BCB501 - FUNDAMENTALS OF MANAGEMENT

MODULE-1

Introduction to Management:

Definition :
Many management experts have tried to define management. But, no
definition of management has been universally accepted. Let us discuss some
of the leading definitions of management:
Peter F. Drucker defines, "management is an organ; organs can be described
and defined only through their functions".
According to Terry, "Management is not people; it is an activity like walking,
reading, swimming or running. People who perform Management can be
designated as members, members of Management or executive. leaders "
Ralph C. Davis has defined Management as, "Management is the function of
executive leadership anywhere."
According to Mc Farland, "Management is defined for conceptual, theoretical
and analytical purposes as that process by which managers create, direct,
maintain and operate purposive organization through systematic, co-ordinated
co-operative human effort.
Henry Fayol, "To mange is to forecast and plan, to organize, to compound, to
co-ordinate and to control."
Harold Koontz says, "Management is the art of getting things done through and
within formally organized group."
William Spriegal, "Management is that function of an enterprise which
concerns itself with direction and control of the various activities to attain
business objectives. Management is essentially an executive function; it deals
with the active direction of the human effort.
Kimball and Kimball, "Management embraces all duties and functions that
pertain to the initiation of an enterprise, its financing, the establishment of all
major policies, the provision of all necessary equipment, the outlining of the
general form of organization under which the enterprise is to operate and the
selection of the principal officers."

1
Nature and Scope:
The salient features which highlight the nature of management are as follows:
(i) Management is goal-oriented: Management is not an end in itself. It is a
means to achieve certain goals. Management has no justification to exist
without goals. Management goals are called group goals or organisational
goals. The basic goal of management is to ensure efficiency and economy in
the utilisation of human, physical and financial resources. The success of
management is measured by the extent to which the established goals one
achieved. Thus, management is purposeful.
(ii) Management is universal: Management is an essential element of every
organised activity irrespective of the size or type of activity. 6 t Management
principles and Practices Wherever two or more persons are engaged in
working for a common goal, management is necessary. All types of
organisations, e.g., family, club, university, government, army, cricket team or
business, require management. Thus, management is a pervasive activity. The
fundamental principles of management are applicable in all areas of organised
effort. Managers at all levels perform the same basic functions.
(iii) Management is an Integrative Force: The essence of management lies in
the coordination of individual efforts in to a team. Management reconciles the
individual goals with organisational goals. As unifying force, management
creates a whole that is more than the sum of individual parts. It integrates
human and other resources.
(iv) Management is a Social Process: Management is done by people,
through people and for people. It is a social process because it is concerned
with interpersonal relations. Human factor is the most important element in
management. According to Appley, “Management is the development of
people not the direction of things. A good manager is a leader not a boss. It is
the pervasiveness of human element which gives management its special
character as a social process”.
(v) Management is multidisciplinary: Management has to deal with human
behaviour under dynamic conditions. Therefore, it depends upon wide
knowledge derived from several disciplines like engineering, sociology,
psychology, economics, anthropology, etc. The vast body of knowledge in
management draws heavily upon other fields of study.
(vi) Management is a continuous Process: Management is a dynamic and an
on-going process. The cycle of management continues to operate so long as
there is organised action for the achievement of group goals.
(vii) Management is Intangible: Management is an unseen or invisible force.
It cannot be seen but its presence can be felt everywhere in the form of

2
results. However, the managers who perform the functions of management
are very much tangible and visible.
(viii) Management is an Art as well as Science: It contains a systematic body
of theoretical knowledge and it also involves the practical application of such
knowledge. Management is also a discipline involving specialised training and
an ethical code arising out of its social obligations. On the basis of these
characteristics, management may be defined as a continuous social process
involving the coordination of human and material resources in order to
accomplish desired objectives. It involves both the determination and the
accomplishment of organisational goals.

Functions of Management:
It has been said that management has four basic functions planning,
organizing, Staffing, directing and controlling. Common sense dictates that
without these principles of management being in place an organization would
have trouble achieving its aims, or even coming up with aims in the first place.
According to functions approach managers perform certain activities to
effectively & efficiently coordinate the work of others.

Figure 2.2: Functions of Management 15

● Planning is the purpose of ascertaining in advance what is supposed to

be done and who has to do it. This signifies establishing goals in advance
and promoting a way of delivering them effectively and efficiently. In an

3
 establishment, the aim is the obtainment and sale of conventional Indian
handloom and workmanship articles. They trade furnishings, ready
mades, household items and fabrics made out of classical Indian textiles.
● Organising is the administrative operation of specifying grouping tasks,
duties, authorising power and designating resources needed to carry out
a particular system. Once a definite plan has been set for the completion
of an organisational intent, the organising party reviews the actions and
resources expected to execute the program. It ascertains what actions
and resources are needed. It determines who will do a distinct job,
where and when it will be done.
● Staffing is obtaining the best resources for the right job. A significant
perspective of management is to make certain that the appropriate
people with the apt skills are obtainable in the proper places and times
to achieve the goals of the company. This is also called the human
resource operations and it includes activities such as selection,
placement, recruitment and coaching of employees.
● Directing involves directing, leading and encouraging the employees to
complete the tasks allocated to them. This entails building an
environment that inspires employees to do their best. Motivation and
leadership are 2 chief elements of direction. Directing also includes
communicating efficiently as well as managing employees at the
workplace. Motivating workers means simply building an atmosphere
that urges them to want to work. Leadership is inspiring others to do
what the manager wants them to do.
● Controlling is the management operation of controlling organisational
achievement towards the accomplishment of organisational intentions.
The job of controlling comprises ascertaining criteria of performance,
computing the current performance, comparing this with organised rules
and taking remedial action where any divergence is observed. Here
management should ascertain what activities and outputs are important
to progress, how and where they can be regulated and who should have
the power to take remedial response.
● the employees to complete the tasks allocated to them. This entails
building an environment that inspires employees to do their best.
Motivation and leadership are 2 chief elements of direction. Directing
also includes communicating efficiently as well as managing employees
at the workplace. Motivating workers means simply building an
atmosphere that urges them to want to work. Leadership is inspiring
others to do what the manager wants them to do. Controlling is the

