Chapter 4

PSYCHOLOGY AND BUSINESS MANAGEMENT

Role of Psychology in Business & Management is an extremely important aspect
in the world today. Understanding the human psychology, be it either employees or
customers or business partners, helps companies in better management and grow
their business.
Business is multifaceted, what is common across all the areas, however, are
people. All the stakeholders from the shareholders to the managers to the
government to the employees are comprised of people. Since, where people are
involved, psychology is involved, psychology has it effects on all the aspects of a
business. It helps us understand the human behavior and reasoning behind
thoughts, processes, actions and goals.
The shareholders have a vision before investing in a business. The goals,
missions, objectives etc are based on this vision. The psychology of the share
holders helps decide whether the business is for profit or has a social objective.
Share holders decide which shares to purchase depending on their inherent values
and psychology. Some share holders do not invest in stocks of companies
associated with alcohol. This is their personal belief. In small firms where
decisions are taken by the shareholders, management policies are affected by the
psychology of the shareholders.
The psychology of the employees is particularly difficult to explain since all
employees are at different levels of the hierarchy. There are supervisors and
reportees to consider. There is the top, middle and lower level managements to
consider. All of whom are different and have different motivations and needs. The
top level usually controls the labour force. They should be efficient and organized.
Along with being strategic thinkers, they should also have the ability to predict or
at least understand how people would react to policy decisions and changes. They
should have the ability to be good leaders. Understanding psychology helps
managers lead the team to great success. The middle level needs to lead the lower
level but also work according to the guidelines issued by the top management.
Conflict managements, negotiations etc would be common and they should be
comfortable with it. Identifying potential employee related problems and solving
them before the affect the bottom line of the company is necessary for them. The
middle level management should be given proper incentives so that they are loyal
to the company. The lower level management should have outlets for grievance
redressals. They should be made to feel a part of the company. Attrition should be
reduced. Absenteeism, union problems, inefficiencies should be addressed at the
grass root levels. Using human psychology to improve efficiencies has been very
beneficial in recent times.
In the Human Resources department, psychology is used to Fine-tune the hiring
processes. Appropriate measures are taken to curb attrition, increase employee
retention, increase employee productivity and loyalty using psychology as a factor.
In the Production department decisions like what to produce, how much to
produce, how to produce, where to produce depends on the psychology of the
customers and the labour force. Ideal working hours, wage rate are all determined
using psychology as a guiding factor.
In the Finance department, identifying which costs can be controlled and
minimized, investment decisions, the incentives which can be offered, the pricing
of the product are all made keeping in mind the psyche of the people concerned.
In the Advertising and Promotion departments, deciding which advertisements
would appeal to the customers, the duration of the advertisement, the target
audience, the timing of the advertisement, the medium used are all dependent on
the organization’s perception of the consumers’ psychology.
In the Sales and distribution department, deciding the channels of distribution, the
quantity of stock to be kept, the shops in which the stock is to be kept, etc all
depends on the consumers. Apart from all this, Innovation is completely based on
understanding the psychology of the markets. Trial and error methods are the order
of the day, but these need to be based on facts and opinions. Psychology helps us
understand the models that businesses before us have used and also helps us adapt
the same to our innovations in these ever-changing times in order to create
business models which would make us successful. In short we can learn from our
predecessors and adapt their successes without suffering through their failures.
Consumer psychology is another very important aspect. Understanding
customers’ needs, wants and desires is integral. Tools like market research,
surveys, etc helps in determining which product would be well received and which
would not. Decisions to increase or decrease production, decisions on distribution
channels, sales promotion techniques all depends on the psychology of the
customers. Tactics used to influence customers could be influence and persuasion.
Understanding the psychology of the customers is the key to maximizing profits of
the company. Companies also use consumer psychology to predict what kinds of
products customers would want in the future. Research and development is then
conducted on these ideas and theories to make products the customer wants.
Supplier psychology helps us negotiate for fair rates which in return affects the
profits of the organization. It also helps us choose the right supplier according to
our needs.
These are the major dimensions of the business which are influenced by
psychology. Psychology also plays a major role across departments from Human
Resources to production to finance to sales. All are influenced by the psychological
requirements of the people involved.
Psychology is a phenomenon. Its role in business administration and management
is ever-evolving and growing in importance. The increase in awareness and
education in recent times forces people to think and act rationally. More and more
people are learning the importance of the same and tapping into the enormous
potential of applied and business psychology to be successful. These subjects are
offered as courses in graduate schools and are included in business curriculums
which are exceedingly becoming popular. In conclusion it can be said that when
you master the art of reading and understanding people, you do meaningful work
and accomplish impossible goals. As Alfred Herrhausen said, “50% of business is
psychology, business is a party of people not computers.”
LEADERSHIP, DIFING ITS CHARACTERISTICS
Leadership is a practical skill encompassing the ability of an individual
to organize and lead or guide other individuals, teams, or entire organizations.
Leadership is, of course, subjective. But its foundation stems from one thing: the
ability of an individual to establish a following among other individuals or teams.
Every leader has his or her own style and strategy. Further, their leadership styles
and methods will vary because they are influenced by multiple factors — the
modern challenges all business leaders face today (digitalization, changing
regulatory and financial markets, recruiting and retaining talent) coupled with
predicaments specific to their company, company size and the industry in which
the business is based.
Honesty

