
Reward Capacity to Possible Likely* Possible

5
 power provide valued If used in a subtle, If used in a If used in a
rewards very personal way mechanical, manipulative,
impersonal way arrogant way
Coercive Ability to punish Very unlikely Possible Likely*
power If used in a helpful, If used in a
non punitive way hostile or
manipulative
way
* Indicates most common outcome
Major sources of leader power and likely subordinate reactions

Authority versus Power

Authority Power
1. It is positional – it will be there when the 1. It is personal-it exists because of the
incumbent leaves. person.
2. Narrower – it is one type of power 2. Broader
3. It changes with changes in position. 3. Some types of power do not
change(Expert, referent) but some
change legitimate, reward,
coercive.

4. Authority is delegated to an individual 4. Not all types power can be delegated

by superiors (Expert andreferent).

6.2 Concept and meanings of Leadership theories

A. Trait Theory
Traits are distinctive internal/personal qualities or characteristics of an individual, such as physical
(height, weight, appearance, health, etc), personal (self-confidence, dominance, adaptable,

6
extroversion/sociability, originality etc) and mental (intelligence, creativity, knowledge, technical
competence etc). A leader trait is a physical or personality characteristic that can be used to differentiate
leaders from followers.

Trait theory attempts to find traits that make a leader. That is, it is a theory, the old approach, which
focused on identifying the personal traits that differentiated leaders from followers. Trait theory originated
from an ancient theory called “Great Man” theory that assumes that “leaders are born not made”-a belief
dating back to the ancient Greeks and Romans.

The idea in trait theory was to see whether certain traits would predict the individuals who would emerge
(be identified by members of the group) as leaders.
In searching for measurable leadership traits, researchers took two approaches:
1) They attempted to compare the traits of those who emerged as leaders with the traits of those who did
not.
2) They attempted to compare the traits of effective leaders with those of ineffective leaders.

Studies that were conducted on the first category have failed to distinguish/uncover any traits that clearly
and consistently distinguish leaders from followers. Leaders as a group have been found to be somewhat
taller, brighter, more extroverted, persistent and more self-confident than non-leaders. However, millions
of people have these traits, but most of them obviously will never attain a leadership position. In addition,
many established leaders did not and do not have these traits. (Napoleon, for example, was quite short,
and Lincoln was moody and introverted.) Interestingly enough, studies have also found that people who
are too intelligent compared with other group members do not emerge as leaders-perhaps because they are
too different or too far removed from the group.

Studies that were conducted on the second category have generally failed to isolate traits that are strongly
associated with successful leadership.

Generally, the efforts to identify universal leadership traits ran into difficulties for the following reasons:
1. Not all leaders possess all the traits and many non-leaders may possess most of the traits.
2. It gives no guidance as to the magnitude of each trait for a person to be a leader.

7
3. No agreement has been reached as to what their relationships are to the actual instances of
leadership.
4. Traits tend to be a chicken-and-egg proposition i.e. Successful leaders may display traits such as good
vocabulary, education and self-confidence after they have assumed leadership positions.

B. Behavioral Theories
When it became evident that effective leaders did not seem to have any distinguishing traits or
characteristics, researchers tried to isolate the behaviors that made leaders effective. In other words, rather
than try to figure out what effective leaders were, researchers tried to determine what effective leaders
did, how they delegated tasks, how they communicated with and tried to motivate their subordinates, how
they carried out their tasks, and so no. This tries to answer the questions “What do effective leaders do?
What ineffective leaders don't do? How do subordinate react emotionally and behaviorally (performance)
to what the leader does?"

Two major dimensions of leader behavior emerged from this body of research; one deals with how leaders
get the job done and the other deals with how leaders treat and interact with their subordinates.

i. The University of Michigan Studies

Through interviewing leaders and followers, researchers at the University of Michigan identified two
distinct styles of leadership, referred to as .job-centered and employee - centered.
The job-centered leader practices close supervision on the subordinates‟ performance. This leader relies
on coercion, reward, and legitimate power to influence the behavior and performance of followers.
The employee-centered leader believes in delegating authority and supporting followers in satisfying
their needs by creating a supportive work environment. The employee centered leader is concerned with
followers', their personal advancement, growth and achievement.
ii. The Ohio State Studies
These studies isolated two leadership factors, referred to as initiating structure and consideration.
Initiating structure involves behavior in which the leader organizes and defines the relationship in
the group, tends to establish well-defined patterns and channels of communication, and spells out
ways of getting the job done.

8
Consideration involves behavior indicating sensitiveness to subordinates, respect their ideas and
feelings, establishes mutual trust and friendship between the leader and the followers.

In short, the behavioral theory attempted to identify effective leader behaviors that would work in
every situation. But researchers found that leader behaviors that worked best in one situation were not
often as effective in other situations.

C. The Contingency /Situational Leadership Theory

Situational leadership theory grows out of an attempt to explain the inconsistent findings about traits and
styles /behaviors. Situational theory proposes that the effectiveness of a particular style of leader behavior
depends on the situation. As situations change, different styles become appropriate. This directly changes
the idea of one best style of leadership. In other words, the contingency/situational theory holds that
appropriate leader traits or behaviors are contingent or dependent on relevant situational characteristics.
More specifically, the contingency leadership theory states that, leadership is the result of the interaction
of:
a. Leaders: behavior and competence
b. Followers: behavior and competence
c. Situations: situational variables such as job characteristics, organizational policies, leaders member
relations (the extent to which a leader has the support of group members), position power (the amount
of power that the organization gives the leader to accomplish necessary tasks).