4
 management operation of controlling organisational achievement
towards the accomplishment of organisational intentions. The job of
controlling comprises ascertaining criteria of performance, computing
the current performance, comparing this with organised rules and taking
remedial action where any divergence is observed. Here management
should ascertain what activities and outputs are important to progress,
how and where they can be regulated and who should have the power
to take remedial response.nning the organization structure and keeping
it manned. Staffing
has assumed greater importance in the recent years due to advancement of
technology,
increase in size of business, complexity of human behavior etc. The main
purpose o
staffing is to put right man on right job i.e. square pegs in square holes and
round pegs
in round holes. According to Kootz & O’Donell, “Managerial function of staffing
involves
manning the organization structure through proper and effective selection,
appraisal &
development of personnel to fill the roles designed un the structure”. Staffing
involves:
∙ Manpower Planning (estimating man power in terms of searching, choose
the person and giving the right place).
∙ Recruitment, Selection & Placement.
Supervision
∙ Motivation
∙ Leadership
∙ Communication
Supervision- implies overseeing the work of subordinates by their superiors. It
is the
act of watching & directing work & workers.
Motivation- means inspiring, stimulating or encouraging the sub-ordinates with
zeal to
work. Positive, negative, monetary, non-monetary incentives may be used for
this
purpose.

5
Leadership- may be defined as a process by which manager guides and
influences the
work of subordinates in desired direction.
Communications- is the process of passing information, experience, opinion etc
from
one person to another. It is a bridge of understanding.
5. Controlling
It implies measurement of accomplishment against the standards and
correction of
deviation if any to ensure achievement of organizational goals. The purpose of
controlling is to ensure that everything occurs in conformities with the
standards. An
efficient system of control helps to predict deviations before they actually
occur.
According to Theo Haimann, “Controlling is the process of checking whether or
not
proper progress is being made towards the objectives and goals and acting if
necessary,
to correct any deviation”. According to Koontz & O’Donell “Controlling is the
measurement & correction of performance activities of subordinates in order
to make
re that the enterprise objectives and plans desired to obtain them as being
accomplished”. Therefore controlling has following steps:
a. Establishment of standard performance.
b. Measurement of actual performance.
c. Comparison of actual performance with the standards and finding out
deviation if
any.
d. Corrective action

∙ Coordinating authority and responsibility relationships.

3. Staffing
It is the function of manning the organization structure and keeping it manned.
Staffing
has assumed greater importance in the recent years due to advancement of
technology,

6
increase in size of business, complexity of human behavior etc. The main
purpose o
staffing is to put right man on right job i.e. square pegs in square holes and
round pegs
in round holes. According to Kootz & O’Donell, “Managerial function of staffing
involves
manning the organization structure through proper and effective selection,
appraisal &
development of personnel to fill the roles designed un the structure”. Staffing
involves:
∙ Manpower Planning (estimating man power in terms of searching, choose
the person and giving the right place).
∙ Recruitment, Selection & Placement.
∙ Training & Development.
∙ Remuneration.
∙ Performance Appraisal.
∙ Promotions & Transfer.
4. Directing
It is that part of managerial function which actuates the organizational
methods to
work efficiently for achievement of organizational purposes. It is considered
life-spark
of the enterprise which sets it in motion the action of people because planning,
organizing and staffing are the mere preparations for doing the work. Direction
is that
inert-personnel aspect of management which deals directly with influencing,
guiding,
supervising, motivating sub-ordinate for the achievement of organizational
goals.
Direction has following elements:
∙ Supervision
∙ Motivation
∙ Leadership
∙ Communication
Supervision- implies overseeing the work of subordinates by their superiors. It
is the
act of watching & directing work & workers.

7
Motivation- means inspiring, stimulating or encouraging the sub-ordinates with
zeal to
work. Positive, negative, monetary, non-monetary incentives may be used for
this
purpose.
Leadership- may be defined as a process by which manager guides and
influences the
work of subordinates in desired direction.
Communications- is the process of passing information, experience, opinion etc
from
one person to another. It is a bridge of understanding.
5. Controlling
It implies measurement of accomplishment against the standards and
correction of
deviation if any to ensure achievement of organizational goals. The purpose of
controlling is to ensure that everything occurs in conformities with the
standards. An
efficient system of control helps to predict deviations before they actually
occur.
According to Theo Haimann, “Controlling is the process of checking whether or
not
proper progress is being made towards the objectives and goals and acting if
necessary,
to correct any deviation”. According to Koontz & O’Donell “Controlling is the
measurement & correction of performance activities of subordinates in order
to make

13
sure that the enterprise objectives and plans desired to obtain them as being
accomplished”. Therefore controlling has following steps:
a. Establishment of standard performance.
b. Measurement of actual performance.
c. Comparison of actual performance with the standards and finding out
deviation if
any.
d. Corrective actio
Managerial roles:
8
Role Performed by Managers:
1. Interpersonal Roles
a. Figurehead : In this role, every manager has to perform some
duties of a ceremonial nature, such as greeting the touring
dignitaries, attending the wedding of an employee, taking an
important customer to lunch and so on.
b. Leader : As a leader, every manager must motivate and encourage
his employees. He must also try to reconcile their individual needs
with the goals of the organization
c. . Liaison : In this role of liaison, every manager must cultivate
contacts outside his vertical chain of command to collect
information useful for his organization.
2. Informational Roles
a. Monitor : As monitor, the manager has to perpetually scan his
environment for information, interrogate his liaison contacts and
his subordinates, and receive unsolicited information, much of it
as result of the network of personal contacts he has developed.
b. Disseminator: In the role of a disseminator, the manager passes
some of his privileged information directly to his subordinates who
would otherwise have no access to it.
c. Spokesman : In this role, the manager informs and satisfies various
groups and people who influence his organization. Thus, he
advises shareholders about financial performance, assures
consumer groups that the organization is fulfilling its social
responsibilities and satisfies government that the origination is
abiding by the law.
3. Decisional Roles Entrepreneur : In this role, the manager constantly looks
out for new ideas and seeks to improve his unit by adapting it to
changing conditions in the environment.
a. Disturbance Handler : In this role, the manager has to work like a
fire fighter. He must seek solutions of various unanticipated
problems – a strike may loom large a major customer may go
bankrupt; a supplier may renege on his contract, and so on.
b. Resource Allocator : In this role, the manager must divide work
and delegate authority among his subordinates. He must decide
who will get what.

