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Learning Objectives


Definition of Management
Concepts of Management
Role and Importance of
Distinction between
Management and Administration



Levels of Management
Nature of Management
Professionalisation of
Skills of Management
Scope of Management

very human being has several needs and desires. But no individual
can satisfy all his wants. Therefore, people work together to meet
their mutual needs which they cannot fulfil individually. Moreover,
man is a social being as he likes to live together with other people. It is
by working and living together in organised groups and institutions
that people satisfy their economic and social needs. As a result there
are several types of groups, eg., family, school, government, army, a
business firm, a cricket team and the like. Such formal groups can
achieve their goals effectively only when the efforts of the people
working in these groups are properly coordinated and controlled. The
task of getting results through others by coordinating their efforts is
known as management. Just as the mind coordinates and regulates all
the activities of a person, management coordinates and regulates the
activities of various members of an organisation.

ManagementPrinciples and Practices


It is very difficult to give a precise definition of the term management.
Different scholars from different disciplines view and interpret
management from their own angles. The economists consider management as a resource like land, labour, capital and organisation. The
bureaucrats look upon it as a system of authority to achieve business
goals. The sociologists consider managers as a part of the class elite in
the society.
The definitions by some of the leading management thinkers and
practitioners are given below:
(i) Management consists in guiding human and physical resources
into dynamic, hard-hitting organisation unit that attains its
objectives to the satisfaction of those served and with a high
degree of morale and sense of attainment on the part of those
rendering the service.
Lawrence A. Appley
(ii) Management is the coordination of all resources through the
process of planning, organising, directing and controlling in
order to attain stated objectives.
Henry L. Sisk.
(iii) Management is principally the task of planning, coordinating,
motivating and controlling the efforts of others towards a specific
James L. Lundy
(iv) Management is the art and science of organising and directing
human efforts applied to control the forces and utilise the materials of nature for the benefit of man.
American Society of Mechanical Engineers
(v) Management is the creation and maintenance of an internal
environment in an enterprise where individuals, working in
groups, can perform efficiently and effectively towards the
attainment of group goals.
Harold Koontz and Cyrill ODonnell
(vi) Management is the art of knowing what you want to do and
then seeing that it is done in the best and cheapest way.
F.W. Taylor
(vii) To manage is to forecast and to plan, to organise to command,
to coordinate and to control.
Henry Fayol
(viii) Management is the function of executive leadership anywhere.
Ralph C. Davis
(ix) Management is concerned with seeing that the job gets done; its
tasks all centre on planning and guiding the operations that are
going on in the enterprise.
E.F.L. Breach
(x) Management is a distinct process consisting of planning,
organising, actuating and controlling performed to determine
and accomplish the objectives by the use of people and resources.
George R. Terry

Nature and Scope of Management

(xi) Management is guiding human and physical resources into

dynamic organisational units which attain their objectives to the
satisfaction of those served and with a high degree of morale
and sense of attainment on the part of those rendering service.
American Management Association
(xii) Management is a multipurpose organ that manage a business
and manages Managers and manages Workers and work.
Peter Drucker


The term management has been interpreted in several ways; some of
which are given below:

Management as an Activity
Management is an activity just like playing, studying, teaching etc. As
an activity management has been defined as the art of getting things
done through the efforts of other people. Management is a group
activity wherein managers do to achieve the objectives of the group.
The activities of management are:

Interpersonal activities
Decisional activities
Informative activities

Management as a Process
Management is considered a process because it involves a series of
interrelated functions. It consists of getting the objectives of an organisation and taking steps to achieve objectives. The management process
includes planning, organising, staffing, directing and controlling
Management as a process has the following implications:
(i) Social Process: Management involves interactions among people.
Goals can be achieved only when relations between people are
productive. Human factor is the most important part of the
(ii) Integrated Process: Management brings human, physical and
financial resources together to put into effort. Management also
integrates human efforts so as to maintain harmony among them.
(iii) Continuous Process: Management involves continuous identifying and solving problems. It is repeated every now and then till
the goal is achieved.

ManagementPrinciples and Practices

(iv) Interactive process: Managerial functions are contained within each

other. For example, when a manager prepares plans, he is also
laying down standards for control.

Management as an Economic Resource

Like land, labour and capital, management is an important factor of
production. Management occupies the central place among productive factors as it combines and coordinates all other resources. This is
shown in Fig. 1.1.

Fig. 1.1

Management as resource

Management as a Team
As a group of persons, management consists of all those who have the
responsibility of guiding and coordinating the efforts of other persons.
These persons are called as managers who operate at different levels
of authority (top, middle, operating). Some of these managers have
ownership stake in their firms while others have become managers by
virtue of their training and experience. Civil servants and defence personnel who manage public sector undertakings are also part of the
management team. As a group managers have become an elite class in
society occupying positions with enormous power and prestige.

Management as an Academic Discipline

Management has emerged as a specialised branch of knowledge. It
comprises principles and practices for effective management of
organisations. Management has become as very popular field of study

Nature and Scope of Management

as is evident from the great rush for admission into institutes of

management. Management offers a very rewarding and challenging

Management as a Group
Management means the group of persons occupying managerial
positions. It refers to all those individuals who perform managerial
functions. All the managers, e.g., chief executive (managing director),
departmental heads, supervisors and so on are collectively known as
For example, when one remarks that the management of Reliance
Industries Ltd. is good, he is referring to the persons who are managing the company. There are several types of managers which are listed
as under.
(i) Family managers who have become managers by virtue of their
being owners or relatives of the owners of a company.
(ii) Professional managers who have been appointed on account of
their degree or diploma in management.
(iii) Civil Servants who manage public sector undertakings.
Managers have become a very powerful and respected group in
modern society. This is because the senior managers of companies take
decisions that affect the lives of a large number of people. For example,
if the managers of Reliance Industries Limited decide to expand production it will create job for thousands of people. Managers also help
to improve the social life of the public and the economic progress of
the country. Senior managers also enjoy a high standard of living in
society. They have, therefore, become an elite group in the society.

Nature and Characteristics of Management

The salient features which highlight the nature of management are as
(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 purposefull.
(ii) Management is universal: Management is an essential element of
every organised activity irrespective of the size or type of activity.

ManagementPrinciples 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.
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.
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.
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.
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.
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 results. However, the managers who perform the
functions of management are very much tangible and visible.
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.

Nature and Scope of Management

Objectives Of Management
The objectives of management are narrated as under.
(i) Organisational objectives: Management is expected to work for the
achievement of the objectives of the particular organisation in
which it exists. Organisational objectives include:
(a) Reasonable profits so as to give a fair return on the capital
invested in business
(b) Survival and solvency of the business, i.e., continuity.
(c) Growth and expansion of the enterprise
(d) Improving the goodwill or reputation of the enterprise.
(ii) Personal objectives: An organisation consists of several persons
who have their own objectives. These objectives are as follows:
(a) Fair remuneration for work performed
(b) Reasonable working conditions
(c) Opportunities for training and development
(d) Participation in management and prosperity of the enterprise
(e) Reasonable security of service.
(iii) Social objectives: Management is not only a representative of
the owners and workers, but is also responsible to the various
groups outside the organisation. It is expected to fulfil the objectives of the society which are given below:
(a) Quality of goods and services at fair price to consumers.
(b) Honest and prompt payment of taxes to the Government.
(c) Conservation of environment and natural resources.
(d) Fair dealings with suppliers, dealers and competitors.
(e) Preservation of ethical values of the society.


Management is indispensable for the successful functioning of
every organisation. It is all the more important in business enterprises.
No business runs in itself, even on momentum. Every business needs
repeated stimulus which can only be provided by management.
According to Peter Drucker, management is a dynamic lifegiving
element in an organisation, without it the resources of production
remain mere resources and never become production.
The importance of management has been highlighted clearly in
the following points:
(i) Achievement of group goals: A human group consists of several
persons, each specialising in doing a part of the total task. Each
person may be working efficiently, but the group as a whole
cannot realise its objectives unless there is mutual cooperation

ManagementPrinciples and Practices






and coordination among the members of the group. Management creates team-work and coordination in the group. He
reconciles the objectives of the group with those of its members
so that each one of them is motivated to make his best contribution towards the accomplishment of group goals. Managers
provide inspiring leadership to keep the members of the group
working hard.
Optimum utilisation of resources: Managers forecast the need for
materials, machinery, money and manpower. They ensure that
the organisation has adequate resources and at the sametime
does not have idle resources. They create and maintain an
environment conducive to highest productivity. Managers make
sure that workers know their jobs well and use the most efficient methods of work. They provide training and guidance to
employeers so that they can make the best use of the available
Minimisation of cost: In the modern era of cut-throat competition
no business can succeed unless it is able to supply the required
goods and services at the lowest possible cost per unit. Management directs day-to-day operations in such a manner that all
wastage and extravagance are avoided. By reducing costs and
improving efficiency, managers enable an enterprise to be competent to face competitors and earn profits.
Survival and growth: Modern business operates in a rapidly
changing environment. An enterprise has to adapt itself to the
changing demands of the market and society. Management keeps
in touch with the existing business environment and draws its
predictions about the trends in future. It takes steps in advance
to meet the challenges of changing environment. Changes in business environment create risks as well as opportunities. Managers enable the enterprise to minimise the risks and maximise the
benefits of opportunities. In this way, managers facilitate the
continuity and prosperity of business.
Generation of employment: By setting up and expanding business enterprises, managers create jobs for the people. People
earn their livelihood by working in these organisations. Managers also create such an environment that people working in
enterprise can get job satisfaction and happiness. In this way
managers help to satisfy the economic and social needs of the
Development of the nation: Efficient management is equally
important at the national level. Management is the most crucial
factor in economic and social development. The development
of a country largely depends on the quality of the management

Nature and Scope of Management

of its resources. Capital investment and import of technical knowhow cannot lead to economic growth unless wealth producing
resources are managed efficiently. By producing wealth, management increases the national income and the living standards
of people. That is why management is regarded as a key to the
economic growth of a country.


There has been a controversy on the use of these two terms-management and administration. Many experts make no distinction between
administration and management and use them as synonyms. Several
American writers consider them as two distinct functions.
The management experts like Elbourne, Unwick and Mary Follett
regarded administration and management as synonymous and use
them interchangeably in their works. But Schuze and Sheldon found
distinction between these two concepts. According to them the
distinction is important to clearly understand the role of people in
administrative positions versus those in managerial positions.
Oliver Sheldon in his The Philosophy of Management defines
Administration as a function is concerned with the determination of
the corporate policy, the coordination of finance, production and distribution, the settlement of the compass (i.e., structure) of the organisation, under the ultimate control of the executive. On the other hand,
Management is concerned with the execution of the policy, within the
limits setup by administration and the employment of the organisation
for the particular objects before it. Thus Sheldon declares administration as a thinking process and management as doing process. In other
words, management is a concomitant of administration. The following
figure depicts this line of thinking

Fig. 1.2

Administration and Management

E.F.L. Breach distinguishes administration and management.

Breach considers management as a social process entailing the responsibility for effective planning, regulation, coordination and control of
operations including the responsibility for personnel supervision.


ManagementPrinciples and Practices

According to him, the administration is that part of management which

is concerned with the installation and carrying out the procedures by
which the progress of activities is regulated and checked against plans.
Few authors treat administration as part of management. These
three points of view are explained below.
(i) Administration is different from management: According to this view
point, administration is a higher level activity while management is a lower level function. Administration is a determinative function concerned with the determination of objectives and
policies while management is an executive function involving
the implementation of policies and direction of efforts for the
achievement of objectives. This view is held largely by American experts on management.
American experts such as Florence, Lansburg, Haimann,
Milward, McFarland, Spriegel, Schulze and Tead also hold this
view that administration involves decision-making and policyformulation while management is concerned with the execution
of policies and supervision of work.
According to them, administration is superior to management
as the latter has only a peripheral role in determination of objectives and policies.
(ii) Administration is a part of management: According to the European School of thought, management is a wider term including
administration and organisation. This viewpoint has been
propounded by Breach. According to him, Management is the
generic term for the total process of executive control involving
responsibility for effective planning and guidance of operations
of an enterprise. Administration is that part of management
which is concerned with the installation and carrying out of the
procedures by which the programme is laid down and communicated and the progress of activities is regulated and checked
against plans. Kimball and Kimball, Richman and Copen also
hold similar views. According to them, administration is only
an implementing agency while management is determinative.
Thus, the European viewpoint is exactly opposite to the American opinion.
(iii) Administration and management are one: Many writers like Henri
Fayol, William Newman, Chester Barnard, George Terry, Louis.
A. Allen, Koontz and O Donnell make no distinction between
management and administration. According to Newman, Management or administration is the guidance, leadership and
control of the efforts of a group of individuals towards some
common goals. According to Fayol, all undertakings require
the same functions and all must observe the same principles.

Nature and Scope of Management


There is one common science which can be applied equally well

to public and private affairs. Therefore, the distinction between
administration and management is superfluous or academic. In
actual practice, the two terms are used interchangeably. The term
administration is more popular in Government and other public organisations while the word management is more commonly
used in the business world, where economic performance is of
primary importance.
The foregoing description reveals that both management and
administration are based upon the same set of principles and functions.
It may be possible to make theoretical or conceptual distinction between
the two. But in practice such a distinction is misleading. In order to
resolve the terminological conflict between administration and management, we may classify management into:
(i) Administrative management; and
(ii) Operative management.
Administrative management involve determination of objectives
and policies whereas operative management is primarily concerned
with the execution of plans for the achievement of objectives. At every
level of management, an individual manager performs both types of
functions. Every manager spends a part of his time on administrative
management and the remaining time on operative management.
Distinction between Administration and Management
Points of distinction Administration


1. Nature

It is an executive or doing
It is concerned with the
implementation of policies

2. Type of work
3. Levels of
4. Influence

5. Direction of
human efforts
6. Main functions
7. Skills required

It is a determinative
or thinking function
It is concerned with the
determination of major
objectives and policies
It is mainly a top
level function
decisions are influenced
mainly by public opinion
and other outside forces
It is not directly
concerned with the
direction of human efforts
Planning and control are the
main functions involved in it.
Conceptual and human skills

It is largely a middle and

lower level function
Managerial decisions are
influenced by objectives
and policies of the
It is actively concerned with
direction of human efforts
in the execution of plans
Directing and organising are
the main functions involved
in it.
Technical and human skills


ManagementPrinciples and Practices

8. Usage
9. Illustrations

Used largely in Government

and Public sector
Commissioner, Registrar,
Vice-Chancellor, Governor etc.

Used mainly in business

Managing Director,
General Manager,
Sales Manager,
Branch Manager etc.


Every business organisation, irrespective of its size, has many managerial positions in its structure. These positions are created through
the process of delegation of authority from top to lower levels. Each
position is marked by authority, responsibility, functions, roles and

Fig 1.3 Levels of Organisation

Nature and Scope of Management


relationships. The contents and nature vary, depending in the level at

which the position lies. As one moves upward in the organisation, the
managerial position plays an important role, larger the contribution,
greater the authority and higher the responsibility. These managerial
positions lying in the chain of command may be classified into various
groups or levels of management. Broadly speaking, an organisation
has two important levels of management, namely functional and
operative. The functional level is concerned with the process of
determining primary objectives, formulating basic policies, making
vital decisions and controlling and coordinating activities of personnel. The operative level of management is related to implementation
of plans and decisions, and pursuit of basic policies for achieving the
objectives of the organisation.
Generally, the levels of management consisting of various managerial positions in the structure of an organisation, differ from one
organisation to another, depending on the size of business activity,
philosophy of management, span of control and other related factors.
But, in a joint stock company, for conducting its business efficiently,
managerial personnel may be placed in three levels, that is, top, middle
and lower or supervisory level.

Top Level Management

The top level management is generally occupied by the ownership
group. In a joint stock company, equity shareholders are the real owners of the company. Thus, they elect their representatives as directors,
form a board, known as board of directors, which constitutes the top
level of management. Besides the board, other functionaries including
managing director, general manager or Chief executive to help directors, are included in this level. It is the highest level in the managerial
hierarchy and the ultimate source of authority in the organisation. The
top level managers are accountable to the owners and responsible for
overall management of the organisation. The major functions of the
top level management are as under:
(i) To make a corporate plan for the entire organisation covering
all areas of operations.
(ii) To decide upon the matters which are vital for the survival, profitability and growth of the organisation such as introduction of
new product, shifting to new technology and opening new plant
(iii) To decide corporate goals.
(iv) To decide structure of organisation, creating various positions
there in.


ManagementPrinciples and Practices

(v) To exercise overall managerial control through the process of

reviewing over all financial and operating results.
(vi) To make decisions regarding disposal and distribution of profits.
(vii) To select key officials and executives for the company.
(viii) To coordinate various sub-systems of the organisation.
(ix) To maintain liaison with outside parties having a stake in business such as government, trade union and trade associations etc.
(x) To formulate basic policies and providing direction and leadership to the organisation as a whole.

Middle Level Management

In order to fill up the gap which exists between functional and operative level, some managerial positions are created at the middle level of
management. Middle level management consists of departmental managers, deputy managers, foreman and administrative officers etc. These
executives are mainly concerned with the over all functioning of their
respective departments. They act as a link between top and lower level
managers. The activities of middle level managers centres around
determining departmental goals and devising ways and means for
accomplishing them.
The main functions performed by these managers are as under:
(i) To prepare departmental plan covering all activities of the
department within the basic framework of the corporate plan.
(ii) To establish departmental goals and to decide upon various ways
and means for achieving these goals to contribute to organisational goals.
(iii) To perform all other managerial functions with regard to
departmental activities for securing smooth functioning of the
entire department.
(iv) To issue detailed orders and instructions to lower level managers and coordinate the activities of various work units at lower
(v) Middle level managers explain and interpret policy decisions
made at the top level to lower level managers.

Lower Level or Supervisory Level Management

Lower-level management is known as supervisory management,
because it is concerned mainly with personal oversight and direction
of operative employees. It consists of factory supervisors, superintendents, foremen, sales supervisors, accounts officers etc. They directly
guide and control the performance of rank and file workers. They issue
orders and instructions and guide day to-day activities. They also

Nature and Scope of Management


represent the grievances of the workers to the higher levels of

Supervisory management performs the following functions:

Planning of day to day work

Assignment of jobs and issuing orders and instructions
Supervising and guiding workers
Maintaining close personal contacts with workers to ensure
discipline and team-work
(v) Evaluating operating performance
(vi) Sending reports and statements to higher authorities
(vii) Communicating the grievances and suggestions of workers to
higher authorities.


To understand the basic nature of management, it must be analysed in
terms of art and science, in relation to administration, and as a profession, in terms of managerial skills and style of managers.

Management is Combination of Art and Science

Management knowledge exhibits characteristics of both art and science, the two not mutually exclusive but supplementary. Every discipline of art is always backed by science which is basic knowledge of
that art. Similarly, every discipline of science is complete only when it
is used in practice for solving various kinds of problems faced by
human beings in an organisation or in other fields of social life which
is more related to an art. Art basically deals with an application of
knowledge personal skill and know-how in a specific situation for efficiently achieving a given objective. It is concerned with the best way of
doing things and is consequently, personalised in nature.
During the primitive stages of development of management knowledge, it was considered as an art. There was a jungle of managerial
knowledge. It was not codified and systemised. People used it to get
things done by others, in their own way giving an impression that
whosoever uses it, knows the art of using it. This kind of loose and
inadequate understanding of management supported the view that it
was an art.

Management as a Science
Science means a systematic body of knowledge pertaining to a specific
field of study. It contains general principles and facts which explains a
phenomenon. These principles establish cause-and-effect relationship


ManagementPrinciples and Practices

between two or more factors. These principles and theories help to

explain past events and may be used to predict the outcome of actions.
Scientific methods of observations, and experiments are used to
develop principles of science. The principles of science have universal
application and validity.
Thus, the essential features of science are as follows:

Basic facts or general principles capable of universal application

Developed through scientific enquiry or experiments
Establish cause and effect relationships between various factors.
Their Validity can be verified and they serve as reliable guide
for predicting future events.

Let us now examine as to what extent management satisfies the

above conditions:
(i) Systematic body of knowledge: Management has a systematic body
of knowledge consisting of general principles and techniques.
These help to explain events and serve as guidelines for managers in different types of organisations.
(ii) Universal principles: Scientific principles represent basic facts
about a particular field enquiry. These are objective and represent
best thinking on the subject. These principles may be applied in
all situations and at all times. Exceptions, if any, can be logically
explained. For example, the Law of Gravitation states that if you
throw an object in the air it will fall on the ground due to the
gravitational force of the earth. This law can be applied in all
countries and at all points of time. It is as applicable to a football
as it is to an apple falling from tree. Management contains sound
fundamental principles which can be universally applied. For
instance, the principle of unity of command states that at a time
one employee should be answerable to only one boss. This
principle can be applied in all types of organisation-business or
non business. However, principles of management are not
exactly like those of physics or chemistry. They are flexible and
need to be modified in different situations.
(iii) Scientific enquiry and experiments: Scientific principles are derived
through scientific investigation and reasoning. It means that there
is an objective or unbiased assessment of the problem situation
and the action chosen to solve it can be explained logically. Scientific principles do not reflect the opinion of an individual or
of a religious guru. Rather these can be scientifically proved at
any time. They are critically tested. For example, the principle
that the earth revolves around the sun has been scientifically

Nature and Scope of Management


Management principles are also based on scientific enquiry

and investigation. These have been developed through experiments and practical experience of a large number of managers.
For example, it has been observed that wherever one employee
has two or more bosses simultaneously, confusion and indiscipline are likely to arise, with regard to following the instructions.
(iv) Cause and effect relationship: Principles of science lay down
a cause and effect relationship between related factors. For
example, when water is heated up to 100C, it starts boiling and
turns into vapour. Similarly, the principles of management
establish cause and effect relationship between different variables. For instance lack of balance between authority and
responsibility will cause management to become ineffective.
(v) Tests of validity and predictability: Validity of scientific principles
can be tested at any time and any number of times. Every time
the test will give the same result. Moreover, the future events
can be predicted with reasonable accuracy by using scientific
principles. For example, the Law of Gravitation can be tested by
throwing various things in the air and every time the object will
fall on the ground. Principles of management can also be tested
for their validity. For example, the principle of unity of command can be tested by comparing two persons, one having a
single boss and other having two bosses. The performance of
the first person will be higher than that of the second.
Thus, management is undoubtedly a science. It contains a
systematic body of knowledge in the form of general principles which
enjoy universal applicability. However, management is not as exact a
sciencePhysics, Chemistry, Biology and other Physical sciences. This
is because management deals with people and it is very difficult to
predict accurately the behaviour of living human beings. Management
principles are universal but they cannot be expected to give exactly the
same results in every situation. That is why management is known as
a soft science. Management is a social science. It is still growing, with
the growing needs of human organisations.

Management as an Art
Art implies the application of knowledge and skills to bring about the
desired results. The essential elements of arts are:
(i) Practical knowledge
(ii) Personal skill
(iii) Result oriented approach


ManagementPrinciples and Practices

(iv) Creativity
(v) Improvement through continuous practice
Let us judge how far management fulfils these requirements:
(i) Practical knowledge: Every art signifies practical knowledge. An
artist not only learn the theory but also its application in practice.
For example, a person may have adequate technical knowledge
of painting but he cannot become a good painter unless he knows
how to make use of the brush and colours. Similarly, a person
cannot become a successful manager simply by reading the
theory and getting a degree or diploma in management. He must
also learn to apply his knowledge in solving managerial
problems in practical life. A manager is judged not just by his
technical knowledge but by his efficiency in applying this
(ii) Personal skill: Every artist has his own style and approach to his
job. The success of different artists differ even when all of them
possess the same technical knowledge or qualifications. This is
due to the level of their personal skills. For example, there are
several qualified singers but Lata Mangeshkar has achieved the
highest degree of success. Similarly, management is personalised.
Every manager has his individual approach and style in solving
managerial problems. The success of a manager depends on his
personality in addition to his technical knowledge.
(iii) Result-oriented approach: Arts seeks to achieve concrete results.
The process of management is also directed towards the accomplishment of desirable goals. Every manager applies certain
knowledge and skills to achieve the desired results. He uses men,
money, materials and machinery to promote the growth of the
(iv) Creativity: Art is basically creative and an artist aims at producing something that had not existed before. Therefore, every piece
of art requires imagination and intelligence to create. Like any
other art, management is creative. A manager effectively combines and coordinates the factors of production to create goods
and services. Moulding the attitudes and behaviour of people at
work, towards the achievement of the desired goals is an art of
the highest order.
(v) Improvement through people: Practice makes one perfect.
Every artist become more and more efficient through constant
practice. A dancer, for example, learns to perform better by continuously practicing a dance. Similarly, manager gains experience through regular practice and becomes more effective.

Nature and Scope of Management


Thus, management is both a science as well as an art. It is a

science because it has an organised body of knowledge consisting of
certain universal facts. It is known as an art because it involves creating results through practical application of knowledge and skills. However, art and science are complementary to each other. They are not
mutually exclusive. Science teaches one to know and art to do. Art
without science has no guide and science without art is knowledge
For example, a person cannot be a good surgeon unless he has
scientific knowledge of human anatomy and the practical skill of
applying that knowledge in conducting an operation.
Similarly, a successful manager must know the principles of
management and also acquire the skill of applying those principles for
solving managerial problems in different situations. Knowledge of
principles and theory is essential, but practical application is required
to make this knowledge fruitful. One cannot become an effective
manager simply by learning management principles by heart. Science
(theory) and art (practice) are both essential for the success of

Management as a Profession
A profession is calling that requires specialised knowledge and often,
long intensive academic preparation. The essential features of profession are as follows:

Well defined body of knowledge

Restricted entry
Service motive
Code of Conduct
Representative professional association

Let us examine to what extent management fulfils the above

(i) Specialised body of knowledge: Every profession has a well defined
body of knowledge relevant to the area of specialisation. In
order to practice a profession, a person requires specialised
knowledge of its principles and techniques. Moreover, he must
make deliberate efforts to gain proficiency unit. There exists a
substantial and rapidly expanding body of knowledge in
management. A manager must have intensive devotion and
involvement to acquire expertise in the science of management.
In addition, there should be competent application or judicious
utilisation of this knowledge in solving complex problems. Today, management is a separate discipline having a specialised
and organised body of knowledge.


ManagementPrinciples and Practices

(ii) Restricted entry: There exists institutions and universities to

impart education and training for a profession. No one can enter
a profession without going through the prescribed course of
learning. For example one must pass the Chartered Accountancy
examination to practice accountancy profession. Many institutes
of management have been set up in India and abroad which offer
courses for specialised training in management. Several
management consultancy firms have also come into existence to
offer advise for solving managerial problems. Formal education
and training has become very helpful in getting jobs as managers.
But no minimum qualification or course of study has been
prescribed for managers by law.
(iii) Service motive: A profession is a source of livelihood but professionals are primarily motivated by the desire to serve the community. For example, a doctor earns his living from his medical
practice. But he does not treat his patients only for the sake of
money. He has a concern for the suffering of others and a desire
to help the community. Therefore, a profession enjoys high community sanction or respect. Similar is the case with managers. A
manager of a factory is responsible not only to its owners, but he
is also expected to produce quality goods at a reasonable cost
and to contribute to the well-being of the community.
(iv) Representative association: In every profession there is a statutory
association or institution which regulates that profession. For
example, the Institute of the Chartered Accountants of India
establishes and administers standards of competence for the
auditors. In management also associations have been established
both in India and abroad. Managers have formed associations
for the regular exchange of knowledge and experience. In India,
there is the All India Management Association. However, this
association does not have the statutory power to regulate the
activities of managers. No university accepted criteria or
standard exists for their evaluation. Membership of this
association is not compulsory in order to become a manager.
(v) Code of conduct: Members of one profession have to abide by a
code of conduct which contains rules and regulations providing
the norms of honesty, integrity and professional ethics. For
example a chartered accountant is not expected to commercially
advertise his firm. The code of conduct is by the representative
association to ensure self-discipline among its members. Any
member violating the code can be punished and his membership
can be cancelled. The All India Management Association has
framed code of conduct for managers. The code requires the
managers to fulfil their social and moral obligations. Members

Nature and Scope of Management


of the association are expected not to disclose the trade secrets

of their employers and to make personal gain from the
knowledge of internal working of the organisation. But this code
does not have legal sanctions. However, observing business
ethics is always helpful in becoming a more effective manager.
The above discussion reveals that management fulfils several
essentials of profession. But like other professions, management does
not restrict the entry into managerial jobs to people with a special
academic degree. No minimum qualifications have been prescribed
for managerial personnel. No management association has the authority
to grant certificates of practice or to regulate entry into management
careers. Few managers have uniform background in terms of education
and experience. The management associations have no legal right to
enforce their code of conduct. There is no single group to which the
majority of the managers belong and whose authority is recognised by
law as a sanction. Moreover, there is no single client group to which
managers owe complete loyalty. Doctors owe their loyalty to patients.
But managers are responsible to the owners as well as to other social
Thus, management is, not strictly speaking, a full-fledged profession like medicine, law or chartered accountancy. Some experts
believe that there should be no control over entry into management
careers. According to Peter F. Drucker, Management is a practice rather
than a science or profession through containing elements of both. No
greater damage could be done to economy and society than to attempt
to professionalise management by licensing managers or by limiting
access to management to people with special academic degree.


That management is an art, science and profession is not merely an
academic question but raises certain issues which are concerned with
future development of this branch of knowledge. Management still
remains a developing field, changes are taking place regularly in its
nature, significance and scope. In a modern society, it is occupying an
important position which has brought in new dimensions.
In the recent past, society has been challenging ethical and moral
basis of management decisions and demanding professionalisation of
management. The following reasons may be given in favour of the
growing need of professionalisation of management knowledge.
(i) In a popular firm of business organisation, that is, joint stock
company, ownership has been separated from its management
and control. This situation has really contributed to the development of management profession. Modern managers have to





ManagementPrinciples and Practices

promote and protect the interest of many social groups such as

consumers, employers and the society, as a whole, and balance
it with the profit motive. For resolving conflicts, and integrating
contradictory interests, professional outlook may be critical.
Rapid expansion and growth of universities and other institutions for imparting management knowledge and growing
significance of training programmes in business organisations
are indicative of the trend of professionalisation in the days to
In a high-tech industrial society, manifold changes have occurred
in the role of managers
In the context of globalisation of economic operations many
strategic areas have been developed which require professional
expertise and specialised knowledge such as strategic planning,
control and research and development activities and information
systems. Multinational corporations have been attempting to
enhance their global market share strictly by adopting
professional outlook and approach towards management of
Increased utilisation of specialised management services like
consultancy, human resource development and training
programmes which are linked with scientific attitude require a
team of professional managers.


In modern business the job management has become very difficult.
Several skills are required to manage successfully a large organisation
in a dynamic environment. These skills of managers have been classified
into four categories, namely technical, human, diagnostic and
conceptual skills.

(i) Technical Skills

Technical skills refer to the ability and knowledge in using the equipment, technique and procedures involved in performing specific tasks.
These skills require specialised knowledge and proficiency in the
mechanics of particular job. Ability in programming and operating computers is, for instance, a technical skill. There are two things a manager
should understand about technical skills. In the first place, he must
know which skills should be employed in his particular enterprise and
be familiar enough with their potentiality to ask discerning questions
of his technical advisors. Secondly a manager must understand both
the role of each skill employed and interrelations between the skills.

Nature and Scope of Management


(ii) Human Skills

Human skills consists of the ability to work effectively with other people
both as individual and as members of a group. These are required to
win cooperation of others and to build effective work teams. Such skills
require a sense of feeling for others and capacity to look at things from
others point of view. Human skills are reflected in the way a manager
perceives his superiors, subordinates and peers. An awareness of the
importance of human skills should be part of a managers orientation
and such skills should be developed throughout the career. While technical skills involve mastery of things human skills are concerned with
understanding of People.

(iii) Conceptual Skills

Conceptual skills comprise the ability to see the whole organisation
and the interrelationships between its parts. These skills refer to the
ability to visualise the entire picture or to consider a situation in its
totality. Such skills help the manager to conceptualise the environment,
to analyse the forces working in a situation and take a broad and farsighted view of the organisation. Conceptual skills also include the
competence to understand a problem in all its aspects and to use original thinking in solving the problem. Such competence is necessary for
rational decision-making.
Thus technical skills deal with jobs, human skills with persons and
conceptual skills with ideas. These types of skills are interrelated. But
the proportion or relative significance of these skills varies with the
level of management as shown in the figure 1.4.

Fig. 1.4 Managerial Skills of Various Skills

Technical skills are most important at the supervisory or operating

level where a close understanding of job techniques is necessary to
guide workers. As one moves up the management hierarchy, technical
skills become less important. Higher level managers deal with subordinate managers and specialised technical knowledge is comparatively
less important for them. Conceptual skills are very important for top
management in formulating long-range plans, making broad policy
decisions, and relating the business enterprise to its industry and the


ManagementPrinciples and Practices

economy. Thus, the relative importance of conceptual skills increases

as we move to higher levels of management. This would be self evident as management is the process of getting things done through
people. Human skills are equally important at all levels of management because every manager has to deal with people.

(iv) Diagnostic Skills

Diagnostic skills include the ability to determine by analysis and
examination the nature and circumstances of particular conditions. It
is not only the ability to specify why something happened but also the
ability to develop certain possible outcomes. It is the ability to cut
through unimportant aspects and quickly get to the heart of the problem. Diagnostic skills are probably the most difficult ones to develop
because they require the proper blend of analytic ability with common
sense and intelligence to be effective.


The field of management is very wide. The operational areas of business management may be classified into the following categories:
(i) Production Management: Production management implies
planning, organising, directing and controlling the production
function so as to produce the right goods, in right quantity, at
the right time and at the right cost. It includes the following
(a) designing the product
(b) location and layout of plant and building
(c) planning and control of factory operations
(d) operation of purchase and storage of materials
(e) repairs and maintenance
(f) inventory cost and quality control
(g) research and development etc.
(ii) Marketing Management: Marketing management refers to the
identification of consumers needs and supplying them the goods
and services which can satisfy these wants. It involves the
following activities:
(a) marketing research to determine the needs and expectation
of consumers
(b) planning and developing suitable products
(c) setting appropriate prices
(d) selecting the right channel of distribution, and
(e) promotional activities like advertising and salesmanship to
communicate with the customers

Nature and Scope of Management


(iii) Financial Management: Financial management seeks to ensure the

right amount and type of funds to business at the right time and
at reasonable cost. It comprises the following activities:
(a) estimating the volume of funds required for both long-term
and short-term needs of business
(b) selecting the appropriate source of funds
(c) raising the required funds at the right time
(d) ensuring proper utilisation and allocation of raised funds so
as to maintain safety and liquidity of funds and the creditworthiness and profitability of business, and
(e) administration of earnings
Thus, financial management involves the planning, organising
and controlling of the financial resources.

Fig. 1.5

Compounds of Business Management

(iv) Personnel Management: Personnel management involves planning, organising and controlling the procurement, development,
compensation, maintenance and integration of human resources
of an organisation. It consists of the following activities:
(a) manpower planning
(b) recruitments,
(c) selection,
(d) training
(e) appraisal,
(f) promotions and transfers,
(g) compensation,
(h) employee welfare services, and
(i) personnel records and research, etc.


ManagementPrinciples and Practices

Fig. 1.6



The objectives of this unit are to enable you:
to develop familiarity with various types of systems and processes involved in
managing an organisation
to understand the concept of a system and learn what the management
information system is
to develop an understanding about the necessity of each managerial process and
its logical sequencing in relation to the other processes
to identify the major elements of each process
3.1 The Systems Concept
3.2 Management Information System
3.3 Management Processes
3.4 Planning
3.5 Controlling
3.6 Organising
3.7 Motivating and Leading
3.8 Decision-making
3.9 Summary
3.10 Key Words
3.11 Further Readings
Having read the first two units, you know the various responsibilities and tasks
expected of you as a manager. Now you have to get down to the nitty-gritty of
actually performing all these tasks and discharging your responsibilities. For this you
must understand the various systems and processes involved in managing. It does not
matter whether you manage a private company, a public sector company, or even a
non-commercial organisation. The essentials of managing remain the same.
In this unit we began by introducing the systems concept and see how it can be
applied to organisations. We then move to the all important concept of management
information systems and examine it in detail. Later on we shall take up for discussion
the management processes of planning, controlling, organising, motivating, leading
and decision-making.



Every practising manager knows from experience that whatever actions and decisions
he takes, in any particular area of activity, have results which extend well beyond that
specific activity. The impact of decisions in some cases affect the whole organisation
and even external environment. A simple decision to throw out an inefficient, lazy
worker can trigger off union activity which can, in extreme situations, even result in
strike. The situation may become so hot that the union forces the neighbouring units
also to join the strike. Thus when a manager takes a decision he never views its
impact in isolation but tries to understand and anticipate its repercussions on the
entire organisation and the environment. The manager
understands that his organisation is a totality of many, inter-related, inter-dependent
parts, put together for achieving the organisational objectives. This in a nutshell is the
very essence of the systems concept.
A system is defined as a sum total of individuals but inter-related parts (sub-systems),
and are put together according to a specific scheme or plan, to achieve the pre-stated


Role of a Manager

A system has the following components:

A number of parts of sub-systems which when put together in a specific manner
form a whole system
Boundaries within which it exists
A specific goal or goals. This goal is expressed in terms of an output which is
achieved by receiving input and processing it to form the output
Close inter-relationship and inter-dependency amongst the various sub-systems
The inter-relationship of the sub-systems can be defined in terms of:
The flows which exist among them, such as flow of information, money,
materials, etc. The most important of these is the information flow which we
shall discuss in the next section.
The structure within which they relate to each other. This structure may be
physical, geographic or organisational and shall be dealt with in the section entitled
The procedures by which the sub-systems relate to one another. By procedures
we mean those planned activities which affect the performance of the entire
system. In the context of an organisation, this refers to planning and we shall
discuss these under the heading `planning'.

The feedback and the control process and mechanisms which exist to
ensure that the system is moving towards its desired objectives. In this
unit, we have dealt with this in the section on controlling.

A system can be biological (human body), physical (machine) or social (commercial

organisations, voluntary bodies, etc.). Social systems are man-made systems and the
relationships of the sub-systems is the most critical element. Further, since social
systems involve human beings, their beliefs, values, attitudes and perceptions have an
important bearing on the working of the system. This aspect is dealt with in the section
on motivating and leading.
A system can be closed or open. A closed system is self-sufficient and self-regulatory
and has no interaction with the environment in which it exists (see Figure I). The
feedback from the output triggers off a control mechanism which then regulates the
input to bring back the output to the desired level.
An open system is one which interacts with the environment in which it exists. Figure
II illustrates an open system. All living, biological and social systems are examples of
open systems. An organisation is an open system and its sub-systems are its various
divisions and departments. But at the same time, it is a sub-system of the
environmental system within which it operates. The environment itself consists of
social, economic, political and legal sub-systems (see Figure III).
The importance of the systems concept to the manager is that it helps him to identify
the critical sub-systems in his organisation and their inter-relationships with each other
and the environment.
A system is always seeking an equilibrium state, that is, where all the sub-systems are
at the optimum level, in tune with and at rest with each other, and the desired output
is being achieved. In an open system, this level of equilibrium is never static but is
always dynamic. This is because the environment is never static, it is always changing
and since the open system is all the time interacting with environment, what may
have been an equilibrium level today will not be so tomorrow. It is the concern of the
manager to seek this equilibrium level.
Figure I: A Closed System


Figure II : An Open Systems

Management System and Processes

Figure III : A Firm & Its Environment


Role of a Manager

Activity A
Visualise your organisation as a system and list the critical sub-systems within it. Note
down the various flows between these sub-systems which interlink them.
Visualise your organisation as a sub-system of the environment and describe the
important interactions between the two.
One of the most important interactions between an organisation and the environment
is that of information. A manager who has information about the impending
government legislation which will affect his organisation can suitably modify his
decision and avoid costly mistakes. Similarly, a manager who is well informed about
his employees' activities, expectations, opinions and grievances can take corrective
action much before a crisis develops. We now turn our attention to this information
flow and see how best it can be organised from the manager's viewpoint.



Management Information System (MIS) refers to that system by which information is

collected, processed and presented to management to help it in making better
decisions. A manager makes decisions all the time and anything which helps improve
his decision-making will obviously lead to better results, and he becomes a better
manager. As we discussed in the previous section, the systems concept implies an
input, a process, and an output. In case of MIS, data is the input which is processed to
provide output in the form of information reports, summaries, etc. To be really useful
the output must aid the manager's decision-making process. If it ' does not do so, it is
not a management information system, but just an information system. An effective
MIS should be:

Timely : A market research report, pointing out the unacceptability of milk

sold in plastic containers in retail stores, presented to the manager after he
has already launched his product in the market is of little use. Information is
useful only when it is within the time limits of the decision.


Accurate: If the information presented is inaccurate, the manager who takes

a decision based on this will invariably end up making a mistake. However, it
is not possible to have hundred per cent accurate information. But the way to
overcome this is to indicate the expected range of deviation or the level of
inaccuracy. Thus the manager acting on the basis of this information knows
the risk-he is taking.


Relevant: Volumes of reports (however excellent they may be) on the export
potential of cashew nut to a manufacturer of sports goods are of no value
simply because it is outside his area of interest and activities. The manager
himself can make an important contribution in ensuring that the information
he receives is relevant to his decision-making. To do so he must provide an
answer to the question "What do I need to know"?

A manager's requirement of information depends on the level of management at

which he is operating. In any organisation there are three broad levels of management
i.e., top, middle and operating management. It is the type of decisions made by one
level that distinguishes it from the others.


The top management's concern is the entire organisation or group of organisations. At

the top, the manager needs to have information about changes in the environment
which can affect the very survival of his company. The decisions that the top
manager makes are oriented towards the future. A decision to diversify into paper
manufacturing is not a decision which a printing, company will make every now and
then, but when it does, it totally changes the future of the company.

Top management decisions cannot be taken in a regular, routine manner but only after
a great deal of deliberation and consideration and are known as non-programmable

Management System and Processes

The manager at the middle level is mostly concerned with acquiring and controlling the
necessarIy resources to implement the objectives laid down by the top management.
The middle level managers are concerned with decisions which are important both in
the present and future context. However, the future horizon of the operating manager's
decision is much shorter than that of the top management. The middle level manager's
is concerned with managing his own department, or activity rather than the entire
organisation. Information needed by the middle manager relates to utilisation of
resources and measurement of performance.
Managers responsible for production scheduling and customer service who perform
specific tasks, within well-defined rules and procedures, are referred to as operating
managers. The decisions these managers need to make are of a routine nature and are
encountered almost every day. Since the situations are repetitive, it is easy to specify
how the decisions are to be made. Such decisions are known as programmable
decisions. A store-keeper who orders for a new lot of packing cartons when the stock in
the store is down to just the next two days supply is an example of a programmable
decision.While designing the MIS, the different types of information required by
different managers must be kept in mind. The manager at the top needs more
information about the environment. Regarding the internal operations of the company,
the top manager is only concerned with the results as reflected in profits, sales volume,
turnover, etc. Moreover these results should be presented in a summary rather than
detailed format. The middle level manager is interested in finding out why the results
were not as per the expected plan, knowing about the deviations of the critical variables
and taking corrective action. The operating manager's concern is with details, like the
number of hours each machine operated, number of units produced per hour, etc. Most
of the internal organisational information is generated at this 'level but as it moves
upward it is reduced to a summary highlighting only the critical performance variables.
We have so far defined what we mean by the terms system and management, but
have yet to talk about information. Let us understand this with the help of an
illustration. A market research team interested in finding out the daily sales volume of
Beauty Soap in Nagpur, notes down the number of soap cakes sold from each outlet in
the city. The number of soaps sold by M/s Soaps Stores on 18 September, 1986 is a
piece of data. In a similar manner, data on sales made by each store in the city is
collected. All this data when put together is information. Data by itself does not convey
much meaning. However, when all the data is put together we know that 67 outlets in
Nagpur account for a sale of 224 soap cakes. It constitutes a meaningful piece of
information. To make it more meaningful, we may further classify the outlets by the
type of store (general merchant, super bazar, departmental store, etc.), geographical
location or volume of sale. From this same data we may generate a daily sales report
for the marketing department and one for the accounts department showing the
outstanding amount against each store.
Thus we see that only when data is put together in a meaningful form does it
constitute information. Further, the same data can be used for generating multiple
reports for use by different individuals and departments.
In designing an effective MIS, the manager must understand the nature and flow of
information. Information regarding government policy, legislation, competition, etc. is
generated in the environment but is collected and used within the organisation.
Similarly, the firm or organisation may send out information to the environment in the
form of annual reports, company balance sheets, press-releases. Besides this, the
company managers and employees are also information carriers. Within an
organisation, information may flow from operating level towards top management level
(bottom to top) and from top to bottom. Reports, summaries and feedback about impact
of decisions flow from bottom to top and decisions, instructions flow from top to
bottom. Information also flows sideways from one manager to another at the same
managerial level.


Role of a Manager

Figure IV presents the flows of information amongst different management Ievels.

Figure IV: Levels of Management & MIS

Ideally a manager would like to collect information on all possible aspects of a

situation before making a decision but that is not always possible due to constraints
of time and money. The costs which act as a constraint on MIS are the costs involved
in data collection, data processing and data access.
Data may be easily available within the organisation but still there is a definite cost
involved in collecting it.
Suppose you want to gather information about the age and educational qualifications
of all the 150 workers in your organisation to determine how many of them would
qualify for the proposed scholarship for the under 35 years matriculate workers. You
may either depute a man to personally go to each employee and note down the data or
you may circulate a small cyclostyled note to the employees asking them to furnish the
relevant data. Anyway you decide to do it, a cost is involved (cost in terms of
mandays of the person collecting the data or the 150 cyclostyled slips of paper).
Having collected all the data, someone will have to sit down and put it in a particular
format (process it) so that it constitutes meaningful information which will serve your
purpose. Again, an element of cost is involved.
Having determined that only 64 workers qualify for the scholarship, the immediate
use of the information is over. You can throw away the remaining information or if
you think you may offer. this scholarship again next year, it would be wiser to store
the information. The peon simply puts all the papers in a file and locks it in the filing
shelf. Next year when you need the information, somebody will have to search for
that particular file and make it available to you (make it accessible). Time is needed
to access the information. Thus every step involves time and money.
With the advent of computers the tasks of processing and storing data have become
easier, and the amount of data that can be processed and stored has increased a
thousand fold. Buying, maintaining and operating a computer also involves cost. The
manager has to determine whether the costs incurred in collecting, processing and
accessing data are commensurate with the improvement it yields to his decisionmaking.

Activity B


Make a list of all the daily, weekly, monthly reports which you receive or are
expected to prepare for your boss. Describe how each of these reports help improve
the quality of your decision-making process.



Management System and Processes

We now turn to the management processes of planning, controlling, organising and

leading. A particular manager may be more concerned with say, controlling and
organising, while another may be more concerned with planning. The degree of
involvement with each of these processes may vary from manager to manager, but
essentially all managers have to be concerned with these processes.
We shall first take up the planning process because only when there is planning can
the other processes follow in logical sequence.



Planning is the most basic and pervasive process involved in managing. It means
deciding in advance what actions to take and when and how to take them.
Planning is needed, firstly for committing and allocating the organisation's limited
resources towards achieving its objectives in the best possible manner and, secondly
for anticipating the future opportunities and problems.
Planning is putting down in black and white the actions which a manager intends to
take. Each manager is involved in planning though the scope and character may vary
with the level of the manager. At the top, the managing director is involved in
planning for the company's diversification over the next five years. The middle level
marketing manager undertakes planning to increase the sale of his products. The field
sales supervisor plans the day's activities of his team of sales officers.
Planning implies:

Making choices: There can be any number of diversification opportunities to

choose from. It is up to the management to choose the alternative which
offers maximum potential for growth and profitability.


Committing resources: The marketing manager who increases the amount

earmarked for television promotion, and adds four more salesmen in each
territory with the objective of achieving higher sales, is committing scarce
resources (money, people, etc.) which then are not available for any other


A time horizon: Planning always refers to a specific time limit within which
it must be completed. The field supervisor plans movements of each of his
salesmen on a daily basis. The marketing manager plans promotion effort for
the next three months, six months or twelve months. The top management
may have a time perspective which may extend anywhere between 5 and 15

Irrespective of the activity or level at which plans may be drawn, the critical, factor is
that they focus on objectives and are directed towards their achievement. They serve
to channelise the energies of the company in the desired direction. The future is
always uncertain and therefore risky. Stepping out of home on a cloudy day with an
umbrella in hand is the way I cover my risk (of getting wet) against the anticipated
but uncertain future rain. It may or may not rain but I am prepared. The umbrella is
representative of the plan which a company draws up in anticipation and preparation
of the future opportunities and problems. Planning implies not simply reacting to
events but anticipating and preparing for them.
Planning ensures the most efficient use of scarce resources. Planning implies
coordinated, inter-related effort towards achievement of the common objective rather
than uncoordinated haphazard, arbitrary, overlapping action towards individual
objectives. Joint, coordinated effort implies pooling of resources and their optimum
allocation without any wastage.
Planning is the only way by which an organisation can exercise control to check that
it is on the desired course of action. Only when there are objectives to work for, and
plans to achieve these objectives, can the manager exercise his control to measure the
performance of his organisation, department or subordinates. An organisation without
plans and controls is like a raft marooned on high seas with no maps and


Role of a Manager

compass to show the direction and no steering to manoeuvre with. Planning is needed
at every level of management and in every activity and department of the company.
Annual sales targets, cash-flow statements, budgets of each branch, individual career
development blueprint, assembly line operations, scheduling of production over a
number of machines in the factory are examples of plans.
To ensure that a plan is effective and succeeds in achieving its objectives, it must have
the following components:


Planning must start from the top. Objectives for the entire company are
defined by the top management and then they percolate down throughout the
organisation. Thus, logically, planning too must start at the top. For instance,
one of the objectives of the top management of Beautiful Books Ltd. (a
company specialising in publishing books on Indian culture and history) is to
increase its turnover from Rs.1.15 crore to Rs. 5 crore in 1987-88. The
marketing director accordingly draws up a plan for increasing sale in existing
markets and the new markets to be penetrated. From this overall plan, each
area marketing manager will make his own annual, quarterly and monthly
plans. And in turn each area sales supervisor will draw the plan for his entire
sales team.

Planning must be flexible. Planning is needed to anticipate and prepare for

the unknown events of the future. To the extent that the future is uncertain
and events may or may not occur, planning must be flexible. Flexibility
implies ability to keep moving towards objectives despite unexpected
occurrences. Flexibility is especially needed when there is high degree of
uncertainty and risk, the lead time involved in implementing the plan is long,
and cost of making mistakes is high. The R & D cell of a television
manufacturing company designed a completely indigenous circuit for black
and white television after 18 months of experimentation and used 100% more
funds than were allocated to it. The success of the circuit is critical to the
company as its entire marketing strategy for the coming 2-3 years is based on
this. If the circuit is successful, the company will be able to establish its
strong position in the market. However, if the circuit shows signs of failure
the company is ready with its plans to airlift the circuits at a day's notice from
its Japanese collaborator. Thus one way to allow for flexibility is by
developing alternate or contingency plans.

In the short-run, careful detailed planning without allowing for much flexibility
will improve operational efficiency. But undue emphasis on inflexibility or
rigidity may do more harm than good. Every manager has to find his own level
of balance in allowing for flexibility.

Short-term planning must be integrated with long range planning. The long
range plans, must be broken down into short-term plans on the basis of which
the managers can take action. There can always be a difference of opinion on
what constitutes the long and short-term. Some define five years as the longterm and anything up to one years as the short-term. In reality the definition
will vary according to the nature and scope of organisational activity for which
planning is being undertaken. However, you may define the long and shortterm, the point to remember is that the short-term plans must be derived from,
and contribute to the long-term plans.

Plans are good only if they are properly implemented by the people down the
line. An effective way to ensure this is to involve the people responsible for
implementation in the entire process of planning.
However, despite all the above precautions, plans sometimes fail because of
environmental and internal limitations. Government policies, regulations,
laws, statutory obligations, and rapid social and technological changes pose
external limitations on the company's planning effort. Within the company,
cumbersome procedures, capital inflexibilities in terms of investments
already made, inadequate or inaccurate information are the possible barriers
which a company may face.

Activity C

Management System and Processes

List the various activities for which your organisation undertakes the formal planning
process. Evaluate these plans on the basis of what you have learnt about planning.



Planning and controlling go hand in hand. There can be no control without a plan and
plans cannot be successfully implemented in the absence of controls. Controls
provide a means of checking the progress of the plans and correcting any deviations
that may occur along the way.
As each worker enters the factory premises in the morning, his time of arrival is
electronically (or manually) punched on his card and every evening his departure
time is similarly recorded. This simple control process is effective in checking the
time spent by each worker in the factory and at the end of the month for calculating
his wages and overtime. The mere act of recording makes each worker conscious of
his late arrival and acts as a self-check on his timing. In contrast to this simple
control, the annual budget for the subsidiary of a multi-location company requires a
far more sophisticated process for controlling its many diverse activities.
The type of control required will vary according to the factors that are to be
controlled, and the critical importance of the factors to the organisation's success. The
more critical the factor the more complex is the control mechanisms needed to check
its progress. Finance is a very critical area of management and most companies
devise elaborate and sophisticated financial controls.
A control is meaningful only when there is clear cut responsibility for activities and
results. It is meaningless to have a control process which simply points out deviations
but cannot pinpoint the area in which they occurred and who is responsible for taking
the corrective measures.
Controls maybe used to measure physical quantities (such as volume of output,
number of man hours, number of units of raw material consumed per machine, etc.),
monetary results (value of sale, capital expenditure, return on investment, earnings
per share, etc.) or to evaluate intangibles such as employee loyalty, morale, and
commitment to work. Obviously; the third kind of controls are the most difficult to


Role of a Manager


design and implement: No quantitative measure can be used, but only a qualitative,
descriptive evaluation is possible.
There are three basic steps involved in designing a control process.
i) Establishment of standards: Controls are established on the basis of plans
and so the first step. is to have clear plans which in turn become the standards for
controlling. The sales forecast plan which sets sales targets itself becomes the
standard against which actual sale is measured. However, an effective control
process focusses only on the critical variables rather than controlling all the .
variables. It also indicates the permissible range of deviation from the expected
target. Only when the actual performance, is outside this range, does it become a
. matter of concern for the manager to find out why this has happened and take
corrective action. Similarly, the marketing manager at the head office is
interested in the sales figures achieved by each branch and not in the
performance of individual salesman.
ii) Measurement of performance: Having set standards it is necessary to devise a
system for measuring the performance of individuals, departments or the
company against these standards. In some cases quantitative goals can be set,
such as number of units to be sold by each salesman, number of units to be
produced per machine, or the profit to be generated by each branch office.
However, evaluating performance in case of managers at the top level or those
operating in areas such as personnel, public relations, and administration is far
more difficult. The work output cannot be translated into quantifiable terms.
Only a qualitative appraisal is possible.
iii) Correcting deviations: The ultimate objective of the control process is to
pinpoint the occurrence outside the permissible range of action to allow
management to take corrective action. The maximum number of rejects per
machine per day is fixed. When the number of rejects increases beyond this
acceptable level, it is time for the production supervisor to investigate and take
suitable steps to correct the situation.
The successful control process hinges on the all important concept of feedback. This
refers to the information on the critical control variable of the operation or activity
which when fed back to the manager triggers off corrective action.
Except in a self-regulated, closed mechanical system where the corrective action is
taken instantaneously and automatically, most activities within an organisation
require human intervention.. The finance manager must find out why profits have
'fallen below the established level and take suitable steps to remedy this. In some
ases, only a minor corrective action is needed. But sometimes the situation requires
drastic action, even scrapping a department or plant whose operation has become
totally unprofitable.
Within the organisation, feedback usually implies a lag between the time when the
event actually occurs and the time by which information about the event reaches the
concerned manager. Sales figures for the preceding month may not be available to
the manager before the 7th of the current month. The manager can only take note of
what happened in the past and take measures to prevent its occurrence in the future.
Too long a time lag prevents any meaningful control or corrective action. To
overcome this problem of time lag, most companies generate daily reports of critical
variables which provide early warning signals to the manager. But even daily reports
may reach two days later when they have to travel a long distance from say Jaipur to
Delhi. With the introduction of computers and real time information systems
(instantaneous transmission of information) this problem can largely be overcome.
All control processes should reflect the plans that they are supposed to follow.
However, to be truly effective the controls must highlight the critical variables in an
objective manner, and be worth their cost in installing and operating.
Budget is a traditional and widely used control process. Apart from this a company
may use historical statistical data, or break-even analysis to control its operations. By
the use of mathematics, many sophisticated control techniques are also possible.
These pertain to implementing control for inventory management, distribution
logistics and project or programme management. Some of these such as Programme
Evaluation and Review Technique (PERT), Critical Path Method (CPM) will be
dealt with in detail in the subsequent units.

Activity D

Management System and Processes

What are the various control processes used in your organisation, and specifically in
your department? Assess the effectiveness of these controls from the viewpoint of
their ability to measure performance and highlight critical deviations.



Organising refers to the formal grouping of people and activities to facilitate

achievement of the firm's objectives. Issues for discussion here are the types of
organisation structure, degree of centralisation, levels of management, span of
control, delegation of authority, unity of command, line and staff relationship, and
Structure refers to the specific manner in which people are grouped. An organisation
can group its people on the basis of the various functions (such as production,
personnel, finance, marketing), geographical territories or around specific products or
product lines (such as detergents, toiletries, basic chemicals, agro-products, as in case
of Hindustan Lever Limited). The concept of matrix organisation is a recent
evolution and combines the functional and product organisation. This type of
organisation is especially useful in case of projects which require both specialists as
well as functional experts to execute a project within a specified time frame. Another
type of organisation is by the type of customers served. A company manufacturing
and marketing computers has organised its sales department in two groups. One
group sells to institutions such as offices, banks, schools, colleges, etc., while the
other group sells to individuals. Many companies selling office equipment have
organised separate marketing teams to cater to the private sector and the public sector
because of the different cultures prevailing in them.
Centralisation refers to the point or level where all decision-making authority is
concentrated. One-man enterprises; such as a small bread and butter stores, vegetable
vendor, a self-employed car mechanic, are examples of complete centralisation. As
the enterprise grows, it becomes increasingly difficult for one person to manage alone
and he has to necessarily line up other. people and give them authority to make some
decisions. These decisions may be routine, programmable decisions but complete
centralisation is no longer possible. The decision-making authority is now vested in
more than one individual. This is decentralisation.
You require information to make a decision. It is possible that information may be
generated at one place but the decision is taken at another. A Bombay based
multinational involved in making and selling ball bearings has its manufacturing
facility at Pun. Every evening all information regarding the day's production,
machine down time, inventory position is sent to the head office via the linked
computer facility and all decisions regarding change in production scheduling are
made at the head office. The introduction of real time information with the help of
computers enables information generated at one place to be instantaneously
transmitted thousands of miles away for making a decision. However, the real
criterion for an organisation having a centralised or decentralised structure is a
reflection of the top Management's thinking and philosophy.


Role of a Manager

Closely related to the concept of centralisation are the concepts of levels of

management and span of control. Levels of management refers to the number of
hierarchical levels under the control of a particular manager. Machine operator,
foreman, floor manager and production manager represent the levels of management
in a typical production department under the director. The machine operators report
to the foreman, the foreman reports to the floor manager who in turn reports to the
production manager who is accountable to the director. The number of machine
operators who directly report to the foreman represents his span of control. There is a
great deal of controversy regarding the ideal number of people that a manager can
effectively control or the ideal span of control. Many management thinkers are of the
view that three to seven is the ideal range. In practice, this may actually vary from
one individual manager to another.
At each level of management, there is a reporting relationship between the manager
and the workers. The fewer the number of people that a worker has to report to, the less
will be the problem of conflict in instructions, and greater the feeling of
responsibility for results. Similarly, the clearer the line of authority from the manager
to the workers, the better the decision-making and communication.
The staff functionary reports directly to the top management and is not a part of the
chain of command.
A company may draw up any number of ambitious plans, but if it does not have the
right kind of people, it can never succeed in implementing these plans. One of the
biggest challenges which a manager faces is matching the right people with the right
jobs. The process of staffing starts with defining the job to be done and the necessary
qualifications, skills and experience required to do it. The next step is to search for
the persons with the desired background. The search may involve a number of
complex steps such as advertising the job through newspapers and specialised
magazines, screening the applications received in response to the advertisement,
conducting a selection process which may include a variety of techniques such as
written test, group discussion, personal interview, etc. Before making the final
selection, it is important to be sure that the candidate fits in well with the other people
and the culture of the organisation.
Having found the right candidate, it is equally important that you are able to retain
him. Among other things, motivation and leadership provided by the top management
of organisation also plays an important role.
Activity E
What is the basis for organising the various departments in your company?
Can you identify the various levels of management and the span of control at each
level as well as the reporting relationships?