D. Theory X and Theory Y Assumptions about People

A manager‟s philosophy about work and the people who perform the work will influence his/her approach
to leadership. Douglas McGregor has hypothesized two sets of assumptions about people that serve as a
philosophical base for leadership action. These are Theory X and Theory Y Assumptions.

Theory X – pessimistic and negative

A manager basing an operating philosophy on Theory X would impose a directive leadership style on the
individual or work group s/he is supervising. Coercion, negative motivation, and refusal to allow
employee participate in decision-making would probably be the actions of the manager.
Why? Because the manager assumes:

9
- The average human being has an inherent dislike of work and will avoid it if s/he can-workers are lazy.
- Because of this dislike, most people must be coerced, controlled, directed, and threatened with
punishment to get them to put forth adequate effort toward the achievement of organizational objectives.
- The average human being prefers to be directed, wishes to avoid responsibility, has relatively little
ambition and wants security above all.

McGregor‟s Theory X view of human nature holds that the dislike of work is so great that even the
promise of rewards will not overcome it. “People will accept the rewards and demand continually higher
ones, but these alone will not produce the necessary effort. Only the threat of punishment will do the trick.

Theory Y- adopts a developmental approach/ modern + positive set of assumptions

A manager with Theory Y assumption will prepare him/herself to work with people as individuals, to
involve people in the process of decision-making, to openly encourage people to seek responsibility and
to work with people achieve their goals.
Why? Because the manager assumes:
- The average human being does not inherently dislike work; the physical and mental effort involved is as
natural as play or rest.
- External control and threat of punishment are not the only means for bringing about effort toward
organizational objectives. A person will exercise self-direction and self control in the service of
objectives to which s/he is committed.
- People generally become committed to organizational objectives if they are rewarded for doing so.
- The average human being learns, under proper conditions, not only to accept, but also they seek
responsibility.
- Many people have a relatively high degree of imagination, ingenuity, and creativity in the solution of
organizational problems.
- The average person‟s intellectual potential is only partially utilized under the conditions of modern
industrial life.

The assumptions in Theory Y have remarkably different implications for managers than do those of
Theory X. Instead of blaming poor performance on basic human nature, Theory Y places squarely on
management the responsibility for tapping the reservoir of creativity, hard work, and imagination. The

10
 worker‟s performance is limited only by management‟s ability to use human resources effectively. Theory
Y also has implications for decision-making. Because it recognizes worker‟s intellectual potential, this
philosophy suggests that organizational goals are best achieved if workers have voice in decisions.
Participatory decisions making is especially important as it relates to a person‟s job. In addition, Theory Y
vie of human nature implies that a manager‟s role is not to manipulate workers; rather, it is to create an
atmosphere in which workers can use their commitment and involvement to satisfy their personal needs as
well as those of the organization.
6.3.Concept and meaning of Leadership Styles
Leadership style is the relative consistent pattern of behavior that characterizes a leader. The style of
an organization's leadership is reflected in both the nature of that firm and its relationships
with the community. The style of its leader defines an organization The focus on finding leadership
style (behavior patterns of leaders) is on the relationship between leaders‟ action and the reaction of
subordinates emotionally and behaviorally. A manager‟s leadership style is composed of three parts:
i. How the manager chooses to motivate subordinates
Motivation approach
Positive Negative
Responsibility Threats
Recognition Coercion
Praise Fines
Security Suspensions
Monetary Rewards Termination
ii. His/her decision-making style: the degree of decision-making authority the manager grants to
subordinates.
iii. His/her areas of emphasis (orientation) in the work environment: Task orientation, employee orientation

Based on the above points there are three types of leadership styles: Autocratic, Democratic, and Laissez-
faire.

1. Authoritarian/Autocratic Leadership Style

It is closely associated with the classical approach to management. The manager who follows this style is
dogmatic and leads by the ability to withhold or give rewards and punishment, i.e. motivation is through

11
 incentives and fear. In this style, decision-making is solely by the manager, in other words, the leader
retains all authority and responsibility. In the extreme case, the manager makes the decision and
announces it to the work group. There is no opportunity for input into the decision-making process by the
subordinates and communication is primarily downward. Variations of this approach find the manager
making the decision and then “Selling” it to employees or making the decision and allowing the group the
opportunity to ask questions. The autocratic leader is task-oriented and places little value on showing
consideration to subordinations as a leadership technique. The Autocratic manager uses Theory X
assumption as his philosophical base for leadership.

There are situations where managers are compelled/ forced to use this leadership style. Some are:
a. When there is a need to influence subordinates in favor of organizational objectives which has an
effect on individuals.
b. When subordinates are new, they need to be directed.
c. When the situation calls for unilateral decision-making – perhaps there is no enough time for quality
input from subordinates or the subordinates may lack information.

Limitations
- Employees‟/subordinates‟ ideas will not be used to solve organizational problems, which in some cases
subordinates may have better ideas than the superior about a particular problem.
- Subordinates would be demotivated, i.e. It may suppress individual initiative
- Poor implementation of decisions

2. Democratic/Participative Leadership Style

In this leadership style, the manager involves subordinates in making organizational decisions, shares
problems with them and shares authority to reach a decision. Subordinates take part in the decision-
making process through consultation. The leader delegates a great deal of authority while retaining
ultimate responsibility. Active two-way communication (upward and downward) exists. The democrat
leader uses Theory Y assumption as his/her philosophical base for leadership.