9
 c. Negotiator : The manager has to spend considerable time in
negotiations. Thus, the chairman of a company may negotiate with
the union leaders a new strike issue, the foreman may negotiate
with the workers a grievance problem, and so on.
In addition, managers in any organization work with each other to establish
the organization’s long-range goals and to plan how to achieve them. They
also work together to provide one another with the accurate information
needed to perform tasks. Thus, managers act as channels of communication
with the organization.
Levels of Management:
An enterprise may have different levels of management. Levels of management
refer to a line of demarcation between various managerial positions in an
enterprise. The levels of management depend upon its size, technical facilities,
and the range of production. We generally come across two broad levels of
management, viz.
(i) administrative management (i.e., the upper level of management)
and
(ii) operating management (i.e., the lower level of management).
Administrative management is concerned with "thinking"
functions such as laying down policy, planning and setting up of
standards. Operative management is concerned with the "doing"
function such as implementation of policies, and directing the
operations to attain the objectives of the enterprise.
But in actual practice, it is difficult to draw any clear cut demarcation
between thinking function and doing function. Because the
basic/fundamental managerial functions are performed by all managers
irrespective of their levels or, ranks. For instance, wage and salary director
of a company may assist in fixing wages and salary structure as a member of
the Board of Directors, but as head of wages and salary department, his job
is to see that the decisions are implemented. The real significance of levels
is that they explain authority relationships in an organization. Considering
the hierarchy of authority and responsibility, one can identify three levels of
management namely:
(i) Top management of a company consists of owners/shareholders,
Board of Directors, its Chairman, Managing Director, or the Chief

10
 Executive, or the General Manager or Executive Committee having
key officers.
(ii) Middle management of a company consists of heads of functional
departments viz. Purchase Manager, Production Manager,
Marketing Manager, Financial controller, etc. and Divisional and
Sectional Officers working under these Functional Heads.
(iii) Lower level or operative management of a company consists of
Superintendents, Foremen, Supervisors, etc.

Top management :
Top management is the ultimate source of authority and it lays down goals,
policies and plans for the enterprise. It devotes more time on planning and
coordinating functions. It is accountable to the owners of the business of
the overall management. It is also described as the policy making group
responsible for the overall direction and success of all company activities.
The important functions of top management include :
(a) To establish the objectives or goals of the enterprise.
(b) To make policies and frame plans to attain the objectives laid.
(c) To set up an organizational frame work to conduct the operations as
per plans.
(d) To assemble the resources of money, men, materials, machines and
methods to put the plans into action.
(e) To exercise effective control of the operations.
(f) To provide overall leadership to the enterprise.

Middle management : The job of middle management is to implement the

policies and plans framed by the top management. It serves as an essential
link between the top management and the lower level or operative
management. They are responsible to the top management for the
functioning of their departments. They devote more time on the
organization and motivation functions of management. They provide the
guidance and the structure for a purposeful enterprise. Without them the
top management's plans and ambitious expectations will not be fruitfully
realized. The following are the main functions of middle management :

11
 (a) To interpret the policies chalked out by top management.
(b) To prepare the organizational set up in their own departments for
fulfilling the objectives implied in various business policies.
(c) To recruit and select suitable operative and supervisory staff. To
assign activities, duties and responsibilities for timely implementation
of the plans.
(d) To compile all the instructions and issue them to supervisor under
their control. To motivate personnel to attain higher productivity and
to reward them properly.
(e) To cooperate with the other departments for ensuring a smooth
functioning of the entire organization.
(f) To collect reports and information on performance in their
departments.
(g) To report to top management
(h) To make suitable recommendations to the top management for the
better execution of plans and policies.
Lower or operative management: It is placed at the bottom of the hierarchy
of management, and actual operations are the responsibility of this level of
management. It consists of foreman, supervisors, sales officers, accounts
officers and so on. They are in direct touch with the rank and file or workers.
Their authority and responsibility is limited. They pass on the instructions of
the middle management to workers. They interpret and divide the plans of
the management into short-range operating plans. They are also involved in
the process of decisions-making. They have to get the work done through
the workers. They allot various jobs to the workers, evaluate their
performance and report to the middle level management. They are more
concerned with direction and control functions of management. They
devote more time in the supervision of the workers.

Managerial Skills :
Management skills can be defined as certain attributes or abilities that an
executive should possess in order to fulfill specific tasks in an organization.
They include the capacity to perform executive duties in an organization while
avoiding crisis situations and promptly solving problems when they occur.

According to American social and organizational psychologist Robert Katz, the three
basic types of management skills include:

12
1. Technical Skills

Technical skills involve skills that give the managers the ability and the knowledge to
use a variety of techniques to achieve their objectives. These skills not only involve
operating machines and software, production tools, and pieces of equipment but also
the skills needed to boost sales, design different types of products and services, and
market the services and the products.

2. Conceptual Skills

These involve the skills managers present in terms of the knowledge and ability for
abstract thinking and formulating ideas. The manager is able to see an entire concept,
analyze and diagnose a problem, and find creative solutions. This helps the manager to
effectively predict hurdles their department or the business as a whole may face.

3. Human or Interpersonal Skills

The human or the interpersonal skills are the skills that present the managers’ ability to
interact, work or relate effectively with people. These skills enable the managers to
make use of human potential in the company and motivate the employees for better
results.