3 .7


Management System and Processes

Having established plans, controls, and an appropriate structure to achieve the

organisational objectives, the manager now has to get his people to work. Motivation
is that desire or feeling within an individual which prompts him to action. Every
individual has needs, desires and drives, which we collectively call motives and
which channelise all his or her behaviour and action towards achievement of some
objectives. The manager's role is to influence each individual's behaviour and action
towards achievement of common organisational objectives.
A great deal of research has been conducted in this area and there are many theories
of motivation. It is not possible to explain all these theories here and we shall only
briefly explain the various factors that can act as motivation.
Money is the most commonly used motivating factor in the form of salary, bonus,
incentives, commissions and rewards. Salary or wage is of course the primary
motivation, and the poorer the economic background of an individual the greater the
motivational value of money. However, once a basic salary or wage is assured, to
motivate people to work that little bit extra, achieve that ten per cent higher sales
figure, incentives and commissions come in handy. Most sales organisations pay
salary plus incentives to their sales people. The incentives may be calculated on the
basis of individual or team results, and may be linked to a sales target. Similar
incentives can be offered to the production department. However, performance linked
rewards are difficult to compute in areas such as finance, personnel, and
administration where work output cannot be easily measured. A percentage of total
profits can be distributed to these departments as incentive.
Man does not live by bread alone is an old saying. Man is a social animal and seeks
recognition and status in society through his work. The status or position which an
individual enjoys in the organisation, the number of people who work for him, the
non-monetary benefits and perks which he enjoys are important motivational factors.
In fact sometimes these are more important than the actual take-home pay packet.
Gupta started his career as a salesman in a medium sized company manufacturing
and marketing stereo systems. Because of his analytical ability, capacity to work hard
and achieve results, Gupta soon rose to be the area sales manager of North India. The
owner of the company relied a great deal on Gupta's judgement and always consulted
him on every important matter. Gupta was making good money, performing well and
enjoyed the great confidence of the owner, yet he felt that there was no power or
position in his job which could give him a better status in society. Therefore, when
the opportunity arose, Gupta joined an American multinational as Divisional
Manager, selling scientific laboratory glassware. It was the glamour, the power, and
the status which the job conferred on him that motivated Gupta to join. However, two
years with the multinational were enough for Gupta to realise that he had no authority
to take any independent decisions and he was not deriving any satisfaction from his
job. Gupta quit his job and went hack to his previous employer. Thus satisfaction at
work is an important motivating factor.
The lesson from Gupta's story is that the same individual will be motivated by
different factors at different stages of his career. Generally as you move up the
organisation to more important positions, the importance of money and monetary
benefits as motivating factors decreases and intangible factors such as job
satisfaction, confidence of the boss, good relationship with the boss, the status and
respect commanded in the organisation, etc. become more important.
The physical working environment in which a person works also has tremendous
motivational force. A pleasant, noise-free, well-lit room with comfortable
temperature, and proper facilities of telecommunication, secretarial assistance,
canteen, transport, etc. is always conducive to work.
Different individuals are motivated by different factors. This is because each
individual in the organisation comes from a different socio-economic, cultural,
religious, educational and family background, and each of these has a role in
determining the degree to which he can be motivated by different factors.


Role of a Manager

In most Western countries, a great deal of emphasis is laid on leisure and individuals
may be motivated to take up that job which affords greatest opportunity for leisure.
Similarly religious background and personal values are important influences on the
effectiveness of motivating factors. No matter how attractive the salary, not many
Hindus would like to work in a beef packing factory.
The manager's concern is to find a set of common factors which can motivate all his
people coming from diverse and different backgrounds and working at different
levels of management. The manager's task will be greatly simplified when he
understands that motivational factors are present in, and can be used, in design of
work, rewards, work environment, work relationships and work content. All
monetary benefits and non-monetary advantages such as free medical cover,
company car and driver, club membership, etc. are part of the work reward and are
important motivators.
Work environment as a motivating factor, first and foremost, refers to the status of
the organisation for which a person works and the mere fact of his working in that
organisation gives him that status. Harvard University has the reputation of being
amongst the best in the world and anyone who has graduated from Harvard is
generally perceived to be at least above average, is not excellent. The actual physical
factors present in the work environment also act as motivators.
Relationships developed at work, with the boss, colleagues and subordinates have an
important motivating influence. The more congenial, friendly and supportive are
these relationships, the greater their positive motivational value. In contrast, strained
relationships which create tension and unhappiness are serious enough reasons for
people to leave jobs which in all other respects seem very comfortable and attractive.
The design and content of the actual work to be done is in itself an important
motivational factor. An element of freedom to experiment with new ideas within the
parameters of the job fulfils the creative urge in every individual. Freedom to take
decisions and assume responsibility for the results are factors which enhance an
individual's self-confidence and feeling of self-esteem. The more such factors can be
built into the job, the greater would be the job satisfaction of the individual
performing the job. A happy, satisfied worker is a productive worker and a great
asset to any organisation. If an individual is himself associated with designing the
content and objectives of his job, there are greater chances. that he will work his
utmost to fulfil these objectives. This is the approach known as Management by
Objectives (MBO) and has tremendous motivational potential.
The manager has not only to motivate his people but also provide them with
leadership. To that extent every manager is a leader. A manager has to inspire and
influence his people to willingly work towards achieving the organisational
Much research has been conducted in this field and different studies have emphasised
different aspects in attempting to answer the question `What makes an effective
leader'? When put in a situation of leading, you must remember it is a role that your are
performing, but that your personality has an important influence on your performance
as does the situation in which you are expected to perform.
To be an effective leader, a manager must have a pleasing physical personality,
ability to get along with people, qualities of honesty and integrity and be an excellent
speaker. To command respect of others he must excel at his basic job whether it is
operating a lathe machine or managing the finances of a large company. The leader
must first set an example by his own actions rather than by just making speeches. His
actions must communicate to the people that he belongs to them. Only when he is
able to generate this feeling of oneness will he be able to inspire confidence in his


Secondly, a manager-must remember that he is only playing a role. However, to be

able to perform effectively, the role demands that the manager be perfectly objective in
all his judgements and decisions, and be guided only by the organisational objectives
and have no other considerations. For a leader the interests of his people are of
paramount importance and come first while personal benefits, take second place.

Thirdly, the role must be moulded according to the unique situation in which the
manager is placed. In our society, great emphasis is laid on personal relationships and
contacts and managers are perceived to be father figures and are expected to have a
paternalistic attitude towards their workers. In contrast, in the West, especially in
countries with a British colonial past, the relationships between manager and worker
is only confined to the work. There, if a manager were to adopt a paternalistic
approach, he would be totally ineffective. A manager who usually follows a
consultative, participative approach, seeking the opinions and consensus of his
subordinates before implementing any decision, in a crisis situation may adopt a very
authoritarian approach and effectively manage the situation.

Management System and Processes

When Lee Iaccoca, took over the management of Chrysler Corporation, USA, it was
an ailing automobile giant. To bring it out of the loss making situation, Iaccoca inspired
tremendous confidence and loyalty in his workers by setting personal example of
great hard work and accepting only a token wage. Under his leadership the company
was soon able to turn its losses into profits.
Political leaders such as Gandhi who commanded the respect of millions of people
are a model for managers to learn from. Gandhi's leadership style was so finely
turned to the moods of the people and the situation that his every word was law for
the common man. His actions and life-style made the people feel he belonged to

Activity F
How do you evaluate your boss as a leader on account of his personality, role play,
and tuning to the requirements of the situation?
Briefly describe a situation in which you excelled as a leader. What do you think
were the contributing factors to this performance?



Underlying the processes of planning, controlling, organising, leading and motivating

is the all important process of decision-making. Every manager makes decisions, no
matter what his area of management responsibility may be.
Decision-making implies making a choice between alternatives. The choice is made
rationally after due consideration of all the pros and cons. The rational approach
implies that it is a carefully thought out, deliberate and well-weighed choice, guided
only by the consideration of the organisational objectives to be achieved.
In making a decision, the manager first of all define the issue on which the decision
needs to be made. Then he should generate all the possible alternatives available to
tackle the issue at hand. The third step involves a careful evaluation of each
alternative to choose that which offers the best chance of achieving the objectives.


Role of a Manager

Making a choice is making the decision. Follow up of the decision to ensure that it is
properly carried out is very important. A decision which does not get implemented
remains a decision only on paper and not in reality. The final step is to gather
feedback on the impact generated by the decision.
Decision-making is so important because it implies. commitment of resources, the
desired outcome of which is never certain. Decisions are made under conditions of
uncertainty and risk. Decisions made today have implications reaching into the
future. The risk arises out of the fact that the manager never has complete facts and
knowledge about the implications of his decision and there is always the chance that
the wrong decision maybe taken.

Many mathematical tools and theories have been developed to improve the
quality of decisions which managers have to make under risky and uncertain
conditions. Linear programming, queuing theory, probability and game
theory, risk analysis, and decision trees are some of these tools. These will be
discussed at length at a later stage.
Activity G
Think of any decision which you may have made in the recent past. Write down the
various alternatives which you considered, and the manner in which you evaluated
them to arrive at the best choice.



In this unit we introduced the systems concept. This is a useful concept for
understanding the operations of a firm by identifying the critical sub-systems, their
inter-linkages and inter-dependence in the achievement of a common goal or sets of
goals. There can be a number of sub-systems within the system of a firm and the
most important of these is the Management Information System. The objective of a
MIS is to improve the quality of decision-making by providing the relevant
information at the right time. The starting point for designing an effective MIS is
spelling out the objectives of the MIS, understanding the various kinds of decisions to
be made at each level and the nature of information flows.


The basic processes common to every management situation are those of planning,
controlling, organising, motivating and leading, and decision-making. Planning helps
the manager allocate his scarce resources in the most efficient manner to achieve the
organisational objectives. Controlling is the process by which the manager checks the
implementation of his plans against certain pre-determined measures of performance.
Organising refers to the formal grouping of people and activities for doing work.
Leading and motivating are the behavioural aspects of the manager's role. The
manager is expected to provide leadership by way of personal example and inspire
confidence, and bring into play all those factors by which he can persuade, convince
and motivate his subordinates to turn in their best performance. Pervading all these
management processes is the process of decision-making. Every

manager has to make decisions. Decision-making implies making a choice, and

because there is never complete information and certainty, there is always a risk that
the choice made may be wrong. It is the task of the manager to minimise this risk.


Management System and Processes


Break-even Analysis: Comparison between sales and expenses to determine that

volume of production where there is no profit and no loss.
Budget: Statement of plans expressed in quantitative and financial terms for the
allocation and use of resources.
Environment: The universe in which the firm operates is known as its environment
and includes all those economic, political, socio-cultural, legal, demographic and
other factors which have a critical bearing on its operations.
Organisation, Firm or Company: These terms have been used interchangeably and
refer to all types of formal bodies created for a specific purpose. These include all
types of business organisations and non-commercial organisations such as hospitals,
schools, charitable trusts, voluntary bodies, etc.
Organisational Objective(s): The specific purposes, results and achievements
sought by the organisation. In this lesson we have used this term in a broad sense to
include both mission and objectives.



Schein, Edgar, H., 1973. Organisational Psychology, Prentice Hall of India: New
Hersey, Paul and Kenneth H., Blanchard, 1980. Management of Organisational
Behaviour: Utilizing Human Resources, Prentice Hall of India: New Delhi.
Kanter, Jerome, 1984. Management-Oriented Management Information Systems,
Prentice Hall Incorporated: Englewood-Cliffs.
Koontz, Harold and Cyril O'Donnell, 1976. Management: A System and Contingency
Analysis of Managerial Functions, McGraw-Hill Kogakusha: Tokyo.
Newman, William H. Summer, Charles E. and Warren, E. Kirby, 1974.
. T h e
Process of Management Concepts, Behaviour and Practice, Prentice Hall of
India: New Delhi.
Richards, Max D. and William A. Nielander, (ed.), 1967. Readings in Management,
D.B. Taraporevala Sons and Company: Bombay.




Tasks of a Professional Manager

The objectives of this unit are to enable you:
to know who is a professional manager
to develop familiarity with various tasks of a professional manager
to know what exactly are the tasks which a manager has to undertake in the course
of managing his organisation
Providing Purposeful Direction to the Firm
Managing Survival and Growth
Maintaining Firm's Efficiency in Terms of Profit Generation
Meeting the Challenge of Increasing Competition
Managing for Innovation
Building Human Organisation
Retaining Talent and Inculcating Sense of Loyalty
Sustaining Leadership Effectiveness
Maintaining Balance Between Creativity and Conformity
Postponing Managerial Obsolescence
Meeting the Challenge of Change
Coping with Growing Technological Sophistication
Coping with Growing Public Criticism and Political Opposition-both
Objective and Irrational
Coping with Increasing Levels of Aspiration
Maintaining Relations with Various Society Segments
Key Words
Further Readings


As a participant in this programme you are either a practising manager or are aspiring
to be one. Your, first concern, therefore, is to know the tasks which you are expected
to fulfill as a professional manager. These various tasks are discussed in this unit.
There is a lot of confusion over the much widely used terms-professional
management and professional managers. Some researchers contend there is nothing
like professional management. Management is a discipline. There are practitioners of
this discipline who practise management as a profession and 'thus are, professional
managers. Just as there are doctors and lawyers by profession similarly there are
professional managers. As doctors practise medicine, managers practise management.
The only difference between professional managers and other professionals is that,
while the latter must possess a formal degree in their discipline, a professional
manager need not have a formal degree or education in management. He may have
learnt the necessary skills and gained competence from his experience. The second
characteristic of a professional manager is that his primary concern is the
organisation or the company with which he works. This is true whether the manager
works for a private or public sector or a multinational company; whether he is the
executive director or the personnel manager reporting to the executive director. The
professional manager always has his company's overall perspective in his mind and
all his actions are guided by the company's objectives.
The third and the most important characteristic of a professional manager is that he is
responsible for performance. Managing involves collecting and utilising resources
(money, men, materials and machines) in. the most optimal manner for achievement

Role of a Manager

of some pre-determined objectives or results. It is the professional manager's

responsibility to utilise resources to produce the required results. Responsibility and
performance are really the key words in defining a manager's role. Performance implies
action, and action necessitates taking specific steps and doing certain tasks. Let us first
take up the various tasks which a manager is expected to do to produce results.




A manager can be compared to the captain of a ship who has first to set the course to
reach the destination and then steer the ship along the course. Similarly, a manager has
to, first of all, set objectives which the firm must achieve. Objectives provide the
direction in which the firm must move. Having decided upon the objectives, the
manager must constantly monitor the progress and activities of the firm to ensure that it
is moving in the desired direction. This is the first and foremost task of every manager.
If you are a part of the top management team then you will be very actively involved in
this task through the process of defining the mission and objectives for the entire
organisation. If you are a manager reporting to the top manager, it is your task to see
that the actions of the people who work for you in your department or division are in
the desired direction. It is your task as a manager to prevent all such actions which take
your company away from the direction set by the top management.
A large American multinational company has its subsidiary in India which
manufactures and markets a popular line of cosmetics and cough and cold medication.
It maintains a large farm in Uttar Pradesh for production of a medicinal plant which is
used as an active ingredient in all its medication. Control over this essential raw
material gives the company a substantial cost advantage. To derive further cost
advantage it was proposed that the company set up its own printing press for printing
the packaging labels. The proposal was in the final stage of approval till the top
management team realised that printing was not their business. Diversification into
printing would only .take the company farther away from, and not closer to, the desired
direction. Production and marketing of medication was their main line of business and
the farm made an essential contribution. However., printing was not such a critical
activity that it required the company to have full control over it.
This illustration highlights the fact that all actions and decisions must be evaluated on
the basis of their contribution towards achievement of the company's objectives.
However, this illustration should not give you the idea that objectives or direction once
set will hold good for all times to come or that any movement away from the current
line of production or activity is always undesirable. The key point is that all movements
and actions must be consistent with achievement of the objectives. To ensure
consistency it is important that the manager carefully thinks through each alternative
course of action, to evaluate its potential to contribute towards attainment of objectives.



"Survival of the fittest" is the law of the jungle which is equally applicable to the
competitive market place where firms struggle and fight for survival. Ensuring survival
of the firm is a critical task of the manager. But that alone is not enough. The manager
has also to actively seek growth. No matter how big or powerful a firm may be today, it
is sure to be left behind in the race by newer, healthier and more efficient firms if it
does not pursue growth.

Two sets of factors impinge upon the firm's survival and growth. The first is the set
of factors which are internal to the firm and are largely controllable. These internal
factors are choice of technology, efficiency of labour, competence of managerial
staff, company image, financial resources, etc.

Most of the old traditional textile mills were setup in India around the late 19th or
early 20th century based on the then prevalent technology. These mills continued to
flourish till the late 1960s. The early and mid-seventies witnessed a dramatic
revolution in textile technology all over the world. Ignorant of this changing trend,
the Indian mills continued with the old technology. But some new companies
(notable among them Reliance Textiles with its `Vimal' brand of textiles) entered this
field with the latest technology, offering superior quality textiles in a wide range of
polyester and cotton blends. The traditional mills could not match these new entrants
in terms of either product or price. And one of the oldest and the most prosperous
industry was. faced with unprecedented levels of sickness. Most of the old mills
became unprofitable and had to be bailed out or taken over by the government, or
finally shut down. Failure of managing technological change sounded the death knell
of the textile mills.

Tasks of a Professional Manager

The second set of factors influencing the firm's ability to ensure survival and growth
are those which are external to the firm and over which it has little or no control.
These external, environmental factors refer to government policy, laws and
regulations, changing customer tastes, attitudes and values, increasing competition
etc. Hindustan Lever Limited (HLL) is a subsidiary of a multinational company
which, till some years ago, was manufacturing and marketing detergents (Surf, Rin),
soaps (Lux, Liril, Lifebuoy, etc.) and Dalda Vanaspati, groundnut oil, and agroproducts. Most of these are low-technology lines. Being a foreign company in lowtechnology areas, further growth opportunities were restricted under the Foreign
Exchange Regulations Act (FERA) unless HLL diluted its foreign equity to 40 per
cent. Not willing to dilute the equity holding to 40 per cent level HLL had to find a
way to manage its survival and growth. HLL sold off its line of vanaspati and
cooking oil to Lipton India and diversified into the production of basic chemicals-a
high-technology area where foreign companies are allowed to invest and grow as per
FERA. Thus by changeover from low-tech to hi-tech area HLL has ensured its future
in India

Activity A
Identify the managers whose prime task is to plan and steer the future of your
company. What are the various survival and growth options which your company has
adopted in the recent past?




Efficiency is the ratio of output to the input. A manager has not only to perform and
produce results, but to do so in the most efficient manner possible. To produce results
a manager requires inputs in the form of money, men, materials and machines. The
more output that the manager can produce with the same input, the greater will be the
profit generated. Profit is the surplus or difference the manager can generate between
the value of inputs and outputs.
Profit is essential for the survival and growth of a business. A manager may decide to
forego some profit today for the profits which he is seeking tomorrow but in the long
run he must understand that no business can survive if it does not make profits
Business activity is undertaken to satisfy a need of the society in a manner which yields
profits. A business is not a philanthropic or charitable activity which is run merely to
provide some goods and services irrespective of whether it is making a profit.

Role of a Manager

Profit generated can be used for expansion, upgrading of technology, growth or paying
dividends. Profits are one of the cheapest sources of financing growth, as they involve
no interest liability nor putting the freedom at stake by having representatives of
financial institutions sit on your board of directors. Profit gives you the cushion to take
risk, think big and venture into relatively unknown areas.
A profitable firm can turn unprofitable because of obsolete technology, inability to
meet high fixed cost structures, high levels of wastage, or simply because the product is
no longer in demand by customers. We have illustrated how the traditional textile mills
became unprofitable and the fate they eventually met. A similar fate awaits all
unprofitable businesses. The consistent failure of, Engineering Projects India, a public
sector company, to generate profits and. execute international projects within the time
limits has threatened the very existence of this company.
In contrast, companies such as Colgate-Palmolive, Tata Engineering and Locomotive
Company (TELCO), Century Enka, Richardson Hindustan Limited, etc. have been
showing consistently good profits.

Activity B
What is your company's ranking in terms of profit generation within the industry?
Which is the most efficient company in your industry?
List three specific ideas which you think can improve your company's efficiency.




In today's fast changing world one of the very critical tasks of every manager is to
anticipate and prepare for the increasing competition. Competition is increasing in
terms of more competitors, more products, wider variety of products, better quality of
products and a customer who is, today, better informed and more aware than ever
before. The increasing reach and popularity of TV as a means of information has also
contributed to the increasing competition. The manager today has more potential
customers to sell to and easy access to these customers yet the market is crowded with
many competitors wooing the same customers.

Till a decade ago, the Times of India group of newspapers and magazines reigned
supreme in the magazine market with its `Illustrated Weekly of India' being the only
Indian family magazine and `Filmfare' the only notable film magazine. The former
could be found in most homes which had a minimum level of literacy and affluence.
And `Filmfare' was the only magazine for people interested in films. The introduction
of `India Today' and `Stardust' brought about a radical change. Starting in a modest
fashion. `India Today' is probably the most widely read general interest magazine while
`Stardust' has blazed its own unique trend-setting trail of popularity. In the wake of the
success of these two magazines, many other magazines followed, such as general
interest magazines, film magazines, women's magazines, children's magazines, special
interest magazines, etc. All these new magazines have better reading content, more
colour, better layout and are very glossy and attractive to look at. Unable to match
these new magazines the circulation of the `Illustrated. Weekly of India' and `Filmfare'
slumped. However, in the last years these two magazines h a v e b e e n attempting to
regain the lost ground and have succeeded to some measure. But they can certainly
never again enjoy the leading position which

they once did. In developed countries the concept of competition is very closely
linked to that of obsolescence. Companies keep introducing successively new models
of cars, washing machines, refrigerators, etc., with minor variations, and persuading
the customers to discard their older models for the newer ones.

Tasks of a Professional Manager

Activity C
List the firms whose products compete with your firm's products. Write down specific
options you would adopt to fight this competition.



Innovation is finding new, different and better ways of doing existing tasks. In the
context of business, innovation has to be defined in terms of the additional value it
imparts to the existing products or services. Value is not expressed in terms of
increased cost or price but in terms of the difference it makes to the customer.
A television manufacturing company, after years of painstaking effort, introduced a
circuit with a neat and clean layout which was extremely easy to service. The
company spent large amounts of money promoting this new circuit and its improved
servicing but the customers were not impressed and sales did not pick up as per
expectations. Customers were not convinced because they could not really perceive
the difference and importance of the circuit since its impact on performance was very
marginal. The marketing consultant to the company recommended that instead of
using plywood the company should use transparent plastic back-covers for the
chassis. This would allow the customers to see the circuit and decide for himself the
truth of the company's claim. This is an innovation because it makes a vital
difference to the customer, since he can see and understand for himself the
Very often it is the customer himself who provides the source of innovation. Digital
Equipment Corporation, a U.S. company manufacturing and marketing
minicomputers, does not spend its own time and money in finding new business
applications for its mini-computers. Instead, it maintains close contact with its
customers and relies on them to find uses for their mini-computers. A study
conducted by Eric Von Hippel and James Utterback on the source of innovation in
the scientific instruments business revealed that more than 75 per cent of ideas for
innovations came from users.
To plan and manage for innovation as an on-going task, the first thing the manager
must do is to maintain close contact and relation with customers. The firm's salesmen
provide the most direct link for the company with its customers. The task of the
manager is to train these salesmen to keep their eyes and ears open for any type of
information, ideas, suggestions, complaints, criticisms, and feed it back to the
company. An extensive innovation study conducted by Christopher Freeman has
concluded that successful companies pay a great deal of attention to the market.
Successful firms innovate in response to market needs, involve potential users in the
development of the innovation, and understand users' needs.

The manager can also maintain a direct link between customers and the
company. Proctor and Gamble, one of America's largest consumer goods
company, put on its

Role of a Manager

packaging a telephone number at which the customers could call at company's

expense and give any information regarding the product. In 1979 this
company received 20,000 telephone calls, each of which was followed through,
and was a major source of ideas for innovation and improvements.
Keeping track of competitor's activities and moves can also be a source of innovation
as can improvements in technology. To qualify as innovative, the technology must be
market and customer-oriented rather than research-oriented. In most cases,
innovation as finally introduced in the market was never originally intended to be so.
You can appreciate the truth of this statement better when you know that xerography
was originally aimed at a small segment of the lithography (a special type of printing
process) market, it was never intended to be used in making mass copies. Transistors,
which, prior to the development of integrated circuits, were used in manufacture of
television, radio, etc., were originally developed for military use. As a manager you
should keep a close watch on the technology improvements taking place and try to
find a customer-oriented application for it.
The manager who has his finger on the pulse of the market can quickly find out
under-the-surface changes and shifts taking place and accordingly modify his product
to match the customer requirement. It is not the absolute amount of money and effort
which a firm invests in research and development but its ability to quickly adapt and
place in the market the improved product which accounts for its innovativeness. This
calls for flexibility in organisational structure to accommodate the necessary changes.
In the final analysis, it is the manager who inculcates and nurtures curiosity and an
open mind, and combines it with market feedback, who will emerge as winner in the
race in which innovation is at a premium.



Man is by far the most critical resource of an organisation. No amount of money,

materials and machines can produce results by themselves. Men are needed to
manage them. Machines can be programmed to take over routine, repetitive jobs, but
only a human brain can design the machines.
Surround yourself with the best people you can find, delegate authority, and don't
interfere", is the advice given by U.S. President, Ronald Reagan to practising
managers (FORTUNE, September 15, 1986). Certainly useful advice except for the
drawback that good people, leave alone the best, are so difficult to find. `I just can't
seem to find the right people' is an oft heard lament from many a manager. It is
indeed a paradoxical situation that we have so much unemployment on the one hand
and on the other it is genuinely difficult to find the right sort of people.
A small consulting firm's experience is that an advertisement for sales representatives
in a national newspaper fetches anything upto four hundred applications and you are
lucky if you are able to pick up even two or three good people.
This only reinforces the fact that a good worker is a valuable asset to any company.
And, every manager must constantly be on the look out for people with potential and
attract them to join his company. A manager with a competent team has already won
half the battle. Note that we use the word team, and not individuals. However,
competent or brilliant individuals may be, if they cannot work together with each
other they are of not much use to a company. It is up to the manager to mesh
individuals into a well-knit team. The manager who cannot build his team cannot
succeed. Teams should be built on the principles of division of labour, specialisation of
work and mutual give and take.


Pearl Polymers Private Limited is engaged in manufacturing and marketing a

wide range of consumer and industrial thermoplastics under the brand name
of PEARL PET. In addition, the group is involved in garment exports,
computer manufacturing and retailing and trading in basic chemicals. The top
management team consists of four brothers each having a special area of
activity. The eldest brother is the overall group in-charge who coordinates and
looks after the interests of the entire group besides being responsible for
marketing and trading. The second brother, a chemical engineer by training, is
responsible for production. The third brother is a chartered accountant and
manages the finances and accounts. The fourth brother has a

business management degree and is responsible for garment exports. Having clear
cut areas of functioning and responsibility these brothers have been able to create the
right team spirit and are very successful.

Tasks of a Professional Manager

Realising the importance of creating a team spirit and teamwork for achieving the
organisational objectives, progressive companies are trying to build this up in every possible
way. Quad Graphics, a very successful print company in USA, calls its workers `partners'.
W.L. Gore Associates, an American high-tech manufacturer refers to its 4000 people on its
payrolls as `associates". Over 8,000 American companies share part of their ownership with
more than 10 million employees through Employee Stock Ownership Plans.




Hiring good people is still a relatively simple task as compared to the task of retaining them,
people may join a company because of its favourable image but will stay on only if they find
appreciation for, and satisfaction from, their work.
To retain talented people the manager should provide a comfortable working environment
which is conducive to work. More important than the physical environment is the degree of
freedom which a worker enjoys in making decisions within the defined parameters of his job.
When a worker knows that it is his responsibility to produce results and he is accountable for
them, he will put in his best effort. On the other hand, if the worker is always ordered to do
every single act, and nothing is left for him to decide, whatever little potential exists in him
will be killed. A worker should be able to take pride in his work, derive satisfaction from
saying `This is my achievement'. To ensure that work does not degenerate into a boring and
meaningless affair, repetitive, dull tasks should be interspersed with tasks which call for some
element of creativity. In practice this may be difficult, but the manager must at least give some
thought to how best he can make work meaningful. Rotating jobs within the same department
at the same level may be one way of making work more interesting and provide opportunity
to the worker to demonstrate his professional and technical skill.
The manager must also understand that each individual is unique and his degree of expertise
at handling various aspects of works varies from that of another. As an effective manager
your attempt should be to pinpoint your subordinates' strengths and give them work in which
their skill can be utilised to the maximum. In areas where they feel inadequate, provide them
support. A talented, competent man is definitely worth that bit of extra support.
Recognising, appreciating and nurturing your subordinates' talents will bring you rewards in
terms of improved results and loyalty. However, to really earn the loyalty of his people the
manager must remember two other key concepts, communication and motivation. A manager
who encourages open, direct and frank communication is always able to tackle issues much
before they become problems and also take advantage of the creative ideas of his employees.
Opportunity to communicate directly with the top manager enhances the sense of self-esteem
of workers and helps create in them a sense of belonging, a feeling that what they think and
feel is important to their organisation. Such a feeling goes a long way in building loyal
Every individual's behaviour is initiated because of some needs, drives, and desires and is
directed towards achievement of goals. These needs and drives motivate a man to action. The
manager's attempt should be to influence these needs, desires or motives towards the achievement
of the organisational goals. The more such motivational factors a manager can incorporate in the
work content, environment of work and rewards of work, the more willingly will people put in
hard work. Money, power, status, recognition, etc. are all powerful motivators which a manager
can use. Under the Employees Stock Ownership Plans in use in many U.S. companies,
employees can buy shares and become part owners of the companies for which they work. Recent
research reveals that these plans encourage employees to remain loyal. to their organisations and
stay on with them.


Role of a Manager

Activity D
List all such key personnel who you think are loyal to the company. What do you think are
the reasons for their loyalty?



Every manager is a leader in the sense that he has to influence his subordinates to work
willingly for achieving the organisational objectives and inspire them to put in their best
effort. The only way a manager can be acknowledged as a leader is by continually
demonstrating his leadership abilities. If the manager always gives due importance to the
welfare and interests of his employees, makes objective decisions that benefit everyone, he
will be rewarded by the confidence and trust of his people.
J.R.D. Tata is an excellent example of an effective leader. Appointed Chairman of Tata
Steel in 1939 he held this position, performing with distinction and providing admirable
leadership, right up to 1985. Even today he is the Chairman of the Tata group of companies,
whose name is synonymous with the highest standards of quality and integrity. That all Tata
products right from salt to trucks enjoy, the trust of lakhs of customers speaks volumes for
the highest kind of leadership provided by J.R.D. Tata. There are equally big industrial
houses but how many of them enjoy the kind of customer confidence or have the clean and
impeccable record of the Tatas? The beginning is always made from the top-the beginning
of rot or excellence, that is up to you to choose. Whichever you choose remember that it is. a
very important choice, because once the momentum builds up it is difficult to stop and
reverse the process.
An effective leader must be a man with vision who can think and plan ahead, and also have
persuasion to carry along all the people.




Developing a new idea, concept or product can be very creative, challenging and exciting.
But, that is only one part of the story. The other part of the story, and usually the more
difficult part, is to translate this idea into a successful business. This requires detailed
planning and organising of finance, marketing, administration, etc. While new product
development involves a high degree of creativity, its transformation into a successful
business reality involves carrying out relatively more routine and repetitive tasks.
Designing a new high-fashion garment can be very challenging and satisfying work but
selling it to boutiques all over the country, and chasing them for outstanding dues hardly
offers that kind of excitement, but certainly offers the satisfaction of a routine job well

A manager is lucky if he can find elements of both creativity and conformity

in the same individual. Usually this is not the case, and most organisations
have separate; product Development Groups or Research and Development
Division. Creativity can flourish best when allowed full freedom with
minimum rules and regulations. Thin most firms allow the product
development groups to function in a relatively freer atmosphere. An
advertising agency known for the excellent advertisements it produces, allows
its creative people, the copy-writers and art-director, the freedom to come into
office and leave whenever they please. As long as the work is completed within

Tasks of a Professional Manager

the deadline, management allows its creative people a great degree of freedom.
In contrast to creative success for which definite output or results cannot be predetermined, business success requires achievement of specific, usually quantifiable
targets. In business the best results are usually obtained within the conformity of
company policies and rules. However, this is not to say that managing for business
results is boring and requires no creativity. On the contrary, succeeding in today's
cut-throat competitive world calls for creativity in all the functional aspects of
managing, be it finance, marketing, advertising, public relations or human relations.
To succeed, an organisation needs both creative people and people who can produce
business results. The manager must encourage both kinds of persons in his
organisation. A new product idea gives a company a rare opportunity to emerge out of
the humdrum of competition to the top, but the transformation of opportunity into
reality depends on the people performing for business results.

Activity E
How does your company encourage and promote creativity in its employees?


Managers and executives, after 20 to 25 years of work experience, often find
themselves having reached a plateau where, on the one hand, the prospect of
enhanced status, increased pay and perks are no longer motivators enough to work
hard; and on the other, they find they are unable to relate to the latest managerial
knowledge and skills and feel totally lost. In both cases, these managers cease to be
productive and become a drag on the organisation in terms of their heavy cost and
inability to make meaningful contribution. This is the problem of managerial
obsolescence, that is when managers become unproductive, or out of date, or both. In
the situation where lack of motivation seems to be the cause, the solution lies in
redesigning their job content to make it more meaningful. An aerospace company
designates its senior engineering managers as consultants to its groups of young
engineers, thus providing the right outlet for their rich experience.
Training programmes aim to provide or improve knowledge and skills which can
help the manager improve his performance on the job. Many companies regularly
sponsor their senior managers to attend such training programmes. Other companies
invite experts to their own company premises to conduct these programmes and
workshops. Training programmes, refresher courses, and basic courses in functional
areas are the solution for managers facing knowledge obsolescence.
These training programmes are not restricted to senior managers alone. In fact,
younger managers can also benefit from these programmes, especially those which
provide knowledge of other functional areas such as production for non-production
managers. Also beneficial for the young managers are workshops aimed at training
them for the top level management posts.


Role of a Manager

Activity F
Does your company have an explicit policy for training personnel? How many
training programmes have you attended in the last five years? Describe how these
programmes have helped you in updating your knowledge and skills.


One of the important tasks which every manager has to perform is that of a changeagent. The social, political, economic, technical and cultural environment in which the
firm operates is always changing. The company must keep pace and change
accordingly. Similarly, within the organisation, new types of production technology
may be introduced, the existing product lines may be phased out, formal procedures
and techniques for planning, resource allocation, job appraisal, etc. may be
introduced. All these imply a change. And man by his very nature resists any change.
Used to the old system or method of doing a particular job, people perceive change as a
threat to their security. Moreover, change implies learning afresh the new methods or
processes and most people resist making this extra effort.
The marketing department of a television company always complained of the low
quality circuit in the black and white TV and held it responsible for its poor sales
performance. However, when an improved circuit was introduced, the marketing
department tried its best to convince the top management against this change saying
that the old circuit was now performing in a satisfactory manner. The real reason
however, was that the marketing department would now be under pressure to show
results as it would have no scapegoat to blame for its lack of results. The engineers
responsible for providing after sales service opposed the new circuit since it meant
putting in an effort to learn the new way of servicing it.
There will always be change. It is the manager's task to ensure that the change is
introduced and incorporated in a smooth manner with the least disturbance and
resistance. Sharing information about the impending change, educating the people
about the benefits resulting from changes, and building favourable opinion of the key
people in the organisation by involving them with the change process itself, go a long
way in making the manager's task easy. The ideal way of introducing change is that
you, as a manager, simply sow the idea of the proposed change in the minds of a, few
people, and then let the idea grow and build till the people themselves come round to
asking for the change. This is the way the Japanese make decisions-by consensus.
However, it is not always possible to introduce change by having consensus. There
may be limitation of time or money, or pressure of competition which may make the
consensus method impractical.


The two areas which are witnessing dramatic changes in technology are production and
information handling.
In the area of production, technological sophistication has reached the level where the
entire production plants are fully automated and programmed to run with the
minimum human intervention. For instance, at Nissan's Zama plant, where Nissan cars
are manufactured, the final assembly line operations are fully automated and
controlled by robots. These robots have totally replaced men in such jobs in which


the former can be programmed to perform round the clock without any fatigue or loss
of efficiency. Robots are also being used in manufacturing which requires handling
of bulky and dangerous materials. All these changes in production techniques have
forced managers to find ways and means of relocating the workers rendered
redundant. Simply laying off is not always the best solution as it can involve a very
high compensation cost. Moreover, in many countries because of the government's
political ideology or cultural values (as in Japan where the concept of employment
with a company is life-long), laying off workers is not permissible.

Tasks of a Professional Manager

The use of computers in business has totally changed the way that managers make
decisions. Managers today not only have access to more updated information but also
better information which can improve quality of their decisions. Moreover, with
electronic data processing managers can use complex statistical and mathematical
models and tools to study the possible impacts of their decision. All this helps lessen
the degree of risk by reducing the level of uncertainty. However, access to more
information places the onus on the manager to define what is the relevant information
that he needs and also ensure that the benefit derived from the information which he
receives is greater than the cost incurred in collecting and processing it.


Large business groups are often the target of political and public criticism because of
their apparent power and clout arising out of concentration of economic power. By
Indian standards this economic power may seem great but is very small by
international standards. The criticism is not always evoked by facts but because of
ideological, political or personal reasons. But sometimes the criticism may be
founded (fl facts as in the recent case of the Reliance Textiles, attempts to corner
large : amounts of loans from various nationalised banks. Similarly, Peerless General
Finance Limited was the subject of controversy and criticism on account of amassing
large amounts of funds without following proper procedures.

The best way to avoid political criticism is to keep all activities absolutely
legal and above board. Secondly, the manager should keep a low profile of his
company to avoid drawing unnecessary attention to his firm's activities. And
finally, the manager should feed correct information to the media and political
parties to ensure that they view his firm in the right perspective.






Improvement in information technology is resulting in an increasing trend towards

democratisation of the society. People in one part of the world know more about
peoples and events in other parts of the world. Similarly, people belonging to one
socio-economic segment of society know more than ever before the life styles of
people in higher socio-economic segments. Exposed to a better quality of life and a
better life style, people from the lower economic segments, especially the younger
people, aspire to the same kind of life style.
A manager must bear this fact in mind while dealing with blue-collar workers
because these is bound to be a vast gap between their levels of aspiration and reality.
If the manager is ignorant and insensitive to this gap, the workers' resentment and
frustration is bound to spill over in ways which can prove disruptive and destructive
to the firm's working.
You, as the manager, must understand the nature of aspiration of your workers and
try to fulfil them, as far as possible, within the framework of the company and the
worker's job. Giving more autonomy, responsibility, money, status and enhancing the
worker's sense of self-esteem through participation in management decisions can
channelise his latent or potential resentment towards more productive ends.


Role of a Manager





A firm fulfils a need or needs of the society. It exists within the society and has a twoway interaction with it. It seeks inputs in the form of money, men, materials, machines,
technology from the society and processes them to produce goods and services for
consumption by the society. In course of this interaction the manager has to deal with
various society segments, such as the labour market from which it recruits its people,
suppliers of machines and technology, banks and financial institutions who supply
money, the government which defines the scope and parameters within which the
company has to operate, the retail outlets or agencies which stock and sell the products
and the customers who buy the product. This is by no means an exhaustive list, but just
an indicative listing of the various types of society segments with which you have to
maintain relations.
In fulfilling the needs of the society and interacting with various society segments a
firm creates impacts. Some of these impacts are intended while others are not. When a
firm advertises through newspapers and magazines it is creating an awareness for its
products. This awareness is an intended impact. However, when the magazines and
newspapers carry editorial articles about the company and its products, it creates an
impact which was never intended by the firm. Since some of these unintended impacts
may be unfavourable to the company's image or spread information which is incorrect
or inaccurate, the manager's attempt should always be to minimise these impacts.
Interactions with various society segments and their intended and unintended impacts
are taken up for discussion in the next unit.

Activity G
Identify various areas (e.g. computerising personnel office) in your company which
you think require a technological change.
In respect of each, how would you handle the change?
To what extent would you find consistency between the change and aspiration levels of
the people?

The specific tasks which a manager has to perform flow out of his job description. The
tasks may vary depending upon the managerial level, function and industry to which
the manager belongs. In this unit we have discussed an exhaustive list of tasks which
every manager has to perform. It is possible that you may not be performing all the
tasks described here but confining yourself to only a few. Also, some tasks may be of
greater importance than others.


Given the wide range of diverse tasks which a manager is called upon to perform
it is essential that the manager be a thinker, a doer and a people-oriented manall rolled into one. However, it is rare that you find a manager who has the
ideal combination of all three dimensions in equa parts. To be effective you
must recognise your strong dimension and look for an opening where your
strength can be best utilised.


Meaning of Leadership
Leadership Theories
Leadership Qualities
Functions of Leaders
31.5.1 Leaders as Executive
3 1 S.2 Leaders as Teacher

3 1.8
3 1.1 1

Techniques of Leadership
Styles of Leadership
Hazards of Leadership
Let Us Sum Up
Key Words
Some Useful Books
Answers to Check Your Progress Exercises

After studying this unit you should be able to:


define leadership

* explain theories of leadership and styles of leaders


describe the functions and qualificaiions of leaders

discuss the techniques of Ieadership; and
explain the problems and hazards of leadership.

The most irnpo~-ranttask in the public service is to guide and direct work of the group as a
whole cowards desired objectives. Leadership assumes much more importance in the
modem government since the size and the number of organisations continue to grow.
Further, there is a need for effective participation of hundreds and thousands of individuals
who are continually joining the organisation with little prior knowledge of what the
organisations are striving to do. They involve in more and more complex functions of
individual duties.

A combination of several factors separates the individual members more and more from a
personal connection with the organisation he joins. The tie becomes impersonal cold and
un-inspiring. Generally, in many Government organisations work is divided
departmentally. Each will work independently. To provide link there is a need for a leader.
Again, the division of labour tends to separate and isolate individual members from the
central purpose. In every organisation the tendency is both for the departmental heads and
for the rank and file members to see the organisation's problems in terms of primarily of
their functional effort. Only competent leaders can correct the tendencies which
functionalism and division of labour create. The leader alone can keep tiie entire group
committed to the goals whiclr could produce the best results.
Thus, the multiplication of organisations, functions, departmnents, and subordinate
geographic units lead to [he increased importance of leadership. In this connection it is
necessary to mention that formerly it was thought born leaders were enough to handle the
situation. Now the scene underwent a change. The demand is for effective leaders in many
fields, on many fronts and at successive levels of authority. There are not enough born
leaders to go round. We have to develop them.


In view of our need the idea of leadership should also change. We do not look towards a
unique individual set apart with umsual personal qualities. Organisations requires people
who can adminisler it.
In this connection it is necessary to clarify certain doubts. Generally, leadership tends to be
expressed in terns of power to command or ability to dominate. Commanding by itself is
not adequate as a basis for getting things done. Command is an exercise of power over
people. But leadership is interested in how people can be brought to work together for a
common end effectively and happily. It implieb the use and crearion of power with people.
It is conce~nedabout the process by which result is auained. Thus, we rnay cor~cludethat
in every organisation the whole man has to be appealed to and persuaded to do the job.
There is n need for total involvement in the organisation. This will be ensured only by a
good leader.

Let us try to define leadership. Evcry executive whether he deals with the people directly
or indirectly is potentially in a position to lead people. He has the task of bringing them
into an effective working harmony. To achieve this, there is a faclor known as leadership.
Leadership is defined as the activity of influencing people to cooperate towards some goal
which they come to find desirable. This definition may bc elaborated further. There are at
least four distinct fiictors in the definition. First, it is usefuI to explain the way by which
people rise to leadership. Second, the process of influencing requires study. Thirtl, the
nature of goals which people will find desirable has to be analysed. And fouith, the
qualities exhibited by leaders in action can be considered.
Some details, though brief, are required to explain the above mentioned factors. The
executive who is also the leader, sometimes gets his chance to lead because the situation in
which he finds himself' is one where the best results come in terms of leading than i11 terms
of commanding. It is the situation and not the person alone which allows the leader to
function. Thus every leader is as rnuch a product of the setting of his life and times as of
his own will to power. Sometimes we find self constituted leaders who will push his way
up by a combination of a strong personality with a vigorous, assertive ego and a steady
detem~inationto accomplish certain results.
The wcond process, is through a democratic political process where a leader is selected
from the group. In this there is a understanding between the leader and the led. In this
situation rhe leader chosen by the group has the most advantageous conditions for success.
Yet in another way he is in conlparativcly greater difficulty because he is always being
tested. However, the leader selected by a group has the best chance of winning and holding
his following.
Finally, people get the chance to be leaders through a method commonly found in many
organisations where boards of directors or trustees appoint top executives who in turn
select the lower executives. Here the group has vested interest which brought all of them to
a common platforn~.The problem of the leader is to show them that in serving the
corporate group they itre serving themselves; that in being loyal to the organisation as a
whole they are also loyal to themselves.


Leadership is one of the most important topics which was widely researched both by the
individuals and institutions. Studies by Ronald Lippitt and Ralf K. White, at the University
of Iowa, Bureau of Business Research of the Ohio State University and University of
Michigan have undertaken pioneering studies on leadership. The important theories of
leadership are trait theory, situational theory, group theory, etc. We will now discuss some
of these theories to gain a broad understanding of leadership.

Trait Theory
Studies on leadership in the beginning concentrated on the qualities of leaders. The major


Concepts in Organisation


question that was always asked was what qualities or traits analte a person a leader. S o m e
believed that leaders we bo& and are not made. This is what is popularly called the
'Greatman Theory' of Leadership. These born leaders possess certain traits and
characteristics, certain natiaral abilities which allow them to become leaders. The trait
approach is particularly concerned with identifying the personality' Waits of leaders, Later,
behavio~ralstudies have revealed that the leadership qualities lare rlot totally inhorn a n d
they can be acquired through learning, traini~~g
and experience. Several studies tried trp
identify the important traits and there was wide variation in the traits identified by the
scholars. Keith Devis for example, identifies four important traits for a successfial leader
viz., intelligence, social maturity and breadtl~,inner motivation and achievement, d r i v e
and human relations attitude. We will study some of these characteristics later in this unit.
Group Theory
Grvup theory was also developed by social psychologisis. This theony ernphasises that the
leader provides benefits to his followers. According to this theory, the followers depend
upon those leaders who satisfy their needs. B e y extend support ar~dcooperation as l o n g as
the leaders satisfy their needs and motivate them to achieve the objectives and goitls of the
organisation. Halander and Julion have ernphasised this point when they said.
"... the person in the role of leader who fi~lfills
expectations and achieves group
goals provides rewards for others which are reciprocated in the form of status,
esteem, and heightened influence. Because leadership embodies a two-way influence
relationship, recipients of influence assertions may respond by asserting influence in
turn ..... The very sustenance of the relationship depends upon some yieldirlg to
influence on both sides.

Situational Theory.
Both trait and group theories were found inadequate to provide an overall theory of
leadership. Therefore, the scholars turned their attention to the situational aspect of
leadership. They begun a search for situational variables which influence leadership roles,
skills and behaviour. This tkieory believes that leadership emerges from the situatiori a n d is
influenced by the situation. As a result leadership differs from situation to situation. F.E.
Fielder, who is important proponent of this theory, feels that people welcome leaders
because of situational factors. He ernphasises that it is not meaningful to speak of an
effective Ieader or an ineffective leader. We can only speak of a leader'who tends to fx
effective in one situation and ineffective in another situation'.


Certain qualities are essential in any leader because they are vital to take the individual
towards success. Deficiencies can be eliminated by conscious effort. Good qualities can be
strengthened. But it is not possible to cultivate all the attributes since some are rliore innate
than others. An exhaustive list is not possible. However, certain specific and easily
identifiable traits are enlisted here on the basis of practical experience although ,several of
them fall under psychological terns.
A11 the,qualities listed however, do not necessarily appear in every leadership situation nor
are the? all equally required of every leader. The aim is to present a comprehensive picture
of all desirable qualifications.

i) It is generally agreed that possession of a generous and unusual endowment of physical

and nervous energy is the secret of the most successful leaders. Those who rise in any
marked way above the general public have more drive, more endurance, greater vipour
of body md mind than the average person. Robust health and basic strength is an usrct
for the effectiveness of the leader. Everyone of us realise how important is the phyhiciil
and nervous conditions in our working. Sluggishness, apathy, fatigue are generally
considered to be the stumbling elements of good leader. The leader also must recognibe
that his job is more demanding than the average worker. Therefore, the leader should
be careful about his health and vitality.
ii) The second quality which is clearly predominant in every good leader is a strong sentr

of a dominant purpose and direction. The leader is one who k~iawsmuch better what he
wants to get it done and where he wants to go. It means he possesses clarity and
precision as to the objectives, purpose or aims he want to achieve.
iii) The next quality pertains to enthusiasm. The mere presence of a sound purpose is not
enough. It must be felt to be sound by all. A sound purpose must be supported by
dynamic emotion, hope, will to win and a robust sense of joy in the job. Thus
enthusiasm is essential. It is important because it is self sustaining. If the leader has
real vigour on the physical side and definite objective on the mar~ualhorizon, then
enthusiasm is an automatic offspring. Enthusiasm can be deliberately increased but it
requires great energy, and deep intellectual conviction. A good leader is always
conscious of this fact. He should be a known enthusiast.
iv) Affection and friendliness are essential in a good leader. Infact, affection and
friendliness are positive motivating forces over the conduct of those upon whom it is
expressed. This will work in more than one direction. The tendency is for friendliness
and affection to evoke a reciprocal response. However, the leader has to guard against
sycopi~ancy-andother-evilsassociated with it in the name of friendli~iessand affection.
The followers must be able to trust their leaders. The followers want to feel a sense of
solidarity, of honesty and reliability towards the leader. The people should gain the
trust or confidence. In shdrt they want the leader to possess integrity. It is not necessary
being a paragon of virtue because it is not possible. But what is required is acting
appropriately to the expectations of the group we may hasten to'add here that where
there is a divergence of views relating to the major objectives of the organisation then
the leader should maintain his integrity and convince the followers. If he fails, he
should quit after giving a reasonable time, making clear to the group the grounds on
which he has acted. But these are extraordinary illustrations.
Integrity is demanded for another reason also. In a complex society like ours there are
conflicting demands. It becomes impossible to have a competer~topinion about many
issues. Yet the opir~ionis sought and a decision is expected. In this situation, people expect
the leader to possess co~npleteintegrity. This is a major problem of entire life philosophy
of the individual.
To these above general qualities, Chester Barnard adds four other qualities of leader. They
are (i) vitality and endurance; (ii) decisiveness; (iii) persuasiveness, and (iv) responsibility
and intellectual capacity, in that order of priority. Millet identifies eight qualities which a
leadership should possess. They are (i) good health; (ii) a sense of mission; (iii)'interest in
other people; (iv) intelligence; (v) integrity; (vi) persuasiveness; (vii) judgment and;
(**:;i) loyalty.

Your Progress 1

Note: i) Use the space below for your answers.

ii) Check your answers with those given at the end of the unit.
I ) Explain the significallce of leadership.

2) What is Trait Theory?


Concepts in Organisation


3) Explain. Siiuutiorial Theory of leac!crship.

4) What qualities are irnporraint for a leader'?






Leader has a significant role in the organisational Ilfc. The success or tailurc of
organisations are greatly dependent upon how well the leaders perfonns his functions. It is
necessary, therefore, to know as to what fimctionl: ;leader perfonnu. Hick!, and Ciullett
have identified eight important functions of a leader. 'Uiey are (i) arbitrCL;;iig,
(ii) suggesting; (iii) supplying objectives; Ilv) catalysing; (v) providing security;
(vi) representing; (vii) inspiring; and (viii) praising. Chester Banlard identifies three main
functions of thc executives. They are to 111aintai11communications in the organisation, to
secure essential services from individuals, and to formulate purposcj and objectives.
The work of a leader is restricted neither to the eight functions identified by Hicks and
Gullett nor to the three functions identified by Barnard. Broadly, the work of a leader, who
will be an executive, includes the following:


planning and defining policies and procedures.

organising the activities of all the individuals.
delegating authority and responsibility
controlling them towards the desired results
supervising Lhe work of the group
giving general orders and guidelines
interpreting and transmitting policies

viii)training the key subordinates to carry executive load

ix) coordination and
x) stimulating and vitalising all the individuals who are contributing their efforts.
A leader should support definite objectives in the organisation so that it becomes easier for
the people to understand thc goals of the organisation. If the objectives are sound then it is

possible for the lead~rlo become sound. The leader must be certain that he has a sound and
therefore an appealing purpose before he tries to win followers. In this exercise the leader
shoulcl try to interpret the experiences of his followers occasionally so that the finer points
could be explained to them. It could be convincing since the experience would benefit the
followers. In sum it means the leader should take the followers into confidence while .
rhe objectives of the organisation.
The process of drawing out support from the followers for any aim is often a crucial one
for the leader. It is possible only when the followers are convinced that the interest's and
the desires of them are being talcen adequate care. Leadership is not a matter of hypnosis or
salesmanship. It is a matter of bringing out from within the individuals, positive impulses,
motives and efforts. In fwt leadership is known by the personalities it enriches and not by
those it dominates or captivates.

i 36.5.11 Leader as Executive



The most important aspect of the leaders with which we are really interested is that of
executives whose primary duty is to direct some departments or its units or some
enterprise. 111this respect they lnust first be able to do the executive job. It means they
should see that it is done. This requires a detailed analysis.
In every organisation there are many tasks and activities to be carried out. There is always
a need for sub-division and fi~nctioniildistribution of duties. It requires coordination.
Further, the executive at the top cannot possibly know all thc details. This situation is
confronted by all the top executives corporations, Government departments etc. As the size
of the organisation increases the technical command of the top executive who is the leader
of the organisation seems to decrease considerably. It is true that in every leadership
situation the leader has to possess enough grasp of the ways and nlearls to give wise
guidance to the staff as a whole. Due to [he complexities, the job of leading has its own
special techniques and these are different in kind from thc special techniques of directing
or operating line or staff departments. In a large organisation thc top executive posts
require primarily a coordinative responsibility. The executive leader in such a situation
should be more than a goad technician. The conductor of an orchestra is the best example
of coordinator. Thus, the coordinative technique means ability to formulate, transmit,
interpret and supervise the working of people from top to .bottom. There may be some
variations in the organisations. But there are certain broad aspects which are comtnon in
many leadership positions.
The effectiveness with which the purpose is being realised depends mostly on the t'echnical
grasp of the leader. It means he should be farniliar with standards of sound performance
and related matters of technical irnportancc. The leader should be in a position to make use
of the available expertise shrewdly. The expert should be on tap and not on top. Now it is
for the leader to take advantage of this situation, hl addition, there is more and more to
leadership in other directions. It is the ability to make a team out of a group of individual
workers, to foster a team spirit, to bring their efforts together into a unified lotal action. It
is in this broader sense that the real skill of leaders is being increasingly viewed.
Ultimately the leader has to get results. There must be action and accomplishment. The
group objectives should be realised. This is very important and also vital. It is essential that
the leader should take human experience in hand and make it the way he believes it should
Decision-making is, psychologically, one of weighing evidence, sorting out alternatives,
and making n choice by which one is willing to stand. Exercising sound judgment is
essential. The leader has to understand certain very well known elements. If these are
carefully followed, the results of judgments are sure to bc better than if no conscious
attempt is made. us list out those eiemenls.
In the first instance, the leader should recognise the problem he faces. Secondly he has
to gather all the facts and data relevant to the problem. The next step is its classification '

and arrangement into related groupings. The fourth step is the formulation oT possible
solution. The fifth step will be checking of this possible solution and finding out whether it
is the good solution. Thus testing is necessary to get sound results. Finally, adoption or
acceptance of the trial solution as valid and useful. This kind of procedure is called
inducting thinking or sometimes called scientific method. Decision made as a result of a
careful adherence to these steps will be far more sound than the random selection. The
procedure has certain difficulties but under the circun~stancesit is the best method.

Concepts in Organisntion-11

The leader must be careful about announcing the decisions. We most impress upon his
followers with the fact that a decision has been reached and there is no scope for functions
in opinion, hesitation; delay etc. He must act and support his decision. It is his
responsibility and cannot escape it. Sometimes it is at this point that many leaders reveal
their weaknesses.

The capacity and the willingness to rnake decisions can be cultivated. Prior planning and
standard routine will be useful in several decisions. There is a need for taking counsel,
eliminate confusion from the followers. It is necessary to state that there is no place for
stubbornness, obstinacy or inflexibility on the part of the leader. Finally, the real leader
will stand ready courageously to pay the price of seeing his decision through without
blaming others for his own errors.
The next important function of leader, particularly in public orgariisations, is the capacity
to delegate authority to subordinates, to carryout their essential duties. Leadership
becomes effective when others are persuaded to accept the assignments given to them and
proceed to carryout their duties. In effect, leadership is dependence upon the faithful
performance of one's associates and subordinates.
Some people try to do everything by themselves. They do not trust others. They
dislike inter-dependence. But in every organised effort in large groups dependence
upon one another becomes essential. The leader has no choice except to delegate authority
to others. The essence of delegation is to confer discretion upon others to use their
judgement in meeting specific problems within the framework of their duties.
Management leadership must then accept the responsibility for how this discretion is
Intelligence in a personality is colnpletely in-built than most others. In the context of
organisation, the intelligence of a person is see11as the capacity to see the problem. It is
also the ability to appraise situation readily and tackle it. This capacity differs from perso11
to person. It is difficult to develop the intelligence by conscious effort. But it can be safely
stated that there are many leaders who have made up the deficiency through dete~mination,
integrity and friendliness. In this connection, mention may be made regarding two other
qualities as special evidences of intelligence-namely imagination and a sense of humour.
The capacity for imagination can be improved by deliberate effort. Imagination is essential
in more than one way. A sense of humour is important as a lubricant. It will facilitate
smooth flow of communication without hurting anybody.

31.5.2 Leader as Teacher

The next important aspect of leadership is that of staff development. In this connection it is
important to mention that a good leader is a good teacher. A good teacher is never a boss.
He is a &ide who will set up a goal, pose some problems, guide the activities afid hold a
person to a new way of mind and conduct. This is true of evkry executive in the
organisation. Let us examine some of the tested principles of a good teacher which will
ultimately be of immense use to the leader.
In the first place, the good teacher tries to build up a feeling in the learner that he is
engaged in an activity which is very inlportant for him. Thus a good leader like teacher has
to generate a desire to learn and willingness among the learners. In the second place,
learning' should begin at the point of the learner's-Present total outlook and equipment. The
new objectives should be related to what he now knows and feels. The third aspect is that
learning involves the whole organism. One has to think, feel and act appropriately for the
process to go on successfully. Briefly, it is said that the leader has to be sure that his
followers are given a chance to go through much the same experiences as have led him to ,
believe in his objectives. The fourth aspect in this analysis is in regard to the duty of the
executive to guide the foliower and provide him a chance to think and supply the


infommation which constitute the immediate sub.iect matter of the learning. The leader
should help to arouse interest in the objectives of the group. A good leader may sometimes
win temporary support for his objectives by verbal advocacy but the real support has to
come from an experience which is deeper than learning to exhortation. One can say with a
sense of conviction and cmotion.
One final aspect of the teaching process needs a mention here. Learning takes time.
Beyond a point we cannot hurry up. The teacher and the leader alike should be aware of
the capacity and competence of the learners and direct their experiences and thus lead
them on to the desired changes in attitude.
In conclusion, it is clear that the learning process requires an active experience of
for a favourable result by those being led. The leader cannot afford to be in a
haste. It is a slow proces? But it is essential.


111 any art there are definite techniques. This is true of leadership. There are certain
techniques which deserves mention. Conscious cultivation of them can bring about
improvement in general and leade~.shipvalue in particular. Giving orders occupy the first
position. Order is a functional fact. It is in~plicitin the tasks or duty to be performed. Every
individual is expected to know, as a result of good training, what is expected of him and
what are the standards of good performance. This is what scientific management teaches
us, and which every execlltive is expected to adopt. Thus on the basis of this definite and
sound method, order giving can be reduced to a minimum. But it cannot be entirely
dispensed with.
There are certain exceptions to this. Emergencies and other contingencies must be attended
to by the leader because the followers always look towards the leaders for the line to
follow. Under these circumstances the leader must step in and take command of the
situation. Problems of working method will arise. The relationships among the individual
workers, or the inter-relationships of groups or of depaftments require special adjustments
which may entail giving orders.
The leader must be clear while giving orders, remove all possible doubts and confusion.
The words used must be carefully chosen and should convey the same meaning to the
speaker and the listener. The order should be explicit. If the order is oral then the leader
should impart the order in a natural, vigorous and firm tone of voice. It should not lead to
anger or annoyance. If warranted, the order may be repeated. Any superficial behaviour is
not a healthy sign of a good leader. Thc leader should phrase the orders courteously. Avoid
terms like 'Do this' or 'Do thatY.Courteous phrase may seen1 weak but it is the most
effective method. In conclusion, good leadership implies good manners, from top to
bottom in any organisation. It is veky essential in every democratic society. The leader has
to avoid giving too many orders at one time. This creates confusion, slowness of
assimilation and hewildem~ent.Keep orders simple, keep them in time sequence, space
them according to priorities. The orders should be positive in contact. It means one has to
avoid negative oornmands. Finally, makc sure not to issue contradictory orders.
Let us look at the problem of handling followers who do not attend to their duties
seriously. The process of reprimand, punishment or criticism should be bslsed on clear
facts and figures. Penalties should be definite and administered even-1.1andedwithout
partiality or animosity. Failures on the part of individuals have to be dealt with carefully
because there may be reasons beyond their grasp. Hence, careful consideration of various
factors is essential.
Another factor of tremendaus importance is the assurance that good performance is being
appreciated by the leader. The leader should not hesitate while giving praise for good
work. The executive, however, has to follow some standard procedure. Whenever, a
standard proccdure and method is followed, the leader has a definite piece of informatiorl
for a conclusion. Commendation can be given in public where the group will know that the
merit has been recognisecl. The total hearing and appearance of the leader is another
important factor. The leader should be straightforward in personal dealings. There is need
for r\ proper balance between friendliness, cordiality, and undue familiarity.


Concepts in Organisation -11

A good leader has to encourage the followers to evolve new ideas. It is possible thraugh
organised group deliberations. Fostering a sense of group identity among the followers is
another important element the leader is expected to develop in the organisation. This
improves the morale of the group. Self disciplines in the group is another item which
deserves attention by the leader. Finally the leader has a clear duty to see to it that on all
important issues the followers are informed of all relevant facts about new policies as
quickly and fully as practicable.
Now let us look at the factors affecting leader's influence over others? There are a
number of processes through which the leader influences others. The most important of
these are:
(i) suggestion; (ii) imitation; (iii) persuasive argument; (iv) publicity; (v) reliance upon
the lagic of events (vi) a show of affectionate devotion;(vii)the creating of a typical
problem situation. It is not possible to generalise in advance as to when the leader
should wisely uke one method or another. Often several of them are in operation at the
same time. But a conscious knowledge about how each influence works will help the
Suggestion may be either direct or indirect. It is used normally to build up or maintain the
prestige of the leader. It is also adopted to avoid the danger of offending the pride or
disturbing the self confidence of the followers. Suggestion is also useful in getting
Imitation is not an active process for the leader. It is rather a support upon which he can
frequently rely upon. It is said that nothing succeeds like success. It is because people will
imitate; c'opy and kllow along as soon as success, status and esteem are present.
Persuasive argument is important and also very essential to influence individuals for an
agreement on specific issues. It is an art in which the leader has to gather all the evidences
and opinions and convince the follower to adopt a desired course.