Limitations
1) Subordinates may be too involved to influence the manager even when there is no need.

12
2) The manager may not be able to influence the subordinates to the extent needed.

However, the major advantage of this leadership style is that, it enhances personal commitment through
participation.

The advantages of democratic leadership style are the disadvantages of the autocratic leadership style
after we make them opposite.

3. Laissez-Faire/Free-Rein Leadership Style

In this leadership style, leaders generally give the group complete freedom, provide the necessary
materials, participate only to answer questions, and avoid decision-making whenever possible. The leader
either sets limits and the followers work out their own problems, or the individuals set their own goals. In
this style, leaders depend largely on subordinates to set their own goals and the means of achieving them,
and they see their role as one of aiding the operations of followers by furnishing them information and
acting primarily as a contact with the groups external environment, i.e. the leader‟s role is to serve as a
logistics specialist or representative of the group to outside groups. The leader denies responsibility and
abdicates authority to the group.

The application of Laissez-Faire style can be found with individuals or groups that the manager views as
being knowledgeable, independent, or motivated. Additionally, if the work group is composed of high
achievers, or is highly research oriented, this style has potential benefits.
Primarily horizontal communication among peers exists.

Limitations
- Group may drift aimlessly in the absence of direction from leader.
- It may make things out of control.

Advantages
- It gives quite freedom for subordinates
- It gives much responsibility and self guidance for subordinates
- It permits self-starters to do things as they see fit without leader

13
4. Situational Leadership style
The situational leadership style states that for a manager to be democrat, autocratic or laissez-faire,
situations force him/her.

6.4 MOTIVATION
6.4.1 The Concept of Motivation
The term motivation derived from the Latin word mover meaning “to move.” In the present context,
motivation represents “those psychological processes that cause arousal, direction, and persistence of
voluntary actions that are goal oriented. Managers need to understand these psychological processes if
they are to successfully guide employees toward accomplishing organizational objectives.
 Motivation is an internal force that energizes behavior, gives direction to behavior, and underlies the
tendency to persist. This definition of motivation recognizes that in order to achieve goals, individuals
must be sufficiently stimulated and energetic, must have a clear focus or end in mind, and must be
willing and able to commit their energy for a long enough period of time to realize their aim. Since the
leading function of management involves influencing others to work toward organizational goals,
motivation is an important aspect of that function.

Because motivation is an internal force, we cannot measure the motivation of others directly. Instead, we
typically infer whether or not other individuals are motivated by watching their behavior. As managers
analyze their workforces, they can always see some people who outperform others of equal skill. A closer
look might reveal instances in which a person with outstanding talents is consistently outperformed by
someone having lesser talents. Why? These latter employees appear willing to exert more effort, to try
harder, to accomplish their goals, often these hard workers are described by their bosses as “motivated
employees.” Motivated individuals work hard, persist and are goal oriented.
Motivators
Motivators are things, which induce an individual to perform. While motivation reflects wants, motivators
are the identified rewards, or incentives that sharpen the derive to satisfy these wants. They are also the
means by which conflicting needs may be reconciled or one need heightened so that it will be given
priority over another. A motivator is something that influences an individual‟s behavior. It makes a
difference in what a person will do.

14
The Motivation Cycle
The starting point in this cycle is a need or a deficiency or a state of felt deprivation an individual
experiences at a particular time. This deficiency causes tension (physiological or psychological in
balance), which will be modified by one‟s culture and personality to cause certain wants leading
/motivating the individual to some kind of goal directed behavior. This leads to satisfaction and one cycle
of motivation will be completed.

The Motivation Process

1
Need deficiency

3 Need satisfaction Goal Directed behavior 2

From this we can understand that deficiency triggers a drive for need satisfaction, which causes an
individual to take a certain course of action that will alleviate a need and reduce a drive. The need for
food for example will result in hunger and hunger will drive or motivate the individual to take action
(eating food), which will achieve the goal. This goal attainment will restore the physiological or
psychological balance and reduce or cutoff the drive for food.

Motivation Vs Satisfaction
Motivation refers to the drive and effort to satisfy a want or a goal. Satisfaction refers to the contentment
experienced when a want is satisfied. In other words, motivation implies a drive toward an outcome, and
satisfaction is the outcome already experienced.

Satisfaction
Motivation Results

15
Motivation and Performance
All too often, motivation and performance are assumed to be one and the same. This faulty assumption
can lead to poor managerial decisions. The following formula for performance helps put motivation into
proper perspective:
Performance = Ability x Motivation x Environmental conditions
Thus, we see motivation is a necessary but insufficient contributor to job performance. The multiplication
sign is used to emphasize how a weakness in one factor can negate the other. The above relationship
between performance and motivation clearly shows us that managers should hire individuals who have the
ability to do what is required. After that, the management challenge is providing environmental conditions
that nurture and support individual motivation to work toward organizational goals. Keeping other
variables constant, motivation and performance have neither positive nor negative relationship. As
motivation increases, job performance increases, reaches its maximum and the decreases.
Optimal/maximum
-------
Performance

* After the optimal

point

further motivation brings

about anxiety, tenseness,

fretfulness, and the

anxiety eventually

decreases performance.

