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ANNAMALAI UNIVERSITY
DIRECTORATE OF DISTANCE EDUCATION

Master of Business Administration(M.B.A)

M.B.A (International Business)
M.B.A. (Human Resource Management)
M.B.A (Marketing Management)
M.B.A (Financial Management)
First Year

PRINCIPLES OF MANAGEMENT
LESSONS : 1 - 24

Copyright Reserved
(For Private Circulation Only)
 MASTER OF BUSINESS ADMINISTRATION (M.B.A)
M.B.A (INTERNATIONAL BUSINESS)
M.B.A. (HUMAN RESOURCE MANAGEMENT)
M.B.A (MARKETING MANAGEMENT)
M.B.A (FINANCIAL MANAGEMENT)

FIRST YEAR

PRINCIPLES OF MANAGEMENT
Editorial Board
Members
Dr. R. Rajendran
Dean
Faculty of Arts
Annamalai University
Annamalainagar.

Dr. C. Samudhrarajakumar Dr. A. Rajamohan

Professor and Head Professor and Head
Department of Business Administration Management Wing, DDE
Annamalai University Annamalai University
Annamalainagar. Annamalainagar.

Internals
Dr. T. Vezhavan Dr. D. Elamparuthi
Assistant Professor Assistant Professor
Management Wing, DDE Management Wing, DDE
Annamalai University Annamalai University
Annamalainagar. Annamalainagar.

Externals
Dr. S. Kaliamoorthy Dr. B. Rajasekaran
Director Dean, Faculty of Arts
Alagappa Institute of Management Professor of Business Administration
Alagappa University M.S University
Karaikudi. Tirunelveli.
Lesson Writers
Units: I – III Units: IV – VI
Dr. R. Rajinikanth Dr. M. Sumathi
Assistant Professor Associate Professor
Govt. Arts and Science College Bharathiyar University
Kumbakonam. Coimbatore.
 i

MASTER OF BUSINESS ADMINISTRATION (M.B.A)

M.B.A (INTERNATIONAL BUSINESS)
M.B.A. (HUMAN RESOURCE MANAGEMENT)
M.B.A (MARKETING MANAGEMENT)
M.B.A (FINANCIAL MANAGEMENT)
FIRST YEAR
PRINCIPLESOFMANAGEMENT

SYLLABUS
Objective
To give a broader understanding of the management concepts and techniques;
to know about the developing, executing talents of the managers.
Unit–I
The development of management thought-Pre scientific management era –
human relation era – social sciences era – management sciences era – contribution
of F.W.Taylor, Henri Fayol, Elton Mayo, Mary Parker Follet, Rensis Likert,
McGregor, Herbert A. Simon, Peter F.Drucker – Trends and Challenges of
Management in Global Scenario.
Definitions of administration and management – Basic Principles and process
of management.
Planning – Distinguishing between operational and strategic planning – types
of plans – grouping of various types of plans – Steps in planning – Making of
Effective Planning.
Unit–II
Policy making: Importance of policies – Types of policies – Principles–Policy
formulation and Administration – Basic areas of Policy making.
Organisational theory – Formal organisation – Informal organisation – New
Forms of Organization - Virtual Organisation as Networks– Identification of informal
groups – Sociogram– Benefits of sound organisation structure – Organizational
Designs for Change and Innovation.
Departmentation – Organisation Charts and manuals.
Unit–III
Definition of Authority - Authority – relationship – Line authority – Staff
authority –Line and Staff Conflict - Line organisation – Line and Departmental line
organisation – Staff relationships – line and staff organisation – Functional
organisation – Committee organisation.
Components of authority – Rational authority – Traditional authority –
Charismatic authority – Limits of authority – Delegation of authority –
Centralisation and Decentralisation – Span of Control.
Staffing Function – Nature and purpose of staffing – importance of staffing –
Components of staffing.
Unit–IV
The direction function – Leadership styles and functions. Communication –
Types and forms of communication – Process of communication – Communication
Network – Barriers to effective communication – Suggestions to maintain effective
communication.
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Unit–V
Decision Making Process – Commonsense approach – Scientific approach -
Operations Research Method – Rational, Humanistic, Positive – procrastinative –
negative and integrative approaches.
Co-ordination–Need for Co-ordination–Types of Interdependence –
Co-ordination – Pooled, Sequential and reciprocal interdependence – Principles of
co-ordination – Approaches to achieving effective co-ordination – problem of
co-ordination.
Concept of Control – Importance of Control –An integrated Control System.
Unit–VI
Management by objectives – Hierarchy of objectives/Qualitative and
Quantitative objectives – Process of MBO – Management by Exception.
Supervision – Position of a Supervisor – Function and Qualities of a Good
Supervisor –Essential requirements of effective supervision – Rensis Likert studies
of supervisor effectiveness.
Role of Creativity and Innovation in Management - Social responsibility of
business.
References Books
1. Koontz and O‘Donnell, Principles of Management, McGraw-Hill, 2014.
2. Gupta, R.N., Principles of Management, S. Chand, Chennai, 2010.
3. T. Ramasamy, Principles of Management, Himalaya Publishing House, 2013.
4. Bhavesh Arvind Kumar Lakhani, Dr.Khushpat S. Jain, Parin Shah and Swati
Modi, Principles of Management, First Edition, Himalaya Publishing House,
2011.
5. M. Govindarajan andNatarajan.S, Principles of Management, Prentice Hall of
India, 2012.
6. Samuel, C. Certo and Tervis Certo, Modern Management: Concepts and
Skills, 12th Edition, Pearson Publications, 2012.
7. Robbins, S.P., Fundamentals of Management, Pearson Publications, 2003.
Journals and Magazines
1. Journal of Management, Southern Management Association.
2. International Journal of Management and Business Studies.
3. Global Journal of Management and Business Studies (Research India
Publications).
4. International Journal of Management Reviews,
Web Resources
1. www.exed.hbs.edu/programs/gmp
2. www.hbs.edu/faculty/units/gm/Pages/default.aspx
3. www.ala.org/rusa/sections/brass/.../bestbusinesswebsitesgeneral
4. www.iimahd.ernet.in/programmes/pgpx.html
5. www.studyat.uwa.edu.au/careers/general-manager
 iii

MASTER OF BUSINESS ADMINISTRATION (M.B.A)

M.B.A (INTERNATIONAL BUSINESS)
M.B.A. (HUMAN RESOURCE MANAGEMENT)
M.B.A (MARKETING MANAGEMENT)
M.B.A (FINANCIAL MANAGEMENT)
FIRST YEAR
PRINCIPLES OFMANAGEMENT
CONTENTS

Lesson Title Page No.

1 Development of Management Thought 1
2 Basic Principles and Process of Management 18
3 Planning 32
4 Types of Plans 42
5 Policy Formulation 53
6 Organisation Theory 62
7 Organisational Design 73
8 Span of Management and Organizational Structure 86
9 Delegation of Authority 95
10 Line – Staff Relationship 106
11 Components of Authority and Management of Change 119
12 Staffing 131
13 Direction 143
14 Leadership 148
15 Communication 155
16 Barriers of Effective Communication 168
17 Decision Making 176
18 Approaches of Decision Making 186
19 Co-ordination 191
20 Controlling 195
21 Management by Objectives 207
22 Supervision 223
23 Creativity and Innovation in Management 228
24 Social Responsibility of Business 231
 UNIT - I
LESSON – 1
DEVELOPMENT OF MANAGEMENT THOUGHT
1.1 INTRODUCTION
The practice of management is as old as human civilization. In fact, much of
the progress of mankind over the centuries may be attributed to the effective
management of resources. The irrigation systems, existence of public utilities, the
construction of various monuments like Taj Mahal, and the Egyptian pyramids of
the bygone era amply demonstrate the practice of management in the older days
also. The ancient civilisations of Mesopotamia, Greece, Rome and Indus-valley
displayed the marvelous results of good management practices. However, the study
of management in a systematic way as a distinct body of knowledge is only of recent
origin. That is why, management is often described as ―oldest of the arts and
youngest of the sciences‖. Thus, the practice of management is not new it has been
practiced for thousands of years. But the science part of it the systematic body of
knowledge‘ is, no doubt, a phenomenon of the present century.
The traditional management practices remained quite stable through the
centuries until the birth of Industrial revolution in the mid 18 th century. The
industrial revolution brought about the substitution of machine power for man
power through several scientific inventions. As a result, within a few decades, the
picture of industrial activity had undergone a metamorphic change. Man‘s quest
for new ways of doing technological inventions in the production of various goods
and services resulted in
1. Mass production in anticipation of demand;
2. Advent of corporate form of organisation which facilitated such large scale
production;
3. Spectacular improvements in the transport and communication facilities;
4. Increase in competition for markets;
5. The Establishment of the new employer – employee relationship and so on.
Industrial revolution had thus sown the seeds of modern management. The
early scientific inquiries into the practice of management began. In what follows in
this lesson, the evolution of management thought over the years is discussed in a
chronological way.
1.2 OBJECTIVES
After studying this lesson, you should be able to:
 gain insights into the historical perspective of management
 appraise the major contributions to the management thought and
 analyse the trends that have taken place in the evolution of management
thought over the years.
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1.3 CONTENTS
1.3.1 Pre-Scientific Era
1.3.1.1 Charles Babbage
1.3.1.2 Robert Owen
1.3.2 Scientific Management Era
1.3.2.1 F.W. Taylor
1.3.2.2 Henry Fayol
1.3.3. Human Relations Era
1.3.3.1 Elton Mayo and the Hawthorne Experiments
1.3.4 Social Sciences Era
1.3.4.1 Chester I. Barnard
1.3.4.2 Rensis Likert
1.3.4.3 Douglas McGregor
1.3.4.4Herbert A. Simon
1.3.4.5Peter F. Drucker
1.3.5 Trends and Challenges of Management in GlobalScenario
1.3.1 PRE-SCIENTIFIC ERA
The captains of the industry in the early 18th and 19th centuries were
confronted with many problems in managing the organisations. They had no
previous experience to guide them. The concept of automation and the consequent
mass production were totally new, For the first time, the need for standard systems
and procedures was felt. The new situation aroused the academic interest and the
search for new principles and theories to ensure better management began.
1.3.1.1 Charles Babbage
Notable among the early thinkers is Charles Babbage, the British professor of
Mathematics. He is often regarded as father of Operations Research. In the early
1800‘s he was convinced that the application of scientific principles to work
processes would both increase productivity and reduce expenses. He introduced
work measurement methods, profit sharing and bonus plans, He had invented a
predecessor to the modern day computer, an invention he called the ―difference
machine‖, that performed mathematical calculations, He had also published a book
entitled, ―On Economy of Machinery and Manufacturing‖. Babbage was an early
advocate of division of labour. He believed that each factory operation should be
analysed so that the various skills necessary to execute the operation could be
identified. It is interesting to note that our modern assembly line in the
manufacturing concerns is based on Babbage‘s ideas.
1.3.1.2 Robert Owen
At about the same time Robert Owen, an entrepreneur and manager of several
cotton textile mills in Scotland introduced many reforms to improve the working
 3

conditions of the employees. He built better houses for workers and started
company store to supply goods to the employees cheaply. He also reduced the
working day to 10 hours and refused to hire children under the age of 10. Owen
argued that better working conditions would contribute to larger output and profits.
At a time when his counterparts concentrated on investing only on machines, he
believed in investing in the workers in terms of improving their working and living
conditions. He considered workers as ―vital machines‖. He also introduced ―rating
system‖ to evaluate the employees‘; work on a daily basis and emphasised the
human element in the factories.
Similarly, the thinking of James Montgomery, a textile mill owner in Scotland
who addressed himself to the problems of planning, organising and controlling in
early factories and Henry Varnm Poor, editor of the American Rail road Journal
created good impact on the then management practices.
Though the contributions of the owner managers and a few academicians in
the 19th century were in haphazard manner and had failed to stimulate interest in
management, it must be accepted that some thought provoking issues on the day
to day management of organizations were raised. Their ideas created an awareness
about managerial problems. Thus by the end of the 19th century, adequate ground
was prepared for a more systematic effort for the study of management.
1.3.2 SCIENTIFIC MANAGEMENT ERA
1.3.2.1 Frederick Winslow Taylor
Frederick Winslow Taylor (1856-1915) should be ever remembered for his
contribution to the management movement. In an effort to address several
organisational problems. Taylor developed the body of knowledge what is now called
―scientific management‖. Taylor investigated the effective use of human beings at
the shop floor level in the industrial organisation. He defined managing as the art of
―knowing exactly what you want men to do and then seeing that they do it in the
best and cheapest way‖. For the emphasis he had placed on the scientific way of
doing things, he is often called the ―father of scientific management‖.
Salient Features of Scientific Management
Taylor conducted various experiments at the work place to find out how
human beings could be made more efficient by standardising the work. These
experiments have provided the following features of scientific management.
i. Separation of planning and doing
Taylor emphasized the separation of planning from actual doing. Before
Taylor‘s Scientific Management, a worker used to plan about how he had to work
and what instruments were necessary for that. This was creating lot of problems.
Taylor insisted that planning should be left to the supervisor and the worker should
concentrate on doing the work.
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ii. Functional Foremanship

Separation of planning from doing resulted in the development of supervision
system. For this purpose. Taylor evolved the concept of functional foremanship
based on specialisation of functions.
iii. Job analysis
According to Taylor the best way of doing a job is one which requires the least
movements, consequently less time and cost. He analysed the various jobs to find
out the best way of doing things with the help of Time and Motion and Fatigue
studies,
1. Time study involves the determination of time, a movement takes to
complete. The movement which takes minimum time is the best one. This
helps in fixing the fair work for a period.
2. Motion study involves the study of movements which are involved in doing a
job and thereby eliminating the wasteful movements and performing only
necessary movements.
3. Fatigue study shows the amount and frequency of rest required in
completing the work. Thus job analysis, as given by Taylor, suggests the fair
amount of a day‘s work requiring certain movements and rest periods to
complete it.‘
iv Standardization
Instruments and tools, period of work, amount of work, working conditions
and cost of production have to be standardized on the basis of job analysis and
various elements of costs that go into the job.
v. Scientific Selection and Training of Workers
Taylor suggested that workers should be selected on a scientific basis taking
into account their education, work experience, aptitude, physical, strength, etc. A
worker should be given work for which he is physically and technically most
suitable. Apart from selection, proper emphasis should be laid on the training of
workers to make them efficient and effective.
vi. Financial Incentives
Taylor introduced financial incentives to motivate workers to put in their
maximum efforts. He applied the concept of differential piece rate system.
According to this scheme, a worker who completes the normal work gets wages at
higher rate per piece and one who does not complete gets at lower rate. To make
the differential piece rate system work, he has suggested that wages should be
based on individual performance.
vii. Economy
While applying scientific management, not only scientific and technical aspects
should be considered but adequate consideration should be given to economy and
profit. For this purpose, techniques of cost estimates and control should be
 5

adopted. The economy and profit can be achieved by making the resources more
productive as well as by eliminating the wastages.
viii. Mental Revolution
Taylor strongly suggested a change in the attitude of employers and
employees. Mutual conflict should be replaced by mutual cooperation which is
beneficial to both. Taylor argued that mental revolution is the most important
feature of scientific management because in its absence, no principle of scientific
management could be applied.
In his crusade against the unscientific methods of management which were
prevalent at that time. Taylor had to face bitter criticism from different quarters. It
is an irony that in the beginning both workers and the managements did not
understand Taylor‘s preachings correctly. Workers had struck work in protest
against the proposed changes in the work routine and systems. The American
congress had even called Taylor for an explanation. Taylor‘s philosophy, in simple,
as reiterated by him before the congress and also in his book. ―The Principles of
Scientific Management‖ rested on the following four basic principles:
1. the development of a true science of management, so that the best method
for performing each task could be determined;
2. the scientific selection of the workers, so that each worker would be given
responsibility for the task for which he or she was best suited
3. the scientific education and development of the worker; and
4. intimate, friendly to-operation between management and labour.
1.3.2.2 Henri Fayol (1841-1925)
Henri Rayol is widely acclaimed as the founder of the Classical Management
school. He was the first to systematise what management is all about. Fayol
believed that sound managerial practice falls into certain patterns that can be
identified and analysed. From this basic insight, he developed a comprehensive
philosophy of management which is found relevant to this day. Fayol was a
contemporary of Taylor. It is important to note that, while Taylor was basically
concerned with technical aspects at the shop floor. Fayol was interested in the total
organization. He looked at the problems of managing an organisation from top
management point of view.
His emphasis that management was not a personal talent but a skill like any
other was a major contribution to managerial thought. It had generally been
believed that ―managers were born, not made‖. Fayol, opposed that view and argued
that management could be taught once its underlying principles were understood
and a general theory of management was formulated. Many of the managerial
concepts we take for granted today were first articulated by Fayol.
In an attempt to develop a science of management, Fayol began by a dividing
business operations into six activities. These activities were 1) Technical –
producing and manufacturing products 2) Commercial – buying raw materials and
 6

selling products 3) Financial – acquiring and using capital 4) Security – protecting

employees and property 5) Accounting – recording and taking stock of costs, profits,
and liabilities. keeping balance sheets and compiling statistics, and 6) Managerial.
Fayol‘s primary focus, of course, was on the last activity, because he felt managerial
skills had been the most neglected aspect of business operations. He defined
management in terms of five functions – planning, organizing, commanding,
coordinating, and controlling.
Fayol’s Principles of Management
1. Division of Labour: The more efficiently they can perform their work. The
principle is epitomized by the modern assembly line.
2. Authority: Managers must give orders so that they can get things done. While
their formal authority gives them the right to command, managers will not
always compel obedience unless they have personal authority (such as
relevant expertise as well).
3. Discipline: Members in an organization need to respect the rules and
agreements that govern the organization. To Fayol, Discipline will result
from good leadership at all levels of the organization, fair agreements (such
as provisions for rewarding superior performance), and judiciously enforced
penalties for infractions.
4. Unity of Command: Each employee must receive instruction about a
particular operation from only one person. Fayol believed that when an
employee reported to more than one superior, conflicts in instruction and
confusion of authority would result.
5. Unity of Direction: Those operations within the organization that have the
same objective should be directed by only one manager using one plan. For
example, the personnel department in a company should not have two
directors, each with a different hiring policy.
6. Subordination of Individual Interest to the Common Good: In any undertaking,
the interests of employees should not take precedence over the interests of
the organization as a whole.
7. Remuneration: Compensation for work done should be fair to both employers
and employees.
8. Centralization: Decreasing the role of subordinates in decision making is
centralization; increasing their role is decentralisation. Fayol believed that
managers should retain final responsibility but also need to give their
subordinates enough authority to do their jobs properly.
9. The Hierarchy: The line of authority in an organization often represented
today by the neat boxes and lines of the organization chart runs in order of
rank from top management to the lowest level of the enterprise.
 7

10. Order: Materials and people should be in the right place at the right time.
People in particular should be in the jobs or positions most suited for them.
11. Equity: Managers should be both friendly and fair to their subordinates.
12. Stability of Staff: A high employee turnover rate is not good for the efficient
functioning of an organization.
13. Initiative: Subordinates should be given the freedom to conceive and carry
out their plans, eventhough some mistakes may result.
14. Espirit de Corps: Promoting Team Spirit and unity, will give the organization
a sense of unity. To Fayol, Even small factors could help to develop this
spirit. He suggested, for example the use of verbal communication instead
of formal, written communication, where ever possible.
1.3.3 HUMAN RELATIONS ERA
The Human Relations Era, also Called Behavioural School emerged because
the Scientific Management principles propounded by classical thinkers like F.W.
Taylor, Henry Fayol, Frank and Lillian Gilbreth did not achieve sufficient
production efficiency and industrial harmony at the work place. Understanding
human behaviour at work still remained a big puzzle for the managers. Therefore,
systematic attempts were made by a few psychologists and sociologists to help
managers understand the dynamics of human behaviour.
The term human relation is used to describe the employer-employee relation in
the organisational context. When the relations are effective employees contribute
their maximum for the achievement of the organisational goals. On the other hand,
human relations are ineffective when morale and efficiency of the workers
deteriorate. They are present at the work place but do not perform. Therefore, to
create effective human relations, it is essential that managers must know why
employees behave as they do and what psychological and sociological factors
motivate them.
1.3.1 Elton Mayo and the Hawthorne Experiments
The Hawthorne Experiments conducted by Elton Mayo and his associates at
the Western Electric Company from 1924 to 1933 provided new insights into the
human behaviour. Many of the experiments were performed at the Western
Electric‘s Hawthorne plant near Chicago. Mayo‘s findings in these experiments
marked the beginning of the human relations era.
The studies attempted to investigate the relationship between the physical
conditions at the workplace and the productivity of workers. The researchers
divided the employees into two groups. One group called as test group was
subjected to changes in lighting. The lighting condition for the other group called
as control group remained constant throughout the study. When the test group‘s
lighting conditions were improved, productivity increased as expected. (What
surprise researchers most was the fact that productivity continued to increase even
when the lighting was reduced). Further, to add the mystery, the control group‘s
 8

output also increased as the test group‘s lighting conditions were changed, though
there was no change in the lighting conditons for the control group. As a result, for
the first time, it was realise that somethign in additon to lighting was influencing
the worker‘s performance.
In another set of experiments, the changes in the performance of a group of
workers were observed by changing the various work related factors such as:
1. Increasing the wages
2. Introducing rest periods; and
3. Reducing the work days and workweek
Workers were also allowed to choose their own rest periods and to have a stay
in all these changes. These experiments revealed that financial incentives alone
were not causing the productivity improvements. It was found that a complex set of
attitudes were responsible for the productivity increase. Employers develop group
norms at the work place. The test and the control group developed some group
understanding that motivated them to perform well. The fact that employees would
work hard if they are convinced that supervisors pay special attention to their
welfare was also made abundantly clear. This is often referred as the Hawthorne
Effect.
Another conclusion of the studies was the informal work groups exist in the
work place. The informal groups help the individuals share common values,
understanding and beliefs. These informal groups exert significant influence on the
employee‘s performance. It is our common knowledge that many a time we find in
the organisations how employees associations and friendships with co-workers
influence their attitudes towards the work and the superiors.
The contribution of the Human Relations Movement is quite significant in that
the individual and the impact of his association with a group had received due
attention. Employee productivity was viewed as a function of the human relations
at work rather than an engineering problem. Elton Mayo‘s studies in fact,
contributed for a thorough change in the attitude and approach towards training.
1.3.4 SOCIAL SCIENCES ERA
1.3.4.1 Chester I. Barnard
Chester I. Barnard‘s contribution is often described as the Social Science Era
in the development of management thought. His book ―The Functions of the
Executive‘is regarded as a classic on management even today. He argued in favour
of looking at the organisations as social systems and analysing the managerial
tasks in the system in which they operate‖. This is a significant departure from the
earlier approaches.
Barnard used his work experience as the chief executive of New Jersey Bell.
Based on his experience and extensive readings in sociology and philosophy, he
had formulated his theories on organisational life. According to him, people come
together in formal organisations to achieve things they could not achieve working
 9

alone. As they pursue organisation‘s goals they also try to satisfy their individual
needs. Thus Bernard arrived at the theme; an enterprise operate efficient and
survive only when both the organisation‘s goals and the need of the individuals
working for it are kept in balance.
According to Barnard, an organisation exists when the following three
conditions are fulfilled.
1. there are persons able to communicate with each other
2. they are willing to contribute to the action; and
3. they attempt to accomplish a common purpose
He has identified three types of functions which an executive performs in an
organisation. These are;
1. maintenance of organisational communication.
2. the securing of essential services from individuals in the organisation so as
to achieve the overall purpose; and
3. the formulation and definition of organisational purpose.
Barnard‘s views on the concept of authority are noteworthy. He does not agree
with the traditional view that authority transcends from the top to down. In his
view, a person does not simply obey an order or directive because it has been given
by a superior. As such, the exercise of authority depends on its acceptance, which
is possible only when an individual,
1. understand the communication;
2. believes that it is not inconsistent with the organisational purpose;
3. believes it to be compatible with his personal interest as a whole; and
4. is mentally and physically able to comply with it.
The contribution of Barnard shows his perception of the organisation as a
social system. His contribution is regarded quite high in management.
Commenting on Barnard‘s book ―The Functions of Chief Executive‖, William Wolf
once said, ―The book is a sociology of management‖. Its style of writing was
purposely pitched at a high level of discourse. He believed that the field of
management was lacking in concepts and was clouded by ambiguous and even
erroneous thinking. In a sense, he hoped that the functions would set things right
and guide the social scientists to more realistic studies of organisation and
management.
Mary Parker Follet (1868-1933) - U.S.A: She strongly believed that
management and labour share a common purpose as members of the same
organization, however the distinction is order givers and order takers. She believed
leadership should not come from the power of formal authority, as was traditional,
but from the manager‘s greater knowledge and expertise. The manager should
simply be the person best equipped to head the group. She believed that the
 10

participative model of management could increase cohesiveness, the sense of

belonging and creativity. The root cause of conflict is desire to dominate. The
tendency of acquire more power to oneself and reluctance to delegate authority are
two consequences of such behaviour pattern. She advocated ‗behavioural
approach‘ in management.
1.3.4.2 Rensis Likert
Rensis Likert is an American Social-Psychologist born in 1903. Likert and his
associates carried out extensive research on management practices in a wide
variety of situations like industrial units, railways, hospitals, schools and voluntary
organisations and covered unskilled workers in factories to top scientists in
research laboratories. He believed that the body of knowledge of social sciences can
pave the way to frame a generalized theory of organisation and management. His
findings provided deep insights into supervision, general management systems and
dynamics of interpersonal relationships.
Likert classified supervisors into two categories: ‗job centered‘ and ‗employee
centered‘. The primary concern of the first category of supervisors is to ensure
performance of assigned tasks and maintenance of prescribed standards. On the
other hand supervisors in the second category are primarily concerned with the
human aspects of their subordinates and effective team-building for high task
performance.
It is argued that high performing managers are humane to their subordinate
and performing managers are compelled to get tough with their subordinates to
achieve better results. To resolve this dilemma, Likert and his colleagues
conducted a series of experiments in which high and low performing managers were
change into each other‘s job. While high performing managers succeeded in
improving the performance of low production units, low performing managers
placed in high production units brought down their output over a span of time.
Management System
The most importance contribution of Likert is his conceptualisation of different
systems of management along a continum. He identifies four distinct points along
the continuum for purpose of illustration of the characteristics of each of the
management systems. He labels these points as
1. Exploitative – authoritative,
2. Benevolent – Authoritative
3. Consultative and
4. Paricipative
The four management systems are then arrayed along the two important
dimensions, the type of authority or control an organisation exercises over its
members is represented as one dimension. The second dimension relates to the
motivational forces used to control the activity of the people.
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The operating characteristics include leadership, motivation, communication,

interaction, influence, decision-making goal-operating characteristics are
juxtaposed over the four types of management systems.
Likert rigidly points out that authoritarian-exploitative management system
displays a steep hierarchical structure, centralized decision-making, top-down
communication, tight supervision, performance under pressure, and low degree of
employee motivation. On the other hand, the participative management system
displays flat structure, group decision processes, open and authentic three-way
communication (up, down and lateral), adaptive supervision, individual and work
groups with a high degree of achievement motivation. The other management
systems 2 and 3 reveal intermediate combination on forms and processes.
The intermediate forms of management systems 2 and 3 will reveal transitory
characteristics of progression from management system from 1 to 4 over a period.
In system - 2 management orientation is still authoritative, but becomes less
exploitative and more benevolent towards the members of the organisation. In
system – 3 exercise of authority is more broad-based with delegation of powers to
middle levels and consultation of affected interests at lower levels. To the extent
motivation, communication and involvement of subordinates replace reliance on
exercise of formal authority, consultative management systems will be well set to
move forward to the management system-4.
1.3.4.3 Douglas McGregor
McGregor proved that reliance on authority as the primary means of control
leads to resistance, restriction of output and indifference to organisational
objectives. His monumental classic ―The Human side of the Enterprise‖ (1960)
marked the watershed in the history of management movement. He questioned the
various models describing man as rational, economic and self-actualising.
McGregor‘s assumptions, on the other hand, about human beings in the form
of Theory X and Theory Y present contrasting nature of man. Theory X revolves
around the Traditional Theory of Human Behaviour. In his own words these
assumptions are as follows:
1. the average human being has an inherent dislike of work and will avoid if he
can;
2. hence most people must be controlled, directed and coerced with
punishment to get them to put forth adequate effort towards the
achievement of organisatinoal objectives;
3. the average human being prefers to be directed, wishes to avoid
responsibility, has relatively little ambition, wants security above all.
Theory Y assumptions on the other hand, hold an optimistic view of human
nature. According to this set of assumptions modern industrial life does not fully
tap the potential of the average human being. They suggest managers should take
advantage of the subordinate‘ willingness and ability to work by providing a climate
 12

for their performance. The assumptions under Theory Y as prounced by McGregor

are as follows:
1. the expenditure of physical and mental effort in work is as natural as play or
rest;
2. external control and the threat of punishment are not the only means for
producing effort towards organisational objectives. People will exercise self
direction and self-control in the services of objectives to which they are
committed.
3. the degree of commitment to objectives is in proportion to the size of the
rewards associated with their achievement;
4. average human beings learn, under proper conditions, not only to accept but
also to check responsibility.
5. the capacity to exercise a relatively high degree of imagination, ingenuity and
creativity in the solution of organisational problem is widely, not narrowly
distributed in the population;
6. under the conditions of modern industrial life, the intellectual potentialities
of human being are only partially utilized.
As can be easily seen, these two sets of assumptions are fundamentally
different. Theory X is pessimistic, statis and rigid. Control is external in that it is
imposed on the subordinate by the superior. In contrast. Theory Y is optimistic,
dynamic and flexible with an emphasis on self-direction. It also advocates the
integration of individual needs with organisational demands.
1.3.4.4 Herbert A. Simon
Herbert Simon is an eminent American social scientist. Born in 1916, he was
awarded the Nobel Prize in Economics in 1978, in recognition of his outstanding
contribution in analysing the Decision-Making Process. He goes to the extent of
equating decision-making with management. He laid emphasis on how decisions
are made and how they can be made more effectively.
In the writings on decision-making, he maintained that to be scientific, one
must exclude value judgements and concentrate on facts, apply rigorous analysis
and test factual statements. Simon viewed an organisation as a structure of
decision-makers. The missing factor, according him, is correct decision-making.
He argued that optimum rational choice between alternative courses of action is
rarely made.
Simon divides the decision-making process into three phases, namely:
1. Intelligence activity: This involves findings occasions calling for decision. The
manager analyses the environment and identifies conditions that need
action;
2. Design activity: Identifying, developing and analysing all possible alternative
courses of action are the important tasks in this stage.
3. Choice activity: Finally, the manager selects one of the alternative sources of
action available to him.
 13

According to Simon, every decision consists of a logical combination of facts

and value propositions. He argues that complete relationality decision-making is
not always possible. He, in fact, disputes the concept of total rationality in
administrative behaviour. Human behaviour is neither totally rational nor totally
non-rational. It involves, to use his own word, ―bounded rationality‖. ―Bounded
rationality‖ and ―satisfying‖ are the two important terms used by him to drive home
the point further. ―Satisfaction‖ involves the choice of a course of action which is
satisfactory or atleast good enough.
Simon aruges that managers do not aim at maximum satisfaction or result
from a decision but are satisfied with reasonably good enough outcome or result. It
is because of the limitations involved in identifying the alternatives, collecting all
the facts and data, knowing the values of all the alternatives etc.
Though some of Simon‘s views on decision-making are widely acclaimed, his
critics point out that social, political, economic and cultural factors did not get due
attention. His theory is criticised as being extremely general and does not provide
the details to guide the managers in decision-making. Inspite of some
imperfections, Simon‘s contribution is undoubtedly a major breakthrough in the
decision-making behaviour of managers.
1.3.4.5 Peter F. Druker
Drucker is a highly respected management thinker. He is a prolific writer and
has published several books and articles on the management practices. He is so
versatile that there is hardly any area in management which is not touched by him.
He has drawn heavily from his consultancy experience spread over the last four to
five decades. Drucker perhaps is the only western management thinker who is
admired by even the socialist block countries also. His views on management may
be summarised as follows:
i. Management as a practice : According to Drucker management has two
important functions: Innovation and Marketing. He has treated management as a
discipline as well as a profession. For him, management is more a practice. It is
always goal oriented. His comment on the purpose of business as the creation of
customer, if understood and in the right way helps any organisation to achieve
success.
Drucker‘s view on innovation are equally important for the emphasis they
place on new product development. He argues that ―new products should drive out
the existing products‖ rather than the other way round. As such, he is against
bureaucratic management for it stifles the innovative spirit and the initiative among
the people in the organisation. He contends that modern organisations are
knowledge based organisation and describes the modern workers as knowledge
workers considering their skills, and innovative abilities.
 14

ii. Functions of management : Drucker points out three basic functions of

management. The actions of management should contribute to,
1. the achievement of purpose and mission of the institution;
2. make the work productive and the worker achieving; and
3. effective management of social responsibilities
iii. Objective setting: Drucker has attached great importance to objective
setting. He has specified that objectives should be set for all the key result areas of
business. To make the objective setting and their achievement more meaningful,
he has given a new tool, what is popularly known as ‗Management by Objectives
(MBO)‘. MBO is regarded as one of his most important contributions to the
discipline of management. He has discussed the concept in great detail in this
book. The Practice of Management‘ (1954). MBO is a process whereby superior
and subordinates jointly identify the common objective, set the results that should
be achieved by subordinates and assess the contribution of each individual. It is
viewed more as a philosophy than as a tool or technique to achieve the objectives.
iv. Orientation towards future : Drucker is a great visionary and futurologist.
He was a head of others in visualizing the future trends that affect the society. He
visualized the concept of modern organisation and its impact on the society several
years ago. His views on the many facets of the modern corporations have almost all
become reality now. To put it in his own words, he described the present age as the
―age of discontinuity‖.
v. Federalism : Drucker has advocated the concept of federalism. Federalism
according to him, involves centralized control in a decentralised structure.
Federalism has certain positive values over other methods of organising. These are
as follows:
1. It sets the top management free to devote itself to major policy formulation
and strategy development;
2. It defines the functions and responsibilities of the operating people;
3. It creates yardsticks to measure twin success and effectiveness in operating
jobs; and
4. It helps to resolve the problem of continuity through giving educational to
the managers of various units while in an operating position.
Drucker‘s realistic way of looking at the organisation and society has earned
him the status of a management guru. His contributions have made tremendous
impact on the management practices all over the world. He is one of the few
contemporary management thinkers who is highly admired in Japan. Similarly, the
contributions of Peter‘s and Waterman who extensively studied a few American
companies known for their excellence in modern management practices is no less
significant. McKinsey consultancy firm‘s contribution of the 7S model for the
management of the firm and Edward eming‘s preachings on Quality Control created
tremendous impact on modern management all over the world in the recent past.
 15

Micheal Porter‘s work on competition strategy turned a new leaf in the strategic
management area. His books on competition strategy suggest the ways and means
that help organisations and nations to gain competitive edge.
1.3.4.6 Trends and Challenges of Management in GlobalScenario
The management functions are planning and decision making, organizing.
leading, and controlling — are just as relevant to international managers as to
domestic managers. International managers need to have a clear view of where they
want their firm to be in the future; they have to organize to implement their plans:
they have to motivate those who work lot them; and they have to develop
appropriate control mechanisms
a) Planning and Decision Making in a Global Scenario
To effectively plan and make decisions in a global economy, managers must
have a broad-based understanding of both environmental issues and competitive
issues. They need to understand local market conditions and technological factor
that will affect their operations. At the corporate level, executives need a great deal
of information to function effectively. Which markets are growing? Which markets
are shrinking? Which are our domestic and foreign competitors doing in each
market? They must also make a variety of strategic decisions about their
organizations. For example, if a firm wishes to enter market in France, should it
buy a local firm there, build a plant, or seek a strategic alliance? Critical issues
include understanding environmental circumstances, the role of goals and planning
in a global organization, and how decision making affects the global organization.
b) Organizing in a Global Scenario
Managers in international businesses must also attend to a variety of
organizing issues. For example, General Electric has operations scattered around
the globe. The firm has made the decision to give local managers a great deal of
responsibility for how they run their business. In contrast, many Japanese firms
give managers of their foreign operations relatively little responsibility. As a result,
those managers must frequently travel back to Japan to present problems or get
decisions approved. Managers in an international business must address the basic
issues of organization structure and design, managing change, and dealing with
human resources.
c) Leading in a Global Scenario
Individual managers must be prepared to deal with these and other factors as
they interact people from different cultural backgrounds.Supervising a group of five
managers, each of whom is from a different regions, is likely to be much simpler
than supervising a group of five managers, each of whom is from a different culture.
Managers must understand how cultural factors affect individuals. How
motivational processes vary across cultures, how the role of leadership changes in
different cultures, how communication varies across cultures, and how
interpersonal and group processes depend on cultural background.
 16

d) Controlling in a Global Scenario

Finally, managers in international organizations must also be concerned with
control. Distances, time zone differences, and cultural factors also play a role in
control. For example, in some cultures, close supervision is seen as being
appropriate, whereas in other cultures, it is not Like-wise, executives in the United
States and Japan may find it difficult to communicate vital information to one
another because of the time zone differences. Basic control issues for the
international manager revolve around operations management productivity, quality,
technology and information systems.
1.4 REVISION POINTS
Development of management thoughts- Pre scientific management era- Human
relation era-Social science era-management science era-Contribution of
management authors trend and challenges of management in global scenario.
1.5 INTEXT QUESTIONS
1. Examine the significance of ‗Hawthorne Studies‘ to the development of
managerial thinking.
2. Assess the contribution of Chester Barnard and Herbert Simon to the
management thought.
3. Discuss the fundamental objectives of scientific management movement.
4. Fayol is considered as the father of modern management theory. Why?
1.6 SUMMARY
Though management has been in practice in some form or other since time
immemorial, the development of a systematic body of knowledge dates back to the
last few decades. Industrial revolution has immensely contributed for the
development of management thought. Over the years, it has drawn heavily from
various disciplines like economics, psychology, sociology, operations research and
so on. The contributions of prominent thinkers who have created an everlasting
impact on management have been discussed in this lesson in detail. An attempt is
made to expose the learner to the historical development of management over the
years.
1.7 TERMINAL EXERCISE
Indicate whether the following statements are True or False.
1. Scientific management is concerned with the application of mathematics to
the practice of management ( ).
2. Henry Fayol is known as the father of modern management theory. ( )
3. Scientific management lays emphasis on the top management functions ( )
4. Hawthorne experiments proved that productivity of the workers depends on
the physical conditions at the work place only ( )
5. Elton Mayo completely ruled out the possibilities of the existence of informal
groups at the work place ( )
 17

6. Herbert Simon is widely known for his thesis that absolute rationality is not
always possible in the decision making ( )
7. Theory X is optimistic of the human behaviour while Theory Y is pessimistic.
( )
8. Hawthorne is the management thinker, who conducted ‗Hawthorne
experiments‘. ( )
9. Unity of command suggests the exercise of multiple commands ( )
10. Resis Likert‘s system,-4 management is highly authoritative. ( )
1.8 SUPPLEMENTARY MATERIALS
1. McGregor, Douglas, 1960. The Human Side of Enterprise, McGraw-Hill, New
York.
2. Terry, George R and Franklin, Stephen G. 1988. Principles of Management,
All India Traveller Bookseller, Delhi.
1.9 ASSIGNMENTS
1. Analyse the contribution of F.W. Taylor and Henri Fayol to the Modern
Management Thought and discuss how they differ in their approach.
2. Among the contemporary management thinkers, Peter F. Drucker, Perhaps,
outshines all‖. Elucidate.
1.10 REFERENCE BOOKS
1. Barnard, Chester, I. 1938. The Functions of the Executive, Harvard
University press, Cambridge.
2. Drucker, Peter F. 1954, The Practice of Management, Harper & Row, New
York.
3. Koontz Harold, O‘ Donnell Cyril, 1984. Management, McGraw-Hill, New
York.
4. Likert, Rensis. 1961. New Patterns of Management, McGraw-Hill, New
York.
1.11 LEARNING ACTIVITIES
1. By conducting group discussion regarding the evaluation of management
thoughts, the technical knowledge of the students can be motivated and
improved.
1.12 KEYWORDS
Development of management thoughts- Pre scientific management era- Human
relation era-Social science era-management science era- contribution of
management authors- Trends and challenges of management in global scenario.


 18

LESSON - 2
BASIC PRINCIPLES AND PROCESS OF MANAGEMENT
2.1 INTRODUCTION
Modern societies are often described as ‗societies of organisations‘. When we
think of any modern society, institutions like business enterprises, hospitals,
religious and social organisations naturally come to our mind. All these
organisations affect our lives in many ways. Despite the differences in their
functioning and approaches, they all strive to the differences in their functioning
and approaches, they all strive to achieve certain objectives. It must also be noted
that organisations cannot achieve the objectives effortlessly. Several activities have
to be performed in a cohesive way. As such, it is the function of the management to
facilitate the performance of activities in a systematic fashion such that the
accomplishment of the objectives becomes possible.
2.2 OBJECTIVES
After studying this lesson, you should be able to:
 understand the nature of management:
 familiarise with the basic managerial functions:
 describe the levels in management : and
 acquire an in depth knowledge of the skills required of a manager.
2.3 CONTENTS
2.3.1 What is Management?
2.3.2 Nature of Management
2.3.2.1 Management as a Science
2.3.2.2 Management as an Art
2.3.2.3 Management as a Profession
2.3.2.4 Professionalisation of Management in India
2.3.3 Functions of Management
2.3.3.1 Planning
2.3.3.2 Organising
2.3.3.3 Leading
2.3.3.4 Controlling
2.3.4 Management Levels
2.3.4.1 Front-line Managers
2.3.4.2 Middle Level Managers
2.3.4.3 Top Level Managers
 19

2.3.5 Managerial Skills

2.3.5.1 Technical Skills
2.3.5.2 Human Skills
2.3.5.3 Conceptual Skills
2.3.1 WHAT IS MANAGEMENT?
Management means many things to many people. Economists regard it as a
factor of production. Sociologists see it as a class or group of persons while
practitioners of management treat it as a process. In simple terms, management is
what a manager does. It has been called by Mary Parker Follet: ― the art of getting
things done through people‖. This definition throws light on the fact that managers
achieve organisational goals by arranging others to perform rather than performing
the tasks themselves.
Management, in fact, is much more that no one single definition has been
universally accepted. Nor can any definition capture all the facets of management,
given its dynamic nature. That is why, it is often said that there are as many
definitions of management as there are authors in the field. However, the definition
given by James A.F. Stoner encompasses all the important facets of management.
According to him.
―Management is the process of planning organising, leading and controlling
the efforts of organisation members and of using all other organisational resources
to achieve stated organisational goals‖. This definition suggests:
1. Management is a process because all managers irrespective of their level in
the organisation, engage in certain interrelated activities in order to achieve
the desired goals;
2. Managers use all the resources of the organisation, both physical as well as
human;
3. Management aims at achieving the organisational goals.
To achieve the objectives, every organisation uses certain inputs like materials,
machinery, money and the services of men. These inputs like are drawn form the
environment in which the organisation exists. Whether an organisation is engaged
in business or non-business, the various inputs are judiciously used to produce the
outlays. This process which involves the conversion of inputs into outputs is
common to all organisations and is shown in Figure2.1
 20

Figure– 2.1
Input – Output Model

TRANSFORMATION OUTPUTS
INPUTS
PROCESS

EXTERNAL
ENVIRONMENT

The output of the firm may be a physical product or service. Since a business
organisation is an economic entity, the justification for its existence lies in
producing goods and services that satisfy the needs of the people. Here question
arises aboutthe effectiveness in transforming the inputs matter of concern for any
society, given the scarcity of resources. Effective management plays a crucial role
in this context.
Management and Administration
Management is the act or function of putting into practice the policies and
plans decided upon by the administration. Administration is a determinative
function, while management is an executive function. Administration makes the
important decisions of an enterprise in its entirety, whereas management makes
the decisions within the confines of the framework, which is set up by the
administration. Administrators are mainly found in government, military, religious
and educational organizations. Management, on the other hand, is used by
business enterprises.
2.3.2 NATURE OF MANAGEMENT
Inspite of the growing importance of management as an academic discipline
immensely contributing to the quality of human life, the concept is still clouded by
certain misconceptions. No doubt, management as an academic body of knowledge
has come a long way in the last few years. It has grown in stature and gained
acceptance all over the world. Yet, it is a paradox that the term ‗management‘
continues to be the most misunderstood and misused.
2.3.2.1 Management as a Science
It is therefore relevant to examine the exact nature of management whether it
is a science or an art. ‗Before arriving at a conclusion, let us understand the nature
of science as well as art. Any branch of knowledge to be considered as science, (like
the ones we have physics, chemistry, engineering, etc.) should fulfill the following
conditions.
1. The existence of a systematic body of knowledge encompassing a wide array
of principles;
 21

2. The principles have to be evolved on the basis of constant enquiry and

examination;
3. The principles must explain a phenomenon by establishing cause-effect
relationship;
4. The principles must explain a phenomenon by establish in cause-effect
relationship;
5. The Principles have to be amenable for verification.
Looked at form this angle, management as a discipline fulfils the above
criterion. Over the years, thanks to the contributions of many thinkers and
practitioners, management has emerged with its own principles. The application of
these principles helps any practicing manager to achieve the desired goals.
However, while using the principles, one should not lose sight of the variables in
the situation, since situations differ from one another. Thus the importance of
personal judgment cannot be undermined in the application of principles. Further,
management is a dynamic subject in that it has drawn heavily from economics.
Psychology, Sociology, Engineering and Mathematics, to mention a few. It is multi-
disciplinary in nature. But a word of caution. Though management, considering
its subject matter and the practical utility, may be considered as ‗Science‘ for
reasons discussed below, it cannot be viewed as an ‗exact science‘. It is a science,
but an ‗inexact science‘ because:
1. Management by definition, involves getting the things done through people.
Compared to the other inputs, ‗people‘, who constitute the human resource
of any organisation are unique in respect of their aspirations, attitudes,
perceptions and the like. Dissimilarities in the behaviour patterns are so
obvious that standard results may not be obtained in otherwise similar
conditions.
2. Secondly, the behaviour of the human beings cannot be accurately
predicted. Hence readymade and standard solutions cannot be prescribed.
3. Thirdly, management is more concerned with future which is complex and
unpredictable. As the saying goes, ‗many a slip between the cup and lip‘.
many variables in the environment may affect the plans and render them
ineffective.
4. Lastly, since a business organisation exists in an environment, it has a two-
way interaction with the environment. The organisation influences the
environment by its several decisions and in turn, is influenced by the
various elements of the environment. Important among these are
technological, economic, socio-cultural and political factors. The whole
thing is so complex that however effective the plans are one is prone to be
taken unaware of unexpected changes in the environment.
Unlike the pure or exact sciences where the results are accurate, in the Case
of Management, the various factors discussed above may force even the excellent
 22

plans and strategies go haywire. Too many complexities and uncertainties renders
management an ‗inexact science‘.
2.3.2.2 Management as an Art
Art refers to the ‗know-how‘ to accomplish a desired result. The focus is on
the ways of doing things. As the saying goes ‗practice makes a man perfect‘,
constant practice of the theoretical concepts (knowledge base) contributes for the
formation of skills. The skills can be acquired only through practice. In a way the
attributes of science and art are the two sides of a coin. Medicine, Engineering,
Accountancy and the like require skills on the practitioners and can only be
acquired through practice. Management is no exception. As an university gold
medalist in surgery may not necessarily turn out to be a good surgeon, similarly a
management graduate from the best of the institutes may not be very effective in
practice. In both the cases the application of the knowledge acquired through
formal education, requires ingenuity, correct understanding of the variables in the
situation, pragmatism and creativity in finding solutions to problems.
Effective practice of any art requires a thorough understanding of the science
understanding it. Thus science and art are not mutually exclusive, but are
complementary. Effectives who attempt to manage without the conceptual
understanding of the management principles and techniques have to depend on
luck and intuition. With organised knowledge and the necessary skills to use such
knowledge, they have a better chance to succeed. Therefore, it may be concluded
that management is both a science and an art.
2.3.2.3 Management as a Profession
Another important dimension of the nature of management is whether it is a
profession. McFarland gives the following characteristics of a profession:
1. existence of an organised and systematic body of knowledge.
2. formalised methods of acquiring knowledge and skills;
3. existence of an apex level body with professionalisation as its goal;
4. existence of an ethical code to regulate the behaviour of the members of the
profession;
5. charging of fees based on service; and
6. a concern for the social responsibilities.
Management as a profession does not strictly conform to the above criterion.
Unlike medicine or law, management has to go a long way to have a universally
acceptable norm of behaviour. There is no uniform code of conduct that governs
the behaviour of managers. The apex level body, All India Management Association
(AIMA) provides only guidelines and does not have any controlling power over the
erring members. Vast differences are also found among managers in respect of
their concern for the ethics and values of the system in which they function. Many
a time, in their obsession with profit, the societal interests are neglected. However,
as in the case of other professions, if is implied that managers are expected to set
 23

an example in doing good to the society. After all, given the enormous resources
they have at their command, the expectation that managers should address
themselves to the problems of society is not unnatural.
Compared to other professions like engineering, medicine, accountancy, etc.,
the entry to management positions is not restricted to individuals with a special
degree. To quote Peter Drucker, ‗no greater damage could be done to an economy
or to any society than to attempt to professionlize management by licensing
managers, for instance, or by licensing managers, for instance, or by limiting access
to management to people with a special academic degree‘.
The question whether management is a profession often breathes life into the
widely debated issue ‗whether managers are born or made‘. It is true that many
founding fathers of the industry in India and elsewhere too, did not study
management in the formal way. The native wisdom coupled with their vision and
ingenuity in organising the enterprises helped them earn name and fame. Huge
industrial empires were built with sheer business acumen. Business history of any
nation is fully replete with many rags-to-riches stories. The success achieved by
the pioneers in these cases amply demonstrate that success in business requires
much more than the academic degree.
The achievements of the pioneers of the industrial development need not,
however, shadow the importance of management as a profession. In arguing for and
against, we must not ignore the context of the business. There has been a sea
change in the environment of the business. Modern business has become more
complex due to the uncertainties arising mainly from:
1. rapid technological changes
2. increased sophistication in technology
3. expansion in the size of organisations and consequently the markets.
All these variables which have a significant bearing on the functioning of a
business point to the need for formal training and acquisition of skills in
management by pursuing management education.
2.3.2.4 Professionalisation of Management in India
In the last few years, management as a profession has gained a firm footing in
India. The awareness about the contributions of professional managers has been
increasing. Consequently, there has been a manifold increase in the number of
institutes offering MBA and related diploma courses. There has also been a
phenomenal increase in the number of students seeking admission into the
management programmes.
The following factors seem to be mainly responsible for the growing demand for
professional managers:
1. The liberalisation policies pursued by the government opened up new vistas
for the Indian organisations;
 24

2. As a consequence, competition has increased in all the sectors of Indian

economy:
3. Private industrial houses which were indifferent before, have fully realised
the need for professional managers. While the promoters in many cases
reserve the policy formulation for themselves, the day-to-day managerial
activities are entrusted to the professional managers.
4. Public sector undertakings are also. of late, forced to perform. As a result,
qualified managers are sought after by PSU‘s than ever before.
5. Apart from the manufacturing concerns, public utilities like transport,
telecommunications, and a host of service organisations are recruiting
professional managers in a big way.
2.3.3 FUNCTIONS OF MANAGEMENT
Management is widely regarded as a process. A manager no matter what his
level is in the organisation, performs a series of functions. Surprisingly, there is no
consensus among the management thinkers on the classification of management
functions. The number of functions as well as the terminology used to describe
them are not alike. Henry Fayol identifies five functions, viz., planning, organising,
commanding, coordinating and controlling. For instance, Newman and Summer
recognise only four functions, namely organising, planning, leading and controlling.
Luther Gulic‘s popular catch word POSDCORB suggests seven functions, namely,
planning, organising, staffing, directing, coordinating, reporting and budgetting,
Koontz and O‘Donnel classify the functions into planning, organising, staffing,
directing and controlling. For the purpose of our study, we shall examine the
following four functions of management planning, organising, leading and
controlling.
2.3.3.1 Planning
Planning in simple is outlining a future course of action. It is unique in that it
precedes all other managerial functions. It attempts to capture the future. It
involves deciding the objectives and formulating the policies and procedures to
achieve them. Effective planning provides answers to questions like-what to do?
How to do? who is to do> and when to do?
Planning is a function performed by managers at all levels. However, plan
made by top managers have a wider scope with a focus on the organisation as a
whole and normally cover a longer period. On the other hand.plans developed by
middle and lower level managers relate to the divisions or departments and usually
cover a short period. Systematic planning helps in facing the uncertainties of future
with less embarrassment. It helps in making things happen in the expected way.
2.3.3.2 Organising
Organisations achieve objectives by using physical and human resources.
When people work in groups, everyone in the group should know what he is
expected to achieve and what reporting relationship he has with others. The
 25

manager‘s task in organising aims at creating a structure that facilitates the

achievement of goals.
Organising involves:
1. determination of activities required to achieve goals; - grouping of these
activities into department;
2. assignment of such groups of activities to a manager;
3. delegation of authority to carry them out: and
4. provision for coordination horizontally and vertically in the organisation.
It must be remembered that the structure varies with the task. A large
organisation with huge markets needs a different structure compared to a small
organisation. Similarly, structure of an organisation operating in a stable
environment may be different from the one operating in a dynamic environment.
The way one goes about in organising the affairs of the organisation, is thus
influenced by the size and nature of the activities involved, the type of environment,
and the overall business strategy.
2.3.3.3 Leading
Once plans are finalised and the structure of the organisation is determined,
the next step is to help the people achieve the objectives. This involves directing or
leading the activities of the people. The manager directs the achieve of his
subordinates by explaining what they have to do and by helping them perform it to
the best of their ability. In leading the people, the manager performs the following
three distinct tasks;
Communication the process of passing information from one person to another:
Leadership the process by which a manager guides and influences the
work of his subordinates; and
Motivation the act of stimulating the people so that they give their best to
the organisation
Leading is a function predominantly interpersonal in nature. In the
organisational context many problems arise because of the failure of managers to
understand the people, their aspirations, attitudes, behaviour as individuals and in
groups. If the manager fails in leading the people towards better performance, any
amount of planning and orgarising, however effective they are, may not help the
organisation.
2.3.3.4 Controlling
While plans of the organisation spell out the objectives to be achieved, control
as a managerial function facilitates to know whether the actual performance is in
conformity with the planned one. So that, in the event of deviations, appropriated
corrective measures can be taken.In the absence of adequate control
mechanism.unexpected changes in the environment may push the organisation off
 26

the track. Thus, controlling implies measuring and correcting the activities to
assure that events conform to plans. It involves four main elements:
1. establishing standards of performance;
2. measuring the actual performance and comparing it against the standard
performance:
3. detecting deviations, if any in order to make corrections before it is too late;
and
4. taking appropriate corrective measures.
2.3.4 MANAGEMENT LEVELS
Though the term ‗manager‘ is used to mean anyone who gets the things done
through other people, we find the managers in any organisation with varying
authority and responsibilities. In any company the total management job requires
many skills and talents. Obviously, therefore, the job of manager is divided and
subdivided. Such an arrangement implies different levels of management. As a
matter of custom and convenience, we normally visualise a company‘s management
as a pyramid as shown in figure.2.2
Figure– 2.2
Levels of Management