Publicity is another technique, of which all of us are fi~llyaware in the modern times. It
will build prestige, interpret facts, attitudes and co~iclusionsto all concerned. The
leader has to choose the niedia and methods of publicity depending on the size and
character of the followers. It is necessary to differentiate between publicity and


The leader has to be watchful to sense the trends, and tendencies at work and find out the
logic of events and direct the followers accordingly.
Devotion to the leader, perhaps sometimes blind, is always a powerful weapon.
Lastly, let us consider the most efficient method of influencing others. This is explained in .
terms of helping to create in and around the group of followers a definite set of conditions
and circumstances which the followers feel problematic or difficult. In this situation a
leader recognises a dificulty and helps to give it a sharper focus and then offers a solution.
A further fact not to bbe ignored is that people are influenced by a leader because he
becomes a symbol of some higher cause.



The style an executive selects greatly influences his effectiveness as a leader. Leadership
style provides motivation for the achievement of organisational goals. Improper styles may
cause irreparable damage as the employees may fed dissatisfied and resentful. Broadly
three leadership styles are identified viz., autocratic, participative and laissez-faire. Each ,
of the styles has both advantages and disadvantages. The leaders adopt different styles at .
different points of times depending upon the station. We shall now briefly discuss each of
these styles.

Autocratic Style

In this, policy and decisional authority is concentrated in the licandsof the leader. It is the
leader who decides policies and modifies them according to his own wishes. This type of
leaders expect unquestioned acceptance of the leadership by their subordinates. I1 is very

difficult to anticipate the behaviour of the leaders because of their autocratic style. Leader
tends to be personal and remains aloof from the group. He considers himself superior and
all his colleagues inferior, inexperienced and ignorant. This type of leadership has the
advantage of quick decision-making. But it causes pain to the employees and results in
dissatisfaction. In the process employees may become passive towards organisational
Participative Style
This style is also called the democratic style of leadership. In this, leaders obtain the
cooperation of the employees in achieving organisational goals. They allow the employees
to participate in decision-making process. All policies and decisions are arrived at through
group discussions. Leader encourages and assists his colleagues and only provides
alternatives instead of dictating the final decisions or policies. The members of the group
enjoy greater freedom. Leader is generally objective both in praise and criticism. Leader
recognises the work of subordinates. He believes that the subordinates are capable of
making decisions. Participative style leads to improved employee-employer relations,
higher morale and greater job satisfaction. It also seduces the burden on the leader. A
major problem in this type of leadership is dilution in the quality of decisions as every
view point has to be taken into.consideration in fom~ulatingpolicies and taking decisions.
It is also time consuming because of consultative process.
Laissez-faire Style
In this type of leadership, the organisation does not depend on the leader to provide
external motivation. The employees motivate themselves. They enjoy greater freedom and
the leader's participation in decision-making is minimal. No attempts are made to regulate
the course of events in the functioning of the organisation. Leader only assumes the role of
one of the members of the organisation. This style of leadership has advantage of giving
freedom and independence to the employees. But unfortunately in the absence of a strong
leader the employees may not have proper direction and control. This may lead the
employees to become frustrated and may even result in organisational chaos.


There are certain-constraints on good leadership. In the first place, leaders should properly
regard other pe'r;ple as ends in themselves, not as mere instruments to realise ends imposed
by a leader. Secondly, any normal, healthy minded person will exercise power by
persuasive influence rather than by coercion.

The manifestation of various causes and occasions of mental disturbance show themselves
under the following:
Every leader gets an opportunity to satisfy an inner urge for enhancement of his ego. Bul
this love of self aggrandisement can easily get out of hand. This is a dangerous tendency.
This excess may take several farms. It may lead to a feeling of superiority and aloofness,
vanity, pride etc. ,He m8y demand too much. flattery and personal loyalty and therefore
gather a set of 'yesmen' or sycophants. There are several ways through which the leader
will have set right his behaviour.
In the next instance, a leader should guard himself against emotional instability. This will
take the form of chronic irritability and quick temper. Another hazard in the leadership
style pertains to obsessive few complex. The leader in some cases entertains the feeling
that he is not good enough for his task or is on the verge of failure. All such feelings
undermine self confidence. They curb enthusiasm. They are inhibiting factors and tend to
destroy the sources of personal power. The leader has to avoid such self defeating
'In certain other instances, good workers just below the level of top executives,seern to
be well qualified to lead but are afraid to try when a chance is given. This inferiority
feeling also becomes one of the powerful hazards of leadership. Another aspect which is
equally dangerous is the tendency to legitimise irregular activity. Legitimisation means
that whatever we do we try to defend it and support it as a correct decision. This is no1 a
healthy symptom. This will generate an attitude of self-righteousness in the leader.

Concepts in Organisation


This tendency will create a feeling among the fol'loweis that their leader is a
Finally, the leader must be vigilant about the sadism. It means any form of behnviour from
which the individual derives satisfaction, which imposes suffering pain or cruelty upon
others. This is the most unfortunate trait for a leader to have. One manifestation, not
always thought of as sadistic, is the use of sarcasm. This is also not desirable.
In conclusion, the corrective line to be followed, is re-ducation in the light of full
knowledge of the causes of the maladjustments. Discover and confront the realities. That is
the general dictate which must be followed wherever any of the several kinds of potential
9nzards of leadership listed abQve are found to be present.

Check Your Progress 2

Note: i) Use the space below for your answers.

ii) Check your answers with those given at the end of the unit.
1) Explain the functions of the leader as an 'executive'.

2) Is leader a teacher? How?

3) How does a leader influence others?






Learning Outcome




Understanding HRM


Role of the HR Manager


Future Challenges to HRM




Key Concepts


References and Further Reading




After studying this Unit, you should be able to:


Discuss human resource management particularly highlighting its

significance to public and private management;

Bring out its implications; and

Distinguish related concepts like human resource development, personnel

management and industrial relations.


Organisations in their functional aspect are treated comprehensively under the

wide, architectonic rubric / discipline of Human Resource Management. Simply
put, human resource management is a management function that focuses on the
people dimension to/ of organisations.
As organisations get larger and sophisticated and processes more complex, it gets
increasingly difficult to coordinate specialisations at various policy and operating
levels. The HR department performs the vital task of weaving sectional and
individual interests and practices into the matrix of group functioning, that is the
organisation. Organisations had hitherto looked at the "Personnel Department,"
for management of paperwork involving hiring and paying people. More recently,
organisations consider the human resource department better suited for the task.
HRM plays a significant part in both regulatory and policy planning functions.
Though in-charge, theoretically, of the traditional POSDCORB functions, HRM
today ventures beyond theoretical postulates. The coverage of HRM has
expanded to more enveloping domains in the discipline and profession, throwing
open possibilities in the art, science and craft of management theory and practice

HRM covers myriad functions such as the specific and defined areas of planning
and control, resource allocation, conflict resolution and settlement of legal claims,
to recount a few. HRM function has evolved so much so that the HRM tag could
eve be held misleading (Mahoney, 1994), as HRM is not limited anymore to
securing 'person power'.
Human resource management entails advising,
implementing and organising change, which are identified as the three important
requisites of sound HRM practice.
HRM is at the forefront of management strategy in the contemporary times. It is
expected to be proactive rather than a reactive management function. It plays a
vanguard role and imparts direction to an organisation. The personnel department
does not merely "hand out gift certificates for thanksgiving turkeys" (Mazarres,
1994). Its a pervasive management function actively involved in managing and
administering organisation wide processes, initiating policy with regard to HR
specifically, and also other sections, collaterally involving the human resource
management function. It is more than a cosmetic or a fringe activity or function.
HR management today involves more than just the management of the HR
function. It extends into areas such as compensation benefits, staffing, HR
forecasting, succession planning, management and executive development,
performance management, employee relations, organisation development, total
quality management, needs analysis, instructional design and development
training programme evaluation, return on investment (ROI), impact studies to
name a few(Mazarrese, 1994).
Human resource management is therefore understood as the all significant art and
science of managing people in an organisation. Its significance lies in the fact
that physical and monetary resources cannot and do not sustain increased rates of
return on investments, unless complemented and supplemented effectively by
good human resource practices which reflect in best standards of productivity and
service delivery. Increasing research output in behavioral sciences, new trends in
managing knowledge workers and advances in training methodology and
practices have led to substantial expansion of the scope of human resource
management function in recent years, besides adding to its understanding as a
theoretical area of enquiry.
Use of the word management is significant here. It is new public management
informing management ethic today. Consequently, administration is used to
denote more routine coordination functions while management is perceived as
the active or the potent functional aspect of an enterprise; more pertinently, the art
and science of getting things done (Simon, 1957). Significantly, management
function is universal in public and private organisations (Fayol, 1959).
HRM is not just an arena of personnel administration anymore but rather a central
and pervasive general management function involving specialised staff as
assistants to main line managers.

Evolution of HRM
Historically, the beginning of HRM is traced to Robert Owen and his large
spinning mills in Scotland. Charles Babbage and Henry Towde are the other two
names associated with HRMs early beginnings. Its growth was particularly
marked in the inter-war era which was also the heyday of the human relations and
its subsequent branching into the diagnostic, behavioural movement. The latter
being more applied and scientific in nature, has since then developed along highly
specialised lines. It has branched out specifically along the domains of applied
psychology and sociology. The latter in turn has evolved around the concept of
the welfare state while the former has proceeded as the behavioural science
movement. The art and science of personnel management is inclusive and
incorporates the two trends. The diagram beneath illustrates the development or
evolution of personnel management through recorded time (the figure is selfillustrative).

The theory and practice of human resource management is based primarily in

sociology and economics. For Keeney (1990), human resource management is the
conceptual euphemism to describe all the apparently transformative changes in
the management of employee relations in the 1980s. Blunt (1990) suggests that
in the late 1970s and even into the early 1980s, the discipline concerned with the
human side of the enterprise was largely regarded as covering moribund
housekeeping operational activities. Consequently, there was no status and
influence of the discipline. Guest (1990) attributes the concern with status to the
origins of personnel management as an extension of scientific management or a
form of welfare management. Hegg (1995) points it out as the contrast between
the high aspirations of the normative model and of the failure to deliver as
reflected in the behaviourist model. It later developed in stages through
consistent research in the area so much so that at present; it is a pioneering area in
management. New dimensions continue to be added to it, lending it a unique

dynamic character. It now covers diverse areas, as, mutual understanding at the
work place between employers and employees and the socio technical school of
thought emphasising restructuring of work to match social and technical systems
(Schein 1988). Organisation Development (OD), Human Resources Accounting
(HRA) and Quality of work life (QWL) are the most recent precursors of HRM.
HRA was popularised by Flamholitz (1985) which represented the ultimate quest
for legitimacy through quantification. HRMs financial implications are studied
under organisational imperatives (Kamoche, 1994).



We may now attempt to elucidate the subject under study. Before attempting the
same, let us explain the essentials that require finding place in any definition. The
core issues are pointed out as:

Human resource strategies are derived from the overall business strategy
in the same way as investment or marketing strategies. Decisions relating
to employees need to be integrated and made consistent with other

Organisations are not mere structural entities but social units comprising
not just bricks, mortars, machineries or inventories, but, people. It has
been observed by scholars that an organisation is not a complex of matter
but rather a complex of humanity. Personnel management deals with the
effective control and use of manpower as distinguished from other sources
of power.
HRM differs from Personnel Management in treating people as resource.
People are human capital and are treated as resource, in that tangible and
intangible benefits flow from their utilisation. Organisations have to
effectively harness this resource in order to be productive.

An organisation must make appropriate use of human capital for

achievement of both collective organisational and individual goals,
mutually as well as in tandem. Coincidence and compatibility of the two is
specially stressed for the sake of organisational equilibrium in that the
individual and the organisation represent
two opposing poles of
organisational effort. Though their interests come across as competing
forces, they are not always mutually contradictory and can be reconciled in
the interest of organisational purpose. The aim of human resource
management is to balance the equation and bring about required synergy to
reinforce mutuality of effort towards the common purpose.
Organisational Equilibrium is achieved by matching inducements
(positive balance) to contributions (negative balance on the part of
workers (Barnard, 1938).

The final value or end in this case is organisational effectiveness

understood as increasing organisational capacity in the face of
environmental dynamics with attendant impacts on organisational and
structuring and functioning (Simon, 1957). There is an unmistakable
reference here to the contingency paradigm of administrative theory.
Specific environmental variables could be identified as technology,
available knowledge, physical and material resource, government policy,
etc. Maintaining relevance of organisational functioning in the context of
shifting ecological variables is always a challenge and has to be addressed
for the sake of efficiency, understood as favourable cost- benefit ratio
(Simon, 1957).Together the two make for effectiveness of the

Defining HRM
The following four definitions encompass the aforesaid core issues in human
resource management. HRM could thus be referred to as;

..a series of integrated decisions that govern employer-employee

relations. Their quality contributes to the ability of organisations and
employees to achieve their objectives (Milkovich & Boudreau, 1997).


Concerned with the people dimension to management. Since every

organisation comprises people, acquiring their services, developing their
skills, motivating them to higher levels of performance and ensuring that
they continue at the same level of commitment to the organisation are
essential to achieving organisational goal. This is true, regardless of the
type of organisation: viz. government, business, education, health,
recreation, or social action. (Decenzo & Robbins, 1989).


the planning, organising directing and controlling of the procurement,

development, compensation, integration, and maintenance of human
resource to the end those individual, organisational, and social objectives are
accomplished. (Flippo, 1984).


.. The organisation function that focuses on the effective management,

direction, and utilisation of people; both the people who manage produce
and market and sell the products and services of an organisation and those
who support organisational activities. It deals with the human element in
the organisation, people as individuals and groups, their recruitment,
selection, assignment, motivation, empowerment, compensation,
utilisation, services, training, development, promotion, termination and
retirement.(Tracey,1994 )

From the above definitions, certain new and some of the most important ones
HRM aspects emerge could be stated as:

There is an explicit link between managing human resource and

success of administrative or management strategy. Competition forces
management to alter the latter with implications for the former.


Sector strategies cannot be appreciated in isolation (mean in Simons

terms) but only as parts of the integral whole.


Senior line managers are required to assume more responsibility with

regard to managing human resource. There is a stress
interpersonal relations as a determinant of performance.

Versions of HRM
Hard Version
Human resource management reflects a long-standing capitalist tradition in
which workers are regarded as commodity. (Guest: 1999). Hard approach to
human resource management is a pragmatic perspective to human resource
management which looks upon people as resource and measures the tangible
benefits accruing from their deployment. Human resources have to be acquired,
developed and deployed in ways that maximise their utility. The focus is on
calculative and strategic aspect of managing human resource and the approach is
rational (fact- based) with regard to factors of production. The objective is
efficiency (maximising benefit and minimising cost) and the philosophy is
business-orientation (specifically human resource accounting) with emphasis on
tangible and quantifiable value addition to the organisation. It has been stated that
the drive to adopt human resource management is based on the business need to
respond to the external threat arising from increasing competition. It is a
philosophy that appeals to managements striving hard at achieving and sustaining
competitive edge and appreciate that to do it they must invest in human resource
as well as they do for other practices or for other areas (for example, procuring
The emphasis is on:

drive for economy and efficiency;

interest of management as opposed to workers;

adoption of a strategic approach that is in line with business strategy;

obtaining value-adding services from people through targeted human

resource development practices;

emphasis on strong people centric organisational culture, expressed or

articulated in the mission or value statement and reinforced by
communications, training and performance management processes; and ;

the need to obtain agreed commitment of employees towards goals and

purpose (s) of the organisation.

Soft Version
The soft model of human resource management traces its origin to the human
relations school of administrative thought and emphasises development of healthy
organisational culture by use of effective communication, motivation and
leadership as primary sources of maximising performance. It looks upon
employees as co-contributors rather than adjuncts in organisational culture,
objects or pieces of automation. It stresses on the need to gain sustained
commitment of employees through democratic means such as participative

management, meaningful involvement in policy formulation and other methods of

developing high-commitment-high-trust culture in the organisation. Attention is
therefore drawn to the key role of organisational behaviour.
Employees are treated as valued assets and a source of competitive advantage
which needs to be optimised by evincing ethical virtues such as commitment,
adaptability and high quality performance in consonance with the collective will
of the organisation articulated as organisational purpose. Ethics lies in reciprocity
between individual member and the management.
The emphasis is on the belief that the interests of management and employees are
congruent. This approach is also termed as the unitary approach to human
resource management.
Reconciling the Two
It has been observed that even if the rhetoric of human resource management is soft the
reality is often harsh, with the interests of the organisation prevailing, more often than not,
over that of the individuals. Practically, we find a mix of hard and soft versions informing
organisational practice. This implies that the distinction between hard and soft HRM is not
as specific or obvious as it is tacit and implied.
Features of HRM
By now we have been able to understand the meaning of HRM. Some of the
main features of HRM include (Keith sis son):

There is stress on the integration of HR polices with overall planning and

underpinning latter with the former;


Responsibility for personnel management no longer resides with specialist

managers but is increasingly assumed by the senior line management;


The focus consequently shifts from management-trade union relations to

management-employee relations; from collectivizing to individuation;
macro to micro; and;


To reiterate, with the manager donning the role of enabler, or facilitator,

there is stress on commitment and initiative on the part of the employees.

HRM is based on the following four fundamental principles (Armstrong,


Human Resource is the organisations most important asset;


Personnel policies should be directed towards achievement of

corporate goals and strategic plans;


Corporate culture exerts a major influence on achievement of

excellence and must therefore be tempered with consideration of
employee welfare.


Whilst integration of corporate resources is an important aim of

HRM, it must also be recognised that all organisations are
pluralist societies in which people have differing interests and

concerns, which they defend and at the same time function

collectively as a cohesive group.
Besides the features mentioned earlier, certain more characteristics of HRM could
be summarised as follows:

HRM is a pervasive function. It permeates all levels of decision making in

an organisation. All sections perform human resource management in
some way. Academically, the nature of the subject is inter-disciplinary. It
draws inputs from other social sciences, particularly, sociology,
psychology, political science, anthropology, economics, etc. HRM has a
suggestion of the contingency paradigm here. Chief among contingent
variables is pressure from the government articulated through policy
interventions through directives or orders. The three main areas of
potential pressure are identified as: affirmative action in pursuance of
social justice objectives; concern for occupational safety and health in a
welfare state; and pension regulation for well being of workers


HRM is also a comprehensive function, in that it is concerned directly or

indirectly with every decision that in any way relates, even collaterally to
human resource management, irrespective of the section it emanates from
or the level at which it is made.


Cost effectiveness is a must to attract, induce and mobilise resources for its
policies, draw the attention of main line management to its policies and


There is a need to spot trends and tailor personnel requirements

accordingly towards perceived direction or end, to make optimum
utilisation of available human capital.


Human resource management department provides for an integrating

mechanism. It attempts to build and maintain coordination between all
operative levels in an organisation. It is indispensable as a clearing house.
Its added significance is due to its being an auxiliary service which is an
indispensable maintenance activity. HR department aids line officials
perform their respective allotted tasks, with direct or incidental bearing on
human resource. Policy- making does not proceed piecemeal and
organisational functioning is imparted a coherence that might otherwise be
hard to achieve. Human resource manager is therefore a specialist advisor
and performs vital staff function.


HRM is an imperative function for all complex organisations where inter

section interests are inextricably linked. It is action oriented as in it the
focus is on action, rather than record keeping, written procedures or rules.
The problems of employees at work are solved through rational, standard


HRM seeks to maximise employee motivation to make them contribute to

their maximum potential. The same is done through a systematic process
of recruitment, selection, training and development together with workerfriendly policies like fair wage, bonus and reward system, effective
grievance redressal, etc.


HRM is people oriented. Peoples existence is defined or perceived in two

ways, that is, as individuals working for personal satisfaction and members
of a group or collectivity, contributing towards a common objective.
Together they constitute the pillars of organisation or organisation wide
effort. Organisational equilibrium is contingent on matching or balancing
personal need satisfaction (inducements offered) with organisational goal
fulfillment (contributions elicited/negative balance). Right man in the right
place at the right time maximises benefit of collective endeavour both in
the interest of the organisation and the individual employee. HRM is
development oriented; it aids institution of employee-friendly activities
like career planning and development which help develop their full
potential. Job enlargement and job rotation practices are facilitated;
employees are assigned a variety of tasks, which helps them to gain
maturity, experience and exposure.


Tangible quantifiable benefits result to the organisation as also

externalities, intangibles or unquantifiable gains (improved organisational
culture, management-worker relations, etc.) which optimise organisational
performance. Enhanced productivity is then used to reward employees
monetarily and motivate them further towards better and improved


HRM is continuous activity, consistent function and not a short-term

measure. It requires constant alertness and awareness of human relations
on the part of managers to maintain healthy organisational climate.
Sustenance of organisational rationality (with respect to decision
making) and securing organisational effectiveness are other pressing
concerns. Organisational survival is the prime concern. Concerns of
efficiency arise only later. Organisations face the challenge or imperative
of arriving at an L.C.M. (least common denominator) of opposing pulls or
conflicting interests within as well outside to ensure and secure compliance
with exogenous directives and compatibility between internal (in-house)
and external (laws, guidelines, implementation regulations) policies.
External pressures need to be adapted to or co-opted for the sake of
relevance and efficiency (Simon, 1957) of organisational functioning.


Human resource management function is of importance to Public as well

as private organisations. Fayols advocacy of management as a universal
science endorses this idea.

Objectives of HRM
The primary objective of human resource management is to ensure a continuous
flow of competent workforce to an organisation. But this is only a broad view.
Exploring further, we can categorise objectives into four, which are analysed as
follows for a better understanding:
Societal Objectives
The society may constrain rationality with regard to human resource decisions
through laws for example, reservation and other laws that address social

discrimination, health and safety of workers, morale, ideological bias and other
such issues of societal concern.
Organisational Objectives
The organisational objective is at the forefront of organisational strategy,
coordinating and harmonising organisation wide efforts and stressing on the role
of human resource management in contributing towards organisational
Human resource management is not an end in itself. It is a means to the end of
increasing organisational capability. It assists the organisation in attaining its
primary objectives. Simply stated, the department serves the rest of the
Functional Objectives
On the functional side it sets the departments contribution at the level most apt
suited in the organisational setting.
Resources are wasted when human resource is either in excess or too scarce. The
department function is to gain organisational fit with respect to human resource
Empowerment is a core concept of the new management model. In an adaptive
organisation, empowerment is preferred to delegation; ownership to responsibility.
It is contended that authority and responsibility are formal aspects of organising.
They are based on organisational properties and not individual capabilities.
Empowerment and ownership are social aspects of organising. They are based on
efficacy and initiative, and not just on roles and requirements. (Business E. Coach,
Clear articulation of policy following wider philosophy is imminent for success of
any organisational and that success of the free market. Philosophy binds an
organisation internally, provides a focus to collective effort and helps competitors
anticipate future moves of a company. According to theorists, two main concerns
regarding competitive philosophy are (a) people- centered philosophy, and (b)
unity and focus.
Sound human resource management determines the level of innovation or
creativity in organisational processes. Organisational capability is a dynamic
concept. To what extent it is promoted depends on the premium attached to the
HR function by the management. Bob Garratt (1990) proposes a theory of
organisations as "learning systems" in which success depends on the ability of
managers to become "direction-givers" and on the organisation's capacity for
learning continuously.


Personal Objectives
It implies assistance rendered to employees in achieving their personal goals in so
far as these goals enhance individuals contribution to the organisation.
Personal objectives of employees must be met if workers are to be retained and
motivated towards better performance. If otherwise be the case, employee
performance and satisfaction are likely to decline and employees could even
contemplate leaving the organisation. Managing approach to employee benefits
and compensation, employee records and personnel policies is an important aspect
of human resource management (McNamara, 2005)
There has to be a correlation between objectives and functions. William Werther
Jr. and Keith Davis (1972) have attempted to link the two. This is summarised in
the following table:

HRM Objectives

Societal Objectives

Organisational Objectives

Functional Objectives

Personal Objectives

Supporting Functions

Legal compliance




Union-management relations


Human resource planning


Employee relations




Training and development














Training and development









Like other issues in public administration, objectives of human resource

management attract divergent views. In fact, due to changing environment and

dynamics of relationship among management, employees and trade unions,

human resource management objectives have had new vistas added to its
defining purpose. V.S.P. Rao (2000) recognises some of these changes and
places forth a set of emerging objectives:
1. Research and development is a new facet to human resource
management. HR practices need constant updating in view of changing
legal, political,
and social environment. Forethought and fore
planning are vital to keep strategy targeted;
2. The primary purpose of HRM is to realise peoples strengths, turn
them into productive assets and benefit customers, stockholders and
employees at the same time, in an equally effectively manner;
3. HRM requires that employees be motivated to make them exert their
maximum efforts, that their performance be evaluated/ preferably
measured properly and that they be remunerated on the basis of their
contributions to the organisation;
4. HRM helps employees grow to their fullest potential, with reference to
job satisfaction and self-actualisation. To this end,
programmes have to be designed aiming at improving the quality of
work life (QWL);
5. To develop and maintain quality of work life, good working conditions
and good standard of life for the worker makes employment in the
organisation a desirable personal and social condition. Without
improvement in the quality of work life, it might be difficult to elicit
desired level of motivation;
6. It is the responsibility of HRM to establish and maintain
communication well, to tap ideas, opinions and feelings of customers,
non-customers, regulators and other external public as well as in
understanding the views of internal human resources; and
7. HR function helps maintain ethical policies and behaviour in the
organisation. The chief personnel officer of a large American
corporation puts it thus: personnels purpose is to practice morality in
management by preparing people for change, dealing with dissent and
conflict, holding high standards of productivity, building acceptance of
standards that determine progression and adhering to the spirit and
letter of high professional conduct.

Scope of HRM
The Indian Institute of Personnel Management encapsulates the scope of HRM in
the following three aspects: 1. Personnel aspect: concerned with manpower planning, recruitment,
selection, placement, transfer, promotion, training and development, lay off
and retrenchment, remuneration, incentives, productivity, etc.;


2. Welfare aspect; dealing with working conditions and provision of amenities

such as canteens, crches, rest and lunch rooms, housing, transport, medical
assistance, education, health, safety, recreation facilities, etc.; and
3. Industrial Relations aspect: the legal part which covers union-management
relations, joint consultation, collective bargaining, grievance redress and
disciplinary procedures, settlement of disputes, etc.
HR function may be categorised into the following sub- sections:

Employee Hiring

Employee and Executive Remuneration

Employee Motivation

Employee Maintenance

Industrial Relations

Prospects of Human Resource Management

Carter McNamara (2005) has outlined the following activities of the HR section:
-deciding what staffing needs an organisation has, and, whether it should use
independent contractors or hire its own employees. Cost considerations matter in
these decisions. Also, in-house promotions and placements are encouraged as part
of organisational policy. Present environment demands more flexibility in policy
formulation and implementation processes for which the HR department is most
suited; and;

recruiting and training the best employees, ensuring they are high
performers through apprenticeship and training programmes dealing with
performance issues and ensuring personnel and management practices
conform to all formal regulations, managing approach to employee benefit
and motivation and group morale.

Functions of the personnel section encompass the following activity areas:

(Tracey, 1994)

Total quality management (TQM) applying systems model or perspective

to organisation theory. For enhancing overall productivity, output levels
and standards. Investing more time in value- adding activities as opposed
to non- value adding is emphasised;

Organisational structuring and design; suggesting mergers, overseeing

diversification/ expansion schemes, managing implications of
globalisation, cost cutting measures such as downsizing, contract
employment, restructuring, controlling implications thereof, etc.;

Productivity control, R&D, improved service delivery, customer focus,

quality control, organisational effectiveness;

Financial control and budgeting;


Human Resource Planning and specifics thereof HR; department plays a

vital role in integrating the strategic plan or business plan and also take the
lead in devising and implementing it.

Personnel processes viz. recruitment, selection, training, management


Strategising or planning for overall organisational growth;

Managing informal work group;


Organisational culture ramifications of managing knowledge workers;

articulation of culture in terms of objectified, practicable targets; ensure
meeting of specific targets and objectives; imparting direction to
organisational functioning;

Managing Diversity; (organisational culture reference and internal

sociology implication);

Dissemination/internalisation of organisational philosophy among inmates,

identification (Simon, 1957)

People management referring to policy initiatives regarding, employee

benefit and welfare schemes, retrenchment policy, executive succession,
etc; and

Spreading awareness and mobilising support to ensure minimum resistance

to change processes and policies; marketing to recover or amortize the
costs of producing products, programs and services.

Functional obligations of personnel department outlined above could be

catalogued under the following general headings: (Tracey, 1994)

Managing house keeping for its own section-performing all customary

management functions (POSDCoRB) with regard to internal

Organisational Development understood as planned, educative effort

towards organisation wide change reflecting concept of organisations as
constantly evolving and developing entities (Keith Davis, 1992) and

Performance Development, problem sensing, solving, and troubleshooting as and when need arises.

Specific functional activities and responsibilities of HR department as outlined by

Tracey include:

Recruitment, selection, and task assignment;

Orientation and induction programmes imparting relevant information;

Compensation; including all compensable factors;

Employee benefits; monetary and non- monetary; and

Succession planning (upward mobility of personnel via promotions);


Addressing Semantics: Related Concepts

Since 1980 the term personnel management has been gradually replaced by a
more suitable term, that is, human resource management to delineate the whole
gamut of activities undertaken towards or with the purpose of maximising human
capital utilisation in an enterprise. Problem of semantics is apparent. It would
serve our purpose to clarify the two related concepts.
Similarities between Personnel Management (PM) & HRM
Similarities between personnel management and human resource management are
recounted as follows:

Personnel management strategies, like HRM evolves from business strategy.

Personnel management, like HRM, recognises that line managers are primarily
or in the first measure, responsible for managing people. The personnel section
provides necessary advice/ support service to line managers aiding them carry
out their responsibilities in a better/ more effective manner;

Values of personnel management and the soft version of HRM are identical.
Both stress on self-development of workers, helping them achieve maximum
level of competence both for realisation of individual and collective will and
thereby, achievement of individual and organisational aspirations and

Both personnel management and HRM recognise the need for placing and
developing right people for the right jobs;

The same range of selection, competence analysis, performance management,

training management development and reward management techniques are
applied in both human resource and personnel management; and

The soft version of HRM, like personnel management, attaches importance

to the process of communication and participative spirit informing employeremployee or management- worker relations.

Differences between PM and HRM

Differences could be articulated and recounted as:

Personnel management is more bureaucratic and directive than

participative and team. It is administered by managers rather than
developed by management and workers or co-contributors in joint
organisational endeavour. Apparently, it may be a set of rules and
procedures that might even constrain senior echelons in managing their
subordinates as they deem fit as per the requirements of the situation. On
other hand, HRM not only pays attention to employee
development, but
focuses on the dynamism of the entire management
function. This shift of emphasis appears related to three specific


While both personnel management and human resource management

highlight the role of line management, the focus in each case is different.
In human resource management, HR function is vested in the line

management and business managers are considered responsible for

coordinating and directing all resources towards achievement of
organisational objectives;

Objectives are specified more precisely and co-relation drawn more

clearly and objectively, between results and strategy for proactive use of
human resources for their furtherance and achievement. Personnel policies
are not passively integrated with business strategy but perceived as
integral to and active components thereof in the pursuit of the desired
value or end; and


Most human resource management models emphasise organisational

culture as an important variable. Although organisation development
models of the 1970s proclaimed a similar aim, they were not fully
integrated with normative personnel management models. Organisational
development was always seen as a distinct and separate activity standing
apart from mainstream personnel management. Internal structuring also
exhibited this separateness in that it was generally assigned a separate role
in a formal institutional sense in that separate OD consultants were located
within the personnel department, not always with a back ground in the
subject. It was considered/ treated as, only a fringe activity, an initiative
that was nice to have but could be dispensed with at the first indication of
financial stringency. Aswathappa (2002) draws a table and recounts the
differences between personnel management and human resource
management along twenty-three dimensions. The same are outlined
Differences between PM and HRM


Personnel Management

Human Resource

Employment contract

Careful delineation of
written Contracts

Aim to go beyond contract


Importance of devising
clear rules

Can do outlook,
impatience with rule

Guide to management


Business need

Behaviour referent

Norms/customs and


Managerial task



Labour Management



vis--vis labour
Key relations





Speed of decision



Management role






Prized management




Separate, marginal task

Integrated, key task


Job evaluation (fixed


Performance related


Separately negotiated


Labour Management


Individual contracts

Job categories and




Job design

Division of Labour

Team work

Conflict handling

Reach temporary truce

Manage climate and


Training and

Controlled access to

Learning Companies

Focus of attention for


Personnel procedures

Wide-ranging cultural,
and Personnel strategies

Respect for employees

Labour is treated as a tool

which is expendable and

People are treated as assets

to be used for the benefit
of an organisation, its
employees and the society
as a whole

Shared interests

Interests of the
organisation are

Mutuality of interests


Precedes HRM

Latest in the evolution of

the subject

For a better understanding of HRM, it shall be worthwhile to know of two more

related terms, that is, Human Resource Development and Industrial Relations.
Industrial Relations (IR) & HRM
Industrial Relations (IR) is a term adding to the problem of semantics. Industrial
Relations as the term implies, deals with sociological and legal issues concerning
organisational climate, interpersonal relations, physical and social working
conditions, settlement of disputes, unionisation and other issues dealing with
grievances and their resolution. Use of term industrial relations or human
resource management has more to do with the historical context within which
they arose than with the scope of the two. Human resource management is used
more in the modern context of globalisation and multiculturalism where HR is at
the forefront of management strategy. IR rose in the specific context of the
industrial revolution and the socialist ideology where just and humane conditions
of work were emphasised. Hence, Industrial relations is not different from human
relations or other major school of administrative theory. With many different
labels in use, industrial relations is now used to refer to the legal aspect of
organisations governing employee employer relationship viz. trade unions,
collective bargaining, etc.
The legal aspect has now emerged as a significant facet of HRM which
organisations neglect only to their peril. Organisations get sued for alleged
discrimination in their recruitment, selection, hiring, training and development,
promotion, pay and compensation procedures by outside players as also their own
employees, present and prospective. Posers about administrative procedure have
to be addressed unequivocally to obviate conflicts or possible impediments in
organisational functioning. Technically, it falls within the domain of Industrial
Relations though responsibility for the function is aggregated under the HR label,
which today is an enveloping and architectonic field or area of enquiry, practice
and specialisation. Small businesses (for-profit or nonprofit) usually have to carry
out these activities themselves as they can't afford part- or full-time assistance.
Even they need to ensure that employees are aware of personnel policies
conforming to current regulations. These policies are often in the form of
employee manuals, which all employees possess. Procedural simplicity is an
important requirement. Non-compliance can generate unnecessary confusions,
which could easily be dispensed with.
Industrial Relations implications for organisational structure would differ. While
some structure it as a specialisation others prefer merging or grouping more
practicable. (Collective bargaining involves administration of formal contract
governing union management relations, laying down of grievance procedure, third
party arbitration, labour unions, etc.) Some companies have separate industrial
relations department responsible for negotiating and administering collective
bargaining agreements with unions. Most often size and complexity of an
organisation are the deciding factors. What is important however is that legal

aspect of human resource management is a specific and distinct function,

structural differentiation or specification notwithstanding.
Some people distinguish between HRM (a major management activity) and HRD
(Human Resource Development, a profession). However, it should not lead to any
Distinction between HRD and other human resource practices is necessary to
avoid undervaluing of the concept both theoretically and in the workplace. HRD
has come to be used in many different contexts. Hence, it is important to clear the
maze and highlight the unique contribution it makes to organisations
HRD is:
-A profession; a specialised activity. HRD vendors are employed by organisations
to plan and administer training programs though now HRD has ventured into other
broader, more significant areas of organisational practice viz. organisational
design, change, planning and development. Latter function has gained increasing
prominence of late,

HRD vendors are external consultants, though HRD manager is preferably

an insider; and

Its scope has progressed and moved from micro to macro concerns. In the
times, it is an important field within the area of human
relations or organisational behaviour.

HRD has now been developed in universities as a postgraduate discipline.

Washington University took the lead in this regard in 1965. However, some
universities have introduced courses in specific HRD methodology such as
communications or human services and labeled them as human resource
development. Confusion can be cleared by looking at the form rather than the
HRD incorporates applied behavioural science. Works of Gordon Lippit, Warren
Schmidt and Robert Blake are noted particularly in the development of the
paradigm .There is increased emphasis on a systems approach to HRD notably
through the work of Leonard Silven and Hughes and contribution of Robert Mager
particularly in pushing for adoption of specific behavioural objectives in framing
objective HRD modules.
It is specialised and technical field with is increasing use of modern technology.
Inventory control is an important feature as there is need for recording and safe
maintaining data. Its working is essentially centralised. There is stress on
individualised instruction. The learning specialist guides trainee like a coach or a
resource person. In it the definitions and understanding of selection, training,
performance evaluation are likely to be revised. They are being seen as
continuously evolving and developing processes that aid individuals and
organisations reach the summit of their potential. In HRD there is shared

responsibility between management and individual employees for organisational

effectiveness-diffused rather than focused, permeates through the organisation and
is not restricted to the individual manager or specific levels.
Characteristics of HRD
Characteristics of HRD could be recounted as follows. It is:


utilitarian in purpose;


The wider objective is integration with the school system through educational
administration and training institutes. HRD cannot make up for lack of basic
skills. It would be highly impractical if it were suggested so.
Gerratt defines learning organisations as a group of people continually enhancing
their capacity to create what they want to create. The idea sums up the essence of
human resource development.
Implications of HRM
a. With respect to Organisation Design
There is a long-standing argument on whether HR-related functions should be
organised in the Organisation Development department or elsewhere or
Reference may be made here to Simons concept of mean, end and fact and
value as giving the chain of causation of purposive behaviour. Decisions are
taken at all levels within an organisation and are mean to the extent that they
comprise of fact more than the value component and end conversely. Each
decision, in fact, is both mean (more fact) and end (more value) in that every
mean is an intermediate end which is mean to a further end and so on. The
chain culminates in pure end or final value (hypothetical idea since pure
value does not exist in practice), which is often the organisational goal (could
be social or national goal depending on the level of integration)
The mean- end chain or formulation has implications for organisational
structure. If human resource management is means to the end of
organisational development, it functions as a section under organisation
development. The question of location is pertinent in the interest of coherence of
organisational functioning.
b. With respect to Personnel Administration
The HR section articulates organisational philosophy and underpins it to practical
strategy. Organisational culture is both a dependent and an independent variable.
It is both impacted upon and in turn impacts organisational functioning and


At the enterprise level, good human resource practices help attract and retain the
best people in the organisation. Planning alerts management to manpower needs in
the short run ahead.
At the level of the individual, effective management of human resources helps
employees, work with esprit-de corps and experience personal growth.
Society, as a whole, is the beneficiary of good human resource policy.
Employment opportunities multiply and scarce talents are employed to the best
Extending the same argument, sound HRM is imperative for nation building.
Human resource planning is integral to socio-economic planning of the State. It is
a vital and an imperative component thereof, more so for developing countries
where human capital waste accrues due to underutilisation of capacity and other
wasteful HR practices.
c. With respect to Policy
The HR section or department is actively involved in business strategy and wider
policy formation so much so that there is not a question of should it or should it
not anymore. Its involvement is accepted as a fact or a given of organisational
life. The focus is directed instead to utilising it to the maximum. The objective of
HR thought and practice is geared to this end. This is expected to be more so as
the office evolves towards a more dynamic future role with expansion and or
diversification of business and increasing knowledge resource.



Designations of HR Managers are found differently in different organisations. To

quote Frank Lloyd Wright, form follows function. HR function therefore draws
content from and follows the strategic plan. The HR manager functions as a
catalyst and a change agent to the extent that he helps the line achieve its
objectives. Job description of the office differs from organisation to organisation.
Form or content of human resource functions have been found to be determined
by the organisations history, work culture and the level of differentiation attained
in processes and product. (Tracey, 1994)
The HR manager has to be both a process and a policy specialist. The job
descriptions and specifications entail and demand both policy advice and
implementation specialties.
She / he hyphenates the relationship between the organisation on the one hand and
external players and stimulators of policy (primarily government, strategic
partners) on the other. She / he has to ensure compliance of internal policy and
practice with external regulations via legislations (for example, government
directives) as also attempt to preempt the field in the organisations favour by
minimising instances of unnecessary interface.
Academically, the HR person needs to be proficient in related specialties or
disciplines in that HR is a growing interdisciplinary academic field and a vocation,
with cross currents from management science, humanities and even physical

sciences. HR manager functions as a consultant to all sections and is a prime

mover or initiator of policy inputs and recommendations.
HR officers can be both generalist (with wide experience in personnel matters to
recommend them) and specialist with technical training or educational
background; either from inside/outside the organisation. Actual practice in this
regard differs from organisation to organisation.



The question how HRM would change in the post- modern globalised world needs
to be understood in the light of challenges to HRM.
Emphasis on human resource management will be still greater in the coming
years. Companies/organisations are expected to invest more in health/welfare of
Emergence of transnational/multinational corporations is bringing cross-cultural
work force and the consequent need to manage diversity (cultural, ethnic
linguistic, religious, etc.) properly.
Cost constraint and the resultant emphasis on the necessity of output maximising
strategies viz. total quality management, flexible management systems, etc.
Participative management for knowledge workers; need an active policy to
retain good workers is expected to be increasingly felt in the coming years.
Flexible structuring in organisational design in response to changing requirements
would be needed. Warren Benniss futuristic observation (prediction) about linear
organisations giving way to diverse and unconventional matrix is almost a truism
today. Organisations now are less linear, more complex, environment more
uncertain than predictable, traditional Weberian construct more a utopia than a
reality, more cross functional/ networked than vertical/linear; providing more
scope for freewheeling for its knowledge workers rather than insisting and
stressing on a commanding or directive work pattern and culture. Precisely, its
participative management, innovation and self managed work teams that are
desired for a total quality management with emphasise on productive process,
particularly technology. Organisational fluidity and dynamism may no longer be
an exception or feature to be chafed at and resisted but an enduring quality to be
desired which is almost a necessity for organisations survival in this environment
of constant change. Organisations are perceived as organic entities constantly and
continuously vitalized and growing, meeting new/emerging challenges and
answering critics in their attempt to avoid being moribund/ redundant in their
Tackling demographic changes in the work force will be a challenge as more
old/young/women/backward castes are expected to force changes in HR policies.
Vigorous interest articulation will be suggested for business at the policy stage to
minimise incident and / or unsavoury pressures during implementation.


In the face of increasing cost constraints, training is expected to get more targeted
than generalised. It would need to be tailored according to changing requirements
viz. customer preferences, specific need of a strategic plan in a given time frame,
etc. Training is only one of the options to learning and development.



The focus in the Unit has been on HRMs meaning, nature, scope, versions,
clarifications regarding semantics, differences and similarities between HRM and
PM, and its significance. Rather briefly, it could be summed up as;


HRM is at the forefront of management function;

HR manager plays a vanguard role in policy making and implementation


Semantic differences between HRM and PM and IR and HRD are not of
much practical consequence. Content matters more than form; and

Scope of HRM differs from organisation to organisation.


Human Resource Development:

Human Resource Development is a term

employed for education and training
activities undertaken at micro (in a
department or an organisation) and macro
levels( national, state) for development of
human capital. It involves both short term
and long term planning and has significance
for development administration in that it is
the people resource that puts plans into
actions. Refurbishing of education and
training at regular intervals is a must for
replenishing capabilities for planned
development of human resource capability.

Human Resource Management:

Human Resource Management differs from

personnel management, in treating people as
resource, whose effective utilisation leads
to tangible value addition to organisational
productivity. Distinguished from human
resource development, human resource
management is more an administrative
activity while the latter involves more
planning, built integrally into nation- wide,
socio economic planning.


Organisational Culture:

The culture of an organisation could be

directive, authoritarian, feudal or democratic.
Among determining factors are; principles of
organisational functioning, involving
structuring of an organisation, specialisation
and work division, span of control, unity of
command, leadership, work orientation of
the manager, organisational culture, legal
rational authority system, as against,
traditional or charismatic authority

Organisation Design:

Organisation Design is a primary

management activity involving work
division among constituent units and
structuring an organisation into sections and
sub sections. It is the first step in
specialisation of tasks and responsibilities in
organisations leading to further sophisticated
specifications. On proper design depends the
coherence of organisational functioning.
Organisation Design is also a determinant of
organisational culture in that an organisation
could be structured in a hierarchic
bureaucratic way or imparted a team ethos
by means of lateral coordination and team
work orientation.

Social Capital:

The term social capital is an economic

analogy, to determine the economic potential
of social ties. Just as there are physical
capital and human capital, there is social
capital which denotes the advantage or the
utility derived out of filial and other human
ties. Such social ties have utilitarian value
in that they result in tangible and intangible
value addition to societal development.
Meaningful peoples participation in
administration is an attempt at utilising
positive social capital inherent in
communities for furtherance of
developmental tasks by way of better policy
formulation and cost- effective
implementation processes. Departmentalism
and empire building tendency on the part
of bureaucrats is an example of negative
social capital.




Learning Outcome




Meaning of Training


Training, Development and Education


Importance of Training


Assessment of Training Needs


Learning & Teaching


Steps in Training Programme


Training Methods


Causes for Failure of Training

10.10 Evaluation of Training

10.11 Conclusion
10.12 Key Concepts
10.13 References and Further Reading
10.14 Activities


After reading this Unit, the learner will come to know:

The meaning and importance of Training and Development;

The significance of assessment of Training needs;

The relevance of Training Methods; and

The causes of failure of Training.

Every organisation needs to have well trained and experienced people to perform the activities
required to be undertaken. It is necessary to raise the skill levels and increase the versatilities and
adaptability of employees to the requirements of an organisation in the changing world. Inadequate
job performance results in a decline in productivity of changes. Job redesigning or a technological
break-through require some type of training and development effort. In a rapidly changing society,

training and development is not only an activity that is desirable but also an activity that an
organisation must commit resources for maintaining a viable and knowledgeable workforce.
All types of jobs require some sort of training for efficient performance. Therefore, all the
employees, new and old, should be trained or retained. Every new employee regardless of his
previous training and experience needs to be introduced to the work-environment of his new Job and
taught how to perform specific tasks. Moreover, specific occasions for retraining arise when an
employee is transferred or promoted or when jobs change. Training is valuable to the new comer in
terms of better job security and greater opportunity for advancement. A skill thus, acquired by the
new entrant through training is an asset to the organisation.


Training is the process through which employees are made capable of doing the jobs prescribed to
them. According to Flippo, Training is the act of increasing the knowledge and skills of an
employer for doing a particular job.
According to Dale Yoder, Training is the process by which man-power is filled for the particular
jobs it is to perform. Beach says, Training is the organised procedure by which people learn
knowledge and skills for a definite purpose.
The trainee will acquire new manipulative skills, technical knowledge, problem-solving ability and
or attitudes, etc. Training is not one-step process but it is a continuous or never-ending process.
Training makes newly recruited workers fully productive in the minimum of time. Even for old
workers training is necessary to refresh them and to be conversant with required techniques. In
short, training is the act of improving or updating the knowledge and skills of an employee for
performing a particular job.


Training, education, and development are the three terms frequently used. On the face of it,
there might not be much difference between them, but when a deep thought is given, there appear
some differences between them. In all training there is some education and in all education
there is some training. And the two processes cannot be separated from development. Precise
definition is not possible and can be misleading but different persons have used these activities in
different ways.
Training: It is a process of training, a sequence of programmed behaviour. It is application of
knowledge. It gives people an awareness of the rules and procedures to guide their behaviour. It
attempts to improve their performance on the current job or prepare them for an intended job.
Development: It is a related process. It covers not only those activities which improve job
performance but also those that bring about growth of the personality, help individuals in the

progress towards maturity and actualisation of their potential capacities so that they become not only
good employees but better men or women.
In organisational terms, it is intended to equip persons to earn promotions and hold greater
responsibility. Training a person for a higher job is development. It may well not only include
imparting specific skills and knowledge but also inculcating certain personality and mental attitudes.
In this sense, development is not much different from education.
Education: It is the understanding and interpretation of knowledge. It does not provide definite
answers, but rather, it develops a logical and rational mind that can determine relationships among
pertinent variables and thereby understand phenomena. Education must impart qualities of mind and
character, understanding of basic principles, synthesis and objectivity. Usually, education involves a
range of skills and expertise, which can be provided only by educational institutions. An organisation
can and does make use of such institutions in order to support and supplement its internal training
and development efforts.
Distinction between Training and Development
It is a short-term process utilising a systematic and organised procedure by which non-managerial
personnel have technical knowledge and skills for a definite purpose.
It is a long-term educational process utilising a systematic and organised procedure by which
managerial personnel learn conceptual and the theoretical knowledge for general purpose.
Training refers only to instruction in technical and mechanical operations while development refers
to philosophical and theoretical educational concepts. It designed for non-managers, while
development involves managerial personnel. Campbell has observed that training courses are
typically designed for a short-term, while development involves a broader education for long-term
Training and development differ on account of what, who, why, and when.




Non-Managerial Personnel

Managerial Personnel

What ?

Technical and mechanical operations

Theoretical Concepts or ideas


Specific job-related purpose

General Knowledge





Training and Development

Employee training is distinct from management development or executive development. While the
former refers to training given to employees in the areas of operations, technical and allied, the latter
refers to developing an employee in the areas of principles and techniques of management,
administration, organisation and allied areas. It could be more appropriately understood through the

Training is meant for all individuals, that meant for operators or non-managers is often
called learning: Training and all other developmental activities meant for executive are
considered as executive development activities;

The aim of training is to develop specific abilities in an individual. The aim of

development is to enhance the total personality of the individual;

Training is a specific activity or one-shot affair aimed to imparting specific job-related

information and skills. Development is a continuous process;

Training is mostly a preparation to meet an individuals present needs. It can thus, be

seen as a reactive process. Development is a preparation to meet his future process
having long-run objectives; and

the initiative for training largely comes from management, the initiative for
development comes from the individual himself, and it is a result of internal motivation.
Various activities, planned and unplanned, formal and informal, initiated and carried
out by individual and the organisation, come under development.



Training enables the employees to get acquainted with jobs and increase their aptitudes, skills and
knowledge. It helps the newly recruited to be productive in minimum amount of time. Even for the
experienced workers, it is necessary to refresh them an enable them to keep up with new methods,
techniques, new machines and equipments for doing the work. According to Dale S. Beach
Training is vital and necessary to activity in all organisational and of plays a large part in
determining the effectiveness and efficiency of the establishment. Training is advantageous not
only to the organisation but also the employees.
Advantages to the Organisation
The major advantages of training to organisation could be referred to as:


Follow up of selection procedure: Training is a follow up of selection procedure. It

helps in choosing the most appropriate individuals for different jobs. Training can be
used in spotting out promising persons and in removing defects in selection process;


Better Performance: Training is about improvement of the quality of output by

increasing the skill of the employee. This makes the fresh and old employee acquire
more skills and thus, be accurate in performance of their work;


Reduction in Cost Production: Training personnel is to make better and economical

use of materials and equipments besides decreasing wastage. In addition, the rate of
accidents and damage to machinery and equipment is at the minimum by the well
trained employees amounting to lesser cost of production per unit,


Reduced Supervision: If the employees are given proper training, the need of
supervision gets lessened. A well trained employee is self-reliant in his work as he
comes to know what is to be and how. Under such situations, close supervision is not
much required. Leaving the scope for the management focus its attention on other basic
and important functions;


Increased morale: The morale of the employee gets boosted, if they are given proper
training. As a common objective of the organisation, training programme moulds its
employees attitude to achieve support for organisational activities and obtain better
cooperation and greater loyalty. With the help of tiny dissatisfaction, complaints,
absenteeism and turnover can also be reduced among the executives. Thus, training
helps in building an efficient and cooperative work force; and


Organisational Stability and Flexibility: Training increases the stability and flexibility
of the organisation. Creation of a reservoir of trained replacements increases the
stability of the organisation that is; the organisation is able to sustain its effectiveness
despite the loss of key personnel.

Advantages to the Executive

The incumbents on executive position have advantages to their credit through training. It could be
reflected as follows:

Increase in wage earning capacity: Training helps the executive in acquiring new
knowledge and job skills. In this way, it increases their market value and wage earning
power leading to increase in their pay and status.


Job Security: Training can help an executive to develop his ability to earn make the
official adaptive to new work methods, besides learning to use new kinds of equipment
and adjusting to major changes in job contents as well a work relationship; and


Chances of Promotion: Training also qualifies the executives for promotion to more
responsible jobs.

Limitations of Training
Every coin has two sides. The other side of training, that is, its limitations are as such:

Training is a costly affair and expensive process making organisations to spend

substantive amount, taken out of other organisational commitments.


Training may result in dislocation of work and loss of output because regular office work
is likely to be interrupted or delayed because of the time of trainees spent in training;


Sometimes, it is difficult to obtain good training instructors and leaders; and


Self-reliance and capacity for new ideas might be stiffed.


Training needs are identified on the basis of organisational analysis, job analysis and man-power
analysis. Training programmes, training methods and course contents have to be planned in keeping
with the training needs. Training needs are those aspects necessary to perform the job in an
organisation in which executive is lacking attitude/aptitude of knowledge and skills.
The following methods are used to assess the training needs:

Organisational requirements and weaknesses;


Departmental requirements/weaknesses;


Job specifications and employee specifications;


Identifying specific problems;


Anticipating future problems;


Managements request;






Group conferences;


Questionnaire Surveys;


Tests or examinations;


Check lists; and


Performance appraisal


The training programme will not be effective if the trainer is not properly equipped with the technical
aspects of the content or if he lacks aptitude for teaching and teaching skills. Training comprises of
mainly learning and teaching. Training principles can be studied through the principles of learning
and teaching.
Some of the significant principles and assumptions of learning include:


All human beings can learn


An individual must be motivated to learn


Learning is active and not passive


Learners may acquire knowledge more rapidly with guidance. Feedback ensures
improvement in speed and accuracy of learning


Appropriate material (like case studies, tools, problems, readings, etc) should be provided


Time must be provided to practice learning


Learning methods should be varied. Variety of methods should be introduced to off-set

fatigue and boredom


Learners need reinforcement of correct behaviour


Standards of performance should be set for the learner


Different levels of learning exists


Learning is an adjustment on the part of an individual


Individual differences play a large part in effectiveness of the learning process


Learning is a cumulative process


Ego factor is widely regarded as a major factor in learning


The rate of learning decreases when complex skills are involved.


Learning is closely related to attention and concentration


Learning involves long-run retention and immediate acquisition of knowledge


Accuracy deserves generally more emphasis than speed.


Learning should be relatively based


Learning should be a goal-oriented

Learning Patterns
Trainees need some understanding of the patterns in which new skills are adopted. The
executive is likely to find himself unusually clumsy during the early stages of learning. This can
be called discouraging stage. After the executive adjusts himself to the environment, he learns at
a faster rate. A fatigue develops after the lapse of more training time due to loss of motivation
and lack of break in training schedule. The trainee reaches the next stage when he is motivated
by the trainer and the training process restarts after some break. The trainee at this stage learns at
a fast rate. Special repetition of the course leads the trainee to reach the stage of over-learning.
Learning Curve
-Learners Job Proficiency
-Discouraging first stage
-Increasing Returns
-Fast fatigue
-Peak Proficiency
-Over-learning period
Thus, it is clear that learning partly takes place at a constant rate. It varies according to the
difficulty of the task, ability of the individual and physical factors. However, the rate of learning
varies from one individual to another.
Characteristics of Learning Process
Learning Process has the following characteristics


Learning is a continuous process


People learn through their actual personal experience, simulated experience and from others


People learn step by step, from known to unknown and simple to complex


There is a need for repetition in teaching to inculcate skill and to learn perfectly


Practice makes man perfect. Hence, opportunity should be erected to use and transfer skills,
knowledge and abilities acquired through learning. It gives satisfaction to the learner


Conflict in learning arises when the trainer knows or has developed some habits which are
incorrect in terms of the method being learned.

Learning Problems
The trainer has to be familiar with the subject and its applied area. He should have the knowledge of the
possible learning problems like:

Lack of knowledge, skill and favourable attitude


Knowledge and skill not being applied


Existence of anti-learning factors: Most operational situations contain a number of

elements which will restrict the development of elements regardless the methods
employed of learning


Psychological problems like fear end shyness


Durability to transfer of learning to operational situation


Heavy dependence on repetition, demonstration and practice


Unwilling to change


Lack of interest about the knowledge of results


Absence of self-motivation

Teaching Principles
In addition to learning principles, teaching principles should also be taken care for effective training.

The executive must be taught to practice only the correct method of work


Job analysis and motion study techniques should be used


Job training under actual working conditions should be preferred to class room training


Emphasis should be given more on accuracy than speed


Teaching should be at different time intervals


It should be recognised that it is easier to train young workers than old workers due to
their decreasing adaptability with the increase in age.

Principles of Training
A sound training programme should be based on the following principles


Designed to achieve pre-determined objectives




Developed for all


Pre-planned and well organised


According to size, nature and financial position of the concern




Conducted by an experienced supervisor


Coverage of theoretical as well as practical aspects


Interests of executives and employees


More than one method


Training followed by reward


Sufficient time for practice

Area of Training
Organisations provide training to their personnel in the following areas:

Company policies and procedures

Specific skills

Human relations

Problem solving

Managerial and supervisory skills and

Apprentice training


Training programmes are costly affair, and time consuming process. Therefore, they need to be
drafted very carefully. Usually, in the organisation of training programmes, the following steps are
considered necessary:

Discovering (or) Identifying the training needs


Getting ready for the job


Preparation of the learner


Presentation of operation and knowledge


Performance try-out


Follow-up and evaluation of the programme



There are a number of methods through which the trainees are trained. The methods normally used
for training of operative and supervisory personnel are classified into on the job and off-the-job
training methods.
A. On the Job Training Methods
The worker by these methods learns to master the operations involved, on the actual job situation,
under the supervision of his immediate boss who undertakes the responsibility of conducting
training. On-the-job training has the advantage of giving first hand knowledge and experience under
the actual working conditions. The emphasis is placed on rendering services in the most effective
manner rather than learning how to perform the job.



On Specific Job: The most common or formal on-the-job training programme is training for
a specific job. Current practice in job training was first designed to improve the job
performance through job instruction. On-the-job training is conducted through:

Experience: This is the oldest method of on-the-job training. But as an exclusive

approach, it is wasteful, time consuming and inefficient. It has been observed that
it should be followed by other training methods to make it more effective. Onthe-job problem-solving and colleague interactions were prompted as most
important for professional growth.


Coaching: On-the-job coaching by a superior is an important and potentially

effective approach, if superior is properly trained and oriented. The supervisor
provides feed-back to the trainee on his performance and offers him some
suggestions for improvement. Often the trainee shares his thoughts, views and
apprehensions about the duties and responsibilities with the boss and thus gets
relief and relieves him of his burden. A limitation of this method of training is
that the trainee may not have the freedom of opportunity to express his own ideas
because the trainer happens to be his immediate boss.


Understudy: The understudy method is considered a somewhat different approach

from those described above, that a certain person is specifically designated as the
heir-apparent. The understudy method makes the trainee an assistant to the
current job holder. The trainee learns by experience, observation and imitation of
the style of the person he asked to work with. The trainee is informed about the
policies, methods, techniques etc. The advantage of this method is that training is
conducted in a practical and realistic situation.

Position Rotation: The major objective of job rotation is the broadening of the background
of trainee in the organisations. This type of training involves the movement of the trainee
from one job to another. The trainee receives the job knowledge and gains experience from

his supervisor or trainer in each of the different job assignments. This method gives an
opportunity to the trainee to understand the operational dynamics of a variety of jobs. There
are certain disadvantages of this method. The productive work can suffer because of the
obvious disruption caused by such changes. Rotations become less useful as specialisation
proceeds, for few people have the breadth of technical knowledge and skills to move from
one functional area to another.

Special Projects: This is a very flexible training device. Such special project assignments
grow ordinarily out of an individual analysis of weaknesses. The trainee may be asked to
perform special assignment; thereby he learns the work procedure. Trainees not only acquire
knowledge about the assignment activities, but also learn how to work with others.


Selective Readings: Individuals in the organisation can gather and advance their knowledge
and background through selective reading. The readings may include professional journals
and books. Various business organisations maintain libraries for their staff. Many executives
become members of professional associations and they exchange their ideas with others. This
is a good method of assimilating knowledge. However, some executives claim that it is very
difficult to find time to do much reading other than absolutely required in the performance of
their jobs.


Apprenticeship: Apprentice training can be traced back to medieval times when those
intended of learning trade skill bound themselves to a master craftsman to learn by doing the
work under his guidance. In earlier periods, apprenticeship was not restricted to ascertains,
but was used in training for the professions including medicine, law, dentistry, teaching, etc.
Todays industrial organisations require large number of skilled craftsmen who can be trained
by this system. Such training is either provided by the organisation or it is imparted by
governmental agencies. Most states now have apprenticeship laws with supervised plans.
Such training arrangements usually provide a mixed programme of classroom and job


Vestibule Schools: Large organisations are frequently provided with what is described as
vestibule schools, a preliminary to actual shop experience. As far as possible, shop
conditions are duplicated, under the close watch of the instructors. Vestibule schools are
widely used in training for clerical and office jobs as well as for factory production jobs.
Such training is through shorter and less complex but is relatively expensive. However, the
costs are justified if the volume of training is large and high-standard results are achieved.

