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UNIT – 1
INTRODUCTION TO MANAGEMENT AND ORGANIZATIONS

Syllabus
Definition of Management – Science or Art – Manager Vs Entrepreneur - types of
managers -managerial roles and skills – Evolution of Management – Scientific, human
relations , system and contingency approaches – Types of Business organization - Sole
proprietorship, partnership, company-public and private sector enterprises -
Organization culture and Environment – Current trends and issues in Management

1.0 Management:
Management is the process of planning, organizing, leading and controlling the
resources of an organization in the efficient and effective pursuit (pursuit means search)
of specified organizational goal

1.1 Scope of Management

Management is needed in all types of organized activities. Moreover,
management principles are applicable to all types of organizations, including profit-
seeking organizations (industrial firms, banks, insurance companies, small business,
etc.) and not-for-profit organizations (governmental organizations, health care
organizations. educations organizations, churches, etc.). Any group of two or more
people working to achieve a goal and having resources at its disposal is engaged in
management. Obviously, a manager's job is somewhat different in different types of
organizations, exists in unique environments, and uses different technology. However,
all organizations need the common basic activities: planning, organizing, leading, and
controlling.
Management is also universal in that it uses a systematic body of knowledge
including economics, sociology, and laws. This knowledge can be applied to all
organizations, whether business, or government, or religious, and it is applicable at all
levels of management in same organizations.
1.1.1 Features of Management
 Organized activities
 Existence of objectives
 Relationship among resources
 Working with & Through people
 Decision- Making
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1.1.2 Importance of Management

 Effective Utilization of Resources
 Development of Resources
 To Incorporate Innovations
 Integrating Various Interest Groups
 Stability in the Society

1.1.3 SKILLs of Management

 Technical skills
 Human skills
 Conceptual skills

1.1.4 Functions of management

Planning : Determination of short term and long term objectives
Development of strategies to achieve the objectives

Organizing : Identification of activities to achieve the objectives

Matching job and employees
Establishing coordinating relationships

Leading Staffing
Manpower requirement
Selection, training and development of
employees.
Directing
Communication
Motivation
leadership

Controlling : Establishing standard of performance

Measuring current performance
Comparing
Corrective action to rectify the deviation
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1.1.5 Level of management

Level Roles

Top Level Management  Top management lays down the objectives and
(Administration Level) broad policies of the enterprise.
 It issues necessary instructions for preparation of
department budgets, procedures, schedules etc.
 It prepares strategic plans & policies for the
enterprise.
 It appoints the executive for middle level i.e.
departmental managers.
 It controls & coordinates the activities of all the
departments.
 It is also responsible for maintaining a contact with
the outside world.
 It provides guidance and direction.
 The top management is also responsible towards
the shareholders for the performance of the
enterprise.

Middle level  They execute the plans of the organization in

management accordance with the policies and directives of the
(Manager, Executive top management.
officer)  They make plans for the sub-units of the
organization.
 They participate in employment & training of lower
level management.
 They interpret and explain policies from top level
management to lower level.
 They are responsible for coordinating the activities
within the division or department.
 It also sends important reports and other important
data to top level management.
 They evaluate performance of junior managers.
 They are also responsible for inspiring lower level
managers towards better performance.

Lower level Management  Assigning of jobs and tasks to various workers.

(Supervisory / Operative  They guide and instruct workers for day to day
/ First-line managers) activities.
 They are responsible for the quality as well as
quantity of production.
 They are also entrusted with the responsibility of
maintaining good relation in the organization.
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 They communicate workers problems, suggestions,

and recommendatory appeals etc to the higher level
and higher level goals and objectives to the
workers.
 They help to solve the grievances of the workers.
 They supervise & guide the sub-ordinates.
 They are responsible for providing training to the
workers.
 They arrange necessary materials, machines, tools
etc for getting the things done.
 They prepare periodical reports about the
performance of the workers.
 They ensure discipline in the enterprise.
 They motivate workers.
 They are the image builders of the enterprise
because they are in direct contact with the workers.

1.1.6 Operational information:

Operational information relates to the day-to-day operations of the organization
and thus, is useful in exercising control over the operations that are repetitive in nature.
Since such activities are controlled at lower levels of management, operational
information is needed by the lower management.
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For example, the information regarding the cash position on day-to-day basis is
monitored and controlled at the lower levels of management. Similarly, in marketing
function, daily and weekly sales information is used by lower level manager to monitor
the performance of the sales force.

1.1.7 Tactical information:

Tactical information helps middle level managers allocating resources and
establishing controls to implement the top level plans of the organization. For example,
information regarding the alternative sources of funds and their uses in the short run,
opportunities for deployment of surplus funds in short- term securities, etc. may be
required at the middle levels of management.
The tactical information is generally predictive, focusing on short-term trends. It
may be partly current and partly historical, and may come from internal as well as
external sources.

1.1.8 Strategic Information

The strategic information helps in identifying and evaluating these options so that
a manager makes informed choices which are different from the competitors and the
limitations of what the rivals are doing or planning to do. Such choices are made by
leaders only.
Strategic information is used by managers to define goals and priorities, initiate
new programmes and develop policies for acquisition and use of corporate resources.
For example, information regarding the long-term needs of funds for on-going and future
projects of the company may be used by top level managers in taking decision
regarding going public or approaching financial institutions for term loan.

1.2 Management & Administration

Administration
“Administration is that phase of business enterprise that concerns itself with the
overall determination of institutional objectives & the policies necessary to be followed in
achieving those objectives.”
Management
“Management on the other hand, is an executive function which is primarily
concerned with carrying out broad policies laid down by the administration”
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1.2.1 Comparison of Management & Administration

Sl.No Basis of Administration Management

difference

1 Level in Top level Middle & lower

organization

2 Major focus Policy formulation & Policy execution for

objective objective achievement
determination

3 Nature of Determinative Executive

functions

4 Scope of Broad & conceptual Narrow & operational

functions

5 Factors Mostly external Mostly internal

affecting
decisions
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6 Employer- Entrepreneurs & Employees

employee owners
relation

7 Qualities Administrative Technical

required

1.3 Managing: Science or Art?

The best response to the question of whether management is an art or a science is that
it is both. Managing, like all other practices (e.g., music composition, medicine, or even
tennis) is an art. To manage effectively, peoples must have not only the necessary
abilities to lead but also a set of critical skills acquired through time, experience, and
practice. If we define art as a personal aptitude or skill, then management has certain
artistic components.
On the other hand, the organized knowledge underlying the practice may be referred to
as a science. To perform at high levels in a variety of situations, managers must be able
to draw on the sciences - particularly economics, sociology, mathematics, political
science, psychology, and political science - for assistance and guidance.
The tasks of modern managers require the use of techniques, practices, and skills. In
this context science and art not mutually exclusive but complementary.
1.3.1 Management as an Art
Art involves the systematic application of theoretical knowledge and personal
skills to achieve desired results. The function of art is to effect change and to bring
about desired results through deliberate efforts. Art represents 'how' of human behavior
because it is the know-how to accomplish concrete practical results.
Art is a personalized process as every artist has his own style. Art is essentially
creative and the success of an artist is measured by the results he achieves. A
carpenter making furniture out of wood and a goldsmith shaping gold into ornaments
are examples of art.
Art prescribes how to do things and it can be improved through continuous
practice. Art is result-oriented involving practical way of doing specific things.
It consists of bringing about desired results through the use of skills. Art involves
practical application of theoretical knowledge.
Management is essentially an art because of the following reasons:
(a) The process of management involves the use of knowledge and skills. Every
manager has to apply certain knowhow and skills while dealing with people.
(b) Management seeks to achieve concrete practical results, e.g., profits, service,
etc. According to Prof. John F. Mee, "management is the art of securing maximum
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results with a minimum of effort so as to secure maximum prosperity and happiness for
both employer and employee and give the public best possible service."
(c) Like any other art, management is creative. It brings out new situations and
makes resources productive. In fact, management is one" of the most creative arts
because it requires molding and welding the attitudes and behavior of people at work for
the accomplishment of specific goals in a changing environment.
It is the art of securing desired response from people. Management makes things
happen.
(d) Like any other art, management is a personalized process. Every manager
has his own approach and technique depending upon his perception and the
environmental conditions.
(e) As an art, management requires judgment and skills. The art of management
can be refined with continuous practice of management theories and principles.
The art of management is as old as human civilization. The importance of
management art has increased with rapid growth in the number size and complexity of
organizations.