TOP LEVEL MANAGEMENT

MIDDLE LEVEL MANAGEMENT

FRONT-LINE / SUPERVISORY
MANAGEMENT

The above three levels of management that are commonly found in any
organization.
2.3.4.1 Front-Line Managers
This is the entry level job in the management. Managers at this level direct the
operating employees (workers). They are close to the action, for their job involves
supervising the activities of operatives. Front-Line managers are called foreman,
supervisor, and inspector and so on in any organisation.
2.3.4.2 Middle Level Managers
Middle level management includes, in many organisations, more than one
level. Managers who work at all the levels between the lower and top levels
constitute the middle management. Departmental heads, Regional managers,
 27

Zonal managers and so on fall in this category. They report to top managers. Their
principal responsibilities are to direct the activities of lower level managers who
implement the organisation‘s policies.
2.3.4.3 Top level Managers
This level consists of a small group of executives. Board of Directors,
Chairman, Managing Director and the top functional heads and divisional
managers comprise this level. Top managers are responsible for the overall
management actively of the organisation. They decide organisational objectives,
policies and strategies to be pursued to achieve those objectives. They provide
direction to the organisation by guiding the organisation‘s interactions with its
environment.
2.3.5 MANAGERIAL SKILLS
Management job is different from other jobs. It requires elements of
stewardship and commitment to the purpose. It involves the obligation to make
prudent use of human and material resources. It requires resourcefulness and
capacity for judgement to handle complex situations. For purpose of analysis,
skills required of any manager are classified under three different heads – technical,
human (Employee relations skill) and conceptual skill as shown in figure2.3. The
exhibit helps in understanding the levels of management responsibility, the
principal skill requirements, and the extent to which each kind of skill is required
at each level.
Figure–2.3
Management Levels and Skills

TOP
MANAGEMENT

MIDDLE
MANAGEMENT

LOW
MANAGEMENT

TECHNICAL HUMAN CONCEPTUAL

SKILL SKILL & DESIGN
SKILL

2.3.5.1 Technical Skill

Technical skill is the ability to use the procedures, techniques, and knowledge
of a specialised field. It is primarily concerned with the ways of doing the things. It
implies proficiency in a specific field of activity. Technical skill is most important
for the lower level managers because by nature their job involves supervision of the
workers. Effective supervision and coordination of the work of the subordinates,
therefore, depends on the technical skill possessed by the lower level manager. Any
supervisor without a sound knowledge of the job cannot make an effective
 28

supervisor. Such supervisors are not respected by the subordinates at the shop
floor. The relative importance of the technical skill as compared to the other skills
diminishes as one moves up to higher levels of management.
2.3.5.2 Human Skill
Human skill is the ability of manager to work effectively as a group member
and to build cooperative effort in the team he leads. It is the ability to work with,
understand and motivate people. This skill is primarily concerned with persons, as
contrasted with ―things‖. When a man is highly skilled in employee relations, he is
aware of his own attitudes, assumptions, and beliefs and recognizes their
limitations as well as their usefulness. He accepts as an important fact of life the
existence of viewpoints and feelings different from his own. He understands why
people behave as they do and is able to make his own behavior understandable to
them. He can foresee their reactions to possible courses of action and, is able to
take their attitudes into account. His skill in working with others is natural and
continuous. He does not apply it in random or in inconsistent fashion. It is a
natural ingredient of his every action.
2.3.5.3 Conceptual Skill
This skill is also called design and problem –solving skill. It involves the ability
1. to see the organisation as a whole;
2. to understand how its various parts and functions mesh together; and
3. to foresee how changes in any one of these may affect all the others.
Conceptual skill extends to visualising the relation of the organisation to
industry, to the community and to the political, economic and social forces of the
nation as a whole and even to forces which operate beyond the national
boundaries. It is the creative force within the organisation. A high degree of
conceptual skill helps in analysing the environment and in identifying the
opportunities and threats. Managements of companies like ITC, Larsen & Toubro,
Asian Paints, Bajaj Auto in the private sector and National Dairy Development
Board in the public sector to mention a few have amply demonstrated this skill in
gaining a competitive edge over their competitors.
All the three types of skills discussed so far are not mutually exclusive. In
other words, management job always requires all the three skills but in different
proportions depending upon the level of management. There is a gradual shift in
the emphasis from the bottom to the top of the pyramid. Technical skill and
human skill are always in the top of the pyramid. Technical skill and human skill
are always in greater demand at the base of the pyramid, for it is there the
productive processes and operations are carried out. It is there where you and
most of the people. It is there where the action takes place. The need for
conceptual skill is greatest at the peak of the pyramid. Obviously, the top
managers are not often involved in the direct application of specific methods,
procedures and techniques than those at the lower echelons of management.
 29

Although, each of these skills is needed in some degree at every level of

management, there are successful executives who have no great amount of
technical skills. But they are able to compensate the lack of that skill through
superior creative ability and skill in selecting, planting and effectively motivating
subordinates who are strong in technical skill.
As you have understood by now, at every level, management job is different
from all other jobs in respect of the skills required. At the entry level into the
management job, that is, at the supervisory level, besides technical skills, you have
to realise the need to acquire human skill and the problem – solving skills
(conceptual). To climb up the organisational ladder, you must not only be good at
the skills required for the present job, but also learn and acquaint yourself the
skills required at the next level. As a result, in the event of promotion to the next
higher level, you would feel at home and discharge the responsibilities with ease.
2.4 REVISION POINTS
Definitions of administration and management - Basic principles and process
of management-management functions- managerial skills
2.5 INTEXT QUESTIONS
1. Differentiate administration and management.
2. What are the essential skills required for a manager?
3. Elaborate the major functions of management?
2.6. SUMMARY
Organisations engaged in business or non-business use the inputs to produce
the output (may be products or service). The conversion of inputs into outputs
depends on the effectiveness of management. Management as a discipline has both
the elements of science and art. The theory with principles and techniques
constitute the science and art. The theory with principles and techniques
constitute the science component, while skills and talent required for the use of the
principles constitute the art. Management has, of late, emerged as highly respected
profession. The process of management is understood under the four basic
functions, viz., planning, organising, leading and controlling. To execute the
managerial job successfully, every manager requires three types of skills –technical,
human and conceptual skills. The proportion in which these skill are required
varies from one level to the other. Technical skills are important at the lower while
human skills and conceptual skills are required in that order at higher levels of
management.
2.7. TERMINAL EXERCISE
Write short notes on the followings
1. List out the components of management skills.
2. List out the different functions of management
 30

2.8. SUPPLEMENTRAY MATERIALS

1. http://www.differencebetween.net/business/difference-between
management-and-administration/
2. https://www.scribd.com/doc/45883443/Principles-of-Mangement-MG2351
2.9. ASSIGNMENTS
1. What do you mean by a profession? Examine the recent trends towards
professionalisation of management in India.
2. Present a detailed account of the levels of management that are commonly
found in any large scale organisation. What are the important skills at each
level?
2.10. REFERENCE BOOKS
1. http://www.ebookbou.edu.bd/Books/Text/SOB/MBA/MBA_1301_full.pdf
2. http://2012books.lardbucket.org/pdfs/management-principles-v1.0.pdf
2.11. LEARNING ACTIVITIES
Traditional Manager or Professional Manager
1. Case Study
Mr. Ravi a brilliant young man obtained his MBA degree from an Indian
University in 1991 with specialisation in the area of finance. His basic degree is
B.E. in Chemical Engineering. The engineering background coupled with the
management education aroused in him new spirits to strike on his own. Careful
and systematic analysis of the various opportunities enabled him finally to zero in
on the production and marketing of polythene bags that are increasingly used by
fertiliser and cement industries. The location of a fairly good number of units of
these two industries in the South influenced his decision of the product choice.
The fact that technology involved is not complicated or volatile further reinforced
his belief about the market potential.
To reap certain locational advantages, he preferred to set up the unit in a fast
growing district headquarters town in Tamilnadu connected with a good network of
transport and communication facilities. But the cost of land as well as its
availability became a problem. With the limited funds at his disposal he could not
afford to buy land and construct the unit which involved the commitment of
substantial portion of his meager funds. On enquiry he came to know of certain
sick units in the industrial estate in the outskirts of the town, which had ceased to
function for sometime in the past. The machinery in a few such units having been
already auctioned, the sheds were available for sale/lease. This opportunity came
in handy for Mr. Ravi. He took on lease one such shed and spent about one lakh to
effect a few changes to suit his requirements.
He started contacting the suppliers for the plant and machinery. He is
confident of obtaining financial assistance to meet the fixed as well as working
capital requirements of the business. But at the same time, he is also confused of
the multiplicity of organisations/agencies that have come up to cater to the needs
 31

of small-scale entrepreneurs. He doesn‘t have adequate knowledge of the

assistance available and the incentives offered by all these agencies. Further, even
though he doesn‘t foresee any problems in the technical aspects relating to
production, he is rather apprehensive of marketing the product. The demand for
his product, being a derived one, is influenced by two factors one, the demand for
fertilisers, cement and other bulk commodities and two, the extent of the success
made in replacing the gunny bags which are still in wider use. To add to his
bother, Government of India, of late, has made use of gunny bags mandatory to
protect the jute industry which has been languishing and is likely to vanish.
However, all these problems could not deter the spirit of Mr.Ravi who is fully
determined and bent on going ahead.
1. Is Mr. Ravi, a professional manager? Substantiate your answer with the
characteristics of a professional manager.
2. Does Mr. Ravi face any problem? If so, analyse the problem.
3. Has he acted in a professional way in analysing the environment before
taking a decision? How could he have averted the problem?
2.12. KEYWORDS
Administration - management - principles - functions of management-
planning- organizing- coordinating-directing-controlling- human relation skill-
technical skill- conceptual skill.

 32

LESSON – 3
PLANNING
3.1 INTRODUCTION
Most of us plan many things in our day to day lives. We plan to go on a
holiday trip, plan our careers, plan our investment and so on. Organisations are no
exception and lot of planning is done by managers at all levels. Thus individuals
and organisations both need to plan. Planning is the basic process by which we
use to select our goals and determine the means to achieve them. Lot of
information has to be gathered and processed before a plan is formulated. In other
words, a plan is like a jigsaw puzzle. All the pieces have to be put together
properly, so that they make sense.
Planning is necessarily forward looking. It is looking into the further. It
bridges the gap between where we are and where we want to go. Let us look at
what the following observations suggest about planning.
1. ―Planning is outlining further course of action in order to achieve on specific
objective‖.
2. ―Planning is looking ahead‖
3. ―Planning is getting ready to do something tomorrow‖
4. ―Plan is a trap laid down to capture the future‖
3.2 OBJECTIVES
After studying this lesson, you should be able to:
 understand the nature and purpose of planning;
 acquaint with the important principles of planning; and
 describe the basic steps in planning;
3.3 CONTENTS
3.3.1 Purpose of Planning
3.3.1.1 To Achieve Objectives
3.3.1.2 ToMake the Things Happen
3.3.1.3 ToCope with Change
3.3.1.4 To Control the Events
3.3.2 Principles of Planning
3.3.2.1 Take Time to Plan
3.3.2.2 Planning can be top Down and Bottom Up
3.3.2.3 Involve and Communicate to all those Concerned
3.3.2.4 Plans must be Flexible and Dynamic
3.3.2.5 Evaluate and Revise
 33

3.3.3 Steps Involve in Planning

3.3.3.1 Establish Goals
3.3.3.2 Establish Planning Premises
3.3.3.3 Decide the Planning Period
3.3.3.4 Develop a Course of Action
3.3.3.5 Develop Derivative Plans
3.3.3.6 Review Periodically
3.3.1 PURPOSE OF PLANNING
Needless to say that in the absence of planning, events are left to change. As a
manager, in such a case, you are depending on luck. You may, as a result, in all
probability, end up in chaos. Organisation often fail not because of lack of
resources, but because of poor planning. The following factors further highlight the
importance of planning.
3.3.1.1.To Achieve Objectives
While developing a plan, you have to ask yourself a few questions:
1. Why am I making this plan?
2. What am I trying to accomplish?
3. What resources do I need to execute the plan?
These questions, obviously, force you to be clear about the objectives, the time
frame required to achieve them and the resources required. It forces you to
visualise the further in an organised manner.
The saying that ―when a man doesn‘t know what harbour he is making for, no
wind is the right wind‖ is quite appropriate in the case of planning. Systematic
planning, thus, starts with a clear statement of objectives. All the important inputs
necessary to achieve the objectives are carefully thought of including the
uncertainties of the future.
3.3.1.2 ToMake the Things Happen
Effective manager is rather pro-active. He takes the initiative to make the
things happen in the desired way. In any modern business, the interests of many
people are at stake. The shareholders, employees, creditors, consumers and the
government are the major interest groups in any organisation. Further, the
interests and expectations of all these groups are varied and at times are in conflict.
If the management fails to achieve, the interest of these groups are affected and the
whole exercise results in heart-burns. As a result, you will be forced to indulge in
fire-fighting activity.
Therefore, your job as a manager, is to foresee the future and predict the
consequences of actions. In other words, you have to look down the road into
future and prepare yourself to meet the uncertainties and the eventualities a head.
 34

A well thought out plan solves many of the problems associated with the uncertain
future.
3.3.1.3 ToCope With Change
Both human beings and organisations are products of environment. The
ability to deal with the environment enabled many an organisation to survive,
despite other weaknesses. Alert managements continually tune in to the
environmental forces. On the other hand, managements which fail to adapt would
eventually fall on the way side. Therefore, in the managerial job, you have to
constantly analyse the impending changes in the environment and assess their
impact on your business.
For instance, business environment in 1990s totally different from that of
1970s and 1980s. The liberalisation policies pursued by the government have, of
late, brought in too many changes. Markets are shifting due to increased
competition, pressure on the resources is increasing, expectations of the employees
as well as the consumers are changing, product life-cycles are becoming shorter
due to rapid technological changes. All these changes exert a tremendous pressure
on the management.
Certain changes will throw open new opportunities while certain others affect
the very survival. If you are not prepared, you will definitely be in trouble. Since
environmental scanning is an important element in planning, plans are normally
formulated on the basis of a thorough analysis of the environment. Necessary
flexibility is built in the plans to meet the unexpected changes. Effective planning
thus shows the preparedness of the organisation to manage the change. It helps
the organisation to keep itself afloat even in the worst circumstances.
3.3.1.4 To Control the Events
Planning and control are often described as the Siamese twins of management.
When you plan the events, you expect them to happen in a particular way.
Therefore, it goes without saying that you need some mechanisms to know whether
the events are happening in the way expected. Planning is important in that it
provides the necessary yardsticks to measure the performance. It ensures the
events to conform to plans. Thus, if you do not plan (no clear objectives), you do
not know whether you are reaching the goal or not. You do not know what to
control. Control assumes significance in a dynamic environment as of today, where
several forces push you away from the desired path. Appropriate control devices
help you to check the course from time to time so that you will be able to keep
yourself into the track.
3.3.2 PRINCIPLES OF PLANNING
Effectiveness in planning depends on the understanding of the following
principles. They are relevant to planning the activities of any organisation whether
business or non-business. A thorough understanding of the principles underlying
the planning, therefore, would enable you to guard yourself against the possible
mistakes that are often committed by many managers.
 35

3.3.2.1 Take Time to Plan

Any plan is a decision regarding a future course of action. It specifies the
sequence of events to be performed. It involves the commitment of organisational
resources in a particular way. Therefore, if the plan is not conceived well, the
resources would be put to wrong use. It becomes a wasteful exercise resulting in
frustration. Hence utmost care has to be exercised in formulating the plans.
Several probing questions have to be asked. Planning in haste with incorrect
information, unsound assumptions and inadequate analysis of the environment
has to be avoided by all means. Otherwise, you may save some time in quickly
developing a plan, but in the event of things going wrong, you are hard pressed for
time and resources to correct yourself.
3.3.2.2 Planning can be Top Down and Bottom Up
Normally in any organisation overall enterprise plans are developed by the top
management. These plans are wider in scope and provide the direction to the
whole organisation. They spell out what the organisation wants to achieve. The
overall plan thus formulated by the top management is split into departmental
plans. Accordingly, plans for production, marketing, finance, personnel and so on,
stem from the basic plan of the organisation. The other operational plans at
various levels down the organisation flow from the departmental plans. This
approach is called top-down approach to planning.
On the other hand, proponents of bottom up approach argue that top
management needs information from lower level - that is, about the realities at the
ground level in terms of strengths and weaknesses. In this approach, the initiative
for planning comes from the lower levels in the organisation. This approach makes
use of the rich experience of the subordinates who are close to the action. It also
helps to motivate the people and elicit commitment from them. The choice of the
method depends on the size of the organisation, the organisational culture, the
preferred leadership style of the executive and the urgency of the plan.
3.3.2.3 Involve and Communicate With All Those Concerned
Operations in modern business organisations are highly interrelated.
Organisational plans affect many departments in the enterprise. For instance, a
plan to improve the quality of the products (Quality control plan) may require the
cooperation of the people in the production, finance, marketing departments and so
on. It is therefore, desirable to involve the concerned people in these departments.
Such a participation helps in instilling a sense of commitment among the people.
They also in turn gain a sense of pride for having been a party in deciding the plan.
Such an involvement makes possible the process of sharing information. If plans
are not communicated to all those affected by them, there may be unnecessary
gaps in the execution.
3.3.2.4 Plans must be Flexible and Dynamic
You would be very happy as a manager if there are no unexpected changes in
the environment. Day in and day out, you are confronted with too many problems.
 36

Most of such problems are caused by unexpected events in the environment. A

plan is rigid if there is less scope for a change in its course. In a static
environment, of course, there may not be a problem with a rigid plan. But in a
dynamic environment, to meet the unexpected changes, adequate flexibility has to
be built into a plan. Otherwise the plan itself becomes a limiting factor.
3.3.2.5 Evaluate and Revise
Evaluation of the plan at regular intervals is necessary to make sure that it is
contributing to the objectives. Like a navigator, who in the high seas checks the
course to make sure that he is sailing in the right direction, the manager has to,
from time to time look back and evaluate the plan. Such an exercise enables to
initiate the corrective measure at the right time before it is too late. This depends
on the accuracy of the information systems in the organisation through which
information reaches the management.
3.3.3 STEPS INVOLVING IN PLANNING
The process of planning may be understood as having the following steps:
3.3.3.1 Establish Goals
Planning begins with decisions about what the organisation wants to achieve
over a period of time. The goals of an organisation and its various subunits have to
be decided and spelt out in clear terms. It is always desirable to express the goals
in quantitative terms for all the key areas of the business like production, profit,
productivity, market share, employee relations, social responsibilities, etc. For
instance, instead of saying that the objective of business is to achieve a fair rate of
return on the investment, it may be given a quantitative expression, say 10 or 15
percent return on the investment. Specific goals enable the organisations to use
the resources effectively.
Since goal setting is the essential first step in planning, managers who fail to
set meaningful goals will be unable to make effective plans. If Bajaj Auto is able to
retain its prominence in the two wheeler industry (Scooter segment), it is because
all the employees of the organisation know clearly that the primary objective is
retaining the leadership in the industry.
An awareness of the opportunities and their evaluation in the light of the
organisational strengths and weaknesses is essential to set the goals in a realistic
way. The mission of the organisation, the corporate values, experience, policies of
other enterprises, observation and data secured from research and experiences
provide adequate guidance to the managers in goal setting.
3.3.3.2 Establish Planning Premises
Since plans operate in the future, it is imperative to make certain assumptions
about the future. This act is called premising. Planning assumptions or premises
provide the basic framework in which plans operate. Appropriate assumptions
have to be made on various aspects of the environment – both internal and external
to the organisation.
 37

i. Internal premises
Important internal premises include sales forecasts, policies of the
organisation, skills, attitudes and beliefs of the people, the resources of the
organisatin.
ii. External premises
External premises relate to all those factors in the environment outside the
organisation. They include technological changes, general economic conditions,
government policies and attitude towards business, demographic trends, socio-
cultural changes in the society, political stability, production costs and their
behaviour, degree of competition in the market, availability of various resources
and so on.
It is evident that some of these premises are tangible while others are
intangible. For example; resources, availability, etc. are tangible factors which can
be stated in quantitative terms. On the other hand factors like political stability,
attitudes of the people, certain of the sociological factors are intangible in that they
cannot be measured quantitatively.
Effective premising - the market of appropriate assumptions helps the
organisation to identify the favourable and unfavourable elements in the
environment. Though accurate premising is difficult, anticipating future situations,
problems and opportunities to the extent possible is an essential part of planning.
3.3.3.3 Decide the Planning Period
How far in the future should a plan be made is another pertinent questions in
the process of planning.Business vary in their planning periods. In some cases
plans are made for a short period, varying from a few months to an year, while in
some other cases, they are made to cover a longer period, to cover a period of more
than a year. The period may extend upto 5-20 years and even beyond. Companies
normally plan for a period that can be reasonably anticipated. The lead time
involved in the development and commercialisation of the product and time
required to recover the capital investment (pay-back period) influence the choice of
the length of the plan.
3.3.3.4 Develop Alternatives and Select the Course of Action
The next logical step in planning involves the development of various
alternative courses of action, evaluating these alternatives and choosing the most
suitable alternatives. Objectives may be achieved by different courses of action
(alternatives). For example; technical know-how may be developed by in-house
research, collaboration with a foreign company or by trying up with a research
laboratory. Technical feasibility, economic viability and the impact on the society
are the general thumb rules to select the course of action. The alternative courses
are evaluated in the light of the premises and the overall goals of the organisation.
3.3.3.5 Derivative Plans
The plan thus decided after a thorough analysis of various alternatives
suggests the proposed course of action. To make it operational, it has to be split
 38

into departmental plans. Plans for the various operational units within the
departments also have to be formulated. The plans thus developed for the various
levels down the organisation are called derivative plans. For instance, production
and marketing of 10,000 units of a product and thus achieving a return of 10
percent on the investment may be the enterprise‘s plan relevant for the whole
organisation. Its effective execution is possible only when specific plans are
finalised for the various departments like production, marketing, finance, personnel
and so on with clear-cut objectives to be pursued by these departments.
3.3.3.6 Review Periodically
Success of the plan is measured by the results and the ease with which it is
implemented. Therefore, provision for adequate follow-up to determine compliance
should be included in the planning work. To make sure that the plan is
contributing for the results, its review at regular intervals is essential. Such a
review helps in taking corrective action. If necessary, when the plan is in force.
It is an irony that at times even the best of the plans may flounder inspite of
careful analysis and mental commitment. So as to avoid the ‗pitfalls‘ in planning
make sure of the following:
1. set realisation and achievables goals;
2. communicate the assumptions on which plans are formulated to all the
people and departments concerned;
3. encourage and make people participate in the planning programme so as to
ensure the right commitment;
4. ensure proper coordination between the short-term and along-term plans.
They should not be viewed as mutually exclusive;
5. encourage creativity in planning. Creativity helps in identifying the best
alternatives; and
6. pay attention to the resources position of the organisation so as to ensure
the availability as and when required.
3.4 REVISION POINTS
Planning- Nature and significance of planning - Steps in planning - Making of
effective planning
3.5 INTEXT QUESTIONS
1. What are the characteristics of planning?
2. Describe the important steps in the formal planning process.
3. What are the features of good plan.
4. What are the benefits and limitations of planning.
3.6 SUMMARY
Planning is the most fundamental responsibility of a manager. Planning is
deciding a future of action. It helps in setting the objectives, to make the events
happen, coping with the change and to control the events. Effective planning is a
 39

process and involves a few logical steps. The process includes goal setting,
promissing, identification of the alternative courses of action and selection of a
course of action after a vigorous analysis of the pros and cons. However, successful
implementation and achievement of results depend on the degree of participation
and commitment of the people of various levels in the planning exercise, in the
absence of which plans would remain as wishful statements.
3.7 TERMINAL EXERCISES
Write short notes on the followings
1. Purpose of planning
2. Any one step in planning
3.8 SUPPLEMENTARY MATERIALS
1. https://www.scribd.com/doc/45883443/Principles-of-Mangement-MG2351
2. http://www.ebookbou.edu.bd/Books/Text/SOB/MBA/MBA_1301_full.pdf
3. http://2012books.lardbucket.org/pdfs/management-principles-v1.0.pdf
3.9 ASSIGNMENTS
1. In the absence of planning, things are left to change. What significance does
this statement hold in the present day business context? Discuss.
2. Planning and control are the twins of management. Explain the relationship
between planning and control with suitable examples.
3.10 SUGGESTED READINGS
1. Dale, Ernest. 1973. Management: Theory and Practice, McGrawHill,
Newyork.
2. Drucker, Peter F. 1974. Management: Tasks, Responsibilities, Practices,
Harper & Row, New York.
3. Koontz, Harold and Cyril O‘Donnel. 1976 Management: A system and
Contingency Analysis of Managerial Functions: McGraw-Hill NewYork.
4. Massie, Joseph L. 1971. Essentials of Management, Prentice Hall,
Englewood cliffs, N.J.
5. Terry, George R and Franklin, Stephen. G. 1988. Principles of Management.
All India Traveller Bookseller, New Delhi.
6. Steiner, George A. 1969. Top Management Planning, Macmillan,NewYork.
 40

3.11 LEARNING ACTIVITIES

Bajaj Auto: Corporate Mission and ObjectivesMission
1. Case Study
Be a relevant and responsible corporate citizen by –
1. serving as a catalyst in the creation and sharing of wealth and prosperity
with every constituent of our business environment.
2. orienting company policies to be in consonance with national priorities and
social needs.
3. adopting work ethics inspired by integrity and excellence.
4. providing the best value for money in our products and services, and
5. fulfil an ambition to be the biggest and the best in every endeavour
undertaken.
Objectives
Productivity and Growth:
1. Continuously generating new ideas in designing, planning, research and
development and value engineering leading to quantum jumps in
productivity.
2. Optimum utilisation of production capacity by minimising wastage, rejection
and re-work and maximising efficiency of man and equipment.
3. Sustaining minimum annual growth of 20% in real terms by mechanisation,
automation, methods and productivity improvement and better utilisation of
existing man power.
4. Developing a long term and fruitful relationship with vendors for:
a. Obtaining raw materials and components of finest quality at
competitive cost.
b. Achieving faster development of new features and models.
c. Increasing off-loading of parts and operations.
5. Adhering to high standards of safety and cleanliness thus ensuring an
environment of beauty and joy.
Research and Development
1. Establishing our leadership in the design of two and three wheelers. Where
foreign know how is required, the aim would be early self-reliance.
2. Continuing product upgradation and aspiring for development of atleast one
new model every year.
Human Resource
Strengthening the sense of belonging in all employees and sustaining their
pride in being associated with the company. Recognising and rewarding individual
merit and contribution while emphasising team spirit and healthy competition.
 41

1. Stressing discipline and diligence, innovation and creativity, superior

performance and professional integrity leading to increased job satisfaction.
Creating a corporate culture of dignity, character and competence.
2. Developing an efficient team of personnel by providing training at various
levels and grooming deserving personnel for higher responsibility.
3. Marketing
4. Promoting sales aggressively while providing excellent after-sales-service
through a network of trained personnel.
5. Increasing exports by remaining internationality competition.
6. Social Welfare
7. Caring for the well being of our employees by providing canteen, medical,
sports, cultural, educational and other facilities.
8. Encouraging employee education programmes so as to develop respected
and responsible citizens.
9. Contributing to the national cause by promoting family welfare and
community and rural development schemes.
Adopted from : Chopra, BSKS., 1989. Cases in Corporate Planning, Time
Research Foundation, (Pune).
Case study analysis and presentation regarding this real business scenario
helps the students to gather knowledge regarding planning.
3.12 KEYWORDS
Planning- premises - Steps in planning – derivatives- periodical reviews

 42

LESSON – 4
TYPES OF PLANS
4.1 INTRODUCTION
Planning is so pervasive in every organization that it touches every part or
segment of the organization. One common ingredient of all planning is time – the
period in future that a plan covers. Based on the length of time involved, plants are
usually classified as strategic and operational plans. Strategic plans are designed
to meet the board objectives of the organisation – to implement to mission that
provides justification for the organisations existence. Operational plans provide
details as to how strategic plans will be accomplished. We will discuss strategic
planning and proceed to operational planning.
4.2 OBJECTIVES
After studying this lesson, you should be able to:
 distinguish between strategic planning and operational planning.
 comprehend how strategic planning is useful for the organisation‘s long-
term survival;
 different types of plans that are formulated in organizations.
4.3 CONTENTS
4.3.1 Strategic Planning
4.3.1.1 Anticipates Future Opportunities and Threats
4.3.1.2 Provides Clarity of Purpose and Direction
4.3.2 Operational Planning
4.3.3 Types of Plans
4.3.3.1 Missions or Purpose
4.3.3.2 Policies
4.3.3.3 Procedures
4.3.3.4Rules
4.3.3.5Programmes
4.3.3.6Budgets
4.3.1 STRATEGIC PLANNING
The terms corporate planning, long-range planning and strategic planning are
used synonymously by many authors. Strategic planning has its origin in military
organisations where such planning envisaged a variety of contingencies that may
arise when large forces move into operation. When viewed in this backdrop,
strategic planning in a business organisation envisages a comprehensive study of
the various external and internal parameters that affect a company in charting a
course of action to achieve the goals.
 43

George Steiner has defined strategic planning as ―the process of determining

the major objectives of an organisation and the policies and strategies that will
govern the acquisition, use and disposition of resources to achieve those
objectives‖. Strategic plans reflect the socio-economic purpose of the organisation
and the values and philosophy of the top management. In simple, they relate the
organisation to the environment in which it operates by providing answers to the
basic questions like:
1. Where are we now?
2. Where do we want to go? and
3. Why do we want to go?
They help the management in:
1. coping effectively with future contingencies.
2. providing an early opportunity to correct mistakes.
3. making decisions about the right things at the right time; and
4. understanding what actions to take in order to shape the future as desired.
Strategic planning has been in vogue in the west since long. In India,
multinational corporation made a beginning in this direction. Other Indian
companies (private and public sector) have also realised the importance of strategic
planning, thanks to the changed realities in the last few years. As a result every
company has now begun to speak in terms of corporate mission, strategic planning
and organisational vision. These have almost all become buzz words of the Indian
Corporate sectors in 1990‘s. Strategic planning serves the following two functions:
4.3.1.1 Anticipates Future Opportunities and Threats
Business environment is changing so fast these days that a deliberate
corporate effort is called for to keep a tab on the broad spectrum over which
changes occur. The changes that occur may be precursors of future threats and
opportunities. The investment in a large business enterprise today runs into
hundreds of crores of rupees. During this period many things may change. Take
for instance, the case of the Tata power company. They proposed a 500 MW power
station in 1972. The proposal kept shuttling between officialdom for 5 years before
it was approved in 1977, but not before the change of government. The project
went through so many hurdles and was eventually commissioned in 1983, a full 11
years since it was mooted. In the meantime cost had escalated to nearly 3 times
the original estimate. This case demonstrates the need for close monitoring of the
potential threats in the environment.
Just as threats can be reasonably anticipated so too can the opportunities.
For instance, when the crude oil prices where hiked in 1973, by the OPEC
countries it created a havoc on petro-based industries. Automobile companies as a
result were forced to change to small fuel efficient cars. In this case, the threat was
converted into an excellent opportunity. Small car, thus has become the fashion of
the day. Similarly ITC in India, continuously hounded by excise levels and taxes on
 44

their main product, cigarettes – had to think of diversification into hotels, paper,
agro products and acqua-culture - which ultimately turned out to be a God sent
opportunity.
4.3.1.2 Provide Clarity of Purpose and Direction
With the overall increase in the size of companies, the internal departments
(production, marketing, finance, personnel etc.) have also become quite large. With
growing specialization in each of these areas, these departments are prone to
become watertight compartment giving rise to inter-departmental rifts.
It is not unusual for instance, marketing department to ask the production
department to shorten their production runs to cater to demands of various models
which is normally resisted by the latter. Similarly, the design department may
often specify certain change in the product which may raise the cost of production.
The finance department may try to block any measure that increases the cost of
production.
In such a situation, corporate objectives spelt out clearly help in smoothening
out some of the interdepartmental conflicts. Thus, strategic planning provides
unity of purpose and direction, the much emphasised management principle.
The process of strategic planning in any organisations is similar to the general
planning process which has been discussed in Lesson – 3. However the emphasis
on strategic planning is more on long-term objectives, goals, purpose or mission,
rather than the day-to-day issues of management. The objective is to keep firm
afloat in the long-run in the light of the several unforeseen contingencies that lie
ahead in future. The following are the important steps in the process of strategic
planning.
1. deciding the corporate mission and broad objectives;
2. gathering and analysis information;
3. conducting a resource audit (analysis of strength, weaknesses in the light of
the opportunities and threats);
4. identifying strategic alternatives; and
5. making the choice (selection of the right strategy)
The manager‘s success lies in understanding the trends in the environment.
The trends contain signals and give clues about the potential opportunities and
impending threats. Many organisations have paid a heavy price for their failure to
draw the right meanings from the signals. Therefore what is required is ―the ability
to read the writing on the wall‖.
Take the case of the public sector giant, HMT which prided itself, for a long
time on its dominance in the Indian wrist watch market. The company was in an
upbeat mood and failed to understand the shift in the consumer preference towards
the more trendy, sleek quartz watches. In the meantime TITAN had entered the
market with a wide array of products and began to give HMT a run for its money.
TITAN with its innovatives marketing strategies has, no doubt, changed the face of
 45

the Indian watch market so much that HMT is infact struggling hard to face TITAN.
This is only one of the several examples of failures in strategic planning in the
contemporary business world.
Technological, economic, sociological and political changes in the environment
are so extensive and affect so many activities of an enterprise that is essential to
keep their effects in mind. Failure to read the changes and complacent attitude on
the part of management costs the firm dearly. There are numerous examples,
where yesterday‘s leaders have become today‘s non-entities solely because of their
failure to adapt to the changing realities.
4.3.2 OPERATIONAL PLANNING
While strategic planning is the prerogative of the top management which is the
highest policy making body in any organisation, operational planning is done at the
lower levels. Strategic planning is mostly concerned with the ―Why‖ of the things
whereas operational planning is concerned with the ―How‖ of the things – that is
the knitty – gritty of achieving the things.
The focus in strategic planning is on long-term while it is short-term in
operational planning. Further, planning is less detailed in the former because it is
not involved with the day-to-day operations whereas it is more detailed in the latter.
Tactical planning is the other name used to describe operational planning.
Strategic planning provides guidance and boundaries for operational
management. Effective management, therefore, must have a strategy and must
operate on the day-to-day level to achieve it. At times both may overlap. However,
they should not be viewed as mutually exclusive because operational planning
identifies the major activities to achieve the objectives of strategic planning. For
example, if the strategic plan is to face competition with new and innovative
products, major tasks to achieve this goal would be clarified by operational
planning. The possible tasks at the operational level include:
1. Strengthening the research and development department;
2. Motivating the people to work on new products; and
3. Creating a climate in the organisation where people are willing to take risks.
In the implementation of strategic plans, it is common that certain
departments have far more to do than others. In the above example, in order to
bring out new products the operational aspects of the R & D department‘s work
culture, and the incentives systems to motivate the people need attention.
4.3.3 TYPES OF PLANS
Planning by definition involves deciding a future course of action. Different
types of plans are developed by an organisation, namely mission, strategies and
policies, Procedures, rules, programmes and budgets. All these refer to a future
course of action. However, some variances in respect of the scope and operation
are found in the implementation. Some are single-use plans while some others are
standing plans. They are discussed below:
 46

4.3.3.1 Mission or Purpose

The terms mission or purpose are often used interchangeably. An
organisation‘s mission statement includes, its philosophy and basic purpose for
which it exists. It establishes the values, beliefs, and guidelines that the
organisation holds in high esteem. Mission statement suggests how an
organisation is going to conduct its business. It defines the basic intentions of the
firm. A clear definition of mission or purpose is necessary to formulate meaningful
objectives.
Answers two important questions are provided by the mission statement :
what is our business? and what should it be? These questions force the
management to define their customers and their needs.
The essence of Corporate mission or purpose can be understood from the
IBM‘s philosophy, as enunciated by Thomas Watson, its founder way back in
1960‘s.
1. Respect for the individual;
2. We want to give the best customer service of any company in the world; and
3. We believe that an organisation should pursue all tasks with the idea that
they can be accomplished in a superior fashion.
It is interesting to note that almost 30 years after Watson stated these threee
basis beliefs, IMB‘s present chairman stated: ―We have changed our technology,
changed our organisation, changed our marketing and manufacturing techniques
many times, and we expect to go on changing. But through all this change, those
three basic beliefs remain. We steer our course by those stars‖.
4.3.3.2 Policies
Koontz and O‘ Donnel define policy as ―a general statement or understanding
which guides the thinking and action in decision-making. Policy is a one time
decision. When decisions are to be made, managers consult the policy relevant to
the decisions. Policy stipulates how an activity has to be performed. It provides the
basic framework within which managers operates. Policies exist at all levels in the
organisation. Some may be major company policies affecting the whole
organisation while others may be minor or derivatibve policies affecting the
functioning of departments or sections within the departments.
Policies may be very clear and explicit. Good policies are flexible, easy to
interpret and consistent with overall objectives of the organisation. Policies are laid
down by the management for all the important functional areas. As such we hear
about production policies, financial policies, marketing policies and personnel
policies, to mention a few. For instance, in the personnel area, specific policies may
be formulated for recruitment, training, compensation, etc. Accordingly, whenever
the need for recruitment arises, the personnel manager consults the existing
recruitment policy of the company and initiates the steps necessary to fill the
vacancies. Thus it is evident that the personnel manager operates within the broad
policy of the company in recruiting the people. Thus policy, is a one time standing
decision that helps the manager in making day-to-day decisions in their operational
areas.
 47

4.3.3.3 Procedures
Another term that is frequently heard in any organisation in ‗procedures‘. The
term sounds of some bureaucratic element where issues are finalized only after
they undergo a long drawn scrutiny. But procedures, if simple and clear would
ensure order in the performance of operations. Though procedures exist at all
levels in an organisation, they are more detailed at the lower levels. In common
parlance, they are called ‗Standard Operating Procedures‘ (SOPs).
Procedures for placing orders for material and equipment, for sanctioning
different types of employee leave, for handling grievances at the shop floor level,
etc., to mention a few, suggest how each of these has to be handled. Policies and
procedures are closely interrelated. For instance, a company may follow time-
bound promotion policy to promote people from within. But the operational part of
the policy is specified by the procedure – the formalities to be fulfilled to effect the
promotion are dictated by the procedure.
4.3.3.4 Rules
A rule is also a plan, but the simplest type of plan. Rules are plans in that
they suggest the required actions. A rule requires that a definite action has to be
taken in a particular way with respect to a situation. Some definiteness is
associated with rules. For examples, ‗no smoking‘ is a rule. No deviation is
normally allowed from the rule. The essence of a rule is that it reflects a
managerial decision that certain actions be taken – or not be taken.
Rules should not be confused with policies and procedures. Policies contain
some operational way or discretion while rules allow no discretion in their
application. Similarly, procedures though different from rules may contains rules.
For example, there may be a procedure to enable customer grievances in respect of
post-sale service. The procedure may contain a rule that free service is available
only for a period of two years after the sale.
4.3.3.5 Programmes
Terry and franklin define programme as ―a comprehensive plan that includes
future use of different resources in an integrated pattern and establishes a
sequence of required actions and time schedules for each in order to achieve stated
objectives‖. Thus, a programme includes objectives, policies, procedures, methods,
standards and budgets. For instance, launching ‗Prithvi‘ satellite is a programme
‗Jawahar Rojgar Yojana‘ is a programme. The essential ingredients of any
programme are ‗time phasing‘ and budgeting. It implies that specific dates are
prescribed for the completion of various phases of a programme. Adequate
budgetary provisions are made for financing the programme. Programmes may be
major or minor. For instance, a company may embark upon modernisation
programme of the plant and machinery and other manufacturing systems in a big
way. By all means such an effort is a major programme. Similarly a large
organisation may start computerising all its activities. On the other hand,
modernisation of all equipment in some section of the factory and computerisation
 48

of a particular operation in a certain department may be considered as minor

programmes.
4.3.3.6 Budgets
Budgets are plans in that they contain statements of expected results in
numerical terms. A budget is a quantitative expression of a plan. It specifies the
future course of action as laid down by a plan. In fact, budgeting is a planning
device. It is the fundamental planning instrument in many companies.
Organisational budgets vary in scope. Master budget which contains the
consolidated plan of action of the whole enterprise is in a way the traslated version
of the overall business plan of the enterprise. Similarly, production budget
represents the plan of the production department. Again, capital expenditure
budget, raw material budget, labour budget, etc. are a few minor budgets in the
production department.
One of the advantages of budgets is they facilitate the comparison of actual
results with the planned ones by providing yardsticks for measuring performance.
Zero-based budgeting, a recent innovation in budgeting practices makes planning
more complete. It emphasises the need to examine every commitment afresh in
terms of decision packages.
Making Effective Planning
Planning has to be precise and effective for the success of the organization
Planning and organizing your work every day in organization will reduce the
idle time and accurate in the work. Your planning tool will provide direction for
your work efforts and allowing you to complete this most complicated tasks first.
Learning to prioritize you work responsibilities and use efficient time – management
skills enhances your planning.
Koontz and O‘ Donnell, has explained 6 important points for effective planning.
1. Create climate for planning: Conduciveclimate must be provided so that
activities proceed smoothly and systematically and as planned.
Planning must not be left to chance. A stepwise sequence needs to be created
so that top managers are able to remove obstacles to planning.
This can be achieved establishing clear-cut goals, realistic planning premises
and offering required information and appropriate staff assistance at various levels
as and when required.
2. Support from the top management: Since planning is pervasive in nature
the concept of planning must be started at the top levels of the organizations.
In other words, the planning cannot be initiated until and unless the top
management supports these concepts and provides continuous attention.
They must be willing to extend a helping hand, whenever required.
3. Equal Participation: Plans can only be supplemented if the employees
acknowledge this concept and are ready to participate in the whole
 49

processes. So it is necessary t secure acceptance and commitment from each

and everyone in the organization.
One way to increase commitment is to encourage subordinates participation in
the planning process. Planning comes alive when employees are involved in setting
goals and determining the mean to reach them.
4. Proper communication: Nothing can be possible in the organization until
and unless there is a proper and a well developed communication network
hence goals premise‘s and policies must be properly communicated to people.
People must know what they are supposed to do, when, how and where. The
time limits must also be communicated in advance.
5. Integration: All the plans that home been formulated must be properly
balanced and integrated with the organizational mission statement. they
must support each after and should not work at cross purposes. Every
attempt should be made to ensure that there is minimum wastage of the
efforts and the resources so that the pay-offs of planning are more than the
cost involved,
6. Strict monitoring: Plans must be subjected to regular and appraisal in view
of the dynamic nature of the environment that includes both the internal as
well as external changes. The best way to enable proper monitoring is by
keeping the plan flexible to extent possible.
4.4 REVISION POINTS
Operational Planning - Strategic planning - Different kinds of plans -
advantages - policies - rules - procedures
4.5 INTEXT QUESTIONS
1. Briefly describe the following types of management plans :
a. Policies b. Procedures c. Programmes d. Budget
2. Discuss elaborately various types of plans.
3. Distinguish between strategic planning and operational planning.
4.6 SUMMARY
Any plan is a future course of action. It facilitates the achievement of goals.
Different types of plans are formulated in any organisation. Though all the plans,
by whatever name they are called, involve a future course of action, they differ in
respect of the length of time, relative importance and the level at which they are
more relevant. Strategic plans provide the direction to the organisation and
concerned with the achievement of organisational mission where as operational
plans are concerned with the day-to-day managerial activities. The various types of
plans namely policies, procedures, rules, pogrammes and budgets plans are also
discussed.
 50

4.7 TERMINAL EXERCISES

Self-Assessment Test
From what you have understood in this lesson, respond to the following by
indicating T/F (Stands for True or False),
1. Strategic planning is wasteful exercise because future cannot be predicted
accurately.( )
2. Strategic planning is another name for long-range planning. ( )
3. Strategic plans and operational plans are independent of each other. ( )
4. The emphasis in operational planning is achievement of corporate mission( )
5. Strategic planning is usually done by top management ( )
6. Operational plans are more concerned with day-to-day managerial
operations ( )
7. A policy is a standing plan ( )
8. Budget is a plan prepared only by the government ( )
9. Rules offer great flexibility in the implementation ( )
10. Success in business depends on luck, no matter how you plan ( )
4.8 SUPPLEMENTRAY MATERIALS
1. https://www.scribd.com/doc/45883443/Principles-of-Mangement-MG2351
2. http://www.ebookbou.edu.bd/Books/Text/SOB/MBA/MBA_1301_full.pdf
3. http://2012books.lardbucket.org/pdfs/management-principles-v1.0.pdf
4.9 ASSIGNMENTS
1. Present the business strategy of any organisation that you are familiar with.
Could you offer a better strategy?
2. ―The importance of strategic planning is now fully realised by the Indian
Corporate sector than before‖. Discuss.
4.10 SUGGESTED READINGS
1. Chopra, BSKS. 1988 Business policy for Indian Industries Times Research
Foundations, Pune.
2. Gleuck, William F. 1980 Business policy and strategic Management Mc
Graw Hill, New York.
3. Koontz, Harold and others, 1984 Management McGraw-Hill, Tokyo.
4. McCathay, Danil J, and others 1987 Business policy and strategy: concepts
and readings, Richard D. Irwin Inc. Ithinosis.
5. Steiner George, 1969, Top Management planning. Macmillan, NewYork.
6. Terry, George. R. and Franaklin, Stephen. G. 1988. All India Traveller
Bookseller, New Delhi.
 51

4.11LEARNING ACTIVITIES
Case study will enhance the problem solving and planning capacity among the
student community.
1. CaseStudy
Fairdeal Company vs. Government
In line with the Government, of India‘s liberalisation policies, the State
Government of Andhra Pradesh, to woo the NRI investment, a few years back,
permitted the Fairdeal Company, promoted by an NRI to manufacture chemicals.
The factory was set up in 1988, at a place 5 kms. West of the city of Vijayawada, a
fast growing city in Andhra Pradesh on the banks of river Krishna. The State
Government in return for a guarantee of year round employment for atleast 5000
persons, offered an attractive package of incentives to the company which include:
1. Sales of 50 acres of land to the company at a nominal price of Rs. 1
thousand an acre:
2. Constitution of a building to Fairdeal‘s specifications with the company
repaying the building cost in equal annual payments over a 20 year period
with annual interest of 10 percent on the unpaid balance; an
3. No state Government levies for 10 years.
The company with a gestation period of 3 years went on stream in 1991. For
two years 1991-92 and 1992-93, the company did not make any profit and it was
only in the last financial year (1993-94), the company posted some profit.
Subsequent to the establishment of the factory in 1988, contrary to the
expectations of the city planners, the city has grown westward during the last 4-5
years. To cope with the growth needs, the urban development authority (called
Vijayawada Urban Development Authority, VUDA) has undertaken several civic
plans in the vast areas on the western side of the city. One of the plans include the
development of a park featuring boating and picnic facilities centering around the
river Krishna. VUDA has embarked on a detailed study of the prospects of
developing the whole area into a premier tourist centre. In the study it was found
that the chemical plant was discharging effluents into the river in a big way
contaminating the river water.
In the wake of the plan to develop the area into a tourist spot considering the
scenic beauty of the place, VUDA required the company to install special equipment
to neutralise the waste materials now emptied into the river. Company engineers
estimated the cost of waste treatment at Rs. 2 crores for equipment and Rs. 5
lakhs for annual operating costs. The management of the company contends that
the expenditure is well above the affordable limits. The Fairdeal‘s chairman states
that insistence on such an outlay by the Government would force the company
abandon the plant and locate it elsewhere. He further points out that the company
has fulfilled every requirements of the initial agreement reached when the decision
was made to set up the plant. For example, the company as met all the required
payments, and since opening the plant has never employed fewer than 6000
 52

persons – which accounts for nearly 5 percent of the employment in the organised
sector of the city. The chairman also points out that the building is specially
designed built for the company‘s particular type of chemical manufacturing. It is
not an all purpose building and can be utilized only by a firm such as theirs. The
available trends both at the national and international levels shows that the
company has a bright future.
However, the Government taxes the view that the initial deal was offered to
help the company in getting established. With nominal land, cost, favourably
financed building cost and availability of labour in the area, the company should
have volunteered itself. The company is part of the community and therefore
should assume its social obligations as such. Pouring waste into a public stream is
harmful and simply cannot continue. Also, in the opinion of the government
officials, he threat of the company to abandon its plant is a pure bluff. A suitable
land and building elsewhere at today‘s prices would cost several times more than
the present one, leave alone loosing a well trained work force.
1. How does this problem relate to modern management planning?
2. Develop a set of tactical plans for the Fairdeal company.
3. What solutions do you offer to overcome the present impaise?
4.12 KEYWORDS
Operational Planning - Strategic planning - Different kinds of plans -
advantages - policies - rules - procedures.