Motivation

6.4.2 Theories of Motivation

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 6.4.2.1 Carrot and Stick Approach
This metaphor relates the use of rewards and penalties in order to induce desired human behavior. It
comes from the old story that to make a donkey move one must put a carrot in front of it and if it does not
move beat it with stick from behind.

Despite all the researches and theories of motivation that have come to the fore in recent years, reward
and punishment are still recognized/considered by strong motivators. For centuries, however, they were
too often thought of as the only forces that could motivate people.

Carrot - money in the form of pay or bonuses.

Stick – fear such as fear of loss of job, loss of income, reduction of bonuses demotion or some other
penalty.

Failures of carrot and stick approach

1. Carrot can be obtained by any member of the organization without differentiation in performance –
through such practices as salary increases and promotion by seniority, automatic “merit” increases, and
executive bonuses not based on individual manager performance. It is as simple as this: If a person put
a donkey in a pen full of carrots and then stood outside with a carrot, would the donkey be encouraged
to come out of the pen?
2. Stick in the form of fear is not the best kind of motivating factor. It often gives rise to defensive or
refectory behavior, such as union organization, poor quality work, executive indifference, failure of a
manager to take any risk in decision-making, or even dishonesty.

6.4.2.2 Money as a Motivator

Even if under the carrot and stick approach money as a sole motivator has been criticized, it is used as a
motivator (motivating factor) but not the only one. Money can be used as a motivator under the following
conditions.
- For people who have low-level standards of living and who badly need it for their life.
- When the amount is so significant that the organization uses it for competitive purposes.
- When the payment is so differentiated that even at equal position discriminatory payment is made for
people with different levels of performance.

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 6.4.2.3 Maslow’s Need Hierarchy
One of the most widely mentioned theories of motivation is the hierarchy of needs theory put forth by
psychologist Abraham Maslow. Maslow proposed that motivation is a function of needs, and he also
proposed that human needs are arranged hierarchically (in a form of hierarchy). The hierarchy of needs is
based on four premises:

1. Only an unsatisfied need can influence behavior; a satisfied need is not a motivator. What motivates a
person is what s/he does not have but not what s/he has.
2. A person‟s needs are arranged in a priority order of importance. Thus, the priorities (hierarchy) go
from the most basic needs to the most complex.
3. As the person‟s needs are met on one level, the person advances to the next level of needs. S/he will
focus on the first level need until it is minimally satisfied before moving to the next level.
4. If satisfaction is not maintained for a once-satisfied need, it will become a priority need again.

Based on the above premises, Maslow proposed that human needs form a five-level hierarchy.

1. Physiological Needs
These are the basic needs for sustaining human life itself, such as food, water, air, shelter, sleep, etc.
Maslow took the position that until these needs are satisfied to the degree necessary to maintain life, other
needs will not motivate people. In other words, As Maslow points out, a person lacking food, love and
esteem wants food more than he/she wants acceptance or prestige. These other needs would be
unimportant. In the working environment, management tries to satisfy these needs primarily through
salary and by eliminating threats to physical safety.

2. Safety /Security Needs

When physiological needs are satisfied, safety needs become a priority as a motivator. Safety needs
include freedom from fear and anxiety, job security, desires for retirement and insurance programs and so
on. As with physiological needs, management attempts to satisfy safety needs primarily through salary.

3. Social/ Love/ Affiliation Needs

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Once we feel reasonably safe and secure, we turn our attention to relationships with others in order to
fulfill our belongingness needs, which involve the desire to affiliate with and be accepted by others i.e. the
need for friendship, companionship, and a place in a group. Love needs include both giving and receiving.
These needs are met by frequent interaction with fellow workers and acceptance by others.

4. Esteem Needs
Esteem needs include the desire for both self-esteem (self respect) and public esteem, and recognition by
others. These needs take two different forms. First, we have a need for competency, confidence and
independence. We also want the prestige, status, recognition and appreciation that others bestow on us.
Satisfying esteem needs produces self-worth-pride, self-confidence, and true sense of importance; not
satisfying them produces feelings of inability and inadequacy- feeling of inferiority, weakness and
helplessness. Esteem needs can be met in an organization through recognition by peers and superiors of
the person‟s work, by acquiring organizational titles and by the accomplishment of work projects.

5. Self-Actualization/Realization Needs
Refers to the need for fulfillment, the desire to become what one is capable of becoming-to maximize
one‟s potential and to accomplish something. For the athlete, it may be breaking a world‟s record; for the
research scientist, it may be finding a cure for HIV/AIDS; and for the physical therapist, it may be the
satisfaction of helping a child walk or laugh for the first time. In other words, these needs differ greatly
from person to person.

Maslow‟s theory suggested that people must satisfy lower-level (physiological needs) before working
toward higher-level needs. Only when physiological, security, and social needs have been more or less
satisfied do people seek esteem. This theory also suggests that if a lower-level need is suddenly
reactivated, the individual will try to satisfy that need rather than higher-level needs.

Maslow‟s hierarchy, although intuitively appealing and frequently used in management training, has not
found widespread support from management researchers. Beyond the first two basic needs, people vary in
their need emphasis. Some may seek social-need satisfaction, while others may emphasize esteem needs
or self-actualization needs. Thus, each individual may respond differently to organizational
characteristics. Moreover, the steps in Maslow‟s hierarchy may not be necessarily experienced in a

19
sequential manner. People may have more than one need at the same time. Situations detect which needs
are most important at a given point in time.