B. Off-the-job Training Methods

In these methods, trainees have to leave their work-place and devote their entire time to the
development objective. In these methods development of trainees is primarily and any usable work
produced during training is secondary. Since the trainee is not instructed by job requirements, he can
place his entire concentration on learning the job rather than spending his time in performing it.
There is an opportunity for freedom of expression for the trainees. Off-the-job training methods are
as follows:



Special Course and Lectures: Lecturing is the most traditional form of formal training
method. Special courses and lecturers can be organised by organisations in numerous
ways as part of their development programmes. First, there are courses which the
organisations themselves establish to be taught by members of the organisations. Some
organisations have regular instructors assigned to their training and development
departments. A second approach to special courses and lecturers is for organisations to
work with universities or institutes in establishing a course or series of courses to be
taught by instructors of these institutions. A third approach is for the organisations to
send personnel to programmes organised by the universities, institutes and other bodies.
Such courses are organised for a short period ranging from 2-3 days to a few weeks.


Conferences: This is an old but still a favourite training method. In order to escape the
limitations of straight lecturing many organisations have adopted guided-discussion type
of conferences in their training programmes. In this method, the participants pool their
ideas and experiences in attempting to arrive at improved methods of dealing with the
problems, which are common subject of discussion. Conferences may include buzz
sessions that divide conferences into small groups of four or five for intensive discussion.
These small groups then report back to the whole conference with their conclusions or


Case Studies: This technique, which has been developed and popularised by the Harvard
Business School, USA is one of the most common forms of training. A case is written
account of trained reporter or analyst seeking to describe an actual situation. Cases are
widely used in a variety of programmes. This method increases the trainees power of
observation, helping him to ask better questions and to look for a broader range of
problems. A well chosen case may promote objective discussion, but the lack of
emotional involvement may make it difficult to effect any basic change in the behaviour
and attitude of trainees.


Brainstorming: This is the method of stimulating trainees to creative thinking: this

approach developed by Alex Osborn seeks to reduce inhibiting forces by providing for a
maximum of group participation and a minimum of criticism. A problem is posed and
ideas are sought. Quantity rather than quality is the primary objective. Ideas are
encouraged and criticism of any idea is discouraged. Chain reaction from idea to idea is
often developed. Later, these ideas are critically examined. There is no trainer in
brainstorming. Brainstorming frankly favours divergence, and this fact may be sufficient
to explain why brainstorming is so little used yet in developing countries where new
solutions ought to carry the highest premium. It is virtually untried even though its
immediate use is limited to new ideas only, not change in behaviour.


Laboratory Training: Laboratory training adds to conventional training by providing

situations, which the trainees themselves experience through their own interaction. In this
way, they more or less experiment the conditions on themselves. Laboratory training is
more concerned about changing individual behaviour and attitude. It is generally more
successful in changing job performance than conventional training methods. There are
two methods of laboratory training namely simulation and sensitivity training as
explained under:
a) Simulation: An increasingly popular technique of management development is
simulation of performance. In this method, instead of taking participants into the field
there can be simulated in the training session itself. Simulation is the presentation of
real situation of organisations in the training session. It covers situations of varying
complexities and roles for the participants. It creates a whole field organisation,


relates participants through key roles in it, and asks them deal with specific situations
of a kind they encounter in real life. There are two common simulation methods of
training: role-playing is one and business game is the other.

Role-playing: Role-playing is a laboratory method, which can be used rather

easily as a supplement to conventional training methods. Its purpose is to increase
the trainees skill in dealing with other people. One of its greatest uses is in
connection with human relations training but it is also used in sales training as
well. It is spontaneous acting of realistic situation involving two or more persons
under classroom situations. Dialogue spontaneously grows out of the situation, as
it is developed by the trainees as singed to it. Other trainees in the group serve as
observers or critics. Since people take role everyday, they are somewhat
experienced in the art, and with a certain amount of imagination, they can project
themselves into roles other than their own. By this method, a trainee can broaden
his experience by trying different approaches. Role-playing also has weaknesses
which partly offset its values. It is time consuming and expensive. It requires
experienced trainers because it can easily turn sour without effective direction.
Nevertheless, these weaknesses do not undermine the strengths of this method.


Gaming: Gaming has been devised to simulate the problems of running a

company or even a particular department. It has been used for a variety of
training objectives, from investment strategy, collective bargaining techniques, to
the morale of clerical personnel. It has been used at all levels from the top
executives to the production supervisors. Gaming is a laboratory method in which
role-playing exists but its difference is that it forces attention on administrative
problems, while role-playing tends to emphasise mostly on interaction. Gaming
involves several teams each of which is given a firm to operate for a specified
period. Usually, the period is a short one, say one year or so. In each period, each
team makes decisions on various matters such as fixation of price, level of
production, inventory level, and so forth. Since each team is competing with
others, each firms decisions will affect the results of all others. All the firm
decisions are fed into a computer, which is programmed to behave somewhat like
a real market. The computer provides the results and the winner is the team which
has accumulated largest profit. In the light of such results, strengths and
weaknesses of decisions are analysed.

b) Sensitivity Training: It is the most controversial laboratory training method. Many

of its advocates have an almost religious zeal in their enhancement with the training
group experience. Some of its critics match this fervour in their attacks on the
technique. As a result of criticism and experience, a somewhat revised approach,
often described as team development training, has appeared. It was first used by
National Training Laboratories at Bethal, USA. The training groups are called TGroup. Sensitivity training is a small-group interaction under stress in an
unstructured encounter group which requires people to become sensitive to one
anothers feeling in order to develop reasonable group activity. T-Group has several
characteristic features: (i) T-group is generally, small, from ten to twenty members;
(ii) the group begins its activity with no formal agenda; (iii) the role of trainer is
primarily to call attention from time to time to the on-going process within the group;
and (iv) the procedure tends to develop introspection and self-examination, with
emotional levels of involvement. The objectives of such training are concern for

others, increased tolerance for individual differences, less ethnic prejudice,

understanding of a group process, enhanced listening skills, increased trust and



Training effort in most cases in many organisations becomes a failure due to weaknesses in policies,
procedures, practices concerning training activities. Some such important causes for the failure of
training, in general, are:

Top management does not have complete faith basically in HRD philosophy and has little
confidence in training as an important method for ensuring development of human


The training objectives or not clear, specific and not understood by all.


Training policy is not clear, lacks comprehensiveness and does not have proper linkage
with other HRD policies.


Organisational arrangements, budgetary allocations, staff resources, aids, etc. are not
adequate and properly placed


Training staff lacks coordination with other staff and personnel


In various aspects relating to training, such as identification of needs, selection of

trainees, sponsoring candidates for training, using trainees on the job etc., there is not
adequate seriousness to ensure effectiveness of training. It is felt that procedures are
adopted as a mere formality


In conducting training activity, absence seriousness to involve the trainees in learning

affects the training outcome. Besides, lack of expertise in using the methods, aids,
resources, etc. hampers the expected results.


Lack of efforts to make better utilisation of the trainees and unfavourable environment to
the trainees in applying their enhanced abilities and in rewarding their improved


Lack of evaluation of training at various stages. The outcomes of training programmes

are not monitored.

Efforts to overcome the weaknesses mentioned may help the organisation in improving the
effectiveness of training.



A desirable characteristic of all training programmes is built-in-provision for its evaluation to find
out whether the objectives of training activity or programmes are achieved or not.

Notable dimensions of training evaluation are:


Evaluation of Contextual factors: Training effectiveness depends on not only what

happens during the training, but also on what happens before the actual training and
what happens after the training has formally ended. Thus, there is need for both pretraining and post-training evaluation of contextual factors.


Evaluation of training inputs: This involves the evaluation of training curriculum,

its sequencing, trainers abilities, facilities, aids and resources used.


Evaluation of training process: The climate of training organisation, the relationship

and interaction between participants and trainees, attitudes and approaches of the
trainers, training methods used, and involvement of the trainers in learning are some of
the important elements of the training process, which need to be evaluated.


Evolution of training outcomes: It involves measuring the results of the training in

terms of what has been achieved on account of training programme. Pay-offs from
training is intangible, slow and not clearly identifiable with the specific activity.

In evaluation of outcomes, four categories of outcomes can be measured:


Reaction: Evaluation of trainees reaction to the programme




Behaviour: Evaluation of change in the behaviour of trainee due to training


Results: Evaluation of results achieved due to training in various areas such as production,
human resource utilisation, performance tests, general job and organisation environment and
cost-value relationship.

Evaluation of what trainees have learnt

Principles of Training Evaluation

If evaluation in any form is to be effective, it must be done in accordance with some of the following

Evaluation must be planned, which is to be evaluated, when, why, by what means and by
whom must be determined in advance


Evaluation must be objective. It should not be a mere formality or eyewash or for namesake


Evaluation must be verifiable. Results can be compared by the same or different means


Evaluation must be cooperative. It must involve all those part of or affected by the
training programme. It is not a contest between the evaluator and the subject of


Evaluation must be continuous to ensure effectiveness at every step.


Evaluation must be specific. It should specify the strengths and weaknesses for further
improvement but should not make out vague statements or generalisations


Evaluation must be quantitative. All measurements should aim at quantifying the

changes in different performance variables.


Evaluation must be feasible. It must be administratively manageable


Evaluation must be cost effective. The results must be commensurate with the costs



Every organisation needs to have well-trained and experienced people to perform the activities that
have to be done. Training is the process through which employees are made capable of doing the job
prescribed to them. In a rapidly changing society, employee training and development is a desirable
activity. All types of jobs require some type of training for their efficient performance and therefore
all employees new and old should be trained or retrained.
The basic needs and objective of training programme for a particular level differ from that of other
level. Thus, a particular training programme would be more suitable to a particular group of people.
Moreover, within a particular group, an individual may use a particular training while others may
need some other programme. The determining factor would then be the level of individual in
organisation and his personality characteristics.



Knowledge attainment which develops or progresses, both as an inadvertent virtue

and as part of deliberate policy is understood as education. Education is more than
information sharing and imparting. It implies approximation to truth in the specific
area of learning.


Learning is the process of knowledge attainment or the tool with which knowledge is
attained. Learning and development proceed in tandem and as complementary
processes as each refurbishes the other. Learning leads to development of cognitive

Peak Proficiency: Proficiency is understood as the ability, talent, aptitude, adeptness, or expertise in
a given subject area. Peak proficiency implies operating at optimum capacity.
Maximum capacity may not be possible due to physical and cognitive limitations to
human capacity.


Flippo, Edwin B, 1984, Principles of Personnel Management, McGraw-Hill, New York.

Luthans, Fred, 1985, Organisational Behaviour, McGraw-Hill, New York.
Memoria, C.B, 1999, Personnel Management, Himalaya Publishing Hosue, Bombay.
Verma, M.M. and R.K.Agarwal, 2000, Personnel Management and Industrial Relations, Kings
Yoder, Dale, 1969, Personnel Management and Industrial Relations, Prentice Hall.



Potential Appraisal,
Assessment Centres
and Career and
Succession Planning

After going through this unit, you should be able to :

explain the concept of potential appraisal and its importance;

understand what assessment centre is and how it functions;

differentiate between assessment centres and development centres;

discuss the process of career planning and its importance; and

define succession planning and differentiate it from career planning.




Potential Appraisal


Assessment Centres


Career Planning


Succession Planning




Self Assessment Questions


Further Readings



Employees aspire to grow and expect this growth to take place at frequent intervals.
Achievement of organisational goal, increased productivity and fulfilment of corporate
objectives can be possible only if the employees are feeling satisfaction and
achievement. To achieve this there is a requirement for a well thought out system of
career and succession planning in an organisation. In this backdrop, this unit deals
with mechanisms of potential appraisals and ways and means employed by
organizations such as assessment centres to provide growth opportunities to employees.


Many companies, which carry out performance appraisal, also keep records on the
potential of their employees for future promotion opportunities. The task of identifying
potential for promotion cannot be easy for the appraising manager, since competence
of a member of staff to perform well in the current job is not an automatic indicator of
potential for promotion. Very often the first class salesman is promoted to become a
mediocre sales manager, the excellent chief engineer is promoted to become a very
poor engineering director, and the star football player struggles to be a football
Potential can be defined as a latent but unrealised ability. There are many people
who have the desire and potential to advance through the job they are in, wanting the


Performance Management
and Potential Assessment

opportunity to operate at a higher level of competence in the same type of work. The
potential is the one that the appraiser should be able to identity and develop because of
the knowledge of the job. This requires an in-depth study of the positions which may
become vacant, looking carefully at the specific skills that the new position may
demand and also taking into consideration the more subjective areas like qualities
required. These may be areas where the employee has not had a real opportunity to
demonstrate the potential ability and there may be areas with which you, as the
appraisers are not familiar. There are few indicators of potential (Box 1) which may
be considered.
Box 1: Indicators of Potential

A sense of reality: This is the extent to which a person thinks and acts
objectively, resisting purely emotional pressures but pursuing realistic projects
with enthusiasm.

Imagination: The ability to let the mind range over a wide variety of possible
causes of action, going beyond conventional approaches to situations and not
being confined to This is the way it is always being done!

Power of analysis: The capacity to break down, reformulate or transform a

complicated situation into manageable terms.

Breadth of vision: The ability to examine a problem in the context of a much

broader framework of reference; being able to detect, within a specific
situation, relationships with those aspects which could be affecting the

Persuasiveness: The ability to sell ideas to other people and gain a continuing
commitment, particularly when the individual is using personal influence rather
than management authority.

Source: Adopted from Philip, Tom (1983). Making Performance Appraisal Work,
McGraw Hill Ltd., U.K.
Like the Performance Appraisal, potential appraisal is also done by the employees
supervisor who has had the opportunity to observe the employee for some time.
Potential appraisal may be done either regularly or as and when required. Generally
last part of appraisal deals with potential appraisal, as this is seen in case of Maruti
Udyog Ltd. (Illustration 1).
Illustration 1. Potential Appraisal at Maruti Udyog Ltd.
Part III of the Performance Appraisal form of Maruti Udyog Ltd. solicits information
to assess the future potential and ability of its L8 and above categories of workers to
assume a position of higher responsibility (L13) in the following format.

Group effectiveness (Maintaining and improving morale of group and helping

its identification with organisational objectives; optimal utilisation of available
manpower resources; directing and co-ordinating efforts and effective follow up
action to ensure accomplishment of planned objectives).



Very Good




Ability to develop subordinates (Sensitivity to develop subordinates mental

skills; ability to provide professional guidance to produce group results)


Very Good




3) Potential Capability (Overall rating for managerial capability to head a

department based on your assessment related to the above two points).


Very Good



Potential Appraisal,
Assessment Centres
and Career and
Succession Planning


Source: Adapted from Tripathi, P.C. (2003). Human Resource Development, Sultan
Chand & Sons, New Delhi.
Career Path
One of the important objectives of appraisal, particularly potential appraisal is to help
employees to move upwards in the organization. People do not like to work on deadend jobs. Hence, a career ladder with clearly defined steps becomes an integral
component of human resources management. Most HRM practitioners favour
restructuring of a job to provide reasonably long and orderly career growth. Career
path basically refers to opportunities for growth in the organization. Availability of
such opportunities has tremendous motivational value. It also helps in designing salary
structures, identifying training needs and developing second line in command. Career
paths can be of two kinds:


Those where designations changes to a higher level position, job remaining more
or less the same. A good example of this is found in teaching institutions, where
an assistant professor may grow to become associate professor and a professor,
but the nature of job (teaching and research) remains the same. Career path in
such situtions means a change in status, better salary and benefits and perhaps
less load and better working conditions.
Those where changes in position bring about changes in job along with increased
salary, status and better benefits and working conditions. In many engineering
organisations, an employee may grow in the same line with increased
responsibilities or may move to other projects with different job demands.



Employees are not contended by just having a job. They want growth and individual
development in the organization. An assessment centre is a multiple assessment of
several individuals performed simultaneously by a group of trained evaluators using a
variety of group and individual exercises.
Assessment centers are a more elaborate set of performance simulation tests,
specifically designed to evaluate a candidates managerial potential. Line executives,
supervisors, and/or trained psychologists evaluate candidates as they go through one
to several days of exercises that simulate real problems that they would confront on
the job. Based on a list of descriptive dimensions that the actual job incumbent has to
meet, activities might include interviews, in-basket problem-solving exercises,
leaderless group discussions, and business decision games. For instance, a candidate
might be required to play the role of a manager who must decide how to respond to ten
memos in his/her in-basket within a two-hour period. Assessment centers have
consistently demonstrated results that predict later job performance in managerial
The American Telephone and Telegraph Company (AT&T) began experiments with
Assessment Centre approach in the 1950s as a part of a wide programme of
management development. The AT&T Company designated a particular building
where the Assessments were carried out. This building became known as Assessment
centre and the name has stuck as a way of referring to the method. The method
became established in the industry in the USA during the 1960s and 1970s and was
introduced in UK during this period.


Performance Management
and Potential Assessment

This method is now regarded as one of the most accurate and valid assessment
procedures and is widely used for selection and development.
According to IPMA (The International Personnel Management Association), an
assessment center consists of a standardized evaluation of behavior based on multiple
inputs. They are used to assess the strengths, weaknesses and potential of employees.
The specific objective is to reinforce strengths, overcome weaknesses and exploit
potential of the employees through training and developmental efforts. Several trained
observers and techniques are used. Judgments about behavior are made, in major part,
from specifically developed assessment simulations. These judgments are pooled in a
meeting among the assessors or by a statistical integration process. In an integration
discussion, comprehensive accounts of behavior, and often ratings of it, are pooled.
The discussion results in evaluations of the performance of the assessees on the
dimensions/ competencies or other variables that the assessment center is designed to
measure. There is a difference between an assessment center and assessment center
methodology. Various features of the assessment center methodology are used in
procedures that do not meet all of the guidelines set forth here, such as when a
psychologist or human resource professional, acting alone, uses a simulation as a part
of the evaluation of an individual. Such personnel assessment procedures are not
covered by these guidelines; each should be judged on its own merits. Procedures that
do not conform to all the guidelines here should not be represented as assessment
centers or imply that they are assessment centers by using the term assessment
center as part of the title. The following are the essential elements for a process to be
considered an assessment center:
a) Job Analysis
A job analysis of relevant behaviors must be conducted to determine the dimensions,
competencies, attributes, and job performance indices important to job success in
order to identify what should be evaluated by the assessment center. The type and
extent of the job analysis depend on the purpose of assessment, the complexity of the
job, the adequacy and appropriateness of prior information about the job, and the
similarity of the new job to jobs that have been studied previously. If past job analyses
and research are used to select dimensions and exercises for a new job, evidence of the
comparability or generalizability of the jobs must be provided. If job does not
currently exist, analyses can be done of actual or projected tasks or roles that will
comprise the new job, position, job level, or job family. Target dimensions can also be
identified from an analysis of the vision, values, strategies, or key objectives of the
organization. Competency-modeling procedures may be used to determine the
dimensions/competencies to be assessed by the assessment center, if such procedures
are conducted with the same rigor as traditional job analysis methods. Rigor in this
regard is defined as the involvement of subject matter experts who are knowledgeable
about job requirements, the collection and quantitative evaluation of essential job
elements, and the production of evidence of reliable results. Any job analysis or
competency modeling must result in clearly specified categories of behavior that can
be observed in assessment procedures.
A competency may or may not be amenable to behavioral assessment as defined
herein. A competency, as used in various contemporary sources, refers to an
organizational strength, an organizational goal, a valued objective, a construct, or a
grouping of related behaviors or attributes. A competency may be
considered a behavioral dimension for the purposes of assessment in an assessment
center if



it can be defined precisely


expressed in terms of behaviors observable on the job or in a job family and in

simulation exercises.

iii) a competency also must be shown to be related to success in the target job or
position or job family.
b) Behavioural Classification

Potential Appraisal,
Assessment Centres
and Career and
Succession Planning

Assessment centre requires that Behaviors displayed by participants must be classified

into meaningful and relevant categories such as dimensions, attributes, characteristics,
aptitudes, qualities, skills, abilities, competencies, and knowledge.
c) Assessment Techniques
The techniques used in the assessment center must be designed to provide information
for evaluating the dimensions previously determined by the job analysis. Assessment
center developers should establish a link from behaviors to competencies to exercises/
assessment techniques. This linkage should be documented in a competency-by
exercise/ assessment technique matrix.
d) Multiple Assessments
Multiple assessment techniques must be used. These can include tests, interviews,
questionnaires, sociometric devices, and simulations. The assessment techniques are
developed or chosen to elicit a variety of behaviors and information relevant to the
selected competencies/ dimensions. Self-assessment and 360 degree assessment data
may be gathered as assessment information. The assessment techniques will be pretested to ensure that the techniques provide reliable, objective and relevant behavioral
information. Pre-testing might entail trial administration with participants similar to
assessment center candidates, thorough review by subject matter experts as to the
accuracy and representativeness of behavioral sampling and/or evidence from the use
of these techniques for similar jobs in similar organizations.
e) Simulations
The assessment techniques must include a sufficient number of job related simulations
to allow opportunities to observe the candidates behavior related to each competency/
dimension being assessed. At least oneand usually severaljob related simulations
must be included in each assessment center. A simulation is an exercise or technique
designed to elicit behaviors related to dimensions of performance on the job requiring
the participants to respond behaviorally to situational stimuli. Examples of
simulations include, but are not limited to, group exercises, in-basket exercises,
interaction (interview) simulations, presentations, and fact-finding exercises. Stimuli
may also be presented through video based or virtual simulations delivered via
computer, video, the Internet, or an intranet. Assessment center designers also should
be careful to design exercises that reliably elicit a large number of competency-related
behaviors. In turn, this should provide assessors with sufficient opportunities to
observe competency-related behavior.
f) Assessors
Multiple assessors must be used to observe and evaluate each assessee. When
selecting a group of assessors, consider characteristics such as diversity of age, sex,
organizational level, and functional work area. Computer technology may be used to
assess in those situations in which it can be shown that a computer program evaluates
behaviors at least as well as a human assessor. The ratio of assessees to assessors is a
function of several variables, including the type of exercises used, the dimensions to
be evaluated, the roles of the assessors, the type of integration carried out, the amount
of assessor training, the experience of the assessors, and the purpose of the assessment
center. A typical ratio of assessees to assessors is two to one. A participants current
supervisor should not be involved in the assessment of a direct subordinate when the
resulting data will be used for selection or promotional purposes.


Performance Management
and Potential Assessment

g) Assessor Training
Assessors must receive thorough training and demonstrate performance that meets
requirements prior to participating in an assessment center. The training should focus
on processing of information, drawing conclusions, interview techniques and
understanding behaviour.
h) Recording Behaviour
A systematic procedure must be used by assessors to record specific behavioral
observations accurately at the time of observation. This procedure might include
techniques such as handwritten notes, behavioral observation scales, or behavioral
checklists. Audio and video recordings of behavior may be made and analyzed at a
later date.
i) Reports
Assessors must prepare a report of the observations made during each exercise before
the integration discussion. It is suggested that assessors must prepare the report
immediately after the assessment is over otherwise they are likely to forget the details.
Not only this, these reports must be independently made.
j) Data Integration
The integration of behaviors must be based on a pooling of information from
assessors or through a statistical integration process validated in accordance with
professionally accepted standards. During the integration discussion of each
dimension, assessors should report information derived from the assessment
techniques but should not report information irrelevant to the purpose of the
assessment process. The integration of information may be accomplished by
consensus or by some other method of arriving at a joint decision. Methods of
combining assessors evaluations of information must be supported by the reliability
of the assessors discussions. Computer technology may also be used to support the
data integration process provided the conditions of this section are met.

Uses of Assessment Centres

Data generated during the process of Assessment can become extremely useful in
identifying employee potential for growth. This data can be used for:
a) Recruitment and Promotion: Where particular positions which need to be
filled exist, both internal and external can be assessed for suitability to those
specific posts.
b) Early Identification of Personnel: The underlying rationale here is the need for
the organization to optimise talent as soon as possible. High potential people also need
to be motivated so that they remain with the organization.
c) Diagnosis of Training and Development Needs: It offers a chance to establish
individual training and development needs while providing candidates with a greater
appreciation of their needs.
d) Organizational Planning: Assessment centers can be used to identify area where
widespread skill deficiencies exist within organizations, so that training can be
developed in these areas. Results can also be integrated with human resource planning
data to provide additional information concerning number of people with particular
skills needed to meet future needs.

Assessment Centres and Development Centres

Traditionally an assessment centre consisted of a suite of exercises designed to assess
a set of personal characteristics. It was seen as a rather formal process where the
individuals being assessed had the results fed back to them in the context of a simple
yes/no selection decision. However, recently we have seen a definite shift in thinking
away from this traditional view of an assessment centre to one which stresses the
developmental aspect of assessment. A consequence of this is that today it is very rare
to come across an assessment centre which does not have at least some developmental
aspect to it. Increasingly assessment centres are stressing a collaborative approach
which involves the individual actively participating in the process rather than being a
passive recipient of it. In some cases we can even find assessment centres that are so
developmental in their approach that most of the assessment work done is carried out
by the participants themselves and the major function of the centre is to provide the
participants with feedback that is as much developmental as judgmental in nature.

Potential Appraisal,
Assessment Centres
and Career and
Succession Planning

Assessment centres typically involve the participants completing a range of exercises

which simulate the activities carried out in the target job. Various combinations of
these exercises and sometimes other assessment methods like psychometric testing and
interviews are used to assess particular competencies in individuals. The theory behind
this is that if one wishes to predict future job performance then the best way of doing
this is to get the individual to carry out a set of tasks which accurately sample those
required in the job. The particular competencies used will depend upon the target job
but one should also learn such competencies such as relating to people; resistance to
stress; planning and organising; motivation; adaptability and flexibility; problem
solving; leadership; communication; decision making and initiative. The fact that a set
of exercises is used demonstrates one crucial characteristic of an assessment centre,
namely; that it is behaviour that is being observed and measured. This represents a
significant departure from many traditional selection approaches which rely on the
observer or selector attempting to infer personal characteristics from behaviour based
upon subjective judgment and usually precious little evidence. This approach is
rendered unfair and inaccurate by the subjective whims and biases of the selector and
in many cases produces a selection decision based on a freewheeling social interaction
after which a decision was made as whether the individuals face fit with the

Differences between Assessment and Development Centres

The type of centre can vary between the traditional assessment centre used purely for
selection to the more modern development centre which involves self-assessment and
whose primary purpose is development. One might ask the question Why group
assessment and development centres together if they have different purposes? The
answer to that question is threefold.

they both involve assessment and it is only the end use of the information
obtained which is different i.e. one for selection and one for development.


it is impossible to draw a line between assessment and development centres

because all centres, be they for assessment or development naturally lie
somewhere on a continuum somewhere between the two extremes.


Most assessment centres involve at least some development and most

development centres involve at least some assessment. This means that it is very
rare to find a centre devoted to pure assessment or pure development. It is easier
to think about assessment centres as being equally to do with selection and
development because a degree of assessment goes on in both.


Development Centres grew out of a liberalization of thinking about assessment

centres. While assessment centres were once used purely for selection and have


Performance Management
and Potential Assessment

evolved to have a more developmental flavour, the language used to describe

them has not. Another problem with using the assessment - development
dichotomy is that at the very least it causes us to infer that little or no assessment
goes in development centres. While one hears centres being called assessment or
development centres assessment goes on in both and to that extent they are both
assessment centres. The end result of this is that it is not possible to talk about
assessment or development centres in any but the most general terms. A number
of differences between assessment and development centres exist are presented

Assessment centres have a pass/fail criteria while Development centres do

not have a pass/fail criteria


Assessment centres are geared towards filing a job vacancy while

Development centres are geared towards developing the individual


Assessment Centres address an immediate organisational need while

Development Centres address a longer term need


Assessment Centres have fewer assessors and more participants while

Development Centres have a 1:1 ratio of assessor to participant


Assessment Centres involve line managers as assessors while Development

Centres do not have line managers as assessors


Assessment Centres have less emphasis placed on self-assessment while

Development Centres have a greater emphasis placed on self-assessment


Assessment Centres focus on what the candidate can do now while

Development Centres focus on potential


Assessment Centres are geared to meet the needs of the organisation while
Development Centres are geared to meet needs of the individual as well as
the organization.


Assessment Centres assign the role of judge to assessors while

Development Centres assign the role of facilitator to assessors.


Assessment Centres place emphasis on selection with little or no

developmental while Development Centres place emphasis on
developmental feedback and follow up with little or no selection function.


Assessment Centres feedback and follow up while Development Centres

give feedback immediately.


Assessment Centres give feedback at a later date while Development

Centres involve the individual having control over the information


Assessment Centres have very little pre-centre briefing while Development

Centres have a substantial pre-centre briefing.


Assessment Centres tend to be used with external candidates while

Development Centres tend to be used with internal candidates.


Career is viewed as a sequence of position occupied by a person during the course of
his lifetime. Career may also be viewed as amalgam of changes in value, attitude and
motivation that occur, as a person grows older. The implicit assumption is that an
invididual can make a different in his destiny over time and can adjust in ways that
would help him to enhance and optimize the potential for his own career development.
Career planning is important because it would help the individual to explore, choose
and strive to derive satisfaction with ones career object.

The process by which individuals plan their lifes work is referred to as career
planning. Through career planning, a person evaluates his or her own abilities and
interests, considers alternative career opportunities, establishes career goals, and plans
practical developmental activities.

Potential Appraisal,
Assessment Centres
and Career and
Succession Planning

Career planning seeks to achieve the following objectives:


It attracts and retains the right persons in the organisation


It maps out careers of employees suitable to their ability, and their willingness to
be trained and developed for higher positions


It ensures better use of human resources through more satisfied and productive


It ensures more stable workforce by reducing labour turnover and absenteeism


It utilizes the managerial talent available at all levels within the organisation


It improves employee morale and motivation by matching skills to job

requirements and by providing job opportunities for promotion


It ensures that promising persons get experience that will equip them to reach
responsibility for which they are capable


It provides guidance and encouragement to employees to fulfill their potential


It helps in achieving higher productivity and organizational development

The essence of a progressive career development programme is built on providing

support for employees to continually add to their skills, abilities and knowledge. This
support from organisation includes:

Clearly communicating the organisations goals and future strategies.


Creating growth opportunities


Offering financial assistance


Providing the time for employees to learn.

On the part of employees, they should manage their own careers like entrepreneurs
managing a small business. They should think of themselves as self-employed. They
should freely participate in career planning activities and must try to get as much as
possible out of the opportunities provided. The successful career will be built on
maintaining flexibility and keeping skills and knowledge up to date.
Career anchors
Some recent evidence suggests that six different factors account for the way people
select and prepare for a career. They are called career anchors because they become
the basis for making career choices. They are particularly found to play a significant
role amongst younger generation choosing professions. They are briefly presented

Managerial Competence: The career goal of managers is to develop qualities of

interpersonal, analytical, and emotional competence. People using this anchor
want to manage people.


Functional Competence: The anchor for technicians is the continuous

development of technical talent. These individuals do not seek managerial


Security: The anchor for security-conscious individuals is to stabilize their

career situations. They often see themselves tied to a particular organization or
geographical location.


Creativity: Creative individuals are somewhat entrepreneurial in their attitude.

They want to create or build something that is entirely their own.


Performance Management
and Potential Assessment


Autonomy and independence: The career anchor for independent people is a

desire to be free from organizational constraints. They value autonomy and want
to be their own boss and work at their own pace. This also includes an
entrepreneurial spirit.


Technological competence: There is a natural affinity for technology and a

desire to work with technology whenever possible. These individuals often
readily accept change and therefore are very adaptable.

Career Planning Process

It is obvious from the foregoing analysis that individuals differ a great deal in term of
their career orientation .The career orientation is influenced by the preference for a
particular career anchor, the life cycle stage, individual difference in values, goals,
priorities, and aspiration. Organization also on the other hand differ in term of career
path and opportunities that they can provide given the reality of their internal and
external environments .The career system available in organizational depend on their
growth potential, goals and priorities. The difference between what the employees look
for in their career progression and what career growth opportunities the organization
is able to provide, gives rise to situation of potential conflict. If the conflict is allowed
to persist, the employee will experience dissatisfaction and withdraw from being
actively engaged in the productive pursuit .They might even choose the option of
leaving the organization. In either case, the organization is not able to optimally utilize
the potential contribution of its employee towards the achievement of its goal.
The possibility of conflict between the individual-organization objective calls for
career planning efforts which can help identify areas of conflict and initiate such
action as necessary to resolve the conflict . Career planning thus involves matching of
rewards and incentives offered by the career path and career structure with hope and
aspiration of employees regarding their own concept of progression. A general
approach to career planning would involve the following steps:



Analysis of the characteristic of the reward and incentives offered by the

prevailing career system needs to be done and made know to employee .Many
individuals may not be aware of their own career progression path as such
information may be confined to only select group of managers.


Analyse the characteristic of the hopes and aspirations of different categories

of employee including the identification of their career anchor must be done
through the objective assignment. Most organization assume the career aspiration
of individual employee which need not be in tune with the reality .The individual
may not have a clear idea of their short and long term career and life goals , and
may not be aware of the aspiration and career anchor .


Mechanism for identifying congruence between individual career aspiration

and organizational career system must develop so as to enable the organization to
discuss cases of mismatch or incongruence. On the basis of analysis, it will be
necessary to compare and identify specific area of match and mismatch for
different categories of employee.


Alternative strategies for dealing with mismatch will have to be formulated.

Some of the strategies adopted by several organization include the following :

change in the career system by creating new career path , new incentives,
new rewards, by providing challenge through job redesign opportunities for
lateral movement and the like.

change in the employees hopes and aspirations by creating new needs, new
goals, new aspiration or by helping the employees to scale down goal and
aspiration that are unrealistic or unattainable for one reason or the other.


Seek new basis of integration, compromise or other form of mutual change

on the part of employee and organizational through problem solving,
negotiation or other devices.

A framework of career planning process aimed at integrating individual and

organizational needs is presented.

Potential Appraisal,
Assessment Centres
and Career and
Succession Planning

Reviewing Career Plans a periodic review of career plans is necessary to know

whether the plans are contributing to the effective utilization of human resources
by matching employee objectives to job needs. Review will also indicate to
employee in which direction the organizations is moving, what changes are likely
to take place and what skills are needed to adapt to the changing needs of the


Succession planning is an ongoing process that identifies necessary competencies, then
works to assess, develop, and retain a talent pool of employees, in order to ensure a
continuity of leadership for all critical positions. Succession planning is a specific
strategy, which spells out the particular steps to be followed to achieve the mission,
goals, and initiatives identified in workforce planning. It is a plan that managers can
follow, implement, and customize to meet the needs of their organisation, division,
and/or department.
The continued existence of an organization over time require a succession of persons
to fill key position .The purpose of succession planning is to identify and develop
people to replace current incumbents in key position for a variety of reasons.
Some of these reasons are given below:

Superannuation: Employees retiring because they reach a certain age.

Resignation: Employees leaving their current job to join a new job

Promotion: Employees moving upward in the hierarchy of the organization.

Diversification: Employees being redeployed to new activities.

Creation of New Position: Employees getting placed in new positions at the

same level.

Succession can be from within or from outside the organization. Succession by people
from within gives a shared feeling among employee that they can grow as the
organization grows. Therefore organization needs to encourage the growth and
development with its employee. They should look inward to identify potential and
make effort to groom people to higher and varied responsibilities. In some
professionally run large organizations, managers and supervisor in every department
are usually asked to identify three or four best candidate to replace them in their jobs
should the need arise. However, the organization may find it necessary to search for
talent from outside in certain circumstance. For example, when qualified and
competent people are not available internally, when it is planning to launch a major
expansion or diversification programmes requiring new ideas etc.. Complete
dependence on internal source may cause stagnation for the organization. Similarly
complete dependence on outside talent may cause stagnation in the career prospects of
the individual within the organization which may in turn generate a sense of
Succession planning provides managers and supervisors a step-by-step methodology
to utilize after workforce planning initiatives have identified the critical required job
needs in their organization. Succession planning is pro-active and future focused, and
enables managers and supervisors to assess, evaluate, and develop a talent pool of


Performance Management
and Potential Assessment

individuals who are willing and able to fill positions when needed. It is a tool to meet
the necessary staffing needs of an organization/department, taking not only quantity of
available candidates into consideration, but also focusing on the quality of the
candidates, through addressing competencies and skill gaps.

Continuous self and staff development are essential to continuous performance
improvement. Ones own self-development needs to be related to your personal
strengths and weaknesses and to the career aspirations. This requires planning of
career progression and setting career goals. This can be achieved by identifying
potentialities of employees with the help of potential appraisal and various methods
involved in it viz. assessment centre.



Explain the concept of potential appraisal with illustrations.


What is career planning? Discuss its needs, purpose and objectives.


Is assessment centre same with development centre? If not, what are the


Write a comprehensive note on succession planning citing suitable examples.


Aswathappa, K.: Human Resource and Personnel Management, (1999) Himalaya
Publishing House, New Delhi.
Davar, Rustom: The Human Side of Management, (1994) Progressive Corporation.
Ghosh, P.: Personnel Administration in India, (1990).
Gupta, C.B., Human Resource Management (1997), Sultan Chand & Sons, New
Jucius Micheal, J.: Personnel Management,(1995) Richard Irwin.
Micheal, V.P.: Human Resource Management and Human Relations (1998),
Himalaya Publishing house, New Delhi.
Monappa, Arun and Saiyadain, Mirza S.: Personnel Management (1996), Tata
McGraw-Hill, New Delhi.
Saiyadain, Mirza S.: Human Resource Management(3rd Ed.),2003, Tata McGrawHill, New Delhi.
Tripathi, P.C.: Human Resource Development, 2003, Sultan Chand, New Delhi.
Philip, Tom: Making Performance Appraisal Work, 1983, McGraw Hill, U.K.




Learning Outcome





Requirements of Performance Appraisal


Objectives of Performance Appraisal


Approaches of Performance Appraisal


Need for Performance Appraisal


New Imperatives

Related Ideas
6.2.1 Performance Measurement
6.2.2 Performance Management


Methods of Performance Appraisal

6.3.1 Traditional Methods
6.3.2 Modern Methods


Performance Appraisal of Public Services in India


Proposed Improvements




Key Concepts


References and Further Reading




After studying this Unit, you should be able to:

Understand the meaning, need and significance of performance appraisal;

Define methods of performance appraisal;


Explain related ideas of performance appraisal; and

Analyse performance appraisal of public services in India.


Performance appraisal entails assessment of an employees performance on the job. It

involves measuring quantitatively and qualitatively, an employees past and present
performance, with reference to his specified role and the potential he imparts to an
organisation. What is important is the human factor under judgment. Criteria for
adjudging performance have to be carefully devised and employed prudently to
ensure a just assessment of employee performance. Needless to assert, there is a
difference between checking a machine for repairs and assessing human capacity for
work. Performance appraisal is recognised as an important aspect of human resource

Scholars use different terminologies to denote it. Meggioson (1967) prefers to use the
term employee appraisal while Cunning (1972) uses the term, staff assessment.
Pertinent questions put in the aforesaid context are: Can performance parameters be
objectively laid down or specifically delineated and measured? Can performance be
limited to the strict construct of job design? To what extent do workers redefine their
roles as per subjective role preferences, imparting their own unique understanding to
it the sense of emphasising certain aspects and deemphasising certain others?; To
what extent are jobs mean or end with respect to purposive behaviour in an
organisational situation?

Does role constitute fact to the exclusion of value? How can value be articulated
and assessed for better study of organisational behaviour? To what extent do workers
impart value to fact? It is an accepted fact of organisational life that workers do
impart personal values to job performance as per their perception of issues. Also, is
value imparted by an employee to an organisation measurable? Fact and value are
inextricable in real life situations (purposive behaviour). In the same vein, can
behaviour be catalogued along specifically crafted indices? Is it at all possible to
have scientific performance appraisal?

Aforesaid questions are some of the challenges for human resource management
today. Ideally, performance should be appraised by indices. All aspects of a job
should be articulated clearly, as; inter- personal relations punctuality, quality of work
etc should be used to allot marks or grade with a view to measuring them. A one
shot statement may not make for objective performance appraisal though,
disquietingly, forms organisational practice at lower levels in many government


Requirements of Performance Appraisal

Requirements of performance appraisal could be specifically stated thus:


Employees should be apprised of expected standards and level of

performance articulated specifically, both quantitatively and qualitatively, in
terms of goals, targets, behaviour, etc., expected at their particular levels. This
helps them match personal contributions to expected output;


Personal equation of trust and compatibility is important for good informal

interface between the employer and the employee. There should also be broad
agreement over criteria to be adopted for appraisal;


Employees should be encouraged to express themselves freely about

performance reports;


The organisation should ensure that the appraisal system is job-related,

performance-based, uniform, consistent, fair, just and equitable and that
appraisers are honest, rational and objective in their approach and judgment
and have the desirable behavioural orientation for ethical judgment.


Supervisors responsible for performance appraisal should be well trained in

the art and science of performance appraisal to ensure uniformity, consistency
and reliability of the process. Success of the evaluation ultimately depends on
the evaluator and not on any system however perfect a support it may


Performance appraisal reports should be examined meticulously, before any

action, positive or negative, is proposed to be initiated;


To promote consistency and uniformity regarding performance standards, line

and staff co-ordination is vital;


There should be provision for appeals against appraisals to ensure confidence

of the employees and their associations and unions; and


Performance appraisal is a continuous activity which also evolves over time.

Continuous study and review are therefore a must.


If an appraisal system is to achieve objectives academically delineated ideal,

the content should include both work- related and trait- related components.
It should highlight significant achievements or any special traits exhibited at
work with due emphasis on ethical behaviour; spirit of humanism and
enquiry, demonstrated learning capability and enthusiasm for work shown by
the employee. There should be an equal emphasis on the process of
performance appraisal. Procedural justice is a recognised factor in job
satisfaction at the work place. The process should stimulate two way
communication of appraisal content between superiors and subordinates;

emphasise on institution of feedback and follow-up action, ensure that

appraisal results are taken into account in administrative decision-making
relating to placements, career planning and development and finally, appraisal
systems should be evaluated from time to time to ensure desired stipulations
(both theoretical and practical) are duly properly followed in practice every

6.1.2 Objectives of Performance Appraisal

Performance appraisal serves the three- fold purpose of monitoring, evaluation, and
control. It is an imperative exercise to achieve the many objectives of personnel
administration. Performance appraisal is more than mere work assessment. It is a
management development activity, and is understood as a process, which facilitates
development of an organisational climate of mutuality, openness and collaboration
towards achievement of individual as well as organisational goals. To quote Heigel
(1973), Performance appraisal is the process of evaluating the performance and
qualifications of the employees in terms of the requirements of the job for which he
is employed; for purposes of administration; including placement, selection for
promotion, providing financial rewards and other actions which require differential
treatment among the members of a group as distinguished from actions affecting all
members equally.

The primary purpose of performance appraisal is to help each

man handle his current job better.. (Rowland, 1970).

It is the principal medium

through which human talent in organisations is most effectively utilised. Performance

appraisals multifarious objectives need to be clearly classified under the following









Objective of










Work -related objectives:


Provision of control over work;


Improvement of work efficiency;


Assignment of work scientifically, as per specialisations and

expressed proclivity of personnel and planning further organisational
expansion and diversification as per internal manpower planning; and


Job evaluation for compensation administration.

Career development objectives:


Identifying strong and weak points of personnel and aiding remedial

measures for perceived weaknesses through need based training;


Encouraging, motivating, controlling, organisational behaviour,

identifying training and development needs, and rewarding, correcting
or punishing employees;


Determining career potential of an employee with respect to his area

of specialisation and aptitude and chart future course accordingly.


Planning performance development activities for total improved

organisational performance; and



Communication objectives:

Provide timely feedback on performance, and


facilitate informal


Clearly establish goals in terms of what is expected of a staff member,

possible job enrichment for the future; mutual setting of goals for
better interaction through hierarchic tiers;


Provide counseling and job satisfaction, through open and free

discussion regarding performance; and


Aiding self-assessment of employees in terms of where they stand in

the organisation, by comparing expected and actual performance.

Administrative objectives:

Serve as a basis for promotions, rewards and penalties


Serve as a basis for incentive administration. Performance is not a

unidirectional but a two way interactional process, whereby
organisational equilibrium is secured by the management balancing
inducements and contribution on the part of employees. Offering an
economic analogy, Barnard has stated that equilibrium as attained at
a level where negative (contributions through effort put in
organisational work) and positive balance (inducements received)
with respect to an individual employees equalises. Organisation has to
strategise effectively to doctor such balance. To that end,
organisation has to reinforce positive behaviour on the part of
employees by way of rewards, welfare measures and employee benefit
schemes to secure sustained and willing cooperation towards
organisational purpose and restore internal equilibrium in case of any


Serve as a basis for transfer and placement policy with regard to

suitability of each employee as discovered through the performance
appraisal; and


Serve as a basis for termination in case of imminent staff reduction

due to cost considerations.

Key elements of performance appraisal could be summarised as follows:

Linking individual goals with organisational goals;

Regular review of job descriptions to keep jobs in tune with changing


Organisational Development (OD)

Performance development plan;

Continuous monitoring and review

Establishing causal link between performance and reward;

6.1.3. Approaches of Performance Appraisal

Performance appraisal has been significant activity since ancient times. Earlier,
performance appraisal was perceived primarily in the negative sense of punishing
employees and was restricted to formal remarks used for promotions. Today,
performance appraisal is viewed as a positive management development tool
intended to help employees develop to their full potential. The trend has changed
significantly so much so that almost a paradigm shift is discernable. The main
purpose of performance appraisal, as per modern understanding of the concept, is to
promote individual excellence in order that employees function better as a
collectivity and elevate the general level of organisational performance, while in the
process re-energising them and manifesting and rediscovering their latent potentials
as partners in collective endeavour. Establishment of conducive climate of mutual
trust between the two opposing poles of organisational effort, employees and
employer, is absolutely imperative for the efficacy of the process.
There are both formal and informal aspects to the process of performance appraisal in
the sense that formal observations and mutual discussions are involved in developing
parameters through positive deployment of social capital and de-emphasis of
hierarchy. The main purpose is to develop and refine human capital with more
emphasis on intent and less on process.

6. 1.4 Need for Performance Appraisal

Need for performance appraisal arises out of sub-optimal performance evidenced,
particularly among government employees. The Supreme Court has recently upheld
the right of the government to deny two years extension in service to a civil judge in
Orissa on grounds of poor performance. Masses are fed up with the attitude and the
work culture of the government and if things dont improve the public might take
the law into its own hands or there could be a mass movement of civil disobedience.
(Malhotra, 2000). Even the minister of state for labour, Government of India,
publicly alleged that forty to forty five per cent of central government employees are
virtual non-performers. There is imminent need for a reliable system of
performance appraisal either to weed out under performing and erring officials or
improve their work orientation, both work and trait related. (Munni Lal, 2005)
Motivating employees to involve their heart and soul in work is absolutely essential
for securing quality output. In government, though the skeleton of performance
appraisal system oriented to said end is available, actual practice remains largely
farther from the objective. There are prescribed criteria but application differs
considerably between departments and superiors. Target articulation and the process
of pursuing achievements are often left to the officials for detailing. (Ramaswamy,

To motivate employees to put in their best effort, performance appraisal system has
to be non-discriminatory and objective to the extent possible. Targets and goals to be
achieved should not be left to officials for subjective articulation. Instead, they have
to be related to the actual work content and all quantitative and qualitative aspects
and measurements thereof should be included and worked out in consultation with
workers prior to the commencement of the schedule for the year.

New Imperatives

There is the impact of the New Public Management paradigm to administrative

theory and practice on performance appraisal. In the entrepreneurial era, the
emphasis is on end- orientation, client- orientation, goal- orientation, innovation and
customer satisfaction. There is a growing body of evidence suggesting a shift from
government to governance, in that the emphasis is on the relevance of multiagency working, public-private partnerships and policy networks. The shift from
government to governance referred above, raises new challenges both for
democracy as a macro concern and effectiveness and efficiency (govern ability) of
individual enterprises (at different levels along the macro-micro scale). The public
sector primarily refers to 'the state' (that is, the national, local government). It also
includes a large variety of other organisations (Article 12 of the Indian constitution,
for example, the health care sector, schools, housing corporations and public
utilities), which, although private or non government, perform work of a public
nature or are involved in public tasks in varying degrees. The organisational and
managerial problems faced by the public sector are a matter of concern in the
political arena. The general complaint is that effectiveness, and responsiveness are
lacking. The concern is how can public tasks be managed more effectively and
efficiently? Since HR is strategically most important in securing organisational
effectiveness, these issues are at the heart of the new public management. Civil
servants have been accused of lackadaisical performance and evasion of
accountability. In the new paradigm, there is an emphasis on means adopted in
pursuance of ends in that there is emphasis on ethics in strategy.
New management orientation is encapsulated in the following chief paradigms:

There is increasing emphasis on the economic dimension; better provision of

choice, minimising rent seeking in government operations, measuring by
EVA or economic value added in that higher EVA means a better level of
resource unitisation, assessing training, selection procedures by public choice
paradigm, employing decentralised decision making techniques. Result based
management (RBM) is the latest paradigm. Instead of result measurement and
management by objectives (MBO), emphasis is placed on quality and flexible
work processes for achieving desired quality of output. Comparison across
jobs or units allows less for comparable standards

There is encouraging inventiveness in work culture; a realisation that success

is a journey not a destination and the realisation that there is no failure only
feedback in performance appraisal;


There is increase in scope of public management. There are new techniques

being employed. Contrastive analysis involves contrasting similarities and
differences between one situation and another to find what difference makes
the difference Benchmarking is the approach of continuously measuring
products, services and practices against standards set by competitors or
leaders in the field;

There is attention to detail to maximise efficiency. Method study is involved

in performance measurement; and


Some of the significant ideas, which are related to performance appraisal, need to be
understood for better appreciation of it as a tool for achieving desired organisational
effectiveness. These are:
6.2.1. Performance Measurement
Performance measurement is based on the belief that performance can be measured
by objective indices. Stress is not so much on behaviour and activities as ends of
behaviour and activities. Behaviour or activities are seen rather as mean to the
important end; results. Emphasis is on tangible value- added measured in terms of
tangible contribution to the organisation that can be expressed in numbers. This is
known as performance measurement. The chief factor in performance measurement
is development of objective measures for quantifying performance.
Performance measurement is necessary to enforce accountability to results. In
government, accountability means the responsibility of a civil servant or unit for
achieving a mission and the functions to support that mission. They have to be
accountable to the tax player for prudence in expenditure. In other words the civil
servants are to be responsible for their results, not just for their efforts.
Osborne and Gaebler (1992) have referred to the following as reasons for measuring

What gets measured gets done.


If you dont measure results, you cant tell success from failure


If you cant see success, you cant reward it


If you cant reward success, you are probably rewarding failure


If you cant see success, you cant learn from it


If you cant recognise failure, you cant correct it


If you can demonstrate results, you can win public support.

Limitations of Performance Measurement

Stated below are some of the major problems in performance measurement:

It may be difficult to measure phenomena as complex as performance.

Results could be unreliable;

Today's organisations are rapidly changing. Results and measures

consequently get quickly obsolete;

Translating human desires and interactions to measurements is impersonal

and even heavy handed (Mc Namara, 2005).

There may be employee resistance on the ground that the


Job is either too creative to be measured; or


Too professional; or


Too diffused;

As far as comparative performance evaluation of sections inside an

organisation is concerned, it should be remembered that inadequate
performance does not always indicate a problem on the part of the work unit.
Performance standards may be unrealistic or a section showing sub optimal
performance may have insufficient resources at its command or there may be
other constraints. Similarly, strategies of the organisation or its means may be
unrealistic or without the backing of sufficient resources (McNamara, 2005).

Academics, today, do not avoid about using subjective and descriptive

measures in performance evaluation. The guideline seems to create
descriptive measures; do not stick to numbers; verifiability and reliability of
measures instead of quantification is more important. Instead of avoiding
subjective measures, innovative yardsticks could be employed. This is
especially relevant in case of service-oriented organisations (such as in
government bureaucracy) where measurement by numbers might seem farfetched. (ibid)

6.2.2 Performance Management

Performance management is a result oriented exercise. It brings into focus all
organisational and sectional results, links them, brings them into perspective, relates
them in terms of the larger picture, measures them, set up monitoring and feedback
mechanisms, and finally, institutes development plans to improve upon results
procured thus.
The result of the exercise depends on the focus of performance effort articulated
through the mission statement and communicated as work- related objectives to
employees, the focus differing with the section involved and also with the differing
perception of the authority in charge of carrying it out. For example, an economist
would identify financial results, such as return on investment, profit rate, etc. as the


focus. An industrial psychologist might identify more human centric results, such as
employee productivity and implications for industrial relations, and the like (Mc
Namara, 2005)
Result measurement is not an end in itself. Setting up an on- going feedback
mechanism with stress on informal work relations and use of positive social capital in
performance management and periodic adjustments providing for flexibility of
processes are more important than result measurement in numbers. Continuous
review of performance, therefore, is understood as performance management.
Performance managements is an ongoing activity, more in the nature of a learning
exercise, whereas performance review or appraisal involve post-committal
assessment of an activity or of the performance at a given task as a whole.
Performance management works by the systemic perspective. Besides focusing on
performance of employees, it should also ideally cover:
1. The Organisation
2. Departments (computer support, administration, sales, etc.)
3. Processes (billing, budgeting, product development, financial management, etc.)
4. Programs (implementing new policies and procedures to ensure a safe workplace;
or, for a nonprofit, ongoing delivery of services to a community)
5. Products or services to internal or external customers
6. Projects (automating the billing process, moving to a new building, etc.)
7. Teams or groups organised to accomplish a result for internal or external Hence
systems paradigm is considered most suitable for performance management.
customers (McNamara, 2005).
(a) Basic Steps in Performance Management
Performance management activities proceed in a logical continuum. Observing
sequential steps may be critical for successful implementation of the process. The
focus of performance management function could be the entire organisation, a single
process, a sub-system or an employee. Subsystems could be a department, a program,
a team or a group organised to accomplish a particular task. Performance is a
complex whole which involves integrated effort of all units in a direction, that is, the
organisational purpose.
Performance management activities are somewhat similar to several other major
approaches in organisations, for example, strategic planning,
management by
objectives, total quality management, training as mentioned earlier etc. Steps in
performance management are similar to those in a well-designed training
programme. Trainers today focus much more on results of performance. This has
given rise to a new genre of training consultants. Many trainers with this orientation
now call themselves performance consultants (Mc Namara, 2005). The steps in
performance management include:

To set up the process successfully, steps should be followed as; articulate

results objectively in terms of discrete units of performance; as, quantity,
quality, cost or timeliness ( result itself is a measure);



The performance management process often includes translating

organisational goals in terms of results, which themselves are described in
terms of quantity, quality, timeliness or cost. Therefore, the results of all parts
of the organisation should be aligned with the overall preferred results of the


Prioritise desired results; break down results into component units and
activities to the extent possible. Weighting results refers to prioritising, often
expressed in terms of a ranking (such as 1, 2, 3, etc.) percentage; time-spent,


Establish direct causal relationship between immediate ends leading to

broader organisational purpose variously understood as end or value;


Conduct ongoing observation and measurement to track performance;


Exchange ongoing feedback on performance; (McNamara, 2005)

(b) Key Benefits of Performance Management

Some of the key benefits of performance management are:
Performance measurement focuses on results rather than behaviors and
activities of employees. Value added to organisational performance is important.
Accountability is enforced through performance management.

Alignment of organisational activities and processes in furtherance of the goal

of the organisation imparts coherence to an organisation;


Cultivates a system-wide, long-term view of the organisation. These

measurements have a wide variety of applications. in benchmarking, or
setting standards for comparison with best practices in other organisations


It is a basis for Organisation Change and Development. Performance

management provides a consistent basis for comparisons between temporal
situations during internal change conflicts;


It cultivates a systems perspective in that the focus is on the relationships and

exchanges between subsystems, e.g., departments, processes, teams and
employees. Accordingly, personnel focus on patterns and themes in the
organisation, rather than specific events;


It produces specificity in resource commitment and allocation;


It provides specificity for comparisons, direction and planning;


It improves coordination;


It encourages responsible behaviour on the part of employees and facilitates

decentralised functioning;


Delegation is resorted to more often; and



Ethics of participation and team- work are facilitated;

Performance Development Plan

A performance Development Plan is aimed at plugging the performance gap.
It indicates specifically the problems behind below par result accomplishment such
as, in what areas what correctives need to be administered, at what level; when
performance is to be reviewed again and in what manner, by what methodology and
such other relevant information.
(a) Key Features of Performance Development Plan
Performance development plan entails:


Strategic alignment which communicates strategic direction, goals and


Learning oriented mechanism for reviewing and learning from the

information provided by the measures adopted;

Action oriented mechanism that stimulates action from the results of the
measures; and

Environmental impact assessment, considering value impingement from the

environment; specifically government policy or directives emanating therefrom. (Mc Namara, 2005)


There are two methods of performance appraisal. They are classified broadly, as
traditional and modern methods.
6.3.1. Traditional Methods
This classification contains a number of techniques:
1. Graphic Scale
2. Ranking
3. Forced Distribution Method
4. Critical Incident Method
5. Forced Choice Rating Method
6. Group Appraisal
7. Nomination


8. Work Sample Tests

9. Result-Oriented Performance Appraisal System
10. Confidential Reports.
Graphic Scale
It is the most widely used technique of performance appraisal. In this method,
articulated traits such as quality of work, quantity of work, dependability, attitudes
and so forth are laid down. The rater places a check-mark on a form next to the word
or phrase describing the degree of merit for each factor. Many scales designed by
different technicians are available which can be modified to suit different situations.
For example, J.B. Probst, former chief examiner of the St. Paul Civil Service Bureau
adopted a comprehensive list which has been used in a modified form by different
organisations. A major problem with graphic rating scales is that words like
excellent, poor and the like are general and do not convey the degree of merit
relating to each specific factor with respect to an employee. The following should be
kept in mind for selecting traits for merit rating regardless of the method that is

Traits should be observable, that is, can the rater actually observe this trait in


Universality of the trait under consideration is important, meaning, is it a

relevant characteristic in relation to the job under study?


The trait under question should clearly be distinguishable as something

different from another trait with a different name.


It is less subjective as it considers a number of different traits rather than a

subjective whole.


Traits are defined and uncertainty is minimised.


It also shows the degree to which each desired trait is present; is therefore

It is difficult to:



Decide on relative weights of different traits;


Validate the opinions arrived at; and


Ensure uniformity in trait articulation and consistency in rating, as

they are likely to differ with raters.

Persons of similar cadre are ranked in the order of merit, for example, if there are
eight lecturers in a college, they could be ranked, 1, 2, 3 It entails simple ordering
which gets difficult when twenty or more cases are involved. One of the techniques of
ranking used is paired comparison. In this method, the rater compares each employee
with every other in the group. Final ranking is based on the number of times the
employee is judged better than the others. The rater must make n (n-1)/2 judgments
where n is the number of men to be ranked. The method is not suitable where the
group is large because number of judgments required, become unmanageable.
Forced Distribution Method
In this system, a five-point scale of job performance is used. On one end of the scale
are the best job performance and the other, poor job performance. Fixed percentage
of employees is allocated to the best, middle bracket and worst ends of the scale. The
supervisor is asked to allocate approximately ten percent of his men to the best end of
the scale, twenty percent to the next category, forty percent to the middle category,
twenty per cent to the bracket next to the low end and ten per cent to the low bracket.
The supervisors opinion is taken as the final word. Despite subjectivity the method
is relied upon for assessment of employee performance. This could be illustrated with
the help of a table.
Job Performance Scale
10 per cent

20 per cent

40 per cent

20 percent

10 percent






Critical Incident Method

This method involves keeping a record of exceptionally good or bad incidents in the
employees work life with respect to the period under review. Such good or bad
incidents can be examined to rate the fortitude and practical skills of employees. Bad
incidents do not mean low ranking. It is how the particular employee rises up to the
challenge and works his way through difficulty that is considered.
Forced Choice Rating Method
The rater is asked to select one statement out of two or four which in his opinion is
most characteristic of the employee and another which is least, or both. In effect, the
forced choice system is an attempt to devise an objective method of arriving at the
same answers that the top management would reach after a protracted and
complicated process. To serve a practical example; the subordinate



Commands respect by his

most characteristic


Is cool headed


Is indifferent


Is overbearing

least characteristic (optional


Two of these are favourable and the other two, unfavourable. One of the two
favourable terms checked as most characteristic gives plus credit whereas the other
gives no or negative credit. However, articulation of these characteristics and the
determination of the scoring key (most, least) are crucial in a just rating by this
Group Appraisal
The appraiser group consists of three to four persons including the immediate
supervisor who give their opinions collectively. Assistance from others also could be
taken to cover aspects of employee performance and personality which may not have
been noted by the immediate supervisors. For just assessment, members approached
for appraisal must be people who have some contact with the subject. These
members can be managers at high levels or colleagues or subordinates. It is
apprehended that colleagues, if associated can work as either rivals or personal
friends, which would create biases in judgment. There can also be cliques of
informal groups based on mutual benefit ties! As far as subordinates are concerned,
they might not perceive the issue correctly and judge the person from their own
narrow standpoints. They might also avoid airing views against the supervisor for
fear of reprisals. Group appraisals therefore are advised to be used with caution. As
practical concern it is better to involve superiors rather than colleagues or
subordinates in group appraisals.
By this method, appraisers are asked to identify exceptionally good and exceptionally
poor performers in the organisation. The latter group is singled out for correctives.
Both groups are studied for academic knowledge about organisational climate and
specific drivers of efficiency. Academic inquiry into poor performance is also


Work Sample Tests

In this method, workers are administered work sample tests which form the basis of
their assessment which they are evaluated. It provides important practical inputs for
training and employee development programmes.

Result-Oriented Performance Appraisal System

This technique evaluates the extent of attainment of targets in the context of overall
objectives to ascertain the merit of personnel. Value addition on the part of an
individual employee is considered which is attempted to be quantified.
Annual Confidential Reports (ACR)
In most government departments and public enterprises in India, performance
appraisal is done through Annual Confidential Reports (ACRs). Format of these
reports differs from organisation to organisation and also with levels as per specific
requirement(s) articulated. Casual attitude is alleged on the part of superiors writing
remarks for subordinates. There is strong opinion in favour of confidential reports
incorporating modern techniques of rating.

