1

Chapter One
Management: An Overview

1.1 Introduction
Management as a practice gained ground when the concept of working together
in groups to achieve common objectives was realized by men. But the study of
management as a systematic field of knowledge began at the advent of the
Industrial Revolution, which ushered in a new era of serious thinking and
theorizing on management (https://www.tutorialspoint.com/).

The advantages of learning Principles of Management are (Bendre, 2016):

• Our life gets focus and direction.

• We know better how to plan and organize our life.
• We have clarity of thinking and action.
• Our stresses get reduced greatly.
• Our life becomes purposeful and happy.

1.2 Definition of Management

It is very difficult to give a precise definition of the term management. Different
management authors have viewed management from their own angles.

Here are some definitions by different authors (https://www.slideshare.net/):

• Harold koontz “Management is the art of getting things done through others
and with formally organized groups.”
• F.W. Taylor “Management is the art of knowing what you want to do and then
seeing that they do it in the best and the cheapest manner.”
• Henri Fayol “Management is to forecast, to plan, to organize, to command, to
coordinate and control activities of others.”

Conclusion; Management simply means “a specific process of planning,

organizing, leading, and controlling the efforts of the people who are engaged in
activities in an organization in order to attain predetermined objectives of such
organizations.”
1.3 Characteristics of Management
An analysis of the various definitions of management indicates that management
has certain characteristics. The following are the significant characteristics of
management (Bhalla, 2018):
 2

1. Management aims at reaping rich results in economic terms: Manager’s

primary task is to secure the productive performance through planning,
direction and control.
2. Management also implies skill and experience in getting things done through
people.
3. Management is a process not a single function or activity.
4. Management is a universal activity: Management is not applicable to business
undertakings only. It is applicable to political, social, religious and
educational institutions also. Management is necessary when group effort is
required.
5. Management is a science as well as an art.
7. Management is an endeavor to achieve pre-determined objectives.
8. Management is a group activity: Management comes into existence only when
there is a group activity towards a common objective.
12. Management is dynamic and not static: The principles of management are
dynamic and not static. It has to adopt itself according to social changes.
13. Management draws ideas and concepts from various disciplines:
Management is an interdisciplinary study. It draws ideas and concepts from
various disciplines like economics, statistics, mathematics, psychology,
sociology, anthropology etc.
15. Different levels of management: Management is needed at different levels of
an organization namely top level, middle level, and lower level.
16. Need of organization: There is the need of an organization for the success of
management. Management uses the organization for achieving pre-
determined objectives.
18. Management is intangible: It cannot be seen with the eyes. It is evidenced
only by the quality of the organization and the results, i.e., profits, increased
productivity etc.

1.5 Nature of Management

The nature of management as a science, as an art and as both is discussed below
(Kaur and Khunteta, 2012):

1. Management as a science

2. Management as an art

3. Management as both science and art

Management is both an art and a science. The above mentioned points clearly
reveal that management combines features of both science as well as art. It is
considered as a science because it has an organized body of knowledge which
 3

contains certain universal truth. It is called an art because managing requires

certain skills which are personal possessions of managers. Science provides the
knowledge and art deals with the application of knowledge (skills).

1.6 Who Is A Manager

How do we define who managers are? A manager is someone who coordinates
and oversees the work of other people so that organizational goals can be
accomplished. A manager’s job is not about personal achievement-it’s about
helping others do their work.

Is there a way to classify managers in organizations? In traditionally structured

organizations (which are often pictured as a pyramid because more employees
are at lower organizational levels than at upper organizational levels), managers
can be classified as first-line, middle, or top. (See Exhibit 1-1.) At the lowest
level of management, first-line managers manage the work of non-managerial
employees who typically are involved with producing the organization’s
products or servicing the organization’s customers. Middle managers manage
the work of first-line managers and can be found between the lowest and top
levels of management. At the upper levels of the organization are the top
managers, who are responsible for making organization-wide decisions and
establishing the plans and goals that affect the entire organization.

Exhibit 1-1: Levels of organization

1.7 Where Do Managers Work?

It’s obvious that managers do their work in organizations. But what is an
organization? It’s a deliberate arrangement of people to accomplish some
specific purpose. Your college or university is an organization; so are
government departments, mosques, churches, Facebook, and your neighborhood
grocery store.
 4

Some of the characteristics of organization are studied as follows

(https://www.yourarticlelibrary.com/):

1. Division of Work

2. Co-Ordination

3. Common Objectives

4. Co-operative Relationship

5. Well-Defined Authority-Responsibility Relationships

1.8 The Roles Managers Play

Exhibit 1-2: The roles managers play

1.9 Management Skills

What types of skills do managers need? Robert L. Katz proposed that managers
need three critical skills in managing: technical, human, and conceptual. (Exhibit
1-3 shows the relationships of these skills to managerial levels.) (Robbins and
Coulter, 2012):

1. Technical skills

Are the job-specific knowledge and techniques needed to proficiently perform

work tasks. These skills tend to be more important for first-line managers
 5

because they typically are managing employees who use tools and techniques to
produce the organization’s products or service the organization’s customers.

2. Human skills

Which involve the ability to work well with other people both individually and
in a group. Because all managers deal with people, these skills are equally
important to all levels of management. Managers with good human skills get the
best out of their people. They know how to communicate, motivate, lead, and
inspire enthusiasm and trust.

3. Conceptual skills

Are the skills managers use to think and to conceptualize about abstract and
complex situations. Using these skills, managers see the organization as a whole,
understand the relationships among various subunits, and visualize how the
organization fits into its broader environment. These skills are most important to
top managers.

Exhibit 1-3: Skills needed at different managerial levels

1.10 Management Functions

A process is a systematic way of doing things. We refer to management as a
process to emphasize that all managers, irrespective of their aptitude or skill,
engage in some inter-related functions in order to achieve their desired goals. In
this lesson, we will briefly describe the functions that comprise the process of
management (Islam and Khan, 2009):

1. Planning

Planning may be defined as making decisions in advance as to what is to be done

in the future. It is a future course of action. It implies that managers think through
 6

their goals and actions in advance and their actions are based on some method,
plan or logic rather than on guess. Plans give the organization its objectives and
set up the best procedures for reaching them.

Planning involves selecting missions and objectives and the actions to achieve
them, it requires decision making, i.e. choosing future courses of action from
among alternatives. In short, planning means determining what the
organization's position and situation should be at some time in the future and
deciding how best to bring about that situation. Planning helps maintain
managerial effectiveness by guiding future activities.

Planning involves a number of steps - the first step is the selection of goals for
the organization. The second step is the establishment of goals for each of the
organization's sub-units, departments, divisions etc. The third step is to establish
programs for achieving goals in a systematic manner.

Planning requires an ability to foresee, to visualize, and to look ahead

purposefully. In short, planning is essential and is a fundamental function of
management.

2. Organizing

Once a manager has developed a work plan, the next phase of management is to
organize the people and other resources necessary to carry out the plan.
Organizing may be referred to as the process of arranging and allocating work,
authority and resources among an organization's members so they can achieve
the organization's goals.

Organizing, then, is that part of managing which involves establishing an

intentional structure of roles for people to fill in an organization. It is intentional
in the sense of making sure that all the tasks necessary to accomplish goals are
assigned to people who can do them best.

However, designing an effective organization structure is not an easy managerial

task. Many problems are encountered in making structures fit situations,
including both defining the kinds of jobs that must be done and finding the
people to do them. All these fall under the definition of organizing, which is a
fundamental function of management.

3. Leading

Leading is an important job of the manager. It involves directing, influencing

and motivating employees to perform essential tasks. To lead these people to
contribute to organization and group goals constitutes an essential function of
 7

the manager. In fact, the manager has to get on intimate terms with them if he
wants to lead them successfully. The manager leads in an attempt to persuade
others to join them in pursuit of the future that emerges from the planning and
organizing steps. By establishing the proper atmosphere, managers help their
employees do their best.