 53

UNIT – II
LESSON– 5
POLICY FORMULATION
5.1 INTRODUCTION
Decision making is the primary task of a manager. While making decisions, it
is common that managers consult the existing organisational policies relevant to
the decisions. Thus, policies are, intended to provide guidance to managers in
decision-making. It has to be remembered that a policy is also a decision. But it is
a onetime standing decision in the light of which so many routine decisions are
made.
5.2 OBJECTIVES
After studying this lesson, you should be able to:
 understand the importance of policies;
 describe the basic sources of policies in the organizations;
 familiarize with the steps in the policy formulation; and
 identify the key areas where policies are needed.
5.3 CONTENTS
5.3.1 Importance of Policies
5.3.1.1 Furnish the Framework for Decisions
5.3.1.2 Assure Consistency in Operations
5.3.2 Types of Policies
5.3.2.1 Originated Policies
5.3.2.2 Appealed Policies
5.3.2.3 Implied Policies
5.3.2.4 Externally Imposed Policies
5.3.3 Principles of Policy Making
5.3.4 Process of Policy Formulation
5.3.5 Basic areas of Policy Making
5.3.5.1 Production
5.3.5.2 Marketing
5.3.5.3 Finance
5.3.5.4 Personnel
5.3.1 IMPORTANCE OF POLICIES
5.3.1.1 Furnish the Framework for Decisions
Policies provide the broad framework within which decisions are to be make.
In the absence of appropriate policies, managerial decision-making may be
analogous to ―Reinventing the Wheel‖ every time. For example; a policy that
 54

vacancies caused by the retirement have to be filled only by internal promotions

greatly helps the manager in filling the vacancies. Whenever vacancies arise, he
simply goes by the existing promotion policy of the organisation. Sound policies
thus save lot of time in decision-making and avoid confusion.
5.3.1.2 Assure Consistency in Operations
Since policies specify the boundary conditions of decisions, it goes without
saying that when decisions are actually made, they conform to the policy relevant to
the decision. Thus, decisions relating to a particular operational area of the
business tend to be consistent. If the policy of an organisations is to face
competition with quality products, the emphasis naturally will be on issues relating
to improving the quality of the product. All the decisions that affect the product
quality are normally taken in the light of the explicit policy. Policies developed
carefully and understood perfectly result in consistency in planning. As a result,
organisational resources would be deployed in those areas where they find a better
use.
5.3.2 TYPES OF POLICIES
Policies come about in any organization in different ways. Based on their
source, koontz and O‘donnel have classified policies under the following types.
5.3.2.1 Originated Policies
Originated policies are the result of top management decisions. To guide the
actions of the subordinates, top management formulates policies for the important
functional areas of business such as Production. Marketing, Finance, personnel
and so on. These policies basically stem from the organizational objectives. They
may be broad or specific depending on the centralization or decentralization of
authority. If they are broad, they allow the subordinated some operational freedom.
On the other hand if they are specific they are implemented as they are.
5.3.2.2 Appealed Policies
At times a manager may be in dilemma whether he has the authority to take a
decision on a particular problem. There may not be precedents to guide him. In
such a case, he appeals the matter to his superiors for their thinking. Thus,
appeals are taken upwards till they reach the appropriate level in the hierarchy for
a decision. The decision taken by the higher-ups, thus becomes a ruling. For
example; during festival seasons, the manager at the branch level may be in a
dilemma to offer discount to the customers. There may not be any explicit policy to
guide him. But to meet competition in a particular market situation where
competitors offer discounts, top management, on the basis of an appeal made by
the branch manager may allow him to offer discount. Unless otherwise stated, it
becomes an unwritten policy and guides the manager‘s decision-making in all such
future situations.
5.3.2.3 Implied Policies
As in the above case, there may not be specific policies for all the
contingencies. Managers draw meanings from the actions and behavior of their
 55

superiors. In a particular situation, a manager may go all out to help a customer

who is in a difficult situation. If customer service is on top of the agenda of the
organization, there may not be any objection from the top management to the stand
taken by the lower level manager in support of the customer. Though there is no
explicit policy, managers may assume it in a particular way and go about in their
day-to-day operations.
5.3.2.4 Externally imposed Policies
These are the policies imposed by the agencies in the external environment
like government, trade unions, industry associations, consumer councils, etc.,
These agencies, to protect the interests of the respective groups may lay down
certain policies to be followed by the business. As the interaction of the business
with external environment is increasing. One can find many policies thus coming
into being in any modern business. For instance, the recruitment policy of the
organisation is influenced by the government‘s policy towards reservations to
weaker sections. Anti-pollution measures, concern for the quality of the product
and customer service also fall in this category.
5.3.3 PRINCIPLES OF POLICY MAKING
Policies help to ensure that all units of an organization operate under the same
ground rules. They facilitate coordination and communication between various
organizational units. This is possible because policies make consistency in action
possible. In view of the importance of policies in guiding executive behavior, they
have to be formulated carefully. In fact, policy formulation is one of the important
executive responsibilities. Effectiveness of policies, therefore lies in understanding
the following principles underlying policy formulation.
(i) Define the Business
Correct definition of the business provides clarity to the policies. Two
questions have to be asked in this regard, what is our business? What kind of
business are we in? Many businesses have failed because they did not attempt to
seek answers to these simple and basic questions. Gramophone record companies
for long did not realize that they are in the entertainment business. Hence they are
now here in the corporate history. To define the business, a company must take a
close look at its basic operations and analyze its major strengths and weaknesses
in all the functional areas like marketing, product development, finance, and public
relations. Such an exercise enables the enterprise to correct it weaknesses, if any,
and to capitalize on its strengths.
(ii) Assess Future Environment
Further environment of the business has to be forecast. A realistic estimate of
the future trends in matters relating to technology, economic and market
conditions, political stability, etc. is essential for policy formulation. As many
people would agree, forecasting is a difficult task. Instances are not rare, where the
best of the forecasts turned out to be just intentions. It is interesting to note that
sometimes products which were predicted to be instant failures by the so called
 56

market surveys proved to be run-away successes. The ‗Syntax‘ water tank is a

classic example where the product defined the gloom predicted by the market
research. However, examples of this sort are few and far between.
(iii) Ensure availability of Resources
Formulating policies in an ambitious way without regard to the ground
realities lands you in trouble. You would encounter too many problems while
implementing the policies. As a result, policies do not serve the intended purpose.
For example, if the policy of the organisation is to cash in on the new opportunities,
it does not mean that you can enter any field thrown open by the government. You
have to assess yourself as to how strong you are in terms of resources required.
Otherwise it amounts to overstretching.
(iv) Communicate the Policies
The chief objective of many policies is to help managers in decision-making
and to ensure consistency in action. As such, policies have to be communicated to
all those who are to take decisions. The policy of the organization towards
competition, for instance has to be communicated to the people in the marketing
department. Otherwise there will not be proper synchronization between the policy
and action.
5.3.4 PROCESS OF POLICY FORMULATION
As mentioned earlier, the basic intention of policies is to help executive
thinking in decision-making. Policies are formulated for all the key functional areas
of business like production, marketing, finance, personnel and so on. Effectiveness
and consistency of decisions in all these areas depend on how well the policies are
formulated and understood. A policy is a plan. Therefore, the steps involved in
policy formulation are similar to the steps in planning. Though policies vary, in
respect of scope, the process of policy formulation usually involves the following
steps.
(i) Corporate Mission
Corporate mission specifies the purpose for which the organization exists. It
is natural, therefore that all the activities of the organization exists. It is natural,
therefore that all the activities of the organization are geared towards the
achievement of the mission. The mission statement provides the direction to the
organization. As such, thorough understanding of the corporate mission is the
starting point for policy formulation.
(ii) Appraisal of the Environment
Integration of the organization with the environment is the key function of the
management. The nature of environment and the various forces in it that affect the
business have to be analyzed. It includes collection of relevant information from
the environment and interpreting its impact on the future of organization.
(iii) Corporate Analysis
While the focus in environmental appraisal is on the external factors of the
business, corporate analysis takes into account the internal factors. Corporate
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analysis discloses strengths and weaknesses of the organization and points out the
areas that have potential.
(iv) Identification of Alternatives
The above two steps – Environmental appraisal and Corporate analysis
popularly known as SWOT (strengths, weaknesses, opportunities and threats)
analysis will help identifying the alternative policies. For example, the objective of
the organization is expansion. This may be achieved by several ways.
Diversification of the activities, acquisition of existing organizations, establishment
of subsidiaries abroad and so on. Again, if diversification is chosen, it has to be
decided whether it is into related or unrelated to business. The alternative policies
thus identified have to be evaluated in the light of the organizational mission and
objectives.
(v) Choice of the Right Policy
This stage involves choosing the right policy from among the several police
options that suits the organizational objectives. The Corporate history, personal
values attitudes of the management the compulsions in the environment and if any,
influence the choice of the policy.
(vi) Policy Implementation
Once the policy is decided, necessary steps have to be taken for its
implementation. Effective implementation of the policy requires design of suitable
organizational structure, developing and motivating people to contribute their best,
design of effective control and information systems, allocation of resources, etc. At
times, policies may have to be revised in line with the changes in the environment.
To make good any inadequacy at the time of making the policy, or to adopt to the
changes in the business environment, policies like plans have to be monitored
constantly during the implementation stage.
5.3.5 BASIC AREAS OF POLICY MAKING
As mentioned earlier, policies are normally formulated for all the key areas of
the business. Some of the important areas for which policies are required are
discussed here.
5.3.5.1 Production
In the area of production, make or buy decision is an important policy. For
instance, automobile companies buy many accessories and parts from outside
rather than making those parts themselves. Thus type of policy enables the
organisation to concentrate on the basic product. However, if depends largely on
the resources of the organization and capabilities.
Another important policy pertains to the production run. The volume of
output depends on the production run. The demand for the product in terms of the
orders, costs of tooling, economies of scale are some of the factors that influence
the production run. Some companies choose to produce to order, while some
companies may produce in anticipation of demand. During slack season, there are
companies which produce some fill-in-products to make good use of the facilities.
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Issues relating to innovation, new product development and diversification are the
other important aspects which require policy direction.
5.3.5.2 Marketing
As the business world has become increasingly competitive, marketing has
acquired tremendous importance in the recent times. Peter Drucker regards
innovation and marketing as the two important functions for every business. The
success of any organization depends on how strong it is in these two basic
functions. In the functional area of marketing, answers to certain basic questions
help in formulating the policies. The questions include:
1. Who are our customers and what do they buy?
2. Why do they buy our product?
3. What do we offer in relation to our competitors?
4. What supporting services do we offer? and
5. What is the price to be charged?
Appropriate answers to these questions help in deciding the product, pricing,
distribution and promotional policies of the firm. Among these, pricing policy is of
utmost significance. Issues relating to how to face the competition are resolved
with a sound pricing policy. For instance, whether to indulge in price competition
or non-price competition are the two basic issues in this regard. In the former
case, the firm meets competition by cutting the prices while in the later,
competition is met by promotion, advertising and after sales service, etc. The
emphasis is on non-price variables.
5.3.5.3 Finance
Financial aspects normally set the limits to the expansion of the business.
Necessary steps have to be taken to raise the funds. The required funds for the
business may be furnished by the owners or borrowed from outside sources. The
actions of management with regard to procurement, utilization and distribution of
funds are guided by the broad policies laid down for the management of funds.
Important policy decision pertains to the proportion of the equity to debt
capital. The relative merits and demerits in raising the funds through equity and
debt have to be examined. Further, in the case of a going concern, funds may also
be raised through retaining a portion of the profits in the business. This in turn
influences the dividend policy of the organisation.
Working capital management is another area which requires policy direction.
Adequate working capital is essential for any business for maintaining credit and
meeting obligations. Policies regarding working capital vary form company to
company depending on the size and nature of the business. For instance, public
utility concerns with regular cash collection may need less working capital than
those engaged in the manufacture of specialised machines. Similarly, a company
operating on strictly cash basis requires less working capital than one operating on
predominantly credit sales.
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Policies relating to the distribution of profits of the business are equally

important. This is usually influenced by factors including – the desire of the
shareholders, the company‘s future plans of expansion, availability of other sources
of obtaining capital, the urgency of the need for additional capital and availability of
reinvestible profits. If multinational companies like Hindustan Lever, Brooke Bond,
Colgate etc., enjoy tremendous investor clout and emerged as blue chip companies,
it is because of investor friendly policies relating to dividends and frequent
capitalization of resources.
5.3.5.4 Personnel
Any organization can be as effective as the people in it. Many problems in the
organizations are obviously people related in nature. It is, therefore needless to say
that sound personnel polices ensure good employer- employee relations.
Important policies in this area relate to recruitment and training,
compensation and other employee benefits and the attitude of the management
towards labor unions. All these policies are normally influenced by factors such as
skills required at various levels, the attitude of the people towards work and the
philosophy of the management. On the whole, good employee – oriented personnel
policies encompassing the above mentioned issues would contribute to employee
motivation and morale.
5.4 REVISION POINTS
Importance of Policy Making- Types of Policies- Policies Making In Functional
Areas like Finance - Production, Marketing - Personnel
5.5 INTEXT QUESTIONS
1. Discuss the importance of policies and how they assure consistency in
decision-making.
2. Discuss the important steps in the policy formulation.
5.6 SUMMARY
Policy formulation is one of the important responsibilities of the executive.
Policies provide the broad framework within which decisions are made by the
managers in handling various day-to-day problems. They also assure consistency
in managerial decision-making. Based on the source through which policies come
into being in the organisations, they are classified into originated, appealed, implied
and externally imposed policies. Thorough analysis of the strength and weaknesses
of the organisation in the light of the opportunities and threats is a critical step in
the formulation of policies. A few important functional areas such as production,
marketing, finance and personnel where sound policies are essential have also been
discussed.
5.7 TERMINAL EXERCISES
Write short notes on the followings
1. Externally imposed policies
2. Implied policies
3. Major functional areas in business
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5.8 ASSIGNMENTS
1. Identify a few important areas of the business where policies are necessary
and elaborate with appropriate examples, the important policy decision in
any one of the functional areas.
2. What are the important sources of policies sin the organisations? Explain
with the help to examples.
5.9 SUGGESTED READINGS
1. Koontz, Harold and others, 1984. Management, McGrawHill,and analyse
their genesis.
2. Massie, Joseph L. 1971. Essentials of Management, PrenticeHall, Englewood
cliffs, N.J.
3. Terry, George R and Franklin, Stephen G. 1988, Principles of Management,
All India Traveller Bookseller (Indian Reprint). New Delhi.
4. Drucker, Peter F. 1954. The Practice of Management, Harper & Row. New
York.
5. Barnard, Chester I. 1938. The Functions of the Executive, Harvard
University Press, Cambridge.
6. Chandler, Alfred D. 1962. Strategy and Structure. MIT Press. Cambridge.
7. Ghreck, William F. 1972. Business Policy: Strategy Formulation and
Management Action, McGraw-Hill. New York.5.I Chestner.
5.10 LEARNING ACTIVITIES
The following case study, will improve the knowledge level of students to
understand the importance of policy formulation
1.CaseStudy
Honesty Enterprises – Policy Dilemma
Honesty enterprises is a medium-size organisation operating in the highly
competitive consumer goods industry. The company which started its operation in
1970 in a humble way has come a long way and emerged as a force to reckon with
in the industry. The success of the company is mostly attributed to certain core
values that the management cherishes even to date. Important among them are,
product quality and customer service. The company all through made it a policy
not to resort to price-cutting and instead chose to compete on quality and customer
service. Even in the most difficult times the company stuck to the same policy and
never yielded to the provocations of the competitors.
In the early 1990, the consumer goods industry, because of the recession, had
a very tough time. Unable to withstand the evil effects of the slump, many small
and inefficient firms were almost all relegated to the oblivion. During 1991, one of
the regional marketing managers of the Honesty enterprises operating in the state
of TamilNadu, to meet the targets in the most trying circumstances, authorised the
local sales managers to allow price discounts on the products. The practice of
offering discounts continued for some time till the middle of 1993. In the mean
 61

time, though price-cutting has never been the policy of the company, for all
practical purposes an implied policy had emerged. Regional managers and lower
level people in the marketing department operating in the various other markets
also began to compete on price terms by offering different types of discounts to the
customers.
It took some time for this unanticipated development to reach the top
management. Some perceptible changes in the attitude of the customers towards
the company products began to surface. The company was perceived to be
compromising on the quality of the product. All this resulted in an erosion of the
image of the company assiduously built over q period of twenty years. Added to
this, the management is also confronted with another problem relating to the
technological up gradation. All along the company relied on the in house research
and development capabilities for product innovations. Now that advanced and
more sophisticated technology is easily accessible, thanks to the liberalization of
the economy, many competitors are firming up collaboration agreements with
internationally reputed companies. The management is at the cross roads. It is
exploring the various possibilities to surmount the present crisis.
Question
1. Summarize the problems that you have identified in the case and analyze
their genesis.
2. Evaluate the external environment of the business in the case and discuss
its impact on the company.
3. Assuming that you were the consultant, how would you help the
management to overcome the crisis effectively.
5.12 KEYWORDS
Policy making - importance of policy making- types of policies -finance-
production- marketing- personnel.

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LESSON – 6
ORGANISATION THEORY
6.1 INTRODUCTION
Organisations are made up of people. When people work together in groups to
achieve the goals, everyone in the group must know what he is expected to do, with
what resources and what reporting relationship he has with others. Otherwise,
activities of the people will tend to be directed in different ways resulting in the
wastage of scarce resources. The managerial function of ‗organising‘ aims at
designing a structure where everyone knows who is to do what and who is
responsible for what results. It helps in removing confusion and uncertainty by
providing for adequate coordination between groups of people working in various
departments or divisions.
Koontz and O‘Donnel define organising as ―the grouping of activities necessary
to attain objectives, the assignment of each grouping manager with authority
necessary to supervise it, and the provision for coordination horizontally and
vertically in the enterprise structure‖. Thus organising is the process of creating a
structure for the organisation that will enable its people to work together effectively
towards its objectives. However, the structure of the organisation has undergone
considerable changes over the years in response to changes in the environment.
Let us examine, in brief the various approaches or theories of organisations.
6.2 OBJECTIVES
After studying this lesson, you should be able to:
 appraise the different approaches to the study of organisations;
 distinguish between formal and informal organisation; and
 acquire a correct perspective of ‗organising‘ as a managerial function.
6.3 CONTENTS
6.3.1 Organisational Theories
6.3.1.1 Classical Organisation Theory
6.3.1.2 Neoclassical Organisational Theory
6.3.1.3 Modern Approaches to Organisational Theory
6.3.2 Formal and informal Organisations
6.3.2.1 The Need for Informal Organisation
6.3.2.2 Problems and Benefits with Informal Organisation
6.3.2.3 Managing the Informal Organsiation
6.3.1 ORGANISATIONAL THEORIES
There are three approaches to understand the organisational theory:
Classical, Neoclassical and Modern. The assumptions about human beings and
other variables that affect the organisational functioning vary from one approach to
the other.
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As discussed in lesson-2 the early management thinkers viewed the

organisation as a machine and human beings as different parts of that machine.
Organisation was viewed as a closed system. The influence of the external
environment was ignored. The emphasis was more on increasing the output, and
human element in the process received scant attention. Further, early writers
concern was mostly to find the ‗one best way‘ to disign the organisation which
would suit all the situations.
Division of labour, scalar principle and span of control are the important
principles on which enterprise activities were organised. Members of the
organisation were guided by a sense of duty to the organisaion and by a set of rules
and regulations. Mason Haire has identified the chief characteristics of classical
organisation theory as follows:
6.3.1.1 Classical Organisation Theory
1. Human beings were assumed to be relatively homogeneous and un
modifiable;
2. Organisaion was perceived as a closed system with little interaction with the
external environment;
3. The emphasis was on detection of errors and their correction after they have
happened;
4. Authority was centralised and the integration of the system was achieved
through exercise of authority and implementation of rules and regulations;
5. Stability was the central theme in designing the structure.
Classical organisation theory, is thus, based on the contributions of scientific
management by Taylor and others, administrative management by Fayol and
bureaucratic system by Max Weber.
Appraisal of Classical Theory
March and Simon, Katz and Khan, Victor Thompson and a host of other
writers have found the classical organisation theory inadequate in dealing with the
complexities of modern organisations. The salient features of the classical theory
may be summarised as follows:
i. Mechanistic Structure
Organisations have been treated as closed systems with no environment and
hence no interaction with outside world. Classical thinkers assumed two things-
there is no impact of the environment on the organisation and human beings are
inert elements who can be manipulated. Once the structure is created, it was
assumed that it would run smoothly with the rules and regulations.
ii. Organisation as a Static Concept
Classicists held the view that an organisation is a static concept. Once the
structure is created, it will work for ever. The need for change or structural
adjustment was not given due consideration. The emphasis was more on stability
in operations.
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iii. Excessive Reliance on Principles

Principles like division of work, scalar chain, structural arrangement, order,
and span of control were taken as articles of faith. Too much reliance was placed
on these classical management principles. Coordination by hierarchy, unity of
command, line and staff relationships, discipline, unity of command-all resulted in
the creation of command and control structure.
Classical organisation theory has been criticised by many authors on the
following grounds:
1. It neglects the human aspects of organisation members, assuming that they
are motivated only by economic considerations. As educational levels,
expectations and aspirations of people have been changing fast, this
criticism has become more severe.
2. It does not suit the rapidly changing environments of today. Structures
designed to function effectively in static environments with an emphasis on
stability hardly suit the changing requirements of modern business.
3. It assumes that higher-level managers are respected by subordinates
because of their knowledge and skills. These days young people at lower
levels seem to be fully equipped with latest skills. At times they are found to
be even outsmarting their superiors. As a result some emotional conflicts
between superiors and subordinates have become quite common.
4. As organisational procedures become more formalised and tasks more
specialised, people tend to loose sight of the bigger picture. They develop a
narrow perspective where they are obsessed with their own functional areas.
It should not, however, be construed, from the foregoing analaysis, that the
classical theory of organisation is completely irrelevant. The contributions of the
early thinkers which ensured proper systems and order in the organisational
functioning cannot be undermined. Classical organisation theory has strengths as
well as weaknesses. For example; classical structure provides much task support.
At the same time it is weak in psychological support. What is needed is an
organisational system that provides both task and psychological support.
6.3.1.2 Neoclassical Organisation Theory
The classical thinkers with their obsession with economic effectiveness
neglected employee satisfaction. They failed to recognise the significance of the
impact of human element. Neoclassical theory, on the otherland, which revolves
around the contributions of behavioural and social scientists, aims at
complementing for some of the deficiencies in classical theory. The initial impetus
was provided by Elton Mayo‘s Hawthorne studies. Neoclassical theorists did not
totally reject the classical model, but only Argyris and Rensis Likert, whose
contributions to the development of management thought have already been
discussed in detail in lesson-2. The main propositions of neoclassical theory are as
follows:
 65

1. In every organisation, in addition to the technical system, there exists a

social system:
2. Along with the formal organisation structure, there also exists an informal
organisation;
3. Human beings have diverse motivational patterns and try to fulfil different
types of needs;
4. Quite often there exists a conflict between individual and organisational
objectives. Hence the need for integration between the two; and
5. Cooperation among people is not automatic but has to be achieved through
appropriate behavioural interventions.
Appraisal of Neoclassical Theory
Neoclassical theory of organisations marked a significant departure from the
classical theory in that it raised several new concepts like informal organisation,
group norms, non-economic motivators, irrational behaviour, etc.
Consequent to the findings of Hawthorne studies and the writings of
behavioural scientists, concepts like flat structure, decentralisation and informal
organisation have found increased usage in the design of the organisation
structure. In the place of the traditional tall structures which are beauracratic in
their functioning, flat structures are emphasised. As against delays in decision-
making, hierarchical controls and communication bottlenecks in the tall structures,
flat structures with wide span of control are found suitable to motivate human
beings.
Another postulate of the Neoclassical theory is decentralisation-closely related
to flat structure. Decentralised structure offers autonomy and freedom to people in
decision-making. It assures operational freedom. The existence of informal
organisation in the formal organisation is by far a significant breakthrough of the
Neoclassical theory.While formal organisation is a deliberate creation of the
management, informal organisation is the spontaneous outcome of the people to
satisfy their social and psychological needs. Various aspects relating to informal
organisation are discussed in the subsequent section of this lesson.
Criticisms of the Neoclassical Theory
The neoclassical theory to organisational design compensates for some
limitations in the traditional classical model. But it too has been criticized on the
following grounds:
1. The neoclassicists share the classical assumptions that there is ―one best
way‖ to design an organization. They overlook environmental, technological,
and other variables that might affect an organization‘s design;
2. The neoclassicists oversimplify human motivation. Not everyone is motivated
by the non-monetary aspects of work, nor can all work be made intrinsically
challenging and rewarding; and
 66

3. The coordination of decentralized, fragmented groups to achieve

organizational goals may be more difficult than the neoclassicists suggest,
particularly when the objectives of lower-level employees are not consistent
with the goals of upper-level managers.
6.3.1.3 Modern Approaches to Organisational Design
As discussed in the preceeding sections, hierarchical organisational structures
are centralised. Information flows slowly. So also the decisions. Modern approaches
to organisational design take into account the business environment, technology
and people. As such, while designing the structure, an understanding of the
environment in essential.
i. Environment
Business environment may be classified into stable, dynamic and turbulent.
Stable environment is one with no unexpected or sudden change. Change in
technology, market demand, and socio-economic and political conditions occur
infrequently and modifications can be planned in advance. But these days stable
business environments are hard to find.
As against stable environment where changes are infrequent, dynamic
environment is characterised by frequent changes. These changes, to a certain
extent, can be predicted. Trends are likely to be apparent and organisations can
easily try to adjust. However, the rate of change in the environment may be high in
some industries while it is low in some other industries. It is also quite possible
that the once stable environment may become a dynamic one. For example, the
environment of many businesses in India till a few years ago was quite stable. But
as the economy is opened up, unprecedented changes are taking place in the
Indian economy.
Turbulent environment, on the other hand, is characterised by unexpected
changes and surprises. As Peter Drucker has described the present age as ―the age
of discontinuity‖, managements are taken by surprises. Spectacular breakthroughs
in technology, sudden change in the market preferences, political uncertainties,
etc., make the environment very turbulent.
In the light of the changes in the environment whether they are predictable or
unpredictable, the organisational structure has to be designed in such a way that it
matches with the environment. Burns and Stalker on the basis of their extensive
research classified organisational systems into ‗mechanistic‘ and ‗organic‘
structures. In a stable environment mechanistic structures would do well because
the emphasis in such systems is on achieving excellence in the routine tasks,
whereas organic systems are preferable in a dynamic or turbulent environment.
Some combinations of the two systems may also be used.
ii. Technology and Structure
Apart from the environment, technology also influences the structure. By
technology we mean the task related know-how used by the organisation.
Management researcher Woodward had studied about 100 British manufacturing
 67

firms and established relationship between technology and structure. He classified

technology into: Unit production, batch or mass production and process
production.
Unit production refers to the production of individual items tailored to
customer‘s specifications. The technology used is not very complex and output is
produced largely by individual crafts people.
Mass production refers to the manufacture of large quantities of products,
mostly on an assembly line. Process production refers to the production of
materials that are sold by weight or volume such as chemicals, sugar, cement etc.
The following are the findings of the Woodward‘s study on the relationship between
technology and organisation structure.
1. The more complex the technology, the greater is the number of managers
and management levels. In other words, complex technologies require
greater degree of supervision and coordination:
2. The span of management increases from unit to mass production and then
decreases from mass to process production. Lower level employees in both
unit and process production firms tend to do highly skilled work. As a
result, narrow span becomes inevitable. In mass-production, on the other
hand, assembly line workers perform mostly routine tasks. Large number of
such workers can be supervised by one manager; and
3. The greater the technology complexity of the firms, the larger are the clerical
and administrative staff.
The foregoing analysis shows that all these variations in technology, with
influence the organisation structure which in turn will affect the performance.
Successful firms are those that design the structure in accordance with the
technological requirements of the firm.
iii. Aspirations of the People
Along with the environment and technology, the attitudes and aspirations of
the people need due consideration in the design of the structure. Unlike in the past,
where classical theorists‘ assumptions about human beings held good, there has
been a sea change in the attitudes and aspirations of the people in the recent years.
Peter Drucker has rightly described the present day workers as ―knowledge
workers‖. They want more challenging jobs and participation in the decision-
making process. They are self-motivated and direct their activities themselves.
In view of such raising aspirations and expectations, organisational structures
have to be designed in such a way that their aspirations are taken care of. The
structure has to provide an environment where individuals have freedom and
autonomy. That is why, these days there is lot of talk about flexible systems and
loose controls in the organisations. The objective behind all these structural
changes is to identify and encourage creative people. In a competitive environment
as of today, in the final analysis, it is the quality of human resource which makes a
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difference when all the other things are equal. In the place of rigid and beauracratic
systems which stifle the innovative abilities of people, the emphasis at present is
towards flexible systems. As such the structure should facilitate to satisfy the ego
needs of the people.
6.3.2 FORMAL AND INFORMAL ORGANISATIONS
Much of what is discussed and understood about organizations in general
relate to the formal organisation. In many organisation structure.authority-
responsibility relationships among people are clearly visible. Information flows from
one level to another or from one individual to another in a formal way. All the
relationships find a place in the organisation chart. The roles of the people are
clearly defined and they are expected to perform the roles of the people are clearly
defined and they are expected to perform the roles as stipulated to achieve the
goals. Thus formal organisation is a deliberately created entity to achieve certain
spepcific objectives.
Informal organisation on the other hand, refers to the network of personal and
social relations not established by formal authority but arising spontaneously as
people associate with one another. The emphasis within informal organisation is on
people and their relationships,.whereas formal organisation emphasizes official
positions in terms of authority and responsibility. Thus, informal organisation
refers to unofficial relationships that inevitably occur between individuals or groups
within the formal organisation.
As such in any organisation, both formal and informal organisations exist.
Both are not mutually exclusive. But are complementary. The actual organisation
structure is the result of both formal and informal relationships. The existence of
informal organisation within the formal organisation can easily be seen in any
formal system, be it a business enterprise, educational institution or a voluntary
organisation.
6.3.2.1 The need for Informal Organisation
The inadequacy of the formal organisation to meet certain social and
psychological needs is the basic reason behind the emergence of informal
organisation. Because the formal organisation does not provide for all the social
interactions, members try to find out alternative ways of association. As the
Hawthorne experiments revealed, membership in informal groups give people
psychological benefits in every respect as important as the salary paid to them by
the employer. The following are some of the major reasons for the emergence of
informal organisation.
i. The desire to Socialise with Others
Kelth Davis observes that ―along with lien‘s technical imperative, there is also
a social imperative to work together. Man is a social being. He wants to belong, to
associate with others rather to work in isolated loneliness. Out of this basic drive of
man, the informal organisation arises‖. It is, therefore, quite natural when people
work together in groups, they tend to socialise with fellow employees to satisfy their
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own social and ego needs. These needs are not normally satisfied by the formal
organisation. Informal organisation, on the other hand, provides the opportunity to
interact with people of their liking based on so many personality factors. We can
easily observe in any formal organisation, likeminded people coming together and
forming into groups.
ii. Disillusionment with the Routine
Excessive specialisation these days in a way contributes for the employee
aloofness. People become bored with the routineness in tasks and feel psychological
fatigue. They don‘t get the pride or satisfaction, for what they perform constitutes
only a small portion in the total task. People try to overcome this boredom through
interactions with others. Such informal interactions which encompass a whole
gamut of issues both related to job and personal life help, in releasing the tension
created on the job. Informal organisation thus helps in filling up the psychological
vacuum created by dull, boring and monotonous jobs.
iii. Hierarchical Command and Control
Commands and controls characterise formal organistion. Wherever there is
hierarchy, it goes without saying that things happen in a formal way. Reporting
relationships are clear, information flows along the formal lines of authority and
responsibility of the people. There exists a superior-subordinate relationship where
superiors tend to exercise control which may not be liked by subordinates. While
the subordinate cannot defy the superior, to compensate for the inner conflict, he
tries to find out an association where he does not face any such control. Thus
informal organisation provides him the necessary forum where he gets the
psychological relief and solace by sharing his agony with others.
iv. Protection of Interests
In addition to the above factors, informal organisation strives to protect the
interests of its members by working as regulatory device. At times individual
grievances are also redressed in organisations by informal groups. The opinions
and view points of the people are channelised through the informal bodies. Many
limitations which otherwise would be faced by a member as an individual are
overcome, because the informal organisation takes care of the interests of the
members.
v. Need for Assistance
Formal organisation provides for subordinates consultation with the superior
for advice when confronted with work related problems. But many people hesitate
for fear of criticism. Furthermore, every organisation has a large number of rules
governing procedures. Therefore, people often prefer to resolve their needs for
assistance through peers. We often find in organisations employees consulting their
colleagues on so many work-related problems rather than their superiors.
People like to know what is going on around them, especially if it affects them.
It may take some time for people to get information through formal channels.
Sometimes, superiors may deliberately withhold certain information from
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subordinates. Therefore, an important reason for joining informal organisation is to

get information through informal channels. It satisfies individual‘s need for
psychological security and affiliation as well as provide them with much faster
access to job-related information. The informal communication, often called
grapevine also carries social gossip.
6.3.2.2 Problems and Benefits with Informal Organisations
Though the existence of Informal organisation is a natural outcome in any
organisation, many managers perceive them as bad. Some managers even carry an
erroneous notion that informal organisation is a reflection of ineffective
management. They therefore try either to suppress them or to ignore their impact.
In the process, they fail to take advantage of the informal organisation by
overreacting to the negative aspects disregarding the positive aspects.
i. Problems with informal organisations
It is true in some cases, informal organisations may function in ways that are
counterproductive. They may stand in the way of organisation‘s achieving the
objectives. For instance, one of the consequences of informal organisation is the
spread of rumours that are false and lead to negative attitudes towards
management. The informal groups may set norms for productivity. The work-to-rule
and slow-down techniques often adopted by workers in many instances are the
result of the dictates of the informal organisation. Individuals often tend to conform
themselves to the group standards or pressures which may cause performance to
be below the standards set by management.
Another evil effect of the informal organisation is the tendency to resist
change. Such an attitude often impedes the much needed innovation and adoption
of changes as demanded by the exigencies of the environment. However, such
counterproductive behaviour is often a reaction to the groups perception of how
management is treating them. Group members perceive that they are being treated
unfairly and respond as any individual would in such a situation.
ii. Benefits of Informal Organisation
Since group membership is contingent on working for the organisation, loyalty
to the group may translate into loyalty to the organisation. For instance, many
people refuse higher paying jobs with other companies because they are reluctant
to give up the solid ties developed at the present company. It is possible for groups‘
objectives to be compatible with those of the organisation. At times the performance
norms of informal organisation may be higher than those of the formal
organisation. For example, the intense team spirit characteristic of some
organisations which results in a strong drive to succeed is often an outgrowth of
informal relationships. Similarly, the grapevine may help the formal organisation by
supplementing the formal communication network.
By failing to work effectively with them, or engaging in actions to deliberately
suppress informal organisations, manages often become unable to harness these
 71

potential benefits. In any event, whether a a particular informed organisation is

harmful or beneficial, one thing is certain that it exists and must be dealt with.
Therefore, as a manager, you must learn to cope effectively with informal
organisation.
6.3.2.3 Managing the Normal Organisation
Management writers have fully realised the importance of handling informal
organisations to help the formal organisation attain its objectives. Scott and Davis
offer the following suggestions:
1. Recognise that the informal organisation exists, and nothing can destroy it
completely without also destroying the formal organisation. Therefore,
management should accept it, work with it, and not threaten its existence;
2. Listen to the opinions of informal leaders and group members.
3. Consider possible negative effects on the informal aorganisation before
taking any action.
4. Decrease resistance to change by allowing the group to participate in
decision – making; and
5. Control the grapevine by promptly releasing accurate information.
6.4 REVISION POINTS
Organisational Theory - Classical organizational theory, neo classical
organization theory, modern approaches organization theory -Informal
Organization- Need for the Informal Organisation- problems and benefits with
internal organisation.
6.5 INTEXT QUESTIONS
1. Discuss some of the problems and benefits of informal Organisations.
2. Why should the environmental force to taken into account while creating on
organisation structure. Examine a few important importances that affect
the structure.
6.6 SUMMARY
Different approaches have been developed over the years to explain the process
of organisations. The classical theory which emphasised technical and other
operational aspects of the job; the neo-classical theory where the emphasis human
element in the organisations with due recognition to the existence of a social
system along with the technical system; and the modern approach where
organisation structure has to designed in tune with the environmental demands
have been discussed in this lesson. Besides, the distinction between the formal and
informal organisations and how informal organisations come into being in the
formal systems – the reasons there of, the problems and benefits have also been
presented in detail.
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6.7 TERMINAL EXERCISES

Write short notes on the followings
1. Informal organization
2. Formal Organisation
3. Aspiration of the people
6.8 SUPPLEMENTARY MATERIALS
1. https://www.scribd.com/doc/45883443/Principles-of-Mangement-MG2351
2. http://www.ebookbou.edu.bd/Books/Text/SOB/MBA/MBA_1301_full.pdf
3. http://2012books.lardbucket.org/pdfs/management-principles-v1.0.pdf
6.9 ASSIGNMENTS
1. What are the basic tenets of the classical organisation theory? Is this theory
relevant to the design of the present day organisation structure? If it is so,
give the details elaborately.
2. Have you ever been in a solution where informal groups norms put you in
role conflict with formal organisation standards? If so, present such
situations in details.
6.10SUGGESTED READINGS
1. Burns, Tom and Stalker, G.M, 1961. The management of Innovation,
Tavistock, London.
2. Woodward, Joan, 1965, Industrial organisation, Oxford University Press,
London.
3. Thompson, Victor. A.A1961. Modern organisation, Alfred A. Knoof. New
York.
4. Lawrence PaulR. and Lorsh, Jay. W. 1967. Organisation and Environment,
Richard D. Irwin, Homewood.
5. Davis, Keith, 1993. Human Behaviour at Work, Tata McGraw Hill, New
Delhi.
6. Drucker, Peter. F. 1969.The age of Discontinuity, Harpet & Row, New York.
7. Stoner, James A.F. and Freeman, E.R. 1989. Management, Prentice Hall of
India, New Delhi.
6.11LEARNING ACTIVITIES
1. Students can be motivated to make seminars about this lesson. Question
sessions can bring constructive academic excitement.
6.12 KEYWORDS
Organisational Theory- Formal Organization- Informal Organization -New
Forms of Organisation

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LESSON –7
ORGANISATIONAL DESIGN
7.1 INTNRODUCTION
The managerial function ‗organising‘ involves the creation of a structure most
appropriate for the organisation‘s objectives and other internal and external factors.
The best structure is the one that enables the organisation to intereact effectively
with its environment, to efficiently channel the efforts of its people, to make efficient
use of its resources and thereby to meet the needs of its customers and attain its
objectives.
7.2 OBJECTIVES
After studying this lesson, you should be able to:
 understand the process of departmentation
 familiarize yourself with various methods of departmentation; and acquire
the necessary skills to design the appropriate structure which serves the
need of the company
7.3 CONTENTS
7.3.1 Steps in Designing Organisation Structure
7.3.2 Departmentation
7.3.3 Product/Market Departmentation
7.3.3.1 Product Departmentation
7.3.3.2 Customer Departmentation
7.3.3.3 Territorial Departmentation
7.3.4 Product Organisation
7.3.5 The Matrix Structure
7.3.6 Continentals Organisation Design
7.3.1 DESIGNINGTHEORGANISATION STRUCTURE
Ernest Dale describes organising is a multistep process, According to him, it
involves:
1. Detailing all the work that must be done to attain the objectives:
2. Dividing the total work load into activities that can logically and comfortably
be performed by one person or by a group of persons;
3. Grouping the related tasks in a logical manner (this activity is known as
departmentation);
4. Setting up a mechanism to coordinate the work of members into a unified
whole by establishing authority – responsibility relationships, and
5. Monitoring the effectiveness of the organisation and making adjustments to
maintain or increase effectiveness.
 74

It is important to remember that the resulting structure is not a static form,

like the structure of a building. Since structure is based on plans, a major revision
of plans may necessitate a corresponding modification of structure. As such,
organising and reorganising are ongoing processes. Successful organisaions
continuously assess the appropriateness of their structure and change it in
accordance with the dictates of the environment. It is anybody‘s knowledge that
these days every issue of leading business magazines widely reports news relating
to reorganisation underway in some large company or the other.
7.3.2 DEPARTMENTATION
Although organisations have much in common with one another, they also
differ in many ways. Some organisations are large, some are small and some
operate in only one product area like Tata Iron and Steel Company (TISCO). Others
like Larsen and Toubro (L&T) and ITC operate in many diversified areas. Some
operate in a small geographical area, whereas others like Coca-cola, Procter and
Gamble, and IBM, for instance, do business in many countries of the world. To
cope with these differences in objectives, strategies and situations, managers use
various systems of departmentation.
Departmentation is the process of dividing the organisation into manageable
subunits. The subunits are often referred to as departments, divisions, or sections.
By whatever name the units are called, the process is known as departmentation.
Functional Departmentation
This is perhaps the most logical and basic form of departmentation. Functional
departmentation is the process of dividing the organisation into units on the basis
of the firm‘s major activities. It involves grouping employees according to broad
tasks they perform. Normally separate departments are created for all the key
activities of the business. For example, in a manufacturing company, the activities
essential to the existence of the company are production, marketing, and finance.
However, in non-manufacturing concerns these functions differ. In a transport
company, the key areas may be operations, sales and finance. Thus, public utility
concerns like electricity, transport, banking, insurance and hospitals have their
own distinct key functional areas. In all these cases, under functional
departmentation, major or primary departments are created along the key
functional areas of the respective businesses.
If the organisation or given department is large, or in other words, as the
organisation grows, major departments can be subdivided. These sub-divisions are
called derivative departments. The essential ideas is to make increased use of
specialisation. A typical functional organisation with major functions and derivative
functions are shown in the following Figure-7.1.
 75

Figure–7.1
FunctionalDepartmentation

CHAIRMAN /
MANAGING DIRECTOR

MANAGER MANAGER MANAGER

MARKETING PRODUCTION FINANCE
GGG

ADVER- MANUFA- PUR- ACCOUN- TAXES

SELLING CHASING
TISING CTURING TING

The following are the advantages and disadvantages of functional

departmentation.
Advantages
1. It is the most logical and simple form of departmentation;
2. It makes efficient use of specialised resources and skills;
3. It makes supervision easier, since each manager has to be an expert in only
his functional area of operation;
4. It fosters development of expertise in specialised areas.
Disadvantages
1. Functional departmentation is often found to be inadequate to meet the
growing needs of the business, particularly as the organisation expands or
diversifies its activities;
2. Further, decision-making becomes slow as the functional managers have to
get the approval from the headquarters;
3. It is also difficult to determine accountability in a functional structure, if a
product fails, the question as to who is responsible cannot be easily
answered; and
4. Functional managers tend to develop narrow perspective and loose sight of
the bigger picture. Members of each department feel isolated from those in
other departments. For example, manufacturing department may be
obsessed with cost reduction and meeting the delivery dates neglecting the
quality control. As a result, marketing department may be flooded with
complaints.
 76

7.3.3 PRODUCT/MARKET DEPARTMENTATION

As the organisation grows, either by broadening its product line, or by
expanding geographically, some of the disadvantages of functional structure begin
to be move apparent. In such a case, management will create semi-autonomous
divisions for each product or market. Three patterns are adopted generally by
organisations depending on the specific requirements to overcome the limitations of
functional structure. They are product, territorial and customer departmentation.
7.3.3.1 Product Departmentation
One of the most common ways in which businesses grow is by increasing the
number of products they make and sell. If the organisation is successful, several
product lines may attain such high sales that they require a separate division.
Large organizations like Shaw Wallace Kirloskar, Voltas, ITC, Hindustan Lever,
have coped with the expansion of their product lines by creating separate
departments or divisions for the various products they make. Under product
departmentation, a single manager, often referred to as the brand or product
manager, is a delegated authority over all activities required to produce and market
that product. As against functions in the functional departmentation, basis
products or services become the primary or major departments in the product
departmentation.
Advantages
1. Product departmentation places attention and effort on the basic products,
the success of which is critical to the survival of the organisation;
2. Since all revenues and costs are assigned to a particular product, cost
centres can be established, high profit areas can be encouraged and
unprofitable product lines can be dropped. Thus, responsibility for cost
reduction and profits can be established at the division level;
3. Proper coordination of all functional areas can be achieved as all the
functional managers work as a team under close supervision of the product
manager. Since the department or division is multifunctional, it often
operates like a complete company.
4. Enables quick response to changes in environment as compared with
functionally organised firm;
5. Provides managers a training ground in general management which is useful
in overcoming narrowness of interest, and
6. Expansion and diversification of activities is made easy by creating new
departments for the new products that are added to the existing ones.
 77

Disadvantages
1. Requires more persons with general management abilities as more and more
departments are created for the various products;
2. The product departments may try to become too autonomous, thereby
presenting top management with a control problem;
3. It is also common to find product departments engaged in the duplication of
efforts. Each product unit has its own functional departments. These may
not be sufficiently large to make maximum use of facilities. Thus product
departmentation becomes an expensive organisational form.
7.3.3.2 Customer Departmentation
Some organisations sell a wide variety of goods or services that appeal to
different groups of customers, each of which has distinguished needs. In such a
case, departments are created around customer groups, customers are the key to
the way activities are grouped. For instance, commercial banks organise their
activities around customer groups to cater to their specific needs. As such, we find
separate departments or divisions for agricultural, industrial and merchant
banking operation. Similarly, we find Blue Star company organising its air-
conditioning business around domestic and industrial air – conditioning units,
Figure-7.2 illustrates a typical customer departmentation in a large bank.
Figure–7.2

CHAIRMAN

RETAIL CONSUMER GOVERNMENT INDUSTRIAL

SALES SALES SALES

PRODUCTION PRODUCTION PRODUCTION

MARKETING MARKETING MARKETING

FINANCE FINANCE FINANCE

PERSONNEL PERSONNEL PERSONNEL

 78

Advantages
1. Customer departmentation facilitates concentration on customer needs. This
is almost all in line with the customer orientation professed by many
organisations these days;
2. Customer makes the feel that they have an understanding supplier. For
example, the manufacturer may sell to wholesalers and industrial buyers.
Wholesaler requires a product of dependable quality with assured supplies.
The industrial buyer wants a product of high quality plus a service that
includes installation and repair of the product and the specific training of
employees.
3. Helps the organisation to get the correct feel of the market dynamics in
terms of preferences of the customers, competitors‘ strategies, etc.
Disadvantages
1. Difficult to coordinate operations between competing customers‘ demands‘
2. Requires considerable expertise on the part of managers in understanding
customers‘ problems and specific needs:
3. There is a possibility of under utilisation of facilities and employees
specialised in terms of customer groups. Small organisations particularly
cannot afford the expenditure involved because some amount of duplication
of the facilities is inevitable.
7.3.3.3 Territorial Departmentation
When an organisation operate in different geographical areas, each with
distinct needs, it is desirable to create the departments along geographical lines, as
illustrated in Figure7.3. The process of creating departments along the geographical
lines is termed territorial departmentation. This type of organisation makes it easier
for the organisation to cope with variations in laws, local customs and customer
needs, and public utilities like transport companies, insurance companies, etc.
adopt territorial departmentation. Similarly, a large scale organisation operating
both in domestic and international markets may have separate departments for
both the markets. A Gain, different department or divisions may be created for
different regions of the world. Many multinational companies organise their global
activities with regional headquarters in different regions of the world.
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Figure–7.3

CHAIRMAN

MANAGER-1 MANAGER-1 MANAGER-1 MANAGER-1

PRODUCTION MARKETING FINANCE PERSONNEL

MANAGER-1 MANAGER-1 MANAGER-1 MANAGER-1

ESTERN WESTERN NORTHERN SOURTHERN
REGION REGION REGION REGION
1)

Advantages
1. Territorial departmentation makes possible concentration on markets and
marketing channels in different geographical areas;
2. Develops opportunities for more efficient marketing activities because of
better face- to-face communication with local interests. and
3. Makes possible effective utilisation of locally available resources besides
being able to cater to the region – specific – variations in terms of
preferences and sentiments of the people.
Disadvantages
1. In this type of departmentation, there are problems in training people to
think in terms of markets rather than products;
2. Requires more persons with general management abilities; and
3. Increase problem of top management control because of the distance
between the corporate headquarters and the regional offices.
The three patterns of departmentation discussed above –product, customer
and territorial departmentation broadly characterise the divisional structure. All
the three patterns have advantages and disadvantages. The variations in the
patterns are in response to the specific factors in the environment. The choice of
any of these structures, therefore, would be based on which of the factors
management judges to be more important and critical in the light of the strategies
and objectives.
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7.3.4 PRODUCT ORGANIZATION

The use of the project organisation has increased in the last few years. It is
currently being employed in numerous undertakings engaged in the execution of
construction activities, turnkey projects and research and development projects.
The project organisation can take various forms, but the important characteristic
that distinguishes it from other forms is; once the project is completed, the
organisation is disbanded or phased out. By definition, project management
involves, ―the gathering of the best available talent to accomplish a specific and
complex undertaking within time, cost and quality parameters, followed by the
disbanding of the team upon completion of the undertaking‖. The group members
then go on to another project, return to their permanent home department in the
organisation, are given jobs elsewhere in the organisation, or in some cases, are
phased entirely out of the firm.
7.3.5 THE MATRIX STRUCTURE
The matrix structure is a hybrid organisational form, containing
characteristics of both project and functional structures. In consumer goods
industries, it could contain the characteristics of both product and functional
departments. This structure allows operational responsibilities to be divided into
two parts. One part contains all the responsibilities associated with the
management of an independent business and is given to an individual who is called
‗business manager‘ or ‗product manager‘. The other part contains all the
responsibilities related to the management of resources needed to get the job the
done. The person responsible for these is the usual ‗functional manager‘ or
‗resource manager‘ in charge of the functions like production, marketing, finance,
personnel and so on.
The matrix is built around a cooperative relationship between the
project/product manager and the functional / resource manager. Thus, project
staff members in a matrix structure have a dual responsibility. Further they are
responsible to the head of their functional department, the person who has
assigned them to the project. The functional department head is their line superior
and will continue to be so. But the project manager exercises what is called project
authority over the project staff. Figure – 7.4 presents these dual responsibilities in
a matrix form of organisation.
 81

Figure–7.4

Vice Vice Vice President Vice President

President Production/ Vice Human
President
Researchand Operations President Resource
Project Development Engineering Purchasing
management Management

Project Research Human

Manager A and Production/ Purchasing Resource
Engineering
Columbia Development Operations Management
Group Group
Project Group Group Group

Project Research Human

Manager B and Engineering Production/ Purchasing Resource
Challenger Development Group Operations Group Management
Project Group Group Group

Project Research Human

Manager C and Production/ Purchasing Resource
Engineering
DiscoveryProj Development Operations Management
Group Group
ect Group Group Group

Functional Authority
Project Authority
When the concepts of functional and project authority are brought together,
the result is an organisation structure that is both vertical and horizontal. The
vertical pattern is brought about by the typical line authority flowing down from
superior to subordinate. The horizontal authority flow is caused by the fact that
both the scalar principle and unity of command principle are violated.
Companies like Larsen & Toubro (L&T), Western India group, U.P.
Construction Corporation. Afcons-Pauling etc., adopt this structure for the
execution of various projects for instance. L&Ts construction of Jawaharlal Football
stadium in Madras and Afcons-Pauling‘s laying the East Coast road are big projects
themselves. The execution of such projects is entrusted to a team drawn from the
functional departments of the headquarters. The overall responsibility for the
project lies with the Project manager. The people that work in the project are
responsible to the project manager as well as their functional head from whom they
are drawn. Similarly, in the multi-product consumer goods industries, as in the
case of projects, responsibility for different products may be placed on product
managers as could be seen in the exhibit. The matrix may be temporary or
permanent. In construction and turnkey activities, project is disbanded after the
execution, where as it may take a permanent form in the case of a consumer goods
company.
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Advantages of Matrix Organisation

David I. Cleland and William R. King identify the advantages as follows:
1. Utilization of manpower can be flexible because a reservoir of specialists is
maintained in functional departments. These specialists can be deployed to
the various projects for optimum use of their services;
2. Responsibility for the overall execution, management and project is with the
project manager who acts like a chief executive;
3. Specialized knowledge is available to all projects or products on an equal
basis. Knowledge and experience can be transferred from one project to
another;
4. Project people have a functional home when they are no longer needed on a
given project;
5. A better balance between time, cost and performance can be obtained
through the built-in checks and balances and the continuous negotiations
carried on between the project and the functional organisation.
Disadvantages
Many of the drawbacks mentioned below of the matrix structure can not be
avoided. Managers have to learn to deal effectively with them.
1. The major disadvantage relates to power struggles. Since use of the matrix
means use of dual command, managers often end up in conflicts;
2. Matrix entails wide use of group decision making because group cooperation
is required for success. The inevitability of group cooperation at times
delays decision making;
3. If the organisation has too many projects, the result may be severe layering
of matrixes. Uncontrolled growth of matrix structures often results in power
struggles between managers;
4. Matrix structure may be expensive. The dual chain of command may cause
management costs to double.
When there is an economic crunch and the organisation has to cut back,
matrix structure are the first to go. Despite the drawbacks, these of matrix
structure has spread to many industries. In addition to construction and
engineering, consumer goods, banking, insurance and computer companies are
now using it. Variations of matrix are also used by hospitals and other professional
organisation.
7.3.6 CONTINENTALS ORGANISATION DESIGN
The contingency approach to organisational design suggests using whatever
approach is most effective. Accordingly, so many flexible structure are adopted
these days to meet the specific needs of the organisations. The idea is that the
internal functioning of organisations must be consistent with the demands of the
organisation‘s task, technology, external environment, and the needs of its
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members if the organisation is to be effective. This approach basically implies the

development of a contingency theory of organisation. The approach is based on the
exigencies of the situation.
William F. Glueck, offers the following guidelines for contingency design:
1. When low cost and efficiency are the keys to successful goal achievement,
organisations should use functional departmentation.
2. When the environment is complex, matrix structure is effective;
3. If the organisation is large and operates in a stable environment, it can
afford to formalise the structrure.
4. The greater the intensity of competition, the greater will be the degree of
decentralisation.
5. The greater the volatility of the environment, the more decentralized and
flexible the organisation has to be; and
6. Companies that implement the organisational style appropriate to their
strategy will be more effective than those that use an in appropriate style.
7.4 REVISION POINTS
Departmentation- Steps in Designing Organisation Structure- Product/Market
Departmentation- Territorial Departmentation- Customer Departmentation-
Product Departmentation
7.5 INTEXTQUESTIONS
1. Define departmentation. What is the need for departmentation in present
day big organisation.
2. What are the basic characteristics of functional departmentation? Analyse
its merits and demerits.
3. Elaborately discuss various bases of departmentation.
7.6 SUMMARY
The managerial function organising is the process of identifying the important
activities to be performed to achieve the objective, grouping of related activities,
assigning such groups of activities of people and providing for coordination by
establishing authority-responsibility relationships among people. Creation of
departments within the organisation – the process known as departmentation,
resulting in the design of a structure is an important task in organising. Different
patterns of departmentation are used by organisations depending on their specific
requirements. Important among them are functional, product, customer, and
territorial departmentation. Matrix organisation which is a hybrid form of both
functional and project / product departmentation is also being increasingly used by
organisations operating in highly competitive markets. The question that what
kind of structure is best, has no single right answer. It depends on the situation.
Some firms needs stable systems while some other need flexible systems. The
nature of the task, technology, environment and the needs of the organisational
members are some of the factors that influence the design of the structure.
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7.7 TERMINAL EXERCISE