13
Challenges of Management;
Organizations are faced with a variety of external factors that provide
potential opportunities and threats for short-term and long-term success in
any given environment. Encompassing a macro-environmental perspective,
these factors can be effectively summarized with the acronym PESTEL. PESTEL
stands for the political, economic, social, technological, environmental, and
legal influences a business encounters as it pursues its objectives. It is part of
an external analysis when conducting a strategic analysis or doing market
research, and gives an overview of the different macro-environmental factors
to be taken into consideration. It is a strategic tool for understanding market
growth or decline, business position, potential and direction for operations.
The PESTEL framework highlights six critical factors for management to
consider when approaching the general business environment. Today, in
modern business, the managers face five major challenges:
• Building a competitive advantage;
• Maintaining ethical standards;
• Managing a diverse workforce (human resources);
• The use of new information systems and technologies;
• Practicing global crisis management.

14
Analysing the entirety of the macro-environment is an extensive and complex
task, but understanding the framework of basic influences allows for an
organized and strategic approach to isolating each opportunity or threat. It is
common to conduct a PESTEL assessment before any serious decisions are
made or any large projects undertaken. Understanding each of these
influencing factors is the first step to addressing them properly.

The basic PESTEL analysis includes six factors:

• Political factors: These factors relate to how the government intervenes in
the economy. Specifically, political factors have areas including tax policy,
labour law, environmental law, trade restrictions, tariffs, and political stability.

15
Political factors may also include goods and services which the government
aims to provide or be provided (merit goods) and those that the government
does not want to be provided (demerit goods or merit bads). Furthermore,
governments have a high impact on the health, education, and infrastructure
of a nation.
• Economic factors: These factors include economic growth, exchange rates,
inflation rate, and interest rates. These factors greatly affect how businesses
operate and make decisions. For example, interest rates affect a firm's cost of
capital and therefore to what extent a business grows and expands. Exchange
rates can affect the costs of exporting goods and the supply and price of
imported goods in an economy.
• Social factors: These factors include the cultural aspects and health
consciousness, population growth rate, age distribution, career attitudes and
emphasis on safety. High trends in social factors affect the demand for a
company's products and how that company operates. For example, the ageing
population may imply a smaller and lesswilling workforce (thus increasing the
cost of labour). Furthermore, companies may change various management
strategies to adapt to social trends caused from this (such as recruiting older
workers).
• Technological factors: These factors include technological aspects like R&D
activity, automation, technology incentives and the rate of technological
change. These can determine barriers to entry, minimum efficient production
level and influence the outsourcing decisions. Furthermore, technological
shifts would affect costs, quality, and lead to innovation.
• Environmental factors: These factors include ecological and environmental
aspects such as weather, climate, and climate change, which may especially
affect industries such as tourism, farming, and insurance. Furthermore,
growing awareness of the potential impacts of climate change is affecting how
companies operate and the products they offer, both creating new markets
and diminishing or destroying existing ones.
• Legal factors: These factors include discrimination law, consumer law,
antitrust law, employment law, and health and safety law. These factors can
affect how a company operates, its costs, and the demand for its products.
-
Evolution of Management or History of Management,
The evolution of management can be traced back to the days when human
beings started living in groups. One can argue that management took the form
of leadership which was essential to coordinate the efforts of the group
members in order to arrange the necessaries of life.

16
According to Egyptian literature of 1300 B.C., the art of management was being
practised in different forms by different people. The literature clearly indicates
the recognition of the importance of organisation and administration in the
bureaucratic setup. Similar records exist for China. According to L.S.Hsu,
Confucius’s parables include practical suggestions for proper public
administration and admonitions to choose honest, unselfish and capable public
officers. Modern management has developed through several stages or
approaches. These approaches to the study of management may be classified
as under:
I. Classification Approach
II. Neo-classical Approach
III. Behavioural Science Approach
IV. Social System Approach
V. Modern Organization Approach
VI. Contingency Approach
Classical Approach: The classical theory represents the traditionally accepted
views about organisations. In a way, it signifies the beginning of the systematic
study of organisations. That is why it is said to be the oldest school of thought
about organisations and their management. The classical theories concentrated
on organisation structure for the achievement of organisational goals and also
developed certain principles of management. The classical writers thought of
the organisation in terms of its purpose and formal structure. They placed
emphasis on the planning of work, the technical requirements of the
organisation, principles of management and the assumptions of rational and
logical behaviour. Thus, the classical theorists dealt almost exclusively with the
anatomy of formal organisation structure. The classical theory ignored the
impact of the external environment on the working of the organisation. Thus, it
treated organisations as closed systems. The classical thought can be studied
under three streams, namely:
Administrative Theory
As organizations grew and became more complex, the need for a systematic
understanding of the overall management process was felt. Managers became
more concerned with the management of organizations than with improving
the efficiency of individual jobs. They tried to identify the functions of a
manager with emphasis on coordination of resources towards the achievement
of stated objectives. This stream of the classical approach is known as
17
Administrative Theory or Functional Approach or Management Process
Approach. This school of thought is also known as the ‘universalist’ school
because it believed that management principles are applicable to all kinds of
group activities. Henri Fayol is regarded as the father of this thought, i.e., the
father of general management.
Henri Fayol defined management in terms of certain functions and then laid
down fourteen principles of management which according to him have
universal applicability. He argued that managerial ability can be acquired as any
other teaching ability. He not only recommended formal teaching in
management but also practised it by founding the “Centre for Administrative
Studies” in Paris. Management Principles: Fayol gave the following general
principles of management:
1. Division of work : According to this principle, work should be divided into
small tasks/jobs; each performed by a specialist or trained employee. Division
of work leads to specialisation. This results in efficient and effective output. o
For example, in a company, there are separate departments for finance,
marketing, production and HR. All the departments perform specialised tasks.
This leads to functional specialisation.
2. Authority and Responsibility: Authority is the right to get things done and
responsibility is answerability for certain work. Fayol suggested that there
should be a balance between authority and responsibility. Giving authority
without fixing responsibility may lead to misuse of authority. For example, if a
sales manager requires to offer a credit period of 60 days to negotiate a deal
with a buyer (to fetch the company net margin of Rs.25 lakh), he/she should
not be given authority to offer a credit period of 100 days. He/she may misuse
his/her authority. At the same time, responsibility without adequate authority
will make the subordinate ineffective, i.e., he/she will not be able to perform
his/her duties properly. For example, suppose the production manager of a
company manufacturing scooters asks his/her foreman to achieve a target
production of 250 scooters per day. But he/she does not give him the authority
to requisition tools and materials from the store’s department. The foreman is
not able to achieve the target. Then, the production manager cannot blame
him.
3. Discipline: Discipline is the obedience to organisational rules and
employment agreements, which are necessary for the working of the
organisation. According to Fayol, discipline requires:
18
• Good superiors at all levels,
• Clear and fair agreements, and
• Judicious application of penalties
For example, suppose management and a labour union have entered into an
agreement whereby workers have agreed to work overtime without any
additional payments to revive the company out of loss. In return, the
management has promised to increase wages when this mission is
accomplished. Here ‘discipline’ would mean that workers and management
both honour their commitments.
4. Unity of Command : According to Fayol, there should be one and only
one boss for every individual employee. Dual subordination should be avoided.
This principle resembles a military organisation. If an employee gets orders
from two or more superiors at the same time, the principle of unity of
command is violated. Consequences of violation:
• Authority is undermined
• Discipline is in jeopardy
• Order is disturbed and
• Stability is threatened
For example, suppose a salesperson is asked to make a deal with a buyer by
the marketing manager and is allowed to give a 10% discount by the
marketing manager. But the finance manager does not permit him to offer
more than a 5% discount. Now, there is no unity of command. There will be
confusion in the mind of the salesperson regarding whose instructions to
follow. This can be avoided if there is coordination between the two
departments.
5. Unity of Direction : All the units of an organisation should be moving
toward the same objectives through coordinated and focused efforts. Each
group of activities must be having the same objective and must have “one
head and one plan”. This ensures unity of action and coordination. o For
example, If a company is manufacturing motorcycles as well as cars, then it
should have two separate divisions. Each division should have its own in
charge, plans and resources. The working of two divisions should not
overlap on any account.