Efficient managers need to be effective leaders. Since leadership implies

fellowship and people tend to follow those who offer a means of satisfying their
own needs, hopes, and aspirations, it is understandable that leading involves
motivation, leadership styles and approaches, and communication.

Coordinating is also essential in leading. Most authors do not consider it a

separate function of management. Rather they regard coordinating as the essence
of managers for achieving harmony among individual efforts towards
accomplishing group targets.

4. Controlling

The final phase of the management process is controlling. As the organization

moves toward its goals, management must monitor its progress. It must make
sure that events conform to plans. Controlling involves measuring performance
against goals and plans and helping correct deviations from standards. As a
matter of fact, controlling facilitates the accomplishment of plans. Although
planning must precede controlling, plans are not self-achieving. They guide the
manager in the use of resources to accomplish specific goals. Activities are
evaluated to determine whether they conform to the plans.

Controlling is the last but not the least important function of management. Thus
it is rightly said, “Planning without controlling is useless.”

The functions of management may be represented by Exhibit 1-4.

 8

Exhibit 1-4: Functions of management

1.11 Business Functions

Even in the smallest business a number of key tasks, or functions, must be done
regularly. Stock must be bought, bills must be paid, customers must be served
and customer enquiries must be answered. In a small firm all these jobs may be
done by one or two people. In a large organization, people specialize in different
tasks. The main business functions are:

1. Operations

Every organization has an operations function, whether or not it is called

‘operations’. The goal or purpose of most organizations involves the production
of goods and/or services. To do this, they have to procure resources, convert
them into outputs and distribute them to their intended users. The term operations
embraces all the activities required to create and deliver an organization's goods
or services to its customers or clients.

Operations management is concerned with the design, management, and

improvement of the systems that create the organization's goods or services. The
majority of most organizations' financial and human resources are invested in
 9

the activities involved in making products or delivering services. Operations

management is therefore critical to organizational success.

2. Marketing

Such functions describe all things that form parts of the marketing practice.
Marketing's seven functions are:
• Product and service management.
• Setting prices.
• Finding the best distribution channels.
• Promotional channels.
• Financing your business.
• Deep market research.
• Matching products to customers.

3. Finance

In business, the finance function involves the acquiring and utilization of funds
necessary for efficient operations. Finance is the lifeblood of business without it
things wouldn’t run smoothly. It is the source to run any organization, it provides
the money, it acquires the money.
The objectives of finance function are:
• Investment decisions. This is where the finance manager decides where to put
the company funds.
• Financing decisions. Here a company decides where to raise funds from. There
are two main sources to consider mainly equity and borrowing.
• Dividend decisions. These are decisions as to how much, how frequent and in
what form to return cash to owners. A balance between profits retained and
the amount paid out as dividends should be decided here.
• Liquidity decisions. Liquidity means that a firm has enough money to pay its
bills when they are due and have sufficient cash reserves to meet unforeseen
emergencies.

4. Human resources

Human resource management (HRM) is the process of employing people,

training them, compensating them, developing policies relating to them, and
developing strategies to retain them. As a field, HRM has undergone many
changes over the last twenty years, giving it an even more important role in
today’s organizations.
 11

It’s necessary to point out here, that every manager has some role relating to
human resource management. Just because we do not have the title of HR
manager doesn’t mean we won’t perform all or at least some of the HRM tasks.
For example, most managers deal with compensation, motivation, and retention
of employees-making these aspects not only part of HRM but also part of
management.

Most experts agree on seven main roles that HRM plays in organizations:

• Staffing: Involves the entire hiring process from posting a job to negotiating a
salary package.
• Development of workplace policies.
• Compensation and benefits administration.
• Retention: Involves keeping and motivating employees to stay with the
organization.
• Training and development: Once we have spent the time to hire new employees,
we want to make sure they not only are trained to do the job but also continue
to grow and develop new skills in their job.
• Dealing with laws affecting employment: Human resource people must be
aware of all the laws that affect the workplace.
• Worker protection: Safety is a major consideration in all organizations.

5. Purchasing

The purchasing objective is sometimes understood as buying materials of the

right quality, in the right quantity, at the right time, at the right price, and from
the right source. This is a broad generalization, indicating the scope of
purchasing function, which involves policy decisions and analysis of various
alternative possibilities prior to their act of purchase.

6. Research and development

Research and development (R&D) is a valuable tool for growing and improving
your business. R&D involves researching your market and your customer needs
and developing new and improved products and services to fit these needs.
Businesses that have an R&D strategy have a greater chance of success than
businesses that don't. An R&D strategy can lead to innovation and increased
productivity and can boost your business's competitive advantage.

Your R&D strategy depends on the size of your business. In small businesses,
R&D tends to focus more on product improvement because of budget and cost
limitations. Larger businesses may be able to dedicate more time and resources
to R&D to introduce new products as well as improve existing ones. The benefits
 11

of R&D are often long-term, so it's important to remember that your investment
in it may not result in short-term profits. As well as product development and
improvement, R&D can help you develop more efficient processes and new
ways of delivering services.

1.12 Effectiveness vs. Efficiency

Table 1-1: The substantial differences between effectiveness and efficiency

Effectiveness Efficiency
Effectiveness is about accomplishing Efficiency is about performing a task
a task or producing a desired result in a best possible manner
It focuses on achieving the objective It focuses on maximum result with
least time and effort
Being effective means doing the right Being efficient means doing things in
things right manner
Effectiveness focuses on producing Efficiency focuses on completing
the result task using minimum time, effort and
resources
Higher quality result can be expected Quick and intelligent work can be
from an effective person expected from an efficient person
Effectiveness is primarily concerned Efficiency is primarily concerned on
about results, not use of resources the use of time, energy and resources,
not necessarily the results
It is not process and time oriented It is process and time oriented
It looks at whether the something is It looks at how the activity is done
done or not
Effectiveness has no/less economic Efficiency has higher economic sense
sense
Effectiveness is the end result Efficiency looks at the process/means
of doing a task
It is result oriented It is yield oriented
Effectiveness has long run Efficiency has short run perspective.
perspective. It is used to achieve It is used to achieve short term goals
sustainable growth and long term
profits
Here, the effectiveness of strategies It is measured in operations of the
are measured organization
It refers to the usefulness of a thing It refers to the way in which
something is done
Being effective means producing Being efficient means, there is
better and higher degree of success minimum waste, expenses and
unnecessary effort
Effectiveness does not look at input Efficiency looks at input to output
to output ratio ratio
 12

Effectiveness in a work/organization Efficiency should be followed by

should come first effectiveness
Being effective means being on the Being efficient may not necessarily
right track with regard to the mean being on the right track with
objective regard to the objective
 13

Chapter Three
Managers as Decision Makers

3.1 Introduction
Each day we are faced with situations in life that require us to make choices.
Some of these choices are easy, and at times, some of them can be difficult. Easy
decisions consist of things like what clothing you should wear; most people
choose what to wear based on the season of the year, the weather of the day, and
where they might be going. Other easy decisions consist of things like what to
eat, what movie to see, and what television programs to watch
(https://www.corporatewellnessmagazine.com/).

Decisions that seem to be the most difficult are those that require a deeper level
of thought. Examples of difficult decisions consist of things like where to attend
college, what career path would be best, and/or whether or not to marry and start
a family. These types of decisions are difficult because they are life-changing
decisions; they shape who we are, and they shape our future
(https://www.corporatewellnessmagazine.com/).

3.2 Decision Making Definition

Most writers in management think that management is basically a decision-
making process. They argue that it is only through making decisions that an
organization can accomplish its short-term and long-term goals
(https://www.yourarticlelibrary.com/).

Decision-making can be defined as the process of selecting a right and effective

course of action from two or more alternatives for the purpose of achieving a
desired result. Decision-making is the essence of management
(https://www.yourarticlelibrary.com/).