Write short notes on the followings
1. Territorial Departmentation
2. Customer Departmentation
3. Product Departmentation
7.8 SUPPLEMENTRAY MATERIALS
1. https://www.scribd.com/doc/45883443/Principles-of-Mangement-MG2351
2. http://www.ebookbou.edu.bd/Books/Text/SOB/MBA/MBA_1301_full.pdf
3. http://2012books.lardbucket.org/pdfs/management-principles-v1.0.pdf
7.9 ASSIGNMENTS
1. Suggest a method of departmentation for a large multi product organisation
with a large market spread over the whole country. Explain the reasons for
your suggestion.
2. Do you agree with the view that there is no one best way of departmentation
applicable to all organisation? Substantiate your answer and explain what
factors influence departmentation.
7.10 SUGGESTED READINGS
1. Miner, John B. 1978. The Management Process, Macmillan, New York.
2. Naisbitt, John, 1982. Megatrends, Warner books, New York.
3. Glueck, William F. 1984. Management, Dryden Press, Hinsdale.
4. Lorsch, Jay W and Lawrence, P.R. 1970. Studies in Organisation Design,
Richard D. Irwin, Homewood.
5. Hodgets, Richard. M. 1986, Management, Academic press, New York.
7.11 LEARNING ACTIVITIES
1. The following case analysis can enhance the students ability of taking
efficient decisions regarding departmentation.
1. Case study
Confusion in Auto Parts Limited
Auto parts Limited, a medium-size company engaged in the manufacture of
automobile components was started by Mr. Reddy, a technocrat in 1988. Things
went on well for a couple of years. Problems began to surface in the early nineties
because of the recession, in general, in the automobile industry. Since the demand
for the company‘s products is a derived one, the company could not insulate itself
from the fluctuating fortunes of the automobile industry. As the parent industry
began to cross the recession, happy days are once again here for the Auto parts
Limited. Because of the quality products that the company is known for, several
internationally reputed automobile companies are also eager to source their
requirements for components with Auto parts Limited.
 85

All these developments should naturally make Mr. Reddy, a happy man these
days. But he is concerned with certain organisational problems and is wondering
as to how to organise the company in the light of tremendous potential for growth.
He is particularly tried of being the only one in the company responsible for profits.
The company, since inception has been organised on functional lines. He has good
managers heading the functions departments like manufacturing, finance, sales,
advertising and product research, but none of them could be held responsible for
the contribution of their respective areas to company profits. Besides, each
manager began to complain against the other. For instance, sales manager, the
other days, complained that he could not be fully responsible for sales when
advertising was ineffective, when the products wanted in the market were not
readily available from manufacturing. He further complained that the
manufacturing department did not heed to their suggestions regarding certain
modifications in the products. In turn, the manager in charge of manufacturing
argued that financial controls did not allow his department to carry a large
inventory of everything and he was obsessed with cutting down the costs.
Mr. Reddy is really sick of these internal squabbles among the functional
heads and is seriously considering the idea of breaking the company down into six
or seven product divisions with a manager for each with complete responsibility
over the product including the project. But he feels that this would not be
economical since many of the products are produced with the same equipment and
raw materials. Further, a sales person calling on a customer (the automobile
company or the spare parts dealers in the market) could far more economically
handle a number of related products than one or a few.
Confronted with the above dilemma, Mr. Reddy came to the conclusion that
the best thing to do is to set up six product managers reporting to a product
marketing manager. Each product manager would be given responsibility for one
or a few products and would oversee all aspects of manufacturing, product
research, sales and advertising. Thus, in essence each product manager would be
responsible for the performance and profits of the products assigned to him.
Mr. Reddy is bent on reorganising the company on the lines presented above
and to hope for the best. But still he is not clear in his thinking and has some
confusion about the new reporting relationships that would emerge after the
proposed reorganisation exercise is over.
Questions
1. What is the exact problem in the case? Do you view the problem very
serious? or, is Mr. Reddy over reacting?
2. What are your comments on the scheme of things that Mr. Reddy proposes
to reorganise?
3. What would you do to avoid any confusion and to help the company achieve
its ambitious goal of emerging as a leader in the auto components industry?
7.12 KEYWORDS
Departmentation- Organisation Structure- Product/Market Departmentation-
Territorial Departmentation- Customer Departmentation- Product Departmentation

 86

LESSON –8
SPAN OF MANAGEMENT AND ORGANIZATIONAL STRUCTURE
8.1 INTRODUCTION
Organisation must continually adopt to meet competition. Consequently, their
structure must be modified periodically. Management expert Tom Peters estimates
that about 50 per cent to organisation problems arise from inappropriate
organisational structure. As discussed in the previous lesson, organising is the
process of dividing work among individuals and groups and coordinating their
activities to accomplish goals. The process, obvisously, results in the creation of a
structure. The different patterns adopted by organisations to create such structure
have also been examined in the previous lesson.
To adopt to the process of the environment. A look at the organisation chart of
any company provides an understanding as to the pattern used to divide the
organisation into manageable units and the corresponding authority-responsibility
relationship among people working in the various departments.
8.2 OBJECTIVES
After studying this lesson, you should be able to:
 understand what is an organisation chart and what it explains;
 describe the concept of span of control; and
 appreciated the traditional as well as the current thinking on span of
control.
8.3 CONTENTS
8.3.1 Organisation Chart
8.3.1.1 Chain of Command
8.3.1.2 Unity of Command
8.3.2 Span of Control
8.3.2.1 Classical Thinking on Span of Control
8.3.2.2 Current Thinking on Span of Control
8.3.2.3 Factors Influencing Span of Control
8.3.1 ORGANISATION CHART
An organisation chart is simply a diagram of all the positions in an
organisation and their formal relationships to one another. The important purpose
referred by an organisation chart is that it illustrates an organisation‘s overall
shape and the levels of management in a comprehensible manner. The organisation
chart of a typical company organized on functional basis is present in the figure –
8.1.
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Figure–8.1

CHAIRMAN

MANAGER MANAGER MANAGER

PRODUCTION MARKETING FINANCE

MANUFA- QUALITY ADVER- ACCOUN- TAXES

SALES TISING
CTURING CONTROL TING

From the above Figure exhibit-8.1

1. The hierarchical structure that is typical of most organisation;
2. The number of management layers or levels;
3. Degrees of authority and status of the individuals as indicated by the
location of their positions in relation to other positions;
4. How an organisations activities are divided in terms of departments (whether
by function, by product, by territory and so on);
5. The work being done in each position (indicated by the labels in the boxes);
6. Interaction of people as indicated by the horizontal and vertical lines
connecting various positions/departments;
7. Relations between superiors and subordinates – who report to whom, that
is, the chain of command;
8. How many subordinates report directly to each manager, that is, the span of
control;
9. Career progression – routes to the higher levels; and
10. Formal channels of communication (indicated by the connecting lines).
However, an organisation chart does not show:
1. The ongoing dynamics of workplace behaviour – in a way, organisation
charts are static;
2. Interactions between people who have no official reporting relationships,
that is, the informal organisation (subject matter of lesson – 6).
3. Personal preferences and coalitions;
 88

4. Informal communication channels, that is, the grapevine; and

5. Interference by outsiders.
The organisation chart of any company enables one to understand easily three
classical principles of organising viz., chain of command, unity of command and
span of control.
8.3.1.1 Chain of Command
As an organisation‘s activities are divided into departments, co-ordination
becomes necessary for integrating individual and group efforts so as to achieve the
goals. Such co-ordination is achieved through a systematic placement of positions
and duties. This type of arrangement various positions in an orderly way is termed
scalar chain or chain of command. The chain of command exists whenever one
individual is made subordinate to another. Since ancient times, it has been
recognised that the only way to structure unified systems involving large number of
people is through a chain of command. The results hierarchy is found in every
company or in any human system including a family. Figure-8.2 depicts the chain
of command in a typical manufacturing company.
Figure –8.2

CHAINRMAN

MANAGER
PRODUCTION

PLANT
MANAGER

SUPERVISOR

In addition to defining different degrees of authority or people, Chain of

Command also suggest the routes through which information flows within an
organisation.
8.3.1.2 Unity of Command
The Chain of Command principle implies another feature of organising – one
subordinate, one boss, if the efforts of subordinates are to be effectively
coordinated, it is necessary that they must have a reporting relationship with only
one superior. Unit of Command principle avoids the confusion as to who should
report to whom and whom should issue orders to whom. However, the truth of the
matter is that unity of command is violated in varying degrees in almost every
organisation. As understood earlier (lesson-7), it has been especially undermined
by the emergence of matrix organisation structure.
 89

8.3.2 SPAN OF CONTROL

Whereas chain of command and unity of command relate to the vertical
structure of an organisation, span of control relates to the horizontal structure.
Just as a growing organisation ultimately reaches a point at which it is impossible
for one person to handle all the work, there is a limit to the number of subordinates
that a manager can effectively supervise. But for this limit, organisations would
have not taken the pyramid shape. Span of control refers to the number of
subordinates that report directly to a manager.
In the olden days, a great deal of attention was directed to the issue of span of
control. The thinking was that an effective span of control involved some definite
number of subordinates. Often, one of the first things done by an organisational
analyst or consultant was to count the number of subordinates reporting to each
manager. In each instance, when the number exceeded a definite figure, say-six or
eight, there would be a recommendation to narrow the span. Thus, the thinking of
the classical theorists about the span revolved around a definite number. For
example, Lyndall Urwick found ―the ideal number of subordinates for all superior
positions to be four and at the lower level of organisation, the number may to eight
to twelve‖. But empirical research subsequently found the actual practices among
companies regarding span to be widely varying.
The span of control, also called span of management, has gained importance
as a principle of organising because of the limitation on the part of a manager to
manage an infinite number of subordinates. This obviously results in the levels in
the organisation. Thus, an inverse relationship generally exists between the span
of control and number of management levels. That is, if an organisation has wide
spans, the resulting structure will be flat, with few levels of management.
Conversely, if an organisation has narrow spans, the structure will be tall, with
many management levels. Both the situations of flat as well as narrow spans and
the resulting flat and tall structures are shown in Figure-8.3 and 8.4.
Company A: Tall structure caused by narrow spans of control for 64 operative
employees
(Spans of control: 4; Management layers – 3
Figure – 8.3
Present

DH DH DH
DH

S S S S S S S S S S S S
S S S S
 90

Company B : Flat structure caused by wide spans of control for 64 operative

employees.
(Spans of control : 8, Management layers : 2)
Figure – 8.4
Present

S S S S S S S S

DH = Department Head S = Supervisor

As the above exhibits clearly show, in company A, each supervisor‘s span of

control covers four subordinates, and four department heads report to the
chairman. There are a total of 21 managers, arranged in four management levels.
In contrast, in company B, each of the eight supervisors exercise control over eight
subordinates. As a result, there exists only three layers. In this case, by increasing
the span of control from four to eight, one layer of management is eliminated.
Problems with Levels
Creation of too many levels have certain problems relating to communication,
managerial control and in addition to the costs involved.
i. Communication: Experience shows that the greater the number of
management levels a message must pass through, the longer it will take to reach its
destination. More often, the information also loses clarity. In effect, successive
layers of management act as communication filters distoring the transmission of
information. Thus, communication of organisational objectives, plans and policies
becomes difficult. Omissions and misinterpretations usually occur as information
passes through too many levels in the scalar chain.
ii. Managerial control: The distance between the top and bottom levels of an
organisation also affects control. For example, even the best of the plans which are
definite and complete at the tope level loses clarity as the plans are sub-divided and
elaborated at lower levels. Consequently, at the implementation stage of the plans,
control becomes difficult.
iii. Costs: Too many levels involve lot of expenditure. Additional facilities in
terms of secretarial staff have to be provided besides the pay differentials in the
compensation package. In many organisations substantial expenditure has been
saved by increasing the span.
8.3.2.1 Classical Thinking on Span of Control
The traditional theory of management was much concerned with the specific
number of subordinates that could be supervised by a manager. For instance,
Lyndall Urwick suggests that no executive should attempt to supervise directly
 91

more than five. Different thinkers suggested different spans both at the top and
lower levels of organisation.
The contribution of U.A. Graicunas was however, significant to the span of
management theory. According to him, in selecting a span managers should
consider not only the direct one-to-one relationships with their subordinates, but
also two other kinds of relationship, namely, direct group relationships and cross-
relationship. As such, if a has two subordinates B and C, the following
relationships would emerge.
i. Direct one-to-one relationship
These relationship relate the superior directly with his subordinates A, in this
case will have two direct relationships with B and C, viz. A to B and A to C.
ii. Direct group relationship
This type refers to the superior relationship with the various possible
combinations of subordinates. In the above example, A may interact with B in the
presence of C or with C in the presence of B. Graicunas argues that though the
individuals are same, the two situations have different implications.
iii. Cross – relationship
This type of relationship are created when subordinates consult one another.
In our example, the two cross-relationships are B with C and C with B.
Graicunas gave a formulae to ascertain the number of all three kinds of
relationships:

 2n 
Number of relationships = n   n  1
 2 
n stands for the number of subordinates. One can easily ascertain how the
number of relationships increases as the number of subordinates rises by applying
this formulae. With four subordinates, the total relationships go upto 44, with five
subordinates to 100, with six subordinates to 222, and with 10 subordinates to
5,210.
Though Graicunas formulae explains the complexities involved as the number
of subordinates increase, it suffers from the following inadequacies.
1. The formulae ignores the frequency and importance of relationships.
2. Several other several which have a bearing on the superior-subordinate
relationships have not been taken into consideration while framing the
formula.
8.3.2.2 Current Thinking on Span of Control
In contrast to the traditional thinking on the span of control, modern
management theories emphasise that there are too many variables that influence
the span. Thus, the emphasis has shifted to the variables in the situation. While
the fact that there is a limit to the number of subordinates that can be effectively
 92

managed cannot be disputed, the exact number will depend upon the following
factors.
8.3.2.3 Factors Influence Span of Control
i. Manager’s personality :If managers share a strong need for power, they may
prefer a wider span of control. On the otherhand, some managers feel threatened
because they cannot oversee the activities of too many people. Such managers
would naturally prefer a narrow span.
ii. Manager’s capability :An experienced, well trained and knowledgeable
manager is normally able to handle a relatively wider span than a less capable
manager.
iii. Subordinates capability :Experienced and well-trained subordinates will be
able to resolve the difficulties themselves. They do not take much of the time of the
superior. The need for frequent contacts is also obviously less.
iv. Fatigue tolerance :Physical and mental fatigue may limit a manager‘s
capacity for control. There are only so many hours in a day, and only so many
things can be done at once.
v. Activity level :The pace and pattern of work in an engineering firm, an
investment firm, and a university differ in many respects. Moreover, there also
exists differences between the various units of an organisation. For example,
production compared to public relations. Thus, the more active pace and pattern of
a manager‘s work, the narrower the appropriate span of control.
vi. Nonsupervisory activities: If the manager spends more time on nonsupervisory
activities like ling-range planning and outside assignments, he tends to have less time to
supervise the subordinates. This obviously limits the span.

vii. Similarity of Activities Supervised :If the nature of activities performed by

the subordinates is routine, the superior can manage many subordinates. On the
other hand, if unique and non-routine problems are more frequent, the span is
limited.
viii. Complexity of work :Simple job assignments are usually easier to supervise
than complex ones. The problems that arise are generally less demanding and take
less of the superior‘s time. Thus, less supervision will be necessary, contributing
for a wider span.
ix. Availability of sophisticated facilities :Availability of more advanced and
sophisticated facilities like high speed telecommunication devices, modern office
equipment, etc. will help the manager in managing a relatively wider span.
x. Location :If subordinates are physically dispersed, a manager will need to
spend more time in traveling and communicating. The span of control in such a
case will be narrow.
 93

To conclude, it has to be remembered that despite the desirability of flat

structures, the span of control, may be limited by certain factors. As an enterprise
grows, the increase in organisation levels cannot be completely avoided. What is
required is a precise balancing of all the factors in a given situation. Widening
spans and reducing levels may be the answer in some cases, while the opposite
may be true in others. One must balance all the advantages and disadvantages.
8.4 REVISION POINTS
Organisation chart- Chain of Command - Unity of Command - span of control
- factors influence span of control
8.5 INTEXT QUESTIONS
1. What do you mean by span of control? Examine the traditional as well as
modern view points on the span of control.
2. How does a tall organisational structure differ from a flat one? Give an
example of each.
3. Discuss the merits and demerits of functional structure.
8.6 SUMMARY
The Organisational chart of a typical company and the important aspects that
it explains such as chain of command, unity of command and span of control have
been discussed in this lesson. Span of control, one of the important principles of
organising has been analysed in detail. It refers to the number of subordinates that
a superior can effectively manage. The principle suggests that there is a limit on
the number of subordinates that can be managed by a superior. This limitation
gives rise to the levels in the organisation. If the span is wide, it would result in a
flat structure. Conversely, if it is narrow, the result would be a tall structure. Both
the types of structures have merits and demerits. The classical thinker‘s view point
regarding the span, vis-a-vis, the modern view as to how span is influenced by
various factors of the situation like the capabilities of superiors and subordinates,
the nature of the task, environment, etc. have been examined in detail.
8.7 TERMINAL EXERCISES
Write short notes on followings
1. Organisation Chart
2. Chain of Command
3. span of control
8.8 SUPPLEMENTRAY MATERIALS
1. https://www.scribd.com/doc/45883443/Principles-of-Mangement-MG2351
2. http://www.ebookbou.edu.bd/Books/Text/SOB/MBA/MBA_1301_full.pdf
3. http://2012books.lardbucket.org/pdfs/management-principles-v1.0.pdf
 94

8.9 ASSIGNMENTS
1. ―Organisation chart provides a broad picture of positions of authority and
their relationships in the organisation structure‖. Examine this statement.
2. Calling upon your personal experience as a student of management, give a
few examples of chain of command.
8.10 SUGGESTED READINGS
1. Dale, Ernest, 1960. The Great Organisers, McGraw Hill, New York.
2. Drucker, Peter. F, 1974. Management Tasks. Responsibilities, practices,
Harper & Row, New York.
3. Cleland, David I, and William. R. King, 1975. Systems analysis and project
Management, McGrawHill, New York.
4. Kast F.E., and J.E. Rsenzweig, 1973. Organisation and Management :A
systems Approach, McGrawHill, New York.
5. Hodgets, Richard. M. 1986. Management, Academic Press, New York.
6. Koontz, Harold and Others, 1984. Management, McGraw-Hill, Tokyo.
8.11 LEARNING ACTIVITIES
1. By giving assignments to the students for preparing various types of
organizational charts in leading companies in India, this lesson can be
practically taught to the students.
8.12 KEY WORDS
Organisation chart- Chain of Command - Unity of Command - span of control
- factors influence span of control

 95

UNIT- III
LESSON – 9
DELEGATION OF AUTHORITY
9.1 INTRODUCTION
Authority is the right to command. It is the discretion power vested with a
manager to use the organisational resources. Managers acquire authority by virtue
of the rank or title associated with their positions.
There are two principle views regarding the source of authority. The classical
view holds that authority passes from the ―top down‖. In contrast, the acceptance
view contends that authority flows from the ―bottom up‖
Figure–9.1
Top

Acceptance
Classical
theory of
view of
Authority Authority

Bottom Bottom

9.2 OBJECTIVES
After studying this lesson, you should be able to:
 understand the concepts of ‗authority‘ and ‗power‘.
 perceive the sources of ‗authority‘ and ‗power‘ in the organisationl context;
 asserts the process of delegation and the barriers to effective delegation; and
 the factors influencing decentralisation of authority.
9.3 CONTENTS
9.3.1 Classical Theory of Authority
9.3.2 Acceptance Theory of Authority
9.3.3 Power
9.3.4 Delegation of Authority
9.3.5 Barriers to Effective Delegation
9.3.6 Overcoming the Barriers
9.3.7 Decentralisation of Authority
9.3.8 Factors Influencing Decentralisation
 96

9.3.1 CLASSICAL THEORY OF AUTHORITY

According to this theory of authority, managers derive their authority from the
right of private property, which is guaranteed by the constitution and the
concerned laws of the country. Thus, the right to own the property and to manage
it without violating the rights of others is conferred on the individuals by the
constitution. In most of the large scale organisations, shareholders who are the
real owners of the company transfer their ownership rights to the board of
directors, which in turn, may appoint a chairman (chief executive officer) to manage
the organisation‘s day-to-day operations. Likewise, the chairman may appoint
managing director, who in turn may, appoint several managers down the line.
Formal authority thus is transferred from top to down in the orrganisation. The
authority thus is transferred from top to down in the organisation. The authority
thus possessed by the managers by virtue of their position in the organisation is
known as formal authority.
9.3.2 ACCEPTANCE THEORY OF AUTHORITY
The acceptance theory of authority was popularised by management thinker
Chester.I. Barnard. According to this theory, authority stems from accepting an
order that a subordinate can always reject a directive. It is only by accepting an
order that a subordinate affirms the right of a manager to issue the orders or
commands.
Barnard contends that subordinates will accept orders given by their superiors
provided that the orders meet four conditions. These conditions define what is
acceptable by a subordinate and, thus, create a zone of acceptance within which
authority may be exercised. A subordinate will accept an order and comply with
authority under the following four conditions:
1. The subordinate understands the order.
2. The subordinate believes the order is consistent with organisational goals.
3. The subordinate believes the order is compatible with his or her personal
interests.
4. The subordinate is mentally and physically able to comply with the order.
Effective managers make certain that their orders fall within their
subordinates ‗Zones of acceptance‘.
9.3.3 POWER
The terms authority and power are often confused. Authority as described
above, is the right to command or issue orders. Power, on the other hand, is the
capacity to influence others. All managers have power by virtue of the positions
they occupy. Power, however, does not necessarily stem from authority. In other
words, people with authority may have power. But interestingly in some systems,
people may exercise tremendous power though they have no formal authority.
Thus, we find people at lower levels also without any authority sanctioned to them
by the formal system, enjoying captivating power over the colleagues and at times
may influence even the superiors.
John R.P. French and Bertram Ravan have identified five basic types of power.
The first three types – reward, coercive, and legitimate – generally are associated
 97

with a manager‘s position. The last two – referent and expert – are part of the
person, not the position.
Reward poweris based on a manager‘s ability to provide various kinds of
rewards for complying with orders. The rewards generally include salary increases,
promotions, favourable job assignments, praise and recognition.
Coercive power isbased on a manager‘s ability to punish for not complying
with orders. Coercion may take the form of verbal reprimands, disciplinary actions
like fines, demotions and threats of suspension or termination.
Legitimate power is based strictly on an individual‘s position in the
organisational hierarchy. The higher a manager is in the hierarchy, the greater his
or her legitimate power. As such, the manager‘s legitimate power and formal
authority are one and the same.
Referent PowerRefers to the power enjoyed by some people because of their
integrity and charisma. Any individual who wins over the subordinates by his
personality and ability to take them with him enjoys this power. Subordinates in
any organisation usually like to identify with such an individual. This power is
purely personal. For example, managers who win the admiration of people with
whom they work may be able to exercise influence over them to behave in a
particular way.
Expert power is based on possessing valued knowledge or special skills. A
manager who possesses such knowledge or skill has power over others who do not.
Managers who offer the right solutions to subordinates‘ questions and provide
support yield expert power. The saying that ‗knowledge is power‘ is thus true.
Responsibility
Responsibility, in the organisational context, is obligation to perform the tasks
and account for their satisfactory completion. It is implied that an individual is
expected to fulfil certain job requirements when he or she accepts a position in the
organisation. But in the same way the individual enters a contract with the
organisation. In other words, the individual enters a contract with the organisation
to perform the tasks of the position in exchange for certain rewards. Meantime the
individual is answerable for the results of the task to be performed. In contrast to
authority, responsibility of an individual in the organisation is upwards, that is, the
subordinate is responsible to his or her superior.
9.3.4 DELEGATION OF AUTHORITY
Delegation is the process by which authority passes from one organisation
level to another. But for delegation of authority, organisations would remain
forever small. Delegation is the only solution to cope with the increasing work load
of managers as the organisation grows. Because of the constraints of time and
ability, a manager cannot perform all the tasks himself. Therefore, he hand over
certain tasks to the subordinate and gets them done. The process of delegation has
the following steps.
Entrustment of Duties or Assignment of Responsibilities :This is a crucial step in that
a few important questions like what to delegate? when to delegate? whom to
delegate? and how to delegate are answered. The effectiveness of delegation
 98

depends on how clearly these questions are answered. Primarily the manager has
to decide the tasks to be delegated to the subordinates. For this, he must be able
to distinguish between the routine and non-routine tasks. Routine and single tasks
can as well be performed by the subordinates while the non-routine and very
important tasks must be performed by himself.
Granting of authority: When the subordinates are assigned certain tasks or
responsibilities, it goes without saying that they need authority also to perform the
tasks. Authority is required by them to make use of the resources of the
organisation in the execution of the tasks. The superior, therefore, parts with his
authority to enable the subordinate to perform. Responsibility and authority both
go together. One of the important principle of organising – parity of authority and
responsibility emphasizes the need for a proper balance between the two.
Creation of accountability: Delegation does not end with just entrusting of
duties and the granting of authority. The superior has to create an obligation on
the part of the subordinate to perform. In other words, the subordinate is
accountable to his superior for the tasks delegated. Thus, while authority flows
downwards, responsibility flows upwards. Normally, accountability is created by
asking the subordinate to submit performance reports/status reports from time to
time.
9.3.5 BARRIERS TO EFFECTIVE DELEGATION
Though delegation is a powerful device whereby managers reduce their
workload, unless adequate care is exercised the result may be considerable anxiety
for both superious and subordinates.
Delegation requires effective communication. The subordinates while
accepting delegation must understand exactly what the superior wants. Delegation
also involves motivation, influence and leadership. To make effective delegation,
the spirit and willingness of both the parties are crucial. Following are some of the
reasons why delegation often fails in organisation, for which both superiors and
subordinates are responsible.
Superiors Resistance to Delegation
i. The ―I can do it better myself fallacy‖. Some managers always suffer from a
feeling that they only can do the job better. Consequently two things happen.
First, spending time on a task a subordinate could perform means the manager
may not be able to perform other important duties like policy formulation and
supervision. Second, unless the manager allows subordinates to attempt new
tasks, they will be unable to develop their skills. Thus by insisting on doing things
themselves managers often fail to meet their responsibility for training and growing
subordinates for promotion to higher levels.
ii.Lack of ability to direct : Some managers become so involved in day-to-day
operations that they neglect the broader picture. Unable to understand the long
term perspective of the work flow, they do not fully realise the importance of
distributing work among subordinates. Some managers deliberately do this
because of lack of confidence in their supervisory ability.
iii.Lack of confidence in subordinates : Lack of trust and confidence on
subordinates abilities and skills make the superiors reluctant to delegate. As a
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result, subordinates lose initiative and frequently seek the guidance of the bosses to
know whether they are doing the things correctly.
iv. Aversion to risk: Since the superior can not absolve himself of the final
performance of the task, he may fear that delegating the job will cause problems.
Further, those superiors who see a threat in the subordinates always try to avoid
delegation. This is mostly due to the mind set where the superior fears that he may
be outsmarted by the subordinate and eventually the latter may become a potential
threat to his position.
v. Absence of selective controls : When certain duties are delegated to
subordinates, the superior has to ensure proper controls in the form of feedback
about performance. It gives, the superior the security of knowing the problem
before much damage takes place. If controls are not adequate and effective,
manager has good reason to avoid authority delegation.
Subordinates Resistance to Delegation
It should not be construed from the above discussion that superiors are only
responsible for poor or ineffective delegation. The subordinates role in the whole
exercise cannot be lost sight of. Their attitude and skills play a significant role.
Sometimes, subordinates may avoid responsibility and block the delegation process
for the following reasons:
1. The subordinate finds it easier to ask the boss what to do rather than taking
the initiative himself.
2. The subordinate fears criticism for mistakes. Since greater responsibilities
increase the chances of making an error, the subordinates for the sake of
security try to avoid additional responsibilities.
3. To subordinate lacks the information and resources needed to do the job
successfully. Some managers with a view to let down their subordinates
may deliberately make the delegation unclear. As a result the subordinate
land himself in confusion as to the exact nature of the duties and the
authority that he can exercise. The motive of the superior in such cases
may be to make the subordinate fail in execution.
4. The subordinate believes he or she has more work than he or she can do.
For fear of over burdening himself he may not show any interest to accept
new responsibilities.
5. The subordinates lack self-confidence. Added to that the fear that they will
get into trouble in the event of failure puts them in a still worse situation.
6. To subordinates is not offered any incentives or benefits in terms of pay
rises, importance and status for assuming additional responsibilities.
9.3.6 OVERCOMING THE BARRIERS
Several of the barriers to delegation discussed here are deeply rooted in
human behaviour. Insecurity, aversion to risk, lack of self-confidence, inability to
trust another to perform a task are all different types of manifestations of human
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behaviour. Among the various barriers, psychological barriers are the most difficult
ones to overcome. To overcome many of these barriers, both superiors and
subordinates must take a hard look at themselves, recognize their own fears and
try to come out of the inhibitions.
To start with, superiors have to create effective control systems to feel secure
about delegating a high degree of authority. They have to also realise their
inadequacies and take initiative to improve their leadership skills. They can also
help the subordinates overcome their insecurity feeling by creating an environment
of mutual trust and confidence. Perhaps the most important means to effective
delegation are clear communication, following the parity principle and positive
incentives.
i. Communication : When a subordinate does not perform the tasks as expected
by management, the problem can be faulty communication. In the hurry to get the
things done, managers may skip through what they exactly expect from the
subordinate. The subordinate may also hesitate to ask questions for looking
stupid. At times, subordinates too, may be in a hurry to get with the job.
Consequently, both parties may think they understand what was assigned and
expected. Later, often too late, the work is not done right and both are
disappointed. Thus, effective communication to subordinates of their
responsibilities, tasks and authority reduces the chances of misunderstandings
between the two and thus paves the way for fruitful accomplishment of the tasks.
ii. Parity Principles : For delegation to be effective, it is necessary for authority
and responsibility to coincide; that is, management must delegate sufficient
authority for an individual to be able to accomplish the tasks for which he has
assumed responsibility. For example, a marketing manager who got the task of
increasing sales delegated to him can accomplish the task, only when he is given
authority to conduct an advertising campaign and provide motivational incentives
to sales people. Absence of such an authority to use the organisational resources
lands him in frustration.
Unfortunately, the parity principle is often violated in practice. Imagine
yourself being for a while in the situation of having responsibility for the tasks
without sufficient authority. In such a case you should let the superior know as
soon as possible the actual situation and get the situation corrected.
iii. Incentives for additional responsibility : Additional responsibility usually
means additional work and more risk for the person assuming it. The average
person in any system expects to be rewarded for the additional responsibilities in
some way. But unfortunately, many organisations fail to offer positive rewards.
(current research strongly indicates that employees will not be fully motivated if
they feel they are giving the organisation more than what they are getting). The
rewards may be in many forms. Additional pay, promotion opportunity, a better job
title, praise added status, more pleasant working conditions, etc. proved to be very
effective.
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Having understood the concept of delegation of authority, the do‘s and don‘ts,
it is appropriate to take a look at the different degrees of delegation. Though
delegation broadly involves assignment of duties and the granting of necessary
authority to subordinates the actual practices vary. Harvey sherman categorised
the following six typical degrees of delegation.
1. Take action – no further contact with me is needed.
2. Take action – Let me know what you did.
3. Look into this problem – Let me know what you intend to do; do it unless tell
you not to do.
4. Look into this problem – Let me know what you intend to do; delay action
until I give approval.
5. Look into this problem – Let me know alternative actions available with pros‘
and cons‘ and recommend one far my approval.
6. Look into this problem – give me all facts; I will decide what to do.
9.3.7 DECENTRALISATION OF AUTHORITY
The term ‗decentralisation‘ should not be confused with that of delegation.
Although the two are closely related, decentralization is much more winder in scope
reflecting management‘s philosophy regarding which decisions to be taken at the
tope as well as down line in the organisation. While in delegation, authority is
transferred on one-to-one basis from the superior to the subordinate,
decentralization of authority is broader in scope and involves the transfer of
authority in the organisational context from top to the lower rungs of management
in the hierarchy. Thus, the greater the amount of authority delegated throughout
the organisation, the more decentralized the organisation is.
It must also be understood that both absolute centralization and absolute
decentralization are undesirable for the former refers an autocratic structure while
the latter results in a chaotic situation. For this reason, decentralization must be
viewed as a relative concept, not as an absolute one. Ernest Dale, a well-known
management writer, has described the following conditions where decentralization
is greater;
1. The greater the number of decisions made lower down the management
hierarchy.
2. The more important the decisions made lower down the management
hierarchy. For example, the greater the sum of capital expenditure that can
be approved by the plant manager without consulting anyone else, the
greater the degree of decentralization in this field.
3. The more functions affected by decisions made at lower levels. Thus,
companies which permit only operational decisions to be made at
branch/plant levels are less decentralized than those which permit financial
and personal decisions at branch / plant level.
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4. The less checking required on the decision. Decentralization is greatest

when no check at all must be made; less when superiors have to be
informed decision after it has been made, still less if superiors have to be
consulted before the decision is made. The fewer people to be consulted,
and the lower they are on the management hierarchy, the greater the degree
of decentralization.
The advantages of decentralization are similar to the advantages of delegation.
Unburdening of top managers, improved decision making, because decisions are
made closer to the scene of action, better training, morale and initiative at lower
levels, and more flexibility and faster decision making are some of the advantages
of decentralization. These advantages are widely acclaimed so much, so that
decentralization is often regarded as ‗good‘ and centralization as ‗bad‘.
But total decentralization, as mentioned earlier with no coordination from the
top would be undesirable. That is why, the question before manager is not whether
an organisation should be decentralized, but to what extent it should be
decentralized.
On the whole, the appropriate amount of decentralization for an organisation
will vary with time and circumstances. It will also vary for the different units of the
organisation. For example, production and sales departments, in general, have
gained a high degree of decentralization in many organisatins, whereas financial
departments have tended to remain relatively centralized.
9.3.8 FACTORS INFLUENCE DECENTRALIZATION
i. Top Cost and Impact of the Decision : Managers may be skeptical about
decentralization of decision making authority where the commitment involved in
the decisions is very high in terms of impact on the performance of their own units
or the organisation as a whole. As a rule of thumb, the greater the cost involved,
the more likely it is that the decision will be made at the upper levels. We often find
situations in organisations where managers at a particular level seek the approval
of superiors where the expenditure involved exceeds a certain limit.
ii. Company Size and Rate of Growth : It is very difficult of manage a large
organisation efficiently with decision-making authority concentrated in one or few
at the top. Further, as an organisation grows in size and complexity, the need for
decentralization is obviously felt. Top management cannot continue to hold a tight
grip over the several aspects of the growing organisation. This is principal reason
why organisations often engage in reorganising their units and operations as the
grow in size. The necessary autonomy is given to the units or departments so that
top management can concentrate itself with more important tasks such as strategic
planning, policy formulation and controlling the overall operations of the firm.
iii. Organisation’s Environment : Environment in general influences the strategy
to be pursued to gain or retain competitiveness. The type of competition in the
market, technological developments, socio-cultural and political factors play a
dominant role in the company‘s strategy.Strategy, in turn, influence the type of
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structure that can cope with the environmental pressures. In a fast changing
environment as of today, one can easily find companies choosing decentralized
structures that facilitate quick response to the environment.
iv. Philosophy of Top Management : Some firms are highly centralized, whereas
others are highly decentralized because of the character and philosophy of their top
management. The leadership style, the attitudes, values and beliefs of the top
management team have a bearing on the degree of decentralization. For instance, if
Tata group companies have registered a phenomenal growth over the years, it is
partly because of the operational freedom and autonomy, the various units in the
group enjoy. Tatas provide only the direction and spell out the major policies.
v. Philosophy of Subordinate Manager : The philosophy of subordinate
managers is another important factor that influences the decentralization because
they can both encourage or discourage decentralization. If subordinates want
decentralization, top management cannot hold everything in their hands for too
long period. The desire by subordinates for independence and the willingness to
assume increased responsibilities may encourage top management to maintain a
centralized structure.
Now-a-days, in most large-scale organisation, the trend is towards
decentralizatin. This is in line with greater employee empowerment. Pushing
authority down the line to lower levels in an organisation results in an environment
of freedom and experimentation. Employee empowerment helps in foisting an
entrepreneurial spirit in the organisation, by encouraging employees at lower levels
to accept responsibility, to unleash their full potential and most important, to think
and innovate. The benefits of decentralization isclear. However, the extent is of
decentralization depends on the unique requirements of an organization. It
normally varies from organisation to organisation.
9.4 REVISION POINTS
Delegation of authority - Factors affecting delegation of authority- Barriers to
delegation of authority - Employee resistance to delegation of authority
9.5 INTEXT QUESTIONS
1. What are the five types of power? Identify and describe each with suitable
examples.
2. Explain the process of delegation of authority in an organisation. Discuss
the factors that in an organisation. Discuss the factors that encourage it
and those that discourage it.
9.6 SUMMARY
Authority is the right to command. Classical theory lays emphasis on formal
authority, that is, the authority an individual in the organisation enjoys by virtue of
his or her position. The other viewpoint known as ‗acceptance theory‘ suggests that
an individual exercises the authority to the extent it is accepted by his
subordinates.
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A manager must have both authority and power. While authority is positional
in nature, power, the ability to influence others is earned. There are five sources of
power: reward, coercive, legitimate, expert and referent.
Delegation of authority facilitates the organisation to grow. It helps an
organisation use its resources efficiently, frees managers for important tasks,
improves decision-making, and encouraging initiative. Delegation is closely related
to decentralization in the sense that the greater amount of delegation, the more
decentralized in an organisation. The appropriate amount of decentralization for a
particular organisation will depend on factors like costliness and the associated
impact of the decisions, company size and growth, philosophy of top management,
changes in the environment and the attitude and philosophy of subordinates. The
current trend, of course, is towards decentralization.
9.7 TERMINAL EXERCISES
Write short notes on the followings
1. Delegation of authority
2. Resistance of employees
9.8 SUPPLEMENTRAY MATERIALS
1. https://www.scribd.com/doc/45883443/Principles-of-Mangement-MG2351

2. http://www.ebookbou.edu.bd/Books/Text/SOB/MBA/MBA_1301_full.pdf

3. http://2012books.lardbucket.org/pdfs/management-principles-v1.0.pdf

9.9 ASSIGNMENTS
1. Considering the changes that are taking place in the Indian economic
environment in the post – liberalization era, do you believe that there will be
a trend towards centralization or decentralization over the next few years?
Give reasons.
2. How are delegation and decentralization related? Discuss the important
factors that influence the degree of decentralization in an organisation.
9.10 SUGGESTED READINGS
1. Chester A. Barnard, 1938. The functions of the executive, Harward
University Press, Cambridge.
2. Claude S. George, Jr. 1968. The History of Management Thought,
Prentice hall, England Cliffs, J.N.
3. Harold Koontz and Cyril O‘donnel, 1976, Management: A Systems
and Contingency Analysis of Managerial Functions, McGrawHill, New York.
4. John R.P. French and Bertram, Raven, 1959, The Bases of Social power
in Dorwin Cartwright (ed), Studies in Social Power, Institute for
Social Research, University of Michigan.
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5. Harey Sherman, 1966. It All Depends: A Pragmatic Approach to

organisation,quoted in A.F. Stoner and Freeman, Management, 1989,
PrenticeHall, India, New Delhi.
6. Arthur G. Bedian, 1993. Management, The Dryden press New York.
7. Richard M. Hodgets, 1986. Management: Theory, process and practice,
Academic press, New York.
9.11 LEARNING ACTIVITIES
1. Create various groups among the students and ask them to analyse the
following case. the solution and presentation of this case will certainly
improve their technical skills
1. Case Study
The Fairdeal Limited
Fairdeal Limited, is a medium-size company with a turnover of Rs. 50 Crores
and with 500 workers. You have been in the office of its Factory Manager, Mr.
Kumar, for nearly 45 minutes. During this short period you have found that your
conversation with him has been interrupted several times. First, it was the Office
Manager who range him to get his approval for samples of office stationary. Mr.
Kumar sends for the samples. Then comes the ring from a supplier who informs
Mr. Kumar that a particular part of the machinery, which is otherwise not available
in the market, can be had from him.
Mr. Kumar calls up the storekeeper and instructs him to purchase this part
immediately from the supplier and to cancel the order, if any, the purchase officer
might have placed with any other supplier. Then there is a call from a customer
requesting Kumar to allow a higher percentage of discount than that promised by
the company‘s sales manager. Kumar not only turns down the request but also
expresses his surprise at the high percentage already allowed by the Sales
Manager. Finally a foreman enters and complains that a certain part of one
machine is broken and it not being available in the stock, the production may
suffer. Mr. Kumar asks the foreman to tell the purchase manager to order the part
immediately. Questions:
1. From what you have understood in this lesson, how do you describe the
situation in the case? What is the exact problem?
2. Is Mr. Kumar performing the job of a manager? Give reasons to your answer.
3. What are your suggestions to improve Mr. Kumar‘s style of managing?
9.12 KEYWORDS
Delegation of authority - Factors affecting delegation of authority- Barriers to
delegation of authority - Employee resistance to delegation of authority.

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LESSON – 10
LINE – STAFF RELATIONSHIP
10.1 INTRODUCTION
Effective functioning of the formal organisation depends on the authority-
responsibility relationships among people working in groups to achieve the
objectives. Different types of relationships are possible throughout the organisation
structure. We will, in this lesson, understand the line and staff authority
relationships.
Perhaps no other area of management has created as much confusion as the
line and staff authority. Though the concepts have been present in management
literature for many years, they still remain to be clouded with conflict and
confusion. The viewpoints of different authors widely differ in regard to the line and
staff relationships. Let us, therefore, first understand what the line and staff
authority mean.
10.2 OBJECTIVES
After studying this lesson, you should be able to:
 understand the concepts of line and staff authority;
 assess the major reasons for the conflicts between line and staff managers;
 find ways and means to achieve proper harmony between the two; and
 familiarise with various aspects related to the committee form of
organisation.
10.3 CONTENTS
10.3.1 Line and Staff Concepts
10.3.2 Line Authority
10.3.3 Staff Authority
10.3.4 Line and Staff Conflict
10.3.5 Achieving Harmony between Line and Staff
10.3.5.1 Committee Form of Organisation
10.3.5.2 Types of Committees
10.3.5.3 Reasons for the Use of Committees
10.3.5.4 Disadvantages of Committees
10.3.5.5 Successful Operation of Committees
10.3.1 LINE AND STAFF CONCETPS
There are two approaches, to understand line and staff concepts. One
approach lays emphasis on the basic functions of the business. Accordingly,
functions of an enterprise are classified into line and staff function. To quote Louis
Allen: ―Line functions are those which have direct responsibility for accomplishing
the objectives of the enterprise and staff refers to those elements of the organisation
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that help the line to work most effectively in accomplishing the primary objectives of
the enterprise.
Thus, organisational objectives are the basic determinant of line and staff
functions and with the change in the objectives, line and staff functions may
change. A line function in one organisation may be staff function in another. For
example, personnel function in an employment agency is line but it is a staff
function in a manufacturing organisation. In a manufacturing organisation whose
basic objective is to produce and sell goods, production and marketing are line
functions and others such as finance, personnel, legal, etc. are staff functions.
Further, within a department, there may be line and staff function, for example, in
marketing department, selling may be line function whereas market research is a
staff function.
The other approach lays emphasis on the authority and views that line and
staff are two kinds of authority. According to this approach, line authority is
defined as a direct authority which a superior exercise over his subordinates to
carry out orders and instruction. The exercise of this authority is always
downwards, that is, from a superior to a subordinate. Staff authority involves
giving advice to line managers to carry on the operation. The flow of this authority
may be in any direction depending on the need of such an advice. Koontz and
others have defined line and staff authority as follows.
―Line authority becomes apparent from the scalar principle as being that
relationship in which a superior exercises direct supervision over a subordinate –
an authority relationship in direct line or steps. The nature of staff relationship is
advisory. The function of people in a pure staff capacity is to investigate, research,
and give advice to line managers to whom they report‖.
It is common that in actual practice, some variations may exist. The
variations are more pronounced in the case of staff authority. As presented in
figure-10.1, variations in the Staff authority may be seen in a continuum.

Figure–10.1

Line Staff
Authority Authority
(Command) (Advice)

Functional Concurring Compulsory

authority authority Staff consultation
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The distinction between line and staff is important because staff must be
provided if the growing organisation is to accomplish its goals. Line and staff
relationships are established to guide people in the way they work together. But,
for practical purposes it should never be looked upon as an inflexible barrier. The
differentiation between line and staff is necessary for the following reasons:
10.3.2 LINE AUTHORITY
Line authority exists between superior and subordinate. In the organising
process, authority is delegated to the individuals to perform the activities. The
individuals, in turn, assign some of the activities to persons working below them in
the hierarchy and delegate them authority. This process goes on, creating superior
subordinate relationships in the organisation. The direct relationship between a
superior and his subordinate is created through the enforcement on line
relationship. Such a relationship works as follows:
As a Chain of Command : A command relationship exists between each
superior and subordinate. Line authority is the heart of this relationship because it
entitles a superior to direct the work of his subordinate.
As a Channel of Communication : Line authority can be treated as a channel of
communication between members of the organisation. Communication up and
down in the organisation, flows through the line relationship. Barnard has
emphasised the role of line relationship as a channel of communication by
suggesting that line communication should be established and every member of the
organisation should be tied into the system of communication by having someone
to report to and others to report him. Such a line can be maintained easily through
the chain of command.
As a Carrier of Responsibility : The line relationship carries ultimate
responsibility for the work assigned. Though the process of assigning activities
goes on till the level where actual work is performed by operatives, each individual
in the line is accountable for the proper performance of the activities assigned to
him.
10.3.3 STAFF AUTHORITY
The relationship between a staff manager and the line manager with whom he
works depends in part on the staff duties. A man who only gathers facts or only
checks on performance will have relationship with line manager that are different
from those of a man who has concurring authority. Such variations between line
and staff relationships as discussed earlier, run along a continuum with only advice
at one extreme point and functional authority at other extreme point. In between,
two more situations represent compulsory staff consultation and concurring
authority. (See figure -10.1) The different shades of staff authority are discussed
below:
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Advisory Staff Authority

This is the type of staff relationship popularly associated with the term staff
authority. An advisory staff manager provides advice, assistance, and information
and it depends on the line manager whether these are put into action or not. Thus,
a staff man relies largely on persuation to get his ideas put into effect. In the
absence of power of command, he must build confidence in his opinions. Therefore
a staff manager has to depend on his persuasive skills.
Compulsory Staff Consultation
Some organisations prescribe the practice of compulsory staff consultation.
Under this arrangement, a staff man must be consulted before action is taken.
However, line manager is free to take action of his choice after consulting staff.
Compulsory consultation supplements a more general requirements for successful
staff work, the requirements that a staff would have access to any information that
relates to his field of interest.
Concurring Authority
At times, a staff man may be granted authority so that no action can be taken
until he agrees to it. For example, quality control inspector must pass on raw
material or semi finished products before they move to the next stage of production,
or agreement with employees over the matter of wages should be entered only after
the personnel manager has agreed to it. The idea of concurring authority is that
the staff viewpoint is incorporated into operating decisions. It is a better
arrangement because of which line manager cannot take needless action. These
considerations suggest that concurring authority is granted only when the
viewpoint represented by a staff man is particularly important when possible delay
in action will not be serious. For example, it may be prescribed that a finance
manager cannot withhold capital expenditure simply because of his disapproval of
capital expenditure plan, but he can withhold it because funds are not available or
funds cannot be arranged. In government organisations, normally wide-ranging
concurring authority is granted to staff men.
10.3.4 LINE AND STAFF CONFLICT
Line and staff relationship implies that both support each other harmoniously
to achieve organisational objectives. However, there are frequent instances of
conflict between line and staff in the organisations, resulting in friction and loss of
time. The various factors leading to line-staff conflict can be grouped into three
categories: apprehensions of line managers, apprehensions of staff, and nature of
line-staff relationship. Let us examine how these apprehensions generate conflict.
Apprehensions of Line Managers
Line Managers, who are responsible for the final results leading to the
achievement of organisational objectives, feel that staff work against them in the
following ways.
i. Lack of Responsibility : Line managers often allege that staff people do not
carry any responsibility in the organisation, but enjoy authority. Lack of
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responsibility makes them complacent and they do not care far the ultimate
objectives of the organisation. On top of all this, line managers contend that they
will be criticised if things go wrong. While the staff will get the rewards if things go
well. This disparity between authority and responsibility and also between
contributions and rewards is a source of jealousy between line and staff.
ii. Encroachment of Line Authority: Line managers perceive that staff people
encroach upon their authority by advising on matters which fall within their
jurisdiction. Whenever there is any such encroachment the result is resentment,
hostility, and open or hidden reluctance to accept advice and recommendation.
iii. Dilution of Authority : There is also a feeling that staff people dilute line
authority. Line managers fear that their responsibility will be reduced because of
the addition of staff thereby making their job less challenging. Such a feeling of
insecurity makes the managers suspicious of staff managers.
iv. Theoretical Bias : Often the advice and recommendation of staff people
suffer from theoretical bias because of two reasons. First, they tend to think within
the context of their own speciality, and thus lack practical implication. Second, as
staff people are away from the actual operational scene, they are not able to fully
appreciate the actual dimensions of the problems and their recommendations may
not be practicable.
Apprehensions of Staff Managers
Similar to the contention of line managers, staff people have their own
arguments and try to find fault with the line managers. The focus of the staff
arguments centres normally around the following:
i. Lack of Proper Use of Staff: Staff people feel that the line managers do not
make proper use of their services and decisions are made without inputs from staff.
They are informed after the action has been taken. By virtue of his position, a line
manager can accept, amend, or reject the advice of staff irrespective of its quality
and practicability. Further, when something goes wrong in the area of his
operation, staff from concerned field in made the scapegoat.
ii. Resistance to New ideas : Line managers often resist new ideas because new
ideas mean that there is something wrong with their present way of working. Thus
new ideas are treated as fault-finding device in their operation. As against this,
staff people are more innovative in the areas of their speciality. Because line staff
are reluctant to new ideas, many of the efforts of staff go waste.
iii. Lack of proper Authority : Staff people feel that they contribute to the
realization of organisational objectives without really enjoying any authority. Line
managers clearly hold most of the cards and enjoy enormous authority. It is not
necessary to consult staff before arriving at a decision. Even when staff is
consulted, it is not necessary that staff advice is put into practice. As a result staff
specialists feel that if they have the best solution to a problem, they should have
authority over line managers to force the solution.
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Nature of Line-Staff Relationship

In addition to the factors discussed so far, following inherent characteristics of
line and staff relationship also contribute to conflicts and tensions.
i. Divergent Backgrounds: Line and staff-people, often have different
backgrounds and individual characteristics. Staff people in contrast to line, are
generally younger, better educated, more poised in social interaction, more
articulate and individualistic. As a result, they often look down on the less
educated line people who must have worked their way up through the organisation.
These differences create an atmosphere of mistrust and hatred between them.
Thus, both of them work in an environment of hostility.
ii. Lack of Demarcation Between Line and Staff : Though in theory, line and
staff authority is clear, often in practice, demarcation between line and staff is
rarely clear. Many jobs in line and staff defy description and relationship between
them is not clarified. In such cases, there is a possibility for overlap and gap in
authority and responsibility which can affect personal relationships.
iii. Lack of proper Understanding of Authority : Assuming that line and staff
authority is made clear in the organisation, in practice, people may fail to
understand the exact nature. This misunderstanding may lead to encroachment of
authority either by line or by staff people.
10.3.5 ACHIEVING HARMONY BETWEEN LINE AND STAFF
The following guidelines, if understood thoroughly may solve many problems.
1. Line staff have ultimate responsibility for the successful operation in the
organisation. Therefore, they should have authority for making operational
decisions.
2. Staff people contribute to achieve organisational objectives by making
recommendations and providing advice in their respective fields. In some
situation, they may be granted functional authority through which they can
ensure that their recommendations are put in operation.
3. Since in most cases, solicitation of advice and acceptance of that is usually
at the option of the line people, it becomes imperative for the staff to offer
advice and service.
4. Barring few exceptional situations where time factors is of utmost
importance for decision making, line should be impressed upon the need for
compulsory consultation
5. Staff people should sell their ideas to line people. They should rely more on
the authority of knowledge and competence rather than authority of
position.
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How to make better use of staff