Confidential report is written for a year and relates to performance, ability and
character of the person, for that specific period. The essential features of confidential
reports of officers under the administrative control of the government are as follows:

Annual confidential remarks are recorded to judge the performance

and efficiency of officers in public services.


The objective of maintenance of character reports is to put an officer

on the desired path by pointing out defects.


Adverse entries should be communicated in time to enable him to

rectify the defect.


From December 4, 1946 until April 20, 1966, the practice of

communicating both remediable and irremediable defects was
followed. Since 1966, irremediable defects concerning integrity and
morality are not being communicated as per express governmental
directive to that effect.


Confidential character roll recorded by reporting officers is to be

countersigned by the superior authority.


Countersigning authority may take a view different from that of the

reporting officer in which case the view of the former shall prevail.


Until the countersigning authority gives his remarks, the character roll
is not considered complete and is not to be acted on.

(viii) Time schedules have been prescribed for recording remarks at

different levels and their submission to the government for
maintenance of confidential character roll.

Representations against adverse remarks are not ordinarily entertained

as the very purpose of such communication is to apprise the officer of
his failings in order that he rectifies them for his own benefit. Such
communication should not be regarded as a matter of argument or


In rare cases, however, where the remark is concerning specific acts or

is the result of an error on the part of the reporting officer,
representation lies (Ventat Rao vs. State of Orissa; 1974 Lab. IC
1192:1975 SLS 267(1974) 2 SLR 899 (Ori)).

Evaluation of Traditional Methods:

Perceived faults of traditional methods are as follows:
Performance is not evaluated in terms of its impact on organisational objectives,
goals and targets. It focuses attention on the personality
of the subject rather than
organisational results or the purpose of his joining the organisation. Appraisal goals
are found to lack in reliability, verifiability, validity, and are most often, subjective.
Besides, raters also (allegedly) display biases. Both the appraiser and the subject
consider it an unpleasant exercise as no performance appraisal system can be claimed
to be perfectly free of biases or prejudices. Annual performance review leaves
people bitter, dejected, depressed and in despair for months (Deming)
Most administrators do not possess knowledge of the art and science of performance
appraisal which results in adoption of different criteria of assessment for one
employee by different administrators.
Appraisals are not always utilised to educate employees with regard to expected
behaviour. Counseling the employee to influence his behaviour in the desired way
should be the prime objective of performance appraisal.
Traditional performance appraisal techniques do not stress effective communication
between the appraiser and subject as a necessary and desirable condition or even as a
prerequisite. Information flow, top to bottom, is crucial as personnel are desired to
know the criteria by which their performance is being assessed.
V.R. Buzzotta (1989) raises the following other criticisms of performance appraisal:


Appraisal process often gets confrontational as employees and

supervisors work as two opposing poles of organisational effort;
reconciliation may not always be possible. The appraisal process gets
emotional in case participants sense adverse entries or anticipate
confrontation. There may be outbursts of temper or even sarcasm
which leaves parties hurt and resentful.


Appraisal process is often judgmental. This causes conflict because

the manager is required to act in a dual capacity, as judge and
counselor which he may not be trained or experienced to be just to.


The appraisal process gets ambiguous as managers do not fully

appreciate their responsibility and also lack the psychological insight
and interactive skills needed to appraise successfully.

6.3.2. Modern Methods: Management by Objectives

Management by objectives (MBO) is a systematic and organised approach that
allows management to focus on achievable goals to attain best possible results from
available resources. It aims to increase organisational performance by aligning goals
and subordinate objectives throughout the organisation. (business e- coach, 2005)
According to Odiorne (1965), result-oriented appraisals or MBO is a system
wherein the superior and the subordinate managers of an organisation jointly
determine their common goals, define each individuals major areas of responsibility
in terms of results expected of him and use these measures as guides for operating the
unit and assessing the contribution of each of its members.
Steps in the Process
The main steps in the process are as follows:
(a) Determination of Results
The first step is to identify key areas in which positive results are desired. The
general purpose of the organisation should be articulated in terms of meaningful
objectives for each unit within the organisation. Once identified, the objectives
should be delineated and should not normally be changed during the year. Objectives
should be specific and achievable as short- term manageable targets. They should
distinctly characterise the subjects job; in other words be directly related to his job
description. These should be tasks for which the subject is held accountable. They
should be realistic and achievable, at the same time; challenging enough to make the
employee stretch his potential for the organisations good.
Job design helps in goal setting for each level. It enables setting out targets
quantitatively, for better performance measurement. The basic ideas behind written
requirements for each position is, specification of duties, responsibilities, reporting
relationships and qualifications (attributes or specifications) desired for
Each subordinate is required to establish short-term performance goals or targets. It is
necessary that subordinates targets are discussed with superiors for better coordination and avoiding of role conflict and ambiguity. According to O.A. Ohmann
(1957) this procedure gives subordinates an opportunity to make their own evaluation
of target accomplishments and assess further scope for improvement. While
discussing results, the subordinate actually appraises himself and gains further insight


for improved performance regarding his methods, attitudes and behaviour. MBO is
hence, first a diagnostic tool for self appraisal, then an action programme for change
and improvement, next, a tool for implementation.
The second step is to clearly lay down the requirements and expectations at every
level regarding expected volume of output, quality stipulations, time and money
investment required etc. The idea behind the exercise is that performance appraisal
system has its genesis in the broad purposes of the organisation.

Recording Observations
The appraiser records the performance of his staff members against norms articulated
in well-designed appraisal forms. There is a formal provision for self-appraisal by the
incumbent. Self-appraisal process enables self- assessment on the part of the
employee. He analyses his present performance and identifies his strengths,
weaknesses and potential for future growth, as well as craft plans for improvement.
Performance Progress Review Conference
Once performance appraisal is completed, the next step is performance progress
review conference for exchange of information between the appraiser and appraisee.
The subject matter is progress review as per specified parameters. Should parameters
be changed or retained in their original form? Does format of appraisal chart need
reviewing? What section should be added to orient it towards desired end such as
career planning or performance improvement or enhancing productivity etc.?
Individual Development Programme
Based upon performance-appraisal reports, a plan can be developed jointly by the
appraiser and appraise identifying specific performance targets for development
period under review and formulating a description of specific approaches under
consideration for improving the performance of the subordinate.
Post-development Programme Review Conference
Post-development review is designed to evaluate the results of the individual
development programme and to establish new or modified targets for the ensuing
review period.
MBO approach has limitations. The procedure may be impracticable in cases where
the top personnel are simply not interested in involving subordinates in decision
making. Besides, the approach stresses on tangible goals and not intangibles, like
honesty, commitment of employees which actually determines performance.
Feedback to Employees
One of the important aspects of performance appraisals is the provision of clear
performance based feedback to employees (Rearce and Portee, 1986). Raters tend to
inflate performance ratings when they know their reviews will be fed back to the
raters(Antononi, 1994). Inflated feedback gives distorted information. The question

arises; is performance appraisal feedback necessary? Many Korean organisations are

known to offer no performance appraisal feedback to raters. Performance appraisal is
viewed in Korean organisations as bureaucratic red tape which no body really cares
about. However, they do take performance appraisals into account for promotions.
The application of the concept is culture specific (Lee and Shin, 2000).
It is also to be kept in mind that benefits of appraisals are not primarily regarding
procedure. Benefits result only when procedure is supported by consistent and fair
judgment and managerial acumen. W.B. Oastetter has rightly said that although
there is a considerable amount of knowledge and understanding required to plan,
organise, implement and operate a performance appraisal system, the application of
the process need not be complicated. There is generally an inverse relationship
between the amount of paper work involved in the appraisal process and its
effectiveness. Consequently, the emphasis of the appraisal process should not be on
an elaborate system of forms, procedures and reports. The focus of this approach is
the self-development and self actualisation of personnel. The basic focus is on
employee development. Performance evaluation therefore is something of an
executive art and science in itself.




The performance of the civil servants is commented upon by the controlling

authority, which normally is the head of the department. He rates the incumbents on
several parameters, such as competence, punctuality, efficiency, capability, ability to
work with the team, leadership qualities, etc. Often efficiency rating is a matter of
subjective assessment. Level of efficiency is rated; outstanding, very good, good or
fair. Promotions give special weight to a consistent outstanding grade. Assessing
authority rates integrity as totally beyond reproach, of unquestionable integrity,
beyond doubt, or as, nothing adverse has come to notice.
Performance appraisal system followed in public services in India is based on the
limiting idea of efficiency. Unless integrity is rated negative, this parameter does
not matter in the process of promotion. In the prevalent climate, it has to be
recognised that integrity is as much, if not more, relevant to public service efficiency.
If we consider probity and integrity in public service as national assets, an integrity
rating like of unquestionable integrity has to be given due weight for promotion.
By doing so, we would place equal emphasis on both efficiency and integrity.
(Reddy, 1990). Mere absence of negative rating does not imply ethical behaviour. In
the prevailing climate, integrity is as tangible a value added as efficiency and
should be given due count. It need not be asserted that the present crisis in public
personnel administration is due to lack of integrity. Integrity is built into the idea of
effectiveness. Integrity needs to be studied academically; all its dimensions need to
be brought out and the same incorporated as a positive virtue in performance
appraisal charts. Responsibility and responsiveness may be tangible suggestions.
Hence, the first priority of public personnel administration is to improve ethical
standards with a view to rooting out corruption.


Despite all the efforts to make performance appraisal objective and useful, loopholes
remain in the system as is practiced today. Some could be discussed as follows:



There is high degree of subjectivity in performance appraisal reports

for employees at all levels. Performance appraisal is used more as an
instrument of subservience.


Employees, especially if they are due for promotion have to chase

the concerned reporting, reviewing and accepting authorities to ensure
that their appraisal report is written on time.


It is a common complaint that appraisal reports are never written on

time. Time lag means that reporting and reviewing authorities do not
remember all benchmarks of performance for the period under


For employees who are transferred frequently in a year, proper

assessment of performance is difficult. It becomes more an official
directive complied with, than an activity aimed at management


It is difficult for secretariat employees, especially assistant level

upwards to under-secretary, to write anything meaningful in their
annual confidential reports against targets and achievements. It is also
not possible to prescribe any targets for officials who are entrusted
with only deskwork. Even for others, specific targets are not fixed by
the superiors.


Assessment of employee made in terms of satisfactory, good,

outstanding, differs from officer to officer and also department to
department. Where output of work can be measured easily objectivity
is facilitated, but in government departments which deal mostly with
policy matters, quantification is difficult.


Only adverse remarks are communicated to the employees. Even this

is not done on time in many departments.


Number of ACRs being reported or reviewed should be limited to the

span of control lest it become a meaningless, routine activity.


In most states, the formats are uniform for all the employees
regardless of the nature of functions. There are wide variations in the
grading of civil servants between states and the linking of
empanelment of civil servants to ACRs has led to politicisation of the
processs. Effort should be made to revise and update the ACR format
and incorporate more department-specific and objective feedback

Recommendations for Better Objectivity of Appraisal

The Karnataka Administrative Reforms Commission in its interim report in 2001
examined the problem of performance appraisal and made suggestions for
improvement. In order to improve performance appraisal, following changes have
been recommended to be adopted;

All information about the annual confidential reports of the employees must
be computerised. The management should guard against missing reports or
level jumping in the process;

There should be different formats for ACRs for secretariat, field, and public
sector employees;

Apart from adverse comments a copy of each years completely written ACR
must be given to the employee. This will help the employee know how his or
her performance is being evaluated. He might make necessary improvements
for the next year. The ACR need not be confidential in a liberal

As is done for the armed forces and central police organisations, a grading
system on a 10 point or a 7-point scale to assess the individual traits and
attributes could be introduced as a necessary facet of the ACR exercise;

All levels of officers who have to write ACRs must be given proper training
in writing ACRs objectively;

Counseling may be introduced for employees who get repeated adverse

remarks; and

Action should be taken against officers who delay writing ACRs whether they
are reporting, reviewing or accepting authorities.

Time frame should be fixed for approval of ACRs by ministers. ACRs are
delayed at this stage for several months.

The comments in the ACR should be utilised as inputs for training, job
assignments and career development planning.

Confidential reports have far-reaching influence on the career of an employee. These

should therefore be handled prudently. It need not be emphasised that the remarks
such as good, very good, satisfactory, fair, etc., are not made with precision.
Each one of these has different implications and leads to unintended consequences
for the employees career.
Suryanarayana and G. Prageetha Raju (1998) rightly state, that if training is provided
meticulously at regular intervals for both appraises and appraisers conceptual clarity
will improve and appraisal process would become more acceptable to the
organisation. Through training there is exchange of ideas and experiences.
Stimulated role plays ensure better interaction in the hierarchy.


In this context, the recommendations of the Fifth Pay Commission are worth noting:


A ten point grading scale should be used instead of the broad categories of
good, very good, to consider finer and subtler distinctions among personnel.
Benchmarks should be prescribed for performance.

Transparency should be ensured through partial opening of the process by

provision for communication of the final grading to the employees. In case of
low grading, such communication would afford the employee an opportunity
to represent against an assessment that may adversely affect his career

Assessment and appraisal of employees performance should be a continuous

process. Officers responsible for reporting on their subordinates should
maintain a weekly or monthly record of their impressions about the
performance and contribution of subordinates, including, important
achievements, shortcomings, adherence to schedules for completion of
specified tasks, etc.

Assessment of an employee should be in the context of the team and

department as a whole since he does not operate in isolation but as member of
a group. Appropriate weight for group work should be assigned in grading.
Constraints should be clearly stated.

The employee can opt to work under a different reporting officer in case of
inconsistency or unfairness in review.

Five years review should be taken into account for career advancement

There should be quinquenial review of performance for Group A officers.

Counseling of employees should form an integral part of performance


Delays should be minimised by adhering scrupulously to schedule prescribed

and computerisation of data.


Improvements can also be made without much difficulty to improve the consultative
nature of the ACR process and the feedback managers provide to staff. A
Performance Appraisal Model will be of great use in reforming Annual Confidential
Promotions should be merit based and the respective authorities have to benchmark
the best practices and evaluate the performance of the civil servants both qualitatively
and quantitatively along a variety of parameters. The performance appraisal of civil
servants has to be according to these benchmarks and the necessary placement
reward and punishments can be taken up by the authorities. (Misra, 1997)


The recent reform in Hong Kong Civil Services wherein it was mandated that the
civil servants would be recruited on a permanent basis but their continuation in the
job would be subject to verifying the performance indicators from time to time. This
model can be replicated in India also. There may be periodic performance reviews or
audits for civil servants, especially when they become 50 or complete a certain
number of years in service. (Satish, 2005)
The Indian system fails to measure technical competence and their capability to carry
out neutrally and impartially the policy directives of political decision-makers though
this should be the spirit which guides their functioning. It is said that each profession
should develop its own code of conduct and performance appraisal system. By this
reckoning, the civil service system in India should also respond to the need for
developing its own system of performance appraisal and code of conduct. No law can
offer an all-time solution in these regards. Most of the Indian acts in their present
form are adopted versions of their British editions. A perusal of such Acts clearly
reveals that they were never intended to prescribe a code of conduct or a performance
appraisal system. They only contained the powers and privileges, the service
benefits, and the accountability mechanism which had to be followed by the civil
servants (Morgan and Heady, 1997).
The Indian civil service allegedly lacks professionalism. As noted earlier, they act
more as generalists and much less as specialists. The induction training has been
designed in such a way that hardly any scope is left for giving a non-generalist
orientation. Once they join the service, they are shuffled for short trainings from one
to the other department, so much so that they hardly get an opportunity to develop an
understanding of technical aspects of a problem or acquire a technical expertise. The
inputs coming from civil servants can lead to a much higher value addition in certain
areas if they could have an understanding of practical aspects related to them. For
instance, professionalism of a high degree is required to handle complex tasks at the
Ministry of Finance, Petroleum, Commerce, Power, Transport, Food and Agriculture,
Irrigation, Communications, Atomic Energy, etc.
A study of the overall perception of the officers of the IAS by members of the Indian
Police Service, politicians, technocrats, and academicians points out that they project
themselves as experts on everything. Their concern for, and focus on their own career
is very high. They are self-opinionated, power-hungry, shrewd and manipulative,
procedure and rule-focused, arrogant, inaccessible, judgmental and critical, and
having concern for minor details. They have been rated very low on positive traits
such as commitment to organisation, trustworthiness, risk-taking, conscientiousness,
innovativeness, and creativity. Most of the studies have rated them lowest as
visionaries and transformational leaders. They are considered to be no-change agents.
The self-perception of these officers (officers of the IAS) is exactly opposite. The
thrust of the criticism of the Indian civil service system is on overstaffing,
wastefulness, cautiousness, unfairness, and non-responsiveness, the last one being the
most important of all, which could be seen from the fact that as per a recent decision
of the government, discussions are being conducted on effectiveness and
responsiveness of the Indian administration in the different parts of the country.
There is also an underlying Government concern about leadership skills in the Civil
Service and elsewhere in the public sector. Largely in response to this, the Civil
Service now has in place a six-pronged reform programme whose elements of

particular relevance to the Senior Civil Service include: (a) stronger leadership with
clear sense of purpose; (b) sharper performance management; (c) a dramatic
improvement in the diversity of staff; and (d) a service more open to people and
There has to be a regular appraisal of performance of public service providers at
every level. As is done for the armed forces, a grading system on a ten-point scale to
assess the individual traits and attributes could be introduced as a part of the annual
confidential reports. Counseling may be introduced for those employees who
repeatedly get adverse remarks. A time-frame should be fixed for writing the annual
confidential reports as well as for their acceptance. It may be a good idea to provide a
copy of each years completely written annual confidential report to the employee
concerned, to enable him to know how his/her performance had been judged and
what improvements are required for better performance (Meenakshi Sundaram,
In the absence of standards, public service organisations get away with poor
performance. The absence of an effective Performance Monitoring and Evaluation
System makes it difficult to identify effective public service organisations from those
which are unable to provide services. It is, therefore, necessary to set standards of
public services and to ensure that the standards are adhered to by putting in place an
effective performance monitoring and evaluation systems. (Administrative Staff
College, 2005). However, with regard to specifying service quality standards, the
following issues need to be considered:

How can one take into account the diversity of circumstances across
country while developing service delivery standards;

What should be the mechanism for enforcing standards of service ;

Can financial allocations or payments be linked to service quality

How can one ensure equity in this regard, given that
states start from
infrastructure ?; and

Is there a meaningful way of establishing objectively verifiable

standards for achieving universal and quality primary
reduction in infant mortality rate, and effective
access to primary health

Since a large number of Indias citizens live in rural areas, posing inherent
difficulties in service delivery, special attention has to be paid to the improvement of
service delivery in rural areas. Some of the problems associated with rural areas are
the lack of credible institutions, poor resource base, and unwillingness on the part of
public service workers to serve in rural areas, lack of accountability due to distance
from the controlling unit, issues of local capture and information asymmetries.
Following are some issues related to improvement of service delivery in rural areas:


How can existing service delivery mechanisms in rural areas be

reinvigorated to deliver services effectively;


Can non-public sector delivery mechanisms backed by voucher payments

offer an alternative to improving service delivery in rural areas;

Can effective decentralisation lead to improvement in the delivery of

services in rural areas;

How can the tools of e-government be effectively used to improve service

delivery in rural areas;

Can performance evaluation systems based on citizen inputs help in

improving the delivery of services;

What level of local government should be the unit of service in rural

areas, taking into consideration issues of economies of scale and
accountability ?; and

Will local economic growth help in improving the quality of public

services in rural areas?


An effective performance appraisal system is a continuous activity beginning with

goal setting, progressing through periodic reviews and culminating in traditional year
end evaluation. It is designed to improve overall functioning of an organisation.
However, performance appraisal is still perceived as a fault-finding exercise which
encourages favouritism and timidity and servitude on the part of employees. The
final grading of an employee depends much more on personal loyalty than
performance. Final grading is made a personalised decision. Besides, appraisal is
arguably not taken seriously enough. Confidential reports are completed rather
lackadaisically barely a few minutes before final submission indicating that
supervisors take this actively casually.
Though meant to serve the three fold purpose of monitoring, evaluation, and control,
the appraisal system has been reduced just to a control mechanism to secure
submission and compliance of the employee rather than an instrument for improving
the capability of the organisation and individuals. The proclivity is suggested by the
term annual confidential report or confidential character role that is used to name
performance appraisal chart in government. The two obvious characteristics of
performance appraisal in government are secrecy and fairness. Whereas secrecy is
maintained by strict hierarchical structures of the government and its impersonal
character, the fairness of the system has also been called into question. Subjective
attitudes, personal biases and outdated value systems have been pointed out as the
faults plaguing the system. Finally, it is necessary to discuss how responsibility for
performance appraisal can be made more meaningful (Sharma, Harinder and Dey).

The employee should be made aware of the organisations expectations

and norms used for evaluation

The employee should have the right to raise his voice against unfair
practices in rating. Such provision for hearing should be built into the


appraisal. Systemic evaluation and potential evaluation should be clearly

distinguished for the benefit of the employee.

Performance appraisal should ultimately become a development-oriented

evaluation approach.

The focus of analysis in this Unit has been on appreciating all aspects of
Performance appraisal. In order to get thoroughly, sensitised to it, the
discussion has been on performance measurement, performance management,
etc., besides highlighting the performance appraisal in public systems.




Indicators are framed as per nature of a specific job. For

example, indicators for a teacher and a civil servant would
be different. Indicators enable progress (lack of) at a
specific level.


Measures provide specific information as to the extent of

accomplishment of targets. Measures are both subjective
and objective, as human performance cannot be judged by
objective standards alone. The only condition is that
measures should be amenable to a result- oriented
assessment. Examples of measures include, time spent on
specific activity, work hours, quantity of output etc.

Performance Gap:

Perceived difference between actual and desired

performance is understood as performance gap. Human
Resource Development activities are undertaken as per
analysis or diagnosis of causes of performance gap.
Performance gap is human and only indicates the needs for
improvement and how the same should be affected for
desired performance at that level.

Performance Plan:

Performance Plan integrates parts into the whole of

organisational effort, including articulation of performance
standards at each level, integration of performance and
total measurement. The idea behind a performance plan is
that each activity in an organisation is tied to the whole and
should not be assessed in isolation. Missing links, casing
sub optimal performance at a level should be discovered
and taken care of to rectify whatever is creating shortfall at
that level.


Desired final or specific outputs in terms of quality,

quantity or money and time cost, and human resource
indicators as stipulated for effective work performance.
Due to cost constraint, measurement by results is needed to
derive maximum benefit with minimum cost. Human
Resource audit and performance management and





Learning Outcome


8.1.1 Motivation and Incentives
8.1.2 Justification of Incentives


Incentive Plans


Social Security


Shortcomings of Incentive Plans




Key Concepts


References and Further Reading





On studying this Unit, the learners will be in position to:


Understand the significance of incentives in achievement of motivation and group


Distinguish between material and non- material incentives and emphasise their
significance to organisation in general and management in particular; and

Refer to types of incentive plans.


The term incentive is used to describe material and non-material benefits given to
employees in addition to their normal salaries to induce them to go that extra mile
towards promoting productivity and efficiency of the enterprise. It is generally felt that
performance of personnel, either as individuals or as members of a group is below par
when compared to their capabilities, skills and capacities. Finer, states that demonstrated
performance generally never exceeds more than fifty percent of an individuals innate
ability. Most individuals tend to halt efforts around an estimation of costs expended (time
and energy) and relative benefits procured from work. This is where incentive
administration assumes significance. According to Wendell French (1997), the purpose of
incentive plans is to increase the morale and motivation of employees to contribute to
further the goals of the organisation.

Incentive systems are meant both to motivate an employee to earn more by working hard
and also reinforce positive behaviour on his part by rewarding good performance for
healthier organisational climate. Hence incentive is to be understood both in the tangible
and intangible senses, as aimed both at encouraging and sustaining better performance
from employees. Material incentives may take the form of wage payments related to
employees performance in addition to the normal salaries given for standard work
assigned, welfare related benefit programs, fringe benefits, rewards and recognition
Incentive administration must have a "base line" standard so that performance over and
above the specified standard can be rewarded. These incentive plans are linked directly or
indirectly to the standards of productivity or the profitability of the organisation or to both
criteria. The study group of the National Commission on Labor, (1968) has recommended
that, "under our conditions, a wage incentive is concerned with effective utilisation of
manpower which is the cheapest quickest and surest means of increasing productivity.
The only practicable and self-sustaining means of improving manpower utilisation is to
introduce incentive schemes and stimulate human efforts to provide a positive motivation
to greater output."
Megginson (1967) defines incentive wages as the extra-compensation paid to an
individual for production over a specified magnitude which stems from exercise of more
than the normal skill, effort or concentration when accomplished in a pre-determined way
involving standard tools, facilities and' materials.
Currently, the emphasis in payment by results schemes is on team work more than
individual effort.
Schematic diagram below depicts the process of incentive, offering financial
inducements above and beyond basic wages and salaries.

Job Evaluation

Incentive Plan

Determination of
basic pay and fringe

Payment of salary
for minimum

Determination of
extra work done as
Compared to the



Motivation and Incentives

Reiterating the importance of motivation, E.F.L. Brech states, the problem of motivation
is the key to management action; and in its executive form it is among the chief tasks of
the General Manager. We may safely say that the working of an organisation is a
reflection of motivation from the top.
On the basis of above definitions, it can be said that motivation is a tendency, which
keeps a person attentively and purposefully engaged in achieving goals. Motivation
arises from obvious and tacit factors that form employee psychology. It involves
interactions and relationships in employee personal and work life referring to his
existence as an individual, a member of society and a member of both the formal and the
informal group of the organisation he works for. From a management perspective,
motivation constitutes the base for management activities covering POSDCoRB
functions. One of the biggest challenges to modern organisations is how to sustain
productivity or efficiency standards while maintaining competitive advantage in the
market place with emphasis on cost competitiveness. There is a danger of workers losing
interest in work if they realise that extra interest or labour could not make any difference
to them. Paul Rigors (1973) has rightly posed this challenge when he states, "a continuing
challenge for management is how to share the gains from higher productivity in ways that
will stimulate the interest of employees in improving their performance on-the-job and
the productivity of the organisation as a whole. One of the challenges of motivation
theory is investigation into pathological phenomenon.
Questions like, why some employees feel alienated in an organisation? Why some resist
their own skills and capabilities? Do they encounter emotional blockages? What can the
management do?; Is retrenchment the only solution? Or; is the best? Why is there inertia
in hierarchy?; Why employees of one organisation work more efficiently than others?;
and what makes certain employees achievement oriented and disciplined arise?;
These and such other questions have to be inquired into, if we have to grasp fully the
meaning, nature and scope of motivation for both social and utilitarian purposes. It is
obvious that mere possession of knowledge, skill and ability do not ensure best results as
performance also depends on intangibles like human relations at work, motivation or will
to perform. Empirical investigation into behavioural phenomenon is required to answer
many of the questions addressed above to solve the perennial dilemma of motivation in
management theory and practice. The most important task of the personnel department is
to put across the point most emphatically and continually that personnel in an
organisation are most important and also the key to development.


Justification of Incentives

The economic theory of motivation is based upon the argument that people feel
motivated when rewarded with money. This gives a utilitarian orientation to incentive
management. There is an assumption of direct correlation between monetary reward and
performance. Dale Yoder, (1969) rightly remarks, However, fascinating the individual's
job assignment in a public agency or private firm, the employee expects to be paid. His
wage may (and it is generally assumed that it does) affect the way he works how much
and how well." Guellerman (1963) too regards money as an important motivator when
.he states, "money may well turn out to be the costliest motivator of them all, but money
may also prove to be the most potent motivator of all, at least in certain circumstances,
and when used on a sufficient scale." Executives in organisations must look after material
welfare of employees because despite human relations and behavioural assumptions,
money is regarded as a potent motivator.
However to assume that financial rewards are the only sources of motivation would be an
exercise in oversimplification. A positive incentive can be either financial or nonfinancial. Financial incentives satisfy primarily, employees' lower order needs viz.,
physiological, security, as per Abraham Maslows (1954) theory and wins his calculative
involvement, that is, the person feels committed only to the extent of doing a fair days
work for a fair days pay. On the other hand, non-financial incentives for example,
praise, competitions, participation, etc., provide higher order need satisfaction, catering
to social and psychological needs of a person, which make him more committed to
organisational goals. As a result, a person realises his full potential. To quote
Barnard,(1938) "material rewards are ineffective beyond the subsistence level excepting
to a very limited proportion of men; that most men neither work harder for material
things, nor can be induced thereby to devote more than a fraction of their possible
contribution to organised efforts. The opportunity for distinction, prestige, personal
power, and the attainment of dominating position are much more important than material
rewards in the development of organisations, including commercial organisations."
It has, therefore, been conceded that economic gain may not be sufficient incentive. In
this vein Allport (1943) observes, Employees in an organisation are 'not economic men'
so much as they are 'ego- men'. What they want, above all else, is credit for work done,
interesting tasks, appreciation, approval and congenial relations with their employers and
fellow workers. These satisfactions they want even more than high wages or job security.
Non-material incentives take the form of recognition of good work through appreciation
letters, merit certificates, medals, more meaningful involvement in decision making,
opportunity for self growth(associational attractiveness and ideal benefactions by
Barnards terminology). Such awards benefit employees indirectly that is, aiding
promotion or nomination to higher posts. However, this comparison is rather meaningless
because management needs both types of incentives. The real question, therefore, is not
what type of incentives is required, but rather how to integrate the two types of incentives
successfully. What is needed is a contingency approach that considers needs of workers,
type of jobs, and requirements in the organisational environment. Only then can an

optimum balance between financial and non-financial incentives be attained. (Tripathi,

R.K. Misra (1973) favours the judicious use of both monetary and non-monetary
incentives to achieve productivity. While budgetary restrictions and temporary
improvements in performance place a limit on the potency of financial incentives as
motivators, non- financial incentives demand only human ingenuity as investment and
also ensure relatively stable acceleration in output. Both are important and judicious mix
of the two enriches organisational practice. The Administrative Reforms Commission
(1968) has advocated the use of incentives to promote efficiency in organisation.
Recommendation number 64 states:



Incentives for timely completion of a specific project may be provided

through suitable awards such as a rolling cup or a shield. In individual
cases, commendatory certificates may be issued;


Cash awards or one or two advance increments may be given to those who
give valuable suggestions for simplifications of work leading to economy
in expenditure or otherwise increase efficiency; and


Any exemplary or special achievement may be recognised by grant of

medals as is practiced at present in the police department. It may now be
in order to discuss incentive plans separately.


The incentive plans are discussed under two types, that is, material incentives and nonmaterial incentives.
A. Material Incentives: Individual Incentive Plans
These plans award individuals or group of individuals, extra payment for the extra work
performed. In order to encourage employees, different incentive plans have been
designed. Same are recounted as; Taylor's Differential Piece Rate Plan, Gantt Bonus
Plan, Halsey Plan, Emerson Efficiency Plan, Rowan Plan, etc. In these schemes
minimum, daily or weekly rates of pay are guaranteed and personal effort and efficiency
are linked with rewards.
Modern innovation metrics such as Return on Innovation Investment (ROI) aid in
evaluating and rewarding new product teams and establishing a credible link between
new product performance and corporate incentives
According to Louden, "the purpose of individual incentive plans is to offer financial
incentive for a worker or group of workers to produce work of an acceptable quality over
and above a specified quantity." According to Wolfe, "their primary purpose is to aid in
obtaining minimum unit costs thereby contributing to enterprise profits." These

individual incentive plans can be categorised into piece rate plans and production bonus
plans. There are, however, problems in instituting individual incentive plans. The most
pressing is the criteria by which work performance standards are to be set. It has also to
be kept in mind that differential payment schemes might adversely affect social capital
and lower group morale. It can also potentially affect the quality of work. Differential
annual payout may be determined by a subjective evaluation of each person's
Advantage is that differential criteria is adopted to reward performance which is just to
more meritorious employees and individual performance is given recognition apart from
group. There may also be a significant one-time payout if an employee has an
extraordinary accomplishment for a year.
Disadvantages are that the payout may be subjective. It can be divisive and adversely
affect the working of the informal organisation. Suggestion proffered to get around the
problem is to encourage employees to make suggestions through a suggestion box for
promotion of productivity and reduction of costs. This would also encourage employee
participation in decision making in an organisation. Suggestions given by employees
would be effective as they are expected to understand the functioning of the organisation
better than supervisory personnel. However, care should be taken that suggestion plans
do not lead to unsavory interference or role dilution with respect to the management
function specifically policy making. Supervisory and professional employees are
excluded from such plans as this forms part of their job profile.
Merit Pay
The merit increase program is implemented when funds are designated for that purpose
by the institution's administration, dependent upon the availability of funds and other
constraints. Its major advantages are that it allows administration of differential pay to
high performers, allows estimation of individual and company performance separately
with a view to judge impact fairly, and allows compensation for outstanding
achievements. Main disadvantage is that assessment criteria employed may be subjective.
Robert and Masvin (1966) observe that there are several specific common-sense
considerations in establishing any such plan:

Ensure that effort and rewards are directly related. The incentive plan should
compensate employees in direct proportion to their increased productivity.
Employees must also perceive that they can actually do the tasks required.
Thus, the standards have to be attainable, and the employer has to provide the
necessary tools equipment and training;


Make the plan understandable and easily calculable by the employees.

Employee should be able to calculate easily the rewards they will receive for
various levels of efforts;


Set effective standards: This requires several things. The standards should be
viewed as fair by subordinates. They should be set high but reasonable and
there should be about a 50/50 chance of success. And the goal should be
specific this is much more effective than telling someone to do your best;


Guarantee standards: View the standards as a contract with your employees.

Once the plan is operational, great caution is to be used before decreasing the
size of the incentive in any way. Rate cuts have long been the nemesis of
incentive plan;


Guarantee an hourly base rate: Particularly for plant personnel, it is usually

advisable to guarantee employees base rate. Therefore, they will know that no
matter what happens they can at least earn a minimum guaranteed base rate;


Get support for the plan: Group restrictions can undermine the plan; get the
work groups support for the plan before starting it.

Group Incentive Plans

Because of the pressure of unions, these incentive plans often become unpopular.
Group incentive plans are increasingly put into use, for example, bonus schemes, profit
sharing, etc. The purpose of group-incentive plans is the same as that of individual
incentive plans except that incentives are paid to a group rather than individuals engaged
in a particular plan or aspect of organisational work.
Profit-sharing Plans
Profit-sharing plans are the most widely used incentive-pay programs. The purpose of
profit-sharing is to distribute additional profit among employees as incentives in the form
of bonus, which may be paid in cash or transferred to their account. The company
contributes a portion of its pre-tax profits to a pool that is to be distributed among eligible
employees. The amount distributed to each employee may be weighted by the employee's
base salary so that employees with higher base salaries receive a slightly higher amount
of the shared pool of profits. This is done generally on an annual basis. The amount
credited to their account can be withdrawn only if the employees have worked for a
minimum period of time. Profit plans work best at more established firms with relatively
steady earnings. Large corporations widely employ profit sharing.
Advantages of a profit-sharing plan include, fostering team work, focus on profitability
and sustainability to the enterprise. For smaller companies with erratic earnings, profitsharing plans can frustrate and irritate employees by creating expectations that are not
fulfilled. Criteria adopted for administering profit plans differs from organisation to
organisation and need to be carefully defined in advance.
Wages received by employees are supplemented by payment of an annual lump sum
called bonus, which is a type of profit sharing. Over the years, the concept of bonus has
changed from one of profit sharing to one of deferred wages so that a minimum amount is
payable irrespective of the profits. Bonus is regulated in India by the Payment of Bonus
Act 1965, which is applicable to every factory and other establishments employing
twenty (20) or more persons on any day during an accounting year. Newly set up
establishments are not required to pay a bonus until they derive profits or for five
accounting years following the year when they start selling their products on a regular
basis, whichever is earlier.

The Payment of Bonus Act specifies a detailed method for computation of the bonus.
Only employees drawing up to Rs 3,500 per month are entitled to a bonus under the
act, but the bonus is calculated on the maximum salary of Rs 2,500 per month for a
salary between Rs 2,500 and Rs 3,500. The amount payable varies from 8 percent
(minimum) to 20 percent (maximum) of annual salary. However, the normal practice is
to pay, ex gratia, some amount to employees drawing above Rs 3,500 per month also.
In addition to profit sharing and bonuses, some other incentive options are:

Salary-at-risk plans; where employees receive their full base pay only if
performance meets minimum goals, but a larger payout is possible; and

Gain sharing, popular at some manufacturing firms, provides for a portion of

increases in efficiency to be shared with employees. Gains are measured and
distributions are made through predetermined formula. For example difference
between actual and expected hours of work put in give hours gained. Since this
pay comes into act only when gains are achieved, gain sharing plans do not entail
extra cost burden.

Stock Options entail the right to purchase stock at a given price at some time in
the future. An option is created that specifies that the owner of the option may
'exercise' the 'right' to purchase a companys stock at a certain price (the 'grant'
price) by a certain (expiration) date in the future. Usually, the price of the option
(the 'grant' price) is set to the market price of the stock at the time the option was
sold. If the underlying stock increases in value, the option becomes more
valuable. If the underlying stock decreases below the 'grant' price or stays the
same in value as the 'grant' price, then the option becomes worthless.

Stock options provide employees the right, but not the obligation, to purchase shares of
their employer's stock at a certain price for a certain period of time. Options are usually
granted at the current market price of the stock and last for up to 10 years. To encourage
employees to stick around and help the company grow, options typically carry a four to
five year vesting period, but each company sets its own parameters.
Stock Options are of two types:
1. Incentive stock options; (ISOs) in which the employee is able to defer taxation
until the shares bought with the option are sold. The company does not receive a
tax deduction for this type of option.
2. Nonqualified stock options; (NSOs) in which the employee must pay income tax
on the 'spread' between the value of the stock and the amount paid for the option.
The company may receive a tax deduction on the 'spread'.
The advantages of stock options are that they allow a company to share ownership with
employees. Employees consequently feel more involved in organisational functioning.
The disadvantage is that stocks are speculative with attendant risks, employee
interference increases in the name of participation and their attention diverts to pecuniary
matters rather than performance at work
Stock options are considered most suitable for small companies where future growth is
expected and for publicly owned companies that want to diversify ownership.

Besides aforementioned schemes, other forms of incentives could be recounted as (HR

Guide, 2005):

Paid holidays

Paid vacation

Medical care

Paid sick leave

Life insurance

Retirement plans

Educational assistance

Accident insurance

Family benefits

Paid personal leave

Paid maternity leave

In addition to monthly salary or wages, various fringe benefits are also available to
employees. Fringe benefits contribute significantly to the cost of hiring an employee. In
general, it may be said that they represent approximately 50 percent of the monthly
salary. The compulsory fringe benefits are as follows.

Annual bonus

Monthly contribution to a provident fund

Terminal gratuity


Contribution toward the employees' state insurance scheme.


House rent allowance to workmen.

(B) Non-material Incentive Plans

Non material incentive plans may take the form of appreciation letters, award of medals,
certificates, etc. These incentive plans can be of great use in organisations where the
service aspect is stressed more than the business or commercial aspect. In organisations,
with welfare activities or law and order or defense functions, it may be difficult to
compensate the hard work of employees with money. Here, one can make use of nonfinancial incentives, which sustain the morale of particularly hard-working employees.



According to P.C. Tripathi (2003), the connotation of the term social security varies
from country to country along with changing political ideologies. In socialist countries,
the avowed goal is complete protection of every citizen from the cradle to the grave. In

other nations, with less controlled economies, a measure of protection is afforded to all
citizens with schemes evolved through the democratic process consistent with the
resources of the state. According to the social security (minimum standards) convention
number 102, adopted by the International Labour Organisation in 1952, following are the
nine identified components of social security:

Medical care


Sickness benefit


Unemployment benefit


Old-age benefit


Employment injury benefit


Family benefit


Maternity benefit

(viii) Invalidity benefit


Survivors benefit



Incentive schemes, if not properly implemented can create problems, for example, (i)
there is a tendency amongst employees to improve quantity at the cost of quality; (ii)
there is a danger that safety regulations might be disregarded by workers which result in
higher accident rates; and (iii) there is a danger that workers undermine their health under
strain of work; finally such schemes potentially generate misunderstandings and jealousy
among workers because of differential earnings. Therefore:

Employees must be taken into confidence in design the rewards and incentive
plans so that they are aware of all parameters by which to avail of benefits.


The plan should be simple and intelligible to all


The plan should be equitable and flexible.


The amount of rewards and incentives should be substantial so as to suit the

stature of the person concerned.


A feedback of incentive audit must be obtained to assess the benefits of the




The crux of the discussion is;

Rewards and Incentives are important to motivate employees towards



Rewards can be both material and non-material.


Non-material awards are easy to administer.


Awards and incentives must be based on well- defined principles.


Awards and incentives may be given only to deserving employees.




Incentives are offered to motivate employees towards better

work performance and improved commitment towards the
organisational purpose. Incentives are both material and non
material incentives. Examples of non material incentives
include meaningful participation in work, recognition, team
work and identification with the purpose of the organisation


Goal directed behavior is motivated behaviour. Motivation

study analyses human needs, motives and drives which create
an achievement orientation in an employee. As part of
management strategy it implies positive reinforcement of
desired organisational behaviour. The Classical School of
administrative thought took a limited perspective to motivation
in that it understood and appreciated it, in monetary terms only.
The Human Relations and Behavioral Schools inquire into
cognitive processes of human beings with a view to studying
tangible and intangible motivators that determine employee
psychology and shape up to organisational behaviour.



Allport, 1943, The Ego in Contemporary Psychology, Journal of Psychological

Review, Volume 5.
Barnard, Chester I, 1938, The Functions of the Executive, Harvard University Press,
Chadha, Narendra K, 2000, Human Resource Management Issues, Case Studies and
Exercise, Shri Sai Printographers, Delhi.





Learning Outcome








Job Stress and Burnout


Computer Related Health Problems


Noise Control


Acquired Immune Deficiency Syndrome (AIDS)


Alcoholism and Drug Abuse


Violence in Workplace


Health Promotion


What Causes Unsafe Acts


Management Commitment and Safety


Safety Policies and Discipline






Key Concepts


References and Further Reading





After reading this unit, you should be able to:

Know the importance of employee health and safety;

Define Health and Safety;

Analyse the remedial measures for occupational diseases; and

Bring out the remedial measures for Industrial Accidents.

Today employees expect their employers to provide work environments that are safe
and healthy. However, many employers once viewed accidents and occupational
diseases as unfavorable byproducts of work. This idea may still be prevalent in many
industrial settings in underdeveloped countries like India, the idea must be replaced
with the concept of using prevention and control to minimise or eliminate risks in

workplace. Employers in variety of industries have found that placing emphasis on

health and safety pays off in a number of ways.
Good companies maintain safe working environments by making health and safety a
top priority throughout the organisation. Health and safety are important aspects of an
organisations smooth and effective function. Good health and safety performance
ensures an accident - free industrial environment.
Companies seek to create common health and safety philosophies, strategies and
processes. To ensure health and safety consistency and promote an overall health and
safety culture, leading benchmark companies coordinate key strategies and activities
through a centralised oversight department, such as corporate health and safety.
Awareness of Occupational Health and Safety (OH & S) has improved in India
considerably. Organisations have started attaching the same importance to achieve
high (OH & S) performance as they do to other key aspects of their business
activities. This demands adoption of a structured approach for the identification of
hazards, their evaluation and control of risks.
Government of India believes that without safe and healthy working conditions, social
justice cannot be achieved and the attainment of safety and health at work is
fundamental to economic growth.
Under the constitution of India the Directive Principles of the State policy provides,

For securing the health and strength of workers, men and women and


Just and humane conditions of work and maternity relief (Article 42)

On the basis of these Directive Principles, the Government of India declares its
policy, priorities and strategies, purposes through the exercise of its power. The
formulation of policy, priorities and strategies in occupational safety, health and
environment at work places is not undertaken by national authorities alone but in
some form of consultation with the social partners i.e. employees organisations,
autonomous & voluntary organisations public etc for agreement and involvement for
ensuring set goals and objectives.
The changing job patterns and working relationships, the rise in self employment
greater sub-contracting, out sourcing of work and the increasing number of employees
working away from their establishment and home work pose the problem of
management of occupational safety and health risks. New safety hazards and health
risks will be appearing along with the transfer and adoption of new technologies. In
addition, many of the well known conventional hazards will continue to be present at
the workplace many years ahead till the risks arising from exposure to these hazards
are brought under adequate control.

Health refers to general state of physical, mental and emotional well-being. A healthy
person is free of illness and injury. Health management practices in organisations
strive to maintain the overall well-being of individuals.
Employees health problems are varied and inevitable. They can range from minor
illnesses such as colds to serious illnesses related to the jobs performed. Some
employees have emotional health problems; others have alcohol or drug problems.
Some problems are chronic; others are transitory, but all may affect organisational
operations and individual employee productivity.

The well-being of the employee in an industrial establishment is affected by accidents

and by ill-health; physical as well as mental. Ill health of employees results in reduced
productivity, higher unsafe acts, and increased absenteeism. A healthy worker, on the
other hand, produces results opposite to these. In other words, healthy employees are
more productive, more safety conscious, and are more regular to work. The worker
who is healthy is always cheerful, confident looking, and is an invaluable asset to the
A realisation of the advantage, which flow from a healthy workforce, has impelled
much management to provide health services to their employees, which vary from the
simple provision of first-aid equipment to complete medical care. Many progressive
organisations maintain well-equipped dispensaries with full-time or part-time doctors
and full-time compounder/nurses. Unlike his/her counterpart of yester-years, who
would take every precaution to protect his horses against diseases but felt that the
health of the human worker was his own business. The manager of today is fully
aware of the advantages of having a healthy workforce.
The protection of the health of the workers is a legal requirement too. Sections 11 to
20 of the Factories Act, 1948 deal with the health of workers.
Provisions of the Act:

Factory to be kept clean and free from effluviant and dirt (S.11).

Arrangements to be made for disposal of wastes and effluents (S.12).

Adequate ventilation and temperature to be provided (S.13).

Measures to be taken for prevention of inhilation or accumulation of dust and

fumes (S.14).

Standards for artificial humidification to be fixed (S.15).

Overcrowding related injuries to health of workers to be avoided. 9.9/14.2

cubic metres of space must be provided for each worker (S.16).

Sufficient and suitable lighting must be provided in every part of the factory

Glazed windows to be kept clean. Measures need to be taken for prevention

of glare and formation of shadows (S.17).

Suitable points for wholesome drinking water must be provided. Drinking

points to be legibly marked and located away from urinals. Water needs to be
cooled if the number of workers is 250 or more (S.18).

Latrines and urinals to be separately provided for male and female workers.
They should be well lighted and ventilated (S.19).

Sufficient number of spittoons must be provided. Whoever spits outside the

spittoons shall be punishable (S.20).

16.2.1 Job Stress and Burnout

Problems such as alcoholism and drug abuse sometimes result from stress, especially
job stress. Here job-related factors such as overwork, relocation, and processing with
customers eventually put the person under such stress that a pathological reaction
such as drug abuse occurs.

A variety of external environmental factors can lead to job stress. These include work
schedule, pace of work, job security, route to and from work, and the number and
nature of customers or clients. Even noise including people talking and telephones
ringing, contribute to stress.
However, no two people react to the job in the same way, because personal factors
also influence stress. For example type a personalities people who are workaholics
and who feel driven to always be on time and met deadlines normally place
themselves under greater stress than do others. Job stress has serious consequences
for both employer and employee. The human consequences include anxiety,
depression, anger and various physical consequences, such as cardiovascular disease,
headaches, and accidents. For the organisation, consequences include reductions in
the quantity and quality of job performance, increased absenteeism and increased
grievances and health care costs.
Reducing Job Stress:
There are number of ways to alleviate stress. In his book Stress and the Manager
Karl Albrecht suggests the following ways to reduce job stress:

Build rewarding, pleasant, cooperative relationships with colleagues and



Dont bite off more than you can chew


Build an especially effective and supportive relationship with your boss


Negotiate with your boss for realistic deadlines on important projects.


Learn as mush as you can about upcoming events and get as much lead
time as you can to prepare for them.


Find time everyday for detachment and relaxation.


Take a walk around the office to keep your body refreshed and alert.


Find ways to reduce unnecessary noise.


Reduce the amount of trivia in your job; delegate routine work whenever


Limit interruptions.


Dont put off dealing with distasteful problems.


Make a constructive worry list that includes solutions for each problem.

The employer and its human resource specialist and supervisors can also play a role in
identifying and reducing job stress. Supportive supervisors and fair treatment are two
obvious steps. Other steps include:

Reduce personal conflicts on the job.


Have open communication between management and employees.


Support employees efforts for instance, by regularly asking how they are


Ensure effective job-person fit, since a mistake can trigger stress.


Give employees more control over their jobs.


Provide employee






Reassess your goals in terms of their intrinsic worth. Are the goals you
have set for your self attainable? Are they really worth the sacrifices
youll have make?


Think about your work. Could you do as good as a job without being so
intense or by also pursing outside interests?

16.2.2 Computer Related Health Problems

The fact that many workers today must spend hours each day working with computers
is creating health problems at work. Short term eye problem like burning, itching,
and tearing as well as eyestrain and eye soreness are common complaints among
video display users.
Backaches, and neck aches are widespread among display users. These often occur
because employees try to compensate for awkward body positions. Researchers also
found that employees who used video displays and had heavy workloads were prone
to psychological distress like anxiety, irritability and fatigue.
The following measures have been further recommended:
1. Give employees rest breaks. The institute recommends a 15 minute
rest break after two hours of continuous work for operators under
moderate work loads and 15 minute breaks every hour for those with
heavy work loads.
2. Design maximum flexibility into the work station so it can be adapted
to the individual operator. For example, use adjustable chairs with mid
back supports and a video display in which screen height and position
are independently adjustable.
3. Reduce glare with devise such as shades over windows, terminal
screen hoods properly positioned, and recessed or indirect lighting.
4. Give workers a complete pre-placement vision exam to ensure
properly corrected vision for reduced visual strain.
5. Place the keyboard in front of the employee, titled away with the rear
portion lower than the front.
6. Place the computer mouse and mouse pad as close to the user as
possible and ensure there are no obstructions on the desk that impede
mouse movement.
7. Allow the user to position his or her wrists at the same level as the
8. Put the monitor at or just below eye level at a distance of 18 to 30
inches from the eyes.
9. Let the wrist rest lightly on the pad for support.
10. Put the feel flat on the floor, or on the footrest.
Workplace Smoking
Smoking is a serious problem for both employees and employers. Studies even
shown that for some reason, smokers have a significantly greater risk of occupational
accidents than do non smokers, as well as much higher absenteeism rates. In general,
sometimes employee are less healthy than non-smokers, are absent more, make more

and more expensive claims for health and disability benefits and endangers coworkers who breathe smoking air.
16.2.3 Noise Control
An age-old problem, and not effectively tackled till now, is the noise in industrial
establishments. Noise made its appearance in organisations when human started
working on metal. As civilisation advanced, human discovered more and more ways
of having machines to do his/her work, and each new machine added to the problem.
For quite a number of years, noise was endured by all. But, in the recent past, the
increasing use of machines of great speed is telling upon the health of the workers.
Long exposure to excessive noise impairs the hearing of employees. The level and
duration of noise and the exposure that is likely to cause deafness varies from person
to person. It is agreed that long exposure to noise in excess of the prescribed limits
makes one deaf.
Hearing loss is not only effect of noise. Constant exposure to high noise levels can
cause hormonal imbalances, changes in blood circulation, dizziness, increase in
respiratory rate, heartburn, sleep disturbances and fatigue.
Noise Control Methods
It is impossible to eliminate noise from industrial establishments, as long as
machinery is used in manufacturing operations. However, noise control can help
minimise harmful effects on employees. Noise control can be achieved (i) at the
source (ii) through enclosure, (iii) by absorption, or (iv) by ear protection.
Controlling noise at its origin is the best method of reducing its harmful effects.
Noise can be controlled at its source by questioning the noise-producing elements by
repairing or redesigning the machines: mounting machines to reduce vibration; or
substituting noise producing elements with quieter ones.
Considerable reduction in the level of noise may be achieved by providing enclosures
for machines with specially made covers or housing them in separate rooms. But a
small opening is enough to produce heavy leakage of noise. Care should, therefore be
taken to make the enclosure as full proof as possible. Where machines cannot be
enclosed, places which need quieter surroundings may themselves be enclosed, for
example a works office. Similarly, a machine transmitting vibration on a large scale
may be isolated from the rest of the operations.
The harmful effects of noise may be reduced by absorbing it. Ceilings and walls may
be constructed with acoustic materials to absorb sound. Empty space around the high
noise-producing machine may be provided to absorb the noise. High ceilings
dissipate noise considerably.
Where nose is excessive and other methods of noise control are likely to be
ineffective, employees working close to the source of noise may be given ear
protection to prevent any impairment of their hearing capacity. They may be
provided with muffs, helmets, cotton and soft rubber, to be worn by them while on
work. They should be educated to wear the protection equipment, because the
tendency with most workers is to ignore.
16.2.4 Acquired Immune Deficiency Syndrome (AIDS)
AIDS is likely to cause considerable confusion and disruption in the workforce.
When employees realise that they are working with an infected worker, they demand
that the hapless employee should be dismissed. If the management discharges the
employee, the law is violated, particularly in the US where individuals who have
AIDS are protected by federal, state and local laws. This protection generally comes

in the form of protection against discrimination and is based on the fact the virus
cannot be spread by casual contact.
Organisations are hard hit by additional costs direct and indirect when their
employees contact the disease. Direct costs are in the form of increased medical
burden. Indirect costs result from loss of productivity when employees refuse to work
with an AIDS-infected worker. It is responsibility of the government, and business
and non-governmental organisations to create better awareness about the disease in
the minds of the people.
Credit should go to central government undertakings, particularly HMT and BHEL,
for initiating measure to prevent AIDS.
Teams of doctors from in-house
Occupational Health Services visit plants and give lectures to employees on AIDS
prevention. Lecturers are held once or twice every year.
What is needed most for the employers is to educate workers about AIDS. The
following guidelines need to be followed to make the educational programme

Employees must be made to understand how AIDS is contacted.

Understanding about the ways to contacting AIDS will ensure that the
activities do not occur at the workplace.


Presentations to employees must be handled by professionals, preferably from

experts. This is necessary as the message presented is going to include sexual
references which, if not handled properly, are likely to have a negative impact
on employees.


All employees must attend the sessions.

16.2.5 Alcoholism and Drug Abuse

Alcoholism is a serious and widespread disease. It does not strike any particular
group alcoholism can strike employees from the junior to the general manager.
The effects of alcoholism on the worker and on the work are serious. Both the quality
and quantity of work decline sharply. A form of on-the-job absenteeism occurs as
efficiency declines. An alcoholic worker is more unlikely to observe safety
precautions while on the job or off the job. Morale of the other workers is likely to
suffer as they are required to do the work of their alcoholic peer.
Organisations employ three techniques to tackle alcoholism in workplaces. First is
disciplining alcoholics. Where disciplining fails, the alcoholic is discharged. Second
is in-house counseling by the HR department, the company doctor or by immediate
supervisor. Finally, companies use outside agencies, psychiatrists and clinics to deal
with the problem of alcoholism.
Drug abuse is a recent phenomenon and is a serious one. Drug abuse is more evident
among young employees and is found across all job levels. Employees who are drug
addicts are often much more difficult to detect than alcoholics-liquor is easy to smell
but not drugs. Drug abuse affects job performance. The problem of a drug addict
indicates his or her on-the-job behaviour.
As a result of the increased use of drugs in the workplace, more and more companies
have begun to use some form of drug testing for both job applicants and existing
Drug testing is risky. An employer can be exposed to substantial liability for
defamation for making a false accusation of drug use. The following guidelines can
help avoid the risk:

1. Testing only applicants or employees whose jobs are considered safety

specific or critical.
2. Using only valid measures of drug use.
3. Obtaining valid consent of the applicant or employee and then provide the
examinee with the results of the tests.
4. Maintaining strict confidentiality of test results.
Organisations can use the same techniques (recommended to cure alcoholism) to be
problem of drug abuse.
16.2.6 Violence in the Work Place
Violence in the work place, once an exception to daily work life, has become common
these days. Those who are at high risk are taxi drivers, police officers, retail workers,
cashiers at petrol bunks, and people who work alone or at night. Violent incidents
include fist fights, shooting, stabbing and sexual assault.
Violence disrupts productivity; causes untold damage to those exposed, and costs
employers millions of rupees. Obviously, organisations should initiate measures to
protect employees and physical resources. It is important that companies concentrate
on avoiding violence rather than simply dealing with it after it occurs.
The following will help companies avoid falling victims of violence:
1. Hiring with caution. Pre-hire drug testing, detailed questions about previous
employment, and criminal record checks can go a long way towards violenceprone individuals.
2. Develop a plan for preventing violence and for dealing with it when it occurs.
Reporting requirements for both violence and threats of violence should be an
integral part of the plan. The plan should also be drawn by employee
participation and professionals who are experts in areas of violence
assessment, counseling and law enforcement.
3. Establish a crisis-management team with the authority to decide and act
quickly. This group will evaluate problems, select intervention techniques,
and co-ordinate follow-up activities.
4. Train supervisors and managers in how to recognise aggressive behaviour,
identity the warning signs of violence, and resolve conflicts. Orient all
employees towards assuring a violence free work environment.
16.2.7 Health Promotion
Employers concerned about maintaining a healthy workforce must move beyond
simply providing healthy working conditions and begin promoting employee health
and wellness in other ways. Health promotion is a supportive approach to facilitate
and encourage employees to enhance healthy actions and life styles. Health
promotion efforts can range from providing information and enhancing employee
awareness of health issues to creating an organisational culture supportive of
employee health enhancements. Going beyond just compliance with workplace safety
and health regulations. Organisations engage in health promotion by encouraging
employees to make physiological, mental, and social choice that improve their health.

Health Promotion Levels

Level 1

Level 2

Level 3

Information & Awareness

Lifestyle Wellness

Brochures & materials

Health risk screenings

Wellness education

with programmes.





Dedicated resources
and facilities.



Employee assistance


Support groups



Organisational Health

Health incentives.


The first level is useful and may have some impact on individuals, but much is left to
individual initiatives to follow behaviors. Employers provide information on such
topics as weight control; stress management indicator that many employers have
limited their efforts to the first level is that 93% of promotion program and 72% of
them offer health education and training programs. However, only 27% of the firms
conducted health risk screenings and appraisals. Even through such efforts may be
beneficial for some employees. Employers who wish to impact employees health
must offer second level efforts through more comprehensive programmes and efforts
that focus on the life style wellness of employees.
Wellness Programmes
Employers desire to improve productivity, decrease absenteeism. Wellness
programmes are designed to maintain or improve employee lifestyle changes. Early
wellness programmes were aimed primarily at reducing the cost and risk of disease.
Newer programmes emphasise healthy lifestyles and environment, including reducing
cholesterol and heart disease risks and individualised exercise programmes and
follow-up. Employer sponsored support groups have been established for individuals
dealing with health issues such as weight loss, nutrition, or smoking cessations.
Employee Assistance Programmes (EAP)
Organisations use as a broad based response to health issues. It provides counseling
and other help to employees having emotional, physical or other personal problems.
In such a programme employer contracts with a counseling agency contact the
agency, either voluntarily or by employer referral, for assistance with a broad range of
EAPs help employees with variety of problems. One survey of EAP counselors found
that the most common employee issues dealt with were: (1) Depression and anxiety
(2) Marital and relationship problems (3) Legal Difficulties and (4) Family and
children concerns other areas.
Commonly addressed as part of an EAP include substance abuse, financial counseling
and career advice. Critical to employee usage of an EAP is preserving confidentiality.
For that reason, employers outsource EAPs to trained professionals, who usually
report only the number of employees and services provided, rather than details on
individuals using an EAP.
Organisational Health and Culture
Employers both large and small may recognise that an organisational culture that
emphasises and supports health efforts is beneficial. Common to these employers is

an integrative, broad-based effort supported both financially and managerially.

Development of policies and procedures supporting health efforts, establishing on-site
exercise facilities, and consistently promoting health programmes all contribute to
creating a health promotion environment throughout the organisation.


An accident-free plant enjoys certain benefits. Major ones are substantial savings in
cost, increased productivity, and moral and legal grounds. Safety refers to protecting
the physical well-being of people. The main purpose of effective safety programmes
is to prevent work-related injuries and accidents.
Types of Accidents













Causes of Accidents
There are three basic causes of workplace accidents: (a) chance occurrences, (b)
unsafe conditions, and (c) unsafe acts on the part of employees. Change occurrences
contribute to accidents but are more or less beyond managements control (such as
walking past a plate-glass window just as some one hits a ball through it). We will
therefore focus on unsafe conditions and unsafe acts.
Unsafe Conditions and other Work Related Factors
Unsafe conditions are one main cause of accidents. The mechanical and physical
conditions that cause accidents. They include such as:

Improperly guarded equipment.

Defective equipment

Hazardous procedures in, on or around machines or equipment.


Unsafe storage: congestion, overloading.

Improper illumination: Glare, insufficient light.

Improper ventilation: Insufficient air change impure air source.