3.4 Decision Making Process

Exhibit 3-1 shows the eight steps in the decision-making process. This process
is as relevant to personal decisions as it is to corporate decisions. Let’s use an
example-a manager deciding what laptop computers to purchase-to illustrate the
steps in the process (Robbins and Coulter, 2012):
 14

Exhibit 3-1: Decision-making process

Step 1: Identifying a problem

Every decision starts with a problem, a discrepancy between an existing and a

desired condition.

How do managers identify problems? In the real world, most problems don’t
come with neon signs flashing “problem.” When her reps started complaining
about their computers, it was pretty clear to Amanda that something needed to
be done, but few problems are that obvious. Managers also have to be cautious
not to confuse problems with symptoms of the problem. Is a 5 percent drop in
sales a problem? Or are declining sales merely a symptom of the real problem,
such as poor-quality products, high prices, or bad advertising? Also, keep in
mind that problem identification is subjective. What one manager considers a
problem might not be considered a problem by another manager.
 15

Step 2: Identifying decision criteria

Once a manager has identified a problem, he or she must identify the decision
criteria that are important or relevant to resolving the problem. Every decision
maker has criteria guiding his or her decisions even if they’re not explicitly
stated. In our example, Amanda decides after careful consideration that memory
and storage capabilities, display quality, battery life, warranty, and carrying
weight are the relevant criteria in her decision.
Step 3: Allocating weights to the criteria

If the relevant criteria aren’t equally important, the decision maker must weight
the items in order to give them the correct priority in the decision. The weighted
criteria for our example are shown in Table 3-1.
Table 3-1: Important decision criteria and its weights
Criterion Weight
Memory and storage 0.3226
Battery life 0.2581
Carrying weight 0.1935
Warranty 0.1290
Display quality 0.0968
Total 1

Step 4: Developing alternatives

The fourth step in the decision-making process requires the decision maker to
list viable alternatives that could resolve the problem. In this step, a decision
maker needs to be creative, and the alternatives are only listed, not evaluated just
yet. Our sales manager, Amanda, identifies eight laptops as possible choices.
(See Table 3-2.)
Table 3-2: Possible alternatives and its values out of 10
Memory Battery Carrying Warranty Display
and storage life weight quality
HP ProBook 10 3 10 8 5
Sony VAIO 8 7 7 8 7
Lenovo IdeaPad 8 5 7 10 10
Apple Macbook 8 7 7 8 7
Toshiba Satellite 7 8 7 8 7
Sony NW 8 3 6 10 8
Dell Inspiron 10 7 8 6 7
HP Pavilion 4 10 4 8 10
 16

Step 5: Analyzing alternatives

Once alternatives have been identified, a decision maker must evaluate each one.
How? By using the criteria established in Step 2. Table 3-2 shows the assessed
values that Amanda gave each alternative after doing some research on them.
Keep in mind that these data represent an assessment of the eight alternatives
using the decision criteria, but not the weighted. When you multiply each
alternative by the assigned weight, you get the weighted alternatives as shown in
Table 3-3. The total score for each alternative, then, is the sum of its weighted
criteria.

Table 3-3: Evaluation of alternatives

Memory Battery Carrying Warranty Display Total

and life weight quality
storage
HP ProBook 3.23 0.77 1.94 1.03 0.48 7.45
Sony VAIO 2.58 1.81 1.35 1.03 0.68 7.45
Lenovo IdeaPad 2.58 1.29 1.35 1.29 0.97 7.48
Apple Macbook 2.58 1.81 1.35 1.03 0.68 7.45
Toshiba Satellite 2.26 2.06 1.35 1.03 0.68 7.39
Sony NW 2.58 0.77 1.16 1.29 0.77 6.58
Dell Inspiron 3.23 1.81 1.55 0.77 0.68 8.03
HP Pavilion 1.29 2.58 0.77 1.03 0.97 6.65

Step 6: Selecting an alternative

The sixth step in the decision-making process is choosing the best alternative or
the one that generated the highest total in Step 5. In our example (Table 3-3),
Amanda would choose the Dell Inspiron because it scored higher than all other
alternatives (8.03 total).
Step 7: Implementing the alternative

In step 7 in the decision-making process, you put the decision into action by
conveying it to those affected and getting their commitment to it. We know that
if the people who must implement a decision participate in the process, they’re
more likely to support it than if you just tell them what to do. Another thing
managers may need to do during implementation is reassess the environment for
any changes, especially if it’s a long-term decision. Are the criteria, alternatives,
and choice still the best ones, or has the environment changed in such a way that
we need to reevaluate?
 17

Step 8: Evaluating decision effectiveness

The last step in the decision-making process involves evaluating the outcome or
result of the decision to see whether the problem was resolved. If the evaluation
shows that the problem still exists, then the manager needs to assess what went
wrong. Was the problem incorrectly defined? Were errors made when evaluating
alternatives? Was the right alternative selected but poorly implemented? The
answers might lead you to redo an earlier step or might even require starting the
whole process over.

3.5 Types of Decisions

Programmed decisions and non-programmed decisions are the two basic types
of decisions that managers make. This depends on their authority, responsibility,
and position in the organizational decision-making structure:
1. Programmed decisions

Programmed decisions are those that are traditionally made using standard
operating procedures or other well-defined methods. These are routines that deal
with frequently occurring situations; such situations are called structured
problems because they’re straightforward, familiar, and easily defined. In routine
situations, it is usually much more desirable for managers to use programmed
decisions than to make a new decision for each similar situation
(https://www.iedunote.com/).

In programmed decisions, managers make a real decision only once, when the
program is created. Subsequently, the program itself specifies procedures to
follow when similar circumstances arise. The creation of these routines results
in the formulation of rules, procedures, and policies
(https://www.iedunote.com/).

Table 3-4: The differences between policies and procedures

Factor Policies Procedures

Meaning A statement that includes the The systematic way that
principles that guide has been specified by an
organizations and enable organization for fulfilling
them to achieve their its tasks or activities.
objectives.
Nature Not technical. Detailed and technical.
Orientation Decision oriented. Action oriented.
Supportive of Strategic objectives. Implementation of
policies.
 18

Formulated by Top management. Middle and low level

management.
Represent Mission of the organization. Steps to implement the
policies.
Formal/Informal Formal. Formal/Informal,
depending on the
organizational tasks.
Related to “What” the organization does. “How” it performs its
operations.
Based on Organizational mission and Policies of the
objectives. organization.
Adjustments Not easy to modify. Undergoes continuous
improvement.

Table 3-5: The differences between policies and rules

Factor Policies Rules

Meaning Policies refer to the principle of Rules imply a set of clearly
action laid down by the top-level stated standards, which
management, which acts as a regulates the behavior of an
guide for the decision making individual, at the
under various circumstances. workplace.
Represents A framework within which the An order, which needs to
decisions are to be made. be followed.
Determines What is to be done in different What should be done and
circumstances. what should not be done by
the employees.
Sources Objectives. Policies and procedures.
Rigidity Comparatively less rigid. Highly rigid.
Type of General statement. Specific statement.
statement
Objective Policies are formulated by the Rules are made to govern
management to guide the behavior and ensure
decision making, to ensure compliance, to maintain
uniformity in decisions. discipline.

2. Non-programmed decisions

Non-programmed decisions are taken in unstructured situations which reflect

novel, ill-defined, and complex problems. The problems are non-recurring or
exceptional in nature. Since they have not occurred before, they require extensive
brainstorming. Managers use skills and subjective judgment to solve the
 19

problems through scientific analysis and logical reasoning. Subjective judgment

is based on assessment of the situation. In objective judgment (in case of
programmed decisions), past experience forms the basis for decision-making.
Non-programmed decisions involve fair degree of uncertainty since outcomes of
decisions are not always known.