19
6. Subordination of individual interest to general interest According to this
principle, the interests of the organisation should take priority over the
interests of any one individual employee. For example, a company may want
to get maximum output from its employees at a competitive cost (salary),
while an employee may want to get a maximum salary while working the
least. Here, the interest of the company will supersede the interest of the
employee. This is so because larger interests of various stakeholders, i.e.,
workers, owners, shareholders, creditors, customers and society cannot be
sacrificed for one individual or a small group of individuals who want to
exert pressure on the company. A manager can ensure this by his/her
exemplary behaviour. For example, he/she should not fall into the
temptation of misusing his/her powers for individual/family benefit at the
cost of the larger general interest of the workers/company. This will ensure
the same behaviour by the workers.
7. Remuneration of employees: Remuneration of employees should be just
and equitable so as to give maximum satisfaction to both employees and
the organisation. - The employees should be paid fair wages/salaries, which
would give them at least a reasonable standard of living - at the same time,
it should be within the paying capacity of the company. This will ensure
good relations between workers and management. Consequently, the
working of the company would be smooth. 8. Centralisation and
Decentralisation The concentration of decision-making authority by top
management is called centralisation. On the other hand, the delegation of
authority throughout all the levels of the organisation is called
decentralisation. Those organisations in which decision-making authority
lies with the top management are termed centralised organisations whereas
those in which decision-making authority is pushed down the chain of
command are decentralised organisations. • Fayol says that an organisation
should have a balance between complete centralisation and
decentralisation. For example, the major decisions like setting up of goals,
plans, policies and strategies can be centralised; but there can be a policy of
decentralisation for the activities of routine work such as the purchase of
raw materials, assignment of targets to workers, etc. An organisation can
never be completely centralised or completely decentralised. As an
organisation grows in size and complexity, there is a tendency to move
towards decentralised decision-making. This is because, in large

20
organisations, employees are more directly and closely involved with the
business operations than the top management.
9. Scalar Chain: An organisation consists of superiors and subordinates. The
formal lines of authority from highest to lowest ranks are known as the
‘Scalar Chain’. According to Fayol, ‘organisations should have a chain of
authority and communication that runs from top to bottom and should be
followed by managers and the subordinates.’ We consider a situation where
there is one head ‘A’ who has two lines of authority under him/her. One line
consists of B-C-D-E. Another line of authority under ‘A’ is L-M-N-O. if ‘E’ has
to communicate with ‘O’, who is at the same level of authority, he/she has
to transverse the route E-D-C-B-A-L-M-N-O

According to Fayol, this chain should be violated in the normal course of

formal communication. However, if there is an emergency then ‘F’ can
directly contact ‘P’ through ‘Gang Plank’. There is a shorter route that has
been provided so that communication is not delayed in case of an
emergency.
Example: A worker cannot directly contact the CEO of the company. If at all
he/she has to, then all the formal levels, i.e., foreman, superintendent,
manager, director, etc. must know about the matter. However, in an
emergency, it can be possible that a worker can contact the CEO directly.
10. Order: The principle of ‘order’ states that – ‘a place for everything
(everyone) and everything (everyone) on its (his/her) place.” Essentially, it
means orderliness. According to Fayol, “people and materials must be in
suitable places at the appropriate time for maximum efficiency” If there is a
fixed place for everything (everyone) and it (he/she) is there, there will be
no hindrance in the activities of the business/factory. This will lead to
increased productivity and efficiency.