1.3.2 Management as a Science:

Science is an organized or systematized body of knowledge pertaining to a
particular field of enquiry. Science is systematized in the sense that it establishes cause
and effect relationship between different variables.
Such systematized body of knowledge contains concepts, principles and theories
which help to explain past events and to predict the outcome of specific actions. These
principles are capable of universal application, i.e., they can be applied under different
situations. They represent fundamental truths derived through empirical results. These
principles or basic truths are developed through scientific methods of continuous
observation, experiment and testing.
When generalizations or hypotheses are empirically verified for accuracy through
continuous observation and experimentation they become principles. Science explains
'why' of human behavior.
Management is a science because it contains all the characteristics of science.
Firstly, there is a systematized body of knowledge in management. Principles are now
available in every function of management and these principles help to improve
managerial effectiveness. For instance, there are a number of principles which serve as
guidelines for delegating authority and thereby designing an effective organization
structure. Similarly, there are several techniques (ways of doing things) in the field of
management.
Budgeting, cost accounting, ratio analysis, rate of return on investment, critical
path method (CPM), programed evaluation and review technique (PERT) are some of
these techniques which facilitate better management. Secondly, principles of
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management have been developed through continuous observations and empirical

verification. Thirdly, management principles are capable of universal application.

1.4 Difference between Entrepreneur and Manager

Sl.No. Criteria Entrepreneur Manager

1 Motive The main motive of an But, the main motive of a

entrepreneur is to start a manager is to render his
venture by setting up an services in an enterprise
enterprise. He understands already set up by someone
the venture for his personal else i.e., entrepreneur.
gratification.

2 Status An entrepreneur is the owner A manager is the servant in

of the enterprise. the enterprise owned by the
entrepreneur.

3 Risk Bearing An entrepreneur being the A manager as a servant does

owner of the enterprise not bear any risk involved in
assumes all risks and the enterprise.
uncertainty involved in running
the enterprise.

4 Rewards The reward an entrepreneur A manager gets salary as

gets for bearing risks involved reward for the services
in the enterprise is profit which rendered by him in the
is highly uncertain. enterprise. Salary of a
manager is certain and fixed.

5 Innovation Entrepreneur himself thinks But, what a manager does is

over what and how to produce simply to execute the plans
goods to meet the changing prepared by the entrepreneur.
demands of the customers. Thus, a manager simply
Hence, he acts as an translates the entrepreneur’s
innovator also called a ideas into practice.
‘change agent’

6 Qualifications An entrepreneur needs to On the contrary, a manager

possess qualities and needs to possess distinct
qualifications like high qualifications in terms of
achievement motive, origi- sound knowledge in
nality in thinking, foresight, management theory and
risk -bearing ability and so on. practice
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1.5 Manager
A manager is someone whose primary activities are a part of the management
process. In particular, a manager is someone who plans, organizes, leads, and controls
human, financial, physical, and information resources."
The success or failure of an organization depends heavily on the ability of its
managers to perform these tasks effectively. Managers can be classified in two ways:
by their level within the organization and by the scope of their responsibilities.

1.5.1 Types of Managers

Managers are mostly typecast according to the different types of management
styles, personality, function and involvement. The role of a manager, on a general note,
is to get things done by others by making optimum use of available resources,
exercising authority over and taking responsibility for all such resources that are
allocated to be under his/her supervision.

Based on organizational functions, the following manager types in a standard

commercial organization.

1. Purchase Manager who is responsible for procuring raw materials in a

manufacturing company.
2. Production Manager who is responsible for managing the manufacturing
process.
3. IT Manager who is responsible for supervising all computing and IT
communication related issues.
4. Marketing Manager who is responsible for supervising the promotion and
advertising of the company's products/services.
5. Sales Manager who looks after the sales department and sets targets for sales
personnel and appraises their performance on the basis of the extent of target
achievement.
6. Finance Manager who is responsible for the financial management of the
organization.
7. Human Resources Manager who is responsible for the HR department and
oversees all human resource management functions like recruitment, payroll,
attendance, employee exit, etc. besides displaying all basic management skills.
8. Product Development Manager who is authorized with the management of the
technical division of new product design and product innovation.

Other than these, a standard company may have a general manager and an
operational manager, depending upon the type and scale of its operations.
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Software development and testing companies also have two types of project
managers
1. Functional project managers who are deeply involved with every technical
aspect of the project
2. Activity or resource managers who manage the operational and people part of
the project, leaving the technical aspects to his subordinate IT professionals.

In most companies these days, we can see another school of managers called case
managers. These case managers are chiefly vested with the responsibility of attending
to employees' medical well-being There are, broadly, two types of case managers –
1. Medical case managers who are responsible for getting medical aid for
emergency medical contingencies of the employees and
2. Liaison case managers who act as the mediator between the medical
professionals and the employer organization.

1.5.2 Types of Managers Based on Management Styles

There can be the following sorts of managers based upon the four most prominent
types of management styles. Each subheading underlines different aspects of
management styles and techniques.

The Authoritarian Manager is one who is the sole decision maker for his management
unit and prefers his subordinates to perform their tasks exactly as outlined by him. In a
way, this type of manager makes work easier for the employee as the latter knows
exactly what is expected of him/her and the way in which the task is to be performed.
The thinking part is left to the boss while the doing part lies with the subordinate. This
type of manager displays management skills of strong leadership and direction but may
lack the skill for delegation.

The Democratic Manager is that person who believes in majority consensus and takes
any decision only after consulting his/her subordinates. This type of manager displays
participative management style by allowing his subordinates' participation in the
decision-making process, giving them a sense of belonging and deeper involvement in
the organizational fabric.

The Paternalistic manager is the one who acts like a parent figure to his subordinates
and makes sure to regularly bond with his subordinates to listen to their professional
issues and lend a helping hand to ease their operational difficulties. A paternalistic
manager encourages his subordinates to work as a family and be supportive of the
collective effort for the bigger organizational well-being.

The Laissez Faire Manager communicates the tasks to be performed by his

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subordinates and sets targets and deadlines for the completion of such tasks.
Thereafter he leaves the method to the subordinates. As long as the employees
complete the task in line with the organizational standards and within the specific
deadline, it doesn't matter what methods are employed by them to do so.

1. THE PROBLEM-SOLVING MANAGER

The Problem-Solving Manager is task driven and focused on achieving goals.
These problem-solvers are constantly putting out fires and leading their teams. The
paradox here is this: It is often the manager who creates the very problems and
situations that they work so hard to avoid. Continually providing solutions often results in
the lackluster team performance they are working so diligently to eliminate.

2. THE PITCHFORK MANAGER

People who manage by pitchfork lead their teams with a heavy and often
controlling hand: demanding progress, forcing accountability, prodding and pushing for
results through the use of threats and fear tactics. This style of tough, ruthless
management is painful for employees who are pushed to avoid consequences rather
than pulled toward a desired goal.

3. THE PONTIFICATING MANAGER

These managers will readily admit they don’t follow any particular type of
management strategy. Instead, they shoot from the hip, making it up as they go along
and often generating sporadic, inconsistent results. Because of this, they often find
themselves in situations they are unprepared for. Interestingly, the Pontificating
Manager thrives on situations like this.

4. THE PRESUMPTUOUS MANAGER

Presumptuous Managers focus more on themselves than anything else. Their
personal production, recognition, sales quotas, and bonuses take precedence over their
people. As you can imagine, these managers experience more attrition, turnover, and
employee problems than any other type of manager.
Presumptuous Managers are typically assertive and confident individuals; however,
they are too often driven by their egos to look good and outperform the rest of the team.
Presumptuous Managers breed unhealthy competition rather than an environment of
collaboration.

5. THE PERFECT MANAGER

Perfect Managers are open to change and innovation, and committed to
improving and evolving as sales managers. But in their search for the latest and
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greatest approach, Perfect Managers (like Pontificating Managers) never get to

experience the benefit of consistency.
This manager is a talking spec sheet. Their emphasis on acquiring more facts, figures,
features, and benefits overshadows their ability to recognize the critical need for soft
skills training around the areas of presenting, listening, questioning, prospecting, and
the importance of following an organized, strategic selling system. Perfect Managers
rely on their vast amount of product knowledge and experience when managing and
developing their salespeople. Because of this great imbalance, these managers often
fall short on developing interpersonal skills that would make them more human than
machine.