Table 3-6: The differences between programmed and non-programmed

decisions

Characteristic Programmed decisions Non-programmed decisions

Type of problem Structured Unstructured
Managerial level Lower levels Upper levels
Frequency Repetitive, routine New, unusual
Information Readily available Ambiguous or incomplete
Goals Clear, specific Vague
Time frame for Short Relatively long
solution
Solution relies on Procedures, rules, Judgment and creativity
policies

3.7 Decision-Making Conditions

Generally, the decision maker makes decision under the condition of certainty,
risk, and uncertainty (https://www.assignmentpoint.com/):

1. Certainty

Certainty is a condition under which the manager is well informed about possible
alternatives and their outcomes. There is only one outcome for each choice.
When the outcomes are known and their consequences are certain, the problem
of decision is to compute the optimum outcome. The condition of certainty exists
in case of routine decisions such as allocation of resources for production,
payment of wages and salary etc. There is a little ambiguity and relatively low
chance of making an impractical decision.

2. Risk

In a risk situation, although the factual information may be present but it can be
insufficient. Mostly the managers have to take business decisions under risk
situations. A more decision making condition is a state of risk. In such a
condition, managers have knowledge about alternative course of actions but
outcomes are associated with probability estimates. It is more difficult to predict
future conditions without full information, so the outcome of an alternative
cannot be accurately determined. Therefore, managers can guess the probable
 21

outcome on the basis of their experience, research and other available

information.

3. Uncertainty

In case of uncertainty conditions, very little information is available to the

managers and the managers are not sure regarding the reliability of such
information. A state of uncertainty occurs when managers are unaware of the
problem they face. They do not know all the alternatives, the risk associated with
them or the likely consequences of each alternative. This uncertainty arises from
the complexity and dynamism of contemporary organization and their
environments. Managers have limited information to calculate the degree of risk,
so statistical analysis is not possible. The condition of uncertainty arises when
the organization introduces a new or innovative product or service, adopts new
technology, selects new advertising program etc.

Exhibit 3-3 shows these three decision-making conditions.

Exhibit 3-3: Decision-making conditions

 21

Chapter Four
Foundations of Planning

4.1 Introduction
Planning is the primary function of management. Its purpose is to ensure
optimum utilization of human and economic resources in the business processes.
It precedes all other activities of the business undertaking. It is the process of
charting out the path for attaining the ultimate purpose of business operations by
outlining the sequence of events forecast with reasonable degree of certainty. It
involves not only anticipating the consequences of decisions but also predicting
events that may have effects on a business
(https://www.businessmanagementideas.com/).

Planning enables management to command the future rather than being swept
away by future. In a fast changing environment the need for planning is all the
more important because risk and uncertainty increase. In such an environment
contingent plans can be prepared (https://www.economicsdiscussion.net/).

4.2 Definition of Planning

Finally, planning can be defined as “The process by which managers establish
goals and define the methods by which these goals are to be attained. Planning
involves selecting missions and objectives and the actions to achieve them; it
requires decision making, which is choosing from among alternative future
courses of action (https://www.iedunote.com/).”

4.3 Characteristics of Planning

The characteristics of planning can be dedicated to the following points
(https://www.managementstudyguide.com/):

1. Planning is goal-oriented

- Planning is made to achieve desired objective of business.

2. Planning is looking ahead

- Planning is done for future.

3. Planning is an intellectual process

- Planning is a mental exercise involving creative thinking, sound judgment, and

imagination.
 22

4. Planning involves choice and decision-making

5. Planning is the primary function of management / primacy of planning

- Planning lays foundation for other functions of management.

6. Planning is a continuous process

- Planning is a never-ending function due to the dynamic business environment.

7. Planning is all pervasive

- It is required at all levels of management and in all departments of enterprise.

8. Planning is designed for efficiency

- Planning leads to accomplishment of objectives at the minimum possible cost.

9. Planning is flexible

- Since future is unpredictable, planning must provide enough room to cope with
the changes in customer’s demand, competition, and government's policies etc.

4.4 Importance of Planning

Planning is the first and foremost essential activity in all organization. It helps in
determining and achieving the objectives of the organization. The sound
planning is important condition for effective management. It helps the
organization in the following ways (https://www.economicsdiscussion.net/):

1. Making objectives clear

2. Planning provides direction

3. It reduces risk and uncertainty

4. Planning is economical

5. Planning provides the basis for control

Planning provides the standard against which the actual performance can be
measured and evaluated. There is nothing to control without planning and
without proper control. Plans serve as yardsticks for measuring performance.

6. Planning facilitates decision-making

7. Planning improve efficiency of operations

8. Planning improves morale

 23

9. Effective coordination

10. Planning encourages innovation and creativity

4.6 Elements of Planning

Planning as a managerial process consists of the following elements or
components (https://www.yourarticlelibrary.com/):

1. Objectives

The important task of planning is to determine the objectives of the enterprise.

Objectives are the goals towards which all managerial activities are aimed at. All
planning work must spell out in clear terms the objectives to be realized from the
proposed business activities.

2. Forecasting

Business forecasting refers to analyzing the statistical data and other economic,
political, and market information for the purpose of reducing the risks involved
in making business decisions and long range plans.
3. Policies
4. Procedures

There may be some confusion between policies and procedures. Policies provide
guidelines to thinking and action, but procedures are definite and specific steps
to thinking and action.
5. Rules

A rule specifies necessary course of action in a particular situation.

6. Programs

Programs are precise plans of action followed in proper sequence in accordance

with the objectives, policies, and procedures. Programs, thus, lead to a concrete
course of inter-related actions for the accomplishment of a purpose.
7. Budgets

Budget means an estimate of men, money, materials, and equipment in numerical

terms required for implementation of plans and programs.
8. Projects

A project is a single-use plan, which is a part of a general program. It is part of

the job that needs to be done in connection with the general program. Therefore,
a single step in a program is set up as a project.
 24

9. Strategies

Strategies are the devices formulated and adopted from the competitive
standpoint as well as from the point of view of the employees, customers,
suppliers, and government. Strategies thus may be internal and external. Whether
internal or external, the success of the plans demands that it should be strategy-
oriented.

4.7 Objectives and Goals

1. Objectives

Objectives are the end results of a planned activity. They are stated in
quantifiable terms. Objectives are stated differently at various levels of
management. Objectives play a very important role in enhancing the efficiency
of an organization. The following characteristics must be present in fairly framed
objectives:

- They should be specific and unambiguous.

- They should have a particular time horizon within which it is expected to be
achieved.
- They should be flexible enough so that if changes are required, they may be
incorporated easily.
- They should be attainable.
- They should be measurable.
- They should be understandable.
- They should help in the achievement of the organization’s goals.
- They should be challenging.

In other words, objectives should be SMART, which is an acronym that stands

for (see Exhibit 4-1):

• S – Specific.
• M – Measurable.
• A – Achievable.
• R – Relevant.
• T- Time-based.
 25

Exhibit 4-1: SMART objectives

2. Goals

Business goals are the broad primary outcomes towards which effort and actions
are directed in a business. They are whats, not hows and a business might have
multiple goals to achieve. For example, "we must be a leader player and increase
our share in the home loan market". Normally there is no measurement in the
definition of a goal and only gives you the general direction of the company
(https://cio-wiki.org/).