In addition to unsafe conditions three other work related factors contribute to

accidents: the job itself, the work schedule, and the psychological climate of the
Certain jobs are inherently more dangerous. For example, the job of crane operator
results in about three times more accident related hospital visits than does the job of
supervisors. Similarly some departments work is inherently safer. A book keeping
department usually has fewer accidents than a shipping department.
Work schedule and fatigue also affect accident rates. Accident rates usually dont
increase too noticeably during the first five or six hours of the work day. But after
that, the accident rates increases faster than the increase in the number of hours
worked. This is due partly to fatigue and partly to the fact that accidents occur more
often during night shifts.
Unfortunately some of the most important working conditions related causes of
accidents are not as obvious because they involve workplace psychology. A strong
pressure within the organisation to complete the work as quickly as possible,
employees who are under a great deal of stress and a poor safety climate. Accidents
occur more frequently in plants with a high seasonal layoff rate and where there is
hostility among employees many garnished wages and blighted living conditions.
Temporary stress factors like high work place temperature, poor illumination and a
congested workplace also correlate with accident rates.
How to Prevent Accidents?
In practice, accident prevention boils down to two basic activities:
1. Reducing unsafe conditions.
2. Reducing unsafe acts.
Reducing unsafe conditions is always an employers first issue of defense. Safety
engineers should design jobs to remove or reduce physical hazards. In addition
supervisors and managers play a role in reducing unsafe conditions. A checklist or
the self inspection check can help identify and remove potential hazards.
Sometimes the solution for eliminating an unsafe condition is obvious, and sometimes
it is more subtle. For example, slips and falls at work are often the result of debris or
slippery floor. Relatively obvious remedies for problems like these include slipreducing floor coatings floor more off spills. But perhaps less obviously, special
safety gear can also reduce the problems associated with otherwise unsafe conditions.
For example, slip-resistant foot wear with grooved roles can reduce slips and falls.
Cut resistant gloves reduce the hazards of working with sharp objects.
Getting employees to wear personal protective equipment can be a famously difficult
chore. Including the employees in planning the program, reinforcing appropriate
behaviors, and addressing comfort issues can smooth the way for more widespread
use of protective equipment. Wearability is important in addition to providing
reliable barrier protection and durability protective clothing should fit properly; be
easy to care for maintain, and repair; be flexible and light weight; provide comfort
and reduce heat stress; have rugged constructed; be relatively easy to put on and take
off and be easy to clean dispose of and recycle.
Again, reducing unsafe conditions by designing the job properly and having
managers watch for hazards should always be the first choice. Then come

administrative controls, such as job rotation to reduce long term exposure to the
hazard. Only then turn to personal protective equipment.
Reducing unsafe acts through screening training or incentive programs, for
example, is the second basic way to reduce accidents. Lets look at how to do this.
16.3.1 Causes of Unsafe Acts
Most safety experts and managers know it is impossible to eliminate accidents just by
reducing unsafe conditions. People cause accidents with unsafe acts such as throwing
materials using unsafe producers in loading, placing or mixing by lifting improperly.
While safe acts can undo even the best attempts to minimise unsafe conditions. For
years psychologists assumed that some employees were simply more accident prone
than others, and the accident prone people generally caused more accidents.
Therefore, while some believe that most accident-prone people are impulsive, most
experts today doubt that accident proneness is universal that some people will have
more accidents no matter what the situation. Instead, the consensus is that the person
who is accident prone on one job may not be so on a different job.
Various human traits do relate to accident proneness in specific situations. For
example, accident prone drivers performed worse in a test of motor skills than did
drivers with fewer accidents and older adults with impaired vision were at a higher
risk for falls and motor vehicle crashes. People who were more fatalistic, negative
and cynical were more likely to exhibit violent behaviour in the job.
Reducing Unsafe Acts by Emphasising Safety:
It is the responsibility to set the tone so subordinates want to work safely. It is
necessary to show by both word and deed that safety is crucial. For example,
supervisors should:
1. Praise employees when they choose safe behaviors.
2. Listen when employees after suggestions, concerns or complaints.
3. Be a good example, for instance by following every safety rule procedure.
4. Visit plant areas regularly.
5. Maintain open safety communications for instance, by telling employees as
much as possible about safety activities such as testing alarms and changing
safety equipment or procedures.
6. Link managers bonuses to safety improvement.
Reducing Unsafe Acts through Selection and Placement:
Screening is another way to reduce unsafe acts. Here, the aim is to isolate the trait
(such as visual skill) that might predict accidents on the job in question, and then
screen the conditions for this trait. Tests have distinguished between those who do
and do not have more car accidents, falls, and violent out busts studies suggests that a
test like Employee Reliability Inventory (ERI) can help employers reduce unsafe acts
at work. The ERI purportedly measures reliability dimensions such as emotional
maturity, conscientiousness, safe job performance and courteous job performance.
While the findings of one study were not definitive, using the ERI in the selection
process did seem to be associated with reductions in work related accidents.

Reducing Unsafe Acts through Training

Safety training is another way to reduce unsafe acts. This is especially appropriate for
new employees. They should be instructed safe practices and procedures, warn them
of potential hazards, and work on developing safety conscious attitude.
Reducing Unsafe Acts through Motivation Posters, Incentive Programs and Positive
Safety posters also help reduce unsafe acts. However, posters are not substitute for
comprehensive safety programme; instead employers should combine them with other
techniques (like screening and training) to reduce unsafe conditions and acts and also
change them often.
Others use positive reinforcement programs to improve safety at work. Researchers
introduced one program in a whole sale bakery that takes wraps, and transports pastry
products to retail outsets nation wide.
At the conclusion of training phase the employees were motivated to consider
increasing their performance to the new safety goal. For the following reasons: for
their own protection, to decrease costs of the company and to help the plant get out of
last place in the safety ranking of the parent company.
16.3.2 Management Committee and Safety
Telling supervisors to watch for spills and telling employees to work safely is futile if
everyone in the firm believes management isnt serious about safety. Safety starts
with top management commitment.
Everyone should see convincing evidence of top management commitment. This
includes top management being personally involved in safety activities; giving safety
matters high priority in meetings and production scheduling; giving the company
safety officer high rank and status; and including safety training in new workers
training ideally safety is an integral part of the system, woven into each management
competency and a part of everyones day to day responsibilities In addition:

Institutionalise managements commitment with a safety policy and

publicise it. This should emphasise that the firm will do everything
practical to eliminate or reduce accidents and injuries. Emphasise that
accidents and injury prevention are not just important but of the utmost


Analyse the number of accidents and safety incidents and then set specific
achievable safety goals.

Safety Committees
Employees frequently participate in safety planning through safety committees, often
composed of workers from a variety of levels and departments. A safety committee
generally meets at regularly scheduled times has specific responsibilities for
conducting safety reviews, and makes recommendations for changes necessary to
avoid future accidents. Usually at least one member of the committee comes from the
HR departments.
16.3.3 Safety Policies and Discipline
Designing safety policies and rules and disciplining violators are important
components of safety efforts. Frequently reinforcing the need for safe behaviour and

supplying feedback on positive safety practices also are effective in improving worker
safety. Such efforts must involve employees, supervisors, managers, safety
specialists, and HR staff members.
Safety Training and Communications
One may to encourage employee safety is to involve all employees at various times in
safety training. Safety training can be done in various ways. Regular sessions with
supervisors managers, and employees often are coordinated by HR staff members.
Showing videos, television broadcasts, and internet based resources all are means
used to conduct safety training.
To reinforce safety training continuous communication to develop safety
consciousness is necessary. Merely sending safety memos is not enough. Producing
newsletters, changing safety posters, continually updating bulletin boards, and posting
safety information in visible areas also are recommended.
Employees Safety Motivation and Incentive
To encourage employees to work safety many organisations have used safety contests
work behaviour. Jewelry, clocks, watches, and even vocation trips have been given as
rewards for good safety records. Unfortunately some evidence indicates that
incentives tend to reinforce under reporting and Creative classifying of accidents.
This concern about safety incentives, raised by OSHA, is that employees and
managers do not report accidents and injuries so that they may collect the incentive
Inspection, Accident Investigation and Evaluation
It is not necessary to wait for an OSHA inspectors to inspect the work area for safety
hazards. Inspections may be done by a safety committee or by a safety coordinator.
They should be done on a regular basis, because OSHA may inspect organisations
with about average lost workday rates more frequently.
When accidents occur they should be investigated by the employers safety committee
or safety coordinator. The phases of accident investigation are four as follows:
1. Review the scene
2. Interview Employees / others
3. Prepare report
4. Identifying Recommendations
Closely related to accident investigation is research to determine ways of preventing
accidents. Employing safety engineers are having outside experts evaluate the safety
of working conditions is useful. In many similar accidents seem to occur in an
organisational unit, a safety education training program may be necessary to
emphasise safe working practices. As an example, a publishing company reported a
greater than average number of back injuries among employees who lifted heavy
boxes. Safety training on the proper way to lift heavy objects was initiated to reduce
the number of back injuries.
Organisations should monitor and evaluate their safety efforts. Just as organisational
accounting records are audited, a firms safety efforts should be audited periodically
as well. Accidents and injury statistics should be compared with previous accident

patterns to identify any significant changes. This analysis should be designed to

measures progress in safety management.


The general goal of providing a safe and healthy workplace is reached by operating
managers and HR staff members working together. The primary health and safety
responsibilities in an oraganisation usually fall on supervisors and managers. An HR
manager or safety specialist can help coordinate health safety programmes,
investigate accidents, produce safety program materials, and conduct formal safety
training. However, department supervisors and managers play key roles in
maintaining safe working conditions and a healthy workforce. For example, a
supervisor in a warehouse has several health and safety responsibilities: reminding
employers to wear safety hats; checking on the cleanliness of the work area;
observing employees for any alcohol drug, or emotional problems that may effect,
their work behaviour; and recommending equipment changes (such as screens, railing,
or other safety devices) to engineering specialists in the organisation.
A position becoming more common in many companies is that of
safety/environmental officer. This combination may make sense in situations where
danger remits from chemical (or) other sources of pollution that may be hazardous to
both employers and the public or the environment. Because both safety and
environmental responsibility require working with the government agencies, putting
someone in the job with the skills to deal with governmental agencies and ensure
compliance with a wide range of regulatory issues is a good choice.
16.4.1 Awareness
Awareness can be created among the workforce by following methods:

By providing forums for consultations with employers representatives

workers representatives and community on matters of National concern
relating to safety, health and environment at work place with the overall
objective in creating awareness and enhancing National productivity.

By encouraging joint Labour Management efforts to preserve, protect and

promote National assets and to reduce injuries and disease arising out of

By maximising gains from the substantial investment in awareness campaigns

by sharing experience and learning.

By including occupational safety and health at workplace in schools higher

technical medical, professional and vocational courses.

By securing good Liaison arrangements with the International organisations.

By providing medical criteria which will assure in so far as practicable that no

employee will suffer diminished health, functional capacity, or life expectancy
as a result of his work experience and that in the event of such occupational
diseases having been contracted, suitably compensated.

By providing for appropriate reporting procedures with respect to occupational

safety and health to help achieve the objectives and to accurately describe the
nature of the occupational safety and health problem with a view to carry out

national project study, surveys to identify problem areas and pragmatic

There are many side affects, if we use even new computers like headaches, sniffles
etc., some experts say it is all because of poor ventilation, dust and fumes. It is found
recently that new computers emit chemical fumes (which however, diminish after
running constantly for a week). And Safe office work is actually susceptible to
many other health and safety problems including repetitive trauma injuries related to
computer use, respiratory illness stemming from indoor air quality and high levels of
stress, which are associated with a variety of factors, including task design.
But even facts like these dont tell the whole story. They dont reflect the human
suffering incurred by the injured workers and their families or the economic costs
incurred by employers.
In USA the Congress passed the Occupational Safety and Health Act in 1970 to
assure so far as possible every working man and woman in the nation safe and
healthful working conditions and to preserve our human resources.
The Act created the Occupational Safety and Health Administration (OSHA)
within the Department of Labour. OSHAs basic purpose is to administer the Act and
to set and enforce the safety and health standards that apply to almost all workers in
An occupational illness is any abnormal condition or disorder caused by exposure to
environmental factors associated with employment. This includes acute and chronic
illness caused by inhalation, absorption, ingestion or direct contract with toxic
substances or harmful agents.
One has to develop special programmers for hazardous occupations and specific
sectors; set up training mechanisms; create nation-wide awareness; arrange for the
mobilisation of available resources and expertise.
Through dedicated and concerted efforts India will certainly and steadily march
towards economic prosperity consistent with the requirements of safety, health and
environment at workplace thereby improvising the standard of living of the people.
Particular attention needs to be paid to the hazardous occupations and of workers in
precarious conditions such as migrant workers and various vulnerable groups of
workers. Work related hazards and occupational diseases in small scale industries
and agriculture are likely to increase as the occupational safety and health services are
out of reach in these
Thousands of employees die every year in factories due to accidents. An accident-free
plant can save on cost, increase productivity, discharge moral commitment towards
workers and comply with legal provisions.
Companies have to develop common health and safety philosophies, strategies and
processes. To ensure health and safety consistency and promote an overall health and
safety culture, leading benchmark companies have to coordinate key strategies and
activities through a centralised oversight department, such as corporate health and




Laws Covering Wages,

Welfare and Benefits

After going through this unit, you should be able to:

explain the salient features of Payment of Wages Act;

understand the main provisions of Minimum Wages Act;

describe the main features of Payment of Bonus Act;

realise the importance of Equal Remuneration Act for the betterment of female
employees; and

understand different social security benefits granted under social security


16.1 Introduction
16.2 The Payment of Wages Act, 1936
16.3 The Minimum Wages Act, 1948
16.4 The Payment of Bonus Act, 1965
16.5 The Equal Remuneration Act, 1976
16.6 Statutory Social Security Benefits
16.7 Summary
16.8 Self-Assessment Questions
16.9 Further Readings



Wages are among the major factors in the economic and social life of any community.
It has ethical, social, economic, political, psychological, and legal ramifications in
organisational life. The International Labour Organisation (ILO) has adopted various
conventions and recommendations laying down the principles and methods of wage
payment and fixation. The Constitution of India enshrines the concept of social justice
as one of the objectives of the State, which it seeks to achieve, among other things,
through labour legislation. The legal framework on wages in our country includes:
(i) the Payment of Wages Act, 1936; (ii) the Minimum Wages Act, 1948; (iii) the
Payment of Bonus Act, 1965; and (iv) the Equal Remuneration Act, 1976; and the
rules framed there under by the Government. Under different social security
enactments, the employers are also required to provide various benefits to the
employees in cash and kind.



The Royal Commission on Labour in its report (1931) recommended, among other
things, that legislation on timely payment of wages, deductions from wages and fines,
was necessary and desirable. In the light of its recommendations, the Government of
India introduced a bill in 1936, and the Act came into force from 28th March, 1937.
The Payment of Wages Act is in three parts. Part I deals with the regulation and

Compensation and
Reward Management

payment of wages by the employer. Part II specifies the heads under which deductions
can be made from wages. Part III provides machinery for enforcing specific claims
arising out of delayed payments, deduction from wages, appeals, etc. It is a selfcontained Act and provides its own machinery for the disposal of the claims. The Act
contains 26 Sections.

Object of the Act

The object of the Act is to regulate the payment of wages to certain classes of persons
employed in industry in a particular form and at regular intervals; and to prevent
unauthorised deductions from the wages. The Act is concerned merely with the
fixation of wage periods and not with the fixation of wages.

The Act is applicable to persons employed in any factory, railway, and to such other
establishments to which the State Government may, by notification, extend the
provisions of the Act after giving three months notice to that effect. In the case of
industrial establishments owned by the Central Government the notification can be
issued with the concurrence of the Central Government.
Employees whose average wage is less than rupees 1,600 a month are covered under
the Act. The Payment of Wages (Amendment) Bill, 2002 provides for the
enhancement of the wage ceiling to rupees 6,500 per month.

Wages means all remuneration (whether by way of salary, allowances or otherwise)
expressed in terms of money or capable of being so expressed which, if the terms of
employment express or implied were fulfilled, would be payable to a person employed
in respect of his employment or of work done in such employment. It includes:

Any remuneration payable under any award or settlement between the parties or
order of a court;


Any remuneration to which the person employed is entitled in respect of

overtime work or holidays or any leave period;

iii) Any sum which by reason of the termination of employment of the person
employed is capable under any law, contract or instrument which provides
for the payment of such sum, whether with or without deduction but does
not provide for the time within which the payment is to be made.
iv) Any sum to which the person employed is entitled under any scheme framed
under any law for the time being in force.
However, it does not include:

Any bonus (whether under a scheme of profit sharing or otherwise) which

does not form part of the remuneration payable under the terms of employment
or which is not payable under any award or settlement between the parties or
order of a court;


The value of any house accommodation or of the supply of light, water,

medical attendance or other amenity or of any service excluded from the
computation of wages by a general or special order of the state government;

iii) Any contribution paid by the employer to any pension or provident fund
and the interest which may have accrued thereon;
iv) Any travelling concession;


Any sum paid to the employed person to defray special expenses entailed on him
by the nature of his employment; or

Laws Covering Wages,

Welfare and Benefits

vi) Any gratuity payable on the termination of employment

The term establishment includes:

tramway service or motor transport engaged in carrying passengers and goods or

both by road for hire or reward;


air transport service other than such service belonging to, or exclusively
employed in the military, naval or airforce of the Union, or the Civil Aviation
Department of the Govt. of India;


dock, wharf, or jetty;


inland vessel mechanically propelled;


mine, quarry or oil field;




workshop, or other establishments in which articles are produced, adapted, or

manufactured, with a view to their use, transport or sale;


establishment in which any work relating to the construction, development or

maintenance of building, roads, bridges or canals or relating to transmission, or
distribution of electricity, or any other form of power is being carried on;


any other establishment, or class of establishments, which the Central or a State

Government may notify in the Official Gazette.

Wage Payment
The responsibility for the payment of wages under the Act is that of the employer or
his representative. In the absence of the employer, a person who employs the labourers
and with whom they enter into a contract of employment will be regarded as the
No wage period shall exceed one month in any case. The main purpose of this
provision is to ensure that inordinate delay is not caused in the payment of wages and
that a long time does not elapse before wages are paid for the period for which an
employee has worked.
Wages may be payable daily, weekly, fortnightly and monthly. But the payment
thereof must not extend over a period longer than one month (month means a solar
month; a period of four weeks or 30 days).
Where less than 1,000 persons are employed, wages shall be paid before the expiry of
the 7th day and in other cases before the expiry of the 10th day, after the last day of
the wage period. If for instance, the wage period fixed is the first day of January to the
thirty-first day of January an employed person working in any railway, factory
or industrial establishment in which less than one thousand persons are employed
would be entitled to receive his wages before the seventh day of February and in other
cases on the tenth day of February in respect of the wage period of January.
In case the employer terminates the services of an employee, the employee is entitled
to receive the wage earned by him before the expiry of the 2nd working day from the
day on which his employment has been terminated. The weekly or other recognised
holiday is to be excluded in computing the second working day.
All wages shall be paid in current coin or currency notes or in both. The employer
may, after obtaining the written authorisation of the employed person, pay the wages
either by cheque or by crediting the wages into his bank account.

Compensation and
Reward Management

Deductions from Wages

Wages shall be paid to an employed person without deductions of any kind except
those authorised by or under the Act. Withholding of increment or promotion
(including the stoppage of increment at an efficiency bar); reduction to a lower post or
time scale or to a lower stage in a time scale and suspension are not deemed to be
deductions from wages.
The term deduction from wages has not been defined in the Act. However, the Act
specifies the heads from which deductions from wages may be made.
Deductions may be made by an employer, with the written authorisation of the
employed person, from the wages payable to such an employed person, for
payment of contribution to any welfare fund constituted by the employer for the
welfare of employed persons and the members of their families, and also for the
payment of the fees payable by the employed person for membership of any registered
trade union.
There are also certain deductions peculiar to railways, such as deductions for recovery
of losses sustained by railway administration on account of certain omissions and
commissions on the part of the employees.
The total amount of deduction which may be made in any wage period from the wages
of an employed person shall not exceed 75 per cent of such wages in cases where such
deductions were wholly or partly made for payment to co-operative societies; and in
any other case, 50 per cent of such wages.
There are certain conditions and limits subject to which fines may be imposed.
These are:

A fine can be imposed only for such acts or omissions as are specified by the
employer and previously approved by the State Government;


A notice specifying such acts or omissions must be exhibited on the premises in

which employment is carried on;

iii) A person involved must be informed in writing the reasons for

imposing fine;
iv) No fine shall be imposed on an employed person who is under the age of 15
v) No fine shall be recovered from an employed person by instalments after the expiry
of 60 days from the day on which it was imposed;
vi) The total amount of fine in one wage period shall not exceed an amount equal to
3 per cent for that wage period;
vii) All realisations by way of fine have to be recorded in a register and must be
applied only for such purpose as are beneficial to the persons employed in the
factory or establishment as are approved by the prescribed authority.
The Act authorises deductions for actual absence from duty. However, if 10 or
more employed persons acting in concert absent themselves without due notice and
without reasonable cause, such deductions may be made for a maximum period of
8 days.
Deductions from wages for damage or loss caused to the employer by the neglect or
default of the employed person have been laid down under the Act. Such deductions
can be made only after giving the person concerned an opportunity of showing cause
against the deductions. All such deductions and realisations are to be recorded in a

Exhibit 16.1

Laws Covering Wages,

Welfare and Benefits

List of Authorised or Permissible Deductions


Deductions for fines.


Deductions for absence from duty.


Deductions for damage or loss.


Deductions for house accommodation.


Deductions for amenities and services.


Deductions for recovery of advances or for adjustment of over

payment of wages.


Deductions for recovery of loans made for the welfare of labour.


Deductions for recovery of loans granted for house building.


Deductions for payment to co-operative societies and insurance schemes.


Deductions of income tax.


Deductions made under orders of court.


Deductions for contributions to provident fund.


Deductions for the welfare of the employed persons.


Deductions in respect of fees payable for the membership of trade union.


Deductions for payment of insurance premia on fidelity guarantee bonds.


Deductions for recovery of losses sustained by railway administration.


Deductions for contribution to the Prime Ministers National Relief Fund.


Deductions for contributions to any insurance scheme.

The Act makes provision for the appointment of inspectors. The Inspector of Factories
is also the Inspector under this Act.
The Act also provides for the appointment of a person to be the authority to hear and
decide, for any specified area, claims arising out of deductions from wages or delay in
payment of wages.
The authority under the Act can only adjudicate upon claims regarding deductions and
delay in payment of wages and not upon any dispute in respect of wages.
An appeal lies against the decision of the authority to a Court of Small Causes in a
metropolitan town and before the District Court elsewhere within a period of one
The Act prescribes penalties for offences committed under the Act.
Any contract or agreement whereby an employed person relinquishes any right
conferred by this Act shall be null and void.

Obligations of Employers

To fix the wage-period not exceeding one month.


To pay wages in cash or by cheque after taking written authorisation of the

employed person.

Compensation and
Reward Management


To pay wages on any working day.


To make deductions permissible from the wages of the employed person.


To ensure that deductions do not exceed 75% where payment to a cooperative

society is to be made, and in other cases, deductions do not exceed 50%.


To seek, before imposing fines approval of list of acts and omissions from the
prescribed authority.


Not to impose fines exceeding 3% of the wages on the employee.


To give show-cause notice to the employed person before imposing fines.


To recover fines within 60 days of the date of offence.

10) To afford facilities to Inspectors for entry, inspection, supervision, examination

or inquiry under the Act.
11) To display abstract of the Act and the Rules in English and in a language
understood by the majority of workmen.
12) To maintain following register in the prescribed forms:

Register of wages;


Register of fines;


Register of deductions for damage or loss;


Register of advances.

Apart from maintaining necessary records and registers, the employer is required to
display an abstract of the Act at a conspicuous place.
Obligations of Employees
Every employee is entitled:

To receive his wages in the prescribed wage period in cash or by

cheque or by credit to his bank account.


To refuse to agree to any deductions and fines other than those authorised under
the Act.


To approach within six months the prescribed authority to claim unpaid or

delayed wages, unauthorised deductions and fines along with compensation.


To appeal against the direction made by the authority if the amount of wages
claimed exceeds rupees one hundred.



The genesis of the Minimum Wages Act is traceable to the Minimum Wage Fixing
Machinery Convention, 1928 (No. 28) of the International Labour Organisation
(ILO). This Convention has become one of the most widely accepted instruments of
the ILO. The Minimum Wages Bill was introduced in the Central Legislature in 1946
and was passed in 1948. The Act contains 31 Sections.

Object of the Act


The Act aims to extend the concept of social justice to the workmen employed in
certain scheduled employments by statutorily providing for them minimum rates of
wages. It is a piece of social legislation which provides protection to workers in
employments in which they are vulnerable to exploitation by reason of the
lack of organisation and bargaining power and where sweated labour is most


Laws Covering Wages,

Welfare and Benefits

The Act is not applicable to all employments or industries. A schedule appended to the
Act gives a list of employments covered by the Act. It covers an establishment
regardless of the number of workers actually employed. Some of the employments are
listed in Part I of the schedule. Part II of the schedule contains employment in
agriculture and other allied activities.
The appropriate government may add to the schedule any other employment in respect
of which it is of the opinion that minimum rates of wages should be fixed.
The contract labour, falling within the purview of the Contract Labour (Regulation
and Abolition) Act, 1970, has to be paid mininum wages under the Minimum Wages

The Act contains a number of definitions. Some of the important definitions are the
Appropriate Government: In this Act, the term appropriate government means:
Central Government for any scheduled employment carried on under the authority
of Central Government or railway administrations and for a mine, oilfield or major
port or any corporation established by a central act.
State Government for any other scheduled employment carried on within its
Wages: Wages means all remuneration capable of being expressed in terms of
money, which would, if the terms of the contract of employment, express or implied,
were fulfilled, be payable to a person employed in respect of his employment or of
work done in such employment, and includes house rent allowance but does not

The value of any house accommodation, supply of light, water, medical

attendance; or any other amenity or any service excluded by general or special
order of the appropriate government;


Any contribution paid by the employer to any pension fund or provident fund or
under any scheme of social insurance;

iii) Any travelling allowance or the value of any travelling concession;

iv) Any sum paid to the person employed to defray special expenses entailed on him
by the nature of his employment; or

Any gratuity payable on discharge.

Employer: The term employer means any person who employs one or more
employees in any scheduled employment in respect of which minimum rates of wages
have been fixed under the Act. The term employer also includes:

Manager of a factory as defined under the Factories Act, 1948.

Head of department or any person appointed for the supervision and control of
employees or Chief Executive Officer of a local authority in case the scheduled
employment is carried on under Central Government or a local authority.

In any other case the person responsible for supervision, control or payment of


Compensation and
Reward Management

Employee: The term employee means any person who is employed for hire or
reward to do any work, skilled or unskilled, manual or clerical, in a scheduled

Fixing of Minimum Rates of Wages

When, in respect of an employment, the appropriate government has fixed and notified
minimum rates of wages, the employer is bound to pay every employee engaged in
that employment at rates not less than the rates notified.
The appropriate government may review wages at such intervals as they think fit but
not exceeding five years, and revise them, if necessary.
The appropriate government may refrain from fixing minimum rates of wages in
respect of any scheduled employment in which less than 1000 employees are employed
in the whole State.
The minimum rates of wages may be fixed:

For different employments


For different classes in the same employment

iii) For adolescents, children and apprentices

iv) For different localities.
The rates of wages may be:

A time rate


A piece rate

iii) A guaranteed time rate

iv) An overtime rate.
The rates may be fixed by the hour, by the day or by the month or by any other longer
period as may be prescribed. The rate fixed may consist of the basic rate of wages and
cost of living allowance and the cash value of concessions in respect of supply of
essential commodities at concessional rates.
In fixing or revising the minimum wages, the appropriate government shall either:

Appoint as many committees and sub-committees as it considers necessary to

hold enquiries and advise it in respect of such fixation or revision, as the case
may be; or


By notification in the Official Gazette, publish its proposals for the information
of persons likely to be affected thereby and specify a date, not less than two
months from the date of the notification, on which the proposals will be taken
into consideration.

After considering the advice of the said committee or representations received,

the appropriate government will, by notification in the gazette, fix or revise the
minimum rates of wages. Unless otherwise provided, the decision shall come into
force on the expiry of three months from the date of notification. When fixation is
made on the basis of representations, the appropriate government shall consult the
Advisory Board also. The government is not bound to accept the committees


The Act also empowers state governments to constitute Advisory Boards to

co-ordinate the work of different committees and sub-committees and advise the
government on the fixation of minimum wages. Similarly, the Central Government is
empowered to constitute a Central Advisory Board to advise Central and State
Government, and to co-ordinate the work of the Advisory Boards. These bodies

consist of an equal number of employers and employees representatives, and of

independent persons not exceeding one-third of their total strength. The non-official
members hold office for a period of two years, while others hold office during the
pleasure of the government.

Laws Covering Wages,

Welfare and Benefits

The mininum wages payable under the Act are to be paid in cash. But it also provides
for authorisation of payment in kind where the appropriate government considers it
necessary. It may direct the supply of essential commodities at concessional rates by
notifying it in the Official Gazette. Authorised deductions are allowed under the Act.
The appropriate government may fix the number of hours of work, rest day, payment
of overtime in respect of scheduled employments.

Registers, Notices, Abstract and Returns

Every employer is required to maintain:

Register of wages


Register of overtime payment




Register of Fines


Register of deduction.

Every employer is required to:


Put up a notice containing the minimum rate of wages fixed


Exhibit an extract of the Act and Rules

c) Send annual return to the Labour Commissioner as prescribed.

The appropriate government appoints inspectors for the purposes of this Act, and
defines the local limits within which they exercise their functions. The Inspectors are
public servants. Any person, who is called upon to provide any relevant information,
is legally bound to provide information to the inspectors under the provisions of Indian
Penal Code.

Authorities under the Act

The appropriate government appoints, by notification in the Official Gazette for any
specified area, an authority to hear and decide claims arising out of payment of wages
at less than the minimum rates of wages and other incidental matters. The authority so
appointed has powers of a civil court.
An employee or any legal practitioner or any other official of a registered trade union,
authorised in writing, or any inspector can apply to the authority for settlement of
disputes with respect to non-payment or payment of less than the minimum wages.
The Act prohibits civil courts from entertaining any suits for the recovery of minimum
wages payable under the Act.

The Central Government is the appropriate authority for the enforcement of the Act in
relation to any scheduled employment carried on by or under the authority of the
central government, railway administration, a mine, oilfield, a major port, or any
corporation established by a central act. The Chief Labour Commissioner (Central) is
in charge of implementation of the Act in the central sphere. In the state sphere,
officers of the industrial relations machinery are entrusted with the enforcement of the

Compensation and
Reward Management

Act, in addition to the enforcement of other labour laws. In some states, a small
number of whole-time inspectors are appointed exclusively for the enforcement of the
Act. In some states, in addition to the officers of the labour department, officials of the
revenue department, panchayat departments, and agricultural departments have been
authorised to work as inspectors for the purposes of the Act.

Offences and Penalties

The Act lays down penalties for violation of the provisions of the Act.
Any contract or agreement whereby an employee relinquishes or reduces his right
under this Act shall be null and void. However, the Act does not prevent an
individual from entering into an agreement which is more advantageous or
beneficial to him.

Obligations of Employers

Once the minimum wages are notified and become effective the employer must
pay to every employee engaged in a scheduled employment under him wages at a
rate not less than the minimum rate of wages fixed by such notification for that
class of employees.


The employer may make deductions out of wages as may be authorised.


The employer shall pay overtime at double the ordinary rate of wages for the
period of work done beyond 9 hours on any day or 48 hours in any week or for
rest day.


The employer must pay minimum wages in cash unless the appropriate
government authorises their payment wholly or partly in kind. The government
may direct the supply of essential commodities at concessional rates by notifying
it in the official gazette.


Every employer shall issue a wage slip to every employed person in a prescribed
form containing prescribed particulars.


Every employer shall get the signature or the thumb impression of every
person employed on the wage group and the wage slips.


The employer or his agent should authenticate the entries in the wage books and
the wage slips.


The employer shall allow a rest day with wages to the employees every
week which ordinarily should be Sunday or any other day. No employee
shall be required to work on a day fixed as rest day, unless he is paid wages for
that day at the overtime rate and is also allowed a substituted rest day
with wages.


The employer shall not make deductions from wages except those authorised
by or under the rules.



In pursuance of the decision taken at the 18th session of the Indian Labour Conference,
the Government of India constituted the Bonus Commission on December 6, 1961.
The Government accepted the recommendations of the Commission with slight
modifications, and promulgated an ordinance on May 29, 1965. The Act came into
force from October 25, 1965. Subsequently, there were a number of amendments to
the Act. The Act consists of 40 Sections and four schedules.

Object of the Act

Laws Covering Wages,

Welfare and Benefits

The object of the Act is to maintain peace and harmony between labour and capital by
allowing the employees to share in the prosperity of the establishment reflected by the
profits earned by the contributions made by capital, management and labour.

The Act applies to all factories and establishments employing 20 or more persons on
any day during an accounting year. Such an establishment continues to be governed
by the Act notwithstanding that the number of persons employed therein falls below
20. Establishments also include departments, undertaking and branches.

Employee: The definition of employee includes any person (other than an
apprentice) employed on a salary or wage not exceeding rupees 3,500 per month in
any industry doing any skilled or unskilled, manual, supervisory, managerial,
administrative, technical, or clerical work for hire or reward. The Payment of Bonus
(Amendment) Bill, 2002 provides for omission of the ceiling of rupees 3,500 for
applicability of the Act. If this provision comes into force, then all the employees in an
industry will be entitled to get bonus irrespective of their salaries/wages. The term of
employment may be expressed or implied. There must, however, be a contract of
service between the person employed and the employer.
Appropriate Government: The term appropriate government means:

in relation to an establishment in respect of which appropriate government under

the Industrial Disputes Act, 1947 is the Central Government;


in relation to any other establishment, the Government of the State in which that
establishment is situated.

Employer: The term employer includes:


in relation to an establishment which is a factory, the owner or occupier of the

factory, including the agent of such owner or occupier, the legal representative of
a deceased owner or occupier and the manager of the factory;


in relation to any other establishment, the person who, or the authority which,
has the ultimate control over the affairs of the establishment. Where the said
affairs are entrusted to a manager or managing director, such manager or
managing director is the employer.

Accounting year: The term accounting year means:


In relation to a corporation, the year ending on the day on which the books and
accounts of corporation are to be closed and balanced;


In relation to a company, the period in respect of which profit and loss account is
laid before the annual general meeting (first day of April or 31st of March).

Salary or Wage: The term salary or wage includes


basic pay and dearness allowance but not any other allowance.


It excludes the value of any house accommodation or of supply of light, water,

medical attendance or amenity or any service or of any concessional supply of
foodgrains or other articles, any travelling concession, any contribution paid or
payable by the employer to any pension fund or provident fund, retrenchment
compensation, and gratuity.

Compensation and
Reward Management

Calculation of Bonus
If an establishment consists of different departments or undertakings or branches,
whether situated in the same place or in different places, unless a separate balance
sheet and profit and loss account are prepared and maintained in respect of them, all
such departments or undertakings or branches should be treated as parts of the same
establishment for the purpose of computation of bonus, and once they are treated as
parts of the same establishment, they should be continued to be treated as such.
The determination of gross profit is the first step towards calculating the amount of
bonus. From the gross profit certain prior charges are to be deducted to arrive at the
available surplus. However, the bonus is to be paid out of the allocable surplus. In
case of a company, the allocable surplus is 67 per cent of the available surplus, and in
other cases it is 60 per cent.

Eligibility for Bonus

Every employee shall be entitled to be paid bonus by his employer in an accounting
year, provided that he has worked in the establishment for not less than 30 working
days in that year.
An employee will be disqualified from receiving bonus if he is dismissed from service



Riotous or violent behaviour while on the premises of the establishment;


Theft, misappropriation or sabotage of any property of the establishment.

Amount of Bonus
The Act imposes a statutory obligation on the employer to pay bonus at the minimum
rate of 8.33 per cent of the salary earned by an employee or rupees 100, whichever is
higher, in an accounting year. It shall be paid irrespective of profits and loss or
whether there is allocable surplus or not in an accounting year. The maximum is fixed
at 20 per cent.
Where the salary or wage of an employee exceeds rupees 3,500 per mensem, the
bonus payable to such employee shall be calculated as if his/ her salary or wage was
rupees 2,500. There is also a provision under the Act for proportionate reduction in
bonus where the employee has not worked for all the working days in any accounting
The excess of allocable surplus, if any, after distributing the maximum bonus as
provided shall be set-on and taken into account up to the fourth accounting year. In
the case of any shortage or want of allocable surplus, the amount distributed as bonus
shall be carried forward for set-off and adjusted out of the allocable surplus. The
Fourth Schedule illustrates the method of distribution and set-off or set-on of the
amount available for bonus out of the allocable surplus.
Newly set-up establishments get exemption from payment of bonus for a period of six
years following the accounting year in which the goods produced or manufactured are
sold for the first time and, in the alternative, up to the year when the new
establishment shows profits, whichever is earlier.
Under the Act, adjustment can be made towards payment of customary or puja bonus
against bonus payable under the Act.


If an employee is found guilty of misconduct causing financial loss to the employer,

then the employer can deduct the amount of loss from the amount of bonus payable to
the employee for the year in which he was found guilty of misconduct.

Time Limit for Payment of Bonus

Laws Covering Wages,

Welfare and Benefits

The bonus shall be paid within a period of 8 months from the close of the accounting
year. If there is a dispute, it shall be paid within one month from the date on which the
award becomes enforceable. The appropriate government may extend the said period
up to a maximum of 2 years.

Claim for Bonus

If any bonus is due to an employee under a settlement, award or agreement, the
employee himself, or any other person authorised by him in writing in this behalf, or
in the case of death of the employee, his assignee or heirs, may make an application
for its recovery to the appropriate government. The government, if satisfied, may issue
a certificate to the collector to recover the same as arrears of land revenue. The
application must be made within one year. However, the mode of recovery prescribed
shall be available only if the bonus sought to be recovered is under a settlement or an
award or an agreement. It will not apply to the recovery of bonus which is payable
under the Act.
A dispute about bonus payable under the Act will have to be raised by the employees
concerned in accordance with the provisions of the Industrial Disputes Act, 1947, or
any corresponding state law applicable to them.
If accounts are audited by duly qualified auditors of a company or by the Comptroller
and Auditor-General of India, then the statements and particulars contained in such
balance sheets and profit and loss accounts will be presumed to be accurate. It shall
not be necessary for the corporation or the company to prove the accuracy of such
statements. If the trade unions require any clarification, the court may direct the
employer to furnish necessary clarification.
The Act provides for the appointment of inspectors and for the maintenance of
registers and records.
The Act provides for different offences and corresponding penalties.

Mode of Payment
Employees can enter into an agreement or a settlement with their employer for grant of
bonus under a formula different from that under the Act, i.e., bonus linked with
production or productivity; but subject to the provisions of the Act in respect of
payment of minimum and maximum bonus.

The Act does not apply to the following establishments:

Newly set up establishments or units or branches of existing establishments for

six years from the date of starting production unless such establishments make


Government institutions;

iii) Reserve Bank of India;

iv) Deposit Insurance Corporation;

Industrial Development Bank of India;

vi) Agricultural Refinance Corporations;

vii) Unit Trust of India;
viii) Industrial Finance Corporations;

Compensation and
Reward Management

ix) State Financial Corporations;


Employees of insurance companies and the Life Insurance Corporation;

xi) Seamen;
xii) Stevedore labour;
xiii) Universities and other educational institutions;
xiv) Hospitals, chambers of commerce and social welfare institutions;
xv) Inland water transport;
xvi) Employees employed through contractors on building operations;
If the appropriate government, having regard to the financial position and other
relevant circumstances of any establishment or class of establishments is of the
opinion that it will not be in public interest to apply all or any of the provisions of this
Act thereto, it may, by notification in the Official Gazette, exempt for such period as
may be specified therein and subject to such conditions as it may think fit to impose,
such establishment or class of establishment, from all or any of the provisions of the

Obligations of Employers

Work out and pay annual bonus to the employees as required under the Act.


Maintain the following registers:


Register showing the computation of allocable surplus.

Register showing set on and set off of the allocable surplus.

Register showing the details of the amount of bonus due to each employee,
deductions there from and the amount disbursed.

Submit an annual return of bonus paid during the year.

Activity A
Did your establishment pay bonus according to the Payment of Bonus Act? If so,
mention the percentage of bonus paid to employees during the last three years.
Activity B
If your establishment is not paying bonus as per the Act, indicate the system of
payment and the rates of payment made during the last three years?




Laws Covering Wages,

Welfare and Benefits

To give effect to Article 39 of the Indian Constitution, the Government of India, on the
26th of September 1975 promulgated the Equal Remuneration Ordinance.
The Ordinance was replaced by the Equal Remuneration Act, 1976, which received
the assent of the President of India on 11th February 1976. It came into force from
11th March 1976 throughout India in the employments notified for the purpose.
In exercise of the powers conferred under Section 13 of the Act, the Central
Government framed rules known as the Equal Remuneration Rules, 1976.

Object of the Act

The object of the Act is to provide for the payment of equal remuneration to men and
women workers and for the prevention of discrimination, on ground of sex, against
women in the matter of employment. It also seeks to provide for increasing
opportunities for women in the specified employments.

The term remuneration includes basic wage or salary and any additional emoluments
payable, either in cash or kind, to a person employed in an employment, or work done
in such employment, if the terms of the contract of employment, express or implied,
were fulfilled.

Equal Remuneration
It is the duty of the employer to pay equal remuneration to men and women workers
for the same work or work of a similar nature.
No discrimination shall be made while making recruitment for the same work or work
of a similar nature between men and women workers, except where the employment of
women in such work is prohibited or restricted by or under any law for the time being
in force. The Act prohibits discrimination against women not only in recruitment but
also in relation to the conditions of service subsequent to employment, such as
promotions, training, and transfers.

For the purpose of providing increasing employment opportunities to women, the
appropriate government may constitute one or more Advisory Committees.
The appropriate government may appoint an authority, not below the rank of a Labour
Officer, to hear and decide claims and complaints. The authority appointed for this
purpose shall have all the powers of a civil court under the Code of Civil Procedure,
1908. The aggrieved employer or worker may prefer appeal to the appellate authority
within 30 days from the date of the order.
It is the duty of employers to maintain prescribed registers and other documents in
relation to the workers employed by them.
The appropriate government may appoint inspectors for the purpose of enforcing the
provisions of the Act.
The Act provides for penalties for violation of provisions of the Act.

The requirement of equal treatment for men and women will not apply in certain
special cases in so far as:


Compensation and
Reward Management


The terms and conditions of a workmens employment are, in any respect,

affected by compliance with the law regulating the employment of women;


Any special treatment is accorded to women in connection with the birth, or

expected birth, of a child.

If the appropriate government is satisfied that the differences in regard to the

remuneration of men and women workers in any establishment or employment are
based on a factor other than sex, it may, by notification, make a declaration that any
act of the employer attributable to such a difference shall not be deemed to be a
contravention of any provision of this Act.



Social Security legislation in India in industrial field consists of the following

enactments: (1) the Workmens Compensation Act, 1923; (2) the Employees State
Insurance Act, 1948; (3) the Employees Provident Funds and Miscellaneous
Provisions Act, 1952; (4) the Maternity Benefit Act, 1961; and (5) the Payment of
Gratuity Act, 1972.
Exhibit 16.2: Benefits under Social Security Legislation in India


Compensation Act, 1923

To provide compensation for

workmen in cases of industrial
diseases resulting in disablement or death

Compensation for death,

permanent total disablement, permanent partial
disablement, temporary
disablement, and occupational disease

Employees State Insurance

Act, 1948

To provide for health care and

cash benefits in the case of
sickness, maternity, and
employment injury

Benefit for sickness and

extended sickness benefit,
maternity benefit, disablement benefit, dependants
benefit, medical benefit,
funeral benefit, rehabilitation benefit

Employees Provident
Fund and Miscellaneous
Provisions Act, 1952

To provide compulsory
provident fund, pension,
deposit-linked insurance

Refundable withdrawals,
provident fund, pension, and
deposit-linked insurance

Maternity Benefit Act,


To provide for maternity

protection before and after
child birth

Payment for actual absence

upto 12 weeks on average
daily wages, minimum wage
or rupees 10. Additional
benefit for miscarriage, and
illness arising out of





The various labour enactments governing wages are the Payment of Wages Act, the
Minimum Wages Act, the Payment of Bonus Act, and the Equal Remuneration Act.
These statutory provisions cover matters regarding regular and prompt payment of
wages, periodical fixation and revision of minimum wages, payment of bonus,
prevention of discrimination against women and equal remuneration to men and

women employees for the same work, or work of a similar nature. Legally required
social security benefits include compensation for death, disability, and occupational
disease under the Workmens Compensation Act; benefits for sickness, maternity,
disablement, and dependants under the ESI Act; provident fund, pension and
insurance under the Employees Provident Fund and Miscellaneous Provisions Act;
Maternity Benefit under the Maternity Benefit Act; and gratuity under the Payment of
Gratuity Act.




List out the various deductions under the Payment of Wages Act, 1936.


What is the procedure the government has to follow in fixing and revising
minimum wages under the Minimum Wages Act, 1948?


The Payment of Bonus Act has no relevance in the present economic situation of
the industry. Discuss.


What are the obligations of an employer under the Equal Remuneration Act,


What are the statutory social security benefits available to workmen/employees

in India?


Laws Covering Wages,

Welfare and Benefits


Aswathappa K., Human Resources and Personnel Management, Tata McGraw-Hill

Publishing Company Ltd., New Delhi, 1997.
Employees State Insurance Corporation, ESI Scheme of India Employers Guide,
New Delhi, March 2003.
Kumar H.L., Labour Laws, Universal Book Traders, Delhi, 1995.
Mallick P.L., Industrial Law, Eastern Book Company, Lucknow, 1999.
Thakur C.P., Corporate Strategy and Fringe Benefits, Spectrum Publishing House,



Meaning of Motivation
Objectives of Motivation
Types of Motivation
Motivators which Promote Efficiency
Meaning of Morale
Types of Morale
Factors Effecting Morale
Evaluation of Morale
Measures to Improve Morale
Let Us Sum U p
Key Words
Some Useful Books
Answers to Check Your Progress Exercises

After studying this unit you should be able to:
understand the importance of human factor in an organisation, which will have a
significant impact upon over all organisational out-put
outline the findings of the psychologists and behaviouralists from the viewpoint of
human relations
realise that motivation and morale are caused by management policies and practices
explain the meaning of motivation and morale along with the factors effecting them
know about the different types of motivation and morale causing the organisational
efficiency and
analyse some important measures in build~ngmorale, through workable
motivational methods.




There is no truth more evident from human experience and research than the axiom
that work in the life blood of man's existence. It is as natural for a man to work and to
want to work as it is for him to rest. The human beings are not sloths by nature. The.
type of internal driving force (motivation) is responsible either for action or inaction in
an individual.
The problem of human behaviour is fundamental and instinctive in any organisational
set-up. It is a complicated issue for the organisation to make its members to adjust
themselves to the needs of organisation. Because individuals do not divorce themselves
from their own norms, attitudes and personal needs, simply because they join an
organisation. They necessarily sacrifice their own independence on various types of
group and associational membership. Their voluntary behaviour needs to be changed
into required behaviour in the general interest of the organisation. Under the influence
of the required behaviour, the individual assumes the responsibilities and expresses
loyalties and commitments towards the organisation as a whole. There are different
methods, to turn the voluntary behaviour into a required behaviour.
Perhaps no area of personnel administration has been more debated than human
motivation due to the development of the scientific knowledge about human behaviour.
The movement of behavioural a p p ~ u a chas
i ~ contributed much for better understanding
of human behaviour. During early era of personnel administration as being different
from the efficiency experts, they approached the problem of increasing efficiency as a
- human ~ r o b l e mrather than as a mechanical one. Hence the feelines and behaviour of

employees are considered in personnel system. Normally, the driving force, so

pervasive in history and so common among all races and seems to be composed both of
an inner need to achieve and a response to external challenges. It is felt that what an
individual believes about himself has a profound effect on how he behaves. T~
understand any individua! we need to know what he thinks, what values he holds, what
his goals are, as well as how his basic biological and social needs are met and what
abilities he has. Therefore, drive and motivation is of utmost importance as it
constitutes the base for the administrative function of planning and organising. The
personnel department of an organisation must devote considerable time and efforts in
for and achieving high level of morale. Because it is the only solution for the
problems arising like employees feeling alienated and organisational goals, underutilisation of their potential skills and capabilities to achieve optimisation and feeling of
frustration while discharging their duties. Hence motivation should be the continuous
process for effective functioning of the organisation.
Effective management largely depends upon the willingness of employees in carrying
out the organisational tasks with zeal and enthusiasm. The successful functioning of the
organisation depends upon the techniques used for securing ability and willingness of
its employees. Because human performance is determined by the level of morale,
interaction, behaviour, motivation and ability. Policies and techniques will improve
motivation and morale and make the work experience a more rewarding one.
In view of the importance of motivation and morale of an individual in the organisation
we will discuss in this unit the meaning of these aspects which would go a long way in
understanding the concepts concerned, the objectives of the motivation and the types
of motivation. We also discuss the factors effecting morale, future policies and
programmes for building-up morale in the employees and analyse some important
measures in building morale, through workable motivational methods.


The term motivation is derived from the Latin word 'emovere' which means 'to move'.
Motivation is the complex of psychological forces. Motivation is something that moves
a person into action and inspires him to continue in the course of action already
There are different definitions of motivation. Stanlay Vanace opines that 'motivation
implies any motion or desire which so conditioned one's will that the individual is
propelled into action'. Dale and Beach felt motivation as 'a willingness to expend energy
to achieve a goal or reward'. Shartte understood motivation as 'a reported urge or
tension to move in a given direction or to achieve certain goals'.
According to the above definitions motivation is considered as the art of stimulating
people to take desired course of action. It involves arousing needs and desires by
impelling individuals towards purposive behaviour. A motive is a need or desire which
directs the behaviour. It reflects an urge to move in an expected manner to achieve a
specified goal. It results when the needs of an employee are satisfied through proper
incentives and rewards. Human behaviour is the result of their desires, needs and wants
and motivation involves creation of a will to work for accomplishment of institutional
goals. Without needs there can be no motivation and ane of the biggest problems in
motivating the employees is that one does not have the same needs. Moreover
motivation is influenced by a number of factors both inside and outside the
organisation. Motivation requires the identification of personal goals with institutional


The objectives of motivation put forth by psychologists and sociologists are the means
of answering two basic questions concerning human behaviour i.e., why an individual
is impelled to act and what determines the direction of his actions. Let us discuss the
views of some 6-minent Psychologists and Sociologists, who attempted to evaluate the

human behaviour in different contexts.

a) According t o Skinner motivation objectively exists to make an individual being
learn what may regarded as positive behaviour i.e. desirable behaviour.
b) Abraham Maslow observes that the objective of motivation is always to create a
need for an individual. It is just like the process of lower needs being satisfied and
the higher needs gradually emerging (Hierarchy or Needs).
c) Frederick Herzberg felt that the important objective of motivation is to provide
opportunities to become a better expert on one's job, to handle more demanding
assignments, to control one's own work rather than be supervised.
d) Mclelland opined that the objective of motivation is to create a strong desire in an
individual, where he derives a special kind of joy in successfully attaining an
objective in accomplishing a task. in facing up to a challenge rather than monetary
or other rewards.
e ) Victor Wroom thinks that motivation should work as a means of communication for
increasing positive values in the employees. Obviously the objectives of motivation
are to increase efficiency by good performance.
Motives are abundant and divergent. There is no single strategy that will motivate the
employees forever and every where. The motives for individuals towork are numerous.


There are basically two types of motivation:
a) Negative motivation, and
b) Positive motivation.
Negative Motivation

The traditional form of motivation emphasises more on authority. This approach

consists of forcing people to work by threatening to fire them if they do not. It believes
that man is inherently lazy, pleasure seeking, despises work. To prevent him from
doing so, there must be close supervision. This approach further assumes that
employees' performance would be increased by fear, which causes the people to act in
a certain way. Because they are afraid of the consequences like, lay-off, demotions, and
dismissals. This approach paid off fairly well in the early days of the industrial
revolution when workers and their families were so close to starvation. Imposition of
punishment frequently results in frustration among those punished, leading to the
development of maladaptive behaviour. The negative motivation also creates a hostile
state of mind and unfavourable attitude to the job. The approach of negative motivation
had proved to be ineffective as the employees were responding to them perversely. In
recent years, however, people have begun to expect more from their jobs than sheer
Positive Motivation

,The behavioural approach is much sophisticated than traditional approach which

/Irecognises the importance of positive aspects of motivation. Positive motivation
involves the possibility of increased motive satisfaction. Positive motivation is a process
of attempting to influence others to do their best, and thereby adopting good human
relations. It seeks to create an environment which will make the individual talent
flourish and encourages informal communications positively. Positive motivation is
generally based on rewards.
The positive motivation may be extrinsic or intrinsic. The extrinsic motivators can be
enjoyed after completion of work. The intrinsic factors are those which occur at the
time of performance of work. Since positive motivation appears to be more workable,
now let us discuss the role of some positive motivators, which promote efficiency.


The exact nature and extent of motivator~woulddepend upon the internal and extehal
factors prevailing in a given organisation. Some of the important motivators which can
promote efficiency are:

.. .


Job enrichment
Delegation of authority
Job security
Status and pride
Congenial work environment

Job Enlargement and Job Enrichment

If the additional responsibilities to enhance variety are of a horizontal nature, it is
termed job enlargement while if the additional responsibilities are of vertical nature
involving delegation and decentralisation the process is termed job enrichment. Job
enrichment can be ensured provided the work is meaningful, a worker has knowledge
of the work and the worker is entrusted with the responsibility through proper
delegation. According to Hippo, job autonomy can be secured if the following are
given :

(1) setting one's own work schedule and work breaks; (2) varying work place; (3)
changing duties with others; (4) making crisis decisions in problem situations rather than
relaying on the boss; and (5) making one's own quality checks, etc. It is obvious that the
most important condition for achieving better work performance from employees is to
give them interesting worthwhile, challenging, and responsible job, to ensure that the
employees are not frustrated by meaningless, disinteresting and purposeless tasks,
fundamental rethinking of both the process and purpose of management is necessary.
Koontz and O'Donnell have suggested the following to ensure job enrichment:
(a) giving workers more latitude in deciding about such things as work methods,
sequence, and pace or by letting them make decisions about acceptingor rejecting
(b) encouraging participation of subordinates and interaction between workers;
(c) giving workers a feeling of personal responsibility for their tasks;
(d) taking steps to make sure that people can see how their tasks contribute to a
finished product and the welfare of the enterprise;
(e) giving people feedback on their job performance preferably before their
supervisors get it; and
(f) involving workers in analysis and change of physical aspects of workgnvironment
such as layout of office or plan, temperature, lighting and cleanliness.
Delegation of Authority

A very common technique being advocated for motivating employees is delegation of

authority. Delegation of the rights and obligations to execute a given task very often
proves to be a strong motivating force.
Job Security
Job security is one of the good promoters of organisational efficiency and economy.
The employees feel responsible and committed to the work as long as their job security
is ensured. They would be more attached with the organisation and its day-to-day
stads and Pride

Status and pride are linked with the organisational set-up. Age of the organisation and
its reputation in the society will also motivate the employee. Employees working in the
well reputed organisatiorl ..will be motivated better than the employees of other
institutions. They feel proud of t h d r employment in the organisation.

Participation is an individual's mental and emotional involvement in a group situation

that encourages him to contribute to group goals and to share responsibility for them.
Employees' participation yields their personal commitment and involvement in
accomplishing organisational goals. It also produces flow of communication for
informal work force. Self-guidance and monitoring in the employees may be expected.
Produce high degree of mutual respect and trust among organisational members. A
high degree of confidence is shown in subordinates which facilitates interpersonal

Congenial Work Environment


Motivation is some form of exchange between the individpal and his work environment.
The congenial work environment gives to the individual sets of preference or values
which constitute the goals towards which the instinctual drives are expressed. Further,
the work environment is the source of norms of behaviour which draws the lines
between good and bad, right and wrong, legitimate and illegitimate.


Check Your Progress 1

Note: i) Use the space below for your answers.
ii) Check your answers with those given at the end of this unit.
1) What are the various meanings of Motivation?

2) What are the objectives of Motivation?

3) What are the factors of Motivation?


Though th,e organisation's focus is always on performance, based on wst-benefit
approach, it was felt imperative to consider the issue of morale in a wider perspective.
From the institutional p i n 1 of view, the problem of employee's morale is that of
stimulating a feeiing of togetherness, a sense of identification with the job. I t is more
conducive to the achievement of institutional goals. It Is important because
performance and efficiency of operation depends upon employee's morale. T o attain
these high standards of morale it is essential to enlist the feelings of employees and their
abilities in the work.
'Morale' is an attitude of satisfaction with desire to continue in and willingess to strive
for the goals of a particular organisation. There are two important elements. Firstly,
that the individual shares the purpose which gives him -.
enthusiasm, energy and
self-discipline. Secondly, the responsibility of the authorities to infuse the feeling of
togetherness, a sense of identification and his consideration for other members of the


Further, morale is viewed as 'the capacity of a group to pull together persistently and
consistently in pursuit of common purpose'. This capacity is subjective and differs from
person to person depending upon the people's interest in a particular work. This
capacity is inherent in every individual and is seen in their attitudes towards particular

-- --


- b p b y e e Relation6


There appear to be two groups of morale i.e.,
a) Individual and b) Group morale
Individual Morale
The components of morale are still rather elusive, despite growing agreement upon
several generalisations. One of these generalisations is that the group climate must
provide opportunity for individual self-expression or self-accommodation by the
members of the group. Another is that the occupational context must furnish outlets for
the individuals pride in his own workmanship. Still another and more important is that
members of the group must find it easy to accept the purposes and values of the group
as their own so that they have a sense of belonging to the group or identity with it. All
these may be described as individualistic bases of morale.
Group Morale
Hawthorne studies pointed out, pride in group is an important component of morale.
Employees like to belong to be part of and be accepted by the group even where and
employee dislikes the actual work itself. H e may have high morale, stemming from his
pleasure of group with his group work. Where there is a well integrated group, there
would be high group morale, as well as individual morale. Since good supervision
correlated.with good group morale, special attention should be paid to the training
programme of supervisory staff. Whether it is group or individual morale, it must be
evaluated from time to time in the interest of the organisation.


There are four factors which effect the morale of the employees in an organisation.
They are as follows:
i) The organisation itself
ii) Nature of work of employee
iii) Supervisory techniques
iv) Fellow employees
Let us discuss each factor in a detailed manner.
The Organisation
As a practical matter morale is based upon the understanding that an employee's future
depends upon thesuccess of the organisation, and that the efficient service leads to high
pay, job security, and promotions. Employees morale cannot be exploited by
authoritarian attitude of the organisation. Employees morale must be won through,
sound personnel policies. Through benevolent paternalism, employees can be made
happy, loyal and grateful. T o maintain employees morale every organisation is
required to ensure the following:
a) A proper human relations programme
b) Survey of employees attitude should be undertaken to initiate corrective action
c) The findings of attitude surveys should be communicated to employees to gain their
faith in the organisation
d) Free flow of information to and from the employees and among employees.
e) A reward system for good work.
Nature of Work
Employees want jobs that match their needs, values and personalities. Studies have
shown that employees who undertake a job that requires the use of skills derive a sense
of competence from mastering. Employees will be happy when they believe themselves
to be competent in performing meaningful work. Since most employees strive to master
important activities of their lives, it is not surprising that mastery of skills performed on
the job involved a certain amount of pride. Work, for most people, is the most
important activity which influences their self-esteem. Tedious, boring and routine
work will not contribute morale building.

Supervisory Techniques
An important step in the morale-building programme is to instill ih supervisors the need
for applying human relations in supervision. Supervision must help the employees to
enjoy the anticipation of future satisfactions of their drives rather than the whim of the
movement. The major failure of poor supervision is the failure of supervisor to
understand emotions. To boost up the morale supervisor should be democratic and
allow participation of employees in runnillg the departmental affairs. Supervisor should
be fair and impartial in dealing with his assistants. He should also build up the pride of
the employee in his work by explaining its importance and giving recognition for good
work. He should learn to apply positive discipline, which corrects by showing right way
and does not restrict the individual employee who is being brought into line.
Fellow-employees' Interaction
In the socialisation process of the institution, co-employees interaction influences
employees' morale a lot. Formal training, institutional rules and regulations may not be
sufficient for the new entrants in understanding their role expected by the institution.
Co-employees' informal assistance, fraternity, cooperation will help the new comers in
performing their work assigned by the institution. Fellow-employees'
non-cooperation, jealous attitude. carelessness create undesirable work environment.
E\ rr- . ~mpetitlvespirit and undertaking of a work of challenge will arouse positive
. ~ r n r n ~Tnng
employees wherl there is irlteraction. It also raises the groupmorale.


Whether of an individual or a group, the level of morale must be observed and
expressed largely in terms of complex reactions. Most employers who are concerned
with employee morale recognise the necessity for careful analysis of all expressions of
employee reactions. There are several methods of survey of morale. Some of the
methods are as under:
Attitude Survey
These surveys depend upon questionnaires, which are administered orally or in writing
from any employees. By answering these questionnaires, employees ~ndicatetheir
attitude towards a wide range of conditions related to their work. Analysis of their
replies provides a guide to general levels of morale as well as more specific indications
of their likes and dislikes in the prevailing employment situation.
Morale Interviews
By frequent and periodic interviews with employees their morale can be assessed. In
these visits, the interviewer encourages the employeeto speak freely and frankly in
respect of his job, his supervisors, his fellow employees, and any other conditions
affecting his employment without any fear or hazard to his status in the organisation.
Spies and Informers
In earlier times the employers are used to hire spies and placed them in various
departments for the specific purpose of finding out what employees thought of their
jobs and of working conditions in the organlsation. After formation of employees
unions and associations this practrce was almost given up and it became outdated.
Morale survey methods are varied from one organisation to another. However, it all
depends upon the nature of the work of employee, organisation, authorities' outlook,
and size of the organisation etc.
Indices of Morale
Morale, as it is an attendant condition of an activity rather than an activity itself, can be
measured only indirectly. The following are some of the indices of employee's morale.
a) Absenteeism: Where there is high morale, employees make efforts to be on time and
avoid absence. A high rate of absenteeism indicates poor morale.