Staff people are needed in the organisation because line people may not liable
to solve the problems which require special knowledge and expertise. The
effectiveness of line people depends to a large extent on how they make use of staff.
For making proper use of staff, following points are important.
1. There should be encouragement and education to line people as how to
make maximum use of staff effectively. Line people can not make use of
staff unless they know what a specialist can do for them. At the same time,
staff people also have a responsibility to let line people know now they can
contribute for the better performance of line activities.
2. In order to make proper use of staff, they should not be kept busy in
unimportant work because it does not serve any meaningful purpose.
Instead, they should be assigned critical work in the area of their speciality.
3. Staff people should be involved at the basic stage of planning of an activity
rather than when the problem becomes critical. When they are involved at
the level of planning, many of the problems may not arise.
4. If the people have taken some actions directly affecting staff activities
without consulting staff people. They should be informed immediately about
such actions. The information will help in removing misunderstanding, if
any, crated in the minds of staff people.
10.3.5.1Committee Form of Organisation
One of the most misunderstood concepts in management is the committee
form of organisation called different as board, commission, task force, team etc. The
essential nature of all these bodies is the same. The basic distinction that sets
apart the committee from other organisation devices is the group action. Inspite of
the severe criticism against the usefulness of committees in organisations, they are
very extensively used in the modern organisations at various levels.
Koontz and O‘donnel define a committee a ―a group of persons to whom, as a
group, some matter is committeed‖. Though it implies group action, there are
many variations in the use of committees, particularly, in respect of the authority
assigned to them.
10.3.5.2Types of Committees
Committees can be broadly classified into advisory committees and executive
committees. When committees are entrusted with staff authority, they are known
as advisory committees. That is they play only an advisory role and cannot enforce
implementation of their advice or recommendation. For example works committees,
finance committees, new product development committees etc. fall in this category.
On the otherhand, whenever, committees are vested with line authority, they are
called executive committees. Unlike the advisory committees, executive committees
not only take decisions, but also have the authority to implement them. The board
of directors is a classic example of executive committee.
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Committees may also be permanent or they may be temporary (adhoc). They

may also be formal or informal. A formal committee is one which finds a place in
the organization chart with specific authority and responsibility. Formal
committees, in general, are permanent in nature whereas informal committees may
be permanent or temporary. They may also be classified into adhoc committees
and standing committees. The former is constituted for a specific purpose and then
disbanded after it has performed the assigned task. The latter is more permanent
and exists as long as there is need for it in the organisation.
10.3.5.3 Reasons for the Use of Committees
The use of committees in modern organisations, both business as well as non-
business is so widely prevalent that it is hard to miss them in any organisation.
The board of directors which presides the destiny of the organisation by itself is a
committee. The reasons for such a wide use of committee are not to seek. The
following are some major factors responsible for the popularity of the committee
form of organisation.
i. Group Participation : Committee facilitates the involvement and participation
of more than one. The concept, in a way, is so close to the adage that ―two heads
are better than one‖. The fact that a group of people with varied experiences and
intelligence can throw a better light on the issues that are deliberated in the
meetings cannot be disputed. Many of the inadequacies or limitations of an
individual are compensated by collective wisdom and thinking. Wide ranging
discussions can take place. Committee meetings undoubtedly become the forum
for cross-examination and fertilization of ideas. The exchange of information,
viewpoints, beliefs and experience, help in examining the issues involved more
thoroughly which may not be possible in an individual judgement.
ii. Diffusion of Authority : Fear of concentration of authority in one individual is
another contributing factor for the constitution of committees. No single member of
the committee can have absolute authority. Whatever the decision of the
committee, it has to be approved by atleast majority members. However, consensus
of all the members may also be required for certain issues. Thus the possibility of
authority being misused and the exercise of discretion power in a wrong way, to a
larger extent, be avoided by entrusting the matters to be decided to a group. For
instance, the existence of board of directors at the top itself amply indicates how
shareholders entrust the overall responsibility of managing the organisation to a
larger body instead of to a single individual.
iii. Consolidation of Authority : Usually in any organisation manager at a
particular level, say a department head, or branch/section manager has only a
portion of the authority. In some instances, the authority that a manager has may
not be sufficient to take a decision in a particular way. In the case of a committee,
the authority of all the members will be pooled up. This is what is meant by
consolidation of authority. The authority of different individuals which is otherwise
splintered is consolidated in the committee form. The collective authority thus
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pooled up enables the committee to decide on matters which are beyond the scope
of individual authority.
iv. Representation of Interested Groups : The activities of modern organisations
are interrelated in such a way that many decisions effect a more than one
department or section. In such a case, for better compliance of the decision, it is
desirable to appoint a committee with representation to all those who are affected
by a particular decision. Such a measure not only offers an opportunity for
participation but also satisfies the ego of the individual members. The members
naturally feel that they are also an party to the decision and therefore they tend to
be loyal to the decision.
v. Co-ordination becomes Easy : Coordination of the various plans,
programmes and activities of various departments is an essential task of
Management. Committees are very useful in that they facilitate inter-departmental
coordination. A committee provides the members first hand information about the
overall plans. It facilitates contribution of suggestions for improvement, if any. The
interaction among the members and way how the information is shared by them,
contribute for better co-ordination of the plans and thereby inter-departmental
activities.
vi. A Tool of Management Development: A committee can also be used as a tool
of management development. While experience of a manager on his job enables
him to sharpen the skills in his particular area of specialisation, committees may
widen his perspective and knowledge about the other related tasks. His
participation in the committee meetings and the exposure thus gained enable him
to understand the larger picture. Valuable learning takes place where individuals
can take an integrated view to solve the problems.
vii. Avoidance of Action: It is interesting to note that more often committees are
used to avoid action on a problem. This tendency, of course is more pronounced in
bureaucracies. At times, a manager may be unwilling to take action, but he cannot
afford to avoid action also. The best option, open to him in such a situation, is to
refer the matter to a committee. It is this particular phenomenon which often gives
raise to so many jokes on committees in organisations. Thus, a committee can be
used to smoothen the tempers and passions of people. It is also used as a means
to overcome resistance, pressure, or opposition from parties involved in an issue.
10.3.5.4Disadvantages of Committees
As mentioned earlier, many jokes about bad management revolve around
committees. The committees‘ notoriety for ineffectiveness often is traceable to
misuse. Committees are subject to mismanagement and misuse. Here are a few
definitions of a committee, pointing the darker side of the use of committees.
―a committee is made up of the unfit selected by the unwilling to do the
unnecessary‖
―a place where the loneliness of thought is replaced by the togetherness of
nothingness‖.
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Though these definitions seem to be excessively hostile to the committee form

of organisation, if proper care is not taken, there is little wonder that they may
prove to be correct. The following are the problems, in general, with committees.
1. High cost in Time and Money:The constitution of a committee is an expensive
affair. The time and money involved are quite considerable. More so, if the
members are drawn from far off places. Lot of money has to be paid towards
various allowances to the members. That apart executive time has got opportunity
cost. After a series of meetings, if no decision is taken or the outcome is
insignificant the expenditure of resources and the executive time in such as
wasteful exercise is meaningless. It will be still ridiculous if a committee is
assigned a problem that could be solved by a simple individual. Thus, one should
not loose sight of the costs involved in appointing committee.
ii. Slow decisions:The very nature of functioning of the committee is not
conductive for quick decisions. If consensus is insisted, the situation becomes still
worse. All the members have to be informed of the agenda in advance, Modifications
in the agenda, if there are any suggested by members have to be again circulated.
Deliberations in the meeting may also take a long time. Valuable opportunities may
be lost in the mean time as committee members are engrossed in the hectic
deliberations.
iii. Indecision: Quite often committee meetings end up in no decision. Meetings
get adjourned for want of quorum and time for thorough discussions. Besides,
many decisions may be taken on the basis of compromise. The decision thus
arrived at may be in no way better than the one which would have been taken by
an individual who could see the things as they are and acted upon. The leveling
effect in committee deliberations in which high premium is placed on conformity
has got disastrous affects. The result of the leveling effect is that the individual‘s
thinking is brought in line with the group thinking. Consequently the decision thus
reached need not be the best decision.
iv. Minority Tyranny: Committees normally tend to seek unanimous or near-
unanimous decisions. Minority members who hold a different view are therefore in
a strong position. More particularly, when the practice is to arrive at a decision
through unanimity. The minority members tend to take advantage of such a
situation and try to exercise tyranny over the majority The problem becomes more
complicated if members have the veto power. Similarly, majority can also put
pressure on minority members to force them to arrive at the decision.
v. Splitting of Responsibility: In any system, people tend to work more
efficiently when their authority and responsibility are clearly specified. Since many
members are involved in the decision-making process of the committee, no
individual member can be held responsible if the outcome of the decision is
adverse. The major drawback is that it splits the responsibility and no member feels
the responsibility for group action.
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10.3.5.5Successful Operation of Committees

The available evidence on the practices in the corporate sector shows that the
use of committees sin all types of organisations is on the increase. As the emphasis
on the group decision-making and participation increases, so also the use of
committees in the company‘s affairs. If adequate care is exercised in respect of the
following factors, the benefits far outweigh the disadvantages.
i. Authority and scope must be specified: The terms of reference to the
committee and the authority of it have to be clearly defined. That is, whether the
committee has the authority to make decisions, or its job is just to make
recommendations. If the scope and authority of the committee are not clearly
defined, quite often, members may end up in deliberating issues that are not
referred to the committee at all.
ii. Size of the committee: Though there is no exact number regarding the size of
the committee, the complexity of interrelationships naturally increases with the size
of the group. If the group is too large, it may be difficult for the members to
communicate effectively, on the other hand, if it is too small, the purpose behind
the use of committee may be lost. As a general rule, a committee should be large
enough to promote deliberations and to provide an opportunity for the
consolidation of wisdom and expertise of many members, Research indicates that
the ideal committee size is five, when all the five members possess adequate skills
and knowledge to goal with the subject assigned to the committee.
However, if the committee is to have all interested groups participate in its
deliberations, the number may be large. If all the interested groups are not
represented, the committee‘s work may be criticised. In such a situation where the
need for representation of the interested parties, makes the committee too large,
one option could be to constitute sub-committees by breaking down the problems
to be studied.
iii. Selection of Members: For the committee to be successful, the members on
the committee must be good at understanding the problems and analysing them.
They must also be good at performing well in a group. Every member must have the
right temperament, verbal and analytical ability and capacity for working with
others. Selection of members requires judgment about the personal characteristics
of members, their functional background and level in the organisation. The basic
objective is decisions. Committees are likely to function better if members are
friendly, known to each other and respect each other. Committees which include
members drawn from different levels are unlikely to function effectively because
there from the lower levels may not very actively participate in discussions because
of the variances in this formal positions in the organisations. For example, workers
representatives, and the boards of management of many organisations and the
teachers representatives on the various administrative bodies of universities are
found to be not very effective purely because of this factor.
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iv. Nature of the subject matter: Careful selection of the subject matter to be
entrusted to the committee is equally important. Certain subjects can be handled
effectively by a committee while others can be handled better by individuals. For
instance, research and development which depend on the individual creativity
cannot be entrusted to a committee. On the other hand, for the establishment of
major objectives and formulation of policies and review and coordination of work,
committee may be preferred.
v. Effectiveness of Chair person: The chairperson in fact, is the leader of the
committee. Therefore, the effectiveness of the committee depends on the
chairperson‘s skills and motivation. His basic functions include planning for the
meetings, preparing the agenda, supplying some preliminary information to the
members and conducting the meetings effectively. The chairman must not act in a
prejudicial way and yield to the pressure of a few members. He has to monitor and
coordinate the proceedings such that effective decisions are taken by the
committee. He has to see that the minutes of the meetings are recorded properly,
circulated to all the members. Modifications suggested and action taken on
recommendations should also be communicated.
10.4 REVISION POINTS
Line and Staff relationship - Line organization - Staff organization - Functional
organization - Committee organization
10.5 INTEXT QUESTIONS
1. Describe the difference between the advisory authority, concurrent authority
and functional authority.
2. What measures do you suggest to make a committee function more
effectively?
3. Inspite of the serious drawbacks in the functioning of committees, they
cannot be dispensed with Why? give reasons..
10.6 SUMMARY
Line positions may be defined as those directly responsible for achieving the
organisation‘s goals. Staff positions provide expert advice and service to the line.
Staff authority ranges from being limited to advising on request, to compulsory
consultation, to concurrent authority, to functional authority. Because of the
differences in the nature of authority between the two, it is not uncommon to hear
about the conflicts between the line and staff managers. Each look at the other with
suspicion. As a result, in flighting and always trying for one upmanship are quite
natural in organisagtions. The concepts of the line and staff authority, reasons for
the conflicts and the ways and means of achieving harmony have been discussed in
this lesson.
In the second half of the lesson committee form of organisation and the major
issues related to committee such as types of committees, reasons for the use of
committees, disadvantages of committees and the measures for making committees
more effective, have been dealt with.
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10.7 TERMINAL EXERCISES

Write short notes on the followings
1. successful operation of committees
2. how to make better use of staff
3. line and staff conflict
10.8 SUPPLEMENTRAY MATERIALS
1. https://www.scribd.com/doc/45883443/Principles-of-Mangement-MG2351

2. http://www.ebookbou.edu.bd/Books/Text/SOB/MBA/MBA_1301_full.pdf

3. http://2012books.lardbucket.org/pdfs/management-principles-v1.0.pdf

10.9 ASSIGNMENTS
1. Line - staff conflict for many reasons. State reasons and examine the
following adages: ―Staff should be on tap, not top‖, and ―Staff should sell,
not tell‖. Criticise this.
2. What are the important sources of conflict between line and staff managers?
How do you resolve the conflicts? State some real situations?
10.10 SUGGESTED READINGS
1. Arthur G. Berdan, 1993. Management, the Dryden press, New York.
2. Harold Koontz, Cyril O‘donnel and Heinz Welhrich. 1984
Management,McGraw Hill, Tokyo.
3. George R. Terry and Stephen G. Franklin, 1988, Principles of
Management, AITBS, Delhi.
4. Cawsey, T.F. 1980 ―Why Line Managers Don‘t Listen to Their Personnel
Departments‖, Personnel, Jan-Feb.
5. Clark, P.A. 1952. Organisational Design: Theory and Practice,
American management Association, New York.
6. Drucker, Peter, F. 1974. Management Tasks, Responsibilities, practices,
Harper & Row, New York.
10.11 LEARNING ACTIVITIES
1. Group discussion regarding the merits and demerits of line and staff
organization can bring huge academic excitement among the students.
10.12 KEYWORDS
Line and Staff relationship - Line organization - Staff organization - Functional
organization - Committee organization - committee types

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LESSON – 11
COMPONENTS OF AUTHORITY AND MANAGEMENT OF CHANGE
11.1 INTRODUCTION
Components of Authority
Rational-legal authority (also known as rational authority, legal
authority,rational domination, legal domination, or bureaucratic authority) is a
form of leadership in which the authority of an organization or a ruling regime is
largely tied to legal rationality, legal legitimacy and bureaucracy. The majority of the
modern states of the twentieth and twenty-first centuries are rational-legal
authorities, according to those who use this form of classification.
In sociology, the concept of rational-legal domination comes from Max Weber's
tripartite classification of authority (one of several classifications of government
used by sociologists); the other two forms being traditional authority and
charismatic authority. All of those three domination types represent an example of
his ideal type concept. Weber noted that in history those ideal types of domination
are always found in combinations.
In traditional authority, the legitimacy of the authority comes from tradition.
Charismatic authority is legitimized by the personality and leadership qualities of
the ruling individual. Finally, rational-legal authority derives its powers from the
system of bureaucracy and legality.
11.2 OBJECTIVES
After studying this lesson, you should be able to:
 understand the importance of environmental impact on business;
 appreciate the need for change in response to the demands of environment;
 analyse the forces that resist change; and
 assess the necessary measures that may be taken to overcome the
resistance to change.
11.3 CONTENTS
11.3.1 Charismatic Authority
11.3.2 Traditional Authority
11.3.3 The Indian Scenario
11.3.4 Forces of Change
11.3.4.1 Internal Forces
11.3.4.2 External Forces
11.3.5 Culture and Change
11.3.6 Change as a Process
11.3.7 Resistance to Change
11.3.8 Possible Benefits of Resistance
11.3.9 Questions to be Raised when Contemplating Change
11.3.10 Overcoming Resistance to Change
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11.3.1 CHARISMATIC AUTHORITY

It involves a type of organization or a type of leadership in
which authority derives from the charismatic style of the leader. This stands in
contrast to two other types of authority: legal authority and traditional authority.
Each of the three types forms part of Max Weber's tripartite classification of
authority.
Max Weber defined charismatic authority (German: Charismatische Herrschaft)
as "resting on devotion to the exceptional sanctity, heroism, or exemplary character
of an individual person, and of the normative patterns or order revealed or ordained
by him".
Charismatic authority almost always endangers the boundaries set by
traditional (coercive) or rational (legal) authority. It tends to challenge this
authority, and is thus often seen as revolutionary. Usually this charismatic
authority is incorporated into society. Hereby the challenge that it presents to
society will subside. The way in which this happens is called routinization.By
routinization, the charismatic authority changes: Charismatic authority is
succeeded by a bureaucracy controlled by a rationally established authority or by a
combination of traditional and bureaucratic authority.
A religion which evolves its own priesthood and establishes a set of laws and
rules is likely to lose its charismatic character and move towards another type of
authority. For example, Muhammad, who had charismatic authority as "The
Prophet" among his followers, was succeeded by the traditional authority and
structure of Islam, a clear example of routinization. In politics, charismatic rule is
often foundinvarious, authoritarianstates, autocracies, dictatorships and theocracies.
Tohelp to maintain theircharismatic authority, such regimes will often establish
avast personality cult. When the leader of such a state dies or leaves office, and
new charismatic leader does not appear, such a regime is likely to fall
shortlythereafter, unless it has become fully routinized.
11.3.2 TRADITIONAL AUTHORITY
Traditional authority (also known as traditional domination) is a form of
leadership in which the authority of an organization or a ruling regime is largely
tied to tradition or custom. The main reason for the given state of affairs is that it
'has always been that way'.
In sociology, the concept of traditional authority (domination) comes from Max
Weber's tripartite classification of authority, the other two forms beingcharismatic
authority and rational-legal authority. All of those three domination types represent
an example of his ideal type concept. Weber noted that in history those ideal types
of domination are always found in combinations.
In traditional authority, the legitimacy of the authority comes from tradition; in
charismatic authority from the personality and leadership qualities of the
individual; and in rational-legal authority from powers that
are bureaucratically and legally attached to certain positions.
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Management Change
Change is a universal and inevitable aspect of all organisations. In a way, the
environment around the organisations thrust change upon them. To stay
competitive, organisations are forced to improve quality, adopt new technology and
at times, may have to redefine the busienss. It has to be borne in mind,
competitions are smarter and quicker. Added to that, product life cycles are
becoming increasingly shorter and shorter. Markets emerge and disappear in a
flash. As a result, the adage that ―Survival of the Fittest‖ is being replaced by
―Survival of the Fastest‖.
As change is so universal, organisations which can adapt to change only can
survive. Though it is true that change can threaten an organisation‘s survival, it
also offers unprecedented opportunities for growth. That is why, seeing change as
necessary for survival, and recognising it as and when it occurs is essential for
effective management.
11.3.3 THE INDIAN SCENARIO
It is anybody‘s knowledge that industrial development in India, in retrospect,
owes much to the concessions and protection offered by the government.
Constraints in transforming the traditional subsistence economy into an industrial
one necessitated the government to play a catalytic role. Competition from within
and from outside the country was kept to a minimum. Eventually, over the years,
the concessions led to complacency resulting in high costs, poor quality and
slackness in operations. There have been few compulsions to modernise plant and
equipment, update technology, and inoovate new products.
Such a situation has completely changed, of late, consequent upon the
enunciation of the new industrial policy. The withdrawal of permits and licenses
has suddenly exposed the Indian corporate sector to stiff competition. Indian
industry is rather forced to wake up to the new realities and to stand on its own in
the wake of so many changes that have been taking place in the environment.
11.3.4 FORCES OF CHANGE
Forces of Change exist both within the organisation and outside the
organisation, that is, in the internal as well as external environment of the
organisation. An organisation has to respond to the changes swiftly with least
inconvenience to the various interest groups. The organisation‘s success, therefore,
depends on its ability to anticipate change and to refocus its capabilities to meet
new demands.
11.3.4.1 Internal Forces
Internal forces for change arise because of the need for modifications in the
strategy and consequently the structure of the organisation. Needless to say that
an organisation has to maintain stability while managing change. Both change
without stability and stability without change are not desirable. Therefore, a sound
balance has to be struck between the two.
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For instance, new employees have to be hired while older employees retire,
new products must be introduced while established products are discontinued, and
new markets must be exploited while old ones are abandoned. It is in a way, a
continuous process. All these attempts or actions creater internal force for change.
Each of these must be introduced in a manner that is not only consistent with an
organisation‘s overall objectives, but acceptable to those affected by the changes.
11.3.4.2 External Forces
External forces that the lie in the environment, quite often, create the need for
change. For example, in an increasingly dynamic, interdependent and
unpredictable world, virtually all organisations are affected by so many events that
happen at the national and international levels. Technological changes, political
turbulence and the socio-cultural changes of the society in which the business
exists exert a profound influence on the functioning of the business. Similarly,
fluctuations in the world‘s leading economics have worldwide repercussions. These
development both domestic and international in origin continue to outpace the
ability of many organisations to absorb them. Markets may vanish overnight.
Competition for markets is now at the global level: Organisation‘s work force these
days, cuts across all nationalities and ethnic boundaries. The new realities, infact,
have created unprecedented opportunities for organisations that are willing to
change and grow.
The way how the ITC has changed its gears, as the anti-smoking campaign all
over the world began to gain momentum is a classic case in the Indian corporate
sector demonstrating fully the company‘s capabilities to adapt to changes. Quite
skillfully, ITC succeeded in coming out of the cigarette company image by
diversifying into various other core business, all of which are doing exceedingly
well.
Similarly, the small, Madras based Balaji industry‘s case also may be
mentioned in this context. The low profile company, for a long time engaged in the
liquor business, just in no time realized the social opposition to the liquor business
in general and started making its presence felt in business like steel, power and
hotel industry. Many more diversification plans of the company are in the drawing
room stage. Likewise, the Western India group is also smart enough in identifying
tremendous business potential in areas related to the development of anti-pollution
systems one of the thrust areas, these days, all over the world.
11.3.5 CULTURE AND CHANGE
Organisation culture refers to the common set of beliefs and expectations
shared by members of an organisation. The changes in the environment of
business may necessitate a change in the culture of the organisation. An
organisation‘s culture is determined by several elements. Important among them
are its values, heroes, symbols and legends.
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Figure–11.1
Values

Culture Legends Organisational Heroes Culture

Symbols
Values
Values are an organisation‘s beliefs about what is good or bad, desirable or
undesirable. The beliefs define the fundamental character of the culture of any
organisation. In outstanding organisations, values are deeply felt and reinforced.
The top management‘s vision is shared by people down the line alike. Tata group
companies are known for their own culture. The companies still cherish its values
passed on by the founders and hold them very dearly. For instance, Alacrity
Foundations Limited, which is engaged in the housing construction is known for its
reliability and concern for the customer. There are hundreds of companies in the
field in Chennai, thanks to the general spurt in the demand for houses in certain
areas. But Alacrity is a household name in Chennai and enjoys a high degree of
reputation.
Heroes, Champions or Star Performers
Organisation‘s values are primarily reinforced by its lead players-its heroes.
Akio Moita of Sony, Ford‘s hero Lee Iorocca who later turned around Crysler
Corporation, Reliance‘s Ambani, Arvind Mills Sanjay Lalbhai, BPL‘s Nair, HCL‘s
Shiv Nadar, etc., are the corporate heroes, to mention a few. This does not,
however, mean that such heroes are found only in the founders to the CEO‘s of the
organisation. Such people may be found at various other levels also in the
companies, often referred to as champions and star performers. By acknowledging
the achievements and contribution of such achievers, organisations create role
models for others to follow. As role models, heroes personify an organisation‘s
values and reinforce its desired culture.
Symbols
Symbols are nothing more than objects or events that convey meanings. They
take the form of prizes, awards, plaques, slogans and includes dress also. They
convey what is important in organisation. Important achievements are celebrated
with much gale and fanfare in many companies. Heroes are rewarded profusely.
Symbols stress what an organisation values. For instance, Essar groups slogen ―A
positive Attitude‖, Telco‘s emphasis on ―Team work‖ and ―Arvind‘s ―Global
Endeavours‖ are only a few examples that inspire people.
Symbols are the effective media to convey and promote an organistion‘s values
and thus reinforce its culture. They create a sense of identity to those working for
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the organisation, making them feel something special. they further deepen an
organisation‘s culture by facilitating individual commitment to collective goals, such
as excellence, team spirit, innovation, customer satisfaction, etc.
Legends
A legend is a story about an actual event or person. Legends help an
organisation to preserve its culture by imparting values to new employees. For
example, events like one sales executive in U.S.A. hiring a plane to supply some
spare parts to an important customer, IBM‘s Sr. Watson calling on the chief of a
public library quite accidentally and how it turned the fortunes of IBM later, are not
few and far between in corporate history. Leading organisation all over the world
have such events in plenty. They form the company‘s folklore. In addition to
providing guidelines for employees, they tell a great deal about the core values of
the company.
11.3.6 CHANGES AS A PROCESS
Having examined what constitutes an organisation‘s culture, let us examine
the process of change. Psychologist Kurt Lewin suggested that successful change
requires moving through three phases. Unfreezing, changing, and refreezing see
figure-11.2).

Figure –11.2
Lewin’s Three – Phase Change Process

Phase 1Phase 2 Phase 3

Unfreezing Changing Refreezing

Recognizing a need Modifying old ways Making new

for change and introducing behaviours
new behaviour permanent

Unfreezing : This phase involves recognizing a need for change. It occurs when
a situation is recognized as being deficient or inadequate in some way. For
example, loss of a key customer; a dramatic drop in market share, unexpected
decline in profits, key people leaving the organisation are examples of crisis
situation which call for some change.
Changing : This phase involves modifying old ways so that new behaviour
patterns can be introduced. Changes may be minor or major. Though it is difficult
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to adapt new patterns oversight, there are few options for the companies operating
in a competitive market.
Refreezing : This phase involves establishing new behaviour patterns. It is
made possible through new training and orientation programmes revised policies,
updated procedures and other support mechanisms that reinforce new behaviour.
11.3.7 RESISTANCE TO CHANGE
Organisations, like individuals tend to have die-hard altitudes and beliefs. As
discussed in the proceeding paragraphs, behaviour patterns are firmly frozen, in
that, people tend to think and act in a particular way regardless of the exigencies of
the situation. They have to be unfrozen to make change possible. It is because,
change is received with some protest. Infact, resistance to change is a natural
human reaction. Managers have to be familiar with the basic reasons for resistance
to change (Figure –11.3). We will now discuss the important reasons for resistance.
Figure–11.3
Four Reasons for Resistance to Change

Threatened self-
interest

Lack of under-
standing & trust

Change
Different
assessments

Fear of the
unknown

Threatened Self Interest : Organisation members normally behave in ways that

will maximise their goals which they consider most important. Consequently,
individuals are likely to resist proposals for change if they believe and stand to
loose something of value to them. This is basically due to the fear of insecurity. In
such circumstances, they usually are more concerned about their own self-interests
at the cost of the organisation‘s larger goals. Power, money, prestige, convenience,
job security and professional competence, to name a few, matter much to the
employees in the organisational set-up. If they perceive threat to any of these due
to the change, they naturally resist such change and always prefer status-quo.
Lack of Understanding the Trust: People also resist when they do not
understand the intended purpose of a change. Such a situation usually occurs
when there is a lack of trust between the parties involved in initiating and those
involve in adopting a proposed change. Distrust and suspicion often result in
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widespread rumours and distorted information. This makes effective

communication difficult and poses a real problem in instituting change. It is
important to note that people do not resist change perse, only the uncretainties
that change can bring. Such resistance is easier to prevent than to remove once it
has developed. Therefore, it is important to tell employees in advance why a change
is being made and how it will affect them.
Different Assessments :Resistance to change frequently occurs when
organisation members differ in their evaluation of the relative merits and demerits
of a proposed change. Such evaluations obviously depend on what the individuals
perceive to be the outcome of the change. In other words, it depends on what they
think a proposed change will mean for themselves and also for the organisation.
For example, we often hear how attempts like automation of work is resisted and at
some places sabotaged by the employees. It happens so because in the employees
assessment the disadvantages outweigh the advantages. The fear loss of jobs and
therefore block such moves where they perceive the change will affect their careers.
The divergent assessments of the effectiveness of proposed changes often
occur when information concerning a change is not widely disseminated.
Consequently individuals possess different degrees of information and arrive at
different assessments. However, it must also be noted that opposition to change is
not always bad. Constructive opposition should be welcome and would even
prevent the organisation from committing mistakes.
Fear of the Unknown:People may also resist change because of person
concerns about their abilities. They prefer familiar things and ways of doing things
as compared to unfamiliar things. The unknown consequences of change may
present a psychological threat. Research evidence suggests that some people have
a high degree of tolerance for change while the others have a low degree of
tolerance. The latter category are afraid that they will be unable to develop the
skills and behaviour demanded by a new position or by the unfamiliar
circumstances associated with the change. Perhaps, this is the reason why status-
quo tendency in behaviour and decision-making is found to be the biggest block in
the adoption process.
11.3.8 POSSIBLE BENEFITS OF RESISTANCE
Resistance is not all bad. It can bring some benefits. It forces management to
reexamine the change proposals so that it can be more sure that changes are
appropriate. This way, employees act as a check-and-balance to assure that
management properly plans and does not implement change in haste.
Resistance can also help to identify specific problem areas where a change is
likely to cause difficulties, so that management can take corrective action before it
is too late. At the same time, management may also do a better job of
communicating the change. Some amount of resistance also gives management
valid information about the intensity of employee emotions on an issue, provides
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emotional release for pent-up employee feelings, and may encourage employees to
think and talk more about a change so that they understand it better.
11.3.9 QUESTIONS TO ASK WHEN CONTEMPLATING CHANGE
Some of the important reasons why change is resisted have been discussed
thus far. The reasons may vary in important from situation to situation. In view of
the possible resistance, it is highly desirable that managers ask the following few
questions while contemplating the change. The answers themselves provide lot of
clarity on the basis of which appropriate steps may be initiated to cope with the
change.
What are the consequences of implementing or not implementing the proposed
change?
Has the process of change and its effect on individual been clearly explained?
1. How much resistance will the proposed change generate?
2. What would be the manifestation of resistance?
3. What is the level of trust between the parties involved?
4. Do all parties involved have the information necessary to understand the
reasons for the proposed change and benefits that will result?
5. Have real incentives been provided for accepting the proposed change?
11.3.10 OVERCOMING RESISTANCE TO CHANGE
Several tactics are available for managers to deal with resistance to change.
Four of the important tactics, as could be discussed here. The selection of a
particular tactice will depend on the factors specific to the situation.
Figure –11.4
Dealing with Resistance

Education and Coersion

Communication

Resistance
to
Change

Participation
Negotiation

Regarding the choice of the tactic to be used to overcome resistance to change,

it may be helpful to identify the forces at play. Kurt-Lewin describes, in his force-
field analysis, an existing situation (the status-quo) as an equilibrium locked in
between two opposing forces – driving and restraining. Driving forces are those that
direct behaviour away from the status-quo and facilitate change as opposed to
Restraining forces which direct behaviour towards the status quo and impede the
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change. Therefore, it is the task of the manager to identify the two sets of forces
and their intensity. A sound analysis of the forces helps in weakening the
restraining forces and strengthening the driving forces.
Figure - 11.5
Lawin’s Force – Field Analysis

Equilibrium Restraining
Driving Forces (Status - quo Forces
situation)

Education and Communication : Those who initiate change in the organisation

tend to possess first-hand information about the proposed change, which may not
be readily available to the other members. The easiest way to counter resistance to
change is by sharing the information in a free and fair manner with the other
members, at leas those who are going to be directly affected by the change. People
have to be educated as to why change is necessary by making them realize the
problem areas, if any, that warrant a change.
Further, in many cases, resistance is largely due to misinformation or poor
communication. Adequate initiative has to be taken to dispel the rumours caused
by misinformation. Relevant facts have to be represented and different viewpoints
must be discussed to remove the misunderstandings caused by distortions in
communication. This tactic involves – educational campaign, one-to-one
discussions, group presentations and reports.
Participation: Involving all those potential resisters in the decision-making
process and implementation is by far the best strategy to cope with resistance. The
assistance and cooperation of organisation members have to be sought.
Participation involves open communication and the exchange of view points by all
the parties involved. Such as participation, however is possible and yield results
only when all the members are rational and possess the necessary expertise to
contribute meaningfully. Each one has to act in good faith. Of course, procuring
participation may be a time consuming process. But lot of time may be saved in
the implementation because the proposed change is already sold.
Negotiation: Negotiation which involves ‗bargaining‘ to reach an agreement is
another equally important tactic to handle resistance to change. This requires
political skills on the part of the managers. The success of this tactice depends on
creating a give and take atmosphere. Since the process involves reciprocation, the
change initator must be willing to conceede certain aspects of the change so as to
tailor the change to meet the interests of the active resisters. This is quite a good
tactic where the willingness of members is procured through discussions based on
give and take. It also provides an opportunity to nurture a continuing relationship.
Coercion: If the stance taken by the members opposing change is rigid and all
the efforts at reaching consensus have failed, the last option open to managers to
compel acceptance by means of orders, by threat such as firing, transfer, demotion,
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etc. As already mentioned, coercion to the extent possible must be avoided. It may
be used only as a last resort only when all the other tactics fail to yield results. It is
also possible that the situation may turn from bad to worse if coercion is used
indiscriminately.
Resistance to change can be reduced by helping employees to recognize the
need for each changes to participate in it, and to gain from it. In essence,
management‘s responsibility for change is fourfold :
1. Make only useful, necessary change.
2. Recognize it with adequate attention to human needs.
3. Share the benefits of change with employees.
4. Diagnose the problems that exists after a change and solve them.
11.4 REVISION POINTS
Charismatic Authority - Traditional Authority - Change - Lawin force field
analysis
11.5 INTEXT QUESTIONS
1. Why is change resisted in Organisation? Analyse.
2. As a manager what initiations would you take to see that change is smooth
in the organisation.
3. Elaborate the components of authority.
11.6 SUMMARY
Components of authority are classified into traditional and Charismatic
authority. Changes in the environment are so universal these days that those
organisations which can adapt to changes only can survive. Forces of change exist
both within and outside the organisation. Internal forces for change arise because
of the need for modifcation in the strategy and structure of the organisation. An
organisation has to maintain stability while managing change. External forces
such as technological, political, socio-cultural changes may also create the need for
change.
An organisation has to change its culture to meet the needs of change. The
shared values, heroes, symbols and legends constitute the culture of the
organisation. Any change has to be understood as a process which contains three
phases: Unfreezing, changing and refreezing, change, however important, is often
confronted with resistance from people. Change is normally received with some
protest. Threatened self-interest, lack of understanding and trust, different
assessments about the change and the fear of the unknown are some of the
reasons for the resistance to change. Therefore, manager‘s primary responsibility
while implementing change is to identify the factors that cause resistance and to
weaken them.Necessary steps must be taken to overcome the resistance.
Important among those are education and communication, participation,
negotiation and coercion. This last measure-coersion-has to be used only when all
other means fail to bring the desired effect.
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11.7 TERMINAL EXERCISES

Write short notes on the followings
1. Charismatic authority
2. Lawin Force field analysis
11.8 SUPPLEMENTRAY MATERIALS
1. https://www.scribd.com/doc/45883443/Principles-of-Mangement-MG2351
2. http://www.ebookbou.edu.bd/Books/Text/SOB/MBA/MBA_1301_full.pdf
3. http://2012books.lardbucket.org/pdfs/management-principles-v1.0.pdf
11.9 ASSIGNMENTS
1. Recall at least two in your organisation where change was resisted. Apply
the force Field analysis to the situation and describe the driving as well as
restraining forces for change in that situation.
2. Take a close look at the post-liberalization era in India, and describe the
major developments that force a change in the Indian business.
11.10 SUGGESTED READINGS
1. AnjaneyaSwamy. G.1993.―Liberalization-callforEntrepreneurial Managers‖,
MD1 Management Journal, Jan, 1993 issue.
2. Keith Davis, 1981. Human Behaviour at work, Tata-McGraw Hill,New Delhi.
3. Kurt Lewin, 1951. Field Theory in Social Science, (ed) Darwin Cartnight,
Harper, New York.
4. Mary kay Ash, 1984, Mary kay an people Management, Warner books, New
York.
5. Peter F. Drucker, 1980, Managingin Turbulent Times, Allied publications,
New Delhi.
6. Pradip N. Khandwalla, 1988, The Fourt Eye : Excellence through Creativity,
A.H. Wheeler, Ahmedabad.
7. Thomas, J. Peters and Robert H. Waterman, 1982, In search of Excellence :
Lessons from American‘s Best run companies, Harper & Row, New York.
11.11 LEARNING ACTIVITIES
1. Individual article presentation in this topic can improve the knowledge level
of the students. So the students may prepare their self change resistance.
11.12 KEYWORDS
Charismatic Authority - Traditional Authority - Change - Lawin force field
analysis - resistance to change.

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LESSON – 12
STAFFING
12.1 INTRODUCTION
People constitute the key resource for any organisation. Without people there
is no organisation. Among all the resources that an organisation uses, human
resource undoubtedly, occupies a prominent place in achieving the objectives.
Unless managers understand the scope, potential and limitations of human
resource, they will not be able to use this valuable resource effectively. It is,
therefore, important for all the managers to understand and appreciate the
techniques of staffing function, which is basically concerned with management of
people.
Human resource management is the term widely used these days in
management circles for the staffing function. Koontz and O‘donnel define the
staffing function as ―filling positions in the organisation structure through
identifying work-force requirements, inventorying the people available, recruitment,
selection, placement promotion appraisal, compensation, and training of needed
people‖. Thus, staffing, as a managerial function involves the following steps:
1. Human Resource Planning: developing a plan to meet future human resource
requirements.
2. Recruiting: building a pool of potential job candidates for each job.
3. Selection: evaluating job candidates and choosing the best from the pool of
applicants created through recruiting.
4. Compensation and benefits Administration: developing a salary structure and
benefits package to attract, hire and retain employees.
5. Orientation and socialization: introducing the selected individuals to their
unit and organization and developing an understanding about the unit‘s and
organization‘s expectations and preferred ways of ―working there‖.
6. training: developing programs to provide employees with the skills needed to
perform their jobs effectively.
7. Performance Appraisal: Developing procedures to evaluate employee
performance and communicate this evaluation to the employee.
8. Promotion, Demotion, Transfer, Termination: developing procedures to move
people to positions of increased or decreased responsibility; widening their
job experience through transfer to different function or locations, or
terminating their employment.
9. Management and Career Development: developing programs to increase
abilities and effectiveness of all management resources.
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Figure –12.1
Illustrates all These Steps Involved In the Staffing Function.

Human Resource Compensation

Recruiting Selection and Benefits
Planning
Administration

Orientation and Performance Management

Training and Career
Socialization Appraisal
Development

Promotion Demotion
Transfer
Termination

12.2 OBJECTIVES
After studying this lesson, you should be able to:
 assess the importance of human resources in achieving organisational
objectives;
 understand the important steps in the human resource management
process; and
 find the human resource planning and development techniques and
practices
12.3 CONTENTS
12.3.1 Human Resource Planning
12.3.1.1 Recruitment
12.3.1.2 Selection
12.3.1.3 Compensation
12.3.2 Human Resource Development
12.3.2.1Orientation
12.3.2.2 Training
12.3.2.3 Performance Appraisal
12.3.2.4 Management Development
12.3.2.5 Career Management
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12.3.1 HUMAN RESOURCE PLANNING

When management formulates objectives for the organization, it must also
determine what resources will be required to attain them. The need for money,
materials, equipment and people is obvious. But unfortunately human resource
planning often is not done formally or given the degree of attention it deserves.
Human Resource planning is basically the application of the planning process
to staffing and personnel-related problems. For convenience. It can be considered
as having three stages.
1. Assessment of present supply.
2. Assessment of future needs, and
3. Development of a human resource programme to meet future needs.
Present Supply: Human resource planning in an organization logically begins
with an assessment of present supply. Management must determine how many
people are involved in the performance of each task required for each of its specific
objectives, Management in addition, must evaluate the quality of its people. To
accomplish this, some organizations have developed a skills inventory. This is a
written record of the skills of all employees and the number of people possessing
those skills.
Future Needs: This stage of human resource planning involves projection of
future requirements to attain long and short-term objectives. Future into
consideration. Various management science models have been developed to help
organizations forecast their future human resource needs.
Changes in the external environment, especially the economic environment
can have a significant impact on an organization‘s future human resource needs.
For instance, in India, in the last few years as computerisation of many operations
is going on in a big way in many organisation, there is a spurt in the demand for
systems analysts and other computer professionals. After determining the exact
number of people required, management must develop a programme to ensure
proper supply of people as per the needs of the organization.
Development of a Human Resource Programme: The human resource
programme consists of a specific timetable and the determination of specific actions
required to attract, hire, train, or promote the people required to attain
organizational objectives.
Job Analysis: ‗Job analysis‘ is an important tool through which manpower
requirements are assessed in organizations. In order to hire appropriate people,
management must know in detail what tasks must be performed effectively and
what the personal and social characteristics of the work are. These determinations
are accomplished through job analysis.
There are several methods for analyzing jobs. One is to observe the workers
and formally identify and record the tasks and activities performed. A second
method, is obtaining such information by interviewing the worker or supervisor.
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This of course, world probably be less accurate due to perceptual distortions. A

third method is to have the worker fill out a questionnaire or write a description of
the job he or she is handling and its requirements. The information obtained
through job analysis is the foundation for human resource planning, recruiting,
and other purposes. Its most immediate use is to create a job description. This is
a summary of the major tasks, skill requirements and authority of the different
types of jobs in the organization. Each major category of job, such as secretary,
stores clerk, advertising manager, or systems analyst would require a different
description.
12.3.1.1 Recruitment
Recruitment is the building of a pool of candidates for each job form which the
organization can select the most appropriate. This is done after taking into account
such factors as retirement, turnover, termination, and expansion into new fields.
Organizations usually recruit from both external and internal sources. External
means of recruitment normally include placing ads in newspapers and trade
magazines, using an employment agency or executive search firm, and sending
recruiters to college campuses. Some organizations make an explicit policy that
people in their community are welcome to apply for future vacancies.
Most organizations prefer to recruit from within to the extent possible.
Promoting from within is less costly than an external source and also tends to
increase employee loyalty, morale and motivation. A potential disadvantage of
promoting exclusively from within is that qualified people with fresh viewpoints are
not brought into the organization, which may cause stagnation in thinking.
12.3.1.2 Selection
In the selection phase of human resource planning and development,
management chooses the most appropriate candidates from the pool of applicants
created by recruitment function. In most cases, the person chosen should be the
one who appears to have the best qualifications to perform the actual job being
filled. An objective selection decision may be based on the candidate‘s education,
skill level, past experience, and personal characteristics. When the job is one for
which technical knowledge is the primary determinant of performance, such as
research scientist, education and scientific background would probably be most
important. For management positions, particularly those on higher levels,
conceptual and interpersonal skills are critical. Final selection is normally done on
the basis of performance of the candidates in the various tests and interviews. The
amount and intensity of testing and interviewing, vary from job to job.
Tests: Behavioral scientists have developed a variety of tests that attempt to
predict how effectively a candidate will be able to perform a given job. One type of
selection test measures the ability to perform tasks relevant to the job. Example
would be a typing and shorthand test which aim at demonstrating ability to operate
a machine and having the candidate make an oral or written presentation. Another
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type of test measures psychological characteristics such as intelligence, motivation,

drive, open-mindedness, self-confidence, emotional stability and attention to detail.
Interviews: Interviews are by far most widely used selection technique. Even
non-managerial employees are not hired without at least one interview. The
selection of a higher-level manager may involve may interviews over the course of
several months.
Many of these tools used in the final selection of candidates are not free from
errors. For example, there is a tendency to make a decision about the candidate
based on the first impression and disregard or misinterpret what is said during the
rest of the interview. Another mistake is to evaluate an applicant relative to the
person interviewed immediately before. If the earlier person was particularly poor,
a mediocre candidate may be rated good or very good. There is also a tendency for
interviewers to rate more favorably candidates whose appearance, social attitudes,
and mannerisms are most like their own.
Some general recommendations for effective interviewing are:
1. Create rapport with the candidates and allow them to feel comfortable.
2. Focus on job requirements throughout the interview.
3. Don‘t evaluate on first impressions. Wait until all information is on hand.
4. Have a set of structured questions that all applicants will be asked.
However, be flexible enough to explore other issues that arise.
12.3.1.3 Compensation
The type and quantity of rewards offered by the organization are critical to the
quality of work life. Research indicates that rewards influence the decisions people
make regarding whether they should join the organization, how much they should
produce, absenteeism, and turnover. Many studies have found that absenteeism
and turnover are directly related to satisfaction with extrinsic rewards. When the
workplace is pleasant and provides satisfaction, absenteeism tends to be low.
When it is unpleasant, absenteeism will significantly increase.
The term compensation refers to the monetary reward paid by an organization
to an employee for the work performed. It is directed towards remunerating
employees for services (work) performed and motivating them to attain desired
levels of performance‖. An organisation cannot acquire and maintain an effective
work-force if it does not pay competitive rates and have a graduated pay structure
that encourages people not to seek employment elsewhere.
Development of a wage and salary structure is the responsibility of the
personnel or human resources departments. The organization‘s wage and salary
structure is determined by such factors as results of compensation surveys,
conditions in the labour market, and the productivity and profitability of the
organization. Compared to workers, compensation structure for executives is more
complex to develop because, in addition to salary, it often includes bonues, profit-
sharing and stock options.
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In addition to wages and salaries, organizations provide their employees with a

variety of benefits, typically called fringe benefits. Today, it is virtually taken for
granted that benefits such as vacations, sick leave, health and life insurance, and
pension schemes are part of any permanent job. Other benefits that exist include
subsidized cafeterias, transport and vehicle and housing loans at reduced interest
rates prepaid legal services physical fitness programmes, and study leave after a
certain number of vears of employment.
Research evidence clearly shows that benefits valued by one employee are not
necessarily valued by others. The perceived value of benefits is affected by such
factors as age, marital status, and family size. For example, persons with large
families are usually highly concerned with comprehensive medical benefits and life
insurance. Older people tend to be more concerned with retirement benefits,
younger ones with immediate cash. Recognizing this, some organization have
developed what is referred to as a cafeteria system of compensation. The According
to this approach the employee is permitted to select, within limits, a package most
appropriate for him or her personally.
12.3.2 HUMAN RESOURCE DEVELOPMENT
At one time, the focus of staffing function was exclusively on recruitment and
selection. The idea was that once you find the right people, they would be able to
get the job done. Modern well-managed organisations now recognize that acquiring
appropriate people is only the beginning of human resource management. Whereas
most of an organization‘s resources are material objects that usually depreciate in
value over time, it is only human resources which appreciates substantially in
value as years pass. Thus, for the good of both the organization and its employee
as individual management should undertake a systematic programme to develop its
human resources.
Successful human resource development program will result in a work force
better able and better motivated to perform the tasks of the organization. Now we
will discuss a number of techniques for developing people‘s potentialperformance
appraisal, use of the reward system, training and development, and career
management. The first step in making the new person as productive as possible,
however, is proper orientation.
12.3.2.1 Orientation
If management wants the new employee to be successful on the job, it must
keep in mind that organizations are social systems and that each person is a
unique being. When the newly hired person arrives, he or she brings the attitudes
and expectations acquired through past personal and work experiences. These may
or may not mesh with the prevailing social and work characteristics of the new
position. For example, the new person‘s last boss may have been highly
authoritarian and strongly preferred written communication. He may therefore
believe that it is desirable to send memos rather than pick up the telephone, even
though the new superior in fact prefers oral communication.
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Commenting on this, Carroll and Tosi state, ―Thus, more often than not, the
typical organization member has a set of expectations about his job which are
somewhat unrealistic in terms of the organization‘s expectations. A period of
adjustment and change takes place and gradually the organization‘s expectations
become better known to the individual and management becomes more aware of
the individual‘s expectations‖. During this adjustment period, the individual
acquires new work attitudes through organization socialization. Edgar Schein
defines organization socialization as ―the process of learning the ropes‘, the process
of being indoctrinated and trained, the process of begin taught what is important in
an organization or some subunit thereof‖.
Organization employ a number of devices both formal and informal to socialize
an individual. Formally, the organization provides the individual with information
about itself during recruitment in an effort to ensure that the new candidate‘s
expectations are realistic. This is often followed by training in specific skills and a
discussion about what is considered effective performance. Rules, procedures, and
guidance from superior are additional formal ways of socializing people in an
organization. From informal work groups as discussed elsewhere, the new
individual learns the unwritten rules of the organization.
12.3.2.2 Training
Organizations have a continuous need to ensure that their employees are able
to perform their jobs effectively. One way of accomplishing this is by recruiting and
selecting more qualified and capable people. This alone, however, will not suffice.
Management should also undertake a systematic programme to build the skills of
its current employees and help them grow to full potential within the organization.
Its primary means of accomplishing this is through training and development
programmes.
Training is teaching employees skills that will make them more effective in
their current jobs. The ultimate objective of training is to ensure that the
organization will always have a sufficient number of people with the skills and
abilities needed to attain the organization‘s objectives.
There are three basic situations in which training generally is useful and
needed. The first is when a person first joins the organization. The second is when
an employee is assigned to a different position or given new tasks to perform. The
third is when appraisal reveals that a person lacks certain skills required to
perform the job effectively.
Requisites for Effective Training
A detailed discussion of training methods is beyond the scope of this lesson.
The specific techniques are many and must be tailored to the job and organization.
The following, however, are some general requirements for a training programme to
be effective :
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1. People should be motivated to learn. They should understand the objectives

of training and how it will improve their effectiveness and thereby their own
need satisfaction
2. Management should create a climate conducive to learning. This includes
encouragement, active involvement of the trainees in the process, a
supportive attitude on the part of the trainer, and a willingness to answer
questions. The physical setting may also be important. Some organizations
find it desirable to conduct training in special centres, rather than on the
premises of the organization.
3. If the skills taught are complex, training should be broken into sequential
stages. The trainee should be given an opportunity to practice the skills
acquired at each step before proceeding to the next phase of the sequence.
4. Trainees should receive feedback on their performance and positive
reinforcement for learning. This can come in the form of praise and
recognition from the trainer.
12.3.2.3 Performance Appraisal
After the individual is adequately socialized and has received the necessary
training to perform the job effectively, the next step in developing human resources
is to determine how effectively people are performing at present. This is the
purpose of performance appraisal. Performance appraisal requires managers to
gather information on how effective each individual is at accomplishing delegated
duties. Communicating this information to subordinates enables them to know
how well they are doing and to correct themselves, if there are any deviations.
Performance appraisal also permits management to identify the outstanding
performers and to promote them to more challenging positions.
In basic terms, performance appraisal serves three general purposes:
administrative, informational, and motivational.
Administration Functions
Every organization has a continuous need to evaluate its personnel in order to
make administrative decisions regarding promotion, transfer and termination.
Promotion helps the organization by enabling it to fill job openings with employees
who demonstrate effective performance in their current positions. It helps the
individual by satisfying needs for achievement, challenge, and self-esteem.
Promotions are also excellent ways to recognize superior performance. However,
when making promotion decisions, managers should only promote those
individuals who they think have the capabilities to perform effectively in the new
job.
Transfer may be used to give a person a broader range of experience or
because management feels he or she will be more effective in a different job.
Sometimes transfer is used when a person is not performing effectively. A transfer
in such situations is a demotion and puts the poor performer in a position where he
or she can still make a contribution, but will not block the career progress of a
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high-performing younger person or actually impede the attainment of

organizational objectives.
In situations where an individual has been given feedback and sufficient
opportunity to improve performance, but is unwilling or unable to meet the
organization‘s standards, termination is necessary for organizational objectives to
be achieved. Whatever the administration situation, a logical decision clearly
cannot be made without an effective means of appraising performance.
Informational Functions: Performance appraisal is also needed to provide
people with information with their relative level of performance. When done
correctly, the individual will learn not only whether his or her performance is
acceptable, but also specifically what strengths and weaknesses he or she has and
which areas could be improved.
Motivational Functions: Performance appraisal is also an important means of
motivating people. By identifying strong performers, management is able to reward
them fairly with praise, pay and promotion. Consistent, positive reinforcement for
behaviour associated with high have already realized, the informational,
administrative and motivational functions of performance appraisal are
interrelated. That is, information leading to an administrative decision to promote
a person should have a positive effect on motivating a person to perform well.
12.3.2.4 Management Development
Development refers to building skills that employees will need in order to
perform effectively in a future position or job assignment. In practice systematic
development programmes are most oftenused to groom managers for production.
As with training, considerable analysis and planning are required for management
development to be successful. Many organizations send their employees to the
various training programmes conducted by Indian Institute of Management (IIM),
Administration Staff College of India and other professional bodies from time to
time.
The organisation must first determine through performance appraisal what the
abilities of its present managers are. Then, through job analysis management
should determine what skills and abilities are needed to perform each line and staff
job in the organization. This enables the organization to detemrine which of its
managers are best qualified to fill each position and which require training and
development. After these determinations, management should construct a time-
table for developing specific individuals who probably will be promoted or
transferred.
Developmentand Motivation : Managerial development, of course, is primarily
undertaken to ensure that managers have the skills needed to attain organizational
objectives. Another consideration, closely unrelated to this is the need to provide
satisfaction of higher-level needs for achievement, challenge and growth.
Unfortunately, some organizations do not provide sufficient opportunities to satisfy
these needs through additional responsibility and promotion. One study found that
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recent MBA personal growth the development opportunities and what the
companies actually provided. When there are such discrepancies, people usually
quit. Management turnover is, needless to say, very undesirable because of the
high cost of recruiting managers and integrating them into the organization.
Replacing an employee can cost several times his or her monthly salry.
Techniques for Management Development: Management development can take
place through lectures, small group discussions, case studies, reading, business
games, and role playing. Courses in management and the many seminars on
special topics organized quite often are basically intended for management
development.
Job rotation is also a widely used technique for development. By rotating a
junior-level manager through various departments for periods of three months to a
year, the organization gives the new manager exposure to a wide range of activities.
As a result, the young manager develops awareness of the problems of different
departments, the need for coordination, the dynamics of informal organisation, and
the interrelationships between objectives of different subunits of the organisation.
This knowledge is vital to success in higher-level positions and useful for even
lower-level ones. Japanese organizations utilize job rotation much more extensively
than American organizations.
One study found a strong relationship between the amount of challenge new
management trainees received and their subsequent career progress. Those
individuals whose initial tasks were demanding and challenging developed high
performance standards and were better prepared for future assignments than those
given less challenging tasks. The former group was also promoted more rapidly.
12.3.2.5 Career Management
An extension of management development, career management programmes
have been developed by variety of companies and consulting firms since the 1970s.
Career management is a formal programme ―designed to develop programs or paths
by which employees progress in the organizations, that helps them develop
themselves to their fullest capacity, and that makes the best use of their talents
from the organization‘s point of view‖. Career management programmes help the
organization use its people to full potential and help individual achieve their
capacities to the fullest.
This is important because studies indicate that people usually have a rather
passive attitude towards careers. They tend to allow important career decisions to
be initiated by others, rather than basing them on their own interests, needs, and
goals. According to writers and researchers in the field, career management
programmes result in greater commitment to the organization, increased motivation
and productivity, and less turnover and underutilization of employees.
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12.4 REVISION POINTS