Goals provide the direction for all management decisions and actions and form
the criteria against which actual accomplishments are measured. Everything
organizational members do should be oriented toward achieving goals. These
goals can be set either through a traditional process or by using management by
objectives (MBO) (Robbins and Coulter, 2012):

1. In traditional goal setting, goals set by top managers flow down through the
organization and become sub-goals for each organizational area. This
traditional perspective assumes that top managers know what’s best because
they see the “big picture.” And the goals passed down to each succeeding level
guide individual employees as they work to achieve those assigned goals.
2. Instead of using traditional goal setting, many organizations use management
by objectives, a process of setting mutually agreed-upon goals and using those
goals to evaluate employee performance. MBO programs have four elements:
goal specificity, participative decision making, an explicit time period, and
performance feedback. Instead of using goals to make sure employees are
doing what they’re supposed to be doing, MBO uses goals to motivate them
as well.
 26

Goals are the outcomes you intend to achieve, whereas objectives are the specific
actions and measurable steps that you need to take to achieve a goal. Goals and
objectives work in tandem to achieve success. If you create goals without clear
objectives, you run the risk of not accomplishing your goals. The following are
some major differences between goals and objectives
(https://www.indeed.com/):

- Alignment and order - Goals are set to achieve the mission of an organization
or individual, while objectives are set for the accomplishment of goals. Goals
are thus higher in order than objectives.
- Scope - Goals are broad intentions and often incapable of being measured in
quantifiable units. Objectives are narrower than goals and described in terms
of specific tasks.
- Specificity - Goals are general statements of what is to be achieved. They do
not specify the tasks that need to be performed to accomplish them. Objectives,
on the other hand, are specific actions one takes within a certain timeframe.
- Tangibility - Goals can be intangible and non-measurable, but objectives are
defined in terms of tangible targets. For example, the goal to “provide excellent
customer service” is intangible, but the objective to “reduce customer wait time
to one minute” is tangible and helps in achieving the main goal.
- Timeframe - Goals are set to be achieved over a long period, while objectives
are meant for a shorter time frame. A goal is usually divided into several
objectives spread over multiple time frames.
- Language - The language used in describing goals focusing more on the
conceptual thinking, whereas that used in objectives focusing more on the
technical side.

4.9 Types of Plans

The most popular ways to describe organizational plans are breadth (strategic
versus operational), time frame (short-term versus long-term), specificity
(directional versus specific), and frequency of use (single use versus standing).
As Exhibit 4-2 shows, these types of plans aren’t independent. That is, strategic
plans are usually long-term, directional, and single use whereas operational plans
are usually short term, specific, and standing. What does each include? (Robbins
and Coulter, 2012):
 27

Exhibit 4-2: Types of plans

1. Strategic plans are plans that apply to the entire organization and establish the
organization’s overall goals. Plans that encompass a particular operational
area of the organization called operational plans. These two types of plans
differ because strategic plans are broad while operational plans are narrow.
Exhibit 4-3 shows the relationship between a manager’s level in the
organization and the type of planning done. For the most part, lower-level
managers do operational planning while upper-level managers do strategic
planning.

Exhibit 4-3: Planning and managerial level

 28

2. We define long-term plans as those with a time frame beyond three years.
Short-term plans cover one year or less. Any time period in between would be
an intermediate plan. Although these time classifications are fairly common,
an organization can use any planning time frame it wants.
3. Specific plans are clearly defined and leave no room for interpretation. A
specific plan states its objectives in a way that eliminates ambiguity and
problems with misunderstanding.
However, when uncertainty is high and managers must be flexible in order to
respond to unexpected changes, directional plans are preferable. Directional
plans are flexible plans that set out general guidelines. They provide focus but
don’t lock managers into specific goals or courses of action.
4. Some plans that managers develop are ongoing while others are used only
once. A single-use plan is a one-time plan specifically designed to meet the
needs of a unique situation. In contrast, standing plans are ongoing plans that
provide guidance for activities performed repeatedly. Standing plans include
policies, rules, and procedures.
 29

Chapter Five
Organizing
5.2 Definition of Organizing
Organizing is the process of coordinating and allocating a firm’s resources in
order to carry out its plans. Organizing includes developing a structure for the
people, positions, departments, and activities within the firm. Managers can
arrange the structural elements of the firm to maximize the flow of information
and the efficiency of work processes.

5.4 Principles of Organizing

Organizing has been defined as arranging and structuring work to accomplish
organizational goals. It’s an important process during which managers design an
organization’s structure. Organizational structure is the formal arrangement of
jobs within an organization. This structure can be shown visually in an
organizational chart. When managers create or change the structure, they’re
engaged in organizational design, a process that involves decisions about six key
elements: work specialization, departmentalization, chain of command, span of
control, centralization and decentralization, and formalization (Robbins and
Coulter, 2012):

1. Work specialization

Early proponents of work specialization believed that it could lead to great

increases in productivity. At the beginning of the twentieth century, that
generalization was reasonable. Because specialization was not widely practiced,
its introduction almost always generated higher productivity. But, as Exhibit 5-
1 illustrates, a good thing can be carried too far. At some point, the human
diseconomies from division of labor-boredom, fatigue, stress, low productivity,
poor quality, increased absenteeism, and high turnover-exceed the economic
advantages.
 31

Exhibit 5-1: Economies and diseconomies of work specialization

2. Departmentalization

After deciding what job tasks will be done by whom, common work activities
need to be grouped back together so work gets done in a coordinated and
integrated way. How jobs are grouped together is called departmentalization.
Exhibit 5-2 illustrates each type of departmentalization as well as the advantages
and disadvantages of each.
Functional departmentalization

• Advantages
• Efficiencies from putting together similar specialties and people
with common skills, knowledge, and orientations.
• Coordination within functional area.
• In-depth specialization.
 31

• Disadvantages

• Poor communication across functional areas.

• Limited view of organizational goals.

Geographical departmentalization

• Advantages
• More effective and efficient handling of specific regional issues
that arise.
• Serve needs of unique geographic markets better.

• Disadvantages
• Duplication of functions.
• Can feel isolated from other organizational areas.
Product departmentalization

+ Allows specialization in particular products and services.

+ Managers can become experts in their industry.
+ Closer to customers.
– Duplication of functions.
– Limited view of organizational goals.
 32

Process departmentalization

+ More efficient flow of work activities.

– Can only be used with certain types of products.

Customer departmentalization

+ Customers’ needs and problems can be met by specialists.

– Duplication of functions.
– Limited view of organizational goals.

Exhibit 5-2: The five common forms of departmentalization

3. Chain of command

The chain of command is the line of authority extending from upper

organizational levels to lower levels, which clarifies who reports to whom.
Managers need to consider it when organizing work because it helps employees
with questions such as “Who do I report to?” or “Who do I go to if I have a
problem?” To understand the chain of command, you have to understand three
other important concepts: authority, responsibility, and unity of command.

4. Span of control

How many employees can a manager effectively and efficiently manage? That’s
what span of control is all about. The traditional view was that managers could
not-and should not-directly supervise more than five or six subordinates.
Determining the span of control is important because to a large degree, it
determines the number of levels and managers in an organization-an important
consideration in how efficient an organization will be. All other things being
 33

equal, the wider or larger the span, the more efficient an organization is. Here’s
why.
Assume two organizations, both of which have approximately 4,100 employees.
As Exhibit 5-5 shows, if one organization has a span of four and the other a span
of eight, the organization with the wider span will have two fewer levels and
approximately 800 fewer managers. At an average manager’s salary of $42,000
a year, the organization with the wider span would save over $33 million a year!
Obviously, wider spans are more efficient in terms of cost. However, at some
point, wider spans may reduce effectiveness if employee performance worsens
because managers no longer have the time to lead effectively.

Exhibit 5-5: Contrasting spans of control

Ideally in an organization, according to modern organizational experts is

approximately 15 to 20 subordinates per supervisor or manager. However, some
experts with a more traditional focus believe that 5-6 subordinates per supervisor
or manager is ideal. In general, however, the optimum span of control depends
on various factors including (https://www.thehumancapitalhub.com/):

- Organization size: The size of an organization is a great influencer. Larger

organizations tend to have wider spans of control than smaller organizations.
- Nature of an organization: The culture of an organization can influence; a more
relaxed and flexible culture is consistent with wider; while a hierarchical
culture is consistent with narrower. It is important to consider the current and
desired culture of the organization when determining.
- Nature of job: Routine and low complexity jobs/tasks require less supervision
than jobs that are inherently complicated, loosely defined, and require frequent
decision-making. Consider wider for jobs requiring less supervision and
narrower for more complex and vague jobs.
 34

- Skills and competencies of manager: More experienced supervisors or

managers can generally be wider than less experienced supervisors.
- Employees skills and abilities: Less experienced employees require more
training, direction, and delegation (closer supervision, narrow); whereas more
experienced employees require less training, direction, and delegation (less
supervision, wider).
- Type of interaction between supervisors and employees: More frequent
interaction/supervision is characteristic of a narrower. Less interaction, such
as supervisors primarily just answering questions and helping solve employee
problems, is characteristic of a wider. The type of interaction you want your
supervisors and managers to engage in with their employees should be
consistent with the control they are given.