6.4.2.4 Herzberg’s Two Factor Theory

Herzberg developed a theory known as the two-factor theory of motivation. The initial framework for
the two-factor was derived from interviews with accountants and engineers using what is known as
the critical-incident method. The accountants and engineers were asked to provide interviewers with
examples of time they felt exceptionally good or exceptionally bad about their jobs or job related
issues that made them feel good or bad.

According to the analysis, although an unpleasant work environment might be a reason given for job
dissatisfaction, a pleasant work environment is rarely cited as a reason for job satisfaction. This
suggested that job satisfaction and job dissatisfaction are not simple opposites. Traditionally,
managers viewed job satisfaction and job dissatisfaction as opposite ends. In contrast, Herzberg's
findings suggested the opposite of satisfaction is not dissatisfaction, but rather „no satisfaction‟.
Herzberg believed that two entirely separate sets of factors contribute to an employee‟s behavior at
work.

Herzberg labeled the factors that produced job satisfaction as motivators. His analysis indicated
these factors are directly related to job content. The absence of motivational factors may not result in
dissatisfaction, but their presence is likely to motivate employees to excel. When motivators are
absent, workers are neutral toward work, but when motivators are present, workers are highly
motivated and satisfied. Herzberg labeled the factors that led to job dissatisfaction as hygienes and
found they are related more to the work setting, or job context, than to job content. These factors do
not necessarily motivate employees to excel, but their absence may be a potential source of
dissatisfaction, low morale, and high turnover. When hygiene factors are poor, work is dissatisfying.
However, good hygiene factors simply remove the dissatisfaction; they do not by themselves cause
people to become highly satisfied and motivated in their work.

Herzberg's Motivators and Hygiene's

20
 Motivators Leading to Job Hygienes Leading to
satisfaction Dissatisfaction

• Achievement • Policies and administration

• Recognition • Supervision
• Work it self • Relations with peers

• Responsibility • Working Condition

• Advancement • Pay
• Personal growth • Job Security

Thus, to the degree that motivators are present in a job, satisfaction will occur, when absent,
motivators do not lead to dissatisfaction. And, to the degree that hygienes are absent from a job,
dissatisfaction will occur, when present hygienes prevent dissatisfaction but do not lead to
satisfaction.

6.5 Communication in Organizations

Communication is the process of transmitting information among two or more people. It is the glue that
holds organizations together. Communication assists organizational member to accomplish both
individual and organizational goals, implement and respond to organizational change, coordinate
organizational activities, and engage in virtually all organizational relevant behaviors. It would be
extremely difficult to find an aspect of a manager's job that does not involve communication. In other
words communication is unavoidable in an organization's functioning. By its very nature a manager's job
requires communication. The success of every manager and every organization depends on
communication because in any undertaking involving two or more persons, it is essential for the
coordination of individual activities.

Formal and Informal Communications

Formal communication
This is a communication, which is intentionally designed by the organization. Information flows
through the formally established channel and is concerned with work related matters. Formal
communication includes; Downward communications, Upward communication, Horizontal
communication, and Diagonal communication.

21
Vertical communication is communication that involves a message exchange between two or more levels
of the organization hierarchy. Vertical communication can involve a manager and a subordinate or can
involve several layers of the hierarchy. It includes downward and upward communications.

Downward communication occurs when information is transmitted from higher to lower levels in an
organization. Downward communication starts with top management and flows down through the
management levels to line workers and non-supervisory personnel. The major purposes of downward
communication are to provide organization members with information about organizational goals and
policies. The kinds of media used for downward communication include instructions, speeches, meetings,
the telephone, grapevine, memoranda, letters, handbooks, pamphlets, policy statements, procedures, etc.

Upward communication – in such situations, the communicator is at a lower level in the organization
than the receiver. In other words, information flows from the subordinates to the superior. The main
function of upward communication is to supply information to the upper levels about what is happening at
lower levels. It includes the flow of opinions, ideas, complaints, progress reports, suggestions,
explanations, and requests for aid or decisions and other kinds of information from subordinates up to
managers. Typical means for upward communication besides the chain of command are suggestion
systems, appeal and grievance procedures, complaint systems, counseling sessions, group meetings, etc.

Horizontal communication is lateral message exchange either within work unit boundaries, involving
peers who report to the same supervisor, or across work unit boundaries, involving individuals who report
to different supervisors. It takes place among departments or people on the same level of hierarchy. It is
useful to coordinate activities. Horizontal communication can take many forms, including meetings,
reports, memos, telephone conversations, and face-to-face discussions between individuals.

Diagonal communication involves the flow of information among departments or individuals on

different levels of the hierarchy. This occurs often in the case of line and staff departments, in which the
staff has functional authority. It is also common to find diagonal communication among line departments,
again in which one of them has functional authority. The use of diagonal channel would minimize the
time and effort expended by the organization (upward and then horizontal).

22
 Vertical communication (downward)

Horizontal communication
Vertical communication (upward)
Diagonal communication

Informal Communication
It is a communication, which is not deliberately designed by the organization. It is rather created by
informal groups in order to satisfy their need to interact and share information among themselves. In the
informal communication, information flows in unstructured and unpredictable ways. In other words, it
is a structure less network. Informal communication channel is commonly termed as grapevine because
of its structure less direction of flow. Normally the information which flow in grave vine is considered
to be secret or confidential.