Mdlvntioa nnd Morale


b) Turnover: Sometimes greater turnover of labour may be included in the indices of

poor morale. It may not be true in all cases. Young employees in unskilled jobs have
higher turnover rate than older employees in higher positions.
c) Grievances: Some grievances may arise out of poor morale.
d) Output Level: High level of output may indicate high level of morale but the output
may be increased even by fear. The employees with higher level of morale may
produce low output due to substandard tools or deliberate plan to restrict output.
These may not be the proper measuring rods of morale. But the level of output will
also exhibit the level of morale.


Morale is not static. It is subject to daily, o r even to monetary fluctuations. It is also
subject t o long-term secular trends. It is useful t o think of long-term morale trends as
responses to pressures and supports. Usually policy on morale seeks to develop and
maintain high levels of morale among employees through appropriate means.
The following measures are suggested for morale building.
Job Satisfaction: The personnel policy should make jobs as interesting and satisfying as
possible; it tends to encourage a favourable and enthusiastic group action.
Job Training: Job training, orientation, education, apprentice training and a broad
variety of general educational efforts will help in building up employees' morale.
Recognition of Aspirations: Recognition of individual aspirations anbgoals, and
definite provision of means by which such goals can be achieved will go a long way in
boosting morale.
Unrest: A careful study must be made on various indices of employees unrest, with the
ultimate objective of constructive guidance and action.
Counselling Interviews: Counselling Interviews help to discover the feelings of
Opportunities: pro&ising opportunities like good promotional avenues, good working
conditions, satisfactory remuneration and other benefits for personal development.
Relations: The supervisory staff should ensure, human relations, informal relations,
fact finding and adopt participative and employee orientated attitude.
Facilities: Apart from the above measures, the facilities lik'e, transport, housing, health,
family welfare, children's education, and other recreational facilities would also help in
building up employees morale.

i) Use the space below for your answers.

ii) Check your answers with those given at the end of @is unit.
1) What is Morale?

2) What are the factors effecting Morale?




Learning Outcome




Views of Abraham Maslow

12.2.1 The Hierarchy of Needs theory
12.2.2 A Critical Evaluation


Views of Frederick Herzberg

12.3.1 Motivation Hygiene theory
12.3.2 Propositions in the theory
12.3.3 Job enrichment
12.3.4 Vertical job loading
12.3.5 A Critical Evaluation


Comparison of Herzberg and Maslow Models




Key Concepts


References and Further Reading



12.0 Learning Outcome

After studying this unit, you should be able to:

Understand the views of Abraham Maslow and Frederick Herzberg on human


Know Maslows hierarchy of needs theory;

Understand Herzbergs Motivation-Hygiene theory; and

Discuss the impact of motivational theories of Abraham Maslow and Frederick

Herzberg on Organisational Processes.

12.1 Introduction
Employees motivation has occupied an important area of enquiry among many
administrative thinkers. Scientific management believed that workers could be
motivated by manipulation of rewards and sanctions, and to this end it devised the
payment system based on piecework. As payment depended upon how much one
produced, it was assumed that a worker would be induced to produce more.
Specialisation was encouraged with the view that if a worker concentrated on a small
piece of work he would produce more, thus increasing his income. The Hawthorne
experiments conducted by Elton Mayo criticised this theory of motivation, but it did not
develop a comprehensive theory of motivation. It was Abraham Maslow who, in 1943,
made a breakthrough in human motivation with the appearance of his paper entitled of
A theory of Human Motivation published in the Journal, Psychological Review. In
this article Maslow postulated the idea of a hierarchy of human needs. Human beings
are pleasure-seeking beings and are motivated towards satisfaction of their needs.
Before Maslow, all administrative thinkers belonging to the human relation school
routinely took the instrumental view of man, believing in manipulating him to be a
more productive tool of the organisation. Maslow makes a departure from such
thinking. He contends that the employee is not to be treated as an instrument as an
autonomous hierarchy of needs motivates him. Man, in other words, is a selfactualising being. Maslow holds the view that the best managers are ones who improve

the health of the employees. In this unit an attempt is made to explain the views of
Abraham Maslow and Frederick Herzberg on human motivation and also assess the
impact of their motivational theories on organisational processes.

12.2 Views of Abraham Maslow

Abraham Maslows interest and research in understanding human behaviour
was the result of his early career as a psychologist. He tried to understand human
behaviour through psychoanalysis.

Maslow develops the concept of holistic

psychology. This, he calls the third force the other two being Behaviourism and
Psychoanalysis. Maslow directs his main efforts in the field of personality. He argues
that psychology had hitherto concentrated too much on human frailty and neglected
human strengths. He contends that human nature is essentially good. As human
personality develops through maturation, the creative capacity becomes more sharply
defined. If human beings are miserable, the fault lies with the environment, which
makes them so. Human beings are not basically destructive or violent: they become so
only when theyre inner nature is twisted.
Born in 1908 in New York, Maslow obtained his post-graduation degrees in
Ph.D. in psychology from the University of Wisconsin. He served on the faculties of
Brooklyn College in New York and Brandies University. He was elected President of
the American Humanist Association for 1967-68. Maslows major works are :

Motivation and Personality (1954.

Toward a Psychology of Being (1962).

The Psychology of Science: A Reconnaissance (1966).

New Knowledge in Human Values (1970).

The Farther Reaches of Human Nature (1971).

Dominance, Self-Esteem, Self-actualisation: Germinal Papers of A.H.

Maslow (edited by Richard J. Lowry in 1973).
In addition, he published several research papers in journals and books. Initially,

Initially, Maslows writings generated interest among other clinical and personality
psychologists, but hardly had any influence on organisation theories. Managers and
administrators began to read Maslows ideas only after McGregor popularised them.
Abraham Maslow put forward three basic propositions based on the concept of need:

Man is a wanting animal. He always has some need driving him to action.

There is a hierarchy of needs. They are arranged in an order of priority with

the most basic needs to be satisfied first.

A need satisfied is no longer a motivator.

Man is driven only by unsatisfied needs. If the physiological and the safety

needs are satisfied, there will emerge the love and affection and belongingness needs.
These include desire for achievement, adequacy, reputation, recognition, importance,
appreciation and the like. According to Abraham Maslow, self-actualisation refers to
mans desire for self-fulfilment, namely, to the tendency for him to become actualised
in what he is potentially. This tendency might be phrased as the desire to become more
and more what one is, to become everything that one is capable of becoming.
Human behaviour can be analysed from their actions and the motives behind
them. These assumptions about human motivation have been familiar since the days of
Sigmund Freud. Social Psychology has brought a new path in analysing human needs
and motives through human behaviour. Maslows theory of human motivation provides

the framework to study and analyse human motivation. As Maslow himself said,
Motivation theory is not synonymous with behaviour theory. The motivations are only
one class of determinants of behaviour. While behaviour is almost always motivated, it
is also almost always biologically, culturally and situationally determined as well.
Among the most widely referred motivation theories, Maslows hierarchy of needs
theory is quite prominent.

The Hierarchy of needs theory

Maslow sees human needs in the form of a hierarchy, starting in an ascending

order from the lowest to the highest needs and concludes that when one set of needs are
satisfied then the need for other set arises. According to Maslow, human being is an
organism, which drives into action to satisfy its needs. The hunger drive or any other
physiological drive cannot become a cantering point in explaining the theory of
motivation. A sound theory of motivation centres upon the basic goals of human
beings. Human behaviour is a reflection of more than one need. Classification of needs
into specific groups is a requisite in formulating a motivation theory. He says that
classification of motivations must be based upon goals rather than upon instigating
drives or motivated behaviour. He further says that a situation in which a human
organism reacts is a valid point in motivation theory, but the emphasis should always
be on the behaviour of the organism rather than on the situation.
Maslow arranges the human needs in order of hierarchy of prepotency. At the
lowest end are the physiological and security needs. The self-actualisation need is at the
highest end. In between there are social and self-esteem needs. Once the needs at the

lower order are satisfied, then the need for needs at the higher order arises. The basic
human needs identified by Maslow in an ascending order of importance are as follows:

Physiological needs: Physiological needs are the basic needs for sustaining
human life itself. Food, water, clothing, shelter, sleep and sexual satisfaction
are the physiological needs without which the people cannot survive.
Maslow maintains that unless these needs are satisfied to the degree
necessary to maintain life, other needs will not motivate people.

Security or safety needs: Security or safety needs follow the physiological

needs. These are the needs that enable people to live free from physical
danger and fear of loss of a job, property, food, clothing or shelter.

Affiliation or acceptance needs: Since people are social beings, they need
affiliation and to be accepted by others. They want to establish relationships
with others and at the same time also want them to establish reciprocal

Esteem needs: Maslow maintains that once people begin to satisfy their
affiliation needs, they want to be held in esteem by others. This kind of need
generates such satisfactions as power, self-confidence, social position, and

Need for self-actualisation: Maslow regards the need for self-actualisation

as the highest in the hierarchy of needs. It is the desire to become what one
is capable of becoming. It is the desire to maximise ones potential and to
accomplish something.

As Maslow maintains that self-actualisation is the highest need in his hierarchy,

who then is a self-actualised person? Self-actualised persons have the following
characteristics. They posses an unusual ability to detect the spurious, the fake, and the
dishonest in the personality; they possess creativeness and originality; they lack
overriding guilt and crippling shame and anxiety; they have a mission and purpose in
life; they like privacy, dignity, autonomy and freedom to pursue their endeavours in life
and work; they derive ecstasy, inspiration and strength from the basic experience of
life; they have a deep feeling of identification, sympathy and affection for mankind;
they maintain interpersonal relations with few people; and, they are democratic and
they can differentiate between ends and means and right and wrong.
After identifying the basic human needs in an ascending order, Maslow
discusses the characteristics of these basis needs. First, the hierarchy is neither rigid nor
a watertight compartment. It means there is no fixity in the hierarchy of needs. For
example, some people prefer physiological to esteem needs. Also the emergence of a
particular need after fulfilment of a need at the lower end is not sudden. Secondly, the
basic human needs are the same and common irrespective of the societies and cultures
in which they live. Thirdly, human behaviour is a reflection of diverse needs and cannot
be influenced by a single variable or need. Moreover all behaviours cannot be
determined by the basic needs alone. And finally, a satisfied need is not necessarily a
Although hierarchical aspects of Maslows theory are questionable and often
not acceptable, his identification of basic human needs appears to be useful. In other
words, it is necessary that perceptive managers must take a situational or contingency

approach to the application of Maslows theory. What needs they must approach will
depend on the personality, wants and needs of individuals employees. In any case,
perceptive managers must not forget that most people especially in a developed society,
have needs that spread over the whole spectrum of Maslows hierarchy.
The thrust of Maslows hierarchy of needs is that one must satisfy ones basic
needs before moving to the satisfaction of higher needs. Maslow draws attention to the
larger range of needs needing satisfaction. A manager must note that basic needs of
workers must be satisfied, but there are other needs as well. A satisfied need ceases to
be a need and another makes its appearance.
12.2.2 A Critical Evaluation
Maslows contribution in the form of his need hierarchy is a landmark in socialpsychological research. His theory has had tremendous impact on modern management
approach to motivation.
Maslows theory of need hierarchy was criticised mainly on grounds of
sophistication and validity of his research data and the order of hierarchy of needs.
Research on the realities of Maslows theory does raise questions about the accuracy of
the hierarchical aspects of these needs. However, his identification of basic needs has
been quite useful. Research by Lawler and Suttle of 187 managers in two different
organisations does not support Maslows theory that human needs conform to a
hierarchy. Researchers do note, however, that there are two levels of needs biological
and other needs and that the other needs would arise only when biological needs are
reasonably fulfilled. Their research, further, indicates that at the higher level, the

strength of the needs varies with individuals; in some individuals social needs
predominate, and in others self-actualisation needs are strongest.
Porter, in his study, also finds that needs do not follow a hierarchy, especially
after lower-level needs are satisfied. He finds that managers at all levels do have
common security and social needs and that the three higher needs in Maslows
hierarchy vary greatly with managerial ranks, with lower-level managers being less
satisfied than higher level managers. Yet, at all levels, satisfaction of these needs is
definitely more or less deficient.
Hall and Nougaim likewise, in their study of Maslows theory involving a group
of managers over a period of five years, do not find strong evidence of a hierarchy.
They discover that as managers progress in an organisation, theyre physiological and
safety needs tend to decrease in importance, and their needs for affiliation, esteem, and
self-actualisation tend to increase. They observe that upward movement of needs results
from career development and not from the satisfaction of lower-order needs.
The concept of self-actualisation and its characteristics as described by Maslow
have been subjected to criticism also. He does not elaborate the methodology adopted
by him to select the cases for study. Further, Maslows list of characteristics of a selfactualised person also contains several contradictory and overlapping features. Cofer
and Apply observe that the emphasis on self-actualisation suffers from the vagueness of
its concept, the looseness of its languages and the inadequacy of the evidence related to
its major contentions.

Recent research studies by Wabha and Birdwell reveal that Maslows theory is
not valid. They say that there are two primary clusters of needs instead of five. They
note there is no clear evidence that human needs are classified in five distinct
categories, or that these categories are structured in a special hierarchy. There is some
evidence for the existence of possibly two types of needs, deficiency, and growth
needs, although this categorisation is not always operative.
Similarly, Nash says that Maslows theory is interesting but not valid. Maslow
had a good idea. But the problem with Maslows need hierarchy is that it cannot be
turned into a practical guideline for managers who are trying to make people
Thus the criticisms against Maslows theory mostly rest on its lack of research
support, on the dispute over the hierarchy of needs, and on the imprecise nature of the
term self-actualisation. Although Maslows theory has been subjected to questioning
and often not accepted, his identification of basic needs has been fairly popular. He has
made an important contribution to our understanding of the nature of motivation. His
distinct approach to motivation has greatly influenced the practice of modern

12.3 Views of Frederick Herzberg

Frederick Herzberg is another distinguished American psychologist who has
questioned the conventional wisdom of managerial dogma and practices. He has
studied the problem of human motivation at the work place. The central core of
Herzbergs work stems from his Second World War experiences where he realised that


a society goes insane when the sane are driven insane. As a psychologist Herzberg felt
that sanity requires as much professional attention to nourishing the humanistic content
of character and ethics as to showing compassion for differences in personality. In this
context, Herzberg of serves: The insane also require care and compassion but their
insane actions should never be reinforced by ethically neutral strategies. My theories
have tended to emphasise strategies for keeping the sane.
Frederick Herzbergs major works are:

Work and the Nature of Man (1966).

The Motivation to Work (1959); (Co-author).

The Managerial Choice: To be Efficient and to be Human (1976).

In developing his motivation theory, Herzberg was influenced by the writings of

Abraham Maslow, Douglas McGregor and Chris Argyris. He analysed the relationship
between meaningful experience at work and mental health. He believed that all
individuals have two sets of needs: (i) to avoid pain, and (ii) to grow psychologically.

12.3.1 Motivation Hygiene Theory

Herzbergs theory of motivation is based on the work experience of some two
hundred engineers and accountants from nine companies in the Pittsburgh area of USA.
These men were asked to think of times when they felt exceptionally good or


exceptionally bad about their jobs. The responses were then classified by topic in order
to determine what type of events led to job satisfaction and job dissatisfaction.
The research employed a combination of the critical incident technique,
retrospective pattern interview and content analysis. The major objective of the
research was to identify the factors that lead to positive and negative attitudes towards
the job and to study the effects of these attitudes on job performance, turnover, mental
health, etc. The focus of the study was whether different kinds of factors were
responsible for bringing about job satisfaction. The study confirmed this hypothesis. In
other words, his research purports to explain the factors behind motivation:
determinants for job satisfaction and job dissatisfaction. His theory identifies five
strong determinants for both job satisfaction and job dissatisfaction.

Determinants of job satisfaction: Five factors that are strong determinants

of job satisfaction are: achievement; recognition; the attraction of the work
itself; responsibility; and advancement.

Determinants of job dissatisfaction: Five factors that are strong

determinants of job dissatisfaction are: company policy and administration;
supervision; salary; interpersonal relations; and working conditions.
According to Herzberg the first group of factors, are Motivators. They have

the potential of yielding a sense of satisfaction. The second group of factors, are
Maintenance or Hygiene factors. Their presence will not motivate people in an
organisation, yet they must be present; otherwise dissatisfaction will arise. Thus there
emerged two sets of job attitudes and factors, intrinsic and extrinsic. The latter set of


factors contributes towards job satisfaction, but does not directly lead to motivation.
The absence of these factors results in dissatisfaction. The intrinsic (job-content)
factors, on the other hand, do not cause dissatisfaction when missing but lead to
satisfaction when present. Herzberg makes a distinction between positive and negative
dissatisfiers and traces to them the lack of success that American industry has had in its
attempts to motivate employees via human relations training for supervisors and wage
incentive systems. Herzberg also suggests ways in which motivation to work may be
strengthened. The hygiene factors, according to Herzberg, operated to remove health
hazards....not a curative factor; it is rather, a preventive factor. Similarly, when there
are deleterious factors in the context of job, they serve to bring about poor job attitudes.
Improvements in the hygiene factors serve to remove the impediments to positive job
attitudes. The following table reveals the characteristics of hygiene and motivation
Characteristics of Hygiene and Motivation

Hygiene Seekers

Motivation seeker


Motivated by nature of environment


Chronic and heightened dissatisfaction Higher tolerance for poor hygiene

with various aspects of his job context, factors.
conditions, status, job security, company


improvement in hygiene factors


Short duration of satisfaction when the

hygiene factors are improved.


Overreaction of dissatisfaction when the Milder discontent when hygiene

hygiene factors are not improved.
factors need improvement.




Motivated by nature of the task

to Less reaction to improvement in

hygiene factors.

from Realises great satisfaction from




Shows little interest in the kind and Shows capacity to enjoy the kind
quality of work that he does
of work that he does.


Cynical view of positive virtues of work Have positive feelings toward

and life in general
work and life in general.


Does not profit professionally from Profits



Belief systems
Prone to making cultural noises:
(a) may be ultra-liberal or ultra considered.
(b) supports management philosophy
(c) acts more like top management than
top management itself


May be successful on the job because of May be an overachiever




Herzberg makes a distinction between hygiene factors and motivators.

Improved hygiene factors in an organisation lead to less dissatisfaction: an improved
job context is not a satisfier and hence, not a motivator. Similarly, an absence of a
motivator does not lead to dissatisfaction; it leads to an absence of satisfaction. One
must note here that satisfaction and dissatisfaction are different in the sense that they
operate differently. In other words, hygiene factors should be attended to when
dissatisfaction is to be reduced. If, however, satisfaction is to be increased, attention
needs to be given to motivators. Herzberg thus provides the two-factor theory of
motivation. The hygiene factors are essential for obtaining minimum performance by
gratifying the lower level needs. But motivators are necessary for securing outstanding
levels of performance in an organisation.
12.3.2 Propositions in the Theory
Three propositions are at the heart of motivator-hygiene theory:



First, it is basic to Herzbergs approach that job satisfaction and job

dissatisfaction are not the opposite of one another, rather they are concerned
with two different sets of mans needs. Therefore, the opposite of job
satisfaction, is not job dissatisfaction, but simply no job satisfaction.
Likewise, the opposite of job dissatisfaction is lack of job dissatisfaction.


Second, the factors that led to job satisfaction are of a different kind from
those that led to job dissatisfaction.


The motivators concerned with sustaining job satisfaction have a much

long-lasting effect than the hygiene factors concerned with removing

The major findings of the study, that factors associated with job satisfaction and
job dissatisfaction were distinctly separate form each other, have been applied in
several subsequent investigations. In a study involving over 1600 employees belonging
to a variety of jobs in business and industry and in a number of countries, Herzbergs
findings show that as much as 81 percent of the factors contributing to job satisfaction
are motivators concerned with growth and development. On the other hand, 69 percent
of the factors contributing to job dissatisfaction are factors concerned with hygiene or
environmental maintenance.
To an organisation, it is easy to motivate employees through fear of hygiene
deprivation than to motivate them in terms of achievement and actualising the goals.
Such a policy would be injurious to the long-term interests of the organisation.
Therefore, it is desirable to place emphasis on motivating the people. He advocates an


industrial engineering approach based on the design of jobs. Herzberg suggests job
enrichment, vertical job loading as the important means to motivate employees.
12.3.3 Job enrichment
Unlike Taylors method of rationalising the work to increase efficiency,
Herzberg suggests that including the motivating factors, which provide the opportunity
for the employees psychological growth, enrich jobs. In attempting to enrich an
employees job, Herzberg suggests that management should give him an opportunity
for growth in his existing job.
The term job enrichment designates a technique used by managers to maximise
in individual workers the internal motivation to work, which is the true source of job
satisfaction. The job-enrichment concept designates a production and profit-oriented
way of managing as well as a means of making work experience meaningful for people.
It is based on the premise that people are not motivated by what is externally done to
them by management with rewards, privileges or punishment, or by the environment or
context in which they perform their work. People develop lasting motivation only
through their experience with the content of their jobs i.e., the work itself. Job
enrichment calls for vertical job loading where opportunities for achievement,
responsibility, advancement and learning are designed into the job.
12.3.4 Vertical job loading
Herzberg contends that management often merely succeeds in reducing the
mans personal contribution, rather than giving him an opportunity for growth in his
existing job. He calls this horizontal job loading, as opposed to vertical loading,


which provides motivator factors. Since job enrichment calls for vertical job loading, it
is necessary to look for a subtle approach. Herzbergs approach is to look for ways of
removing some controls while retaining or increasing an individuals responsibility for
his own work. Some of ways put forward by Herzberg are:

making the individual accountable for his own work;


assigning a person a complete natural module of work;


granting freedom and authority to an employee in his job;


making reports directly available to the man himself rather than to the


introducing new and more difficult tasks; etc.

Herzberg observes that where these changes have been introduced, the results in

both performance and job satisfaction are considerable. For example, resulting increase
in job performance was found in the study of laboratory technicians who were asked to
write personal project reports in addition to those of the supervising scientists and were
authorised to purchase materials direct.
For job enrichment, it is equally important to provide for an effective feedback
process. An effective feedback has the following characteristics: (i) it is related to job
performance; (ii) it is given on an individual rather than group basis; (iii) it occurs at
short intervals; (iv) it is provided directly to the employee rather than through his
supervisor. Herzbergs theory thus places on the management the task of calling out the
motivators to provide adequate hygiene through company policy, interpersonal
relations, working conditions, etc., for causing satisfaction in mans work.
12.3.5 A Critical Evaluation


In spite of the wide ranging application and the popularity of two-factor theory,
there are criticisms about Herzbergs propositions. Some studies by Shepard and
Herrick, confirm Herzbergs conclusions. The main criticism of the motivation-hygiene
concept is that initially it interpreted job and company employment factors to be totally
distinct and separate sets of entities. Today it is recognised that these factors at times
can be both motivators and hygienic in nature.
Herzbergs hygiene approach to motivation has raised questions about the
accuracy, of motivation-hygiene theory. Hinton questions Herzbergs methodology. It
is charged that his questionnaire methods tended to prejudice his results. For instance,
the tendency of people to blame others for poor performance is thought to have
prejudiced Herzbergs results of investigations. Some critics find that the hygiene
factors as postulated by Herzberg had the potential of yielding a sense of satisfaction or
Mayers who applied Herzbergs theory in his research at Taxas Instruments
observes that his findings only partially support Herzbergs theory. He discovers that
those persons who seek opportunities for advancement and responsibility, whom he
characterises as growth seekers, do indeed fit into Herzbergs approach in that they
were concerned with satisfiers and relatively little concerned with environment factors.
On the contrary, other people, whom he calls maintenance seekers, are greatly
concerned with environmental factors. In other words, Mayers observes that what
motivates people is largely a matter of personality.
Moreover, factors that are normally environmental may become motivational
factors or vice versa. In other words, if opportunities for advancement and achievement


are not given to growth seekers, they may become maintenance seekers. It is now
widely recognised that these factors at times can be both motivators and hygienic in
nature. Herzberg calls money and fringe benefits negative motivators since people
feel sad if they have no money but money does not necessarily make them happier or
more productive.
One criticism against Herzbergs theory is about the methodology adopted.
Schwab and others have adopted the same methodology as that of Herzberg, but they
have obtained results different form what the two-factor theory would predict.
Notwithstanding this criticisms, Herzbergs contribution to human motivation
theory is substantial. The concept of job enrichment developed by him is certainly a
better-known contribution. He focuses attention on the significance of job content in
motivation, which was hitherto unknown. Modern managers have recognised the
significance of upgrading job content of their subordinates to motivate them with the
influence of Herzbergs two-factor theory.

12.4. Comparison of Herzberg and Maslow Models

The models of both Maslow and Herzberg focus attention on the same relationship, that
is what motivates an individual. Maslow has suggested the theory of hierarchy of
needs and as to how people try to satisfy each higher level need successively. Thus,
any unsatisfied need becomes a motivating factor for the individual. In the
economically advanced countries most of the lower-order needs of workers are fulfilled
and hence, only higher-level needs remain motivating factors. This is what Herzberg
has suggested.

Maslows physiological, security and social needs come under


Herzbergs maintenance factors while self-actualisation under motivating factors. There

are some divisions of esteem need: some parts coming under maintenance factors, e.g.,
status, and others, advancement and recognition, going under motivational factors.
There is a particular difference between two models. Maslow emphasises that
any unsatisfied need, whether of lower order or higher order, will motivate individuals.
Thus, it has universality in its applicability. It can be applied to lower-level workers as
well as higher-level managers. In the underdeveloped countries, even lower-order needs
are not reasonably satisfied.

Hence, needs continue to be motivators.


according to Herzberg, these are hygiene factors and do not help to motivate workers.

12.5 Conclusion
Employee motivation has occupied are important area of enquiry among many
administrative thinkers. Abraham Maslow and Frederick Herzberg have developed
comprehensive theories of motivation. Both were psychologists, who questioned the
conventional wisdom of managerial dogma and practices and have studied the problem
of human motivation in a systematic way.
According to Abraham Maslow, man is driven only by unsatisfied needs. He
identifies human needs in the form of a hierarchy.

At the lowest end are the

physiological and security needs. The self-actualisation need is at the highest one. In
between there are social and self-esteem needs, once the needs at the lower order are
satisfied, they cease to be motivators only the higher older needs can motivate the
workers then. Maslows contribution in the form of his need hierarchy is significant in
organisation theory.


Herzberg develops motivation-hygiene theory of motivation through an

empirical study. His research purports to find two-factor explanation of motivationdeterminants for job satisfaction and job dissatisfaction. According to him hygiene
factors are essential for obtaining minimum performance by gratifying the lower level
needs. But motivators are necessary for securing outstanding levels of performance in
an organisation.
The theories of Maslow and Herzberg focus their attention on the same
relationship, that is what motivates an individual. But there is a particular difference
between their theories. Maslow emphasises that any unsatisfied need, whether of lower
order or higher order, will motivate individuals. According to Herzberg lower order
needs are hygiene factors and fail to motivate workers. Both these theories certainly
help the managers to understand the attitudes of employees towards work, and to take
appropriate steps to motivate them.

12.6 Key Concepts

Case Study: A research design that focuses upon the in-depth analysis of a single
Morale: The collective attitude of the workforce toward their work environment and a
crude measure of the organisational climate.
Self-actualisation: The apex of Abraham Maslows needs hierarchy, where an
individual theoretically reaches self-fulfilment and becomes all that he or she is capable
of becoming. The importance of the concept of self-actualisation was established long
before Maslow gave it voice. The nineteenth-century poet Robert Browning described




Learning Outcome




Theories of Motivation


Views of Douglas McGregor

13.3.1 Theory X and Theory Y
13.3.2 Assumptions of Theory X
13.3.3 Assumptions of Theory Y
13.3.4 Comparison of Theory X and Theory Y
13.3.5 Managerial Implications of Theory X and Theory Y
13.3.6 A Critical Evaluation


Views of Victor Vroom

13.4.1 Expectancy Theory
13.4.2 Implications of the Theory




Key Concepts


References and further Reading



13.0 Learning Outcome

After studying this unit, you should be able to :

understand assumptions of theory X and theory Y and managerial

implications of the theories of McGregor; and

know Victor Vrooms Expectancy theory and its implications for

organisational processes.

13.1 Introduction
People work for a wide variety of reasons. Some people want money, some
want challenge, and some want power. What each unique person in an organisation
wants from work has an instrumental role in determining that persons motivation to
work. Motivation is vital to all organisations. Often the difference between highly
effective organisations and less effective ones lies in the motivation of their members.
Thus, managers need to understand the nature of individual motivation, especially as it
applies to work situations.
Motivation is the set of forces that lead people to behave in particular ways.
Managers strive to motivate people in the organisation to perform at high levels.
Motivation is the most difficult factor to manage. If motivation is deficient; the
manager faces the more complex situation of determining what will motivate the
employees to work harder. In view of the importance of motivation in managerial
processes, in this unit we will discuss the motivational models of Douglas McGregor
and Victor Vroom in the organisational context.

13.2 Theories of Motivation

Organisation theorists tried to find out the answer as to what motivates people
in human organisations. Fredric W. Taylor and his followers in the form of scientific
management and more particularly in the differential piece rate system, made the
starting. Scientific management attempted to use financial incentives to motivate
people in work organisations. Then came the findings of human relations, which
emphasized security and working conditions at the job besides financial incentives for
work motivation. In the early 1960s, those concerned with work motivation started to
search for new theoretical approaches and to devise new techniques for application.
Some of these approaches tried to identify the types of needs that people had and the
way these needs could be satisfied so that people could be motivated. These theories
are known as content theories of motivation. Maslow suggested the theory of need
hierarchy; Herzberg proposed two-factor theory; McClelland emphasised on power,
affiliation, and achievement motives; and Alderfer proposed three groups of core needs:
existence, relatedness, and growth (ERG model).
A need is anything an individual requires or wants. Most people have many
different needs. These needs can be grouped into two categories: primary and
secondary needs. Primary needs are things that people require to sustain themselves;
therefore, food, water, and shelter. Needs of this type are instinctive and
physiologically based. Secondary needs, on the other hand, are requirements based
more in psychology and are learned from the environment and culture in which the
person lives. Examples include the needs for achievement, autonomy, power, order,
affiliation, and understanding. Secondary needs often arise in organisational settings, so
it is especially important to consider them when examining motivated behaviour. For
example, if people are to be satisfied with their psychological contracts with their

organisation, the inducements offered by the organisation must be consistent with their
own unique needs.
Need theories are the starting point for most contemporary thought on
motivation, although these theories too attracted critics? The basic premise of need
theories, consistent with the motivation framework introduced earlier, is that humans
are motivated primarily by deficiencies in one or more important needs or need
categories. Need theorists have attempted to identify and categorise the needs that are
most important to people. The best known need theories are the hierarchy of needs and
the ERG theory.
Scholars also tried to find out the process involved in motivation. It led to the
emergence of process theories of motivation. These theories are more concerned with
the cognitive antecedents that go into motivation or effort and with the way they affect
each other. Vroom proposes the theory of work motivation based on valence and
expectancy. Porter and Lawler make some refinements in Vrooms model and suggest
their own model. Behaviourists add the concept of equity to these models and propose
the equity theory of work motivation.
Some scholars attempt to relate the nature of human beings with the work
motivation. Though these propositions are not confined to work motivation, they offer
some insights into understanding work motivation. Prominent theories in this group are
McGregors theories of X.
Various theories of motivation approach the problems of motivation from
different perspectives, but all of them emphasise similar sets of relationships. These
relationships pertain to the individual, his needs, his perception of how he can satisfy

his needs, and whether his need satisfaction is equitable. All these theories have their
relevance only to particular contexts, and when the context changes, they may not work
because they are not universla theories, which can be applied in all situations.

13.3 Views of Douglas McGregor

Douglas McGregor was born in 1906 in Detroit, USA and was Professor of
Industrial Management at the Massachusetts Institute of Technology. In his quest for
productivity, McGregor develops two managerial approaches called Theory X and
Theory Y. The theories are published in his The Human Side of Enterprise, (1960).
McGregor was greatly influenced by Abraham Maslow and made him the starting point
for his work.
The main argument of McGregors work is that the theoretical assumptions
which the management holds about controlling its human resources determine the
whole character of the enterprise. Like other psychologists, McGregor studies the
assumptions about human behaviour, which underline the managerial actions. His
theoretical construct characterising Theory X and Theory Y assumes a quest for
high performance in the organisation. McGregors major works are:

The Human Side of Enterprise (1960).

Leadership and Motivation (1966).

The Professional Manager (1967).

13.3.1 Theory X and Theory Y

The managements action of motivating human beings in the organisation,
according to McGregor, involves certain assumptions, generalisations and hypotheses
relating to human behaviour and human nature. These assumptions serve the purpose of

predicting human behaviour. The basic assumptions about human behaviour may differ
considerably because of the complexity of factors influencing human beings.
McGregor presents these assumptions on two opposite sides: Theory X and Theory Y.

13.3.2 Assumptions of Theory X

The assumptions underlying Theory X are the following according to

The average person is lazy and works as little as possible.

People lack ambition, dislike responsibility, and prefer to be led.

People are inherently self-centred and indifferent to organisational needs.

People are resistant to change.

Most people are gullible and stupid.

Theory X views that people are passive or resistant to organisational needs and

need to be persuaded, rewarded, punished or controlled to achieve organisational needs.

Theory X is based on the traditional conception of control and direction. It is
traditionally known as the carrot and the stick theory, and is based practically on the
mechanistic approach to human relations. Managers subscribing to these views about
human nature attempt to structure control and closely supervise their employees. They
feel that external control is most appropriate for dealing with irresponsible and
immature employees. McGregor believes that these assumptions about human nature
have not changed drastically though there is a considerable change in behavioural
patterns. He argues that this change is not because of changes in the human nature, but
because of changes in the industrial organisation, management philosophy, policy, and

The Hawthorne studies, research findings by Likert and other behavioural

studies suggest that the assumptions of Theory X cannot be meaningfully explained.
McGregor himself questions the validity of Theory X. The assumptions about human
motivation fail to motivate employees to work toward organisation goals. He says the
carrot and stick theory of motivation which goes along with Theory X works
reasonably well under certain circumstances. But this theory does not work at all
once man has reached an adequate subsistence level and is motivated primarily by
higher needs. McGregor argues that theory X fails to describe or explain human
nature. McGregors generalisation is that so long as the assumptions of theory X
continue to influence managerial strategy, we will fail to discover, let alone utilise the
potentialities of the average human being.
13.3.3 Assumptions of Theory Y
McGregor comes out with an alternative, Theory Y with the underlying
principle of integration which replaces traditional concepts of direction and control.
Theory Y takes the apposite view and assumes that:

People are not by nature resistant to organisational needs.

People have a latent capacity to develop and accept responsibility.

People can be motivated towards management goals.

Management must arrange matters so that people can achieve their goals
through organisational objectives.
The assumptions of Theory Y suggest a new approach in management. It

emphasises the co-operative endeavour of management and employees. The attempt is

to get maximum output with minimum amount of control and direction. Generally, no
conflict is visible between organisational goals and individual goals. Thus, the attempt
of employees that are in their best interests are also in the interests of organisation.

Theory Y postulates that people can be encouraged to perform better and thus
recommends increased decentralisation of power, delegation of responsibility, job
enlargement, employee participation, consultative management and performance
appraisal in which the employee actively participates.
Theory Y leads to a preoccupation with the nature of relationships, with
creating an environment which encourages commitment to organisational objectives
and which provides opportunities for the maximum exercise of initiative, ingenuity, and
self-direction in achieving them. This theory recognises interdependence of human
organisations and participative management. The central principle of theory Y is that
integration of behaviours is the key process in management. The concept of integration
reflects a recognition of the needs of the individual and those of the organisation.
McGregor calls his theory Y an open invitation to innovation.
Theory Y is today a household expression in management circles.
Administration, today, is tending towards theory Y, and the future will see more and
more democratic administration.
13.3.4 Comparison of Theory X and Theory Y
Both theories X and Y have certain assumptions about human nature. These
assumptions seem to be mutually exclusive. The difference between the two sets of
assumptions can be visualised as follows:

Theory X assumes human beings to be inherently distasteful towards work.

Theory Y assumes that for human beings work is as natural as play.

Theory X emphasises that people do not have ambitions and try to avoid
responsibilities in jobs. The assumptions under Theory Y are just the

According to Theory X, most people have little capacity for creativity while
according to Theory Y, the capacity for creativity is widely distributed in
the population.

In Theory X, motivating factors are the lower needs. In Theory Y, higher

order needs are more important for motivation, though unsatisfied lower
needs are also important.

In Theory X, people lack self-motivation and require be externally

controlling and closely supervising to get maximum output from them. In
Theory Y, people are self-directed and creative and prefer self-control.

Theory X emphasises scalar chain system and centralisation of authority in

the organisation while Theory Y emphasises decentralisation and greater
participation in the decision making-process.

Theory X emphasises autocratic leadership; Theory Y emphasises

democratic and supportive leadership styles.

13.3.5 Managerial Implications of Theories X and Theory Y

The major implications of theories X and Y may be seen in the management
process. According to Harold Koontz and his colleagues, the managerial process
involves: (i) setting objectives and developing plans to achieve them; (ii) implementing
the plans through leadership; and (iii) controlling and appraising performance against
previously set standards. These key managerial activities are selected to illustrate the
possible effects of Theory X and Theory Y on managerial actions. These effects
summarised by Koontz and his colleagues, in the following table present conjectural
view that awaits validation by databased research.
Table I- Theory X and Theory Y

Selected key






Theory X : People dislike work;

people must be forced to work;
people do not willingly assume
Superior sets objectives for
There is little participation by
subordinates in setting objectives
and developing plans. Few
alternatives are explored.
There is low commitment to
objectives and plans.
Leadership is autocratic, based on
authority only.
People follow orders, but hidden
resistance and mistrust exist.
Communication is one-way, topdown, with little feedback.
Information flow is limited.
Control is external and rigid.
Superior acts as a judge.
There is low trust in appraisal.
Focus is on the past, with emphasis
on fault finding.

Theory Y : People like work; people

work; best under self-direction; people
like to assume responsibility
Superior and subordinate set objectives
There is a great deal of participation by
subordinates in setting objectives and
developing plans. Many alternatives are
There is high commitment to objectives
and plans.
Leadership is participative and teamwork
is based on competence.
People seek responsibility, feel
accountable, and are committed to
Communication is two-way with a great
deal of feedback. Necessary information
flows freely.
Control is internal and based on selfcontrol.
Superior acts as a coach.
There is high trust in appraisal.
People learn from the past, but focus on the
future; feed forward control emphasises
problem solving.

Source: Harold Koontz, Cyril O Donnel and Heimz Weihrich, Management, (McGraw
Hill International, eighth edition, 1984), p. 465.

13.3.6 A Critical Evaluation

McGregors rejection of traditional conception of administration has been
questioned. Traditional concepts such as control and direction which he has rejected are
still of great value for understanding human motivation. Theory X that McGregor does
not favour, as it leads to an emphasis on the tactics of control, is of some value. Despite
all the researches and theories of motivation that have come to the fore in recent years,
it should not be forgotten that the carrot and stick theory (use of rewards and
punishments) is still strong, and hence could motivate people. In spite of the
tremendous amount of research generated by McGregors theory, it has never been


tested adequately. Douglas McGregor makes constructive contribution to the human

motivation theory. He rejects the underlying assumptions about human behaviour on
which formal organisation is built and propounds Theory Y based on a more adequate
understanding of human motivation. His theory has had a tremendous impact on
managerial thinking in modern organisations. Theory Y explodes the myth of the
economic man and traditional concepts of direction and control.
The current research in human motivation has gone far beyond Theory Y, but
this does not mean that this Theory is irrelevant. McGregor himself calls his Theory Y
an open invitation to innovation. His ideas on leadership, management development
programme, and on developing the professional manager are of considerable value to
current administrative practices.

13.4 Views of Victor Vroom

Content theories are basically based on three assumptions that (i) all employees
are alike, (ii) all situations are alike and (iii) there is only one best method to motivate
employees, i.e., satisfying needs. Contrary to the assumptions of content theory, a
number of other theories have been developed after extensive studies based on
empirical evidence.

13.4.1 Expectancy Theory

Criticising the content theories of motivation, which are based on the needs of
people and their priority, Vroom has presented an alternative theory, which is based on


motivation process. He made a significant contribution to our understanding of

motivation through his expectancy Theory. The basic expectancy theory model
emerged from the work of Edward Tolman and Kurt Lewin. However, Victor Vroom,
is generally credited with first applying the theory to motivation in the workplace. The
theory attempts to determine how individuals choose among alternative behaviours.
The basic premise of expectancy theory is that motivation depends on how much we
want something and how likely we think we are to get it.
Vrooms expectancy theory can be classified as process theory in contrast to the
content theory primarily because it attempts to identity relationships among variables in
a dynamic state as they affect individual behaviour. This systems orientation is in direct
contrast to the content theories, which have attempted largely to specify correlates of
motivated behaviour. In the expectancy theory, it is the relationship among inputs that
is the basic focal point rather than the inputs themselves. Vroom develops his
motivation model around the concepts of value, expectancy and force.
Vroom`s expectancy theory has its roots in the cognitive concepts in the choice
behaviour and utility concepts of classical economic theory. According to Vroom,
people are motivated to do things to achieve some goals to the extent that they expect
that certain actions on their part will help them to achieve the goal. Vrooms model is
built around the concepts of value, expectancy and force; its basic assumption is that
the choice made by a person among alternative courses of action is lawfully related to
psychological events occurring contemporaneously with the behaviour. Vrooms
concept of force is basically equivalent to motivation and maybe shown to be the
algebraic sum of products of valences multiplied by expectations. Thus,


Motivation (force) = Valence x Expectancy

Vrooms expectancy theory is presented in figure. I







The three terms referred by Vroom in his model are analysed below:
This term refers to degree of desirability or preferences for various outcomes or
incentives, which are available to him. These include value, incentive, attitude and
expected utility. Before an individual decides to put effort into the performance of a
task, he first looks at the various alternatives at his disposal and the outcomes (rewards)
associated with it. Hence, valency reflects the strength of a persons desires for the
attraction to rewards, if he adopts a particular cause of action. Hunt and Will also opine
that valency is the strength of an individuals desire for a particular outcome and it is
the subjective value attached to an incentive or reward. To clarify the concept of
valency they have taken the example of promotion. Assume that an individual wishes
for a promotion in his organisation and feels that if his performance is superior to
others, it will be a positive factor for him in achieving the promotion. His first level


outcomes are therefore superior, average or poor performance and his second level
outcome is promotion. The individuals first level outcome i.e., high performance
acquires a positive valency by virtue of the expected relationship to the preferred
second level outcome i.e., promotion. Thus the individual would be motivated to give
superior performance in order to get promoted. The superior performance, i.e., the first
level outcome is instrumental in obtaining promotion, i.e., the second level outcome.
At first glance the expectancy may seem to be the same as the instrumentality
input into valence, but they are different. Expectancy differs from instrumentality in
that it relates efforts to first level outcomes where instrumentality relates second-level
outcomes to each other. Since expectancy is rated as the probability of connection
between effort and performance, its value ranges between 0 and 1. If an individual sees
no chance that effort will help him to achieve the desired performance level, the
expectancy is 0. On the other hand, if he is confident that the task will be completed
and he will achieve the desired performance level, the expectancy value assigned is 1.
Thus, the expectancy of an individual will lie between these two extremes, i.e., 0 to 1.
Hence, we can say, in order that motivation take place, the expectancy must also be
high like valence.
Expectancy = Efforts to First Level Outcomes.
(The belief that efforts lead to performance).
Instrumentality refers to the outcomes (rewards) for the individuals for each
level of job performance (expectancy). It helps to answer such questions, Will I be
rewarded if I perform the job well? Instrumentality is probabilities attached by an


individual to each possible performance-outcome alternatives as he previously assigned

probabilities to various levels of effort leading to different levels of performance. In the
example given earlier, instrumentality refers to the persons perception of the
relationship between high performance (first level outcome) and promotion (second
level outcome). Thus perceived instrumentality is a subjective feeling, if an individual
perceives that his performance is suitably rewarded the perceived instrumentality will
be positive. On the other hand, if he perceives that the performance will make no
difference to the rewards the instrumentality will be low. Think of your own decisionmaking process on how much effort you put into studies for an examination or writing
a term paper. And you get the answer based on Vrooms model of motivation.
13.4.2 Implications of the theory
One of the important features of this theory is that it recognises individual
differences in work motivation and suggests that motivation is a complex process as
compared to Maslows or Herzbergs simplistic models. It also clarifies the relationship
between individual and organisational goals. Hunt and Hill point out that instead of
assuming that satisfaction of a specific need is likely to influence organisational
objectives in a certain way, we can find out how important to the employees are the
various second-level outcomes (worker goals), the instrumentality of various first-level
outcomes (organisational objectives) for their attainment and the expectancies that are
held with respect to the employees ability to influence the first-level outcomes. Thus,
Vrooms theory is consistent with the idea that a managers job is to design an
environment for performance, necessarily taking into account the differences in various
situations. Furthermore, this theory is also quite consistent with management by
objectives. However, Vrooms theory is difficult to research and apply in practice. This


is evident from the fact that there have been only a few research studies designed
specifically to test Vrooms theory. In fact, Vroom himself depended largely upon
researches conducted prior to the formulation of his theory. Nevertheless, from a
theoretical standpoint the Vroom model seems to be a step in the right direction, but
does not give the manager practical help in solving his motivational problem.
Vrooms theory is very popular in academic circles and has generated some
research because it attempts in understanding organisational behaviour in a wider
perspective. This theory recognises the complexities of work motivation, but it is
relatively difficult to comprehend and apply in practice.

13.5 Conclusion
Motivation is vital to all organisations. Thus, managers need to understand the
nature of individual motivation, especially as it applies to work situations. Motivation is
the most difficult factor to manage. Theories of motivation can be classified into two
categories content theories of motivation and process theories of motivation. Need
theories developed by Abraham Maslow and Alderfer come under content theories of
motivation. These theories are based on the types of needs that people have and the way
these needs could be satisfied so that people would be motivated. Motivation models
developed by McGregor and Vroom come under the category of process theories of
motivation. These theories are more concerned with the cognitive antecedents that go
into motivation or effort and with the way they affect each other.
McGregor studied the assumptions about human behaviour, which underline the
managerial actions. The managements action of motivating human beings in the
organisation, according to McGregor, involves certain assumptions, generalisations and


hypotheses relating to human behaviour and human nature. He characterises these

assumption in two opposite points, Theory X and Theory Y. Theory X view is that
people are passive or resistant to organisational needs and need to be persuaded,
rewarded, punished or controlled to achieve organisational needs. On the other hand,
Theory Y takes the opposite view. The assumptions of Theory Y emphasise the cooperative endeavour of management and employees. The central principle in the
assumptions of theory Y is that integration of behaviours is the key process in
Victor Vroom presents expectancy theory that is based on motivation process.
The theory attempts to determine how individuals choose among alternative
behaviours. He develops his motivation model around the concepts of value,
expectancy and force. One of the important features of this theory is that it recognises
individual differences in work motivation and suggests that motivation is a complex
process and compared to Maslows or Herzbergs simplistic models.
Motivation models developed by McGregor and Victor Vroom are useful to
managers in understanding the nature of motivation in work situations. These models
also help to understand the complexities of determining what motivates the employee to
perform better.

13.6 Key Concepts

Job Enlargement: Adding additional but similar duties to a job.

Job Enrichment: Adding different kinds of duties so that the work is both a higher
level and more personally satisfying.
Job Satisfaction: The totality of an employees feelings about various aspects of his or
her work; an emotional appraisal of weather a job lives up to an employees values..


Motivation: An amalgam of all of the factors in ones working environment that foster
(positively or negatively closed productive efforts.
Peer Group: People at the same organisational level in terms of rank, title or salary.
Reinforcement: An inducement to perform in a particular manner. Positive
reinforcement occurs when an individual receives a desire reward that is contingent
upon some prescribed behaviour. Negative reinforcement occurs when an individual
works to avoid an undesirable outcome.
Theory X: The assumptions that the average human being has an inherent dislike of
work, that most people must be threatened to get them to put forth adequate effort, and
that people prefer to be directed and to avoid responsibility.
Theory Y: The assumptions that work is as natural as play, that workers can exercise
self-direction and self-control, and that imagination, ingenuity, and creativity are

13.7 References and Further Reading

Ali, Shuma Sun Nisa, 1998, Eminent Administrative Thinkers, Associated Publishing
House, New Delhi.
Koontz, Harold, Cyril ODonnel and Heimz Weihrick, 1984, Essentials of
Management, McGraw-Hill Book Company, New York.
Luthans, Fred, 1995, Organizational Behaviour, McGraw-Hill International Editions
(Seventh Edition), New York.
McGregor, Douglas, 1960, The Human Side of Enterprise, McGraw-Hill, New York.
Moorhead/Griffin, 1999, Organisational Behaviour,
Distributors, New Delhi.




Prasad, D. Ravindra, V.S. Prasad and P. Satyanarayan, 2004, Administrative Thinkers

(Ed), Sterling Publishers, New Delhi.
Prasad, L.M., 2004, Organisational Behaviour, Sultan Chand & Sons, New Delhi.
Vroom, Victor H., 1964, Work and Moivation, John Wiley & Sons, Inc., New York.

13.8 Activities

Theory X is based on traditional conception of control and direction. Explain.


Analyse the assumptions of Theory X and Theory Y.

Discuss the Victor Vrooms expectancy theory and its implication on
organisational processes.



28.0 Objectives
28.1 Introduction
28.2 Meaning and Definition
28.3 Elements of a Communication System
28.3 Essentials of Communication
28.5 'Types of Comn~unication
28.6 Media of Communication
28.7 Factors Inhibiting Communication
28.8 Let Us Sum Up
28.9 Key Words
28.10')~omeUseful Books
28.1 1 Answers to Check Your Progress Exercises

After studying the unit you will be able to:
describe the meaning and importance of communication in administration
identify tlie main elements and essentials of communication
* diflirentiate between different types of communication
discuss different media of conlmunication; and
analyse the factors that inhibit effective communication.

In administrative theory and organisation, communication is one of the most widely
discussed but l6ss clearly analys~dtopics. According to Fred Lurhans "some estimates of
the extent of its use go up to about three fourths of an active human beings life, and even
higher proportions of a typical manager's time". Ineffective communicatinn has been
identified as the root cause of many problems in the world. Hicks and Gullett have
suggested that the heart of all the world's problerns - at least of men with each other-is
The concept of
man's inability to communicate as well as he thinks he is communica'ti~~~.
communication is interrelated with concepts such as motivation, coordination, leadership,
structure; and decision making in organisations. In this unit we will study communication,
its importance, types, media, as well as the factors that inhibit proper communications.


Communication is one of the main principles of organisation. It has been considered as an

effective tool for achieving the goals of an organisation. All organisations, may be small or
big, simple or complex, general or technical, have the necessity of communication
network. It plays a vital role, as functioning of all other important principles of the
organisation depends upon its availability and effectivity. Moreover, communication is the
only means for inspiring a person's enthusiastic and cooperative contacts.
Pfiffner considers the communication as "the heart of management", while Millet
describes it as the "blood stream of an administrative organisation", Writing about
communication, Ordway Tead has declared that the underlyirrg aim of communication has
been defined as that process whereby one person makes his ideas and feelings known to
another. Peter Drucker has defined communication as "the ability of the various

Concepts in Organisntion -11

functiond groups within the enterprise to understand each other and each other's functions
and concerns'" Cornmunio,~tionis difficult to achieve, if the top management does not
possess the ilrlaginatiorl and the kllnwledge to understand the behaviour of personnel
working at the lower rungs. The fol!owing are sorne of fhhe definitions:
"Communication is the process of effecting an inter-change of understand betweer1 two or
more people".
"Con~municationis the mutual inter-change of ideas by any effective means".
"....the imparting or inter-change of thoughts, opinions, or information by speech, writing,
or signs".
"Communication is the arrangement of environmental stimuli to produce certain desired
behnviour on the part of the organism".
The term communication is, generally applied in the sense of imparting knowledge or
transmitting information, however, in its wider connotation, it includes inter-change of
thoughts, partaking of ideas and a sense of participating and sharing. Thus, the essence of
colnmunication is, not information but understanding. In sotne organisations it may be
internal, external and interpersonal. In the former aspect, communication connects the
organisation with its employees while the second aspect deals with the relationship of the
organisation with the public and is called "public relations". The last one is concerned with
the relationship among the organisation's employees. In brief comn~unicationmeans
"shared understanding of a shared purpose".


There are five main elements of a communication system. The first among these is a
communicator, he may be called as the speaker or sender. In some government agencies,
the management comprising the administrator and his subordinates is the communicator.
All the orders and instn~ctionsare issued in the name of the Chief Executive. He himself
does not prepare them but these are generally prepared and issued by the staff assisting
him. This practice preserves singleness of purpose and direction to avoid conflicting
Transmission procedure is the second element. There may be certain media of
communication, such as teletype, wire, radio and mail in an organisation for
communicating messages. It is the responsibility of transmission centre to ensure proper
delivery and distribution of messages in the organisation. ..
Form of the communication is the third element and it may be an order, regulation,
manual, letter, report, ruling, circular, etc. Usually, Forms of communication fall into three
prinliry types: rules and regulations governing relationship of an organisation with its
clientele, these must be known to all the employees of the organisation, so that these
should be properly carried out; operating instructions of administration including various
orders, circulars, manuals and official letters prescribing internal organisation and
procedures and certain informational media such as the house journal the training hand
book, the periodic report, and other methods to convey the general tone of management. ,
Recipient is the fourth element and for this, an organisation should ensure that the
information and instruction being obtained by persons arc determined by the organisilfion.
Every communication should reach to all those who are tobe involved in effecting their
Desired response is recognised as the fifth and last element of coinmunication. Under it,
the higher authority requires evidence of compliance with instructions through formal
replies and reports to determine whether the information or instruction has influenced the
administrative behaviour of the recipients or not. It is possible through upward flow of
requisite information in an organisation.


I t is worthwhile to mention the essentials of effective communication. According to Teny

the eight factors essential to make communicatio~leffective are (a) Inform yourself f~tlly:
(b) Establish a mutual trust in each other; (c) find a common ground of experience; (d) Use
mutual known words; (e) Have regard to context; (f)Secure and hold the receiver's
attention; (g) Employ examples and use visual aids; and (h) Practice delaying reactions.
But Richards and Nielander opine that il should reflect the policies, programmes and
practices of management. Millet has given %evenfacrcjrs viz., co~lmunicationshould be
clear, consistent with the expectation of the recipient, adequate, timely, uniform, flexible
and acceptable.
It is essential for the management to clarify ideas before co~nmunicatingthem. To convey
precise information to the recipients it is desired that they should be clearly communicated
the course of the decision, mode of action and the time elenlent etc. Such a clarity will
help establishing effective communication.
Secondly, the communicator should examine within himself as to why is he
communicating and what is the main objective of this communication.
Thirdly, communication must convey adequate information to stimulate the expected
response from the recipients. Prior assessment should be made of the total physical and
human setting which are to he involved. Voluminous and repetitive communicalion should
be avoided.
Fourthly, communication must be timely to provide sufficient time to the recipient to act
upon it.
Fifthly, uniformity%
should be maintained in the nature of communication in such cases
where the recipients are expected to behave or act'in a similar way.
Sixthly, communication should permit flexibility. "Top management usually learns that it
is preferable to communicate broad purpose 'and general intent to subordinates and to leave
good deal of judgement to the individual; so communiciltors tend to be more effective if
they are not too exacting in their detail and allow for adaptability to peculiar
Finaily; communications should stimulate acceptance by referring to previous
agreements or understandings or by calling attention to the new circumstances requiring
new action.
The American Management Association has given ten commandments of good
communication. These are as follows:
1) Clarify your ideas before you communicate.

2) Examine within yourself why are you communicating and what is the true purpose of
this communication.

3) Before you launch q: con~municationmeasure, consider the total physical and human
setting which will get invoived in the process which you want to ignite.
4) Consult others for planning because your own subjectivity, operates adversely in
designing your communication network.
5 ) Be mindful of the content of human message, because it iS possible that the message

may be lost in the context, and the overall configuration of the contents may disfigure
the message itself.
6) Convey other things to help him because a communicatee is not only looking forwal,
for a command, but he is curious to seek guidance and assistance.

7) Follow up your communication, for it being a chain process does not stop at a given
point of a letter or the despatch of a message. It needs to be continuously followed and
strengthens at every bend of the way. It ensures effectivity and keeps It moving till the
attainment of goal.

8) Communicate for today as well as for tomorrow. It means the communicalor should
establish a rapport and establish his own image as knowledgeable person with sound
commonsense and robust pragmatism. This image makes him a better communicator
and even those who do not take him seriously today, will gradually respond to his


9) Acdon suppons communications. Communication is not merely letter writing. It is

desirable that the cornrnunicatee should watch and assess the behaviour of the
10)Seek to understand before you get understood. Commonly, understanding of situations,
requires more brains than imposing one's ideas on helpless subordinates as it is not
easy to understand others, if someone is ignorant. These help in achieving a shared
understanding of shared purposes. If these essentials are not observed the
communicatiorl process may break down.
Chester Barnard was one of the earliest writers who have recognised the importance of
communication as a facilitating factor in maintaining authority in organisations. According
to him, the following seven elements are very important in maintaining authority in an

Concepts in Organisation -111

1) The channels of communication should be definitely known.

2) There shouId be a definite formal channel of communication to every member of an

3) The line of com~municationshould be as direct and short as possible.

4) The complete fonnal line of communication should normally be ysed.

5) The persons serving as communication centres should be competent.

6 ) The line of communication should not be interrupted while the organisation is
functioning; and
7) Every communication should be authenticated.

Check Your Progress 1

Note: i) Use the space below for your ariswers.
ii) Check your answers with those given at the end of the unit.
1) Explain the impnrtance of communication in organisations.


2) What are the main elements of communication?

i! :


3) What factors make communication effective?

There are three types via., downward, upward and lateral, based on the direction of
communication flow. It would be woi-thwhile for us to briefly discuss fhese types. These
fonnal types are also supplemented by informal types like the 'grapevine'.
Downward Communication
Downward communication refers to the instructions and other official messages
originating with the top personnel of an organisation. These are transmitted from top to
down through hierarchical set up and reach the lowest ranking official in the chain. The
top level for downward communication makes use of devices, such as, directives, written
or verbal orders or instructions, manuals, staff conferences, budget sanctions, other
authorisations to inform the lower rungs about its attitude and ideas as well as to direct,
guide and advise. 'In large organisations, downward communication is difficult enough to
begin with, because orders must descend through numerous intermediate levels before the
point of execution is reached. Miisunderstandings can easily occur when instructions pass
through so many people. If little upward communication exists, the difficulties are
multiplied, because the orders themselves are apt to be unrealistic and are likely to meet
with worker's resistance.'

In upward communication, messages are passed by the lower levels in the hierarchy up to
those heading the organisation. This includes whatever information is passed up through
methods, such as written and verbal reports pertaining to performance and progress,
statistical and accounting reports related to work, written and verbal requests for seeking
guidance s~~ggestion
and discussions. The upward reporting system is often of very limited
use or value in finding fault. in the agency's operation because some tirnes the head of [he
agency may appear to be unbelievably blirrd as to what is really going on in his agency;
yet based on the reports he gets everything is fine: these reports simply do not present hi~n
with all the facts.

Lateral Communication
Lateral calmmunicationmay take place arnong officials of the same level in the hierarchy
or among the officials who are out of su~erior-subordinaterelationship. We may call it

Contepts in Orgatllsation --I1

acrohs communication. l'he methods viz., written or verbal iriformation and reports, formal
and informal as well as personal contacts, staff meetings and coordination comnzittees, are
used in this type of communicatiort. This type is helpful in bringing together the related but
different parts of the organisation. Assuring coordination of organisational objectives, ihe
officials of the organisation should communicate their plans and interactiorls to one
another clearly.

Informal Communication
Tile rigidity of formal channels gives rise to informal channels of conmunication. They
supplement formal ones. Such channels of communication, often called 'grapevinc' are
branded as dangerous and mischievious to organisational functioning. They damage the
organisational interebls by carrying gossip and False information. But oftcn they play a very
constructive role. For example, take Lhe case of a person in an organisation who is worried
over a particular matter, but has no access to such information which will relieve hirn of
his tension. In such circumstances, the informal channels which'have an access to that
information will help the employees by furnishing the information or by informing to
higher ups about his genuine concern over the matter.
Informal communication flows througi.1 friendship circles and other small groups in the
organisition. They may even be uilorthodox channels like espionage networks. One
positive feature of these cliannels is that it removes some of the problems in upward cornrnu~rica~ion.
They also facilitate downward and lateral communication.
The greatest danger of infor~nalchannels is that they can. distort the information. If the
aclministrators know what type of infornlal channels are working in the organisation anti
what sort of infornlation is circulated, it helps them in coordinating the affairs. Excessive
dependence of the employees on informal channels is an indicator of weak coordination in ,
the organisation. Some times infornzal channels work to sabotage the organisational
purpose. To counter this danger, organisatiotls have to develop openness in infornlalion
sharing and socialisation practices.


It wol~ldbe possible to classify the communication media i n t ~three main groups: Audial,
Visu,il and Audio-Visual.

Audil.1 cornlnullication media is adopted through cor~ferences,the interviews, the

inspection trips, public meetings, broadcasts, telephone calls, etc.
Visual communication media includes written con~municationsviz., circulars, ma~.lurrls,
reports, bulletins and hand books and pictorial forms namely pictures, photographs,
posters, cartoons, slides, flags, insignia, etc.
Audio-visual media comprises sound motion pictures, television and personal
Each of these media has its advantages and disadvantiiges bun it is up to t l ~ emanagement to
decide what media will be used for which purpose.
The conference as method of cbmmunication has gained momentum in attaining marked
popularity. This method helps in avoiding delays, minimisllag correspondence and reducing
red-tapism. The main uses of the conference method, according to Millett, are: (1) to gain
awareness of a problem; (2) to help in problem solving; (3) to gain acceptance and
execution of deci'sion; (4) to help/prornote a sense of unity among the officials of the
organisation; (5) to help in appraising personnel; and (6) to help in encouraging an
exchange of information and informal relationsl~ipamong administrative personnel.
Conferences aid ir~dividualsto discharge, their present responsibilities mare effectively,
coordinate their warking relationship, and enable them to profit from others experieace,
broaden their view point and formalise organisadonal colnmunication.
The conference method possesses the advantage of creating a high degree of interest, full
and equal participation by group members, satishction through mutual achievement,
acceptance of results by participants inculcating habit of anaiysis and integratiol, of
thought, developing group morale and possessin,: an informality.