6. THE PASSIVE MANAGER

Also referred to as Parenting Managers or Pleasing Managers,
Passive Managers have one ultimate goal: to make people happy. While this is certainly
an admirable trait, it can quickly become a barrier to effective leadership.
You can spot a Passive Manager by looking at their team and assessing the
number of people who should have been fired long ago. Because all that Passive
Managers want to do is please, they are timid in their management approach. These
managers will do anything to avoid confrontation and struggle with holding their people
accountable for failures or shortcomings.

7. THE PROACTIVE MANAGER

The Proactive Manager encompasses all the good qualities that the other types of
managers possess, yet without their pitfalls. Here are the characteristics this ideal
manager embodies, which you should strive to develop yourself. The Proactive
Manager possesses:

 The drive to support others and spearhead solutions like the Problem-Solving
Manager
 The persistence, edge, and genuine authenticity of the Pitchfork Manager
 The enthusiasm, passion, charm, and presence of the Pontificating Manager
 The confidence of the Presumptuous Manager
 The knowledge, sales acumen, efficiency, focus, and passion of the Perfect
Manager
 The respectfulness, sensitivity, nurturing ability, and humanity of the
Passive Manager

The Proactive Manager is the ultimate manager and coach, and a testimonial to the
skills and coaching competencies every manager needs to develop in order to build a
winning team.
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1.5.3 MANAGERIAL ACTIVITIES /PRINCIPLES OF MANAGEMENT

The management activities are known as principles of management which are as
follows:
 Forecasting and Planning,
 Organizing
 Commanding,
 Co-ordaining and
 Controlling

Forecasting and Planning

Planning means looking ahead or to foresee. To foresee means, “Both to assess the
future and make provision for it. To plan means to foresee and provide means for future.
The process of planning includes:
1. The identification of organizational goals. The aim of any insurance company is
to insure life or property of the human being. The goal is to insure maximum
number of person or the property so that the risk can be spread on number of
persons.
2. The line of action to be followed. Once aim is set to insurer human being or
property then the next step is how to insure human beings or property. The
action will be to create a Marketing Department for a company.
3. The various stages through which the action would pass: To sell the insurance
product only marketing department at one place i.e head office cannot achieve
the results therefore various offices at different location to be set up to sell the
insurance products.
4. The method to be used to achieve the desired goals: The next issue comes how
to sell the insurance products. Whether it should be through Agents or Corporate
Agent or Broker. Accordingly the action of the insurance company will start to
recruit the manpower.

Organizing
To organize means building up the dual structure, material and human of the
organization. To organize means to provide the organization with everything useful to its
functioning raw material, tools, capital and personnel.
Example: An insurance company may not require the raw material but it requires other
material i.e. tool (computers), capital and personnel. A sound organization should have
the following to achieve the good relationship between material and human.
 A single competent and energetic guiding authority: There should be a
single person to be overall in-charge of the organization who will report to the
Board of directors. Like Chief Executing Officer (CEO) or Managing Director is
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appointed in all organization whether it is insurance or other type of organization.

Irrespective of the size of the organization.
 Efficient selection of personnel: Any organization is run by the human beings
therefore it is always endeavor of the CEO /Managing Director to recruit the
manpower weather technical or finance or marketing the person should be
intelligent and efficient. It saves the cost because the efficient people understand
the working of the organization and take the decisions quickly. In an insurance
industry the trained manpower is required because the insurance policies ate
technical in nature and requires lot of skill to make the understand to the
customer
 Clear definition of duties at all levels: The duties of each employee should be
defined to get the better results from the employees. If duties are not defined
then the employees will be confused what to do or not to do. In an insurance
company the target should be given to the marketing personnel to insure so
many lives or property and being a marketing function, it should not be assigned
to Finance Department. Moreover there will be many employees in the
department the target should be given to the Head of the Department and then
he will assign the targets to his juniors at different locations.
 Initiative and responsibility: The management should ensure that employees
take initiative to complete the job assigned to them. The employees should be
held responsible for not doing the things. In an insurance company the marketing
team should be very strong to sell the insurance products. The team should take
initiative to meet the number of persons to get the insurance business. The team
should not wait for the instruction of their superiors to meet the customers.
 Minimum paper work: In the computer era the paper work can be reduced and
the employees of the organization should maximum use the computers to save
paper work. In insurance the marketing team should send the daily performance
report through email which will reduce the paper work.
 Reward & efficiency: The good performers should be awarded cash or non-
cash award which boost the moral and efficiency of the employees.
 Unit of command: Every employee should report to one superior not to more
than otherwise the performance and controlling of the employees will be very
difficult.
 Clear and precise decision making: Any decision taken by any employee
should not be ambiguous i.e double meaning because it creates confusion.
 Proper control
o Disincentives for faults and error:
For any fault of any employee or non-performer should be penalized
otherwise it will affect the working of the performers.
 Supremacy of general interest in relation to individual etc.: Any individual
interest should not be clash with the organization interest. The organization
interest should be protected.
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Commanding
It means setting the business going to get the desired optimum results from the
subordinates. The managers must possess the requisites personal qualities and
knowledge to command effectively. The managers must
 Have a thorough knowledge of his personnel
 Have capacity to spot the right and competent workers so as to eliminate the
incompetent
 Set a good example i.e leadership
 Conduct periodic assessment or audit of performance
 Be well versed in agreement binding the business and its employees
 Have lively and constant touch with subordinates
 Aim at making unity, energy imitative and loyalty prevail among personnel

Coordinating
It means the process developed by a manger to secure an orderly pattern of
group effort among his personnel through unity of action to pursue the common goals.
The coordination should be within the resources available in the organization.

Controlling
The controlling means to ensure that everything is done in accordance with the
established rules and instruction given to the workmen. The purpose of control is to
point out weaknesses and errors in order to rectify them and prevent their recurrence.
The effective control must be
 Prompt,
 Followed with sanctions and
 Include measure to prevent recurrence of variances a or error

1.6 ROLES OF MANAGER

1.6.1 DECISIONAL ROLES.
Decisional roles require managers to plan strategy and utilize resources. There are
four specific roles that are decisional. The entrepreneur role requires the manager to
assign resources to develop innovative goods and services, or to expand a business.
Most of these roles will be held by top-level managers, although middle managers may
be given some ability to make such decisions. The disturbance handler corrects
unanticipated problems facing the organization from the internal or external
environment. Managers at all levels may take this role. For example, first-line managers
may correct a problem halting the assembly line or a middle level manager may attempt
to address the aftermath of a store robbery. Top managers are more likely to deal with
major crises, such as requiring a recall of defective products. The third decisional role,
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that of resource allocator, involves determining which work units will get which
resources. Top managers are likely to make large, overall budget decisions, while
middle managers may make more specific allocations. In some organizations,
supervisory managers are responsible for determine allocation of salary raises to
employees. Finally, the negotiator works with others, such as suppliers, distributors, or
labor unions, to reach agreements regarding products and services. First-level
managers may negotiate with employees on issues of salary increases or overtime
hours, or they may work with other supervisory managers when needed resources must
be shared. Middle managers also negotiate with other managers and are likely to work
to secure preferred prices from suppliers and distributors. Top managers negotiate on
larger issues, such as labor contracts, or even on mergers and acquisitions of other
companies.

1.6.2 INTERPERSONAL ROLES.

Interpersonal roles require managers to direct and supervise employees and the
organization. The figurehead is typically a top of middle manager. This manager may
communicate future organizational goals or ethical guidelines to employees at company
meetings. A leader acts as an example for other employees to follow, gives commands
and directions to subordinates, makes decisions, and mobilizes employee support.
Managers must be leaders at all levels of the organization; often lower-level managers
look to top management for this leadership example. In the role of liaison, a manger
must coordinate the work of others in different work units, establish alliances between
others, and work to share resources. This role is particularly critical for middle
managers, who must often compete with other managers for important resources, yet
must maintain successful working relationships with them for long time periods.