23
 CHAPTER 7

THE CONTROLLIGN FUNCTION

7.1 Meaning and importance of controlling
MEANING
Controlling is the process through which managers assure that actual activities conform to the
planned activities. Controlling is the process of regulating organizational activities so that
actual performance conforms to expected organizational standards and goals. It is checking
current performance against predetermined standards contained in the plans.
IMPORTANCE OF CONTROLLING
All the good planning efforts and brilliant ideas in the world do little good if a firm has no
system of managing control. Control, therefore, is an essential part of effective organizational
management. Specifically, control helps an organization adapt to changing conditions, limit
magnification of errors and provide the means to monitor performance.
1.Adapting to changing conditions: in today’s dynamic and unpredictable business
environment, control plays a crucial role than ever. A properly designed control system allows
managers to effectively anticipate, monitor, and respond to often constantly changing
conditions.
2.Limiting the magnification of errors: generally, a small error or mistake does not adversely
affect organizational operation. However, a small error/mistake left uncorrected (perhaps one
undetected as a result of a lack of control) may be magnified with the progress of time,
eventually harming the whole organization.

3.Another purpose of controlling is to determine whether people and the various parts of an
organization are on target, achieving the progress toward their objectives that they planned to
achieve. Planning chooses goals and maps out the necessary strategy and tactics. Controlling
attempts to prevent failure (and to promote success) by providing the means to monitor the
performances of individuals, departments, divisions, and the entire organization.

The controlling process is closely associated with the other three functions of management:
planning, organizing and leading. It builds most directly on the planning function by

1
providing the means for monitoring and making adjustment in performance so that plan can
be realized. Still, controlling also supports the organizing and leading functions by helping
ensure those resources are channeled toward organizational objectives. A combination of
well-planned objectives, strong organization, capable direction and motivation has little
probability of success unless there exists an adequate system of control. Planning, organizing,
staffing and directing must be monitored to maintain their effectiveness and efficiency.
7.2 THE CONTROLLING PROCESS
Although control systems must be tailored to specific situations, such systems generally
follow the same basic process. The controlling process has five major steps.
1. Determine Areas to Control
The first major step in the control process is determining the major areas to control, i.e.
identify critical control points. Critical control points include all the areas of an organization's
operations that directly affect the success of its key operations, areas where failures can not be
tolerated, and costs in time and money are greatest. Managers must make choices because it is
expensive and virtually impossible to control every aspect of an organization’s activities. In
addition, employees often resent having their every move controlled. Managers usually base
their major controls on the organizational goals and objectives developed during the planning
process.
2. Establishing Standards
Standards are units of measurements established by management to serve as benchmarks for
comparing performance levels. They spell out specific criteria for evaluating performance and
related employee behaviors. The exact nature of the standards to be used depends on what is
being monitored.
Standards, if possible, must be
- Specific and quantitative as much as possible.
- Flexible to adopt the changes that may occur over the future.
- Challenging and should aim for improvement over past performance.
Generally, standards serve three major purposes related to employee behavior. For one thing,
standards enable employees to understand what is expected and how their work will be
evaluated. This helps employees do an effective job. For another, standards provide a basis for
detecting job difficulties related to personal limitations of organization members. Such

2
limitation can be based on a lack of ability, training, or experience or on any other job-related
deficiency that prevents an individual from performing properly on the job. Timely
identification of deficiencies makes it possible to take corrective action before the difficulties
become serious and possibly irresolvable. Finally, standards help reduce the potential negative
effects of goal incongruence. Goal incongruence is a condition in which there are major
incompatibilities between goals of an organization member and those of the organization.
Such incompatibilities can occur for a variety of reasons, such as lack of support for
organizational objectives (e.g. an employee views the job as temporary and attempts to do the
minimum), and often result in behaviors that are incompatible with reaching organizational
goals. One common manifestation of goal incongruence is employee theft, which includes
wasting an organization's resources, as well as taking equipment, materials and money.
There are three types of standards: performance standards, corollary standards and standards
of conduct.
Performance standards deal with quality, quantity, cost and time.
Corollary standards support a given level of performance. These include minimum personnel
requirements and adequate physical resources, such as when a company knows it will need at
least five hundred workers and well-equipped factory to produce a certain number of
terminals.
Standards of conduct are moral and ethical criteria that shape the behavioral climate of the
work place. They originate from law, custom and religious beliefs.
Examples of standards: Producing 800,000 units per year, increasing market share by 20%,
cutting costs by 15%, answering all customer complaints within 24 hours.
3. Measuring Actual Performance
Once standards are determined, the next step is measuring performance. For a given standard,
a manager must decide both how to1 measure actual performance and how often2 to do so.

1 The means of measuring performance will depend on the standards that have been set.
2 The period of measurement generally depends upon the importance of the goal to the
organization, how quickly the situation is likely to change, and the difficulty and
expense of rectifying a problem if one were to occur.