There are some limitations of conference method in the views of the Estimate Committee
of Government of Ifidia. Its 9th report stales: "The conferences have become so xiany and
are sotnetimes so unwieldy that it is impossible for officers participation in them to do frill
justice to the subject matter of the discussions and, in prcctice, instead of the meetings,
short discussions, noting.,, etc.... they sometimes lead to protracted correspondence, in as
much as different view points which are expressed have to be recorded, corrected and
reconciled and delay occurs in framing agreed minutes and sometimes further conferences
become necessary as a result of incomplete discussions. sometimes, the same officer has to
attend more than one conference the same day and cannot obviously be fully prepared for
each conference, consequently, he does nor contribute fully to the discussions. In ihort, the
conference system is proving more elaborate than the original procedure of noting on
Conferences should be carefully managed so as t o make them most useful. h conference
must follow or observe preliminary planning, expert services, rules and provide for
adequate organisation for effective working. Persons responsible for preliminary planning
nlust be given adequate or sufficient time and the qualified persons should be assigned
tasks well in advance. The conference room should be well equipped with the provision of
aids like black-boards, slides and projectors, recording, seating arrangement, timing, eto.
The personality of the Chairman and the procedure adopted may lrelp in niaking the
conference successful.


There are certain factors which come in the way of S I I I O O ! ~l'low of c o ~ i ~ ! ~ ~ u ~ ~ ~ c ; l f i r n
process. With the result, the comlnunication becomes inet'l'ective. ' I l ~ c y;Ire dc\crilxel

In a conversation, the meaning attached to viirious words and expressions very from person
to person. Soinc people llold stray views on varioa~smatter!;. They hardly lisrcn to other
persons, in view of their rigid smrad on certain matters. This leads to ineftkclive
communication. People have to tlevelop the skill of listeninE to others. They must have
patience to accomtnodate the view points of others. This lead!; to effective co!nrnunication.

Another factor which leads to ineffective colnr-unication is generalisation. If an aged
person has had n bad experience with some youth, he considers all youth as unruly.
Similarly, if a person had read an unimpressive poem written by a poet, I P considers
that is written by that poet as unworthy. Siicll feelings about persons and things in day to
day life act as stereotype ideas on one's personality. This leads to ineffective

Extreme Oainions
Some people br:tnil everything in this world as either good or bad. In their day to day life
they show rigidity. But, in real life it is difficuh to view things in two simplified
cornpartnients. There are so Inany grey nreas which esist. Pedple with extreme opinions
behave in such a way, that if a person is good in one area, they consider him gorid in
every aspect of life. This happens in the other way also. This leads to ineffective
There is need to overcome some of these limiting factors and make the communications
effective. The following suggestions are given for the pul'pose:
a) Communicariori should express the total needs of the organisation.
b) Communication is effective in a climate of mutual trust and confidence.
C) Communication sl~ouldbe treated as a continuing programme. It should not be equatcd
with a brief campaign.
dl The putpose of com~ni~nication
and the person to w!~o~n
directed should be very clear.

Concepts in Organisition-JI

e) C ~ m m u n i c a t i ~should
~ n be both ways i.e., upward and downward.

f) The language and line of communication should be very clear.

g) Communication should reflect the policies, programmes and practices of management.

More important than the above is the need for mutual understanding and respect and
-confidence and trust between communicators. Only this will enable communication of
personal feelings and real problems.

Check Your Progress 2

Note: i) Use the space below for your answers.
ii) Check your answers with those given at the end of the unit.
I ) Explain the role of informal communications in an organisation.

2) How conference method helps communication process?

3) What factors inhibit communications?

These are some of the key elements of communication. The following

activity gives you the opportunity to explore how they work in practice.


Activity 6. l

In your workplace, observe three brief exchanges of communication in the course

of one or two days. These should be communications you participated in.
Make brief notes in your learning journal on each one of these communications,
using the list of key elements above as a checklist as to how effective they were.
Evaluate each exchange in the following terms:


Which of the elements in the checklist were evident?

How good were your communication skills and what might you do to improve


How good were those of your communicator?

Which were lacking?

How effective was the communication? Why?

Share your findings with work colleagues (if appropriate), friends, or fellow
students in a tutorial session.

Important note: Remember to preserve confidentiality. Do not use the name of

the person and do not use any sensitive material. You should also explain to
each person the nature of this course and this activity and ask their permission
before you use them as the focus of your observations.

Unfortunately, communication is not always a smooth and successful

process. You may have discovered this in Activity 6.1! There are many
barriers to communication. Let's look at some of them now.

Barriers to communication
Barriers affect everyone differently. The list we offer here aims to be
inclusive. You will not find all of these things a problem - but others
may. We suggest you work through the barriers, reflect on whether they
affect you, and think about tactics to avoid each one. We have included
activities to help you do this.

You should send your message in words the receiver will understand.
For example, patients may not be able to understand the complex
language of medical specialists because of the language they use



(sometimes called the language register or jargon). So if a doctor

communicates with his or her patient, the language should be
understandable. Plain language is always worth striving for - it
removes one of the most common communication barriers.

Activity 6.2
Think of one recent incident where this barrier occurred -either
your presence and write notes in your learningjournal.


with you or in

Describe the incident in two or three sentences.

Write down what practical steps could be taken to avoid this happening again.

Noise in the form of overwhelming sounds can make communication
strained or impossible -if, for example, you are trying to facilitate a
group of young people but construction workers are repairing the floor
above you with noisy equipment.

This is any sound or aspect that interferes with or detracts from the
communication process. For example, if you communicate through a
memo in your organisation but everyone receives lots of memos per day,
this will interfere with the effectiveness of your communication. People
may come to ignore memos altogether to try and get some work done.
A fairly new medium, the e-mail, is prone to this because people receive
so many messages that are not important and a waste of time.

Selfhelp question 6.1

What other distractions can create barriers to,communication?

Compare your answer. with those provided at the end of the unit,



Whatever the distraction, don't just put up with it. Take steps to improve
the communication environment by reducing the distractions or if you
can't, rescheduleyour communication for another time or place. Also, if
you find your colleagues are suffering from comm~~nication
fatigue too
much information -choose to speak to them faceto face, and find a
relaxed, quiet time and place to do it in.

Too many steps

Do not form long chains in the communication process. This may result in
the right message being sent but the wrong one being received. You can
illustrate this by playing the 'telephone game'. Start spreading a message in
a group by whispering it to the person on your left. Helshe should continue
with this message until it reaches the person on your right, who says it out
aloud. Then the group can compare the two messages -the original and
the final one -and make their own conclusions.

Self-help question 6.2

Suggest three strategies you could use to reduce the risk of too many steps in
the communication chain.

2. ..................................................................................................................................................

Compare your answers with those provided at the end of the unit.

Listening difficulties
Listening is a very special skill

-and it's under-used.

Listening skills include:

being attentive
looking attentive
feeding back what the other person says to show you have heard
and understood
processing what the other person has communicated
including the other person's views and ideas in your feedback.



Listening difficulties can also arise if the people you are communicating
with have a lot on their minds. They may have too much work or
information overload, or they may have had a fight at home, or be
thinking about a sick child. These are all examples of listening

Activity 6.3 - Check yourown listeningskillr

Ask a trusted friend, family member, work colleague or fellow student to evaluate
your listening skills as you discuss a matter with them or someone else.
Get them to use the above checklist to assess your success at avoiding listening
Discuss the results with them.

Lack of feedback
This i s linked to listening. Communication is a two-way process and all
parties must share an understanding of what is communicated. You can
make sure of this by giving clear, consistent and regular feedback. If you
don't, people will act on their own assumptions and understandings,
with no common ground. Giving feedback will avoid this problem.

If the receiver or the sender distrust the credibility or sincerity of the
other person, this could result in suspicion which will undermine the
communication process. The message will be heard but may be
discounted or discredited.

An emotionally charged situation usually distorts communication. What
is communicated may get buried under strong but irrelevant feelings.
This is why it so important a part of professionalism to restrain your
emotions in work situations and remain calm, rational and polite at all
times. Indifference, apathy, unconcern and insensitivity are also
emotions that impede the communication process. On the positive side,
of course, if communications touch emotions such as enthusiasm,
friendliness, concern and sympathy, excellent work will result.




Activity 6.4

In your workplace, identify an incident in which strong emotions or distrust

obstructed the communication process.
Briefly describe it in your learning journal (remember to preserve confidentiality).
Suggest ways the incident could have been better handled to avoid the
communication problems.

Everyone comes from a specific cultural and work background, with
their own language, view of the world and set of experiences. The
receiver of a communication might not have the same culture, Language
or work background as the sender. Communication bemeen sender and
receiver will be difficult unless each is sensitive to the other's

Overcoming communication barriers

Here are some quick suggestions to overcome barriers to communication:

Adjust to the world of the receiver. Fit your message to the

receiver's vocabulary, interests and values.

* Give feedback. Use a message that tells you how much the receiver
has understood.

Use face-to-face communication -you

the receiver's reactions.

can adapt the message to

w Use reinforcement. Send the message in a number of different ways

(oral and written) to get it across.

Re-emphasise important points -and

follow up.

GP Use direct, simple language.

GP Suit the actions to the word. Do what you say you are going to do.
GP Streamline communication channels.

Communication barriers can create major problems for managers. The

following ase study gives you some idea of what can go wrong when
communication channels are impeded or dry up altogether.




Case study 6.1 - Frank Sanders and the Egyptian project

Adapted from Knapper & McAfee, 1982, pp. 254-256.
Frank Sanders was appointed the manager of Champion Construction's new project
in Egypt. As a proven manager of many successful projects, he looked forward to
his first assignment overseas. He called on the president of the company just before
leaving for Cairo.

After ten minutes of personal chitchat, the president said, W e hope your project will be
the first of many for us in Egypt and other countries in the Middle East. We need to
develop a new set of policies and procedures, and we hope your experience will be a
major asset. I have no doubt about your skill as a manager; we're pleased with how
you have run your projects here. And I know you realise that you will have to adapt to
this new situation. It won't take you long to discover cultural, legal and political
differences. You know the old saying, When in Rome...' Well, that's why Ithink we
should consider that we are going into Egypt as a guest. They need our knowledge at
this time, but none of us knows what the future will be.
Frank, it will be up to you to develop rapport with the various political factions that
might gain power in the future. You will be the only American on this project, so it will
be important for you to learn as much as you can about how your employees think. I'm
sure you can do this, but you will be in for many surprises. They may have a different
view of 'right and wrong'. Your employees might expect you to be an all-knowing,
paternalistic leader, or they might want to participate fully in decisions. You'll need to
find out some answers for us. Can we promote the most capable workers regardless
of their affiliations? Will they work for money, or do they value other things too much?
What about risk-taking? Do they expect things to be done by 'custom and tradition', or
will they welcome change that promises material rewards? Which of your actions will
be well-received by your employees, your suppliers, and government officials? You
are going to have to sort through all of this for us."
Frank remembers leaving the president's office wondering where to turn. Earlier,
Frank had bought a guide book on Egypt and a phrase book, The Tmveller's Door to
Arabio. After talking with the president, Frank only had a week to make preparations
for the trip to Cairo, but he continued to devote as much time as possible to learning
Arabic phrases. On the trip he continued his studying.
Frank soon found that living and working in Egypt were very different from anything
he had ever done. Just getting a place to live and setting up his office brought up
one problem afler another. Most of the Egyptians working on the project spoke good
to excellent English; but except when they were talking to Frank, they rarely used it.
While Frank's few phrases were satisfactory for shopping, they were of little help in
his work.
Frank could pick out a few words that his employees spoke in Arabic, but he was never
sure of the meaning. Sometimes they would look over at him and smile. Frank began
to think they were making fun of him. Frank's displeasure must have shown on his
face, for on several occasions the conversation would stop. In fact, the smiles were
just attempts to be friendly, but the employees did become uncomfortable as a result of
the displeasure they sensed in Frank's reactions.
One month after arriving in Cairo, Frank Sanders was largely isolated from his
employees. His contact was limited to formal discussions. He was unhappy and
apprehensive. He had no idea how he was going to carry out the directives the
president gave him just before he lefl for Egypt.




Unit 4: Historical Perspective

After going through this unit, you will be able to:

understand the meaning of corporate governance;

identify the need for corporate governance;

lack the history of corporate governance;

explain corporate governance in Indian Context.




The History


The need (Why?)


Corporate Governance in Indian context




Self-Assessment Questions


Further Readings

4.1. Introduction:
Change is the order of the day. Advancement in science and technology has changed the way we
live. Globalisation and liberalization has changed the way we do our business. There is change in
environment, change in culture and change in ethos. This change has brought some negative
impacts along with the positive ones. There is decline in ethics and values that ought to be
followed by everyone including states and corporates. This means that there is loose governance
by these entities. When this happens the objectives set for the entity cannot be achieved. In this
unit we shall focus on the meaning, objective and nuances of corporate governance.

Before we understand the term Corporate Governance (CG), let us first understand the
term governance. The concept of governance has been known in both political and academic
circles for a long time, referring generally to the task of running a government, or any other
appropriate entity for that matter. According to the World Bank, Good governance is
epitomized by predictable, open and enlightened policy making, a bureaucracy imbued with a
professional ethos acting in furtherance of the public good, the rule of law, transparent processes,
and a strong civil society participating in public affairs. On the other hand, Organisation for
Economic Cooperation and Development (OECD) defines governance as the use of political
authority and exercise of control in a society in relation to the management of its resources of
social and economic development. This broad definition encompasses the role of public
authorities in establishing the environment in which economic operators function and helps in
determining the distribution of benefits, as well as the nature of the relation between the ruler
and the ruled. Good governance encompasses all actions aimed at providing its citizens, a good
quality of life.
With the rapid change in the business environment and emergence of new regulations by world
bodies like EEC, WTO, OECD, World Bank etc. the concept of CG is gaining momentum.
Corporate governance is a concept rather than an instrument. It focuses on appropriate
management and control structure of a company. Also included in the concept are power
relations between owners, the board of directors, management and the stakeholder. Most
definitions relate to control of a company or managerial conduct. The Cadbury Report (U.K.)
states; Corporate governance is the system by which businesses are directed and controlled.
OECD definition says, Corporate governance provides the structure through which the
objectives of the company are set, and the means of attaining those objectives and monitoring
performances are determined. The following definition helps us in understanding the concept
even better: Corporate governance is not just corporate management, it is something much
broader to include a fair, efficient and transparent administration to meet some well defined

objectives. It is a system of structuring, operating and controlling a company with a view to

achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and
suppliers, and complying with the legal and regulatory requirements, apart from meeting
environmental and local community needs. When it is practiced under a well-laid out system, it
leads to the building of a legal, commercial and institutional framework and demarcates the
boundaries with in which these functions are performed. To state in simple terms, corporate
governance relates to a code of conduct, the management of a company observes while
exercising its powers. Quality corporate governance not only serves the desired corporate
interest, but is also a key requirement in the best interests of the corporates themselves.
Box No.4.1: Some Useful Definitions of Ethics and Corporate Governance

Sri Aurobindo
But that which determines his ethical being is his relations with God, the urge of the
Divine whether concealed in his nature or conscious in his higher self or inner genius.
He obeys an inner ideal, nor to a social claim or a collective necessity. The ethical
imperative comes not from around, but from within and above him.
The History

Peter F. Drucker
The Ecological Vision (1993)

Above all, the ethics or aesthetics of self-development would seem to be tailor-made for
the specific dilemma of the executive in modern organization.
demands thegood
of the superior
man. gly used
terms governance,
is increasin
in development literature since reRGarrett
cent times,
concept 1986:2
of governance is not new. It is as old as
ethics is
primarily with
of business
an civilization.
eastern civilization
emphasis was
techniques to specifically human ends. It studies the impacts of acts (DECISIONS)on the
of the
firm, theofbusiness
and by
as a wholebusiness
laid good
on good
the state,
as envisaged
the great
eastern thinkers on
ethics studies the special obligations which a person and a citizen accepts when he or she
a part
of the of
of commerce.
y relates to
all aspect
life, social, economic and religious. Peace, order, security
Robert C. Solomon
Ethics and Excellence (1992)
.integrity, in the face of conflict of the virtues, is the challenge rather than the answer.
It is moral courage moral courage is not self-sacrifice
Moral courage is not self-righteous obstinacy and it is not at all opposed to
compromiseMoral courage includes an understanding of the big picture, the purpose(s)
of the organization, and the way in which the organization or some part of it thwarts its
own best intentions.
Corporate Governance is a system by which companies are run. It relates to the set of
incentives, safeguards and the dispute resolution process that is used to control and coordinate

Activity 1
Enumerate five points to highlight the importance of Corporate Governance as a concept than an



Though the terms governance, good governance and corporate governance is increasingly used
in development literature since recent times, the concept of governance is not new. It is as old as
human civilization. The eastern civilization has enumerable examples, where in emphasis was
laid on good governance. The activity of the government of the state, as envisaged by the great
eastern thinkers on polity relates to all aspects of human life, social, economic and religious.
Peace, order, security and justice were regarded as the fundamental aims of the states (the largest
form of corporate). State was considered a means to the realization of decent, good and
meaningful life and justice were regarded as the fundamental aims of the states (the largest form
of corporate). State was considered a means to the realization of decent, good and meaning full
Manu, the son of Prajapathi was the first king who brought out a comprehensive code of conduct
or governance for men, society and the state as a whole in his treaty called Manu Dharma
Shastra. In Mahabharata while delivering his first formal discourse on polity Bhisma says in
equivocal terms that the kin should always put the interest of his subjects over that of his own.
The great political thinker of 3rd century BC namely Kautilya in his treaty Arthasastra has laid
down the ideals at which the king was expected to aim.
In eastern literature a good society is one wherein a high, ethical standard of life is characterized
by the pursuit of wealth, enjoyment and liberation. It is the prevalence of dharma, which
characterizes an ideal society. Such a society is possible if the governance of the country is based

on clear, efficient and effective administration and all the rulers aim at this goal in the ancient





However people in the west started feeling the need for good corporate governance in early 80s
as the corporate misdemeanours increased. In U.K., in 1980s, the corporate sector was beseeched
with a number of problems. Business failure, limited role of auditors, weak accounting standards
culminated in loss of control. The Cadbury committee was set up by the London Stock Exchange
to address the dreary financial aspect of corporate performance. A few years later, directors pay
became such a live political issue that a study group on directors remuneration was formed
under Sir Richard Greenbury. Then came two other committees the King Committee and the
Hampel Committee to diagnose the issue of corporate governance. The Asian financial crisis,
recent scandals in US, Italy, India have triggered fresh initiatives of thinking towards good
governance. Corporate governance has been much talked in India particularly after 1993.
Liberalisation brought in its wake a spate of corporate scandals, the first of which was a bank
scam involving securities. CRB scam and the UTI episode made it very clear that a serious
thinking is required on the front of corporate governance. SEBI in India has taken the initiative
in framing new rules and laws to strengthen corporate governance. Committees like Kumar
Mangalam Birla Committee (2000), Naresh Chandra Committee (2002) brought out reports on
corporate governance. SEBI has also constituted a committee on corporate governance under the
chairmanship of Sri N.R. Narayana Murthy.

Presently corporate India is going through a great churning phase, as companies are doing
business with global ambition, placing a lot of emphasis on governance and transparency.

The Need of Corporate Governance

Recent corporate failures and scandals involving mis-governance and unethical behaviour on the
part of corporates rocked the corporate sector all over the world, shook the investor confidence in
stock markets, and caused regulators and others to question the assumption that most companies
do the right thing most of the time. These incidences diminished reputation and goodwill of even
those corporates who enjoy the trust and confidence of public at large. These factors highlight
the importance of good corporate governance. On the other hand, corporate governance is
important because corporate decisions impinge on its shareholders, customer, creditors, the state
and employees. Globally the objective of corporate governance is to maximize long-term
shareholder value. With the assumption that capital and financial markets are working properly,
anything that maximizes shareholder value will necessarily maximize corporate prosperity.
For sound governance, managers need to act as trustee of shareholders, prevent asymmetry of
benefits between sections of shareholders, especially between owner-managers and the rest of
shareholders. They also need to be a part of societal concerns about labour and environment. In
fact stock market analysts see these days a greater correlation between governance and returns.
Investment analysts recommend a company based on strength or weakness of a companys
governance infrastructure. Confidence of investors, both domestic and foreign, is the need of the
hour. This is to attract patient long term capital that will reduce their cost of capital. Thus,
there is a need for intellectual honesty, integrity and transparency, which form the basis for good
corporate governance.
Activity 2
State any three prerequisites for a sound Corporate Governance.


Corporate governance in Indian Context


As it was briefly stated earlier, corporate governance has been much talked about in India
particularly after 1993. Liberalization brought mixed results for Indian economy. Noticeably, it
brought in its wake a spate of corporate scandals. Later on scores of companies made public
issues with large premium and then disappeared; prospectus misled the public. The management
of most of these companies diverted funds and investors had no option but to repent their lost
money. Primary market literally collapsed in the after math of these failures. Slowly, many a
family owned businesses moved to become widely held limited companies. The question, how to
function in a corporate setup overriding family interest and obligations called for a code of
governance. Similarly, corporate banks also came under strain due to scams; governance failure
was total. The story of UTI is also well known where millions of small investors lost their capital
due to inadequate management practices and weak supervision.

Auditors were following questionable accounting practices on behest of the management and
often advising on how doubtful accounting choices might be made so as to remain on the right
side of law and at the same time, escape detection by users of financial information. All these
factors put strong pressure on many corporates to evolve a good governance practice.

Over the period of time in India companies like Tata Group, Infosys, Wipro have evolved sound
principles of governance, intertwining corporate governance with social responsibility. These
companies have become global and it is common to find global norms of accounting and
disclosure being followed in these corporate houses. Rights of employees, stock options,
independent directors, meeting quality norms, price warranty and guarantee- all these have made
room for quality governance. Managers have indeed become trustees of shareholders.
It began in 1998 with the Desirable Code of Governance- a voluntary code published by CII, and
the first formal regulatory framework for listed companies, established by the SEBI in February
2000, following the guidelines enunciated by the Kumar Mangalam Birla Committee Report. On

21st August, 2002, the Department of Company Affairs under the Ministry of Finance appointed
Naresh Chandra Committee to examine issues pertinent to governance. The committee looked
into financial and non-financial disclosure and independent auditing and board oversight of

Apart from financial compliance or disclosure, the independent oversight of management is also
important. Many companies have disappeared, vanished either due to fraud or poor quality of
board resulting in lack of independent oversight. The Kumar Mangalam Birla Committee
focused on the role of independent and statutory auditors and also the role of the board of

SEBI constituted a committee on corporate governance under the chairmanship of Sri N. R.

Narayana Murthy. The committee included representatives from the stock exchange, chamber of
commerce and industry, investor associations and professional bodies, which debated on key
issues related to corporate governance. Findings and recommendations of these committees are
discussed in the later chapter.
Thus we find that the corporate India is going through a great churning phase. New aggressive
companies are doing business with global ambitions, placing a lot of emphasis on governance
and transparency. FIIs are very serious about good governance and disclosures. Liberalization
brought great challenges, after initial jolts and pain of restructuring, companies are seeing profits
more than before.



Good corporate governance is good business because it inspires investors confidence, which is
very essential to attract capital. A few unscrupulous businessmen can, largely undo all the

confidence built through the good work by the good companies over time. They need to be
handled with iron hands.
However, corporate governance goes beyond the realm of law. It comes from the culture,
mindset of management and cannot be regulated by legislation. The watchwords are openness,
integrity and accountability.
Companies need not be myopic with short-term goals, caring only about quarterly results or
immediate stock prices in the bourses, or that cherished P/E ratio. Good governance maximizes
long-term shareholder value, which in turn takes care of short-term goals too.


Self-Assessment Questions


Explain the concept of Corporate Governance.


Why has it become necessary for business houses to have a good corporate Governance? Discuss.


Discuss the emergence of Corporate Governance as a concept.


Further Readings

Gopalasamy. N. (1998)., CorporateGovernance : The New Paradigm, Wheeler Publishing, Allahabad.

Balasubramanium N. (January-March, 1997). Towards excellence in board performance,Management Review.
O.E.C.D. Report on Corporate Governance.
Aiyangar. K. V. R. (1941). Rajadharma. The Adyar Library, Chennai.
Altekar. A.S. (1992). State and Government in Ancient India, Motilal Banarsidas, New Delhi.
Report of Sir Adrian Cadbury Committee on Financial Aspect of Corporate Governance (1992).
Narayana Murthy, N.R., Corporate Governance: The Key Issues, Vikalpa, vol. 24, No.4.

Unit 6

Code and Laws for Corporate Governance

After going through this unit, you will be able to:

know the emergence of corporate governance;

understand the importance of government initiatives taken to boost good

corporate governance.



Reports of Committees on Corporate governance


Government Initiatives


National Award Initiated by the Government of India


Recent Developments in Other Markets




Self-Assessment Questions


Further Readings



For any concept or idea to form a part of our existence or business needs to be put in
papers in distinct terms, so that they are understood and followed by all in a similar
fashion. These are called rules or codes of conduct. These are principles and standards
that are intended to control, guide or manage behaviour or the conduct of individuals.
However, codes are self-imposed and regulations are imposed by the states.
There are many corporate governance codes developed by non-governmental
organizations, stock exchanges, investor groups and professional associations.

Government also issues rules concerning corporate governance through capital market
regulatory body like SEBI and by enacting laws.
Here we will try to understand codes of corporate governance recommended by various
committees and some relevant laws enacted by the government.


Reports of Committees on Corporate governance

As it was explained in the previous units the events in the corporate world (through out
the world) raised concern about standards of financial reporting and accountability of
management. Many believe that the failures could have been avoided had the companies
followed good governance. In recent years, governments and corporates have made
sincere efforts in designing and implementing codes for good corporate governance.
Some of the reports on corporate governance published abroad and in India are:

Cadbury Committee Report

CII Committee Report

Kumara Mangalam Birla Report

Narayana Murthy Committee Report

Cadbury Committee Report

The Cadbury Committee was set up in May 1991 by the Financial Reporting Council of
the London Stock Exchange to address the financial aspects of corporate performance.
The sponsors of the committee were concerned at the perceived low levels of confidence,
both tin the financial reporting, and in the ability of auditors to provide safeguards which
the users of the company reports sought and expected. The move to set up the committee

was to improve the standards of financial reporting and to arrest any likely damage to
Londons reputation as a financial centre and the reputation of the British accounting
The Committee published its report and code of best practice in December 1992. From
July 1993; all companies registered in the UK and listed on the London Stock Exchange
have been obliged to state in their Annual Report how far they comply with the code, and
to give reasons for areas of non-compliance.
The Code of Best Practice has been divided into four sections- the first concerning the
role of the board of the directors and covering such matters as the duties of a board, its
composition; the second dealing with the role of the outside non-executive directors; the
third covering executive directors and their remunerations, and the final section
addressing questions of financial reporting and financial controls. The major
recommendations made by the committee are as follows:

A single person should not be vested with the decision making power i.e. the roles

of chairman and chief executive should be separated clearly.

The non-executive directors should act independently while giving their

judgement on issues of strategy; performance; allocation of resources; and designing the

code of conduct.

A majority of directors should be independent non-executive directors, i.e. they

should not have any financial interests in the company.

The term of the director can be extended beyond three years only after the prior

approval of the shareholders.

A Remuneration Committee with majority of non-executive directors should

decide on the pay of the executive directors.

The Interim company report should give the balance sheet information and should

be reviewed by the auditor.

The information regarding the audit fee should be made public and there should

be regular rotation of the auditors.

An objective and professional relationship with the auditors must be ensured.

It must be reported that a business is a going concern.

CII Report
Post liberalization years saw major upheavals in the Indian corporate world. Growing
international competition, growth in the economy as well as scams and frauds brought
forth the importance of corporate governance.
The Confederation of Indian Industry (CII) took the initiative to draft some codes of
corporate governance. A national task force on corporate governance was set up in mid
1996 under the leadership of Mr. Rahul Bajaj, ex.-President, CII, and then CMD, Bajaj
Auto Ltd. The committee issued desirable corporate governance. The major
recommendations are as follows:

The board should meet minimum of six times a year, preferably at an interval of

two months, and each meeting should have agenda items that require at least half a days

At least 30% of the board (where the chairman of the company is non-executive)

and 50% (where the position of the chairman and managing director is combined) of

listed companies with a turnover of Rs.100 crores and more should comprise of
professionally competent and independent non-executive directors.

No person should hold directorships in more than 10 companies. In an earlier

draft of the code this number was to exclude directorship on the companys subsidiaries
(50% or more of equity holding) and affiliates (25% or more of equity holding).

While re-appointing members of the board, companies should give the attendance

record of the concerned directors. If a director has not been present (absent with or with
out leave) for 50% or more meetings, then this should be explicitly stated in the
resolution that is put to vote. As a general practice, one should not re-appoint any director
who has not had the time to attend even one half of the meetings.

Non-executive directors should actively participate in board affairs and not be

passive advisors, have clearly defined responsibilities within the board, and should be
literate in understanding financials of the company.

Non-executive directors should be adequately compensated through commissions

and stock options. The need for remuneration committee of the board has been brushed
aside as not being necessary.

Board members should be provided timely and adequate information to enable

them to discharge their duties. A comprehensive list of illustrations is provided in the


Listed companies with a turnover of at least Rs. 100 crores and a paid up capital

of at least Rs. 20 crores must appoint audit committees of the board within two years.

Major Indian Stock Exchanges should gradually insist upon a compliance

certificate, signed by the CEO and CFO which clearly sates that, the management is

responsible for the preparation, integrity and fair presentation of the financial statements
and other information in the annual reports, and which also suggest that the company
will continue in business in the course of the following year; the accounting policies and
principles confirm to standard practice, and where they do not, full disclosure has been
made of any material departures; the board has overseen the companys system of
internal accounting and administrative controls system either directly or through its audit

Kumara Mangalam Birla Committee Report

Over the years some Indian companies have voluntarily established high standards of
corporate governance, but there are many more, whose practices are a matter of concern.
There is also an increasing concern about standards of financial reporting and
accountability, especially after losses suffered by investors and lenders in the recent past,
which could have been avoided, with better and more transparent reporting practices.
Investors have suffered on account of unscrupulous management of the companies, which
have raised capital from the market at high valuations and have performed much worse
than the reported figures leave alone the financial projections at the time of raising
money. Another example of bad governance has been the allotment of promoters shares,
on preferential basis at preferential prices, disproportionate to market valuation of shares,
leading to further dilution of wealth of minority shareholders. This practice however was
later contained.
There are also many companies, which are not paying adequate attention to the basic
procedures for shareholders service; for example, many of these companies do not pay

adequate attention to redress investors grievances such as delay in transfer of shares,

delay in dispatch of share certificates and dividend warrants and non-receipt of dividend
warrants. SEBI has been daily receiving large number of investor complaints on these
matters. While enough laws exist to take care of many of these investor grievances, the
implementation and inadequacy of penal provisions.
In the above-mentioned context, the Committee on Corporate Governance was set up on
May 7,1999, by the Securities and Exchange Board of India (SEBI) under the
Chairmanship of Shri Kumar Mangalam Birla, member SEBI Board, to promote and raise
the standards of corporate governance. The purpose of the committee was;

To suggest suitable amendments to the listing agreement executed by the stock

exchanges with the companies and any other measures to improve the standards of
corporate governance in the listed companies, in areas such as continuous disclosure of
material information, both financial and non-financial, manner and frequency of such
disclosures, responsibilities of independent and outside directors;

To draft a code of corporate best practices; and


To suggest safeguards to be instituted within the companies to deal with insider

information and insider trading.

Major recommendations of the committee are as follows.

The board should have an optimum combination of executive and non-executive

directors and at least 50% of the board should comprise of non-executive directors.

No director should be a member in more than 10 committees or act as chairman of

more than five committees in which he is a Director.

The board of the company should set up a qualified and independent Audit


Board should set up a remuneration committee to determine the remuneration

packages for the executives.

The corporate governance section of the Annual Report should make disclosures

on remuneration paid to directors in all forms including salary, benefits, bonuses, stock
options, pensions and other fixed as well as performance linked incentives .

Management should assist the board in its decision-making process in respect of

companys strategy, policy, code of conduct and performance targets.

The management should implement the policies and code of conduct of the board

It should provide timely, accurate, substantive and material information, including

financial matters and exceptions to the board, board committees and the shareholders.

As a part of the disclosure related to management, in addition to the Directors

report, Management Discussion and Analysis Report should form part of the Annual
Report to the shareholder.

The committees also took note of various steps taken by SEBI for strengthening
corporate governance, some of which are:

Stringent disclosure norms for Initial Public Offers

Providing information in directors reports for utilization of funds and variation

between projected and actual use of funds as per the requirements of the Companies Act,

Declaration of quarterly results

Mandatory appointment of compliance office for monitoring share transfer process

Timely disclosure of material and price sensitive information having a bearing on the

performance of the company

Dispatching one copy of complete balance sheet to every household and abridged

balance sheet to all shareholders

Issue of guidelines for preferential allotment at market related process

Issue of regulations providing for a fair and transparent framework for takeovers and

substantial acquisitions.
The recommendations made by Shri Kumar Mangalam Birla Committee were accepted
by SEBI in December 1999, and are now enshrined in Clause 49 of the Listing
Agreement of every Indian stock exchange.
Refer to Annexure No. 1 for the Draft report of the committee.
Narayana Murthy Committee
In its zest to improve governance in the companies through the regulatory process SEBI
also instituted a committee under the chairmanship of Mr. N. R. Narayana Murthy which
recommended enhancements in corporate governance. The committee comprised of 23
persons and submitted its final report on 8th February 2003.
The Narayana Murthy Committee has mentioned about correct approach for successful
corporate governance. It has said:
Corporate Governance is beyond the realm of law. It stems from culture and
mindset of management, and cannot be regulated by legislation alone. Corporate
governance deals with conducting the affairs of a company such that there is fairness to

all stakeholders and that its actions benefit the greatest number of stakeholders. It is
about openness, integrity and accountability. What legislation can and should do, is to
lay down a common framework- the form to ensure standards. The substance will
ultimately determine the credibility and integrity of the process. Substance is inexorably
linked to the mindset and ethical standards of management.

Thus we see that the whole thing has got an ethical orientation now, and emphasis is laid

raising the ethical standards for good corporate governance. Some of the major

recommendations made by the committee are as under:

All audit committee members should be financially literate and at least one
member should have accounting or related financial management expertise.

Mere explanation as to why a company has followed a different accounting

standard from the prescribed standards will not be sufficient.

Board members should be informed about risk assessment and minimization


Board members should be trained in the business model of the company as well as
the risk profile of the business parameters, their responsibilities as directors and
best ways to discharge them.

Use of proceeds of IPO should be disclosed to the audit committee.

There shall be no nominee directors when a director is to be appointed on the

board and shareholders shall make such appointments.


Board of Directors, limiting the maximum number of stock options that can be
granted to non-executive directors in any financial year, may fix compensation
paid to non-executive directors.

Whistle Blowers should not be subject to unfair or prejudicial employment


A peer group comprising the entire board of directors, excluding the director
being evaluated, should make the performance evaluation of non-executive board

Naresh Chandra Committee

On 21 August 2002, the Department of Company Affairs (DCA) under the Ministry of
Finance and Company Affairs appointed a committee under chairmanship of Shri Naresh
Chandra to examine various corporate governance issues. The committee has been
entrusted with analyzing and recommending changes if necessary, in various areas, like,
statutory auditor-company relationship, independence of auditing functions, certification
of accounts and financial statements by managers and directors, adequacy of regulation
of chartered accountants, company secretaries, and cost accountants, and other similar
statutory oversight functionaries, the role of independent directors, etc. The committee
recommended detailed regulations on auditors independence, working of audit
committees, board composition and governance. The recommendations have also been
drawn from The Sarbanes-Oxley Act, 2002, of the U.S.A. These recommendations have
been widely debated in public domain. If implemented, they may bring sweeping changes
in governance systems in Indian corporates. The same committee is also examining
governance issues related to private companies in India.



Government Initiatives

From the governments side, there have been swift moves through law and regulations
made by the Department of Company Affairs (DCA) and Securities and Exchange Board
of India (SEBI) to hasten the process of bringing improvements in the Corporations
functioning. The DCA has amended Companies Act at short intervals for this purpose.
Numbers of provisions in the Companies Act 1956 concerning corporate governance
have been inserted in the Act through Companies (Amendment) Act 2000. Important
changes to improve corporate governance in this act are:

Providing for Directors Responsibility Statement (Section 217(2A))

Board to report in cases where buyback was not completed within the time

specified in sub-section (4) of section 77.

Small shareholders to get representation through Director (Section 252)

Limitations in Directorship in companies (Section 274 & 275)

Constitution of Audit Committees (Section 292A)

Providing for higher penalties (tenfold increase) for offences provided in various

sections of the Companies Act etc.

The Amending Act of 2000 thus increased manifold, the duties and responsibilities of the
Directors in the companies as a step to improve the corporate governance.

National Award initiated by the Government of India

Realizing the significance of efficient financial markets in achieving higher growth rates
in economy, The Honorable Union Finance Minister Shri Yashwant Sinha initiated
several measures to promote corporate governance among Indian companies and for


orderly development of Indian financial markets. While presenting the Budget for 19992000, he mentioned:
Lately, there has been considerable debate on the importance of good governance of
Indian corporates. It is increasingly being realized that if investors have to be drawn
back to the capital market, companies have to put their houses in order by following
internationally accepted practices of corporate governance. This is necessary to enhance
investor confidence. To help promote this trend, I propose to institute a National Award
for Excellence in Corporate Governance (Para. 36).
In order to promote good governance practices in Indian companies and enhance
investors confidence in the market, the Government of India awards the National Award
for Excellence in Corporate Governance every year. The Award is recommended by a
Panel consisting of eminent persons from financial markets and corporate world. The
Ministry of Finance (Department of Economic Affairs) in the Government of India
constitutes the panel. Unit Trust of India has come forward to sponsor the award. UTI
Institute of Capital Markets also provides research support to the Panel.
In the year 1999 the panel constituted for the purpose initially short- listed the following nine
criteria for evaluation. Two criteria were subsequently added to the list later. The broad criteria
prescribed by the first panel for screening the companies for excellence in corporate governance
were as under:
1. Adequate representation of independent directors on the Board.
2. Existence of institutions, like audit committee, which enable the Board to adequately guide the


3. Adherence to prescribed accounting standards and quality of disclosures relating to financial

and other information provided to shareholders in the Annual Reports.
4. Frequency and content of communication of financial and operating data to the shareholders
and to the public.
5. Investor- friendly procedures and practices.
6. Enhancement of shareholder value vis- - vis the industry performance.
7. Discharge of social obligations and obligations related to employee welfare.
8. General concern for the environment.
9. Ethical code of conduct.
In the later years, the following two criteria were added to the list:
1. HRD policies for succession, delegation, and empowerment of employees.
2. Innovative practices to improve quality of life for other stakeholders of the company.

Based on these criteria the following Companies were nominated for the consideration
for the Award;

1 Agrevo (India) Ltd.

33 Hindustan Lever Ltd.

2 Archies Greetings and Gifts Ltd.


3 Asea Brown Boveri Ltd.

35 ICICI Ltd.

4 Asian Paints Ltd.

36 Indian Hotels Company Ltd

5 Bajaj Auto Ltd.

37 Indian Oil Corporation

6 BFL Software Ltd.

38 ITC Ltd.

7 Bharat Forge Ltd.

39 Larsen & Toubro Ltd.


40 Lupin Laboratories Ltd.

9 Britannia Industries Ltd.

42 Mahindra & Mahindra

10 BSES Ltd.

43 Mphasis BFL Ltd.


11 Cadbury India Ltd.

43 Motor Industries Company Ltd.

12 Castrol India Ltd.

44 MRF Ltd.

13 Cipla Pharma

45 Nicholas Piramal India Ltd.

14 Colgate India Ltd.

46 NIIT Ltd.

15 Container Corporation of India Ltd.

47 Novartis India Ltd.

16 Corporation Bank



49 Pidilite Industries Ltd.

18 Dabur India Ltd.

50 Procter & Gamble India Ltd.

19 Digital Equipment India Ltd.

51 Punjab Tractors Ltd.

20 Dr. Reddys Laboratories Ltd.

52 Ranbaxy Laboratories Ltd.

21 E I H Ltd.

53 Reckitt & Coleman India Ltd.

22 Finolex Cables Ltd.

54 Reliance Industries Ltd.

23 Finolex Industries Ltd.

55 Satyam Computers Ltd.


56 SmithKline Beecham India Ltd.

25 Glaxo India Ltd.

57 State Bank of India

26 Global Telesystem Ltd.

58 Sun Pharmaceuticals Ltd.

27 HCL Infosystems Ltd.

59 Sundaram Fastners Ltd.

28 HCL Technologies Ltd.

60 TVS Suzuki Ltd.

29 HDFC Bank Ltd.


30 HDFC Ltd.

62 Wipro Ltd.

31 Hero Honda Motors Ltd.

63 Wockhardt Ltd.

32 Hindalco

The assessment process is divided into three phases.

I) Quantitative
II) Quasi-quantitative
III) Qualitative
List of broad criteria for Phase I analysis
(Figures in parentheses are scores assigned to that item)



Criteria and selection



Governance structure
Composition of the board
Committees of the board


Disclosures in the annual report

Statutory disclosure
Non-statutory disclosures


Timeliness and content of information

to the investors and the pubic
A compliance with the Listing Agreement
Contents on website
Grievance resolution ratio


Enhancement of shareholder value

Share prices
Return on net worth





Total scores




Phase II analysis: Fine-tuning Phase I analysis

Suggested items for fine-tuning the result of Phase I analysis
1. Governance structure

Number of meetings of the board during the year


Attendance record per meeting


Attendance record of individual directors


Number of meetings of the committees of the board


Do the directors receive:

All quarterly and annual production & sales plans


Internal audit reports

Any process or product liability claim on the company


Any Joint Venture or collaboration that the company proposes to enter into

Labour policy changes and disputes

Any defaults by the company

Any show cause considered materially important

Important economic and market developments

Disclosure of directors shareholding and interests in contracts

Agenda papers with adequate notice


Whether the Chairman and the Managing director are different?


Whether remuneration policy for directors is in place?


Ratio of remuneration of promoter-related director to the next level professional


Do non-executive directors examine the performance of the management?


Existence of committees such as project management committee, capital

investment committee, consumer redressal committee, etc.


Does the nomination committee have a right to short- list candidates for the board?


Is there a well-defined process for selection of executive and non-executive

m. Does the audit committee have all the powers and authority as envisaged?

Does the audit committee review the interim and annual financial statements

before submission to the board?


Is there an internal audit department?


Is there a policy of limiting the number of terms a director can serve on the board?



Disclosure in the annual report

Does the annual report contain a statement of remuneration policy and details of the

remuneration of a director?

Timeliness and content of information to the investors and public

How long (within statutory limit) does company take to disclose material


Time period between last day of financial year of the company and date of AGM.

What is the quality of content in communication with investors and public?


Enhancement of shareholder value

Growth in assets

Growth in sales

Solvency ratio


Phase III analysis: Qualitative criteria

Items for which detailed information were sought from company through personal interviews and
administering informal questionnaire



Discharge of obligations relating to employee welfare

HRD policies for succession, delegation and empowerment of employees




Innovative practices with respect to the other stakeholders including the customers (for example,

customer grievance resolution mechanism) and the vendors (wherever applicable).


Government and regulatory authorities

FERA/FEMA violations

Excise and custom raids

Show-cause notices from Income Tax Authorities and other regulatory authorities



Discharge of social obligations

General concern for environment


Ethical code of conduct

Code of ethical behaviour for employees

Rules for insider trading

Based on these criteria companies are rated F, A, AA, AAA. Infosys and TISCO were awarded National
Award for Excellence in Corporate Governance in the year 1999 and 2000 respectively.
Discuss the feasibility of the National Award initiated by Government to promote good corporate

Recent developments in other markets


Implementation of Sabarnes-Oxley Act, 2002 in the U.S. A. In response to the public

outcry against the recent corporate scandals like, Enron, World Com, etc., a new
legislation viz., the Sarbanes-Oxley Act has been enacted on July30, 2003 in the U.S.A.
in order to protect investors by improving the accuracy and reliability of corporate
disclosures made pursuant to the securities laws. The legislation initiated major reforms
in the following areas.

1. Public Company Accounting Oversight Board

2. Auditors independence
3. Conflict of interest
4. Corporate responsibility
5. Enhanced financial disclosures
6. Analyst conflict of interest
7. Corporate and criminal fraud accountability
8. White-collar crime penalty enhancements
9. Corporate fraud and accountability
10. Studies and reports

European Union
The European Commission recently completed a study of 43 different corporate
governance codes and proposed to merge all of them to create a single, consistent code.


The German government had announced details of comprehensive new voluntary
guidelines to improve their corporate governance practices. The code aims at
strengthening the rules concerning auditor and supervisory board independence, gives
shareholders a limited role in takeovers, recommends that companies disclose board
remuneration individually, and requires a company to disclose whether or not they
comply with the code.
Irish Association of Investment managers revealed a high level of compliance amongst
Irish corporates with the Combined Code on governance implemented by LSE. 97% of
firms allow shareholders to vote on re-election of directors every three years. 85% and
79% of them have remuneration and audit committees respectively comprised fully of
non-executive directors. 79% of them have separate role for the chairman and the chief
executive officer.
Asian and Latin American markets
S&P carried out a survey of 350 Asian and Latin American companies on 10 points based
on 98 information attributes grouped into 3 categories: financial transparency and
information is closures; investors relation, and ownership structure; and board and
management structure and practices. 19 out of 43 Indian companies managed to get score
of 4; Infosys scores 7.
Kenyas Capital Market Authority has introduced new guidelines to imp rove corporate
governance practices. The guidelines include: appointment of independent directors,


constitution of nomination committee, the role of CEO and Chairman to be separated;

limiting the term of director on the board subject to shareholders approval and frequent
appraisal of the board.
Stock exchange of Thailand is set to introduce a new committee to strengthen corporate
governance and make best corporate practice a national priority. Of the 580000
companies, nearly half do not report balances-sheet and a quarter of them do not pay even
taxes. Thailands SEC has drafted a framework for corporate governance ratings aimed at
protecting shareholders rights, the quality of directors and the efficiency of internal
controls. The Thai SEC will offer highly rated firms bunch of incentives, including a fasttrack review of their corporate filings to issue new shares.
Russias Federal Commission for Securities Markets introduced new code of corporate
governance which includes a number of tax incentives and investor friendly regulations.
Hong Kong
Hong Kongs SFC proposed a rule that executives who intentionally or recklessly,
provide false or misleading information in public disclosures, shall face up to two years
in prison and a HKD 1 million fine.
Philippines SEC has requested that all listed firms establish an evaluation system to track
performance of their boards and executive management. The recently approved code of
corporate governance recommends that all public entities and fund raising entities shall


adopt the same. Philippines SEC is likely to extend new corporate governance code to
require even non-listed firms to place at least one independent director on the board.



It would have been very clear by now as to the importance that has been laid in good
corporate governance. Government, corporates and the civic societies have been doing
their bit to improve upon the existing level of governance. Corporate governance goes
beyond the realms of law. It comes from the culture, ethos and the mindset of
management. However due emphasis must be given to the role of legislation also. Need
of the hour is to build an atmosphere of mutual trust, responsibility and accountability
that makes the governing team enthusiastic and makes them aspire for excellence.
Procedural refinements and innovation are no substitute for good men, while good men
are never short of capacity to innovate. Thus, it is men more than measures that make
good corporate governance for that matter the governance give its true result.


Appendix I

Ethical Complacency: The Recipe for Failure

) We are good people
) We just wrote a new code of ethics
) We have never had a problem

Appendix II

Kashmir: A case of Governance Failure


Four hundred and seventy four officers and men of the Indian Armed Forces laid
down their lives in Kargil to protect the integrity of the country

Many innocent civilians too lost their lives and property and found their livelihood
disrupted, as had tens of thousands earlier through years of proxy war.

The entire nation united in grief with widows and parents across the land to mourn
the blood, tears and treasure invested in Kargil.


The findings showed many grave deficiencies in India's security management


Lord Ismay formulated and Lord Mountbatten recommended was accepted by a

national leadership unfamiliar with the intricacies of national security management.

There has been very little change over the past 52 years despite the 1962 debacle,
the 1965 stalemate and the 1971 victory, the growing nuclear threat, end of the cold
war, continuance of proxy war in Kashmir for over a decade and the revolution in
military affairs.


Unit 5

Top Management and Corporate Governance

After going through this unit you should be able to:

understand the role and responsibility of BoDs;

understand the role and functions of Chairman and CEO; and

know the process of creating an Effective Board.




Role of Board of Directors


Responsibilities of Board of Directors


Strategic Management: Role of the Board


Board Committees


Role of Chairman


Role of CEO


Creating an Effective Board




Self-Assessment Questions


Further Readings


The major players in the area of corporate governance, within the corporation are corporate
board, shareholders and employees. Externally, the pace for corporate governance is set by the
government as the regulator, customer, and lenders of finance and social ethos of our times. The
scope and extent of corporate governance are set by the legal, financial and business framework.

In essence, corporate governance is the system by which companies are directed and controlled.
Board of directors are responsible for the governance of their enterprises. -Corporate
Governance: A Multi-faced Issue; The Chartered Secretary, May97
As it is very clear from the above statement, people at the helm of affairs of an enterprise are
responsible for the good governance of the enterprise. The Board of Directors are responsible for
the governance of their enterprises, in a given economic, political and social environment. The
role of the board and the shareholder is interactive in nature and therefore the quality of
governance depends upon the level of interface established by them. The quality of the board
also depends upon a number of other factors, such as its size, its composition in terms of number
and proportion of whole-time and part time directors, the chairman of the board, power and
position of the CEO, the merit and qualification of the directors, etc. In this unit we will try to
find out the roles and responsibilities of the board and other executives for good governance.

Role of Board of directors

Law Related Expectations

The Indian Companies Act does not define the Board of Directors (BoDs). Even Director is
simply defined as it includes any person occupying the position of Director, by whatever name
called [sec.2 (13)]. With the help of this open definition of Director, we may infer that a Board
of Directors is a group of individuals each of whom is labeled as Director (or by any other title
with identical substantive intention). No person is to hold more than 20 directorships.
Section 269 says that, the commencement of the Companies (Amendment) Act, 1988, certain
specified public companies or private companies which are subsidiaries of public companies,

shall have a Managing or Wholetime Director, a Manager, and each such appointment must be
made with prior approval of the central Government.
What is a BoDs suppose to do? This again we can know inferentially by referring to a definition
of Manager and Managing Director in section 2 of the Act, and also Sections 291-93. Both
these incumbents have to exercise their powers of managements subject to the superintendence,
control and direction of the Board. Thus, the BoDs, in broad terms, is expected to perform the
role of overseeing the running of the enterprise by its chief executive.
On whose behalf does the BoDs perform this role of overseeing? It is expected to do this on
behalf of the shareholder. It is they who elect the directors on the board. And it is the BoDs,
which, in turn, selects the Chief Executive.
The directors individually have no powers in the eyes of law. It is only the collective body of
directors, i.e., the board, which has a superior total power over the Chief Executive. The intent of
the Indian Companies Act appears to include only outside non-employee directors on the board.
Otherwise, if internal Wholetime Executive, say the MD were to be the directors on the board,
how could they exercise superintendence, control and direction over themselves?
Section 291 stipulates that the BoDs shall be entitled to exercise all such powers, and to do all
such acts and things as the company authorizes to exercise and do, except those things which can
be done in a general meeting of the company. The powers exclusive to the BoDs (sec. 292) are:

To make calls on shareholders in respect of money unpaid on their shares

To issue debentures

To borrow money otherwise than through debentures

To invest the funds of the company

To make loans

Correspondingly, section 293 restricts the powers of the BoDs, by making them subject to the
consent of general meeting of the company, in respect of selling, leasing or disposing of the
property of the company; remitting debt due by the director; borrowing money to an extent
which exceeds the net worth of the company etc.
The Board of Directors is expected to meet once in a quarter and the quorum for a valid meeting
of the board is one third of the total strength or two directors, which is higher. The power to
declare dividends is exclusive to the BoDs.
Section322 of the companies Act allows memorandum of association of a limited company to
provide for a director or directors with unlimited liability.
Managerially Derived Expectations
The dimension relating to the managerially derived expectations of the Board of Directors role
seems to be of relatively recent origin. In more than two decades or so, industrial development
had been marked by far-reaching technological changes, leading to equally fundamental
competitive reorientation at the global level. As a result, many erstwhile great names in the
industry have been humbled. With such rapidly mounting changes and uncertainties, the role of
BoDs has begun to be viewed from much wider and long term perspective beyond the
minimum requirements of the law. Probably, upto 1970s, the duty of BoDs to superintend,
control and direct had gone by defaults. Stable environment had helped this key role to remain

dormant. What is then the renewed ramifications of this role at present? These are meant to
ensure that.

The enterprise continues to remain effective on the standpoint of technology parameter.

The enterprise continues to achieve healthy market growth in competitive conditions.

Divestments and diversification take place on sound lines.

Long-term productivity and quality are never sacrificed at the alter of short term profitability

Judicious earnings retention policy is adopted for financing growth, modernization, etc.

Serious and sustained attention is adopted towards building a sound system of human values and
exalted corporate culture.
It is a common observation that BoDs function rather passively. Often the members are selected
not because of their knowledge and competence but because of their compatibility, prestige or
esteem in the community. Usually, the Chief Executive Officer or the group of promoters has
free reign in choosing the directors and in having them elected by the shareholder. The directors
thus selected often feels that they should go along with any proposal made by the CEO and his
group. Interestingly, the board members find themselves accountable to the very management
they are expected to oversee.
Over the recent past, however, lending institutions, financial media and corporate analysts have
seriously questioned the role of BoDs. The investors and government in general are better aware
of the role of the BoDs. Though the Companies Act throws some light on the powers of the
BoDs and the restrictions placed on those powers, it does not specify to whom they are

responsible and what for. However, there is a broad agreement that BoDs appointed or elected by
the shareholders are expected to:

Oversee the management of the companys assets

Establish or approve the companys mission, objective, strategy and policies

Review management actions and financial performance of the company

Hire and fire the principal executive and operating officers of the company
An important issue in this context is: should BoDs merely direct or may they manage also? Many
experts and practicing top managers say that BoDs should only oversee and direct, and never get
involved with the detailed management. There are others who feel that, for direction to be
realistic and sensible, some in-depth involvement with details is necessary. The majority view,
however, is in favour of directors directing the affairs of the company and not managing them.

Responsibilities of BoDs:

The board is expected to act with due care. That is, they must act with that degree of
diligence, care, and skill which ordinarily prudent men would exercise under similar
circumstances in like positions. If a director or the Board as a whole fails to act with due care
and, as a result, the company in some way, is harmed, the careless director or directors may be
held personally liable for the harm done.
Further, they may be held personally responsible not only for their own actions but also for the
actions of the company as a whole.

In addition, directors must make certain that the company is managed in accordance with the
laws and regulations of the land. They must also be aware of the needs and demands of the
constituent groups so that they can bring about a judicious balance between the interest of these
diverse groups, while ensuring at the same time that the company continues to function.

Strategic Management: Role of the Board

According to Bacon and Brown, BoDs, in terms of strategic management, have three basic tasks.

To initiate and determine: A board can delineate an organisations mission and specify
strategic options to its management.

To evaluate and influence: A board can examine management proposals, decisions and actions;
agree or disagree with them; give advice and offer suggestions; develop alternatives.

To monitor: By acting through its committees, a board can keep abreast of developments, both
inside and outside the organization. It can thus bring new developments to the attention of the
management, which it might have overlooked.
While the BoDs are not expected to involve itself in day-to-day operating decisions, they are
nonetheless expected to consider and give their views on all such matters that have long-term
connotations. In fact, such matters by convention are referred to the board. These relate to issues
such as introduction of new product, new technology, collaboration agreements, senior
management appointments and major decisions regarding industrial relations.
The directing function of the board has internal and external components. Internal components
relates to various actions taken by the executives and their implications for the organization,
including R&D, capital budgeting, new projects, new competitive thrust, relationship with

financial institutions and banks, foreign collaborators, major customers and suppliers. External
component relates to identifying broad emerging opportunities and threats in the environment
and feeding them to the management so that strategic mismatch do not occur. The board
should see that the organization always remains in alignment with the social, economic and
political milieu.

Board Committees

The provision of section 292 of the Companies Act provides for delegation of powers by the
BoD to the Committee of Directors of the powers regarding (a) borrowing money for the
company otherwise than for debentures, (b) investing the funds of the company, and (c) making
loans by the company.
In practice, however, Boards do appoint specific committees for in-depth exploration of certain
matters e.g., diversification project, shutting down a plant. These committees work for a
specified period and submit their views to the full board. There are standing committees, which
meet in the interval between the board meetings, and are expected to devote greater attention to
details in important matters arising from those functions. It is the outside directors who officially
comprise such committees. Some important committees usually set up by the board, comprising
outside directors are as follows:

Audit committee: It consists of independent directors who report to the board. Usually the
committee acts as a link between the board and the external auditors. They look into the issues
raised by the external auditors in greater details. Some of the functions of the audit committee

To review the interim and final accounts in Toto.


To solve any problem they come across while completing the audit with due consultation
with the independent auditor.

To make recommendations regarding the audit fees, selection and replacement of the

Remuneration committee: This committee reviews the remuneration packages of the executive
directors and other top-level managers. It consists of independent directors and drafts the
remuneration policy of the company, which checks the unreasonable increase in the executive

Nomination Committee: Nomination committee is usually set up to select new non-executive

directors. The chairman of the board heads the committee.

The Role of a Chairman

The role of the Chairman is to manage the board and ensure that its policies are put into practice
by the management. He must have a good knowledge of companys financial position and
closely monitor its performance. The chairman has to work closely with the company secretary
to address legal issues.
With the knowledge of the way in which the company is managed and its financial standings, the
chairman has to play a proactive role. He should be in a position to identify the short comings
and see that the board discusses these. By being proactive the chairman can help the CEO take
corrective action before things get out of hand. Since the chairman leads the board, its for him to
maintain good relation between the board and the companys shareholders. In the process of
maintaining such relationship he ensures that the board makes decision in accordance with the
interest of the shareholder and all other stakeholders of the company. Primarily the chairman has

to cater to the internal needs of the board and its conduct. He also should maintain good relation
with the CEO and executive and non-executive directors.
Functions of the Chairman
Some of the other important functions of the chairman include:

To act as a representative of the company

To ensure that policies and practices are in place

To see to it that directors make good decision

To act firmly in times of crisis

To upgrade the competence of director so as to meet the current and future needs of the

The Role of CEO

The role of a CEO is to achieve the organizational objective, by efficiently running the
organization. He also needs to maintain close working relation with chairman and the directors.
His relation with the chairman requires a high degree of trust, respect and an ability to
communicate openly. On the other hand he should maintain cordial relationship with the
executive directors to ensure that they act in the interest of the whole organization. He needs to
motivate the directors in improving the performance of the organization.
Functions of the CEO
Apart for the above roles, a CEO should;


Present the company to major investors, media and the government

Provide leadership and direction to all executive directors

Assist the executive directors in formulating strategies proposals that have to be endorsed by the

Be a source of inspiration , leadership and direction to all the employees, customers and

Take firm decision when situation demands.

Non-Executive Directors
These are the directors, who do not hold an executive position in the organization. They are also
known as outside directors. These directors play a very important role in the governance of the
company. As these directors do not have any other (than remuneration) material pecuniary
relation or transaction with the company, its promoters, its management or its subsidiary, they
will have unbiased judgment on the workings of the board and the company.

Creating an Effective Board

The function of a board is very comprehensive. In practice, it could be said that the board is
responsible for laying down matters of principle and of accounting, statistical and management
procedures. It is also responsible for the decision of what product to make, which market to
penetrate, determination of manufacturing capacity, investment decision, cash flow, liquidity etc.
In summary, the directors are responsible for ensuring that the top management functions
effectively and that through the information system, proper reports are generated and information
is made available for both control and planning purposes.

Ideally, the board of directors should be the heart and soul of a company. Whether a company
grows or declines depends very much upon the sense of purpose and direction, the values, the
will to generate customer satisfaction, and the desire to achieve, develop and learn, that emanates
from the board and the extent to which it is visibly committed to them.
The efficient board should be the one which is willing to identify, discuss and tackle barriers to
its own contribution. The board can be constrained or enhanced by the limitations or strengths of
its individual members.
While effectiveness may be influenced by a number of factors, the following provide a model

Do the board members share a common, clear and compelling vision? Are they committed to an
agreed and realistic strategy to the achievement of the vision?

Have the necessary resources, processes, role, competencies, enabling technology and learning
capabilities for successful implementation been assembled?

Whether special responsibilities for projects that stretch beyond a financial year, such as
strategic business developments, entrusted to select directors?

When the company expands into a international network, whether the governance needs of the
new style entity are given a fresh look?

When the role of chairman and the CEO are separated, whether there is mutual trust and respect
to supplement and complement each others responsibilities and contributions?



List some more functions of the Chairman and CEO, to improve the Corporate Governance of an


A group of outstanding individuals do not necessarily make an effective board. Directional

competence and contribution depends upon the interaction of a particular combination of people
and personalities in the boardroom. This sense of direction and purpose of the board will lead to
good governance and that will determine the growth of the enterprise.

Self-Assessment Questions


Discuss the legal and managerial roles of BoDs.


Should the role of Chairman and CEO be merged? Explain.


What are the major attributes of creating an Effective Borad?


Further Readings

Gopalasamy. N. (1998). Corporate Governance : The New Paradigm, Wheeler Publishing,

Balasubramanium N. (1997). Towards Excellence in Board Performance, Management Review,
January- March.
Various Committees Reports.