1.6.3 INFORMATIONAL ROLES.

Informational roles are those in which managers obtain and transmit information.
These roles have changed dramatically as technology has improved.
The monitor evaluates the performance of others and takes corrective action to improve
that performance. Monitors also watch for changes in the environment and within the
company that may affect individual and organizational performance. Monitoring occurs
at all levels of management, although managers at higher levels of the organization are
more likely to monitor external threats to the environment than are middle or first-line
managers. The role of disseminator requires that managers inform employees of
changes that affect them and the organization. They also communicate the company's
vision and purpose.
Managers at each level disseminate information to those below them, and much
information of this nature trickles from the top down. Finally,
a spokesperson communicates with the external environment, from advertising the
company's goods and services, to informing the community about the direction of the
organization. The spokesperson for major announcements, such as a change in
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strategic direction, is likely to be a top manager. But, other, more routine information
may be provided by a manager at any level of a company. For example, a middle
manager may give a press release to a local newspaper, or a supervisor manager may
give a presentation at a community meeting.

1.7 SKILLS OF MANAGER

Regardless of organizational level, all managers must have five critical skills:
technical skill, interpersonal skill, conceptual skill, diagnostic skill, and political skill.

1.7.1 TECHNICAL SKILL.

Technical skill involves understanding and demonstrating proficiency in a particular
workplace activity. Technical skills are things such as using a computer word
processing program, creating a budget, operating a piece of machinery, or preparing a
presentation. The technical skills used will differ in each level of management. First-
level managers may engage in the actual operations of the organization; they need to
have an understanding of how production and service occur in the organization in order
to direct and evaluate line employees. Additionally, first-line managers need skill in
scheduling workers and preparing budgets. Middle managers use more technical skills
related to planning and organizing, and top managers need to have skill to understand
the complex financial workings of the organization.

1.7.2 INTERPERSONAL SKILL.

Interpersonal skill involves human relations, or the manager's ability to interact
effectively with organizational members. Communication is a critical part of
interpersonal skill, and an inability to communicate effectively can prevent career
progression for managers. Managers who have excellent technical skill, but poor
interpersonal skill are unlikely to succeed in their jobs. This skill is critical at all levels of
management.

1.7.3 CONCEPTUAL SKILL.

Conceptual skill is a manager's ability to see the organization as a whole, as a
complete entity. It involves understanding how organizational units work together and
how the organization fits into its competitive environment. Conceptual skill is crucial for
top managers, whose ability to see "the big picture" can have major repercussions on
the success of the business. However, conceptual skill is still necessary for middle and
supervisory managers, who must use this skill to envision, for example, how work units
and teams are best organized.
 19

1.7.4 DIAGNOSTIC SKILL.

Diagnostic skill is used to investigate problems, decide on a remedy, and implement
a solution. Diagnostic skill involves other skills—technical, interpersonal, conceptual,
and politic. For instance, to determine the root of a problem, a manager may need to
speak with many organizational members or understand a variety of informational
documents. The difference in the use of diagnostic skill across the three levels of
management is primarily due to the types of problems that must be addressed at each
level. For example, first-level managers may deal primarily with issues of motivation and
discipline, such as determining why a particular employee's performance is flagging and
how to improve it. Middle managers are likely to deal with issues related to larger work
units, such as a plant or sales office. For instance, a middle-level manager may have to
diagnose why sales in a retail location have dipped. Top managers diagnose
organization-wide problems, and may address issues such as strategic position, the
possibility of outsourcing tasks, or opportunities for overseas expansion of a business.

1.7.5 POLITICAL SKILL.

Political skill involves obtaining power and preventing other employees from taking
away one's power. Managers use power to achieve organizational objectives, and this
skill can often reach goals with less effort than others who lack political skill. Much like
the other skills described, political skill cannot stand alone as a manager's skill; in
particular, though, using political skill without appropriate levels of other skills can lead
to promoting a manager's own career rather than reaching organizational goals.
Managers at all levels require political skill; managers must avoid others taking control
that they should have in their work positions. Top managers may find that they need
higher levels of political skill in order to successfully operate in their environments.
Interacting with competitors, suppliers, customers, shareholders, government, and the
public may require political skill.

1.8 EVOLUTION OF MANAGEMENT

First, the management was examined under classical management theories that
emerged around the turn of the twentieth century. These include scientific management,
which focuses on matching people and tasks to maximize efficiency; and administrative
management, which focuses on identifying the principles that will lead to the creation of
the most efficient system of organization and management. Next, we consider
behavioral management theories, developed both before and after the Second World
War, which focus on how managers should lead and control their workforces to increase
performance. Then we discuss management science theory, which developed during
the Second World War and which has become increasingly important as researchers
have developed rigorous analytical and quantitative techniques to help managers
measure and control organizational performance. Finally, we discuss business in the
1960s and 1970s and focus on the theories that were developed to help explain how the
external environment affects the way organizations and managers operate. By the end
of this chapter, you will understand the ways in which management theory has evolved
 20

over time. You will also

understand how
economic, political, and
cultural forces have
affected the
development of these
theories and the ways
in which managers and
their organizations
behave. Figure 1.3
summarizes the
chronology of the
management theories
that are discussed in
this chapter.

1.8.1 SCIENTIFIC METHOD

The evolution of modern management began in the closing decades of the
nineteenth century, after the industrial revolution had swept through Europe, Canada,
and the United States. In the new economic climate, managers of all types of
organizations—political, educational, and economic—were increasingly trying to find
better ways to satisfy customers’ needs. Many major economic, technical, and cultural
changes were taking place at this time. The introduction of steam power and the
development of sophisticated machinery and equipment changed the way in which
goods were produced, particularly in the weaving and clothing industries. Small
workshops run by skilled workers who produced hand-manufactured products (a system
called crafts production) were being replaced by large factories in which sophisticated
machines controlled by hundreds or even thousands of unskilled or semiskilled workers
made products. Owners and managers of the new factories found themselves
unprepared for the challenges accompanying the change from small-scale crafts
production to large-scale mechanized manufacturing. Many of the managers and
supervisors had only a technical orientation, and were unprepared for the social
problems that occur when people work together in large groups (as in a factory or shop
system). Managers began to search for new techniques to manage their organizations’
resources, and soon they began to focus on ways to increase the efficiency of the
worker–task mix.

Fredrick w Taylor (1986-1915) rested his philosophy on four basic principles.

1. The development of a true science of management so that the best method for
performing each task could be determined.
2. The Scientific selection of workers so that the each worker would be given
responsibility for the task for which he or she was best suited.
 21

3. The scientific education and development of workers.

4. Intimate friendly cooperation between management and labor.

The scientific management schools

1. Scientific management theory arose in part from the need to increase
productivity.
2. In the United States especially, skilled labor was in short supply at the beginning
of the twentieth century.
3. The only way to expand the productivity was to raise the efficiency of workers.
4. Therefore ,Fredrick W.Taylor, Henry Gantt, and Frank and Lillian Gilberth
devised the body of principles known as Scientific management theory

Taylor contended that the success of these principles required” a complete mental
revolution” on the part of management and labor.
Rather than quarrel over profits both side should increase production, by so doing, he
believed profits would rise to such an extent that labor have to fight over them.
 In short Taylor believed that management and labor had common interest in
increasing productivity.
1. Taylor based his management system on production line time studies.
Instead of relying on traditional work methods, he analyzed and timed steel
workers movements on a series of jobs.
2. Using time study he broke each job down into its components and designed
the quickest and best method of performing each component. In this way he
established.
 How much workers to do with the equipment and materials in hand. He also
encourage
 Employers to pay more productive workers higher rate than others. Using a
“scientifically correct “rate that would benefit both the company and workers.
 Thus the workers were urged to surpass their previous performance standards to
earn more pay .Taylor called his plane the differential rate system.