5. Centralization and decentralization

Table 5-1: Differences between centralization and decentralization

Factor Centralization Decentralization

Definition Decision-making Decision-making
capability rests with the capabilities delegated
top management. across multiple levels.
Flow of information Vertical. Open and free.
Ideal for Centralization is ideal Decentralization is ideal
for small-sized for large-sized
organizations. organizations.
Decision-making speed Comparatively slow. Significantly faster.
People involved In centralization, only a In decentralization, a
few handpicked people higher number of people
are involved in the from each level are
decision-making involved in the decision-
process. making process.
Employee motivation Demotivated employee. Highly motivated
employee.
Conflict in decision Least likely to occur. Most likely to occur.
Burden Only one group is The burden gets shared
carrying the burden. among many levels.
Stability Relatively stable as Prone to instability due to
decisions are made by a multiple conflicting
central authority decisions.
sharing a common
ideology.
 35

Table 5-2: Factors that affect an organization’s use of centralization or

decentralization

More centralization More decentralization

Environment is stable. Environment is complex, uncertain.
Lower-level managers are not as Lower-level managers are capable
capable or experienced at making and experienced at making decisions.
decisions as upper-level managers.
Lower-level managers do not want a Lower-level managers want a voice in
say in decisions. decisions.
Decisions are relatively minor. Decisions are significant.
Organization is facing a crisis or the Corporate culture is open to allowing
risk of company failure. managers a say in what happens.
Company is small. Company is large.
Effective implementation of company Effective implementation of company
strategies depends on managers strategies depends on managers
retaining say over what happens. having involvement and flexibility to
make decisions.

6. Formalization

Formalization refers to how standardized an organization’s jobs are and the

extent to which employee behavior is guided by rules and procedures. In highly
formalized organizations, there are explicit job descriptions, numerous
organizational rules, and clearly defined procedures covering work processes.
Employees have little discretion over what’s done, when it’s done, and how it’s
done. However, where formalization is low, employees have more discretion in
how they do their work.

Formal organization has some features, which are

(https://www.yourarticlelibrary.com/):

• The formal organizational structure is created intentionally by the process of

organizing.
• The purpose of formal organizational structure is the achievement of
organizational goals.
• In the formal organizational structure each individual is assigned a specific
job.
• In the formal organizational structure every individual is assigned a fixed
authority or decision-making power.
• Formal organizational structure results in creation of superior-subordinate
relations.
 36

• Formal organizational structure creates a scalar chain of communication in the

organization.

Formal organization has some advantages, which are

(https://www.yourarticlelibrary.com/):

• Systematic working.
• Achievement of organizational objectives.
• No duplication or overlapping of work.
• Co-ordination.
• Creation of chain of command.
• More emphasis on work.

Formal organization has some disadvantages, which are

(https://www.yourarticlelibrary.com/):

• Delay in action. While following scalar chain and chain of command; actions
get delayed in formal structure.
• Ignores social needs of employees. Formal organizational structure does not
give importance to psychological and social need of employees, which may
lead to demotivation of employees.
• Emphasis on work only. Formal organizational structure gives importance to
work only; it ignores human relations, creativity, talents, etc.

The informal organizational structure gets created automatically and the main
purpose of such structure is getting psychological satisfaction. The existence of
informal structure depends upon the formal structure, because people working at
different job positions interact with each other to form informal structure and the
job positions are created in formal structure. So, if there is no formal structure,
there will be no job position, there will be no people working at job positions,
and there will be no informal structure. Informal organization has some features,
which are (https://www.yourarticlelibrary.com/):

• Informal organizational structure gets created automatically without any

intended efforts of managers.
• Informal organizational structure is formed by the employees to get
psychological satisfaction.
• Informal organizational structure does not follow any fixed path of flow of
authority or communication.
• Source of information cannot be known under informal structure as any person
can communicate with anyone in the organization.
• The existence of informal organizational structure depends on the formal
organization structure.
 37

Informal organization has some advantages, which are

(https://www.yourarticlelibrary.com/):

• Fast communication.
• Fulfills social needs.
• Correct feedback.

Informal organization has some disadvantages, which are

(https://www.yourarticlelibrary.com/):

• Spread rumors. According to a survey, 70% of information spread through

informal organizational structure are rumors, which may mislead the
employees.
• No systematic working. Informal structure does not form a structure for smooth
working of an organization.
• May bring negative results.
• More emphasis to individual interest.
 38

Chapter Six
Leadership

6.1 Introduction
Leadership refers to the quality of leading people. Probably, it is one of the most
important aspects of life. Above all, leadership has led to the progress of human
civilization. Without good leadership, no organization or group can succeed.
Furthermore, not everyone has this quality. This is because effective leadership
requires certain important characteristics (https://www.toppr.com/).

Leadership development is an important and a recent issue in the field of

management practices. Basically, it involves developing those qualities and
attitudes in managers which help them to look into the future and to bring
necessary improvement pertaining to different leadership styles
(https://www.economicsdiscussion.net/).

6.2 Definition of Leadership

• Koontz and O’Donnell, “Leadership is the process of influencing people, so
that they will strive willingly towards the achievement of group goals.”

We can define leadership as the process of influencing others to understand and

agree about what needs to be done and how to do it, and the process of facilitating
individual and collective efforts to accomplish shared objectives.

6.4 The Differences between Leaders and Managers

When you are promoted into a role where you are managing people, you don’t
automatically become a leader. The manager is an employee of the organization,
responsible for its management. The leader is a person who leads, guides, and
directs others. There are important distinctions between managing and leading
people. Here are nine of the most important differences that set leaders apart
(https://www.forbes.com/):

1. Leaders create a vision, managers create goals

2. Leaders are change agents, managers maintain the status quo

3. Leaders are unique, managers are not

4. Leaders take risks, managers control risk

5. Leaders think about the long-term, managers think about the short-term
 39

6. Leaders grow personally, managers rely on existing and established skills

7. Leaders build relationships, managers build systems and processes

8. Leaders coach, managers direct

9. Leaders create fans, managers have employees

Table 6-1 shows more detailed differences between leaders and managers
(https://keydifferences.com/).

Table 6-1: The detailed differences between leaders and managers

Factor Leader Manager
Meaning A leader is a person who A manager is a representative of
directs, guides, and the organization responsible for
influences the behavior of the management of the work of a
his followers towards the group of employees and takes
attainment of specific requisite actions whenever
goals. required.
Work Providing direction to the Planning, organizing, directing,
followers by creating and and controlling his subordinates
communicating the vision to achieve the company
and encouraging them to objectives.
reach it.
Management Performs all four main Performs all four main functions
functions functions - planning, - planning, organizing, directing,
organizing, coaching, and and controlling.
controlling.
Power Informal power depending Formal authority due to his/her
on his/her personal position.
qualities.
Approach Proactive. Reactive.
Exists in Both formal and informal Formal structure only.
structure.
Required Leadership qualities are Managerial qualities are
qualities required. required.
Motivation Intrinsic process. Extrinsic process.
Key attribute Foresightedness. Prompt decision-making and
coordination.
Employees Followers. Subordinates.
What does Sets directions. Managing activities.
he/she do?
 41

Style Transformational. Transactional.