Staffing- Components of staffing - human resource development - recruitment
- compensation
12.5 INTEXT QUESTIONS
1. How human resource planning is necessary? What factors should a manager
consider in human resources planning?
2. What are the important methods of recruitment? Discuss the relative
advantage and disadvantage associated with each level.
3. What do you mean by performance appraisal? How is it useful for the
development of human resources?
12.6 SUMMARY
Among the resources that an organisation uses to achieve the objectives,
human resources, undoubtedly constitutes the key resource. A sound
understanding of the management of people, is therefore essential for a manager.
The managerial function, staffing, is precisely concerned with the various aspects of
human resource such as recruitment, selection, training, compensation and
development of people to the fullest extent possible.
The steps involved in human resource planning such as assessment of present
supply, future needs and development of a human resource programme have been
discussed in detail. Recruitment, its purpose and the various techniques used for
the final selection of people to fill the positions in the organization are also
examined. The lesson also focussed its attention on human resource development.
Socialization of the employees, performance appraisal, the importance of training
and the methods used o update the skills have also been dealt with.
12.7 TERMINAL EXERCISE
Write short notes about the followings
1. Staffing
2. Recruitment
3. Compensation
4. Development
12.8 SUPPLEMENTRAY MATERIALS
1. https://www.scribd.com/doc/45883443/Principles-of-Mangement-MG2351
2. http://www.ebookbou.edu.bd/Books/Text/SOB/MBA/MBA_1301_full.pdf
3. http://2012books.lardbucket.org/pdfs/management-principles-v1.0.pdf
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12.9 ASSIGNMENTS
1. How is the selection of employees is made in an organisation? Do you
suggest any variations in the intensity of selection procedure for the various
levels of positions in the organisation? Why?
2. What are the significant trends that you have noticed in the human resource
management, of late, in India in regard to on selection, training and
compensation. Give example.
12.10 SUGGESTED READINGS
1. John B. Miner and M.G. Miner, 1977, Personnel and Industrial Relations : A
managerial Approach, Macmillan, New York.
2. Wendell L : French, 1982, The Personnel Management Process, Houghton –
Mifflin, Boston.
3. Stephen J. Carrol and Henry L. Tasi, 1977, Organizational Behaviour, St.
Clair Press, Chicago.
4. Leonard R. Sayles and G. Strauss, 1977, Managing Human
Resources, Prentice Hall, Englewood cliffs, New Jessy.
5. Arthur G. Bedlian, 1993, Management, The Dryden Press, New York.
12.11 LEARNING ACTIVITIES
1. Conduct of seminars, special lectures and student‘s development programs
can raise the knowledge of the students.
12.12 KEY WORDS
Staffing- Components of staffing - human resource development - recruitment
- compensation

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UNIT - IV
LESSON – 13
DIRECTION
13.1 INTRODUCTION
In addition to planning, organising and staffing, every manager must also
direct his subordinates. An enterprise may have well-knit and co-ordinated plan;
may have properly laid out activity –authority relation, and further be manned by
properly selected and able personnel; yet a manager must initiate organised
endeavour so that plans are translated in to effective action and enterprise
objectives accomplished through group efforts with minimum of inputs and
unsought consequences. Directing is thus the initiating function of management
that actuates plans and the organisation. Just as starting the motor of a car does
not make it move unless put into gear and accelerator is pressed, in the same way
organisational activities are initiated in the enterprise only through the directing
function of management.
13.2 OBJECTIVES
After studying this lesson, you will be able to:
 state the meaning and importance of directing function;
 identify the elements of directing;
 explain the meaning and style of leadership
 describe the meaning and importance of communication;
 state the different types of communication;
 explain the process of communication
 describe the barriers of communication
 assess the suggestion for effective communication
13.3 CONTENTS
13.3.1 Meaning of Direction
13.3.2 Importance of Directing
13.3.3 Direction has following elements
13.3.4 Principles of Direction
13.3.5 Techniques of Direction
13.3.1 MEANING OF DIRECTION
Directing is the process of integrating the people within the organisation so as
to obtain their willing co-operation towards meeting the pre-determined goals.
According to Theo Haimann, ―Directing consists of the process and techniques
utilized in issuing instructions and making certain that operations are carried on as
originally planned.‖
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It is that part of managerial function which actuates the organizational

methods to work efficiently for achievement of organizational purposes. It is
considered life-spark of the enterprise which sets it in motion the action of people
because planning, organizing and staffing are the mere preparations for doing the
work. Direction is that inert-personnel aspect of management which deals directly
with influencing, guiding, supervising, motivating sub-ordinate for the achievement
of organizational goals.
13.3.2 IMPORTANCE OF DIRECTING
Plans remain mere plans unless they are put into action. In the absence of
direction, subordinates will have no idea as to what to do. They will probably not be
inspired to complete the job satisfactorily. Implementation of plans is, thus, largely
the concern of directing function. As a function of management, directing is useful
in many ways.
1. It guides and helps the subordinates to complete the given task properly and
as per schedule.
2. It provides the necessary motivation to subordinates to complete the work
satisfactorily and strive to do those best.
3. It helps in maintaining discipline and rewarding those who do well.
4. Directing involves supervision, which is essential to make sure that work is
performed according to the orders and instructions.
5. Different people perform different activities in the organisation. All the
activities are interrelated. In order to co-ordinate the activities carried out in
different parts and to ensure that they are performed well, directing is
important. It thus, helps to integrate the various activities and so also the
individual goals with organisational goals.
6. Directing involves leadership that essentially helps in creating appropriate
work environment and build up team spirit.
13.3.3 DIRECTION HAS FOLLOWING ELEMENTS
i. Supervision
ii. Motivation
iii. Leadership
iv. Communication
(i) Supervision- implies overseeing the work of subordinates by their superiors.
It is the act of watching & directing work & workers.
(ii) Motivation- means inspiring, stimulating or encouraging the sub-ordinates
with zeal to work. Positive, negative, monetary, non-monetary incentives may be
used for this purpose.
(iii) Leadership- may be defined as a process by which manager guides and
influences the work of subordinates in desired direction.
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(iv) Communications-is the process of passing information, experience, opinion

etc. from one person to another. It is a bridge of understanding.
13.3.4 PRINCIPLES OF DIRECTION
The following are the basic principles of directing:
1. Integration of individual and organizational goals: This implies that the
individuals contribute to the organizational goals to their maximum
capabilities and at the same time satisfy their personal needs.
2. Participative decision making: Effective direction can be achieved by
involving individuals and groups in decision making process.
3. Delegation of Authority: The subordinates should be delegated with
adequate authority in order to facilitate decision making.
4. Effective communication: The managers should ensure free flow of
communication at all levels of organizational hierarchy.
5. Right type of leadership: The management should develop leadership quality
among the employees.
6. Unity of Command: This principle states that the subordinates should get
directives from one superior only and should be accountable to one superior
only.
7. Appropriateness of direction techniques: The direction techniques selected
should be according to the situation.
8. Follow up: The management should see that whether the direction issued by
them is carried out or not.
9. In simple words, direction can be described as providing guidance to
workers for doing work.
13.3.5 TECHNIQUES OF DIRECTION
There are mainly three techniques are used for direction:
1. Consultative direction: Under this method, the supervisor has consultation
with his subordinates before issuing a direction. The consultation is made to
find out the feasibility, enforceability and nature of problem.
2. Free rein direction: Under these techniques, the subordinate is encouraged
to solve the problem independently. The subordinate should take initiative to
solve the problem.
3. Autocratic direction: It is opposite to free rein direction. The supervisor
commands his subordinates and has close supervision over them.
13.4 REVISION POINTS
Direction:Directing is the process of integrating the people within the
organisation so as to obtain their willing co-operation towards meeting the pre-
determined goals
Directionhas the following functions: supervision, motivation, leadership and
communication
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13.5 INTEXT QUESTIONS

1. Directing is called management-in-action." Comment.
13.6 SUMMARY
Meaning: Directing means tellingpeople what/how/when to do and seeing that
they do it to the best of their ability. It includes assignment of job, explaining
procedures, offering instructions, issuing orders and directives and seeing that
errors are rectified in time.
Principles of Direction: (1) harmony of objectives (2) unity of direction (3) direct
supervision (4) democratic managerial style and (5) follow up by overseeing
subordinates
Techniques of Direction: (1) delegation (2) communication (3)orders and
instructions
13.7. TERMINAL EXERCISES
Choose the correct answer from the following
1. Direction refers to:
a. Planning,
b. Organizing,
c. Driving,
d. Staffing
2. The characteristics of direction include:
a. Guiding,
b. Motivating,
c. Planning,
d. Performance appraisal
3. Direction is a:
a. Discrete process,
b. Continuous process,
c. Circular process,
d. Supervisory process
4. The principles of direction do not include:
a. To have a thorough knowledge about the terms to bind the employees
and the organization,
b. To remove the inefficient employees,
c. Labour turnover,
d. To have an effective communication superior and his subordinates.
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5. The techniques of direction excludes:

a. An alternative device of communication,
b. Supervisory techniques,
c. Coordination,
d. Standard practices and procedures.
13.8. SUPPLEMENTARY MATERIALS
1. The Hindu speaks of Management (1996) Compiled by Mr. N. Ravi, Editor
published by Kasturi & Sons Limited
13.9. ASSIGNMENTS
1. No single model of human behaviour is sufficient to base directing on". -
Comment
13.10. SUGGESTED READINGS /REFERENCE BOOKS/SET BOOKS
1. Koontz and O‘Donnelll, Principles of Management, McGrawHill, 2014
2. Gupta RN., Principles of Management,S. Chand, Chennai,2010
3. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
4. M. Govindarajan and Natarajan.S,Principles of Management
5. L.M Prasad Principles and practice of Management, S.Chand and sons
6. Robbins, S, P, Fundamentals of management, PearsonPublication, 2003.
13.11. LEARNING ACTIVITES
Team Exercise
1. Form 4-5 groups. Each group may have 3 members. Assign task of small
fun games and test how they involve in the activity in the focus of
Direction.
2. Everybody‘s probably had at least one experience with a bad boss. But what
is a bad boss? And more importantly, what can you do in such a situation?
3. Break into small groups of three to four other class members. Come up with
a bulleted list of characteristics and behaviors you believe a bad boss would
have or exhibit. Then, come up with another bulleted list of what you can do
if you find yourself in a situation with a bad boss. Be realistic about your
suggestions; that is, don‘t suggest tampering with the person‘s coffee or
slashing the person‘s tires.
13.12. KEYWORDS
Direction, Supervision-Motivation- Leadership - Consultative Direction - Free
rein Direction and Autocratic Direction.

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LESSON – 14
LEADERSHIP
14.1 INTRODUCTION
It is difficult to define the term ―leadership‖. However, as a starting point, we
may proceed with the workable definition that a leader is one who leads others and
is able to carry an individual or a group towards the accomplishment of a common
goal. He is able to carry them with him, because he influences their behaviour. He
is able to influence their behaviour, because he enjoys some power over them. They
are willing to be influenced, because they have certain needs to satisfy in
collaboration with him. French and Raven have proposed the following bases of
power for a person exerting influence:
14.2 OBJECTIVES
When you have completed this chapter, you should understand the following
 Nature or Characteristics of Leadership, importance of Leadership,
Functions of a Leader, Leadership Styles, Qualities of a Successful Leader
14.3. CONTENTS
14.3.1 Nature or Characteristics of Leadership
14.3.2 Importance of Leadership
14.3.3 Functions of a Leader
14.3.4 Leadership Styles
14.3.5 Qualities of a Successful Leader
Legitimate
That the targets of influence, followers or sub-ordinates understand that the
power the leader enjoys is legitimate and they should comply with his orders in
order to meet their own goals.
Reward
The followers know that the leader has the power to gran promotions,
monetary inducements or other rewards if his orders are complied with.
Coercive
That the followers know that if the leader‘s orders are not complied with, he
has the power to hire, fire, perspire and discharge the followers.
Expert
That the followers know that the leader possesses specialist‘s knowledge in
the field they lack it.
Referent
That the followers feel attracted towards him because of his amiable manners,
pleasing personality or they feel that he is well connected with high-ups. It is
apparent then that the first three power bases indicate positional power, which one
derives from one‘s position. The other two indicate personal power, which is based
on the individual‘s own characteristics. In any case, the leader exercises his
influence because of one or more of these types of power and obtains compliance
from the followers. How far he succeeds in his attempts will depend upon several
other factors that we will discuss during the course of this lesson.
 149

Leadership is, therefore, regarded as the process of influencing the activities of

an individual or a group in efforts towards goal achievement in a given situation.
This process, as Heresy and Blanchard suggest, can be explained in the form of the
following equation:
L = f (L, F, S,)
That is, the leadership is a function of the leader (L), the follower (F) and other
situational variables( S). One who exercises this influence is a leader whether he is
a manager in a formal organization, an informal leader in an informal group or the
head of a family. It is undoubtedly true that a manager may be a weak leader or a
leader may a weak manager, but it is also equally probable that a manager may be
a true leader or a leader may be true manager. Amanager who is a true leader as
well is always desirable. Situational variables include the whole environment like
the task, the group, organizational policies, etc.
Leadership is an activity on the part of the managers to get something done by
others, willingly and not by compulsion. Leadership is a process of influence on a
group. Leadership is the ability of a manager to induce subordinates to work with
confidence.
In the words of Koontz and O‗ Donnel, ―leadership is the ability of a manager
to induce subordinates to work with confidence and zeal.‖
According to Chester I Bernard, ―leadership refers to the quality of the
behaviour of individual whereby they guide people on their activities in organized
efforts‖
According to Luis A Allen, ―a leader is one who guides and directs other people.
He gives the efforts to his followers a direction and purpose by influencing their
behaviour‖
Thus leadership is a psychological process of influencing followers and
providing guidance, directing and leading the people in an organization towards
attainment of the objectives of the enterprise.
14.3.1 NATURE OR CHARACTERISTICS OF LEADERSHIP
1. A leader should have followers
2. Leadership is basically a personal quality
3. Leadership involves a community of interest between the leader and his
followers
4. Leadership is a process of influence
5. Leadership is the function of stimulation
6. A leader ensures absolute justice
7. Leadership is a continuous, dynamic and ever evolving process.
14.3.2 IMPORTANCE OF LEADERSHIP
Without a good leader, organization cannot function efficiently and effectively.
The leader guides the action of others in accomplishing the organizational goals. A
good leader motivates his subordinates, creates confidence and increases the
morale of workers. The importance of leadership can be discussed as follows
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1. Leadership is the process of influencing the activities of an individual or a

group towards the achievement of a goal.
2. An effective leader motivates the subordinates for higher level performance.
3. Leadership promotes team spirit and team work which is quite essential for
the success of any organization
4. Leadership is an aid to authority as it helps in the effective use of formal
authority.
5. Leadership creates confidence in the subordinates by giving them proper
guidance and advice.
14.3.3 FUNCTIONS OF A LEADER
The functions of a leader can be detailed as follows
1. Taking the initiative – A leader initiates all the measures which are
necessary for the purpose of ensuring the health and progress of the
undertaking in a competitive economy.
2. He identifies group goals
3. He represents the organization
4. He acts as an arbitrator
5. To assign reasons for his actions
6. To interpret the objectives of organization
7. To guide and direct the organization
8. To encourage team work
9. He manages the organization
14.3.4 LEADERSHIP STYLES
The term leadership styles can be defined as a leader‗s behaviour towards
group members. It refers to the pattern of behaviour which a leader adopts in
influencing the behaviour of his subordinates in the organizational context.
The leadership style we will discuss here are:
a) Autocratic style
b) Democratic Style
c) Laissez Faire Style
a) Autocratic style
Manager retains as much power and decision-making authority as possible.
The manager does not consult employees, nor are they allowed giving any input.
Employees are expected to obey orders without receiving any explanations. The
motivation environment is produced by creating a structured set of rewards and
punishments.
Autocratic leadership is a classical leadership style with the following
characteristics:
1. Manager seeks to make as many decisions as possible
2. Manager seeks to have the most authority and control in decision making
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3. Manager seeks to retain responsibility rather than utilize complete

delegation
4. Consultation with other colleagues in minimal and decision making becomes
a solitary process
5. Managers are less concerned with investing their own leadership
development, and prefer to simply work on the task at hand.
Advantages
1. Reduced stress due to increased control
2. a more productive group ‗while the leader is watching‘
3. Improved logistics of operations
4. Faster decision making
Disadvantages
1. Short-term approach to management.
2. Manager perceived as having poor leadership skills
3. Increased workload for the manager
4. People dislike being ordered around
5. Teams become dependent upon their leader
b) Democratic Style
Democratic Leadership is the leadership style that promotes the sharing of
responsibility, the exercise of delegation and continual consultation.
The style has the following characteristics:
1. Manager seeks consultation on all major issues and decisions.
2. Manager effectively delegate tasks to subordinates and give them full control
and responsibility for those tasks.
3. Manager welcomes feedback on the results of initiatives and the work
environment.
4. Manager encourages others to become leaders and be involved in leadership
development.
Advantages
1. Positive work environment
2. Successful initiatives
3. Creative thinking
4. Reduction of friction and office politics
5. Reduced employee turnover
Disadvantages
1. Takes long time to take decisions
2. Danger of pseudo participation
3. Like the other styles, the democratic style is not always appropriate. It is
most successful when used with highly skilled or experienced employees or
when implementing operational changes or resolving individual or group
problems.
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c) Laissez-Faire Style
This French phrase means ―leave it be‖ and is used to describe a leader who
leaves his/her colleagues to get on with their work. The style is largely a "hands off"
view that tends to minimize the amount of direction and face time required.
Advantages
1. No work for the leader
2. Frustration may force others into leadership roles
3. Allows the visionary worker the opportunity to do what they want, free from
interference
4. Empowers the group
Disadvantages
1. It makes employees feel insecure at the unavailability of a manager.
2. The manager cannot provide regular feedback to let employees know how
well they are doing.
3. Managers are unable to thank employees for their good work.
4. The manager doesn‘t understand his or her responsibilities and is hoping
the employees can cover for him or her.
14.3.5 QUALITIES OF A SUCCESSFUL LEADER
The following are the major innate qualities of a successful leader.
1. Physical features like height, weight, health and appearance
2. Intelligence
3. Emotional stability
4. Human relations
5. Empathy
6. Objectivity
7. Motivating skills
8. Technical skills
9. Communicative skills
10. Social skills.
14.4 REVISION POINTS
Nature or Characteristics of Leadership, Importance of Leadership, Functions
of a Leader, Leadership Styles, Qualities of a Successful Leader.Leadership refers to
the quality of the behaviour of individual whereby they guide people on their
activities in organized efforts. Autocratic, democratic and laisez faire are the
important leadership styles
14.5 INTEXT QUESTIONS
1. "Leadership is the art of influencing the behaviour and performance of
followers" - Comment
2. How you will define the leadership? Discuss the main leadership styles with
their application
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14.6 SUMMARY
It is beyond doubt that your goal as a leader in the organization is to do the
best job you can at influencing your people towards a common goal. Since you are
dealing with a very diverse group of people, it is important to understand the
different approaches to motivate them to meet their goals. Leadership style is the
pattern of behaviours you use when you are trying to influence the behaviours of
those you are trying to lead. Each leadership style can be identified with a different
approach to problem solving and decision-making. Possessing a better
understanding of the various leadership styles and their respective developmental
levels will help you match a given style for a specific situation. The challenge is to
master the ability to change your leadership style for a given situation as the
person‘s development level changes.
14.7. TERMINAL EXERCISES
Choose the correct answer from the following
1. The features of leadership do not include:
a. Representation,
b. Initiation,
c. Planning,
d. Motivation
2. Leadership has a lot of characteristics and a leader must not maintain this
trait in his behaviour:
a. Coexistence,
b. Taking responsibility,
c. Avoiding responsibility,
d. All of the above.
3. Which of the following statements about leadership is false?
a. Leadership does not necessarily take place within a hierarchical
structure of an organisation.
b. Not every leader is a manager.
c. When people operate as leaders their role is always clearly established
and defined.
d. All the above.
4. Contingency theories of leadership are based on the belief that:
a. There is no single style of leadership appropriate to all situations.
b. There is a single style of leadership appropriate to all managers.
c. There is a single style of leadership appropriate to all situations.
d. None of the above.
 154

14.8. SUPPLEMENTARY MATERIALS

1. The Hindu speaks of Management (1996) Compiled by Mr. N. Ravi, Editor
published by Kasturi & Sons Limited
14.9. ASSIGNMENTS
1. "Management has been defined as the technique of providing group
leadership in order to achieve some purpose or goal". - Discuss
14.10. SUGGESTED READINGS /REFERENCE BOOKS/SET BOOKS
1. Koontz and O‘Donnelll, Principles of Management, McGrawHill, 2014
2. Gupta RN., Principles of Management ,S. Chand, Chennai,2010
3. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
4. M. Govindarajan and S Natarajan,Principles of Management
5. L.M Prasad Principles and practice of Management, S Chand and sons
6. Robbins, S, P, Fundamentals of management, PearsonPublication, 2003
14.11. LEARNING ACTIVITES
Team Exercise
1. Form 4-5 groups. Each group may have 3 members. Assign task of small
fun games and test how they involve in the activity in the focus of
Leadership.
2. Everybody‘s probably had at least one experience with a bad boss. But what
is a bad boss? And more importantly, what can you do in such a situation?
3. Break into small groups of three to four other class members. Come up with
a bulleted list of characteristics and behaviors you believe a bad boss would
have or exhibit. Then, come up with another bulleted list of what you can do
if you find yourself in a situation with a bad boss. Be realistic about your
suggestions; that is, don‘t suggest tampering with the person‘s coffee or
slashing the person‘s tires.
14.12. KEYWORDS
Qualities of a Leader - Situational Approach - Leadership Styles - Leader
Effectiveness -Measurement of Leadership Style.


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LESSON - 15
COMMUNICATION
15.1 INTRODUCTION
Communication is the exchange of messages between people for the purpose of
achieving common meanings. Unless common meanings are shared, managers find
it extremely difficult to influence others. Whenever group of people interact,
communication takes place. Communication is the exchange of information using a
shared set of symbols. It is the process that links group members and enables them
to coordinate their activities. Therefore, when managers foster effective
communication, they strengthen the connections between employees and build
cooperation. Communication also functions to build and reinforce interdependence
between various parts of the organization. As a linking mechanism among the
different organizational subsystems, communication is a central feature of the
structure of groups and organizations. It helps to coordinate tasks and activities
within and between organizations.
15.2 OBJECTIVES
When you have completed this chapter, you should understand the following
 Definition
 Importance of Communication
 Communication Process, Types of Communication
 The external and internal communication network
 Communication Barriers and Guidelines for Effective Communication
15.3 CONTENTS
15.3.1 Definition
15.3.2 Importance of Communication
15.3.3Objectives of Business Communication
15.3.4 The Communication Process
15.3.5The External and Internal Communication Network
15.3.6 Barriers to Communication
15.3.7 Guidelines for Effective Communication
15.3.8 Types of Communication
15.3.1 DEFINITION
According to Koontz and O'Donnell, "Communication, is an intercourse by
words, letters symbols or messages, and is a way that the organization members
shares meaning and understanding with another".
"Communication is something so simple and difficult that we can never put it
in simple words," says T.S. Mathews.
 156

But we do need a definition to understand the term. In his book

Communication in Business, Peter Littledefines communication as follows:
―Communication is the process by which information is transmitted between
individuals and / or organizations so that an understanding response results.‖
Another very simple definition of 'communication' has been provided by W.H.
Newman and C.F. Summer Jr:
―Communication is an exchange of facts, ideas, opinions, or emotions by two
or more persons.‖
15.3.2 IMPORTANCE OF COMMUNICATION
Communication in organisations is so important that it is said to be the
lifeblood of the organisation. Success of direction largely depends on how effectively
the manager can communicate with his subordinates. Proper communication in
organisations at all levels and between all levels can improve both the quantity and
quality of output. Some of the benefits of communication are as follows:
1. Communication helps employees to understand their role clearly and
perform effectively.
2. It helps in achieving co-ordination and mutual understanding which in turn,
leads to industrial harmony and increased productivity.
3. Communication improves managerial efficiency and ensures cooperation of
the staff.
4. Effective communication helps in moulding attitudes and building up
employees‘ morale.
5. Communication is the means through which delegation and decentralisation
of authority is successfully accomplished in an organisation.
You will understand the significance of business communication from the
following points:
1. Healthy Organizational Environment
The organizations are the social systems formed on the basis of mutual
interest. The mutual interests are safeguarded by various activities of planning by
the management. They must skilfully apply the communication systems to keep the
healthy organizational environment. It must be remembered that the activities of
the management and the employees in any business organization are governed by
social as well as psychological laws. If the management has to keep the healthy
organizational environment and healthy relations with the individuals from outside,
other business houses, government authorities, etc., it must use the
communication channels and media effectively.
Sociologically, organizations are social systems in which people have their
individual as well as social roles and status.
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2. Management-Employee Relations
A genuine interest in other people, their groups and organisations is required
for strong and stable personal relations and for the success of business activities of
the businessman who is genuinely interested in others, shares their hopes,
aspirations, successes and disappointments.
As organizations need people and people also need organizations, people can
use organization and organization can use people to reach their objectives by
communication properly with each other. When the objectives of the organization
are made clear to the employees, the workers are motivated to work in that
direction. It should be made clear that the organization cannot survive, if its
objectives are not reached; and if the organization does not survive, there would be
no chances of employment opportunities in it. The employees and the management
should develop the link of communication for better mutual understanding and
encourage each other to achieve their self-interests.
3.The External and Internal Communication Network
Every business finds it necessary to maintain both the internal and external
communication. The communication between the management and the workers is
an internal communication. The management must be well-informed about the
internal activities of the organization. They require the information about the
efficiency, qualifications, capabilities and the training of the workers and also about
the production, marketing and sales capacity of the organization. The progress and
profitability of the organization depends upon how well the management and the
employees are informed about these matters and what steps are taken by them in
order to improve the situation. When the management is informed about some
faults related to job assignments, exact designation of the officers and their
decision-making, the responsibilities of the employee, etc., the management
making, the responsibilities of the employee, etc., the management will make
necessary changes and the business can thrive after the relevant changes are
made.
The dynamics of the internal system influence the activities of the external
system. Communication about the product studies and market analyses flow
smoothly between persons of .equal status, between friends and between persons
who support and encourage one another. The conflicts growing out of the internal
system of the group can binder the communication regarding external activities.
The manager must give attention to both the internal and the external group
systems.
The effective internal network of communication is essential today because of
the large size of the business houses. They have their branches and sub-branches,
which are further divided into functional departments. Some business
organizations are spread over the different places in the country. These divisions
and branches maintain a link with the management of the central organization. The
appointments, designations, relationships, responsibilities, objectives and all the
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activities and duties determined by the division of work are communicated and
assigned to the branches by the central management of the organization. The
branch manager who is appointed by the board of directors accepts the
responsibilities and assignments, which are assigned by the parent body. Through
him, the center gets reports about the various activities of the branch. He has to
accept the directives of center, which are given by center after receiving the reports.
He acts as the delegate of the board of directors and has to clarify the objectives
and directives of the organization to his subordinates. In some of the multinational
corporations, the directors and the managers spend their ninety per cent time in
maintaining communication links.
4. Functionalisation
The division of work into different kinds of duties can be called
functionalisation. For example, the difference between an office supervisor and an
operator‘s assembly or machine shop supervisor is a functional one. This idea of
functionalisation is found in most of the business organizations today.
Functionalisation naturally leads to specialisation. The most salient feature of this
age is specialization. There are specialists who acquire a vast knowledge and
experience in their limited subject. This specialized knowledge, training and
experience will be useless if it is not communicated. The accountants, engineers,
scientists and the experts of many kinds must be able to communicate their
knowledge to the management and the employees. The company may get benefit by
the advices, suggestions and information provided by these experts.
5. The Complexity of Business Activities
Though specialization has brought great benefits to the business
organizations, it has rendered modem business activities into an extremely complex
phenomenon. As the specialization is most fundamental to modem civilization, the
industrial society cannot exist without it. In an organization, planning, finance,
accounts, purchase, production, advertising, marketing, stores, sales, labour-
welfare, cultural activities, adjustments of complaints and claims and a number of
other activities are handled by the people who have developed unique skills and
knowledge in their fields. As these functions are assigned to different departments,
they have to coordinate among themselves by communicating with one another
horizontally. They must communicate with the management to which they are
responsible for organization is more complex and difficult to coordinate than the
original group of workers, which is not divided into different kinds of duties. The
managers and the supervisors must be well versed in communication skills in order
to bring coordination among the functionalized group. The productivity gains of the
specialization can be achieved only if the harmonious human relationship and
coordination of departmental activities are well maintained.
6. Trade Unions: Labour Problems
The businessmen are mostly after productivity gains and other economic and
technical benefits. Sometimes, this tendency of the businessmen comes in conflict
with the problems, which are primarily human. The employees are now more
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conscious of their rights than before. They are organized into trade unions, which
continuously demand for rights of the employees, better working conditions and
dignity of the labour. The progressive employers are convinced that there ought to
be some ways of effective communication between the management and the
workers to develop better employee‘s satisfaction and a sense of security.
If the insecurity and frustration of employees is successfully dispelled by the
management, the employees feel motivated for better working. In order to satisfy
the security needs of employees, a number of companies have started welfare
programmes based on custodial model of organization, which is popularly known as
paternalism by which employees depend on the organization for their security and
welfare. As the success of the custodial approach depends on the economic
resources of the organization, the management must be able to communicate with
the employees regarding the financial state of the organization and should motivate
them for better work in order to make the organization financially strong enough to
support its employees.
7. Globalization and the Language Problem
Modem business relationships have spread worldwide and. The
communication links play a significant role in establishing and strengthening such
relationships. Multinational business can help the economic as well as social
development; therefore, it can also be regarded as a social institution. When a
business expands beyond national boundaries, it is also a step into different legal,
political, social, economic and educational environments. With the expansion of
business, the communication links are also lengthened because of which the
control of the multiple business activities becomes more difficult. It is hard enough
to run a multinational business in one language. When there are number of other
language in a country and the overall languages are used as a medium of
communication, the management faces the compounded difficulties, the complexity
of the business increase to the maximum. Under these circumstances, the
management has to put its communication skills to their limits.
8. Competition
Businessmen seek to obtain profit from the sale of their goods and services
and the consumers seek the satisfaction of their wants by buying them in the
market. In a free market economy, production is for profit and consumption is for
the satisfaction of wants. Both the producers‘ and the consumers naturally try to
promote their own interests. This system works fair/when free competition is
present in the market place. The products of common consumption are available in
the market in many brands and the buyers are free to buy any of them. As the
decision to buy depends on their own initiative, they cannot be forced to buy a
particular product or service. The similar products with different branding from
different companies cannot enjoy equal demand from the buyers. A businessman,
who wants to survive in this world of free competition, should know his
competitors, the quality and the prices of their products, the discounts, terms and
conditions of sale, the policies of advertising, government laws, etc. If they are not
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able to communicate better in this respect, their sale will not be satisfactory. A good
salesman is efficient communicator who can attract the customer, induce him to
buy his goods and services.
9. Participation and Delegation
Participation, cooperation and team-work of the management and employees
can yield best results because of their common commitment to goals that
encourage better performance. Participative managers communicate with their
employees. They ask for the opinions, views, suggestions and recommendations of
the employees in the decision making process so that they work together as a team.
But the benefits of participation in decision-making process may not be substantial
if the superiors neglect the delegation of authority. The delegation of authority
trains and develops the efficiency of the subordinates and reduces the manager‘s
burden of performing the duties of routine nature. The delegation of authority can
be communicated in oral or written form, but it is always better to use the written
form in order to avoid the conflict and confusion.
In participatory management, the manager retains the ultimate responsibility
of his unit, but he shares the operating responsibility with the employees who
actually perform the work. This gives a sense of involvement and satisfaction to the
employees who work with high morale to achieve the objectives of the organization
as the manager seeks participation of the employees in policy matters and decision
making.
15.3.3OBJECTIVES OF BUSINESS COMMUNICATION
The main purpose of all communication in an organization is the general
welfare of the organization. Effective communication is needed at all stages in order
to ensure this welfare. At the planning stage, information is needed on the various
aspects of the enterprise, the feasibility of the project being undertaken, finances
involved, man-power required, marketing conditions, publicity campaigns, etc. At
the execution stage, orders are issued to the employees to start work, the workers
associated with the project are constantly motivated and kept involved, and a sense
of discipline is cultivated among them and their morale is kept high. All this
requires constant two way communication between the managers and the
employees. Then at the assessment stage, the manager is again required to
communicate with various sources, both internal and external, to assess the
success of the project, and if a need is felt, to envisage modifications in the future
plans. In view of this elaborated and complex commercial structure,
communication can be used for any or more of the following objectives:
1. Information
2. Advice
3. Order
4. Suggestion
5. Persuasion
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6. Education
7. Warning
8. Raising morale
9. Motivation
15.3.4 THE COMMUNICATION PROCESS
Communication is important in building and sustaining human
relationships at work. Communication can be thought of as a process or flow.
Before communication can take place, a purpose, expressed as a message to be
conveyed is needed. It passes between the sender and the receiver. The result is
transference of meaning from one person to another.
Communication process has seven parts they are:
1. Source,
2. Encoding
3. Message
4. Channel
5. Decoding
6. Receiver
7. Feedback.
Figure – 15.1 Communication Process

a) Source
The source initiates a message. This is the origin of the communication and
can be an individual, group or inanimate object. The effectiveness of a
communication depends to a considerable degree on the characteristics of the
source. The person who initiates the communication process is known as sender,
source or communicator. In an organization, the sender will be a person who has a
need or desire to send a message to others. The sender has some information which
he wants to communicate to some other person to achieve some purpose. By
initiating the message, the sender attempts to achieve understanding and change in
the behaviour of the receiver.
 162

b) Encoding
Once the source has decided what message to communicate, the content of the
message must be put in a form the receiver can understand. As the background for
encoding information, the sender uses his or her own frame of reference. It includes
the individual's view of the organization or situation as a function of personal
education, interpersonal relationships, attitudes, knowledge and experience. Three
conditions are necessary for successful encoding the message.
b.1.Skill
Successful communicating depends on the skill you possess. Without the
requisite skills, the message of the communicator will not reach the requisite skills;
the message of the communicator will not reach the receiver in the desired form.
One's total communicative success includes speaking, reading, listening and
reasoning skills.
b. 2.Attitudes
Our attitudes influence our behaviour. We hold predisposed ideas on a
number of topics and our communications are affected by these attitudes.
b.3.Knowledge
We cannot communicate what we don't know. The amount of knowledge the
source holds about his or her subject will affect the message he or she seeks to
transfer.
c) The Message
The message is the actual physical product from the source encoding. The
message contains the thoughts and feelings that the communicator intends to
evoke in the receiver. The message has two primary components:-
c.1.The Content
The thought or conceptual component of the message is contained in the
words, ideas, symbols and concepts chosen to relay the message.
c.2.The Affect
The feeling or emotional component of the message is contained in the
intensity, force, demeanour (conduct or behaviour), and sometimes the gestures of
the communicator.
d) The Channel
The actual means by which the message is transmitted to the receiver (Visual,
auditory, written or some combination of these three) is called the channel. The
channel is the medium through which the message travels. The channel is the
observable carrier of the message.
Communication in which the sender's voice is used as the channel is called
oral communication. When the channel involves written language, the sender is
using written communication. The sender's choice of a channel conveys additional
information beyond that contained in the message itself. For example, documenting
 163

an employee's poor performance in writing conveys that the manager has taken the
problem seriously.
f) Decoding
Decoding means interpreting what the message means. The extent to which
decoding by the receiver depends heavily on the individual characteristics of the
sender and receiver. The greater the similarity in the background or status factors
of the communicators, the greater the probability that a message will be perceived
accurately. Most messages can be decoded in more than one way. Receiving and
decoding a message are a type of perception. The decoding process is therefore
subject to the perception biases.
g) The Receiver
The receiver is the object to whom the message is directed. Receiving the
message means one or more of the receiver's senses register the message - for
example, hearing the sound of a supplier's voice over the telephone or seeing the
boss give a thumbs-up signal. Like the sender, the receiver is subject to many
influences that can affect the understanding of the message.
Most important, the receiver will perceive a communication in a manner that is
consistent with previous experiences. Communications that are not consistent with
expectations is likely to be rejected.
h) Feedback
The final link in the communication process is a feedback loop. Feedback, in
effect, is communication travelling in the opposite direction. If the sender pays
attention to the feedback and interprets it accurately, the feedback can help the
sender learn whether the original communication was decoded accurately. Without
feedback, one-way communication occurs between managers and their employees.
Faced with differences in their power, lack of time, and a desire to save face by not
passing on negative information, employees may be discouraged from providing the
necessary feedback to their managers.
15.3.5THE EXTERNAL AND INTERNAL COMMUNICATION NETWORK
Every business finds it necessary to maintain both the internal and external
communication. The communication between the management and the workers is
an internal communication. The management must be well-informed about the
internal activities of the organization. They require the information about the
efficiency, qualifications, capabilities and the training of the workers and also about
the production, marketing and sales capacity of the organization. The progress and
profitability of the organization depends upon how well the management and the
employees are informed about these matters and what steps are taken by them in
order to improve the situation. When the management is informed about some
faults related to job assignments, exact designation of the officers and their
decision-making, the responsibilities of the employee, etc., the management
making, the responsibilities of the employee, etc., the management will make
 164

necessary changes and the business can thrive after the relevant changes are
made.
The dynamics of the internal system influence the activities of the external
system. Communication about the product studies and market analyses flow
smoothly between persons of .equal status, between friends and between persons
who support and encourage one another. The conflicts growing out of the internal
system of the group can binder the communication regarding external activities.
The manager must give attention to both the internal and the external group
systems.
The effective internal network of communication is essential today because of
the large size of the business houses. They have their branches and sub-branches,
which are further, divided into functional departments. Some business
organizations are spread over the different places in the country. These divisions
and branches maintain a link with the management of the central organization. The
appointments, designations, relationships, responsibilities, objectives and all the
activities and duties determined by the division of work are communicated and
assigned to the branches by the central management of the organization. The
branch manager who is appointed by the board of directors accepts the
responsibilities and assignments, which are assigned by the parent body. Through
him, the centre gets reports about the various activities of the branch. He has to
accept the directives of center, which are given by center after receiving the reports.
He acts as the delegate of the board of directors and has to clarify the objectives
and directives of the organization to his subordinates. In some of the multinational
corporations, the directors and the managers spend their ninety per cent time in
maintaining communication links.
15.4 REVISION POINTS
Definition, Importance of Communication, Communication Process, Types of
Communication.The external and internal communication network,Communication
Barriers and Guidelines for Effective Communication.Communication is the
exchange of messages between people for the purpose of achieving common
meanings.Source, encoding, message, channel, decoding, receiver, and feedback
are the important parts of communication process
15.5 INTEXT QUESTIONS
1. "Communication means conveyance of meanings" - Discuss
2. Explain various types of communication.
3. Define communication. What are the common barriers to communication in
an organisation? How they can be overcome?
4. What is meant by direction? Briefly explain its main functions?
5. Explain the process of communication
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15.6 SUMMARY
The process of communication involves exchanging facts, ideas, opinions or
emotions between two or more persons. Feedback is an essential aspect of
communication. The main purpose of communications is to inform, or to bring
round to a certain point of view, or to elicit action. Communication can be used for
any or more of the following objectives: information, advice, order, suggestion,
persuasion, education, warning, raising morale and motivation. The executives
need information to plan and organize; employees need it to execute their job
satisfactorily
15.7. TERMINAL EXERCISES
Choose the correct answer from the following
1. Communication is a:
a. Two-way process,
b. One-way process,
c. Discrete process,
d. Circular process
2. Feedback is a listener's
a. Verbal critique of your message.
b. Verbal or nonverbal responses to a message.
c. Acceptance of a message.
d. Aversion to a message.
3. To decode a message is to
a. Translate ideas into code.
b. Reject a message.
c. Evaluate a message.
d. Interpret a message.
4. In the communication process, to encode means to
a. Translate ideas into a code.
b. Block a pathway between the sender and receiver of a message.
c. Speak to large groups of people.
d. Interpret a code.
5. A message is a signal that serves as
a. Noise reduction.
b. Stimuli for a speaker.
c. Stimuli for a mass audience.
d. Stimuli for a receiver.
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6. Feedback can come in the form of

a. Nonverbal communication only.
b. Verbal communication only.
c. Environmental noise.
d. Verbal and nonverbal listener responses.
7. In the communication process, a receiver is
a. Message interference.
b. The person who decodes a message.
c. A message pathway.
d. The person who encodes an idea.
8. Noise does the following:
a. Causes listeners to listen to messages more carefully.
b. Focuses wandering thoughts.
c. Distorts or interferes with a message.
d. Enhances a message.
9. Which of the three components is part of the human communication
process?
a. Message, noise, feedback
b. Feedback, message, critiquing
c. Noise, feedback, jargon
d. Message, recording, feedback
10. Which of the following is an example of a nonverbal message?
a. Eye contact
b. Yelling
c. Mumbling
d. Jargon
11. The ability to communicate effectively
a. Depends on the education level of those around you.
b. Can be learned.
c. Is a natural talent that cannot be learned?
d. Depends on not using technology to send messages.
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15.8. SUPPLEMENTARY MATERIALS

1. The Hindu speaks of Management (1996) Compiled by Mr. N. RavL Editor
published by Kastun & Sons Limited
15.9. ASSIGNMENTS
1. "The grapevine is an important part of any group or organizations'
communication network and well worth understanding". Do you agree?
15.10. SUGGESTED READINGS /REFERENCE BOOKS/SET BOOKS
1. Koontz and O‘Donnelll, Principles of Management, McGrawHill, 2014
2. Gupta RN., Principles of Management,S. Chand, Chennai,2010
3. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
4. M. Govindarajan and Natarajan.S,Principles of Management
5. L.M Prasad Principles and practice of Management, S Chand and sons
6. Robbins, S, P, Fundamentals of management, PearsonPublication, 2003
15.11. LEARNING ACTIVITES
Team Exercise
1. Form 4-5 groups. Each group may have 3 members. Assign task of small fun
games and test how they involve in the activity in the focus of
communication.
2. Everybody‘s probably had at least one experience with a bad boss. But what
is a bad boss? And more importantly, what can you do in such a situation?
3. Break into small groups of three to four other class members. Come up with
a bulleted list of characteristics and behaviors you believe a bad boss would
have or exhibit. Then, come up with another bulleted list of what you can do
if you find yourself in a situation with a bad boss. Be realistic about your
suggestions; that is, don‘t suggest tampering with the person‘s coffee or
slashing the person‘s tires.
15.12. KEYWORDS
Communication - Grapevine and Communication process

 
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LESSON – 16
BARRIERS TO COMMUNICATION
16.1 INTRODUCTION
In the we have discussed the various media of communication available to us -
oral, written visual, audio-visual, computer-based, etc. While a properly chosen
medium can add to the effectiveness of communication, an unsuitable medium may
act as a barrier to it. Each communication must be transmitted through an
appropriate medium. The various inadequacies that can be identified through
communication evaluation are required to be analysed in terms of various factors -
obstructions and barriers - that impede flow communication. Any managerial
action in this regard can be effective only when it strikes at the very root of the
factors that lie at the very root of the problem. An unsuitable medium is one of the
biggest barriers to communication. In addition, some of the barriers of
communications are as follows:
Figure–16.1 Barriers to Communication

16.2 OBJECTIVES
After studying this lesson, you may understand:
 the barriers of communication
 assessing the suggestion for effective communication
16.3 CONTENTS
16.3.1 Physical Barriers
16.3.2 Semantic Barriers
16.3.3 Socio-Psychological Barriers
15.3.4 Guidelines for Effective Communication
15.3.5 Types of Communication
16.3.1 PHYSICAL BARRIERS
Following are the Important Physical Barriers
1. Noise
Noise is quite often a barrier to communication. In factories, oral
communication is rendered difficult by the loud noise of machines. Electronic noise
 169

like blaring often interferes in communication by telephone or loudspeaker system.

The word noise is also use to refer to all kinds of physical interference like illegible
handwriting, smudged typescript, poor telephone connections, etc.
2.Time and Distance
Time and distance also act as barriers to the smooth flow of communication.
The use of telephone along with computer technology has made communication
very fast and has; to a large extent overcome the space barrier. However, sometimes
mechanical breakdowns render these facilities ineffective. In such cases, the
distance between the transmitter and the receiver becomes a mighty barrier. Some
factories run in shifts. There is a kind of communication gap between persons
working in different shifts. Faulty seating arrangement in the room can also become
a barrier to effective communication, for whichever seats the employees may be
occupying; they definitely want an eye contact with one another.
16.3.2 SEMANTIC BARRIERS
Following are the important semantic barriers in communication.
1. Interpretation of Words
Most of the communication is carried on through words, whether spoken or
written. But words are capable of communicating a variety of meanings. It is quite
possible that the receiver of a message does not assign the same meaning to a word
as the transmitter had intended. This may lead to miscommunication.
2. Bypassed Instruction
Bypassing is said to have occurred if the sender and the receiver of the
message attribute different meanings to the same word or use different words for
the same meaning. Murphy and Pack have given a classic example of how bypassed
instructions can play havoc with the communication process: An office manager
handed to a new assistant one letter with the instruction. ―Take it to our stockroom
and burn it‖. In the office manager's mind (and in the firm's jargon) the word ''burn''
meant to make a copy on a company machine which operated by a heat process. As
the letter was extremely important, she wanted an extra copy. However, the puzzled
new employee, afraid to ask questions, burned the letter with a lighted match and
thus destroyed the only existing copy.
16.3.3 SOCIO-PSYCHOLOGICAL BARRIERS
Following are the important socio-psychological barriers in communication
they are as follows:-
1. Attitudes and Opinions
Personal attitudes and opinions often act as barriers to effective
communication. If information agrees with our opinions and attitudes, we tend to
receive it favourably. It fits comfortably in the filter of our mind. But if information
disagrees with-our views or tends to run contrary to our accepted beliefs, we do not
react favourably. If a change in the policy of an organisation proves advantageous
to an employee, he welcomes it as good; if it affects him adversely, he rejects it as
the whim of the Director.
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2. Emotions
Emotional states of mind play an important role in the act of communication.
If the sender is perplexed, worried, excited, afraid, nervous, his thinking will be
blurred and he will not be able to organise his message properly. The state of his
mind is sure to be reflected in his message. It is a matter of common observation
that people caught in a moment of fury succeed only in violent gesticulation. If they
try to speak, they falter and keep on repeating the same words. In the same way,
the emotions of the receiver also affect the communication process. If he is angry,
he will not take the message in proper light. It is extremely important that emotions
are not allowed impede the smooth flow of communication. The communicator
should not try to communicate while in a state of emotional excitement. He should
first cool down. In the same way, the receiver should not react to the message if his
mind is perturbed.
3. Closed Mind
A person with a closed mind is very difficult to communicate with. He is a man
with deeply ingrained prejudices. And he is not prepared' to reconsider his
opinions. If closed-minded people can be encouraged to state their reasons for
rejecting a message or a proposal, they may reveal deep-rooted, prejudices,
opinions and emotions. Perhaps, one can make an attempt to counteract those
prejudices, opinions, etc. But if they react only with anger and give a sharp rebuff
to anyone who tries to argue with them, they preclude all possibility of
communication.
4. Status-Consciousness
Status consciousness exists in every organisation and is one of the major
barriers to effective communication. Subordinates are afraid of communicating
upward any unpleasant information. They are either too conscious of their inferior
status or too afraid of being snubbed. Status conscious superiors think that
consulting their juniors would be compromising their dignity. Status consciousness
proves to be a very serious barrier to face-to-face communication.
The subordinate feels jittery and nervous, fidgets about where he is standing,
falters in his speech and fails in communicating what exactly he wanted to say. The
officer, on the other hand, reveals impatience and starts giving comments or advice
before he has fully heard his subordinate. Consequently, there is a total failure of
communication; the subordinate returns to his seat dissatisfied and simmering
inside, while the officer resumes his work with the feeling that his employees have
no consideration for the value of his time and keep on pestering him for nothing.
Such communication failures can be averted if the managers and other persons in
authority rise above the consciousness of their status and encourage their
employees to talk freely.
5. The Source of Communication
If the receiver has a suspicion about or prejudice against the source of
communication, there is likely to be a barrier of communication. People often tend
to react more according to their attitude to the source of facts than to the facts
themselves. Think of an executive in the habit of finding fault with his employees. If
 171

once in a while he begins with a compliment, the employees immediately become

suspicious and start attributing motives to the compliment. If a statement
emanates from the grapevine, the manager will not give credence to it, but the same
state coming from a trusted supervisor will immediately be believed.
6. Inattentiveness
People often become inattentive while receiving a message, in particular, if the
message contains a new idea. The adult human mind usually resists change, for
change makes things uncertain. It also threatens security and stability. So the
moment a new idea is presented to them, they unconsciously become inattentive.
Sometimes a person becomes inattentive because of some distraction. It is possible
that an employee does not listen to the supervisor's instructions attentively because
he is being distracted by the lady typist who has chosen exactly this moment to
repair her make-up, or because he is feeling amused at the supervisor's artificial
accent and finds it difficult to concentrate on his words. Sometimes when the
listener has received a part of the message, his .mind gets busy in framing a reply
to it, or in guessing the next part of the message. It is quite likely that in thinking of
what has been said or that might be said later, the listener misses a part of what is
actually being said at the present moment.
7. Faulty Transmission
A message is never communicated from one person to another in its entirety.
This is true in particular of oral messages. If a decision has been taken by the
Board of Directors, it must be in the form of a lengthy resolution. This resolution
cannot be passed on to the factory workers in the same form. It has to be translated
in simple language so that they may easily understand it. But translation can never
be perfect. In the process of interpretation, simplification and translation, a part of
the message gets lost or distorted. A scientific study of the communication process
has revealed that successive transmissions of the same message are decreasingly
accurate. In oral communications, something in the order of 30 per cent of the
information is lost in each transmission.
8. Poor Retention
Poor retention of communication also acts as a barrier. Studies show that
employees retain only about 50 per cent of the information communicated to them.
The rest is lost. Thus if information is communicated through three or four stages,
very little reaches the destination, and of that very little also only a fraction is likely
to be retained poor retention may lead to imperfect responses, which may further
hamper the communication process.
9. Unsolicited Communication
Unsolicited communication has to face stronger barriers than solicited
communication. If I seek advice, it should be presumed that I will listen to it. But if
a sales letter comes to me unsolicited, it is not very sure that I will pay much
attention to it.
16.3.4 GUIDELINES FOR EFFECTIVE COMMUNICATION
The various measures enumerated above will no doubt create conditions for
effective communication, but the communicator may take some specific steps to
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make it effective in a given condition. There are various guidelines for making
effective communication. American Management Association has suggested Ten
Commandments of good communication. These are: clarifying idea before
communication, purpose of communication, understanding physical and human
environment of communication, consulting others in planning communication,
contents and overtones of communication, value of communication to the receiver,
follow-up action; importance of communication, action congruent with
communication, and good listening. Apart from the above the following measures or
suggestion will lead to effective communication. They are as follows:-
(i) Senders of message must clarify in their minds what they want to
communicate. Purpose of the message and making a plan to achieve the intended
end must be clarified.
(ii) Encoding and decoding be done with symbols that are familiar to the
sender and the receiver of the message.
(iii) For the planning of the communication, other people should be consulted
and encouraged to participate.
(iv) It is important to consider the needs of the receivers of the information.
Whenever appropriate, one should communicate something that is of value to them,
in the short run as well as in the more distant future.
(v) In communication, tone of voice, the choice of language and the congruency
between what is said and how it is said influence the reactions of the receiver of the
message.
(vi) Communication is complete only when the message is understood by the
receiver. And one never knows whether communication is understood unless the
sender gets a feedback.
(vii) The function of communication is more than transmitting the information.
It also deals with emotions that are very important in interpersonal relationships
between superiors, subordinates and colleagues in an organization.
(viii) Effective communicating is the responsibility not only of the sender but
also of the receiver of the information.
Figure–16.2 Overcoming the Barriers to Effective Interpersonal Communication
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16.3.5Types of Communication
a) Formal Communication
Formal communication follows the route formally laid down in the organization
structure. There are three directions in which communications flow: downward,
upward and laterally (horizontal).
i) Downward Communication
Downward communication involves a message travelling to one or more
receivers at the lower level in the hierarchy. The message frequently involves
directions or performance feedback. The downward flow of communication generally
corresponds to the formal organizational communications system, which is usually
synonymous with the chain of command or line of authority. This system has
received a great deal of attention from both managers and behavioural scientists
since it is crucial to organizational functioning.
ii) Upward Communication
In upward communication, the message is directed toward a higher level in the
hierarchy. It is often takes the form of progress reports or information about
successes and failures of the individuals or work groups reporting to the receiver of
the message. Sometimes employees also send suggestions or complaints upward
through the organization‘s hierarchy.
The upward flow of communication involves two distinct manager-subordinate
activities in addition to feedback:
1. The participation by employees in formal organizational decisions.
2. Employee appeal is a result against formal organization decisions. The
employee appeal is a result of the industrial democracy concept that
provides for two-way communication in areas of disagreement.
iii) Horizontal Communication
When takes place among members of the same work group, among members
of work groups at the same level, among managers at the same level or among any
horizontally equivalent personnel, we describe it as lateral communications. In
lateral communication, the sender and receiver(s) are at the same level in the
hierarchy. Formal communications that travel laterally involve employees engaged
in carrying out the same or related tasks.
The messages might concern advice, problem solving, or coordination of
activities.
b) Informal Communication or Grapevine
Informal communication, generally associated with interpersonal
communication, was primarily seen as a potential hindrance to effective
organizational performance. This is no longer the case. Informal communication
has become more important to ensuring the effective conduct of work in modern
organizations.
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Probably the most common term used for the informal communication in the
workplace is ―grapevine‖ and this communication that is sent through the
organizational grapevine is often considered gossip or rumour. While grapevine
communication can spread information quickly and can easily cross established
organizational boundaries, the information it carries can be changed through the
deletion or exaggeration crucial details thus causing the information inaccurate
even if it‘s based on truth.
The use of the organizational grapevine as an informal communication channel
often results when employees feel threatened, vulnerable, or when the organization
is experiencing change and when communication from management is restricted
and not forthcoming.
16.4 REVISION POINTS
Physical barriers, semantic barriers, socio-psychological barriers are the
important barriers in effective communication. Mainly there is formal and informal
communication. Formal communication can be further divided in to downward,
upward and horizontal communication
16.5 INTEXT QUESTIONS
1. Is listening an art of communication?
2. Write an essay on communication media.
16.6 SUMMARY
The process of communication involves exchanging facts, ideas, opinions or
emotions between two or more persons. Feedback is an essential aspect of
communication. The main purpose of communications is to inform, or to bring
round to a certain point of view, or to elicit action. Communication can be used for
any or more of the following objectives: information, advice, order, suggestion,
persuasion, education, warning, raising morale and motivation. The executives
need information to plan and organize; employees need it to execute their job
satisfactorily
16.7. TERMINAL EXERCISES
Choose the correct answer from the following
1. Noise does the following:
a. Causes listeners to listen to messages more carefully.
b. Focuses wandering thoughts.
c. Distorts or interferes with a message.
d. Enhances a message.
2. Which of the three components is part of the human communication
process?
a. Message, noise, feedback
b. Feedback, message, critiquing
c. Noise, feedback, jargon
d. Message, recording, feedback
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3. Which of the following is an example of a nonverbal message?