1.8.2 Contributions of scientific management theory

 The modern assembly line pours out finished products faster than Taylor could
ever imagine.
 This production “Miracle” is just one legacy of scientific management.
 22

 In addition its efficiency techniques have been applied to many tasks in non-
industrial organizations ranging from fat food service to the training of surgeons.
Limitations of scientific management theory
o Although Taylor's method led to dramatic increase in productivity and
higher pay in number of instance.
o Workers and unions began to oppose his approach because they feared
that working harder or faster would exhaust whatever work was available
Causing layoffs.
o Moreover, Taylor’s system clearly meant that time was of the essence.
o His critics objected to the speed up condition that placed undue pressure
on employees to perform at faster and faster levels.
o The emphasis on productivity and by extension profitability led some
managers to exploit both the workers and customers.
o As a result more workers joined unions and thus reinforced a pattern of
suspicious and mistrust that shaded labor relations for decades.
1.8.3 Henry L.Gannt
Henry L. Gannt (1861-1919) worked with Taylor on several projects but when he went
out on his own as a consulting industrial engineer, Gannt began to reconsider tailors
insensitive systems.
 Abandoning the differential rate system as having too little motivational impact
Gannet came up with new idea.
 Every worker who finished days assigned work load win 50 percent bonus.
 Then he added a second motivation the supervisor would earn a bonus for each
worker who reached the daily standard.
 Plus an extra bonus if all the workers reached it.
 This Gantt reasoned would supervisor to train their workers to do a better job.
 Every workers progress was rated publicly and recorded an individual bar charts
 Mark as black on days the worker made the standard in red when he or she fell
below it.
 Going beyond this Gantt originated a charting system for production was
translated into eight languages and used throughout the world.
 Starting in 1920 s it was use in Japan Spain and soviet union it also formed that
the basis of two charting device which were developed to assist
 23

1. In planning, managing and controlling complex organization the Critical Path

Method (CPM) originated by DuPont and Program Evaluation and Review
Technique (PERT), developed by navy.
2. Lotus 1-2-3 is also a creative application of the Gannt chart.”

1.8.4 THE GILBRETHS

 Frank B. and Lillian M.Gilbreth (1968-1924) and (1878-1972) made their
contribution
 To the scientific management movement as a husband and wife team. Lillian and
Franck collaborated on fatigue and motion studies and focus on ways on
promoting the individual workers welfare to them the ultimate aim of scientific
management was to help workers reach their full potential as human beings
 In their conception motion and fatigue were intertwined every motion that was
eliminated reduced fatigue.
 Using motion picture cameras they tried to find out the most economical motions
for each task in order to upgrade performance and reduce fatigue.

1.8.5 CLASSICAL ORGANIZATION THEORY SCHOOL

Scientific management was concerned with increasing the productivity of the
shop and the individual worker.
Classical organization theory grew out of the need to find guidelines for
managing such complex organization as factories.

1.8.6 HENRI FAYOL

 Henri Fayol (1841-1925) is generally hailed as the founder of the classical
management school –not because he was the first to investigate managerial
behavior but because he was the first to systematize it.
 Fayol believed that sound manage
1. DIVISION OF LABOR
 The most people specialize the more efficiency they can perform their work.
This principle is epitomized by the modern assembly line.
2. AUTHORITY
 Managers must give orders so that they can get things done while this format
give them a right to command managers will not always compel obedience
unless they have
 24

 Personal authority (such as relevant) expert as well

3. DISIPLINE MEMBERS IN AN ORGANIZATION needs to respect the rules and

agreement that govern the organization.
 To Fayol, discipline leadership at all levels of the organization fair agreements
and judiciously enforced penalties for infractions.

4. UNITY OF COMMANDS
 Each employee must receive instruction from one person, Fayol believe that if
employee reported.
 More than one manager conflict in instruction and confusion in of authority
would result.

5. UNITY OF DIRECTION
 Those operations with in the same organization that have the same objective
should be directed by only one manager using one plan.
 For example the personnel department in the company should not have a wo
directors each with a different hiring policy.

6. SUBORDINATE OF INDIVIDUAL INTEREST TO COMMON GOOD

 In any undertaking the interest of employees should not take the precedence
over the interest of organization as a whole

7. REMUNERATION:
 Compensation of work done should be common to both employees and
employers.

8. CENTRALIZATION:
 Decreasing the role of subordinates in decision making is centralization,
increasing their role is decentralization.
 Fayol believed that the managers should retain the final responsibility.
 But should at the same time give their subordinate enough authority to do the
jobs properly.
 The problem is finding the proper degree of centralization in each case.
 25

9. THE HIERARCHY
 The line of authority in an organization should represent in the neat box and the
line of chart runs in order of rank from top management and lowest levels of
enterprise.

10. ORDER:
 Materials and the order should be in the right place at the right time.
 In particular should be in job or position they are most suited to.

11. EQUITY:
 Managers should be fair and friendly to their subordinate.

12. STABILTY OF STAFF:

 A high employee turnover rate undermines the efficient functioning of an
organization.

13. INITIATIVE:
 Subordinate should be given the freedom to conceive and carry out their plans
even though some mistake may result.

14. ESPRIT DE CROPS:

 Promoting team spirit will give the organization a sense of unity.
 To Fayol even the small factor help to develop the spirit.
 He suggested for example the use of verbal communication instead of formal,
written communication whenever possible.

1.8.7 THE BEHAVIORAL SCHOOL (HUMAN RELATION):

 The behavioral school emerged partly because the classical approach did not
archive sufficient production efficiency and workplace harmony.
 To ‘managers’ frustration,
 People did not always follow predicted or expected patterns of behavior.
 Thus there was increased interest in helping managers deal more effectively with
a people side of their organizations.
 Several Theorists tried to strengthen with a people side of their organization
theory with an insight of sociology and psychology.
 The human Relations movement
 A human relation is frequently used as a general term to describe the ways in
which managers interact with their employees.
 26

 When “employee management” simulate more and better work ,the organization
has a more and better work, the organization has effective human relations
 When morale and efficiency deteriorate, its human relations are said to be
ineffective.
 The human relations movement arose from early attempts to systematically
discover the social and psychological factors that would create effective Human
reaction.

1.8.8 THE CONTINGENCY APPROACH

The contingency approach sometimes called (situation approach) was developed
by the managers, consultants and researchers who tried to apply the concepts of the
major schools to the real life.

 When methods highly effective in one situation failed to work in other situation.
 They sought an explanation.
 Why for example did an organization development work brilliantly in one situation
and fail miserably in another.
 Advocates Of the contingency approach had a logical answer to such question.
Results differ because situation differs. Techniques that work in one case will not
work in other.
 According to the contagious technique the manager’s job is to find which
technique will in a particular situation, under particular circumstances and at a
particular time.
 Best contributes to attainments of management goals, where workers need to
encourage increasing productivity.
 For example a classical theorist may prescribe a new work simplification scheme.
 The behavioral scientist may instead seek to create a psychologically motivating
climate and recommend.
 some approach like job enrichment the combination of tasks that are different in
scope and responsibility and allow the worker greater autonomy in making
decisions
 but the manager trained in the contiguous approach will ask
 Which ties the recourse are limited, work simplification would be the best
solution,
 However skilled workers driven by pride in their abilities. a job enrichment
program might be more effective.
 The contingency approach represents an important turn in management theory,
but it portals each set of organization relationship in its unique circumstances.
 27

1.8.9 SYSTEM APPROACH

 The system approach to management views the organizations as a unified,
purposeful system composed of integral parts.
 This approach gives managers a way of looking at the organization as a hole and
as a part of the larger external environment.
 Systems theory tells us that the activity of any segment of an organization
affects, in varying degree the activity of every other segment.
 Production managers in a manufacturing plant, for example, prefer long
uninterrupted production runs of standardized products in order to maintain
maximum efficiency and low costs.
 Marketing managers on the other hand who want to offer customers quick
delivery of a wide range of products would like a flexible manufacturing schedule
that can fill special order on short notice.
 Systems oriented production managers make scheduling decisions only after
they have identified the impact of these decisions on other department and on
the entire organization.
 The point of system approach is that managers cannot wholly with in the
traditional organization chart.
 They must mesh their department with the whole enterprise.
 To do that they have to communicate not only with other employees and
departments, but frequently with representative of other organization as well.
 Clearly, systems managers grasp the importance of the webs of business
relationship to their efforts.
 28

1.9 BUSINESS ORGANIZATIONS

A business is an organization that uses economic resources or inputs to provide
goods or services to customers in exchange for money or other goods and services.
Business organizations come in different types
 Sole proprietorship
 Partnership
 Company
o Public sector
o Private sector

1.9.1 Sole proprietorship

A sole proprietorship is a business owned by only one person. It is easy to set-up
and is the least costly among all forms of ownership.
The owner faces unlimited liability; meaning, the creditors of the business may go
after the personal assets of the owner if the business cannot pay them.
The sole proprietorship form is usually adopted by small business entities.
Advantages
 Ease of formation and dissolution. Establishing a sole proprietorship can be
as simple as printing up business cards or hanging a sign announcing the
business. Taking work as a contract carpenter or freelance photographer,
 Typically, there are low start-up costs and low operational overhead.
 Ownership of all profits.
 Sole Proprietorships are typically subject to fewer regulations.
 No corporate income taxes. Any income realized by a sole proprietorship is
declared on the owner's individual income tax return.
Disadvantages
 Unlimited liability. Owners who organize their business as a sole
proprietorship are personally responsible for the obligations of the business,
including actions of any employee representing the business.
 Limited life. In most cases, if a business owner dies, the business dies as
well.
 It may be difficult for an individual to raise capital. It's common for funding to
be in the form of personal savings or personal loans.
1.9.2 Partnership
A Partnership consists of two or more individuals in business together. Partnerships
may be as small as mom and pop type operations, or as large as some of the big legal
or accounting firms that may have dozens of partners. There are different types of
partnerships—general partnership, limited partnership, and limited liability partnership—
 29

the basic differences stemming around the degree of personal liability and management
control.