Whatever ethical plane you hold yourself to, when you are responsible for a team
of people, its important to raise the bar even higher. Your business and its
employees are a reflection of yourself, and if you make honest and ethical behavior
a key value, your team will follow suit.
Delegate

Finessing your brand vision is essential to creating an organized and efficient

business, but if you don’t learn to trust your team with that vision, you might never
progress to the next stage. It’s important to remember that trusting your team with
your idea is a sign of strength, not weakness. Delegating tasks to the appropriate
departments is one of the most important skills you can develop as your business
grows. The emails and tasks will begin to pile up, and the more you stretch
yourself thin, the lower the quality of your work will become, and the less you will
produce.

Communication

Knowing what you want accomplished may seem clear in your head, but if you try
to explain it to someone else and are met with a blank expression, you know there
is a problem. If this has been your experience, then you may want to focus on
honing your communication skills. Being able to clearly and succinctly describe
what you want done is extremely important. If you can’t relate your vision to your
team, you won’t all be working towards the same goal.

Confidence
There may be days where the future of your brand is worrisome and things aren’t
going according to plan. This is true with any business, large or small, and the
most important thing is not to panic. Part of your job as a leader is to put out fires
and maintain the team morale. Keep up your confidence level, and assure everyone
that setbacks are natural and the important thing is to focus on the larger goal. As
the leader, by staying calm and confident, you will help keep the team feeling the
same. Remember, your team will take cues from you, so if you exude a level of
calm damage control, your team will pick up on that feeling. The key objective is
to keep everyone working and moving ahead.
Stress Management and psychology
In psychology, stress is a feeling of strain and pressure. Small amounts of stress
may be desired, beneficial, and even healthy. Positive stress helps improve athletic
performance. It also plays a factor in motivation, adaptation, and reaction to the
environment. Excessive amounts of stress, however, may lead to bodily harm.
Common Sources of Work Stress
Certain factors tend to go hand-in-hand with work-related stress. Some common
workplace stressors are:
 Low salaries.
 Excessive workloads.
 Few opportunities for growth or advancement.
 Work that isn't engaging or challenging.
 Lack of social support.
 Not having enough control over job-related decisions.
 Conflicting demands or unclear performance expectations.
Effects of Uncontrolled Stress
Unfortunately, work-related stress doesn't just disappear when you head home for
the day. When stress persists, it can take a toll on your health and well-being.
In the short term, a stressful work environment can contribute to problems such as
headache, stomachache, sleep disturbances, short temper and difficulty
concentrating. Chronic stress can result in anxiety, insomnia, high blood pressure
and a weakened immune system. It can also contribute to health conditions such as
depression, obesity and heart disease. Compounding the problem, people who
experience excessive stress often deal with it in unhealthy ways such as overeating,
eating unhealthy foods, smoking cigarettes or abusing drugs and alcohol.
Taking Steps to Manage Stress
 Track your stressors. Keep a journal for a week or two to identify which
situations create the most stress and how you respond to them. Record your
thoughts, feelings and information about the environment, including the people and
circumstances involved, the physical setting and how you reacted.
 Develop healthy responses. Instead of attempting to fight stress with fast food or
alcohol, do your best to make healthy choices when you feel the tension rise.
Exercise is a great stress-buster. Yoga can be an excellent choice, but any form of
physical activity is beneficial. Also make time for hobbies and favorite activities.
Whether it's reading a novel, going to concerts or playing games with your family,
make sure to set aside time for the things that bring you pleasure.
 Establish boundaries. In today's digital world, it's easy to feel pressure to be
available 24 hours a day. Establish some work-life boundaries for yourself. That
might mean making a rule not to check email from home in the evening, or not
answering the phone during dinner. Although people have different preferences
when it comes to how much they blend their work and home life, creating some
clear boundaries between these realms can reduce the potential for work-life
conflict and the stress that goes with it.
 Talk to your supervisor. Healthy employees are typically more productive, so
your boss has an incentive to create a work environment that promotes employee
well-being. Start by having an open conversation with your supervisor. The
purpose of this isn't to lay out a list of complaints, but rather to come up with an
 effective plan for managing the stressors you've identified, so you can perform at
your best on the job. While some parts of the plan may be designed to help you
improve your skills in areas such as time management, other elements might
include identifying employer-sponsored wellness resources you can tap into,
clarifying what's expected of you, getting necessary resources or support from
colleagues, enriching your job to include more challenging or meaningful tasks, or
making changes to your physical workspace to make it more comfortable and
reduce strain.
 Get some support. Accepting help from trusted friends and family members can
improve your ability to manage stress. Your employer may also have stress
management resources available through an employee assistance program (EAP),
including online information, available counseling and referral to mental health
professionals, if needed. If you continue to feel overwhelmed by work stress, you
may want to talk to a psychologist, who can help you better manage stress and
change unhealthy behavior.