a. Eye contact
b. Yelling
c. Mumbling
d. Jargon
4. The ability to communicate effectively
a. Depends on the education level of those around you.
b. Can be learned.
c. Is a natural talent that cannot be learned?
d. Depends on not using technology to send messages.
16.8. SUPPLEMENTARY MATERIALS
1. Principles of Management by Dr. G. Venkatesan: JJ Publications, 32 A HAK
Road, Chinachokkikulam, Madurai – 625 002.
16.9. ASSIGNMENTS
1. "The grapevine is an important part of any group or organizations'
communication network and well worth understanding". Do you agree?
16.10. SUGGESTED READINGS /REFERENCE BOOKS/SET BOOKS
1. Koontz and O‘Donnelll, Principles of Management, McGrawHill, 2014
2. Gupta RN., Principles of Management,S. Chand, Chennai,2010
3. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
4. M. Govindarajan and Natarajan.S,Principles of Management
5. L.M Prasad Principles and practice of Management, S.Chand and sons
6. Robbins, S, P, Fundamentals of management, PearsonPublication, 2003
16.11. LEARNING ACTIVITES
Team Exercise
1. Form 4-5 groups. Each group may have 3 members. Assign task with small
games to communicate a message. Disturb them with some other external
members. Observe the activity. Find this communication process.
16.12. KEYWORDS
Interpersonal Communication-Formal Communication - Download
communication - upward communication - Horizontal communication and
Grapevine.
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UNIT– V
LESSON – 17
DECISION MAKING
17.1 INTRODUCTION
Decision-making and problem-solving are basic ingredients of managerial
leadership. More than anything else, the ability to make sound, timely decisions
separates a successful manager from a non-successful. It is the responsibility of
managers to make high quality decisions that are accepted and executed in a timely
fashion. On the face of it the decisions should be cohesive, conjectured, contingent,
flexible, improved, influencing, intuitional, non-judgemental, objective, operational
one. One of the most important functions of a manager is to take decisions.
Whatever a manager does, he does through decision-making. This module deals
with co-ordination and the concept of control also. Both of these two concepts are
very important to an organisation for achieving its organisational goal.
17.2 OBJECTIVES
After studying this lesson, you will be able to understand:
 state the meaning and importance of decision making function;
 identify the process of decision making;
 explain the various approaches of decision making,
 describe the meaning and importance of co-ordination;
 state the different types of co-ordination;
 explain the approaches for effective eco-ordination
 describe the concept of control,
 explain the importance of controlling system
17.3 CONTENTS
17.3.1 Definition of Decision Making
17.3.2 Characteristics of Decision Making
17.3.3 Importance of Decision Making
17.3.4 Steps in Decision Making Process
17.3.5 Types of Decisions
17.3.1 DEFINITION OF DECISION MAKING
One of the most important functions of a manager is to take
decisions.Whatever a manager does, he does through decision-making. Each
managerial decision is concerned with the process of decision-making. It is because
of this pervasiveness of decision-making that Professor Herbert Simon has said the
process of managing as a process of decision-making.
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According to him, a post or position cannot be said to be managerial level until

and unless the right of decision-making is attached to it. As a matter of fact, it is
the core of executive activities in a business organization.
Decision-making is a mental process. It is a process of selecting one best
alternative for doing a work. Thus, it is a particular course of action chosen by a
decision maker as the most effective alternative for achieving his goals.
According to D.E. McFarland, "A decision is an act of choice wherein an
executive forms a conclusion about what must be done in a given situation. A
decision represents a course of behaviour chosen from a number of possible
alternatives".
In the words of Haynes and Massie, "A decision is a course of action which is
consciously chosen for achieving a desired result".
Hence, decision-making is a typical form of planning. It involves choosing the
best alternative among various alternatives, in order to realize certain objectives. A
decision represents a judgment, a final word, and resolution of conflicts or a
commitment to act in certain manner in the given set of circumstances. It is really a
mental exercise, which decides what to do.
17.3.2 CHARACTERISTICS OF DECISION MAKING
The essential characteristics of decision-making are given below:
1. It is a process of choosing a course of action from among the alternative
courses of action.
2. It is a human process involving largely the application of intellectual
abilities.
3. It is the end process preceded by deliberation and reasoning.
4. It is always related to the environment. A manager may take one decision in
a particular set of circumstances and another in a different set of
circumstances.
5. It involves a time dimension and a time lag.
6. It always has a purpose. Keeping this in view, there may just be a decision
not to decide.
7. It involves all actions like defining the problem and probing and analysing
the various alternatives which take place before a final choice is made.
17.3.3 IMPORTANCE OF DECISION MAKING
Decision making is an essential part of every function of management.
According to Peter F. Drucker, 'Whatever a manager does, he does through
decision making'.
Decision making lies deeply embedded in the process of management, spreads
over all the managerial functions and covers all the areas of the organization.
Management and decision making are bound up and go side by side in every
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activity performed by manager. Whether knowingly or unknowingly, every

managers makes decisions constantly. Right from the day when the size of the
organization used to be very small to the present day huge or mega size of the
organization, the importance of decision making has been there. The significant
difference is that in today's complex organization structure, the decision making is
getting more and more complex. Whatever a manager does, he does through
making decisions. Some of the decisions are of routine and repetitive in nature and
it might be that the manager does not realize that he is taking decisions whereas,
other decisions which are of strategic nature may require a lot of systematic and
scientific analysis. The fact remains that management is always a decision making
process.
The most outstanding quality of successful manager is his/her ability to make
sound and effective decisions. A manager has to make up his/her mind quickly on
certain matters. It is not correct to say that he has to make spur of the moment
decisions all the time. For taking many decisions, he gets enough time for careful
fact finding, analysis of alternatives and choice of the best alternative. Decision
making is a human process. When one decides, he chooses a course alternative
which he thinks is the best.
Decision making is a proper blend of thinking, deciding and action. An
important executive decision is only one event in the process which requires a
succession of activities and routine decisions all along the way.
Decisions also have a time dimension and a time lag. A manager takes time to
collect facts and to weigh various alternatives. Moreover, after decides, it takes still
more time to carry out a decision and, often, it takes longer before he can judge
whether the decision was good or bad. It is also very difficult to isolate the effects of
any single decision.
17.3.4 STEPS IN DECISION MAKING PROCESS
The following process should be followed in arriving at a correct decision:
Figure –17.1 Decision Making Process
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1. Setting Objectives
Rational decision-making involves concrete objectives. So the first step in
decision-making is to know one's objectives. An objective is an expected outcome of
future actions. So before deciding upon the future course of efforts, it is necessary
to know beforehand what we are trying to achieve. Exact knowledge of goals and
objectives bring purpose in planning and harmony in efforts. Moreover, objectives
are the criteria by which final outcome is to be measured.
2. Defining the Problem
It is true to a large extent that a problem well defined is half solved. A lot of
bad decisions are made because the person making the decision does not have a
good grasp of the problem. It is essential for the decision maker to find and define
the problem before he takes any decision.
Sufficient time and energy should be spent on defining the problem as it is not
always easy to define the problem and to see the fundamental thing that is causing
the trouble and that needs correction. Practically, no problem ever presents itself in
a manner that an immediate decision may be taken. It is, therefore, essential to
define the problem before any action is taken, otherwise the manager will answer
the wrong question rather than the core problem. Clear definition of the problem is
very important as the right answer can be found only to a right question.
3. Analysing the Problem
After defining the problem, the next step in decision-making is analysing it.
The problem should be thoroughly analysed to find out adequate background
information and data relating to the situation. The problem should be divided into
many sub-problems and each element of the problem must be investigated
thoroughly and systematically. There can be a number of factors involved with any
problem, some of which are pertinent and others are remote. These pertinent
factors should be discussed in depth. It will save time as well as money and efforts.
In order to classify any problem, we require lot of information. So long as the
required information is not available, any classification would be misleading. This
will also have an adverse impact on the quality of the decision. Trying to analyse
without facts is like guessing directions at a crossing without reading the highway
signboards. Thus, collection of right type of information is very important in
decision making. It would not be an exaggeration to say that a decision is as good
as the information on which it is based.
Collection of facts and figures also requires certain decisions on the part of the
manager. He must decide what type of information he requires and how he can
obtain this.
4. Developing Alternatives
After defining and analysing the problem, the next step in the decision making
process is the development of alternative courses of action. Without resorting to the
process of developing alternatives, a manager is likely to be guided by his limited
imagination. It is rare for alternatives to be lacking for any course of action. But
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sometimes a manager assumes that there is only one way of doing a thing. In such
a case, what the manager has probably not done is to force himself consider other
alternatives.
Unless he does so, he cannot reach the decision which is the best possible.
From this can be derived a key planning principle which may be termed as the
principle of alternatives. Alternatives exist for every decision problem. Effective
planning involves a search for the alternatives towards the desired goal. Once the
manager starts developing alternatives, various assumptions come to his mind,
which he can bring to the conscious level. Nevertheless, development of alternatives
cannot provide a person with the imagination, which he lacks. But most of us have
definitely more imagination than we generally use. It should also be noted that
development of alternatives is no guarantee of finding the best possible decision,
but it certainly helps in weighing one alternative against others and, thus,
minimizing uncertainties.
While developing alternatives, the principle of limiting factor has to be taken
care of. A limiting factor is one which stands in the way of accomplishing the
desired goal. It is a key factor in decision making. If such factors are properly
identified, manager can confine his search for alternative to those which will
overcome the limiting factors. In choosing from among alternatives, the more an
individual can recognize those factors which are limiting or critical to the
attainment of the desired goal the more clearly and accurately he or she can select
the most favourable alternatives.
5. Selecting the Best Alternative
After developing alternatives one will have to evaluate all the possible
alternatives in order to select best alternative. There are various ways to evaluate
alternatives. The most common method is through intuition, i.e., choosing a
solution that seems to be good at that time. There is an inherent danger in this
process because a manager's intuition may be wrong on several occasions.
The second way to choose the best alternative is to weigh the consequences of
one against those of the others. Peter F. Drucker has laid down four criteria in
order to weigh the consequences of various alternatives. They are:
(a) Risk: A manager should weigh the risks of each course of action against the
expected gains. As a matter of fact, risks are involved in all the solutions. What
matters is the intensity of different types of risks in various solutions.
(b) Economy of Effort: The best manager is one who can mobilize the resources
for the achievement of results with the minimum of efforts. The decision to be
chosen should ensure the maximum possible economy of efforts, money and time.
(c) Situation or Timing: The choice of a course of an action will depend upon
the situation prevailing at a particular point of time. If the situation has great
urgency, the preferable course of action is one that alarms the organization that
something important is happening. If a long and consistent effort is needed, a slow
start gathers momentum approach may be preferable.
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(d) Limitation of Resources: In choosing among the alternatives, primary

attention must be given to those factors that are limiting or strategic to the decision
involved. The search for limiting factors in decision-making should be a never
ending process. Discovery of the limiting factor lies at the basis of selection from
the alternatives and hence of planning and decision making. There are three bases
which should be followed for selection of alternatives and these are experience,
experimentation and research and analysis which are discussed below:
In making a choice, a manager is influenced to a great extent by his past
experience. He can give more reliance to past experience in case of routine
decisions; but in case of strategic decisions, he should not rely fully on his past
experience to reach at a rational decision.
Under experimentation, the manager tests the solution under actual or
simulated conditions. This approach has proved to be of considerable help in many
cases in test marketing of a new product. But it is not always possible to put this
technique into practice, because it is very expensive.
Research and Analysis is considered to be the most effective technique of
selecting among alternatives, where a major decision is involved. It involves a
search for relationships among the more critical variables, constraints and
premises that bear upon the goal sought.
6. Implementing the Decision
The choice of an alternative will not serve any purpose if it is not put into
practice. The manager is not only concerned with taking a decision, but also with
its implementation. He should try to ensure that systematic steps are taken to
implement the decision. The main problem which the manager may face at the
implementation stage is the resistance by the subordinates who are affected by the
decision. If the manager is unable to overcome this resistance, the energy and
efforts consumed in decision making will go waste. In order to make the decision
acceptable, it is necessary for the manager to make the people understand what the
decision involves, what is expected to them and what they should expect from the
management.
In order to make the subordinates committed to the decision it is essential
that they should be allowed to participate in the decision making process. The
managers who discuss problems with their subordinates and give them
opportunities to ask questions and make suggestions find more support for their
decisions than the managers who don't let the subordinates participate. The area
where the subordinates should participate is the development of alternatives.
They should be encouraged to suggest alternatives. This may bring to surface
certain alternatives which may not be thought of by the manager. Moreover, they
will feel attached to the decision. At the same time, there is also a danger that a
group decision may be poorer than the one man decision. Group participation does
not necessarily improve the quality of the decision, but sometimes impairs it.
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Someone has described group decision like a train in which every passenger
has a brake. It has also been pointed out that all employees are unable to
participate in decision making. Nevertheless, it is desirable if a manager consults
his subordinates while making decision.
7. Follow-up the Decisions
Kennetth H. Killer has emphatically written in his book that it is always better
to check the results after putting the decision into practice. He has given reasons
for following up of decisions and they are as follows:
(i) If the decision is a good one, one will know what to do if faced with the same
problem again.
(ii) If the decision is a bad one, one will know what not to do the next time.
(iii) If the decision is bad and one follows-up soon enough, corrective action
may still be possible.
In order to achieve proper follow-up, the management should devise an
efficient system of feedback information. This information will be very useful in
taking the corrective measures and in taking right decisions in the future.
17.3.5 TYPES OF DECISIONS
Various authorities in various ways have classified decisions. The main types
of decisions are as follows:
1. Programmed and Non-Programmed Decisions
Professor Herbert Simon has classified all managerial decisions as
programmed and non-programmed decisions. He has utilized computer terminology
in classifying decisions. The programmed decisions are the routine and repetitive
decisions for which the organization has developed specific processes.
Thus, they involve no extraordinary judgment, analysis and authority. They
are basically devised so that the problem may not be treated as a unique case each
time it arises.
On the other hand, the non-programmed decisions are the one-shot, ill
structured, novel policy decisions that are handled by general problem solving
processes. Thus, they are of extraordinary nature and require a thorough study of
the problem, its in-depth analysis and the solving the problem. They are basically
non-repetitive in nature and may be called as strategic decisions.
2. Basic and Routine Decisions
Professor George Katona has made a distinction between basic decision and
routine decisions. Routine decisions are of repetitive nature and they involve the
application of familiar principles to a situation. Basic or genuine decisions are those
which require a good deal of deliberation on new principles through conscious
thought process, plant location, and distribution is some examples of basic
decisions.
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3. Policy and Operative Decisions

Policy decisions are important decisions and they involve a change in the
procedure, planning or strategy of the organization. Thus, they are of a
fundamental character affecting the whole business. Such decisions are taken by
the top management. On the contrary, operating decisions are those which are
taken by lower levels of management for the purpose of executing policy decisions.
They are generally concerned with the routine type of work, hence unimportant for
the top management. They mostly relate to the decision-makers own work and
behaviour while policy decision influences the work and behaviour of subordinates.
4. Individual and Group Decisions
Individual decisions are those decisions which are made by one individual –
whether owner of the business or by a top executive. On the other hand, group-
decisions are the decisions taken by a group of managers – board, team, committee
or a sub-committee. In
India, individual decision-making is still very common because a large number
of businesses are small and owned by a single individual. But in joint stock
Company‘s group decisions are common. There are both merits and demerits of
each type of decision.
17.4 REVISION POINTS
Decision making: Decision-making is a mental process. It is a process of
selecting one best alternative for doing a work. Thus, it is a particular course of
action chosen by a decision maker as the most effective alternative for achieving his
goals.Defining the problem, analyse the problem, developing alternatives, selecting
the best alternatives, implementing the decision and follow up the decision are the
important steps in decision making.Programmed or non-programed decision, basic
and routine decision, policy and operative decision, individual and group decisions
are the important types of decisions
17.5 INTEXT QUESTIONS
1. Method is decision making or Define decision making.
2. Identify the process of decision making
3. What do you understand by decision making? What are its basic
characteristics?
4. Explain various approaches to decision making.
5. Explain the process of decision making
17.6 SUMMARY
Decision making is an essential part of every function of management. Each
managerial decision is concerned with the process of decision-making. There are
several approaches for decision making. Important approaches were common sense
approach, operational research method, rational method, humanistic approach, etc.
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17.7. TERMINAL EXERCISES

Choose the correct answer from the following
1. A solution to a problem that is arrived at through an unstructured process
of decision making is called a:
a. Bounded rationality
b. Programmed decision
c. Non-programmed decision
d. Uncertainty
2. As a manager moves to higher positions in an organisation the ability to
make ______ becomes ______ important.
a. Programmed; less
b. Non-programmed; more
c. Non-programmed; less
d. Programmed; much more
3. Making bad or defective decision is mostly related to
a. Unscientific decision
b. Irrational decision
c. Unethical decision
d. Procrastinate decision
4. From the following which is the first step in decision making
a. Defining the problem
b. Formulating alternative
c. Setting objectives
d. Selecting the best alternative
17.8. SUPPLEMENTARY MATERIALS
1. Koontz and O‘Donnelll, Principles of Management, McGraw-Hill, 2014
2. Gupta RN., Principles of Management,S. Chand, Chennai,2010
3. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
4. M. Govindarajan and Natarajan.S,Principles of Management
5. L.M Prasad Principles and practice of Management, S.Chand and sons
6. Robbins, S, P, Fundamentals of management, Pearson Publication, 2003
17.9. ASSIGNMENTS
1. Form a small group of 4 to 5 member come up with some videos about any
organization of your own and give some decision in solving problem.
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17.10. SUGGESTED READINGS /REFERENCE BOOKS/SET BOOKS

1. Koontz and O‘Donnelll, Principles of Management, McGrawHill, 2014
2. Gupta RN., Principles of Management,S. Chand, Chennai,2010
3. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
4. M. Govindarajan and Natarajan.S,Principles of Management
5. L.M Prasad Principles and practice of Management, S.Chand and sons
6. Robbins, S, P, Fundamentals of management, Pearson Publication, 2003
17.11. LEARNING ACTIVITES
Team Exercise
1. Being effective in decision making is something that managers obviously
want. What‘s involved with being a good decision maker? Form groups of
three to four students. Discuss your experiences making decisions—for
example, buying a car or some other purchase, choosing classes and
professors, making summer or spring break plans, and so forth. Each of you
should share times when you felt you made good decisions. Analyse what
happened during that decision-making process that contributed to it being a
good decision. Then, consider some decisions that you felt were bad. What
happened to make them bad?
2. What common characteristics, if any, did you identify among the good
decisions? And bad decisions? Come up with a bulleted list of practical
suggestions for making good decisions. As a group, be prepared to share
your list with the class
3. Form a small group of (4 to 5) Discuss you experience in making decision for
example in buying your house, car, two wheelers etc.
17.12. KEYWORDS
Decision making - Process of decision making - importance of decision making.

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LESSON - 18
APPROACHES OF DECISION MAKING
18.1 INTRODUCTION
The lesson gives complete details about the various approaches of decision
making and its application. Studying the approaches gives a in-depth about
decision making.
18.2 OBJECTIVES
After studying this lesson, you will be able to:
 know various approaches of decision making.
 know the usefulness of approaches in decision making
18.3 CONTENTS
18.3.1 Common Sense Approach of Decision Making
18.3.1.1 Scientific Decision Making
18.3.1.2 Rational Approach
18.3.1.3 Operations Research for Decision Making
18.3.1.4 Procrastinate Decision Making
18.3.1.5 Bad or Negative Decision Making
18.3.1 COMMON SENSE APPROACH OF DECISION MAKING
According to Merriam Webster, common sense is about exercising "sound and
prudent judgment based on a simple perception of the situation or facts". This
definition suggests that common sense depends on not over-complicating the
situation (simple), applying experience and general knowledge to the situation
(sound and prudent judgment), and implicit in this is self-trust that your
considered experience is valid for future situations.
Karl Albrecht calls common sense practical intelligence. He defines it as "the
mental ability to cope with the challenges and opportunities of life". He explains
that common sense is situational, dependent on context, and that your common
sense in one aspect of your life might be excellent while failing abysmally in another
aspect of your life. As to the purpose of common sense, it is basically thinking that
prevents you from making irrational mistakes or decisions, a thinking approach
that may open your eyes to the possibility that insisting on being right prevents you
from seeing the bigger picture.
18.3.1.1 Scientific Approach
Scientific approach of decision making viewed as systematic approach to
collecting facts and applying logical decision techniques, instead of generalizing
from experience, intuition (guessing), or trial and error.
18.3.1.2 Rational Approach
Rational or Analytical approach - Exemplified by step by step decision making,
this approach defines success factors upfront, seeks information and logically looks
at how each alternative meets each success factor. Decision making is planned, and
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choices are made under the premise desired solutions can be achieved except for
large unforeseeable or unknowable events. With this approach, consequences of the
final choice are taken into consideration.
Rational analysis or ―muddling through‖-Early studies of policy making
highlighted two extreme approaches to decisions: a rational, analytical approach
which leads inexorably to the ―right‖ solution, and a less organised approach, often
called ―muddling through‖, in which objectives are never specified, remedial action
is taken when it becomes essential, and more important decisions are dependent on
the power struggles between interest groups.
In economics, it is thought that if humans are rational and free to make their
own decisions, then they would behave according to rational choice
theory. Rational choice theory says that a person consistently makes choices that
lead to the best situation for him or herself, taking into account all available
considerations including costs and benefits; the rationality of these considerations
is from the point of view of the person himself, so a decision is not irrational just
because someone else finds it questionable.
In reality, however, there are some factors that affect decision-making abilities
and cause people to make irrational decisions – for example, to make contradictory
choices when faced with the same problem framed in two different ways
18.3.1.3 Operations Research for Decision Making
Operations Research (OR) concerns the use of scientific, often mathematical,
methods for planning problems. Originally invented by the military during the
second world, it has since spread to large companies and government organisations
and been applied there with great success. During the last 20-30 years many
advanced types of software has been developed based on OR methods.
Operation Research has been applied in wide range of different industries, e.g.
production, transport, telecommunication, shipping, healthcare and education.
Today it would e.g., be impossible to run a competitive airline without using OR to
optimize the use of resources.
A good Operations Researcher has good skills in mathematics, in particular
discrete mathematics. Programming experience is a very valuable skill for an
Operations Researcher. Because Linear Programming (LP) is the foundation for
most of the OR methods, a good understanding of LP is absolutely essential.
1.Importance of Operations Research in Decision-Making
Operations research applies sophisticated statistical analysis and
mathematical modelling to solve an array of business and organizational problems,
as well as improve decision-making. As the business environment grows more
complex, companies and government agencies rely on analysis to inform decisions
that were once based largely on management intuition. Originally developed by the
U.S. Department of Defence during World War II, operations research has helped
many large companies and government agencies make better decisions, boost
performance and reduce risk
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18.3.1.4 Procrastinate Decision Making

To clarify the problem, we need to start with the definition of procrastination.
Common descriptions include:
1. Postponing or delaying action
2. To put off doing something out of habitual laziness or neglect
3. Delaying needlessly
4. Deferring or rescheduling planned activities for something less important
5. Intentionally delaying something that should be done
6. Putting off things needed now in favour of doing something that is more
comfortable or enjoyable
Procrastinating behaviour is characterized as delaying, needless, and
detrimental. Purposeful, needed, or desired action is delayed despite expecting
negative results due to the delay. We can summarize procrastination as the
decision to delay action with the clear expectation that the delay will negatively
impact desired outcomes. This irrational choice can delay needed decisions as well
as actions required for successful decision implementation, negatively impacting a
decision before and after it is made.
Typical Causes of Procrastination
By definition, procrastination is making defective or bad decisions about when
to act. This excludes prioritization decisions that are made to address legitimate
time constraints. Overcoming procrastination effectively requires that these causes
be examined and addressed. Causes given for procrastination include:
1. Tasks being unpleasant or boring
2. Feeling overwhelmed
3. Feeling stressed
4. Fear of failure or success
5. Fear of the unknown
6. Fear or anxiety of being evaluated by others
7. Fear of taking responsibility for a decision
8. Physically tired
9. Emotionally exhausted
10. Lack of motivation
11. Lack of discipline
12. Lack of skill or training
13. Lack of ability or talent
14. Lack of personal resources
15. Lack of hope that a situation can improve or be changed
16. Lack of personal relevance, meaning or interest
17. Lack of confidence or self-doubt
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18. Perfectionism or the belief that one's effort will not be "good enough" to meet
expectations
19. Poor time management habits
18.3.1.5 Bad or Negative Decision Making
It should be noted here that a decision is not evaluated based on its outcome
but rather based on analysis of the decision making. Hence, a bad decision is not a
decision with an unexpected outcome or a negative outcome. A bad decision is one
in which you override your senses and choose an option that, at some level, you
know you should not. There are various mechanisms or reasons that can lead to
bad decision making. These include:
1.Not having sufficient number of alternatives:
The more limited alternatives are, the more likely a bad decision is made.
Alternatives should be making open and be sure to include all alternatives.
2.Lack of information:
Lack of information has led to many bad decisions has decision been only
based on some known facts.
3.No enough time to decide:
Decision making under pressure could be very disastrous, as it only solve an
immediate problem but could lead to a bigger problem.
4.Ignorance of evaluation techniques:
Most people assume they are good decision makers and this over confidence
has led to negligence in some steps in decision making.
5.Inaccurate forecasting of the effects of specific actions:
A good example of this could be seen in construction of a new road to solve the
congestion in an old road, not taking into consideration that everyone tend to take
the new road and leading to initial problem.
6.Inaccurate forecasting of external influences:
Some external factors tend to have great influence on the decision. Factors like
government policy have a great influence and could lead to change of decision.
7.Uncritical acceptance of others' judgments:
This usually happen in a group decision where you tend to accept majority‘s
opinion without looking critically at the opinion of the minority.
8.Uncritical acceptance of subjective needs and feelings:
While making a decision, being objective and focus is as important as the
decision itself. Many people has compromised a good decision for selfish interest,
people‘s feeling and this has led to negative eventualities. However, the result of bad
decision could be heart breaking and could have an adverse effect on the decision
maker and the society at large. Some of the effects of bad decision include: Lessons
are being learnt in a hard way. Time is said to be life. Some bad decision has led to
time wasting.
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18.4 REVISION POINTS

Common sense approach - scientific - operation research -rational-
procrastination and negative decision are the various approaches of decision
making.
18.5 INTEXT QUESTIONS
1. Explain the various approaches of design making.
18.6 SUMMARY
Decision making is an essential part of every function of management. Each
managerial decision is concerned with the process of decision-making. There are
several approaches for decision making. Important approaches were common sense
approach, operational research method, rational method, humanistic approach, etc.
18.7. TERMINAL EXERCISES
1. Form a group and discuss about various approaches of D.M.
18.8. SUPPLEMENTARY MATERIALS
1. Koontz and O‘Donnelll, Principles of Management, McGrawHill, 2014
2. Gupta RN., Principles of Management ,S. Chand, Chennai,2010
3. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
4. M. Govindarajan and Natarajan.S,Principles of Management
5. L.M Prasad Principles and practice of Management, S. Chand and sons
6. Robbins, S, P, Fundamentals of management, Pearson Publication, 2003
18.9. ASSIGNMENTS
1. Use any one of approach decision making and solve the problem of any
organization with that approach.
18.10. SUGGESTED READINGS /REFERENCE BOOKS/SET BOOKS
1. Koontz and O‘Donnelll, Principles of Management, McGrawHill, 2014
2. Gupta RN., Principles of Management,S. Chand, Chennai,2010
3. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
4. M. Govindarajan and Natarajan.S ,Principles of Management
5. L.M Prasad Principles and practice of Management, S. Chand and sons
6. Robbins, S, P, Fundamentals of management, Pearson Publication, 2003
18.11. LEARNING ACTIVITES
1. Conduct SWOT analysis on decision making.
18.12. KEYWORDS
Scientific approach - commonsense approach procrastination.

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LESSON - 19
CO-ORDINATION
19.1 INTRODUCTION
It is a process of integrating the interdepartmental activities as unified action
towards the fulfilment of the predetermined common goals of the organization.
According to Henry Fayol, ―to co-ordinate is to harmonize all the activities of a
concern so as to facilitate its working and its success. In a well-co-ordinated
enterprise, each department or division, works in harmony with other and is fully
informed of its role in the organization. The working schedule of various
departments is constantly turned to circumstances‖
Features
1. It is not a separate function of management.
2. I t is necessary to all levels of management.
3. It is a continuous and dynamic process.
4. Group efforts are more relevant than individual efforts.
5. Unity of action is the heart of co-ordination.
6. It is a system concept.
19.2 OBJECTIVES
After studying this lesson you will be able to:
 define Co-ordination
 understand the importance of Co-ordination and its wage.
19.3 CONTENTS
19.3.1 Types of Co-ordination
19.3.2 Principles of Co-ordination
19.3.3 Importance and Need of Co-Ordination
19.3.4 Techniques of Co-Ordination
19.3.1 TYPES OF CO-ORDINATION
The following are the important types of co-ordination.
1. Vertical co-ordination: - It refers to co-ordination between activities of a
manager and his subordinates
2. Horizontal co-ordination:- It refers to co-ordination among peers – i.e.
employees working at the same levels in organizational hierarchy and among
various departments.
3. Diagonal co-ordination: It is co-ordination among the users and between
users and service personnel, which is achieved through understanding, negotiation
and voluntary effort.
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19.3.2 PRINCIPLES OF CO-ORDINATION

In order to ensure effective co-ordination, the co-ordination should be based
on certain principles:
1. Personal contact: Effective co-ordination can be achieved through personal
contact. Personal contact avoids controversy and misunderstanding.
2. Reciprocal relationship: This principle says that all factors in a situation are
reciprocally related. Each factor influences other factor.
3. Dynamism: Co-ordination is modified according to the external and internal
actions and decisions i.e. co-ordination should be a dynamic one.
4. Continuity: It says that co-ordination is a continuous process.
5. Self-co-ordination: According to this principle, the function of one
department affects other departments and in turn, is affected by the function of
other departments.
6. Clear cut objectives: As per this principle, the department‘s heads should
know clearly the objectives of the organization.
7. Effective communication: Effective communication is very necessary for the
proper co-ordination.
8. Early stage of starting: The co-ordination should be started even from the
planning function of management.
19.3.3 IMPORTANCE AND NEED OF CO-ORDINATION
Co-ordination is concerned with group of efforts only when a person is working
individually, there is no problem of co-ordination. The need of co-ordination arises
only when two or more persons work together for achieving the common objectives.
The following points bring out the importance of co-ordination:-
1. Specialisation
The organisation is divided into various departments and each department is
headed by a specialist. Each specialist tries to overemphasis his role. Co-ordination
is diversified activities of various departments is of utmost importance otherwise
there may be utter confusion and chaos.
2. Conflicting individual and organisational goals.
It is very important for every enterprise to bring about co-ordination between
organisational goals and individual goals.
3. Line and staff structure
The creation of line and staff structure in an organisation also creates
problems of coordination. The staff officers may confuse their authority with line
officers. Thus, co-ordination is necessary between line and staff officers for
achieving the goals of enterprise.
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4. Personality politics
In every enterprise rival groups of people can be formed. There is a need of
bringing about co-ordination among the rival groups which sometimes tend to
sabotage the co-ordination process.
5. Co-ordination is necessary for increasing efficiency
Co-ordination ensures a proper tempo for the whole organisation. A co-
ordinated group effort helps to make an optimum use of all the resources. It
therefore leads to increase in the efficiency.
19.3.4 TECHNIQUES OF CO-ORDINATION
Following are the techniques of co-ordination
1. Defining clearly authority and responsibility
In an organisation there are several vertical and horizontal authority
relationships. Authority flows from top to bottom. Confusion regarding authority
increases the problem of co-ordination manifold because responsibility can be fixed
only when the authority and its source are clearly demarcated.
2. Formulation of clear cut policies and procedures
Co-ordination become very easy if there is clear cut and, well defined policies
and procedures. It will ensure unity of action.
3. Mutual communication
Effective communication is essential for co-ordination. Direct communication
is helpful to resolve the individual and departmental differences.
4. Existence of community of interest
In order to have an effective co-ordination, it is essential that there should be a
common understanding of the main objectives of the organisation.
5. Effective leadership
A good leader creates confidence among his subordinates and effectively
resolves differences, if any, of the people working under him.
6. Effective control
When an integrated control system exists in an organisation, it automatically
ensures co-ordinated group efforts of the organisation. With the help of control
charts, the management can immediately come to know the degree to which the
various activities have been co-ordinated.
7. Voluntary co-operation
Voluntary co-operation facilitate co-ordination. If all the members of the
organisation work as a team, the results can automatically follow.
8. Sound organisation structure
It is very essential for co-ordination that there should be sound organisation
structure. There should be organisation charts, job description, and work manuals
etc. as these help to a great extent in securing co-ordination.
Apart from the above organisational manuals, appointment of liaison officers
etc. is also help to enforce effective co-ordination.
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19.4 REVISION POINTS

Co-ordination, Mutual communication, effective leadership, Effective control,
voluntary co-operation.
Co-ordination: It is a process of integrating the interdepartmental activities as
unified action towards the fulfilment of the predetermined common goals of the
organization.
Types of co-ordination: vertical, horizontal and diagonal
19.5 INTEXT QUESTIONS
1. Define co-ordination. What are the features of co-ordination
2. Explain the importance and principles of co-ordination.
3. What is control? Explain the various characteristics of control.
19.6 SUMMARY
Co-ordination another important function of management. Without co-
ordination management all other management activities are useless.
19.7. TERMINAL EXERCISES
1. What is Co-ordination?
2. What are the types of Co-ordination? Explain each type with example.
19.8. SUPPLEMENTARY MATERIALS
1. Koontz and O‘Donnelll, Principles of Management, McGrawHill, 2014
2. Gupta RN., Principles of Management, S Chand, Chennai,2010
3. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
4. M. Govindarajan and Natarajan.S,Principles of Management
5. L.M Prasad Principles and practice of Management, S Chand and sons
6. Robbins, S, P, Fundamentals of management, Pearson Publication, 2003
19.9. ASSIGNMENTS
1. Explain the process of Co-ordination with a line example.
19.10. SUGGESTED READINGS /REFERENCE BOOKS/SET BOOKS
1. Koontz and O‘Donnelll, Principles of Management, McGraw Hill, 2014
2. Gupta RN., Principles of Management, S Chand, Chennai,2010
3. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
4. M. Govindarajan and Natarajan.S,Principles of Management
5. L.M Prasad Principles and practice of Management, S Chand and sons
6. Robbins, S, P, Fundamentals of management, Pearson Publication, 2003
19.11. LEARNING ACTIVITES
1. Explain the techniques of co-ordination.
2. Discuss various types of co-ordination.
19.12. KEYWORDS
Co-ordination -Line and staff structure personality politics - Effective
leadership - and Effective control.
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LESSON - 20
CONTROLLING
20.1 INTRODUCTION
All organisations, business or non-business, face the necessity of coping with,
problems of control. Like other managerial functions, the need for control arises to
maximise the use of scarce resources and to achieve purposeful behaviour of
organisation members. In the planning stage, managers decide how, the resources
would be utilised to achieve organisational objectives; at the controlling stage;
managers try to visualise whether resources are utilised in the same way as
planned. Thus control completes the whole sequence of management process.
20.2 OBJECTIVES
After studying this lesson, you will be able to understand:
 controlling
 controlling process
 the importance of controlling
20.3 CONTENTS
20.3.1 Definition
20.3.2 Controlling and Other Functions
20.3.3 Importance of Control
20.3.4 Steps in Controlling
20.3.5 Essentials of Effective Control System
20.3.1 DEFINITION
Control is any process that guides activity towards some predetermined goals.
Thus control can be applied in any field such as price control, distribution control,
pollution control, etc. However, control as an element of management process can
be defined as the process of analysing whether actions are being taken as planned
and taking corrective actions to make these to conform to planning. Thus control
process tries to find out deviations between planned performance and actual
performance and to suggest corrective actions wherever these are needed.
For example, Terry has defined control as follows:
―Controlling is determining what is being accomplished, that is evaluating the
performance and, if necessary, applying corrected measures so that the
performance takes place according to plan.‖
Based on the definition of control, its following features can be identified:
1. Control is forward looking because one can control future happenings and
not the past. However, on control process always the past performance is measured
because no one can measure the outcome of a happening which has not occurred.
In the light of these measurements, managers suggest corrective actions for future
period.
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2. Control is both an executive process and, from the point of view of the
organisations of the system, a result. As an executive process, each manager has to
perform control function in the organisation. It is true that according to the level of
a manager in the organisation, the nature, scope, and limit of his control function
may be different as compared to a manager at other level. The word control is also
preceded by an adjective to designate a control problem, such as, quality control,
inventory control, production control, or even administrative control. In fact, it is
administrative control, which constitutes the most comprehensive control concept.
All other types of control may be subsumed under it.
3. Control is a continuous process. Though managerial control enables the
manager to exercise control at the point of action, it follows a definite pattern and
timetable, month after month and year after year on-a continuous basis.
4. A control system is a coordinated-integrated system. This emphasises that,
although data collected for one purpose may differ from those with another
purpose, these data should be reconciled with one another. In a sense, control
system is a single system, but it is more accurate to think of it as a set of
interlocking sub-systems.
20.3.2 CONTROLLING AND OTHER FUNCTIONS
Control is closely related with other functions of management because control
may be affected by other functions and may affect other functions too. Often it is
said planning is the basis, action is the essence, delegation is the key, and
information is the guide for control. This reflects how control is closely related with
other functions of management. In fact, managing process is an integrated system
and all managerial functions are interrelated and interdependent. When control
exists in the organisation, people know: what targets they are striving for, how they
are doing in relation to the targets, and what changes are needed to keep their
performance at a satisfactory level. The relationship of control with major
managerial functions can be described as follows:
1. Planning as the Basis
Planning is the basis for control in the sense that it provides the entire
spectrum on which control function is based. In fact, these two terms are often
used interchangeably in the designation of the department, which carries
production planning, scheduling, and routing. It emphasises that there is a plan,
which directs the behaviour and activities in the organisation. Control measures
these behaviour and activities and suggests measures to remove deviation, if any.
Control further implies the existence of certain goals and standards. The planning
process provides these goals. Control is the result of particular plans, goals, or
policies. Thus, planning offers and affects control.
2. Planning and Controlling Relationships
Thus various elements of planning provide what is intended and expected and
the means by which the goals are achieved. They provide a means for reporting
back the progress made against the goals, and a general framework for new
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decisions and actions in an integrated pattern. Properly conceived plan become

important elements in implementing effective control.
3. Action as the Essence
Control basically emphasises what actions can be taken to correct the
deviation that may be found between standards and actual results. The whole
exercise of managerial process is taken to arrive at organisational objectives set by
the planning process. For this purpose, actions and further actions are necessary;
each time there may be correction and change in the actions depending upon the
information provided by control procedure. Though it is not necessary that each
time a corrective action is taken but control ensures the desirability of a particular
action. This is important for organisational effectiveness. Thus, in a real sense,
control means action to correct a condition found to be in error or action to prevent
such a condition from arising and is never achieved without having action as an
essential step.
4. Delegation as the Key
Delegation is the key for control to take place because control action can be
taken only by the managers who are responsible for performance but who have
authority to get the things done.
A manager in the organisation gets authority through delegation and red
legation. It does not make sense to make someone responsible for achieving results
without delegating him adequate authority. In the absence of adequate authority, a
manager is unlikely to take effective steps for correcting the various deviations
located in the process of analysis.
Taking of corrective actions may be seen in the context of controllability of a
factor effecting the deviation or non-achievement of organisational objectives. Some
of these factors are controllable and some are uncontrollable. A controllable factor
is one, which can be controlled by an executive action, while the uncontrollable
factors lie outside his jurisdiction. A manager's action is likely to be more effective if
more factors are controllable by him. He can have better controllability if he has
been authorised to take decisions on various matters concerning him and affecting
his action. Tile best policy of delegation is the matching of responsibility and
authority. It suggests that a manager must have corresponding authority as
compared to his responsibility. He has to control the operations, which are
exercised by taking action, and action may be taken within the limit of the
authority. So the only person who can directly control activities is the one who is
directly responsible for them.
This is the basic principle for effective organisations.
5. Information as the Guide
Control action is guided by adequate information from beginning to the end.
Management information and management control systems are closely interrelated;
the information system is designed on the basis of control system. Every manager
in the organisation must have adequate information about his performance,
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standards, and how he is contributing to the achievement of organisational

objectives. There must be a system of information tailored to the specific
management needs at every level, both in terms of adequacy and timeliness.
Control system ensures that every manager gets adequate information. The
criterion for adequacy of information for a manager is his responsibility and
authority that is in the context of his responsibility and authority, what type of
information a manager needs. This can be determined on the basis of careful
analysis of the manager's functions. If the manager is not using any information for
taking certain action, the information may be meant for informing him only and not
falling within his information requirement. Thus, an effective control system
ensures the flow of the information that is required by an executive, nothing more
or less. There is another aspect of information for control and other function, that
is, the timeliness of information. Ideally speaking, the manager should be supplied
the information when he needs it for taking action. For correcting the deviation,
timely action is required by the manager concerned. For this purpose, he must have
the information at proper time and covering the functioning of a period, which is
subject to control. The control system functions effectively on the basis of the
information, which is supplied in the organisation. However, the information is
used as a guide and on this basis, a manager what action can be taken.
20.3.3 IMPORTANCE OF CONTROL
Organisations try to achieve their objectives through various actions. From
this point of view, all the objectives lead to the achievement of organisational
objectives. However, the organisations must also monitor whether they are
achieving their objectives or-not. Thus control is an integrated action of an
organisation or manager. It offers help in the following directions:
1. Adjustments in Operations
A control system acts as an adjustment in organisational operations. Every
organisation has certain objectives to achieve which becomes the basis for control.
It is not only sufficient to have objectives but also to ensure that these objectives
are being achieved by various functions. Control provides this clue by finding out
whether plans are being observed and suitable progress towards the objectives is
being made, and acting, if necessary, to correct any-deviation. This may result into
taking actions more suitable for the achievement of organisational objectives.
2. Policy Verification
Various policies on the organisation generate the need for control. For
organisational functioning, managers set certain policies and other planning
elements, which later become the basis and reason for control. They become basis
in the sense that organisational performance is reviewed in these lights. In this
process, the organisation and its management can verify the quality of various
policies.
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3. Managerial Responsibility
In every organisation, managerial responsibility is created through assignment
of activities to various individuals. This process starts at the top level and goes to
the lower levels. However, when a manager assigns some activities to his
subordinates, he remains responsible for that portion of activities for their ultimate
performance. It is quite natural that when a person is responsible for the
performance of his subordinates, he must exercise some control over them. Thus,
the control is required because of the very basic nature of the organisation itself. In
large organisations, many individuals contribute to the organisational objectives.
For efficient performance, they are arranged in hierarchy, forming superior-
subordinate relationship throughout the organisation. Since each superior is
responsible for the activities of his subordinates also, the control flows throughout
the organisation, beginning at the top level, the only difference being nature and
scope of control.
4. Psychological Pressure
Control process puts a psychological pressure on the individuals for better
performance. The performance of the individuals is evaluated in the light of targets
set for them. A person is likely to put better performance if he is aware that his
performance will be evaluated. He may feel pressure to achieve the results
according to the standards fixed for him. This is further complemented by the
reward and punishment based on the performance. Since the performance
measurement is one of the basic elements of the control process, it ensures that
every person in the organisation contributes to his maximum ability.
5. Coordination Inaction
Though coordination is the essence of management and is achieved through
the proper performance of all managerial functions, control affects this aspect
significantly. Control systems are designed in such a way that they focus not only
on the operating responsibility of a manager but also on his ultimate responsibility.
This forces a manager to coordinate the activities of his subordinates in such a way
that each of them contributes positively towards the objectives of the superior.
Since this follows throughout the organisation, coordination is achieved in the
organisation as a whole.
6. Organisational Efficiency and Effectiveness
Proper control ensures organisational efficiency and effectiveness. Various
factors of control, namely, making managers responsible, motivating them for
higher performance, and achieving coordination in their performance, control
ensures that the organisation works efficiently. The organisation also moves
towards effectiveness because there is a system of control. The organisation is
effective if it is able to achieve its objectives. Since control focuses on the
achievement of organisational objectives, it necessarily leads to organisational
effectiveness. Looking into the various roles that control system plays in the
organisation, the management should devise a control system which effectively
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meets the demands of the organisation: The manager can do this if he is aware of
the essential features of effective control system.
20.3.4 STEPS IN CONTROLLING
The various steps in controlling may broadly be classified into four parts: (i)
establishment of control standards; (ii) measurement of performance, (iii)
comparison between' performance and standards and the communication, and (iv)
correction of deviations from standards.
Figure –20.1 Control Process

1. Establishment of Control Standards

Every function in the organisations begins with plans, which are goals,
objectives, or targets to be achieved. In the light of these, standards are established
which are criteria against which actual results are measured. For setting standards
for control purposes, it is important to identify clearly and precisely the results
which are desired. Precision in the statement of these standards is important in
many areas, great precision is possible. However, in some areas, standards are less
precise. Standards may be precise if they are set in quantities - physical, such as
volume of products, man-hour or monetary, such as costs, revenues, and
investment. They may also be in other qualitative terms, which measure
performance. After setting the standards, it is also important to decide about the
level of achievement or performance, which will be regarded as good or satisfactory.
There are several characteristics of a particular work that determine good
performance. Important characteristics, which should be considered while
determining any level of performance as good for some operations are: (i) output, (ii)
expense, arid (iii) resources. Expense refers to services or functions, which may be
expressed in quantity, for achieving a particular level of output Resources refer to
capital expenditure, human resources, etc. After identifying these characteristics
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the desired level of each characteristic is determined. The desired level of

performance should be reasonable and feasible. The level should have some
amount of flexibility also, and should be stated in terms of range - maximum and
minimum.
Control standards are most effective when they are related to the performance
of a specific individual, because a particular individual can be made responsible for
specific results. However, sometimes accountability for a desired result is not so
simply assigned; for example, the decision regarding investment in inventory is
affected by purchase, rate of production and sales. In such a situation, where no
one person is accountable for the levels of inventories, standards may be set for
each step that is being performed by a man.
2. Measurement of Performance
The second major step in control process is the measurement of performance.
The step involves measuring the performance in respect of a work in terms of
control standards. The presence of standards implies a corresponding ability to
observe and comprehend the nature of existing conditions and to ascertain the
degree of control being achieved. The measurement of performance against
standards should be on a future basis, so that deviations may be detected in
advance of their actual occurrence and avoided by appropriate actions:
Appraisal of actual or expected performance becomes an easy task, if
standards are properly determined and methods of measuring performance which
can be expressed in physical and monetary terms, such as production units, sales
volume, profits, etc. can be easily and precisely measurable. The performance,
which is qualitative and intangible, such as human relations, employee morale,
etc., cannot be measured precisely. For such purposes, techniques like
psychological tests and opinion surveys may be applied. Such techniques draw
heavily upon intuitive judgement and experience, and these tools are far from exact.
According to Peter F Drucker, it is very much desirable to have clear and common'
measurements in all key areas of business. It is not necessary that measurements
are rigidly quantitative. In his opinion, for measuring tangible and intangible
performance, measurement must be (i) clear, simple, and rational, (ii) relevant, (iii)
direct attention and efforts, and (iv) reliable, self-announcing, and understandable
without complicated interpretation or philosophical discussions.
3. Comparing Actual, and Standard Performance
The third major step in control process is the comparison of actual and
standard performance. It involves two steps: (i) finding out the extent of deviations,
and (ii) identifying the causes of such deviations. When adequate standards are
developed and actual performance is measured accurately, any variation will be
clearly revealed. Management may have information relating to work performance,
data, charts, graphs and written reports, besides personal observation to keep itself
informed about performance in different segments of the organisation. Such
performance is compared with the standard one to find out whether the various
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segments and individuals of the organisation are progressing in the right direction.
When the standards are achieved, no further managerial action is necessary and
control process is complete. However, standards may not be achieved in all cases
and the extent of variations may differ from case to case. Naturally, management is
required to determine whether strict compliance with standards is required or there
should be a permissible limit of variation. In fact, there cannot be any uniform
practice for determining such variations. Such variations depend upon the type of
activity. For example, a very minute variation in engineering products may be
significant than a wide variation in other activities. When the deviation between
standard and actual performance is beyond the prescribed limit, an analysis is
made of the causes of such deviations. For controlling and planning purposes,
ascertaining the causes of variations along with computation of variations is
important because such analysis helps management in taking up proper control
action. The analysis will pinpoint the causes, which are controllable by the person
responsible. In such a case, person concerned will take necessary corrective action.
However, if the variation is caused by uncontrollable factors, the person
concerned cannot be held responsible and he cannot take any action.
Measurement of performance, analysis of deviations and their causes may be
of no use unless these are communicated to the person who can take corrective
action. Such communication is presented generally in the form of a report showing
performance standard, actual performance, deviations between those two tolerance
limits, and causes for deviations. As soon as possible, reports containing control
information should be sent to the person whose performance is being measured
and controlled. The underlying philosophy is that the person who is responsible for
a job can have a better influence on final results by his own action. A summary of
the control report should be given to the superior concerned because the person on
the job may either need help of his superior in improving the performance or may
need warning for his failure. In addition, other people who may be interested in
control reports are (i) executives engaged in formulating new plans; and (ii) staff
personnel who are expected to be familiar with control information for giving any
advice about the activity under control when approached.
4. Correction of Deviations
This is the last step in the control process, which requires that actions should
be taken to maintain the desired degree of control in the system or operation. An
organisation is not a self-regulating system such as thermostat which operates in a
state of equilibrium put there by engineering design. In a business organisation this
type of automatic control cannot be established because the state of affairs that
exists is the result of so many factors in the total environment. Thus, some
additional actions are required to maintain the control. Such control action may be
(i) review of plans and goals and change therein on the basis of such review; (ii)
change in the assignment of tasks; (iii) change in existing techniques of direction;
(iv) change in organisation structure; provision for new facilities, etc. In fact,
correction of deviation is the step in management control process, which may
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involve either all or some of the managerial functions. Due to this, many persons
hold the view that correcting deviations is not a step in. the control process. It is
the stage where other managerial functions are performed. Koontz and O‘Donnell
have emphasised that the overlap of control function with the other merely
demonstrates the unity of the manager‘s job. It shows the managing process to be
an integrated system.
20.3.5 ESSENTIALS OF EFFECTIVE CONTROL SYSTEM
Control is necessary in every organisation to ensure that everything is going
properly. Every manager, therefore, should have an effective and adequate control
system to assist him in making sure that events conform to plans. However, control
does not work automatically, but it requires certain design. While the basic
principles involved in designing a control system in organisations may be universal;
the actual system in an organisation requires some specific design. In this tailoring
of Control system, there are certain requirements, which should be kept in mind.
1. Reflecting Organisational Needs:All control systems and techniques
should reflect the jobs they are to perform. There may be several control
techniques, which have general applicability, such as, budgeting, costing, etc.
However, it should not be assumed that these might be utilised in all situations.
The- managers should choose an appropriate tool for control, which helps him in
controlling actions according to plans.
2. Forward Looking: Control should be forward looking. Though many of the
controls are instantaneous, they must focus attention as to how future actions can
be confirmed with plans. In fact the control system should be such that it provides
aid in planning process. This is done in two ways: it draws situations where new
planning is needed, and it provides some of the data upon which plans can be
based.
3. Promptness in Reporting Deviation:The success of a thermostat lies in
the fact that it points the deviation promptly and takes corrective actions
immediately. Similarly, an ideal control system detects deviations promptly arid
informs the manager concerned to take timely actions. This is done through
designing good appraisal and information systems.
4. Pointing out Exceptions at Critical Points:Control should point exception
at critical points and suggest whether action is to be taken for deviations or not
some deviations in the organisations have any impact while others, though very
little in quantity may have great significance.
Thus, control system should provide 'information for critical point control and
control on exception. The critical point control stresses that effective control
requires attention to those factors critical to appraising performance against an
individual plan. The control on exception requires that a manager should take
corrective action when there is exceptional deviation. The more a manager
concentrates his control efforts on exceptions, the more efficient will be the results
of his control.
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5. Objectives:The control should be objective, definite, and determinable in a

clear and positive way. The standards of measurement should be quantified as far
as possible. If they are not quantifiable, such as, training effectiveness, etc. they
must be determinable and verifiable. If the performance standard and
measurement is not easily determinable, many subjective elements enter into the
process, which catch the controller and controlled on wrong tooting.
6. Flexible:Control system should be flexible so that it remains workable in
the case of changed plans, unforeseen circumstances, or outright failures.
As Geotz has remarked, a control system should report such failures and
should contain sufficient elements of flexibility to maintain managerial control of
operations despite such failures. Having alternative plans for various probable
situations can provide much flexibility in control. In fact, flexible control is normally
achieved through flexible plans.
7. Economical:Control should be economical and must be worth its costs.
Economy is relative, since the benefits vary with the importance of the activity the
size of the operation, the expense that might be incurred in the absence of control
and the contribution the control system can make. The economy of a control
system will depend a great deal on the manager‘s selecting for control only critical
factors in areas important to him. If tailored to the job and the size of the
enterprise, control will be economical. A large-sized organisation can afford highly
complicated techniques, sophisticated tools of control and more elaborate system of
control, but a small-sized organisation cannot afford these because of the cost
factor.
8. Simple:Control system must be simple and understandable so that all
managers can use it effectively. Control techniques which are complicated such as
complex mathematical formulae, charts, graphs, advanced statistical methods and
other techniques fail to communicate the meaning of their control data to the
managers who use them. Effective control requires consistency with the position,
operational responsibility, ability to understand, and needs of the individuals
concerned.
9. Motivating:Control system should motivate both controller and controlled.
While the planning and control are necessary for economical operations, researches
in human relations show that planning and control are, more often than not,
antagonistic to good human relations.
Sometimes, they may even tend to deprive the people in the organisations one
of man's basic needs - a sense of powerful and worthwhile accomplishment. The
design of control system should be such that aims at motivating people by fulfilling
their needs.
10. Reflecting Organisational Pattern:The control should reflect
organisational pattern by focusing attention on positions in organisation structure
through which deviations are corrected. Organisation structure, a principal vehicle
for coordinating the work of people, is also a major means of maintaining control.
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Thus, in every area of control, it is not enough to know that things are going wrong
unless it is known wherein the organisation structure the deviations are occurring.
This enables managers to fix up the responsibility and to take corrective actions.
20.4 REVISION POINTS
Controlling:control as an element of management process can be defined as
the process of analysing whether actions are being taken as planned and taking
corrective actions to make these to conform to planning.
Steps in controlling:the various steps in controlling may broadly be classified
into four parts: (i) establishment of control standards; (ii) measurement of
performance, (iii) comparison between performance and standards and the
communication, and (iv) correction of deviations from standards.
20.5 INTEXT QUESTIONS
1. Explain the importance and principles of controlling.
2. What is control? Explain the various characteristics of control.
20.6 SUMMARY
The least but most important function of management is controlling. Without
controlling management cannot achieve its organisational goal
20.7. TERMINAL EXERCISES
Choose correct answer from the following
1. Control is a function aimed at:
a. Economic development,
b. Staffing,
c. Organizational development,
d. Planning
2. Control is a:
a. Static activity,
b. Plan,
c. Pervasive function,
d. All of the above
3. The objective of control is:
a. Take corrective actions,
b. Make plans,
c. Prepare manpower planning,
d. Influence and persuasiveness.
4. Deviation is a term used in:
a. Controlling
b. Motivation
c. Directing
d. Staffing
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5. Effective control requires:

a. Flexibility
b. Rigidity
c. High cost
d. high time
20.8. SUPPLEMENTARY MATERIALS
1. Koontz and O‘Donnelll, Principles of Management, McGrawHill, 2014
2. Gupta RN., Principles of Management,S. Chand, Chennai,2010
3. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
4. M. Govindarajan and Natarajan.S,Principles of Management
5. L.M Prasad Principles and practice of Management, S Chand and sons
6. Robbins, S, P, Fundamentals of management, Pearson Publication, 2003
20.9. ASSIGNMENTS
Team Exercise controlling
1. Research says that teens have worked for pay at some time during high
school. As the number of employed teens has risen, so has the likelihood of
their getting hurt on the job. How can organizations keep teen workers safe?
2. Form small groups of three to four students. Come up with some ideas
about things an organization could do to keep its teen workers safe. Put
your ideas in a bulleted list format and be prepared to share those ideas
with the class
20.10. SUGGESTED READINGS /REFERENCE BOOKS/SET BOOKS
1. Koontz and O‘Donnelll, Principles of Management, McGrawHill, 2014
2. Gupta RN., Principles of Management ,S. Chand, Chennai,2010
3. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
4. M. Govindarajan and Natarajan.S,Principles of Management
5. L.M Prasad Principles and practice of Management, S Chand and sons
6. Robbins, S, P, Fundamentals of management, Pearson Publication, 2003
20.11. LEARNING ACTIVITES
1. Explain the process of control with suitable example.
20.12. KEYWORDS
Controlling- Performance - Standard Performance - Uniform performance-
correction of deviations.