Advantages
 Synergy. There is clear potential for the enhancement of value resulting from
two or more individuals combining strengths.
 Partnerships are relatively easy to form, however, considerable thought
should be put into developing a partnership agreement at the point of
formation.
 Partnerships may be subject to fewer regulations than corporations.
 There is stronger potential of access to greater amounts of capital.
 No corporate income taxes. Partnerships declare income by filing a
partnership income tax return. Yet the partnership pays no taxes when this
partnership tax return is filed. Rather, the individual partners declare their
pro-rata share of the net income of the partnership on their individual income
tax returns and pay taxes at the individual income tax rate.
Disadvantages
 Unlimited liability. General partners are individually responsible for the
obligations of the business, creating personal risk.
 Limited life. A partnership may end upon the withdrawal or death of a partner.
 There is a real possibility of disputes or conflicts between partners which
could lead to dissolving the partnership. This scenario enforces the need of a
partnership agreement.

1.9.4 Corporation or company

A company is owned by shareholders who appoint Directors to give direction to the
business. The Chief Executive is the senior official within the company with
responsibility for making major decisions. Specialist managers will be appointed to run
the company on behalf of the Board.
A company is a legal body in its own right with an existence that is separate in law
from its owners. The company will thus be sued and can sue in its own name.
Shareholders put funds into the company by buying shares. New shares are often
sold in face values of Rs10 per share but this does not have to be the case.
Limited liability is a form of business protection for company shareholders (and
some limited partners). For these individuals the maximums sum they can lose from a
business venture which they have contributed going bust is the sum of money that they
have invested in the company - this is the limit of their liability.
Every company must register with the Registrar of Companies, and must have an
official address.
There are two companies namely
 30

1.9.4.1 Private companies

Private companies have Ltd after their name. They are typically smaller than public
companies although some like Portakabin and Mars are very large. Shares in a private
company can only be bought and sold with permission of the Board of Directors.
Shareholders have limited liability.

Advantages
 Limited Liability: It means that if the company experience financial distress
because of normal business activity, the personal assets of shareholders will
not be at risk of being seized by creditors.
 Continuity of existence: business not affected by the status of the owner.
 Minimum number of shareholders need to start the business are only2.
 More capital can be raised as the maximum number of shareholders allowed
is 50.
 Scope of expansion is higher because easy to raise capital from financial
institutions and the advantage of limited liability.
Disadvantages
 Growth may be limited because maximum shareholders allowed are only 50.
 The shares in a private limited company cannot be sold or transferred to
anyone else without the agreement of other shareholders

1.9.4.2 Public companies

A public company like Cadbury-Schweppes or BT can sell shares to the public and
to financial institutions and have their shares traded on the Stock Exchange.
The main advantage is that large amounts of capital can be raised very quickly. One
disadvantage is that control of a business can be lost by the original shareholders if
large quantities of shares are purchased as part of a takeover bid. In order to create a
public company the directors must apply to the Stock Exchange Council, which will
carefully check the accounts.

Advantages
 There is limited liability for the shareholders.
 The business has separate legal entity. There is continuity even if any of the
shareholders die.
 These businesses can raise large capital sum as there is no limit to the
number of shareholders.
 The shares of the business are freely transferable providing more liquidity to
its shareholders
 31

Disadvantages
 There are lots of legal formalities required for forming a public limited
company. It is costly and time consuming.
 In order to protect the interest of the ordinary investor there are strict controls
and regulations to comply. These companies have to publish their accounts.
 The original owners may lose control.
 Public Limited companies are huge in size and may face management
problems such as slow decision making and industrial relations problems.

1.10 ORGANIZATIONAL CULTURE

Organizational culture is a system of shared assumptions, values, and beliefs,
which governs how people behave in organizations. These shared values have a strong
influence on the people in the organization and dictate how they dress, act, and perform
their jobs. Every organization develops and maintains a unique culture, which provides
guidelines and boundaries for the behavior of the members of the organization. Let's
explore what elements make up an organization's culture.
Organizational culture is composed of seven characteristics that range in priority
from high to low. Every organization has a distinct value for each of these
characteristics, which, when combined, defines the organization's unique culture.
Members of organizations make judgments on the value their organization places on
these characteristics, and then adjust their behavior to match this perceived set of
values. Let's examine each of these seven characteristics.
Organizational culture includes an organization's expectations, experiences,
philosophy, and values that hold it together, and is expressed in its self-image,
inner workings, interactions with the outside world, and future expectations. It is based
on shared attitudes, beliefs, customs, and written and unwritten rules that have
been developed over time and are considered valid. Also called corporate culture,
It's shown in
1. The ways the organization conducts its business, treats
its employees, customers, and the wider community
The extent to which freedom is allowed in decision making, developing new ideas,
and personal expression
How power and information flow through its hierarchy, and
1. How committed employees are towards collective objectives.

It affects theorganization's productivity and performance,and provides guidelines on

customer care and service, product quality and safety, attendance and punctuality
and concern for the environment.
 32

It also extends to production-methods, marketing and advertising practices, and

to new product creation. Organizational culture is unique for every organization and one
of the hardest things to change.

1.10.1 CHARACTERISTICS OR DIMENSION OF ORGANIZATIONAL

CULTURE
The seven characteristics of organizational culture are:

a) INNOVATIVE CULTURES
Companies that have innovative cultures are flexible and adaptable, and
experiment with new ideas. These companies are characterized by a flat hierarchy in
which titles and other status distinctions tend to be downplayed
For example, W. L. Gore & Associates Inc. is a company with innovative products
such as GORE-TEX® (the breathable fabric that is windproof and waterproof), Glide
dental floss, and Elixir guitar strings, earning the company the distinction of being
elected as the most innovative company in the United States by Fast
Company magazine in 2004.

b) AGGRESSIVE CULTURES
Companies with aggressive cultures value competitiveness and outperforming
competitors: By emphasizing this, they may fall short in the area of corporate social
responsibility. For example, Microsoft Corporation is often identified as a company with
an aggressive culture. The company has faced a number of antitrust lawsuits and
disputes with competitors over the years.
Recently, Microsoft founder Bill Gates established the Bill & Melinda Gates
foundation and is planning to devote his time to reducing poverty around the world.

c) OUTCOME-ORIENTED CULTURES
Outcome-oriented cultures as those that emphasize achievement, results, and
action as important values. A good example of an outcome-oriented culture may be
Best Buy Co. Inc. Having a culture emphasizing sales performance, Best Buy tallies
revenues and other relevant figures daily by department. Employees are trained and
mentored to sell company products effectively, and they learn how much money their
department made every day
 33

d) STABLE CULTURES
Stable cultures are predictable, rule-oriented, and bureaucratic. These
organizations aim to coordinate and align individual effort for greatest levels of
efficiency. When the environment is stable and certain, these cultures may help the
organization be effective by providing stable and constant levels of output. These
cultures prevent quick action, and as a result may be a misfit to a changing and
dynamic environment.

e) PEOPLE-ORIENTED CULTURES
People-oriented cultures value fairness, supportiveness, and respect for individual
rights. These organizations truly live the mantra that “people are their greatest asset.” In
addition to having fair procedures and management styles, these companies create an
atmosphere where work is fun and employees do not feel required to choose between
work and other aspects of their lives. In these organizations, there is a greater emphasis
on and expectation of treating people with respect and dignity