Aims at Motivating and inspiring Directing and controlling
people. employees.
Focus People. Process.
Change Promotes change. Reacts to change.
Conflict Uses conflict as an asset. Avoid conflict.
People Aligns people. Arranges people.
Strives For effectiveness. For efficiency.

6.8 Leadership Styles

4. Autocratic leadership style

Also called the “authoritarian style of leadership,” this type of leader is someone
who is focused primarily on results and efficiency. They often make decisions
alone or with a small trusted group and expect employees to do exactly what
they’re asked. It can be helpful to think of these types of leaders as military
commanders.

Autocratic style can be useful in organizations with strict guidelines or

compliance-heavy industries. It can also be beneficial when used with employees
who need a great deal of supervision-such as those with little to no experience.
However, this leadership style can stifle creativity and make employees feel
confined.

5. Laissez-faire or hands-off leadership style

Laissez-faire style is the opposite of the autocratic leadership type, focusing

mostly on delegating many tasks to team members and providing little to no
supervision. Because a laissez-faire leader does not spend their time intensely
managing employees, they often have more time to dedicate to other projects.

Managers may adopt this leadership style when all team members are highly
experienced, well trained, and require little oversight. However, it can also cause
a dip in productivity if employees are confused about their leader’s expectations,
or if some team members need consistent motivation and boundaries to work
well.
6. Democratic or participative leadership style

The democratic style (also called the “participative style”) is a combination of

the autocratic and laissez-faire types of leaders. A democratic leader is someone
who asks for input and considers feedback from his or her team before making a
 41

decision. Because team members feel their voice is heard and their contributions
matter, a democratic leadership style is often credited with fostering higher levels
of employee engagement and workplace satisfaction.

Because this type of leadership drives discussion and participation, it’s an

excellent style for organizations focused on creativity and innovation-such as the
technology industry.

10. Bureaucratic leadership style

Bureaucratic leaders are similar to autocratic leaders in that they expect their
team members to follow the rules and procedures precisely as written.

The bureaucratic style focuses on fixed duties within a hierarchy where each
employee has a set list of responsibilities, and there is little need for collaboration
and creativity. This leadership style is most effective in highly regulated
industries or departments, such as finance, health care, and government.

6.9 Leadership Theories

Leadership theories seek to explain how and why certain people become leaders.
Such theories often focus on the characteristics of leaders, but some attempt to
identify the behaviors that people can adopt to improve their own leadership
abilities in different situations. Let us explain the most important leadership
theories:

1. Early leadership theories

People have been interested in leadership since they started coming together in
groups to accomplish goals. However, it wasn’t until the early part of the
twentieth century that researchers actually began to study leadership. These early
leadership theories focused on the leader (leadership trait theory) and how the
leader interacted with his or her group members (behavioral leadership theories):

a. Leadership trait theory

Trait theory of leadership is based on the assumption that people are born with
inherited traits and some traits are particularly suited to leadership. The theory
aims to discover specific leadership and personality traits and characteristics
proven to predict the likelihood of success or failure of a leader. The seven traits
shown to be associated with effective leadership are (Robbins and Coulter,
2012):

• Drive. Leaders exhibit a high effort level.

 42

• Desire to lead. Leaders have a strong desire to influence and lead others. They
demonstrate the willingness to take responsibility.
• Honesty and integrity. Leaders build trusting relationships with followers by
being truthful or non-deceitful and by showing high consistency between word
and deed.
• Self-confidence. Followers look to leaders for an absence of self-doubt.
Leaders, therefore, need to show self-confidence in order to convince
followers of the rightness of their goals and decisions.
• Intelligence. Leaders need to be intelligent enough to gather, synthesize, and
interpret large amounts of information, and they need to be able to create
visions, solve problems, and make correct decisions.
• Job-relevant knowledge. Effective leaders have a high degree of knowledge
about the company, industry, and technical matters. In-depth knowledge
allows leaders to make well-informed decisions and to understand the
implications of those decisions.
• Extraversion. Leaders are energetic, lively people, sociable, assertive, and
rarely silent or withdrawn.

b. Behavioral leadership theories

• University of Michigan studies

Michigan leadership studies is a behavioral leadership theory that indicates the
Institute for Social Research at the University of Michigan conducted empirical
studies to identify styles of leader behavior that results in higher performance
and satisfaction of a group. The studies identified two distinct styles of leadership
(See Exhibit 6-2.) (https://www.iedunote.com/):

- Job-centered leadership. Managers using job-centered leader behavior pay

close attention to subordinates’ work, explain work procedures, and are keenly
interested in performance.
- Employee-centered leadership. Managers using employee-centered leader
behavior are interested in developing a cohesive workgroup and ensuring that
employees are satisfied with their jobs. The Michigan leadership studies found
that both the styles of leadership led to an increase in production, but it was
slightly more in case of job-centered style.
 43

Exhibit 6-2: Leadership styles of university of Michigan studies

• The managerial grid theory

The Blake-Mouton managerial model identified five leadership styles from

various combinations of the two dimensions of leadership behavior (See Exhibit
6-3.) (https://harappa.education/).
 44

Exhibit 6-3: Leadership styles of the managerial grid theory

2. Contingency leadership theories

a. Hersey and Blanchard’s situational leadership theory

This approach to leadership suggests the need to match two key elements
appropriately: the leader’s leadership style and the followers’ maturity or
preparedness levels. The theory identifies four main leadership approaches
(https://courses.lumenlearning.com/):

• Telling. Directive and authoritative approach. The leader makes decisions and
tells employees what to do.
• Selling. The leader is still the decision maker, but he communicates and works
to persuade the employees rather than simply directing them.
• Participating. The leader works with the team members to make decisions
together. He supports and encourages them and is more democratic.
• Delegating. The leader assigns decision-making responsibility to team
members but oversees their work.
 45

In addition to these four approaches to leadership, there are also four levels of
followers’ maturity (See Exhibit 6-4.) (https://courses.lumenlearning.com/):

• Level M1. Followers have low competence and low commitment.

• Level M2. Followers have low competence, but high commitment.
• Level M3. Followers have high competence, but low commitment and
confidence.
• Level M4. Followers have high competence and high commitment and
confidence.

Exhibit 6-4: Levels of followers’ maturity

In Hersey and Blanchard’s approach, the key to successful leadership is

matching the proper leadership style to the corresponding maturity level of the
employees. As a general rule, each of the four leadership styles is appropriate for
the corresponding employee maturity level (See Exhibit 6-5.)
 46

Exhibit 6-5: Maturity levels and leadership styles

6.10 Leadership Power

It is never enough to call someone a “leader” without power to show for it. In
other words, “for an individual to be called a leader, power has to be in the
equation”. People don’t follow leaders without power. However, knowing the
different sources and limits to which one can exercise power in an organizational
setting is essential. Leadership power is the influence that leaders have over their
followers. The 10 common types of power in leadership are
(https://www.indeed.com/):

1. Legitimate

Legitimate power is the power someone holds as the result of a hierarchy in an

organization. They can influence employees because their position dictates it.
This is similar to military rankings. All lower-ranking members must abide by
the direction of their commanding officer and other high-ranking officials. This
structure helps to organize large businesses and ensure everyone is following the
same goals.

2. Coercive

Coercive power is the power someone holds through threat or force. In an

organization, a higher-ranking manager can force a lower-ranking employee to
 47

act in a way they don't want to with a threat of termination or other disciplinary
action.

3. Referent

Referent power is the power that role models hold. It occurs when a leader has
strong interpersonal skills and others follow them because of a deep admiration.

4. Charisma

Charisma is the nature of attractiveness or charm that compels others to follow

someone.

5. Expert

Expert power exists in an organization when one member possesses a set of skills
others don't have.

6. Information

7. Reward

Gifts can give someone a strong influence on the behavior of others. Reward
power exists when a manager has the power to offer incentives to employees
who perform well.