3
4. Comparing Performance against the Standards
This is a step where comparison is made between the ―what is‖ and the ―what should be.‖
Managers often base their comparisons on information provided in reports (oral and written)
that summarize planned versus actual results, and by working around work areas and
observing conditions, a practice sometimes referred to as Management by Wondering Around
(MBWA). The purpose of comparing actual performance against intended performance is, of
course, to determine if corrective action is needed.
Consequently, the comparison result may show that the actual performance exceeds (positive
deviation), meets (zero deviation), or falls below (negative deviation) expectations
(standards). Accordingly, if performance fulfills expectations (meets standards), no control
problem exists. However, if performance exceeds or fails to meet expectations, further
investigation is required to determine the cause. Performance that exceeds expectations may
mean either superior talent or inappropriately set standards. A performance that fails to meet
expectation may likely mean inappropriately set standards, poor talent or improper use of
resources. The key question in both cases will be, ―How much variation from standards is
acceptable before action is taken?‖ The answer to this question will lead to the development
of ranges defining upper and lower limits. And performance outside of acceptable range
servers as a red flag calling for taking the necessary corrective action.
The managerial principle of exception states that control is enhanced by concentrating on
exceptions, or significant deviations from the expected result or standard. Therefore, in
comparing performance with standards managers need to direct attention to the exception, and
by doing so, managers can save time and effort.
5. Taking Corrective Action (on time)
The corrective action to be taken depends up on the type of deviation that exists. When
performance exactly meets (deviation of zero) or exceeds (positive deviation) the standards
set, usually no corrective action is necessary. However, managers do need to consider
recognizing the positive performance. The type of recognition given can vary from a verbal
―well done‖ for a routine achievement to more substantial rewards, such as bonuses, training
opportunities, or pay raises, for major achievements or consistently good work. Yet, favorable
deviations should be examined to understand such success. When standards are not met,
managers must carefully assess the reason why and take corrective action. During this

4
evaluation, managers often personally check the standards and the related performance
measures to determine whether these are still realistic. Sometimes, managers may conclude
that the standards are, in fact, inappropriate-usually because of changing conditions-and that
corrective action to meet standards is therefore not desirable. More often, though, corrective
actions are needed to reach the standards. The standards may have been based on historical
data which may be inappropriate to current conditions. In such instances, the past is a poor
basis on which to predict the future. Similarly, the use of comparative standards may prove to
be problematic since no two organizations are alike.

In taking corrective actions, managers must carefully avoid two types of errors: taking
corrective action when no action is warranted and failing to take corrective action when it is
clearly needed.

7.3 TYPES OF CONTROLLING

In addition to determining the areas they want to control, managers need to consider the types
of controls that they wish to use. Based on the time period in which control is applied in
relation to the operation being performed, or the stage of productive cycle in which
controlling is carried out, there are three basic types of controls: preventive, concurrent, and
feedback. Thus, an organization’s performance can be monitored and controlled at three
points: before, during, or after an activity is completed.

1. Preventive/Steering/ Preliminary / Input Control

Preventive control focuses on the regulation of inputs to ensure that they meet the standards
necessary for the transformation process. It attempts to monitor the quality and/or quantity of
resources (financial, physical, human and information) before they become part of the system.
Preventive control is future oriented and takes place before the operation begins. It focuses on
prevention in order to preclude later serious difficulties in the production process - its aim is
to prevent problems before they arise. Nevertheless, since preventive control can’t cover
every possible contingency, other type of controls may also be needed.

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E.g. Entrance exams for colleges and universities, policies, rules, procedures, proper
selection and training of employees, inspecting raw materials, the implementation of
induction and orientation programs-save trial and error cost, frustration of employee.
Preventive control comes from an old saying ―A gram of prevention is worth a kg of cure.‖

2. Concurrent/Screening/ Yes-No/Checking Control

Concurrent control involves the regulation of ongoing activities that are part of the
transformational process to ensure that they conform to organizational standards. It is
designed to detect and anticipate deviations from standards at various points throughout the
processes, i.e. the controlling is carried out during the actual transformation process. The
emphasis here is on identifying difficulties in the production process that could result in faulty
outputs.

Because concurrent controls involve the monitoring of ongoing activities, they are the only
controls that can cope with contingencies (unexpected events) that cannot be anticipated.
When contingencies arise involving activities in a transformation process, a yes/no decision is
required. That is, decision must be made whether to continue as before or follow an
alternative course, or take corrective action, or stop working altogether. In this way,
concurrent controls allow adjustments to be made while work is being done.
E.g. On the job training, on the spot observation, exams, tests, quizzes

3. Feedback/Post-Action/ Output Control

As the name indicates post action control focuses on the end results of the process. It is
regulation exercised after the product (goods or services) has been completed in order to
ensure that the final output meets organizational goals and standards. The information derived
is not used for corrective action on a project because it has been completed.

The feedback control provides information for a manager to examine and apply to future
activities that are similar to the present one. That is why it is called ―historical results guide
future actions.‖ The purpose of feedback control is to help prevent mistakes in the future and

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 also it can be used as a base for reward; and in cases where other (preliminary & concurrent)
controls are too costly.