TEAM-ORIENTED CULTURES
 34

Companies with team-oriented cultures are collaborative and emphasize

cooperation among employees. For example, Southwest Airlines Company facilitates a
team-oriented culture by cross-training its employees so that they are capable of
helping each other when needed. The company also places emphasis on training intact
work teams. Employees participate in twice daily meetings named “morning overview
meetings” (MOM) and daily afternoon discussions (DAD) where they collaborate to
understand sources of problems and determine future courses of action. In Southwest’s
selection system, applicants who are not viewed as team players are not hired as
employees. In team-oriented organizations, members tend to have more positive
relationships with their coworkers and particularly with their managers.

f) DETAIL-ORIENTED CULTURES
Organizations with detail-oriented cultures are characterized in the OCP
(Organization culture Profile) framework as emphasizing precision and paying attention
to details. Such a culture gives a competitive advantage to companies in the hospitality
industry by helping them differentiate themselves from others. For example, Four
Seasons Hotels Ltd. and the Ritz-Carlton Company LLC are among hotels who keep
records of all customer requests, such as which newspaper the guest prefers or what
type of pillow the customer uses. This information is put into a computer system and
used to provide better service to returning customers. Any requests hotel employees
receive, as well as overhear, might be entered into the database to serve customers
better. Recent guests to Four Seasons Paris who were celebrating their 21st
anniversary were greeted with a bouquet of 21 roses on their bed. Such clear attention
to detail is an effective way of impressing customers and ensuring repeat visits.
McDonald’s Corporation is another company that specifies in detail how employees
should perform their jobs by including photos of exactly how French fries and
hamburgers should look when prepared properly.

1.11 Organization Environment

The organizational environment is the set of forces surrounding an organization
that have the potential to affect the way it operates and its access to scarce resources.
The organization needs to properly understand the environment for effective
management.
Scholars have divided these environmental factors into two main parts as,
a) Internal Environment,
b) External Environment.
1.11.1 Internal Environment
The internal environment consists of the organization's owners, board of
directors, regulators, physical work environment and culture. In the internal environment
include strength and weakness of an organization.
 35

Elements of internal environment are:

1. Trade union
2. Management
3. Current employee
4. Shareholders.

1.11.2 External Environment:

As per the Daft theory (1997) , An organization's environment is defined as all the
elements existing outside the boundary of the organization that have the potential to
affect all or part of the organization Examples include government regulatory agencies,
competitors, customers, suppliers, and pressure from the public.
Daft (1997) identified 10 environmental sectors that may have an impact on
particular organizations:
1) industry, 2) raw materials, 3) human resources, 4) financial resources, 5) markets, 6)
technology, 7) general economy, 8) government/legal, 9) sociocultural, 10) international.
Each of these sectors may be divided into two basic components. They are:
1) Task (Specific) Environment: 2) General Environment.

1.11.2.1 Task Environment:

Task environment is composed of the specific dimensions of the organization's
surrounding that are very likely to influence of the organization. It also consists of five
dimensions: Competitors, Customers, and Employees, Strategic, Planners and
suppliers.

1.11.2.2 General Environment:

General environment is composed of the nonspecific elements of the
organization's surrounding the might affect its activities. It consists of five dimensions:

(a) Economic Factor

Economic factors refer to the character and direction of the economic system
within which the firm operates. Economic factors include
 The balance of payments,
 The state of the business cycle,
 The distribution of income within the population, and
 Governmental monetary and fiscal policies.
 36

The impact of economic factors may also differ between industries.

BALANCE OF PAYMENTS.
The balance of payments of a country refers to the net difference in value of
goods bought and sold by citizens of the country. To decrease the value of goods
imported into a country, it is common practice to construct barriers to entry for particular
classes of products. Such practices reduce competition for firms whose products are
protected by the trade barriers.

Example : Mexico has limited the number of automobiles that can be imported. The
purpose of this practice is to stimulate the domestic automobile market
and to allow it to become large enough to create economies of scale and
to create jobs for Mexican workers. A side effect of the import restriction,
however, has been an increase in the price and a decrease in the quality
of automobiles available to the public.

Another potential consequence of import restrictions is the possibility of

reciprocal import restrictions. Partially in retaliation to import restriction on Japanese
televisions and automobiles by the United States, the Japanese have limited imports of
agricultural goods from the United States.
Lowering trade restrictions as a means of stimulating the economy of a country
may meet with mixed results. The North American Free Trade Agreement (NAFTA) has
opened the borders between the United States, Canada, and Mexico for the movement
of many manufacturers. Government officials in the United States argue the results
have been positive, but many local communities that have lost manufacturing plants
question the wisdom of the agreement.
BUSINESS CYCLE
The business cycle is another economic factor that may influence the operation
of a firm. Purchases of many durable goods (appliances, furniture, and automobiles)
can be postponed during periods of recession and depression, as can purchases of new
equipment and plant expansions. Economic downturns result in lower profits, reductions
in hiring, increased borrowing, and decreased productivity for firms adversely affected
by the recession. Positive consequences of recessions may include reductions in waste,
more realistic perceptions of working conditions, exit of marginally efficient firms, and a
more efficient system.

INCOME DISTRIBUTION
The distribution of income may differ between economic systems. Two countries
with the same mean (per capita) income levels may have dramatically different
distributions of income. The majority of persons in the country are considered middle
income, with only a relatively small number of persons having exceptionally high or low
incomes.
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Many developing countries have citizens who are either extremely wealthy or
extremely poor. Only a few persons would qualify as middle class. Therefore, although
both countries had the same mean income, opportunities to market products to the
middle class would be greater in the United States.
TRANSFER PAYMENTS.
Transfer payments (e.g., welfare, social security) within the country change the
distribution of income. Transfer payments provide money to individuals in the lower
income brackets and enable them to purchase goods and services they otherwise could
not afford. Such a redistribution of income may not be the practice in other economic
systems. Thus, large numbers of people in need of basic goods and services do not
assure that those people will be able to purchase such goods and services.
MONETARY AND FISCAL POLICIES.
Monetary and fiscal policies utilized by the federal government also influence
business operations. Monetary policies are controlled by the Federal Reserve System
and affect the size of the money supply and interest rates. Fiscal policies represent
purchases made by the federal government.

Example : Allocation of funds to defense means expenditures for weapons and

hardware. If appropriations had gone to the Health and Human Services
and Education Departments instead, much of the money would have
constituted transfer payments. The primary beneficiaries of such a fiscal
policy would be firms in the basic food and shelter businesses. No matter
how government expenditures are reallocated, the result is lost sales and
cut budgets for some companies and additional opportunities for others.

(b)Technological Factor
Technology is another aspect of the environment a firm should consider in
developing strategic plans. Changing technology may affect the demand for a firm's
products and services, its production processes, and raw materials. Technological
changes may create new opportunities for the firm, or threaten the survival of a product,
firm, or industry. Technological innovation continues to move at an increasingly rapid
rate.
DEMAND
Technology can change the lifestyle and buying patterns of consumers. Recent
developments in the field of microcomputers have dramatically expanded the potential
customer base and created innumerable opportunities for businesses to engage in
business via Internet. Whereas computers were traditionally used only by large
organizations to handle data processing needs, personal computers are commonly
used by smaller firms and individuals for uses not even imagined fifteen years ago.
Similarly, new developments in technology led to a reduction in prices for computers
and expanded the potential market. Lower prices allow computers to be marketed to the
general public rather than to business, scientific, and professional users—the initial
market.
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Technology may also cause certain products to be removed from the

market. Asbestos-related illnesses have severely limited asbestos as a resource used in
heat-sensitive products such as hair dryers. Further, a number of chemicals that have
been commonly used by farmers to control insects or plants are prohibited from use or
require licensure as a consequence of those chemicals appearing in the food chain.
PRODUCTION PROCESSES
Technology also changes production processes. The introduction of products
based on new technology often requires new production techniques. New production
technology may alter production processes. Robotics represents one of the most visible
challenges to existing production methods. Robots may be used in positions considered
hazardous for people or that require repetitive, detailed activities.
The consequences for other jobs currently occupied by people are not clear.
When production was first automated, although some workers were displaced, new jobs
were created to produce and maintain the automated equipment. The impact of robotics
on jobs is in large part a function of the uses made of the technology and the willingness
of workers to learn to use new technology.
In some industries, use of robots during the early 2000s increased production
and efficiency but resulted in significant numbers of job losses. However, technological
innovation can also result in increased job growth.