8. Moral

A leader with moral power inspires action based on their beliefs and behavior.
Moral leaders live by a principle that others can see and decide to follow.
Employees are inspired by these leaders because the leader builds trust through
their ethics. They become a role model for setting personal standards.

9. Connection

Building relationships establish a framework for connection power. Take

advantage of networking opportunities to make lasting friendships throughout
your career.

10. Founder

Becoming an entrepreneur of a successful business gives you founder power

even after you have stepped down from running day-to-day activities.
 48

Chapter Seven
Controlling

7.1 Introduction
Like other managerial functions, the need for control arises to maximize the use
of scarce resources and to achieve purposeful behavior of organization members.
In the planning stage, managers decide how the resources would utilize to
achieve organizational objectives; at the controlling stage; managers try to
visualize whether resources are utilizing in the same way as planned. Control is
any process that guides activity towards some predetermined goals. Thus control
can apply in any field such as price control, distribution control, pollution
control, etc. (https://www.ilearnlot.com/).

Controlling function should not be misunderstood as the last function of

management. It is a function that brings back the management cycle to the planning
function (See Exhibit 7-1.) This process helps in the formulation of future plans in
light of the problems that were identified and, thus, helps in better planning in the
future periods. Therefore, from the meaning of controlling we understand it not only
completes the management process but also improves planning in the next cycle
(https://www.toppr.com/).

Exhibit 7-1: Planning-controlling link

 49

7.2 Definition of Controlling

Controlling can be defined as a management function which aims at ensuring
that organizational activities are performed as planned by comparing the actual
execution with the plans. Further, on comparison, if any deviations are found,
then controlling also finds out the reasons for such deviations and suggests
corrective actions.

7.3 Importance of Controlling

The significance of the controlling function in an organization is as follows
(https://www.businessmanagementideas.com/):

1. Evaluating the accomplishment of organizational goals

2. Judging accuracy of standards

3. Making efficient use of resources

4. Improving employee motivation

5. Ensuring order and discipline

6. Facilitating coordination in action

7.4 Features of Controlling

Based on the above definitions, the following features of controlling can be
presented below (https://legalpaathshala.com/):

1. Control is a function of management

2. Control is based on the plan

3. Control is a dynamic process

4. Information is guide to control

5. The essence of control is action

6. Control is a continuous activity

7. Delegation is the key to control

An executive can take corrective actions only when he is assigned the necessary
authority for it. A person has the right to control these actions for which he is
directly accountable. Furthermore, control becomes necessary when authority is
delegated, because the delegate remains responsible for the duty.
 51

8. Control aims at future

Control involves comparison between actual performance and standards.

Therefore, corrective actions are designed to improve performance in the future.

9. Control is a universal function of management

10. Control is positive

7.9 The Control Process

Controlling process consists of the following systematic steps
(https://www.businessmanagementideas.com/):

1. Getting performance standards

The first step in the process of controlling is concerned with getting performance
standards. These standards are the basis for measuring the actual performance.

These standards can be expressed both in quantitative and qualitative terms.

Examples of quantitative standards are:

• Revenue to be earned.
• Units to be produced and sold.
• Cost to be incurred.
• Time to be spent in performing a task.
• Amount of inventories to be maintained etc.

Examples of qualitative standards are:

• Improving motivation level of employees.

• Improving labor relations.
• Improving quality of products.
• Improving goodwill etc.

2. Measurement of actual performance

Once we have the performance standards, the next step is to measure the actual
performance. The various techniques for measuring are sample checking,
performance reports, personal observation etc. However, in order to facilitate
easy comparison, the performance should be measured on same basis that the
standards have.
 51

3. Comparing actual performance with standards

This step involves comparing the actual performance with standards laid down
in order to find the deviations. For example, performance of a salesman in terms
of sold units in a week can be easily measured against the standard output for the
week.

4. Analyzing deviations

Some deviations are possible in all the activities. However, the deviation in the
important areas of business needs to be corrected more urgently as compared to
deviation in insignificant areas. Management should use critical point control
and management by exception in such areas:

• Critical point control

Since it is neither easy nor economical to check each and every activity in an
organization, the control should focus on Key Result Areas (KRAs) which act as
the critical points. The KRAs are very essential for the success of an
organization. Therefore, the entire organization has to suffer if anything goes
wrong at these points. For example, in a manufacturing organization, an increase
of 7% in labor cost is more troublesome than an 18% increase in stationary
expenses.

• Management by exception
Management by exception or control by exception is an important principle of
management control. According to this principle, an attempt to control
everything results in controlling nothing. Thus, only the important deviations
which exceed the prescribed limit should be brought to the notice of
management. Thus, if plans provide for 3% increase in labor cost, deviations
beyond 3% alone should be brought to the notice of the management.

5. Taking corrective action

The last step in the process of controlling involves taking corrective action. If
the deviations are within acceptable limits, no corrective measure is required.
However, if the deviations exceed acceptable limits, they should be immediately
brought to the notice of the management for taking corrective measures,
especially in the important areas.
 52

7.10 Types of Control

2. According to the timing of control

Controls can be categorized according to the time in which a process or activity

occurs. The controls related to time include feed-forward, concurrent, and
feedback controls. Feed-forward control anticipates future implications.
Concurrent control concerns the present. Feedback control concerns the past
(See Exhibit 7-2.) (https://courses.lumenlearning.com/):

Exhibit 7-2: Types of control according to the timing

• Feed-forward control

Feed-forward control, also known as preliminary, preventive, or proactive

control, involves anticipating trouble, rather than waiting for a poor outcome and
reacting afterward. It is about prevention or intervention. An example of feed-
forward control is when an engineer performs tests on the braking system of a
prototype vehicle before the vehicle design is moved on to be mass produced.

• Concurrent control

With concurrent control, monitoring takes place during the process or activity.
Concurrent control may be based on standards, rules, codes, and policies.

• Feedback control

Feedback occurs after an activity or process is completed. It is reactive. For

example, feedback control would involve evaluating a team’s progress by
comparing the production standard to the actual production output. If the
 53

standard or goal is met, production continues. If not, adjustments can be made to

the process or to the standard.

3. According to the source of control

The controls related to the source include internal control and external control:

• Internal control

Internal control system includes a set of rules, policies, and procedures an

organization implements to provide direction, increase efficiency, and strengthen
adherence to policies. The internal control structure of a company consists of the
policies and procedures established to provide reasonable assurance that specific
entity objectives will be achieved (https://www.iedunote.com/).

• External control

An external control is an action taken by an outside party that affects the

governance of a business.

4. According to the control mechanisms

The controls related to mechanisms include bureaucratic control, clan control,

and market control (https://www.coursehero.com/):

• Bureaucratic control

Is the control through policies, procedures, job description, budgets, and day-to-
day supervision.

• Clan control

Is the control through social norms and peer expectations.

• Market control
Is the outside influences from competitors.

7.12 Limitations of Controlling

There are limitations to the control system also besides the advantages. Although
controlling is an important function of management, it suffers from the following
limitations (https://qsstudy.com/):
 54

1. Difficulty in setting quantitative standards

Control system loses some of its effectiveness when standards cannot be defined
in quantitative terms. This makes a measurement of performance and their
comparison with standards a difficult task.

2. Little control of external factors

There are a few things that are not under the control of the manager or the
organization. Generally, an enterprise cannot control external factors such as
government policies, technological changes, competition, etc. All these are not
under the control of the company, and that makes things out of control.

3. Resistance from employees

Control is often resisted by employees. They see it as a restriction on their

freedom.

4. Costly affair

Control is a costly affair as it involves a lot of expenditure, time, and effort.

5. No freedom to the employees

With so much control, the employees believe that their liberty is condensed.
They do not consider working for the organization that does not let them work
as per their determination. Thus, they go away to the companies that do not give
them liberty. There is the requirement of putting a lot of time and effort to the
control system.