E.g. Performance evaluation, financial statement analysis, final exams

Fig: Major Control Types by Timing

Controls Controls Control

INPUTS TRANSFORMATION OUTPUTS

Controls Controls Controls

Preventive Control Concurrent Control Feedback Control

7.4 Techniques of control

1. Financial Controls
Every business wants to earn a profit. To achieve this goal, managers need financial controls.
For instance, they might analyze quarterly income statements for excessive expenses. They
might also calculate financial ratios to ensure that sufficient cash is available to pay ongoing
expenses, that debt levels haven’t become too high, or that assets are being used
productively
2. Balanced Scorecard
The balanced scorecard approach is a way to evaluate organizational performance from more
than just the financial perspective. A balanced scorecard typically looks at four areas that
contribute to a company’s performance: financial, customer, internal processes,and
people/innovation/growth assets. According to this approach, managers should develop goals
in each of the four areas and then measure whether the goals are being met.
3. Information Controls

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Managers need the right information at the right time and in the right amount to monitor and
measure organizational activities and performance. In measuring actual performance,
managers need information about what is happening within their area of responsibility and
about the standards in order to be able to compare actual performance with the standard. They
also rely on information to help them determine if deviations are acceptable. Finally, they rely
on information to help them develop appropriate courses of action. Information is important!
Most of the information tools that managers use come from the organization’s management
information system
4. Benchmarking of Best Practices
Managers in such diverse industries as health care, education, and financial services are
discovering what manufacturers have long recognized—the benefits of benchmarking, which
is the search for the best practices among competitors or noncompetitors that lead to their
superior performance. Benchmarking should identify various benchmarks, which are the
standards of excellence against which to measure and compare. At its most basic,
benchmarking means learning from others. As a tool for monitoring and measuring
organizational performance, benchmarking can be used to identify specific performance gaps
and potential areas of improvement.

7.5 CHARACTERISTICS OF AN EFFECTIVE CONTROL SYSTEM

Controls may have many different characteristics, but some of the most important are:
Future–Oriented
To be effective, control systems need to help regulate future events, rather than fix blame for
past events. A well designed control system focuses on letting managers know how work is
progressing toward unit objectives, pinpointing unforeseen opportunities that might be
developed – all aids to future action
Multidimensional
In most cases, control systems need to be multidimensional in order to capture the major
relevant performance factors, such as, quality, quantity, overhead, etc.
Economically Realistic/ Cost Effective

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The cost of implementing a control system should be less, or at most, equal to the benefits
derived from the control system. The benefits received from controls should off-set their
expenses.

Accurate
Since control systems provide the basis for future actions, accuracy is vital. Control data that
are inaccurate may be worse than no control at all, since managers may make poor decisions
on the basis of faulty data they believe to be accurate. An inaccurate data from a control
system can cause the organization to take action that will either fail to correct a problem or
create a problem when none existent. Evaluating the accuracy of the information they receive
is one of the most important control tasks that managers face.

Acceptable to Organization Members

Control systems operate best when they are accepted by the organization members who are
affected by them. Otherwise, members may take actions to override and undermine controls;
i.e. controls will not work unless people want them to. Too many, arbitrary, too few and too
rigid controls often cause the satisfaction and motivation of employees to decline.
Timely
Control systems are designed to provide data on the state of a given production cycle or
process as of a specific time. In order for managers and employees to respond promptly to
irregularities, control systems must provide relevant information soon enough to allow
corrective action before there are serious repercussions or consequences.
Reliability and Validity
Controls not only must be dependable (reliable), but also must measure what they intend to
measure (must be valid). When controls can’t be relied on and are invalid, they are unlikely to
be trusted and can lead to very bad consequences.
Monitorable
Another desirable characteristic of control system is that they can be monitored to ensure that
they are performing as expected. One way of checking a control system is to deliberately
insert an imperfection, such as a defective part, and then observe how long it takes the system
to detect and report it to the correct individual.

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Organizationally Realistic
The control system has to be compatible with organizational realities. All standards for
performance must be realistic. Status differences between individuals have to be recognized.
Individuals have to be able to see a relationship between performance levels they are asked to
achieve and rewards that will follow.

Flexible
Just as organizations must be flexible to respond rapidly to changing environments, control
systems need to be flexible enough to meet new or revised requirements. Accordingly, they
should be designed so that they can be changed quickly to measure and report new
information and track new endeavors.

Focus on Critical Control Points

Critical control points include all the areas of an organization’s operations that directly affect
the success of its key operations. The focus should be on those areas where failures cannot be
tolerated and where that costs in time and money are the greatest.

Easy to Understand
Complexity often means lack of understanding. The simpler the control, the easier it will be to
understand and apply. Controls often become complex because more than one person is
responsible for creating, implementing or interpreting them.

Emphasis on Exception
A good system of control should work on the exception principle, so that only important
deviations are brought to the attention of management. In other words management does not
have to bother with activities that are running smoothly. This will ensure that managerial
attention is directed towards error and not towards conformity. This would eliminate
unnecessary and uneconomic supervision, marginally beneficial reporting and waste of
managerial time.

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Over control versus Under control
Since excessive amount of control can make the occurrence of dysfunctional aspects of
control systems more likely, managers need to avoid over control. Overcontrol is the limiting
of individual job autonomy to such a point that it seriously inhibits effective job performance.
At the same time, managers need to avoid going too far in the other direction, which results in
a situation of undercontrol. Undercontrol is the granting of autonomy to an employee to such
a point that the organization loses its ability to direct the individual's efforts toward achieving
organizational goals.

Determining the appropriate amount of control that should exist in organizations is a

significant management decision. With the appropriate amount of control, a manager can be
reasonably certain that no major unpleasant surprises will occur and that employees will
achieve organizational goals.

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