Example : Ford Motor Company's $375-million technology update to its Norfolk

assembly plant to build its 2004 F-150 resulted in the ability to build more
models on its assembly line and consequently created about 270 new
jobs, an 11 percent increase.

EVALUATING TECHNOLOGICAL CHANGES

There is little doubt that technology represents both potential threats and potential
opportunities for established products. Products with relatively complex or new
technology are often introduced while the technology is being refined, making it hard for
firms to assess their market potential.

Example : When ballpoint pens were first introduced, they leaked, skipped, and left
large blotches of ink on the writing surface. Fountain pen manufacturers
believed that the new technology was not a threat to existing products
and did not attempt to produce ball-point pens until substantial market
share had been lost

Another technology, the electric razor, has yet to totally replace the blade for
shaving purposes. Perhaps the difference is that the manufacturers of blades have
innovated by adding new features to retain customers. Manufacturers of fountain pens
did not attempt to innovate until the ballpoint pen was well established.
It is quite difficult to predict the impact of a new technology on an existing
product. Still, the need to monitor the environment for new technological developments
is obvious. Attention must also be given to developments in industries that are not direct
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competitors, since new technology developed in one industry may impact companies
and organizations in others.
(c) Sociocultural
The sociocultural dimensions of the environment consist of customs, lifestyles,
and values that characterize the society in which the firm operates. Socio-cultural
components of the environment influence the ability of the firm to obtain resources,
make its goods and services, and function within the society. Sociocultural factors
include anything within the context of society that has the potential to affect an
organization. Population demographics, rising educational levels, norms and values,
and attitudes toward social responsibility are examples of sociocultural variables.
POPULATION CHANGES
Changes in population demographics have many potential consequences for
organizations. As the total population changes, the demand for products and services
also changes. For instance, the decline in the birthrate and improvement in health care
have contributed to an increase in the average age of the population in the country.
Many firms that traditionally marketed their products toward youth are developing
product lines that appeal to an older market.

Example : Clothing from Levi Strauss & Co. was traditionally popular among young
adults. While its popularity in this market has waned, the firm has been
able to develop a strong following in the adult market with
its Dockers label.

Other firms are developing strategies that will allow them to capitalize on the
aging population. Firms in the health-care industry and firms providing funeral services
are expected to do well give the increasing age of the country population.

RISING EDUCATIONAL LEVELS.

Rising educational levels also have an impact on organizations. Higher
educational levels allow people to earn higher incomes than would have been possible
otherwise. The increase in income has created opportunities to purchase additional
goods and services, and to raise the overall standard of living of a large segment of the
population. The educational level has also led to increased expectations of workers, and
has increased job mobility. Workers are less accepting of undesirable working
conditions than were workers a generation ago. Better working conditions, stable
employment, and opportunities for training and development are a few of the demands
businesses confront more frequently as the result of a more educated workforce.
NORMS AND VALUES
Norms (standard accepted forms of behavior) and values (attitudes toward right
and wrong) are differ across time and between geographical areas. Lifestyles differ as
well among different ethnic groups. As an example, the application in the United States
of Japanese-influenced approaches to management has caused firms to reevaluate the
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concept of quality. Customers have also come to expect increasing quality in products.
Many firms have found it necessary to reexamine production and marketing strategies
to respond to changes in consumer expectations.
SOCIAL RESPONSIBILITY
Social responsibility is the expectation that a business or individual will strive to
improve the welfare of society. From a business perspective, this translates into the
public expecting businesses to take active steps to make society better by virtue of the
business being in existence. Like norms and values, what is considered socially
responsible behavior changes over time.
In the 1970s agreeing action was a high priority. During the early part of the
twenty-first century prominent social issues were environmental quality (most
prominently, recycling and waste reduction) and human rights, in addition to general
social welfare. More than just philanthropy, social responsibility looks for active
participation on the part of corporations to serve their communities.
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(d)Political-Legal Factor
The political-legal dimension of the general environment also affects business
activity. The philosophy of the political parties in power influences business practices.
The legal environment serves to define what organizations can and cannot do at a
particular point in time.
ATTITUDES TOWARD BUSINESS
A pro-business attitude on the part of government enables firms to enter into
arrangements that would not be allowed under a more anti-business philosophy. The
numerous joint ventures between U.S. and Japanese automobile manufacturers could
have been termed anticompetitive by a less pro-business administration. The release of
many acres of government land for business use (logging, mining) angered many
environmentalists who had been able to restrict business use of the land under previous
administrations.
Changes in sentiments toward smoking and its related health risks have altered
the public's attitude toward the tobacco industry. These changes have been reflected in
many organizations by limiting smoking to designated areas or completely prohibiting it
at work. The transformation in attitude has also caused firms within the tobacco industry
to modify marketing strategies, encouraging many to seek expansion opportunities
abroad.
LEGISLATION
The legal environment facing organizations is becoming more complex and
affecting businesses more directly. It has become increasingly difficult for businesses to
take action without encountering a law, regulation, or legal problem. A very brief listing
of significant laws that affect business would include legislation in the areas of
consumerism, employee relations, the environment, and competitive practices.
Many of the laws also have an associated regulatory agency. Powerful U.S.
regulatory agencies include
 The Environmental Protection Agency (EPA)
 The Occupational Safety and Health Administration (OSHA)
 The Equal Employment Opportunity Commission (EEOC)
 The Securities and Exchange Commission (SEC).
Estimates of the cost of compliance vary widely; many of these costs are passed
to consumers. However, costs of legal expenses and settlements may not be incurred
for years and are not likely to be paid by consumers of the product or owners of the
company when the violation occurred. Still, potential legal action often results in higher
prices for consumers and a more conservative attitude by business executives.
LEVELS OF GOVERNMENT INFLUENCE
We generally speak about "the government" as referring to the federal
government. It is the federal government that passes and enforces legislation
concerning the entire country. Actions by the federal government affect a large number
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of firms and are consistent across state boundaries. Environmental analysis, however,
should not overlook actions by both state and local governments.
Regulations concerning many business practices differ between states. Tax rates
vary widely. Laws regarding unionization (e.g., right-to-work states) and treatment of
homosexual workers differ between states.
Local governments have the potential to affect business practices significantly.
Some local governments may be willing to provide incentives to attract business to the
area. Some may build industrial parks, service roads, and provide low-interest bonds to
encourage a desirable business to move into the community.
Regulatory measures such as building codes and zoning requirements differ
significantly between communities. Infrastructure such as electric and sewer services,
educational facilities, and sewage treatment capabilities may not be able to
accommodate the increased demand associated with certain industries, making that
locale unsuitable for establishing some businesses.

(e) International Factor

A final component of the general environment is actions of other countries or groups
of countries that affect the organization. Governments may act to reserve a portion of
their industries for domestic firms, or may subsidize particular types of businesses to
make them more competitive in the international market.
Some countries may have a culture or undergo a change in leadership that limits the
ability of firms to participate in the country's economy.

ECONOMIC ASSOCIATIONS
One of the most recent joint efforts by governments to influence business
practices was NAFTA. The agreement between the United States, Canada, and Mexico
was intended to facilitate free trade between the three countries. The result has been a
decrease in trade barriers between them, making it easier to transport resources and
outputs across national boundaries. The move has been beneficial to many businesses,
and probably to the economies of all three countries. In most economic associations,
preference is also given to products from member countries at the expense of products
from nonmembers.
Probably the best-known joint effort by multiple countries to influence business
practices is the Organization of Petroleum Exporting Countries (OPEC). The formation
of OPEC, an oil cartel including most major suppliers of oil and gas, led to a drastic
increase in fuel prices. Rising fuel prices had a significant effect on the demand for
automobiles worldwide. The increases in oil prices also contributed to inflation all over
the world. OPEC's early success encouraged countries producing other basic products
(coffee beans, sugar, bananas) to attempt to control the prices of their products.
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INTERGOVERNMENTAL RELATIONS
Changing relationships between the United States and other countries may alter
the ability of firms to enter foreign markets. The United States' establishment of trade
relations with China in the 1970s created opportunities for many firms to begin
marketing their products in China.
The rise of Ayatollah Ruhollah Khomeini to power in Iran altered the lives of
many Iranian citizens. Wine, vodka, music, and other forms of entertainment were
prohibited. Black markets provided certain restricted items. Other products, such as
wine, began to be produced at home.