21
 11. Equity The principle emphasises kindness and justice in the behaviour of
managers towards workers. There should be no discrimination on account
of sex, religion, language, belief, nationality, caste, etc. This will ensure
loyalty and devotion. There will be cordial relations between managers and
workers. For example, Nowadays in MNCs, we find people of various
nationalities working together in a discrimination-free environment. Equal
opportunities are available for everyone to rise.
12. Stability of personnel: According to this principle, employees once
selected, should be kept at their post/position for a maximum fixed tenure.
In other words, they should have a stability of tenure. They should be given
reasonable time to show results. Fayol suggests that labour turnover should
be minimised to maintain organisational efficiency. The stability of tenure of
personnel is good for the business because of the following reasons:
I. Any adhocism will create instability/insecurity among employees. They
would tend to leave the organisation.
II. Recruitment, selection and training costs of new employees will be
high.
III. There will be poor output levels and customer service till new
employees are appointed.
13. Initiative: Initiative means eagerness to initiate action without being
asked to do so. In other words, it means taking the first step with
self-motivation. According to Fayol, subordinates should be encouraged to
make and execute plans within the prescribed limits of authority.
For example, a good company has an employee suggestion system whereby
initiative/suggestions, which result in cost/time reduction, is rewarded.
14. Esprit de corps: ‘Espirit de corps’ means unity is strength. According to
Fayol, management should promote a team spirit of unity and harmony among
employees. A manager should replace ‘I’ with ‘We’ in all his/her conversations
with workers to foster team spirit. This will rise to a spirit of mutual trust and
belongingness among team members. It will also minimise the need for using
penalties.
Management should promote teamwork, especially in large organisations;
otherwise, it will result in a loss of coordination and hence the organisation will
not be able to achieve its objectives.

22
Fayol warned that these principles are flexible guidelines rather than hard and
fast laws. They should be used with discretion rather than blindly.

23
Scientific Management
The impetus for the scientific management approach came from the first
industrial revolution. Because it brought about such an extraordinary
mechanism of industry, this revolution necessitated the development of new
management principles and practices. Frederick W. Taylor was the first person
who insisted on the introduction of scientific methods in management and it
was he who, along with his associates, made the first systematic study of
management.
He launched a new movement in 1910 which is known as ‘Scientific
Management’. That is why Taylor is regarded as the father of scientific
management. Scientific management means knowing exactly what you want
men to do and seeing that they do it in the best and cheapest way. Scientific
management implies the application of science to management. It means
conducting business activities according to standardised tools, methods and
trained personnel in order to increase the output, improve its quality and
reduce costs and waste.
Principles of Scientific Management The basic principles of scientific
management are as follows:
1. Develop a true science for each element of a worker’s job to replace the old
rule of thumb method. Each element of a job and the motions required to
perform should be scientifically analysed to determine and use the most
efficient ways of doing it. Intuition, experience and hit-or-miss methods are
replaced by scientific methods. The selection of scientific methods will result in
a tremendous saving of human efforts, time and materials.
2. Harmony, not discord: Taylor emphasised that there should be complete
harmony between the management and workers. Both should realise that each
one is important. To achieve this, Taylor advocated a complete ‘Mental
Revolution’ on the part of both management and workers. Mental Revolution
The basic idea behind the principles of scientific management is to change the
mental attitudes of the workers and the management towards each other.
Taylor called it ‘Mental Revolution’. The mental revolution has three aspects:
a) All out efforts for an increase in production
b) Creation of the spirit of mutual trust and confidence
c) Inculcating and developing the scientific attitude towards problems

24
Taylor suggested that management should try to find the best methods of
doing various jobs and introduce standardised materials, tools and equipment
so that wastages are reduced. The workers should be disciplined, loyal and
sincere in fulfilling the tasks assigned to them. They should not indulge in
wastage of resources. Both the management and workers should trust each
other and cooperate in achieving maximum production. According to Taylor –
“Prosperity for the employer cannot exist for a long time unless it is
accompanied by prosperity for the employees.”
3. Cooperation, not individualism: This principle is an extension of the principle
of ‘Harmony, not discord’. According to this principle, there should be complete
cooperation between the labour and the management instead of individualism.
Competition should be replaced by cooperation. Both should realise that they
need each other. For this, management should not close its ears to constructive
suggestions made by employees and should reward their suggestions which
result in a substantial reduction in costs. For all important decisions taken by
the management, workers should be taken into confidence. According to
Taylor, there should be an almost equal division of work and responsibility
between workers and management. Management should work almost side by
side with the workers helping, encouraging, and smoothing the way for them.
This is called the ‘paternalistic style’ of management, whereby the employer
takes care of the needs of the employees.
4. Development of each and every person to his/her greatest efficiency and
prosperity: According to Taylor, to increase efficiency each person should be
scientifically selected and the work assigned should suit his/her physical,
mental and intellectual capabilities. To increase efficiency, they should be given
the required training to learn the ‘best method’. Efficient employees would
produce more and earn more. This will ensure the greatest efficiency and
prosperity for both company and workers.
Techniques of Scientific Management
1. Functional Foremanship Functional foremanship is an extension of the
principle of ‘Division of work and specialisation’ to the shop floor level of a
factory. It is a technique which aims to improve the quality of supervision on
the shop floor by putting workers under eight specialist foremen. In this
technique, planning is separated from execution so that the foremen under
‘planning in-charge’ may concentrate on planning the job of workers, and the
foremen under ‘production in-charge’ may involve themselves in the execution
25
of jobs. Taylor suggested four foremen for planning and four foremen for
execution, as shown below:

Role of foremen under planning incharge:

• Route clerk – specifying the route of production
• Instruction card clerk: drafting instruction for workers
• Time and cost clerk: Preparing time and cost sheet
• Discipline officer: Ensuring discipline Role of foremen under production
incharge:
• Gang boss – keeping machines and tools, etc. ready for operation by
workers
• Speed boss – timely and accurate completion of job
• Repair boss – ensuring proper working conditions of machines and
tools
• Inspector – checking the quality of work
2. Standardisation and Simplification of work Standardisation of work refers to
the process of setting standards for every business activity, e.g..,
standardisation of process, raw material, time, product, machinery, methods
and working conditions. Objectives of standardisation of work are:

26
 • To reduce a given line or product to fixed types, sizes and
characteristics
• To establish standards of excellence and quality of materials
• To establish standards of performance of workers and machines
• To establish interchange ability of manufactured parts and products
Simplification of work aims at eliminating unnecessary diversity of
products.
• It results in savings of the cost of labour, machines and tools
• It implies reduced inventories, fuller utilisation of equipment and
increasing turnover.
3. Work-Study
a) Method Study: Taylor suggested that management should find out ‘one best
way’ to perform the task. For example for designing a car, the assembly line
production will need to decide the sequence of operations, a place for men,
machines and raw materials, etc. This is a method study. The objective of the
Method study is to find out the best way of doing a job so as to minimise the
cost of production and maximise the quality and satisfaction of the customer.
b) Motion Study: Motion study refers to the study of movements like lifting,
putting objects, sitting, changing positions, etc. which are undertaken while
doing a typical job. In recent times, Videography can be used to identify
different types of motions – productive, incidental and unproductive, The
objective/aim of the motion study is to eliminate the unproductive or
unnecessary motions/movements so that it takes less time to complete the job
efficiently.
c) Time Study: It determines the standard time taken to perform a well-defined
job. Time measuring devices (e.g.., stopwatch) are used for each element of the
task. The standard time is fixed for the whole task by taking several
readings/observations. For example, on the basis of several observations, it is
determined that the standard time taken by the worker to make one lunch box
is 30 minutes. So, in one hour he/she will make 2 boxes. Assuming that a
worker works for 8 hours a day, he/she should make 16 lunch boxes per day.
Now, this is the standard task a worker has to perform. Wages can be decided
accordingly.

27
The objective of the time study is to determine the number of workers to be
employed, frame suitable incentives schemes and determine labour costs.
d) Fatigue Study: Fatigue, physical or mental, has an adverse effect on workers’
health and efficiency. Fatigue study helps in reducing fatigue among the
workers. The objective of the fatigue study is to determine the amount and
frequency of rest intervals in completing a task.
4. Differential Piece Wage System: It is a technique which differentiates
between efficient and less efficient workers. It rewards efficient workers and
motivates the less efficient ones to improve their efficiency.
• In this wage system, there are two-piece rates – one for those workers who
produce the standard output or more, and the other for those who produce
less than the standard output. The difference in wages is enough for the
inefficient worker to be motivated to perform better in future.
Bureaucratic Approach
Max Weber contributed to the organisation theory by propagating bureaucracy
as an ideal form of organisation. His model is characterised by the following
features:
1. Division of work: There is a high degree of specialisation or division of labour
in a bureaucratic organisation. Tasks are divided into very specialised jobs and
each member performs his specialized function in a predictable manner.
2. Rules and Regulations: The rules, regulations and procedures are clearly laid
down by the top administration. Their benefits are as under-
• They standardised operations and decisions
• They serve as receptacles of past learning
• They protect incumbents and ensure the quality of treatment
3. Hierarchy of Authority: There is a hierarchy of authority in the organisation.
Each lower position is under the control of a higher one. Thus, there is a unity
of command.
4. Technical Competence: Selection and promotion of jobholders are based on
their technical competence. Qualifications are prescribed for each job/position.
Special training is given to provide knowledge of rules and administrative
processes.

28
5. Record Keeping: Every decision and action is recorded in a wide array of
written documents and preserved in its original as well as. draft form. The
official records serve as the memory of the organization and make it
independent of the individuals .
6.Impersonal Relations: A notable feature of bureaucracy is that relationships
among individuals are governed through the system of official authority and
rules. Official positions are free from personal involvement, emotions, and
sentiments. Thus, decisions are governed by rational factors rather than
personal factors. This impersonality concept is used in dealing with
organizational relations as well as relations between organizations and
outsiders.
Neo-Classical Approach
The classical writers including Weber, Taylor and Fayol neglected the human
relations aspect. The neo-classicists focussed on the human aspect of the
industry. They modified the classical theory by emphasizing the fact that
organisation is a social system and the human factor is the most important
element within it. They conducted some experiments (known as Hawthorne
Experiments) and investigated informal groupings, informal relationships,
patterns of communication, patterns of informal leadership, etc. This led to the
development of the Human Relations Approach.
Elton Mayo is generally recognized as the father of the Human Relations
School. The human relations approach is concerned with the recognition of the
importance of the human element in organisations. It revealed the importance
of social and psychological factors in determining workers’ productivity and
satisfaction. The neo-classical or human relations approach put stress on
inter-personal relations ad informal groups at the workplace. The human
relations argued that the achievement of organisational objectives is
impossible without the willing cooperation of people and such cooperation
cannot be automatically secured or ordered. It has to be consciously achieved.
The neo-classical approach advocated a people-oriented organisation structure
which will integrate both formal and informal organisations. The basic tenets of
neo-classical theory or human relations approach are as under:
I. The business organisation is a social system
II. The behaviour of an individual is dominated by the informal group of
which he is a member

29
 III. An individual employee cannot be motivated by economic incentives
alone. His social and psychological needs must be satisfied to improve
the level of management.
IV. In an organisation, it is ultimately a cooperative attitude and not the
mere command which yields results.
V. Management must aim at developing social and leadership skills in
addition to technical skills. It must take interest in the welfare of
workers.
VI. Morale and productivity go hand in hand in an organisation.
Hawthorne Experiments
George Elton Mayo is considered the father of the neo-classical approach. He
was the leader of the team which conducted the famous Hawthorne
Experiments. These experiments were conducted during 1924-32 at a plant of
the Western Electric Company. The plant was located at Hawthorne near
Chicago in the USA. A brief description of these experiments is given below:
I. Illumination Experiment: The object of this experiment was to assess
the effect of illumination on employees. Two groups were selected
from among the employees. One group was placed in a room where
the lighting remained constant. The other group was placed in
another room where the lighting varied periodically. Surprisingly, the
output of both groups increased steadily. It was concluded that
lighting was a minor factor and there were other more important
factors influencing the output. The result prompted researchers to
investigate other factors affecting the output. It was later concluded
that productivity is not dependent upon physical conditions alone but
human psychological conditions also.
II. Relay Assembly Test Room Studies: The relay assembly tests were
designed to evaluate the effect rest periods and hours of work have
on efficiency. In this experiment, a small homogeneous work group
was constituted. Several new elements were introduced to the work
atmosphere of this group. These included shorter working hours, rest
pauses, improved physical conditions, friendly and informal
supervision, free social interaction among group members, etc.
Productivity and morale increased considerably during the period of
the experiment. Morale and productivity are maintained even if
improvements in working conditions are withdrawn. The researchers

30
 concluded that socio-psychological factors such as a feeling of being
important, recognition, attention, participation, cohesive work
groups, and non-directive supervision held the key to higher
productivity.
III. Mass Interview Program: In this experiment, a large number of
workers were interviewed to judge their attitudes and opinions on
the factors influencing productivity. It was found that the opportunity
to talk freely about things that are important to workers had a
positive effect on their morale and productivity.
IV. Bank Wiring Observation Room Study: In this experiment, a group of
fourteen workers was put under close supervision. The pay of every
member was made dependent on the performance of the group as a
whole. It was found that the informal group had its own norms of
performance and various forms of social pressure were exercised to
enforce these norms. As a result, output could not increase despite
the group incentive scheme.
Contributions
The main conclusions (contributions) of Hawthorne Experiments:
I. Social System: The organisation, in general, is a social system
composed of numerous interacting parts. The social system defines
individual roles and establishes norms that may differ from those of
formal organisations. The workers follow a social norm determined by
their co-workers, which defines the proper amount of work, rather
than try to achieve the targets management thinks they can achieve,
even though this would have helped them to earn as much as they
physically can.
II. Social Environment: The social environment on the job affects the
workers and is also affected by them.
III. Informal Organisation: The informal organisation does also exist
within the framework of formal organisation and it affects and is
affected by the formal organisation.
IV. Group Dynamics: At the workplace, the workers often do not act or
react as individuals but as members of groups. A person who resists
pressure to change his behaviour as an individual often changes it
quite readily if the group of which he is a member changes its

31
 behaviour. The group plays an important role in determining the
attitudes and performance of individual workers.
V. Informal Leader: There is an emergence of informal leadership as
against formal leadership and the informal leader sets and enforces
group norms. He helps the workers to function as a social group and
the formal leader is rendered ineffective unless he conforms to the
norms of the group of which he is supposed to be incharge.
VI. Two-way communication: Two-way communication is necessary
because it carries necessary information downward for the proper
functioning of the organisation and transmits upward the feelings and
sentiments of people who work in the organisation.
VII. Non-economic Reward: Money is only one of the motivators, but not
the sole motivator of human behaviour. Man is diversely motivated
and socio-psychological factors act as important motivators.
Behavioural Science Approach The human relations movement focused on
interpersonal relations and overlooked the wider subject of organizational
behaviour.
Organizational behaviour involves the study of attitudes, behaviour, and
performance of individuals and groups in an organizational setting. It is also
known as the human resource approach because it stresses the development
of human beings for the benefit of both individuals and the organisation. The
behavioural approach is multi-dimensional and inter-disciplinary in nature.
Under it, the knowledge is drawn from behavioural sciences, e.g. psychology,
sociology, anthropology, etc is applied to understand, explain and predict
human behaviour. Therefore, this approach is also known as the Behavioural
Science Approach. Under the behavioural science approach, the knowledge
drawn from behavioural sciences is applied to explain and predict human
behaviour. It focuses on human behaviour in the organisation. It lays emphasis
on the study of motivation, leadership, communication, group dynamics,
participative management, etc. Further, the behavioural scientists made the
following propositions:
a) An organisation is a socio-technical system.
b) Individuals differ with regard to attitudes, perceptions and value systems. As
a result, they behave differently to different stimuli under different conditions.

32
c) People working in the organisation have their needs and goals which may
differ from organisational goals. Attempts should be made to achieve fusion
between organisational goals and human needs.
d) A wide range of factors influences inter-personal and group behaviour of
people in organisations.
The main features of the Behavioural Science Approach are as follows:
• Behavioural science is an inter-disciplinary approach and integrates the
knowledge drawn from different disciplines (psychology, sociology,
anthropology, economics, political science and history) for the study of human
behaviour
• It is an applied science with the objective to apply various researches to solve
organisational problems
• It is also a normative science which not only suggests cause and effect
relationships but also prescribes ways and means to solve organisational
problems and effects results
• It focuses attention on people from a humanistic point of view. It accepts the
value of an individual as a thinking, feeling and living organism and his needs
and motivations play important role in determining his behaviour in the
organisation
• It is goal-oriented. It recognizes goal conflicts in the organisation and suggests
reconciliation of goals of the individuals and the organisation for a better
organisation climate and greater organizational effectiveness
• It adopts a systems approach which takes into account all the factors affecting
organisational behaviour.
To sum up, the behavioural science approach gives emphasis on increasing
productivity through motivation and leadership. The central core of this
approach lies in the following aspects of human behaviour: - Motivation,
leadership. Communication, participative management and group dynamics.
The behavioural sciences have provided managers with a systematised
understanding of one of the most critical factors in the process of management
– the human element. Insights evolving from that understanding have been
used to design work situations that encourage and increase the productivity of
employees. It has enabled organizations to formulate programmes to more

33
efficiently train workers and managers, and it has effects in numerous other
areas of practical significance.
Social System Approach According to Social System Approach, an organization
is a cooperative system in which persons are able to communicate with each
other and are willing to contribute to a common purpose. It is based on the
generalisation that an organisation is a system and its components are
interrelated and interdependent. A system is an interrelated set of elements
that are organised according to a plan and function as a whole. Its important
feature is that it is composed of a hierarchy of sub-systems. The world as a
whole can be considered to be a system in which various national economies
are sub-systems. In turn, each national economy is composed of its various
industries, each industry is composed of firms, and of course, a firm can be
considered a system composed of sub-systems such as production, marketing,
finance, accounting and so on.
Thus, each sub-system may comprise several sub-systems and, in turn, each
sub-system may be further composed of sub-systems. Chester Barnard is
regarded as the founding father of this system. An organisation as a system has
the following characteristics:
I. A system is goal-oriented.
II. A system consists of several sub-systems which are interdependent
and interrelated.
III. A system is engaged in the processing or transformation of inputs into
outputs.
IV. An organisation is an open and dynamic system. It has continued with
the external environment as its gets inputs from the environment and
also supplies its output to the environment. It is sensitive to its
environment such as government policies, competition in the market,
changes in tastes of people, etc.
V. A system has a boundary which separates it from other systems.

34