UNIT –VI
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LESSON –21
MANAGEMENT BY OBJECTIVES
21.1 INTRODUCTION
MBO is a system in which specific performance objectives are determined
through participative approach. Progress towards objectives is periodically reviewed
and rewards determined accordingly. In other words it refers to a formal, or
moderately formal, set of procedures that begins with goal setting and continues
through performance review. The key to MBO is that it is a participative process,
actively involving managers and staff members at every organizational level. By
building on the link between the planning and controlling functions, MBO helps to
overcome many of the barriers to planning.
This approach is also known by other names such as 'Management by Results'
(MBR), 'Goal Management', 'Planning by Objectives' (PBO), 'Results Management',
'Joint Target Setting', 'Work Planning and Review'. Today, MBO is used not only as
a technique of goal setting but also as a total system of planning, motivation,
performance appraisal and self-control.
21.2 OBJECTIVES
After studying this lesson, you will be able to understand:
 state the meaning and features of the concept MBO;
 identify the hierarchy of objectives;
 explain the process of MBO,
 describe the meaning of management by exception;
21.3 CONTENTS
21.3.1 Management by Objectives (MBO)-Meaning and Definition
21.3.2 Features of Management by Objectives (MBO)
21.3.3 The Process of Management by Objectives (MBO)
21.3.4 Importance and Advantage of MBO
21.3.5 Weaknesses and Criticism of MBO
21.3.6 Making MBO Effective
21.3.7 Hierarchy of Objectives
21.3.8 Qualitative and Quantitative Objectives
21.3.9 Management by Exception
21.3.10 Benefits of Management by Exception
21.3.1 MANAGEMENT BY OBJECTIVES (MBO)-MEANING AND DEFINITION
MBO is difficult to define. Organizations use it in different ways and for
different reasons. In broad terms, it may be stated that MBO is both a philosophy
and an approach of management. It is a process in which superiors and
subordinates sit together to identify the common objectives and set the goals which
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are to be achieved by the subordinates, assess the contribution of each individual

and integrate individual objectives with those of the organisation so as to make best
use of the available resources of the organisation.
According to George S. Odiorne, "Management by objectives can be described
as a process whereby the superior and subordinate managers of an organisation
jointly identify its common goals, define each individuals major area of
responsibility in terms of results and use these measures as guides for operating
the unit and assessing the contribution of each of its member."
In the words of Koontz, O'Donnell and Weihrich, "MBO is a comprehensive
managerial system that integrates many key managerial activities in a systematic
manner, consciously directed towards the effective and efficient achievement of
organisational and individual objectives."
Henry Levinson defines, "Management by objectives as a performance
appraisal and review which intended to:
1. Measure and judge performance;
2. Relate individual performance to organisational goals;
3. Foster the increasing competence and growth of the subordinates
4. Enhance communication between superior and subordinates;
5. Serve as a basis for judgement about promotion and incentives;
6. Stimulate the subordinates' motivation;
7. Serve as a device for organisational control and integration.
The essence of an MBO system lies in the establishment of common goals by
managers and their subordinates acting together. Each person's major areas of
responsibility are clearly defined in terms of measurable expected results
(objectives). These objectives are used by subordinates in planning their work and
by both subordinates and their superiors for monitoring progress. Performance
appraisals are conducted jointly on a continuing basis, with provisions for regular
periodic reviews.
21.3.2 FEATURES OF MANAGEMENT BY OBJECTIVES (MBO)
Based on the definitions of MBO, its features can be identified as below:
1. MBO as a Philosophy
MBO is a philosophy of management. It is more than a set of techniques. It
emphasis on what is to achieve, not how to achieve. It suggests how the best use of
available resources may be done to achieve the expected objectives. Peter Drucker
writes, "MBO may properly be called a 'philosophy' of management because it rests
on a concept of human action, behaviour, and motivation. Finally, it applies to
every manager, whatever his level or function, and to every organisation, whether
large or small."
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2. MBO as an Approach
MBO is an approach to management. Approach refers to various tools or
techniques used in order to achieve the objectives. MBO introduces several new
techniques of management. It also enhances the relevance and utility of existing
ones. It is thus, a joint application of a number of principles and techniques. It
works as an integrating device. Many principles and techniques of planning and
control are used in an organisation in the normal situation, but in MBO the focus is
more on these techniques.
3. Organizational and Individual Goals Determination
MBO is a participating and interactive process whereby superiors and
subordinates jointly determine common objective for the organisation and also
define each individual's areas of work and responsibility.
4. MBO Emphasizes Participative Set Objectives that is Tangible, Verifiable, and
Measurable:
Kreitner writes, "The common denominator that has made MBO approach so
popular in both management theory and practice is the emphasis on 'objectives'
that are both measurable and participative set.
5. MBO is a Top-down or the Bottom-up Approach in Results Management
MBO aims at optimum use of organisational resources. Thus MBO is a
systematic and rational technique that allows management to attain maximum
results from available resources. It allows the subordinate plenty of room to make
creative decisions on his own.
6. MBO has Multiple Uses
MBO is a way of promoting managerial self-control and it applies to total
management system. It has multiple uses. There are various managerial sub-
systems that can be integrated with MBO process; they include performance
appraisal, design of organisational structures, management development
programmes, organisational change programmes, and budgeting.
7. MBO has Some Relationship with Every Management
Technique and it is a Universal Tool: In fact, MBO provided the stimulus for
the introduction of new techniques of management and enhances the utility of the
existing ones. MBO is the joint application of a number of principles and
techniques. It works as an integrating device. It is a valuable management tool for
profit as well as non-profit organizations.
It is a simple, non-technical, operational management approach which can be
applied to every type of organizations.
8. MBO as a Performance Appraisal and Review
As a performance appraisal and review, MBO is intended to measure and
judge performance, to relate individual performance to organisational goals and to
foster the increasing competence and growth of the subordinates.
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9. A Comprehensive System Approach

MBO has become a comprehensive system. It considers both economic and
human aspects of an organisation. It applies to managers and employees in any
kind and size of organisation at all levels and in all functional areas. Koontz and
Weihrich write, "MBO, to be effective, has to be viewed as comprehensive system. It
must be considered as a way of managing, and not an addition to the managerial
job."
10. Guidelines for Appropriate System
MBO has a thrust achieved on the objectives. Therefore it provides guidelines
for appropriate systems and procedures. Resources allocation, delegation of
authority etc. are determined on the basis of objectives. Similarly, reward and
punishment system is attached with the achievement of objectives.
Finally we can say that the salient features of MBO are - cascading of
organizational goals and objectives; specific objectives for each team/group and
member; participative decision making process; explicit time period deadlines; and
performance evaluation and feedback.
21.3.3 THE PROCESS OF MANAGEMENT BY OBJECTIVES (MBO)
MBO programs can vary enormously. Some are designed for use in a subunit,
while others are used for the organization as a whole. The particular methods and
approaches that managers use in an MBO program will differ. There also may be
wide differences in emphasis. Therefore the MBO process requires rigorous
analysis, clarity and balance of objectives and participation of managers with
accountability for results. This process has the following steps:
Figure –21.1 Process of MBO
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1. Setting of Objectives
The first step of MBO process is to establish verifiable objectives for the
organization and for various positions at various levels. Without having a clear
objective no group or individual can perform effectively or efficiently. One of the
major criteria to set clear objectives is the scope of measuring it. Therefore,
objectives should be set in such a way that they provide a clear direction to the
people who have to contribute and perform for achievement of the same. It is
always desirable to have a participatory approach to set objectives. However,
management aspirations and expectations should be kept in view while adopting a
participatory approach to set objectives. Setting precise, measurable, and well-
defined objectives is indeed a difficult task. It requires an intelligent input from
superiors and practice and team effort on the part of subordinates. Objectives
should:
1. be verifiable;
2. Indicate the time frame within which they are to be achieved;
3. Indicate associated cost involved;
4. Indicate quantity and quality aspects of the expected achievements;
5. Help in promoting personal and professional growth and development;
6. get duly communicated to all who are concerned with it;
7. Align short-term objectives to medium and long-term objectives; and
8. Give due importance to the views of individuals expected to contribute in the
achievement of objectives at the time of setting objectives.
2. Key Result Areas
Organisational objectives and planning premises together provide the basis for
the identification of key-result areas. Key-result areas are derived from the
expectations of the various stake holders and indicate priorities for organisational
performance. They indicate top management perspectives for the future and the
present state of health of the organisation. These are the areas in reference to
which organisational health may be measured or appraised for example: (i)
profitability, (ii) market standing, (iii) innovation, (iv) productivity etc. These areas
are not the same for every organisation. They differ from organisation to
organisation, depending upon various internal and external environmental factors.
3. Setting of Subordinates Objectives
Organisational objectives are achieved through individuals. Therefore, every
individual must know in advance what he is expected to achieve. Objectives for
each subordinate should be set in consultation between that subordinate and his
or her supervisor. A degree of recycling is required in setting of objectives. This
means that a degree of interaction, consultation, and discussion among top level
managers, departmental heads, superiors and subordinates is necessary. In such
joint consultations, subordinates help managers develop realistic objectives since
they know best what they are capable of achieving. Managers help subordinates
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"raise their sights" toward higher objectives by showing willingness to help them,
overcome obstacles and confidence in subordinates' abilities.
4. Revision of Organizational Structure
When the goals for each individual are reset under MBO there is a
considerable change in the job description of various positions. This may call for a
revision of the existing organization structure. The organization charts and
manuals should be suitably amended to depict the change brought about by the
introduction of management by objectives. The job description of various jobs must
be defined with their objectives, responsibilities and authorities. They must clearly
lay down the relationship with other job positions in the organization.
5. Matching Objectives and Resources
It should be noted that without a proper balance between the objectives and
resources, the achievement of goals will be difficult. Hence, the superiors must
ensure combination of goals with available resources. All managers at various levels
require these resources to accomplish their goals. By relating these resources to the
goals themselves, superiors can better see the most effective and most economical
way of allocating them.
6. Conducting Periodic Progress Reviews
Management by objectives ensures periodic meetings between the superior and
the subordinate to review the progress towards the goal attainment. For this the
superior must establish check points or standards of performance for evaluating
the progress of the subordinate.
The reviews should be held monthly or quarterly. These reviews serve as a
built-in feedback mechanism for an MBO system. Since individual or group goals
are specifically defined, usually in quantifiable terms, employees can compare their
progress at review time against the specified goals. This periodic check-up allows
managers and employees to see whether they are on targets or whether some
change is necessary. During the review, managers and employees decide what
problems exist and what they can do to resolve them.
7. Performance Appraisal
While informal performance appraisal of a subordinate is done by his
immediate superior almost every day, formal appraisal at periodic interval, usually
once or twice a year does ensure that a thorough evaluation of a manager's
performance is done and his achievements are carefully analysed against the
background of prevailing circumstances and given objectives. The design and
format of the performance review form will depend on the nature of the enterprise.
Performance appraisal can serve three purposes:
1. Feedback to employees concerning their actual performance;
2. Provide the basis for identifying more effective job behaviour;
3. Supply information to managers relevant to future job assignments and to
compensation decisions.
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8. Feedback
On the basis of overall evaluation, the feedback is provided to higher level of
hierarchy. Feedback information helps in taking decisions to make necessary
changes in MBO programme and to shape goals for the next year. The MBO cycle
repeats itself on an annual basis.
21.3.4 IMPORTANCE AND ADVANTAGE OF MBO
Management by objectives is a comprehensive management planning and
control technique and is bound to affect the entire organization structure, culture.
Management by objectives calls for regulating the entire process of managing in
terms of meaningful, specific and variable objectives at different levels of
managerial hierarchy. It stimulates meaningful action for better performance and
higher accomplishment.
It is closely associated with the concept of decentralization. In 1954, Drucker
noted that, "The first requirement in managing managers is management by
objectives and self-control." The main advantages of MBO are described below:
1. Better Management of Organizational Activities
By applying MBO, organisational resources and activities can be better
managed which shows improved results. How the performance of an organisation
can improve through MBO may be clarified on the following five assumptions laid
down byL.M. Prasad, these are:
1. Clarity of objectives;
2. Role clarity;
3. Periodic feedback of performance;
4. Participation of managers in the management process;
5. Realization that there is always scope for improvement of performance in
every situation.
2. Clarity in Organizational Action
MBO tends to provide the key result areas where organisational efforts are
needed. A key factor in objective setting is the external environment in which the
organisation operates and any change in the external environment should be
considered very carefully at the time of objective setting. Besides the external
factors, internal factors also help in setting objectives and therefore they should
also be considered suitably. They define what the organisation intends to do, what
it can do, where it takes and how this gap can be bridged. All these factors lead to
clarity in organisational action.
3. Provides Maximum Personnel Satisfaction
MBO provides maximum opportunity for personnel satisfaction. It is possible
due to two closely related phenomena (i) participation of individuals in goal setting
(ii) rational performance appraisal. People are involved in goal setting and it is a
source of inspiration to them. They feel that they are important for the organisation
and being consulted in goal setting. They are sure that their performance will be
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measured independently without any bias, prejudice and other personal factors.
MBO provides guidelines for appraising performance. Therefore, there is no room
for any partiality.
4. Basis for Organisational Change
MBO initiates and stimulates organisational change and it provide framework
for planned change. Due to change in external and internal factors a change is
required in any organisation. Sometimes change is resisted by the people in the
organisation. But by MBO the changing process becomes easier because there is
constant interaction between superiors and subordinates, less resistant on the part
of subordinates, frequently review the situation.
5. Other Benefits: Other Specific Benefits of MBO are as follows
1. It increases the effectiveness of management process.
2. It effectively and efficiently uses the human resources.
3. It encourages commitment towards goal attainment.
4. It is a self-appraisal and self-management technique which leads through
self-motivation and control.
5. It inbuilt the result oriented attitude in employees.
6. It is a path which encourages personal development and provides
opportunities for career development.
7. It reduces duplication of efforts.
8. It advocates trust, cooperation and supportiveness that are central to
human nature.
9. It develops a greater sense of identification in employees.
10. It improves communication and organization structure which helps in
locating weak and problem areas.
11. It serves as a device for organization control and integration.
12. It provides a realistic means of analysing training needs and opportunities
for growth on the basis of measurement of performance against accepted
standards.
21.3.5WEAKNESSES AND CRITICISM OF MBO
MBO is not a panacea, for organizational problems. Quite often many
organizations look MBO as an instant solution to their problems. They fail to
recognize that MBO demands careful planning and proper implementation. Many
organizations have been overwhelmed by problems of MBO. Some of the problems
are present in MBO system itself and others emerge due to wrong implementation.
Some of the common problems of MBO are as follows:
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1. Incomplete Understanding of MBO Philosophy

Managers involved in practicing MBO, sometimes do not understand as to
what purpose it serves, how the objectives are set and performance is appraised,
how the results will be analysed and how the organisation will be benefited.
Moreover, managers continue to think in their old way and do not appreciate this
new philosophy. Hence they fail to teach the philosophy of MBO to their
subordinates, as they lack initiative and fail to enthuse others to participate, thus
MBO appears to be simple to teach but it is not so easy to put in practice.
2. Poor Planning and Lack of Guidelines
One of the major weaknesses often associated with MBO is poor planning of
the programme prior to implementation. Implementers must know how to involve
personnel at all levels of management and obtain their support. Like any other kind
of planning, MBO cannot work if those who are expected to set goals are not
provided any guidelines. They must know what the organisational objectives are
and how can they fit themselves in them.
3. Difficulty in Setting Objectives
Objective setting is the prime step in MBO process. It requires verifiable
objectives against which performance may be appraised. Setting of objectives is
more difficult in some areas especially where they cannot be presented in
quantitative form. In such cases, it becomes difficult to qualify the performance and
compare that with the objectives. Effective goals setting requires proper study of
human nature, behaviour and expectations to set attainable and reasonable
objectives.
4. Inflexibility
Management by objectives may tend to introduce inflexibility in the
organization. Since goals are set in every six months or one year, the superior may
not like to modify them in between because of fear of resistance from the
subordinates. Koontz and Weihrich state, "It is foolish and dangerous for a manager
to strive for a goal that has been made obsolete by revised corporate objectives,
changed premises, or modified policies."
5. Increases Pressure and Frustration on the Subordinates
According to some critics MBO actually increases pressure on the
subordinates and sometimes, MBO creates frustration among managers.
This is due to the reasons that (a) many organisations could not implement
MBO properly and even the organisation is not able to work with its old system,
and (b) introduction of MBO arouses high expectations in young managers. They
are over-enthusiastic in making rapid change in terms of growth and profitability
for organisation and career development for themselves. If rate of change is slower
than the expected, then they feel frustrated.
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6. Short Term Nature of Goals

In most MBO programmes, managers set goals for the short run usually for a
year or even less. This is dangerous for the long term development of the
organisation. It is also found that strategic goals are displaced by operational goals.
7. Quantitative Bias
In order to have verifiable and measurable goals, managers overuse
quantitative goals and attempt to force the use of numbers in areas where they are
not applicable. They may also downgrade important goals that are difficult to state
in quantitative terms or end-results.
8. Time Consuming
A great deal of time to carefully set objectives at all levels of the organization is
required in MBO. Initially to build confidence in subordinates in the 'new system'
superiors may have to hold many meetings. The formal, periodic progress and final
review sessions also consume time. SoMBO is a time consuming process.
9. Increases Paperwork
MBO programmes introduce a tidal wave of newsletters, instruction booklets,
training manuals, questionnaires, performance data, and reports into the
organization. To know of what is going on in the organization, managers may
demand regular reports and data in writing, thus MBO imposes burdensome paper
work.
10. Lack of Follow up
Lack of follow-up by the superior at the appropriate time is another hurdle in
the successful implementation of MBO. It is most easy to procrastinate. The
superior must get to the subordinate at the appropriate time. The subordinate
should be prepared to tell the boss exactly what has been accomplished and how.
11. Other Weaknesses
1. It can be used as a threat by overzealous managers. Managers turn MBO
into a sham, and start playing games.
2. The programme is used as a 'whip' to control employee performance
3. Top managers provide inadequate support.
4. It leads to a tug-of-war in which the subordinate tries to set the lowest
possible targets and superior the highest.
21.3.6 MAKING MBO EFFECTIVE
MBO should not be considered a panacea for an organization's planning,
motivation, evaluation, and control needs. And it is certainly not a simple process
that can be quickly and easily implemented.
The following elements can help to make MBO effective:
1.Formulate Clear Objectives
Managers and subordinates must be satisfied that objectives are realistic and
clearly understood, and that they will be used to evaluate performance. It may be
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necessary to train managers in the skills of setting useful, measurable goals and
communicating them effectively.
2.Encourage Active Participation in Goal Setting
Managers must be willing to relinquish some direct control over their
subordinates and encourage subordinates to take more active roles in defining and
achieving their own objectives. Some managers are very uncomfortable with this
seeming loss of power, but an MBO program can be effective only if they give up
some control. There should be a face to face communication between the superior
and subordinate in setting the goals, discussing the subordinate's problems and
resetting the goals, and reviewing his performance. Thus, there must be an effective
two-way communication in the organization.
3.Support and Commitment of Top Management
Initial acceptance and enthusiasm among employees for an MBO program may
quickly disappear unless top management makes regular efforts to keep the system
alive and fully functioning. The active participation of top management is essential
for MBO implementation. If the top managers use the objective as an instrument for
managing, this practice will also be followed down in the organization.
4.Educate and Train Managers about MBO
Managers must be adequately educated about the philosophy of MBO. They
must be educated concerning the procedures and advantages of the system, the
skills required, and the benefits MBO provides to the organization and their own
careers. If managers remain resistant, an MBO program will not succeed. The
personnel at all level should be imparted adequate training for the effective
implementation of management by objectives programme.
5.Make Feedback Effective
An MBO system depends on participants who know where they stand in
relation to their objectives. Every personnel should know or communicated, what
he is to achieve and how well he is achieving them and 'where he stands' and
'where he is going' so that he may overcome shortcoming of his performance and
may make necessary adjustments to achieve the desired results on his own. We can
conclude that, setting goals is not a sufficient incentive; regular performance review
and feedback of results are necessary.
6.Take Care of Necessary Mechanism
MBO should not be implemented as an isolated programme. It must be
integrated with all the organization programmes including human resource
planning & development, product planning and development, production control,
financial planning etc.
It is always better to clarify responsibility and authority relationships so that
everyone in the organization understands what is expected in the MBO system. The
subordinates who have accepted the challenging assignments through discussion
with the superior must be given adequate authority to accomplish their goals. MBO
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will not work if the manager is not willing to delegate sufficient authority to the
subordinates.
In conclusion, we should know that MBO requires really hard work and
patience on the part of managers. If the concept is implemented carefully and
seriously, it will yield good results. Andrew Brown has pointed out that MBO will
generate returns to managers and to their company in the form of:
1. Improved managerial performance;
2. Concentration on wealth maximization;
3. Improved morale and sense of purpose in personnel;
4. Easier recognition of management potential;
5. more effective managerial development;
6. Better delegation and communication.
21.3.7 HIERARCHY OF OBJECTIVES
Objectives of an organisation are specified in successive grades according to
their importance. The objects at higher level indicate the ultimate goal, mission or
target and those at lower level indicate the means.
Figure – 21.1

The hierarchy of objectives may be as follows:-

In the top level, objective is target and mission then follows overall objectives,
main divisional objectives, departmental objects, sectional objects, group objects
and individual objects respectively
21.3.8 QUALITATIVE AND QUANTITATIVE OBJECTIVES
Quantitative Objectives
Probably the most frequently used type of objective, quantitative objectives are
those that can be tracked and evidenced by data. They are designed to satisfy our
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need for certainty and measurability, and are the easiest form to tabulate or
represent graphically.
Advantages
1. Easy to measure and report on
2. Easy to cascade into subsets of contributing objectives for individual targets
3. Easy to show variance from target or to compare one team or period to
another
Disadvantages
1. Can be overly simplistic, and tend to lack the depth of a qualitative objective
2. Can be misleading if taken in isolation
3. Require support of more detailed narrative to explain what figures mean
Qualitative Objectives
Less prevalent due to the relative complexity that is typical of this form;
qualitative objectives are more common in service business, especially those with a
high degree of creativity.
Advantages
1. Tend to present a richer picture and encourage a deeper understanding of
the performance being measured
2. Tend to enable more detailed discussion about performance and
improvement actions
Disadvantages
1. Can be overly complex
2. Can be opinion-based or subjective
3. Typically more difficult to measure
4. Hard to represent or report on
5. Often need to be underpinned by several quantitative measures
21.3.9MANAGEMENT BY EXCEPTION
Management by exception has both a general business application and a
business intelligence application. General business exceptions are cases that
deviate from the normal behaviour in a business process and need to be cared for
in a unique manner, typically by human intervention. Their cause might include:
process deviation, infrastructure or connectivity issues, external deviation, poor
quality business rules, malformed data, etc. Management by exception here is the
practice of investigating, resolving and handling such occurrences by using skilled
staff and software tools. Good management can contribute to efficiency of business
processes. Often in these cases the process will be called exception management, as
exceptional cases are not the sole focus of the managerial policy, and exception
management (as opposed to management by exception) denotes a more moderate
application of the process.
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Management by exception has six basic ingredients: (i) Measurement assign

values to past and present performances. This is necessary because without
measurement of some kind, it would be impossible to identify an exception. (ii)
Projection analyses those measurements that are meaningful to organisational,
objectives and extends them into future expectations. (iii) Selection involves the
criteria which management will use to follow progress towards organisational
objectives. (iv)Observation stage of management by exception involves measurement
of current performance so that managers are aware of the current state of affairs in
the organisation. (v) Comparison stage makes comparison of actual and planned
performance and identifies the exceptions that require attention and reports the
variances to management. (vi)Decision-making prescribes the action that must be
taken in order to bring performance back into control or to adjust expectations to
reflect changing conditions, or to exploit opportunity. Thus it can be observed that
management by exception is inseparable from other management essentials in
many ways. However, the major difference lies in the fact that the superior‘s
attention is drawn only in the case of exceptional differences between planned
performance and actual performance. In other cases, subordinate manager takes
decisions. However, what is-exceptional requires the completion of whole process.
21.3.10BENEFITS OF MANAGEMENT BY EXCEPTION
There are various areas where percept of management by exception are used
such as statistical control of product quality, economic order quantities and order
points for control of inventories and supplies, break-even points for determining
operating, levels, trends in ratios of indirect to direct labour used in apportioning
overhead, attitude surveys for gauging employee morale, etc. The use of
management by exception is prevalent because of the following factors:
1. Management by exception saves executives‘ time because they apply
themselves on fewer problems, which are important. Other details of the problems
are left to subordinates.
2. It concentrates executives‘ efforts on major problems. Instead of spreading
managerial attention across all sorts of problems, it is placed selectively where and
when it is needed. Thus it ensures better utilisation' of managerial talents.
3. It facilitates better delegation of authority, increases span of management
and consequently provides better opportunities for self-motivated personnel in the
organisation. It lessens the frequency of decisions at the higher levels of
management, which can concentrate on strategic management rather than
engaging themselves in operational management.
4. Management by exception makes better use of knowledge of trends, history;
and available business data. It forces managers to review past history and to study
related business data because these are the foundations upon which standards are
derived and from which exceptions are noted.
5. It identifies crises and critical problems and thus avoids uninformed,
impulsive pushing of the panic button. It helps in identification of crises because
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the moment any exceptional deviation occurs, the attention of higher-level

managers is drawn. In this way, it also alerts management to opportunities as well
as difficulties.
6. Management by exception provides qualitative and quantitative yardsticks
for judging situations and people. Thus it helps in performance appraisal by
providing more objective criteria and provides better motivation to people in the
organisation.
7. It enhances the degree of communication between different segments of an
organisation. With its focus on results, it seeks to relate causes, regardless of their
place in the organisation. With overall organisational results as such it encourages
exchange of information between functions and also between a function and cost
centre or profit centre to which it reports.
Degree of communication determines the organisational cohesiveness and
leads it to achievement of objectives.
21.4 REVISION POINTS
Features of MBO - Objectives of MBO -Effectives of MBO
21.5 INTEXT QUESTIONS
1. What is MBO? Steps involved in the process of MBO.
2. Discuss the advantages and limitations of MBO.
21.6 SUMMARY
The essence of an MBO system lies in the establishment of common goals by
managers and their subordinates acting together, each persons major areas of
responsibility are clearly defined in terms of measurable expected result.
21.7. TERMINAL EXERCISES
Choose correct answer from the following
1. MBO was first suggested by
a. Frederick Taylor
b. Henri Fayol
c. Peter. F Drucker
d. Henry Mintzberg
2. Which of the following is not a problem faced during the implementation of
the MBO process?
a. Motivational assessment.
b. Individual action.
c. Group action.
d. Appraisal of appraisers.
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3. Which of the following is a limitation of MBO?

a. Helps in the coordination of goals and plans.
b. Provides clarity in organisational action.
c. Emphasises short terms goals.
d. Develop effective controls.
4. The MBO process should receive continuous support from........... managers
for its successful implementation.
a. Top Level.
b. Middle level.
c. First level.
d. Link level.
21.8. SUPPLEMENTARY MATERIALS
1. Business line paper
2. Company journals
21.9. ASSIGNMENTS
1. Interview two different managers about now they encourage their employees
to be ethical – Discuss.
21.10. SUGGESTED READINGS /REFERENCE BOOKS/SET BOOKS
1. Koontz and O‘Donnelll, Principles of Management, McGrawHill, 2014.
2. Gupta RN., Principles of Management,S. Chand, Chennai,2010.
21.11. LEARNING ACTIVITES
1. Suppose you have a garment store in the main market of your city, draw a
MBO programme with the above steps for diversification.
21.12. KEYWORDS
Management by objective - Quantitative objective - Hierarchy of Objective.

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LESSON - 22
SUPERVISION
22.1 INTRODUCTION
If ‗vision‘ implies seeing, the word ‗supervision‘ can be read as over-seeing,
looking over someone‘s shoulder to check on them; and also ‗super‘ in the sense of
outstanding or special, helping someone to extend their professional skills and
understanding. Both of these aspects will be relevant to varying degrees in
supervision, depending on the context.
22.2 OBJECTIVES
After studying this lesson, you will be able to understand:
 the concept of supervision
 the position of a supervisor in an organization
 the role and functions of supervision
22.3 CONTENTS
21.3.1 Definition
21.3.2 Position of supervisor
21.3.3 Function of supervisor
21.3.4 Qualities of A Good Supervisor
21.3.5 Essential Requirements for Effective Supervision
21.3.6 Rensis Likert Study
22.3.1 DEFINITION
―Supervision refers to the direct and immediate guidance and control of
subordinates in performance of their tasks‖-Viteles.
22.3.2 POSITION OF SUPERVISOR
The person who performs the function of supervision is known as supervisor.
He plays an important role in the organisation and is an important link between
workers and management. He is responsible for protecting the interest of both the
workers and management. As a management‘s representative he informs and
explains the plans and overall policies of the management to workers. He is also
concerned with getting the work done from workers in accordance with the
predetermined policies and plans. He also brings to the notice of management the
complaints, suggestions, grievances and difficulties of the workers.
In brief it may be pointed out that a supervisor holds very important position
in the organisation and is concerned with getting the work done from the workers
in the best possible manner.
22.3.3 FUNCTION OF SUPERVISOR
The main functions performed by a supervisor are enumerated as follows:
1. Selection of workers
The recruitment and selection of workers is primarily carried by personnel
department, but supervisor has a great say in the process of selection of employees.
Before the final placement, a worker is approved by the supervisor.
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2. Induction of new workers

After the selection and placement of new employees, supervisor is concerned
with familiarise these employees with the organisation. The new employees are
warmly welcomed and introduced by the supervisor with other workers in the
organisation.
3. Planning and organising the work
Supervisor is concerned with the formulation of plans, procedures and
methods of doing the work. He prepares the time schedule for work to be
performed. He makes arrangement of materials, tools and equipment‘s for carrying
uninterrupted production.
4. Issuing orders and instructions to workers
Supervisor is concerned with issuing orders and instruction to workers placed
under him. He guides and instructs workers for doing the work in accordance with
predetermined standards.
5. Training the workers
Another important function performed by supervisor is that he actively
associates himself in organising training programmes for the employees.
6. Enforcing discipline among workers
It is the responsibility of the supervisor to maintain proper discipline among
the employees. He encourages regularity and punctuality among the employees
which are greatly helpful in achieving proper discipline.
7. Motivate workers
Supervisor inspires the subordinates working under him to do work for the
achievement of organisational objectives. He builds up confidence and zeal in the
work to be performed by the subordinates.
8. Complaints and grievance of workers
Supervisor hears complaints and grievance of workers working under him and
helps in solving the same
22.3.4 QUALITIES OF A GOOD SUPERVISOR
In order to carry his functions effectively a supervisor should possess the
following qualities:
1. Knowledge of the organisation
For successfully carrying functions a supervisor should have sound knowledge
of the organisation. The knowledge should pertain to objectives, policies,
programmes and plans of the organisation.
2. Technical knowledge
A supervisor must possess technical competencies and skill to guide his
subordinates. He should be conversant with the machines, tools and methods of
work followed by workers under his control.
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3. Ability to communicate
A successful supervisor should know how to communicate with the
subordinates. He should speak in such a manner that subordinates easily
understand his view point.
4. Ability to listen
Other important element in the process of communication is listening. A
supervisor should be patient and listener. Listening is the most important, most
difficult and most neglected skills in communication.
5. Sharp memory
A supervisor should possess a sharp memory. He should be fully convergent
and memorise all the working rules, regulations and instructions should be
communicated.
6. Ability to secure co-operation
A successful supervisor will be one who knows how to secure maximum co-
operation from his subordinates.
7. Orderly thinking
The way of thinking of the supervisor will have a great impact on his working.
He should have very clear views on his subject.
8. Ability to judge subordinates
A supervisor should be capable of judging the capabilities of persons working
under him.
9. Emotional stability
A supervisor should maintain proper emotional stability. He should not lose
his temper and irritated soon.
22.3.5ESSENTIAL REQUIREMENTS FOR EFFECTIVE SUPERVISION
Following measures are suggested to make supervision more purposeful
1. Competency of the supervisor
To supervise effectively supervisor should possess all the necessary qualities.
2. Management by exception
Supervisor should resort to the principle of management by exception i.e. they
should concentrate on matters requiring special skill and experience. They should
not waste their time in routine type of issues.
3. Proper system of communication.
For effective supervision effective communication is indispensable. Without a
proper system of communication supervision cannot carry his job successfully.
4. Employee centred supervision
The supervision should be employee centred than the work cantered. He
should make every worker understand what is expected of him and what the
importance of his work in the organisation is.
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5. Provision for proper working condition

The supervisor should take initiative to provide good working conditions to the
workers. In the absence of proper conditions of work supervision cannot be carried
efficiently and effectively.
22.3.6RENSIS LIKERT STUDY
These studies are part of what is referred to as the Human Relations
Movement in organizational behavior. In the earlier studies, employee-centred and
production-centred supervisors were treated as if they represented opposite ends of
a single band. However, in later studies it was discovered that these two
dimensions were independent and could occur simultaneously. The study showed
that task- and relationship-oriented behaviors weren't of major significance within
the world of organizational psychology. Managers were urged based on these
studies to become more employee-centred to improve their effectiveness. This study
introduced a new concept, one of participative leadership and participative
management and teams were encouraged based on these studies. Likert related
these orientations to the performance of the employees. He showed that the
employee oriented style brought high-producing performance compared to
production-oriented style. In Likert‘s study the satisfaction of employees was not
directly related to productivity. Although an early study, this is still often
referencedEmployee centred supervision more productive than job centred -The
organisational psychologist (1903–1981) RensisLikert is best known for his
research on management styles.As a founder of the University of Michigan's
Institute for Social Research he focused particular attention to research on
organizations.He expanded on the Michigan leadership studies with extensive
research into what differentiates effective managers from ineffective
managers.The linking pin model is an idea developed by RensisLikert. It presents
an organisation as a number of overlapping work units in which a member of a unit
is the leader of another unit. In this scheme, the supervisor/manager has the dual
task of maintaining unity and creating a sense of belonging within the group he or
she supervises and of representing that group in meetings with superior and
parallel management staff. These individuals are the linking pins within the
organisation and so they become the focus of leadership development activities.
22.4 REVISION POINTS
Position of supervision, Function of supervision, Qualities of supervision,
Rensis Likert
22.5 INTEXT QUESTIONS
1. What is supervision? Discuss the position of supervision in an organization.
2. What are the functions and qualities of a good supervision.
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22.6 SUMMARY
Supervision occupy the vital first level of management that interacts directly
with the work force, supervisions, ;devote most of their time and energy to
planning, organizing, staffing, leading and controlling.
22.7. TERMINAL EXERCISES
Choose correct answer from the following
1. The first step in an MBO program is................
a. Formulating action plans.
b. Clarifying organisational roles.
c. Establishing specific goals for various departments.
d. Developing overall organisational goals.
2. Which of the following is NOT an effective supervisory practice?
a. Avoid close supervision
b. Promoting individual cohesiveness
c. Promoting group cohesiveness
d. Devoting more time in planning
22.8. SUPPLEMENTARY MATERIALS
1. Developed company articles
2. Economic times.
22.9. ASSIGNMENTS
1. Write down their comments and discuss how these ideas might help you be
a better supervision.
22.10. SUGGESTED READINGS /REFERENCE BOOKS/SET BOOKS
1. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
2. M. Govindarajan and Natarajan.S,Principles of Management
22.11. LEARNING ACTIVITES
1. You are a supervisor in a top level company, what is your role analyse.
22.12. KEYWORDS
Supervision- Qualities -Rensis Likert
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LESSON - 23
CREATIVITY AND INNOVATION IN MANAGEMENT
23.1 INTRODUCTION
An importantfactor in managing people is creativity. The term creativity
usually refers to the ability and power to develop new ideas. Innovation on the other
hand, usually use of these ideas. In an organisation this can mean a new product,
a new service, or a new way of doing things.
23.2 OBJECTIVES
After studying this lesson, you will be able:
 to explain the role of creativity
 to state the concept of innovation
 to describe the role of social responsibility
22.3 CONTENTS
22.3.1 The Creative Process
22.3.2 Techniques to Enhance Creativity
23.3.1 THE CREATIVE PROCESS
The creative process is seldom simple and linear. Instead, it generally consist
of four overlapping and interacting phases
1. Unconscious scanning
It is difficult to explain because it is beyond consciousness. This scanning
usually requires an absorption in the problem which may be vague in the mind.
2. Intuitions
It connects the unconscious with conscious. This stage may involve a
combination of factors that may seem contradictory at first.
3. Insight
It is the third phase of creative process, is mostly the result of hard work.
4. Logical formulation or verification
Insights need to be tested through logic or experiment. This may be
accomplished by continuing to work on an idea or by inviting critiques from others.
23.3.2 TECHNIQUES TO ENHANCE CREATIVITY
Popular techniques to enhance creativity are
1. Brain storming
One of the best known techniques for facilitating creativity has been developed
by Alex F. Osborn who has been called as father of brainstorming. The purpose of
this approach is to improve problem solving by finding new and unusual solutions.
In the brainstorming session, multiplication of ideas is sought
2. Synectics
It isoriginally known as the Gordon technique; this system was further
modified and became known as synectics. In this approach, the members of the
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synectics team are carefully selected for their suitability to deal with the problem, a
problem which may involve the entire organisation.
The leader of the group plays a vital role in this approach. In fact only the
leader knows the specific nature of the problem. This person narrows and carefully
leads the discussion without revealing the actual problem itself. The main reason
for this approach is to prevent the group from reaching a premature solution to the
problem.
3. Innovation and entrepreneurship
Peter F Drucker suggests that innovations apply not only to high tech
companiesbut equally to low tech, established businesses. Worthwhile innovation is
not a matter of sheer luck, it requires systematic and rational work, well organised
and managed for results.
Innovations come about because of some of the following situations:
1. the unexpected event, failure or success
2. the incongruous- what is assumed and what is really is
3. the process or task that needed improvement
4. changes in the market or industry structure
5. changes in demographics
6. Innovation based on knowledge.
23.4 REVISION POINTS
Creativity, Innovation, Responsibility, Social orientation
23.5 INTEXT QUESTIONS
1. Discuss the role of creativity and innovation in management.
2. What do you mean by social responsibility of business?
23.6 SUMMARY
The term creativity refers to the ability and new ideas. Innovation on the other
hand usually use of these ideas. A new process, a new service, changes in
demographics, changes in the market or industry structure, the task etc.
23.7. TERMINAL EXERCISES
Choose the correct answer from the following
1. _________ is the idea business that has certain obligation to society beyond
the pursuit of profits.
a. Corporate social responsibility
b. Managerial ethics
c. Corporate philanthropy
d. Business ethics
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2. Ethics is defined as ______.

a. The canons of moral behavior that are adopted by decision makers in
an organization
b. The principles and standards of moral behavior that are accepted by
society as right versus wrong
c. The norms of behavior that each individual must follow to preserve
social order
d. The application of moral standards to business situations
23.8. SUPPLEMENTARY MATERIALS
1. Creativity Journals
2. Innovative ideas Articles
23.9. ASSIGNMENTS
1. In your words, write down there things learned in this lesson.
23.10. SUGGESTED READINGS /REFERENCE BOOKS/SET BOOKS
1. L.M Prasad Principles and practice of Management, S Chand and sons
2. Robbins, S, P,Fundamentals of management, Pearson Publication, 2003.
23.11. LEARNING ACTIVITES
1. You are a chairman of xy company, how creative ideais important in your
company.
23.12. KEYWORDS
Creative - Innovative - Orientation - Responsibility.
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LESSON - 24
SOCIAL RESPONSIBILITY OF BUSINESS
24.1 INTRODUCTION
Social responsibility of business refers to what the business does, over and
above the statutory requirement, for the benefit of the society. The word
responsibility connotes that the business has some moral obligations to the society.
The term corporate citizenship is also commonly- used to refer to the moral
obligations of business to the society. This implies that, just as individuals,
corporate are also integral part of the society and that their behaviour shall be
guided by certain social norms. The operations of business enterprises affect a wide
spectrum. The resources they make use of are not limited to those of the
proprietors and the impact of their operations is felt also by many a people who are
in no way connected with the enterprises. The shareholders, the suppliers of
resources, the consumers, the local community and society at large are affected by
the way an enterprise functions. Hence, a business enterprise has to be socially
very responsive so that a social balance may be struck between the opposing
interests of these groups.
Goyder argues: Industry in the twentieth century can no longer be regarded as
a private arrangement for enriching shareholders. It has become a joint enterprise
in which workers; management, consumers, the locality, Government and trade
union officials all play a part. If the system, which we know by the name private
enterprise, is to continue, some way must be found to embrace many interests,
which go to make up industry in a common purpose.
24.2 OBJECTIVES
After studying this lesson, you will be able to:
 describe the role of social responsibility
 explainthe factors affecting social responsibility.
24.3 CONTENTS
24.3.1 Social Responsibility
24.3.2 Social Orientation and Involvement
24.3.3 Factors Affecting Social Orientation
24.3.4 Responsibilities of Different Sections
Figure–24.1 Social Responsibility of Business
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24.3.1SOCIAL RESPONSIBILITY
The contemporary view of social responsibility of business is substantially
broader and benevolent than the classical one. According to the classical view,
business has only economic objectives and no other responsibility beyond that.
Milton Friedman, a Nobel economist and a proponent of this view, argues that
"there is one and only one social responsibility of business-to use its resources and
engage in activities designed to increase its profits so long as it stays within the
rules of the game, which is to say, engages in open and free competition, without
deception or fraud Few trends could so thoroughly undermine the very foundations
of our free society as the acceptance by corporate officials of a social responsibility
other than to make as much money for their stockholders as possible. This is a
fundamentally subversive doctrine. The contemporary view of business is an
ecological one according to which business is an integral part of the society to serve
a social purpose. Proponents this view like Davis and Blomstorm hold that
business is a social institution, performing a social mission and having a broad
influence on the way people live and work together.
According to Steiner and Steiner, a reasonable approach to social
responsibility is as follows.
1. Each business must take into account the situation in which it finds itself
in meeting stakeholder expectations.
2. Business is an economic entity and cannot jeopardize its profitability
meeting social needs.
3. Business should recognize that in the long run, the general social good
benefits everyone.
4. The social responsibility expected of a business is directly related to its
social power to influence outcomes.
5. Social responsibility is related to the size of the company and to the
industry it is in.
6. A business should fickle only those social problems in which it has
competence.
7. Business must assume its share of the social burden and be willing to
absorb reasonable social costs.
24.3.2SOCIAL ORIENTATION AND INVOLVEMENT
On the basis of the extent of social orientation and involvement of companies,
this author would classify them in to the following categories.
1. Anti-social
Not only that these companies have no social orientation but also they are
unfair and unscrupulous in the conduct of the business. Rather than respecting
laws and norms in their letter and spirit, attempts may be made to take advantage
of the loopholes/interpretational flexibility or to circumvent the rules and
regulations by malpractices. Promoters and top managerial personnel of several
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organizations have been found to engage in insider trading, price rigging and the
like. These businesses may even contribute a part of their ill-gotten money for
social purpose to mask their real face or because of some compulsion to which they
yield for fear of some reaction or for getting some favours or good will.
2. Indifferent
These are companies, which have no social orientation beyond discharging the
legal as well as the economic responsibilities. The attitude is that going by the rules
and regulations is good enough; there is the government and other organizations to
work for the social cause and it is not the business of the business.
3. Peripheral
These companies are slightly a shade better than the indifferent category. They
have little bit of social orientation, often for the name sake.
4. Socially Oriented
Companies in this category have a high level of social orientation but their real
involvement is constrained by limitations of resource.
5. Committed and Very Active
These companies are characterized by high level of social orientation and real
involvement in the societal welfare programmes. What distinguishes these
companies from those in the preceding category is mostly their ability to commit
significant amount of resources to make the social orientation meaningful.
24.3.3FACTORS AFFECTING SOCIAL ORIENTATION
Important factors, which influence the social orientation of companies, include
the following.
1. Promoters and Top Management:The values and vision of promoters and
top management is one of the very important factors, which influence the corporate
social responsibility.
2. Board of Directors:As it is the Board of Directors, which decides the major
policies and resource allocation of company, the attitude of the members of the
Board is an important influence of the social orientation.
3. Stakeholders and Internal Power Relationship:The attitude of various
stakeholders like shareholders, creditors, employees etc. and the internal power
relationship also affect the social orientation of a company. As suggested by the
Halal‘s model described in the previous section of this chapter, a firm can only
attempt to unite the diverse interests of various social groups to' form a workable
coalition engaged in creating value for distribution among members of the coalition.
Beyond a certain level of economic activity, the social issues at stake may become
conflicting.
4. Societal Factors:The social orientation of company is also influenced by
certain characteristics of the society and general attitude and expectation of the
society regarding the social responsibility of business. For example, a resourceful
firm located in a poor community may be expected to contribute to the development
of education and health facilities etc. of the locality where as such involvement may
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not be required of a firm in a well-developed community. The orientations or

approaches may vary in accordance with the environment. The behaviour or social
orientation expected of business may vary between different societies.
5. Industry and Trade Associations:Industry and trade associations also
influence the behaviour of the firms by establishing professional and ethical codes
and norms, education and collective decisions.
6. Government and Laws: Laws are society's codification of right and wrong.
Business shall play the rules of the game. Anti-trust legislations, legislations to
curb corruption, unfair practices etc. vary between nations. Further, what is legally
controlled in some countries have no legal control in some other countries. Besides
legislation, there are other methods of government influence like guidelines,
persuasion, incentives (like tax exemptions) and pressurizing. The social orientation
would also depend on the government's view of social responsibility and the power
and earnestness of government / agencies (like SEBI, for example) in dealing with
defaulting companies.
7. Political Influences:Political influences include pressure exerted by special
interest groups in society and media to control business practices. These include a
variety of non-government organizations (NGOs) like consumer interest groups,
environmentalists etc. They use a variety of methods like lobbying to persuade
government and public agencies to adopt regulatory measures, conducting public
awareness campaigns, and even direct confrontation with the business in some
cases.
8. Competitors:The competitive forces also influence social orientation of
company. Two types of competitive behaviour are often noted. When one or some
companies become socially involved, others may be encouraged or provoked to do
something. Sometimes, there may be competition between companies to out-
perform others. The other way by which the society benefits by competitive
behaviour is the actions of suing competitors for unfair practices or publicly
exposing the misbehaviour of competitors.
9. Resources: the financial position and other resources of the company also
affect social involvement of companies. It may be noted that the TISCO has been
constrained to cap, even though at fairy high level, its social responsibility
expenditure.
10. Ethical Influences:Another factor influencing the social orientation is the
ethical decision-making and self-regulation of business conduct. Some companies
have well laid down codes and norms of ethical behavior. See the previous chapter
for more information. Gene Laczniak summarizes five ethical standards that are in
vague as follows.
(i) The Golden Rule:Act in the way you would expect others to act towards
you.
(ii) The Utilitarian Principle:Act in a way those results in the greatest good
for the greatest number.
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(iii) Kant's Categorical Imperative:Act in such a way that the action you take
could be a universal law or rule of behavior under the circumstances.
(iv) The Professional Ethic:Take actions that a disinterested panel of
professional colleagues would view as proper.
(v) The TV Test:Ask, ―Would I feel comfortable explaining to a national TV
audience why took this action?‖
24.3.4RESPONSIBILITIES OF DIFFERENT SECTIONS
There is no unanimity of opinion as to what constitutes social responsibility
ofbusiness. The important generally accepted responsibilities of the business
todifferent sections of the society are described below.
1. Responsibility to Shareholders
The responsibility of acompany to its shareholders, who are the owners, is
indeed a primary one.The fact that the shareholders have taken a great risk in
making investmentin the business should be adequately recognised. To protect the
interests ofthe shareholders and employees, "the primary business of a business is
tostay in business". To safeguard the capital of the shareholders and toprovide a
reasonable dividend, the company has to strengthen andconsolidate its position.
Hence, it should develop and improve its businessand build up its financial
independence. Needless to say, to providedividend, the company should earn
sufficient profit. Adequate reservesshould be built up so that it will be able to
declare a reasonable dividendduring a lean period as well. If a company fails to cope
with changes in achanging and dynamic world, its position will be shaken, and
theshareholders' interests will be affected. By innovation and growth the company
should consolidate and improve its position and help strengthenthe share prices.
The shareholders are interested not only in the protectionof their investment and
the return on it but also in the image of thecompany. It shall, therefore, be the
endeavour of the company to ensurethat its public image is such that the
shareholders can feel proud of theircompany. It may be mentioned here that the
shareholders also have certainresponsibilities, which they have to discharge to
protect their owninterests. They shall not only offer whole-hearted support and co-
operationin the positive efforts of the company but shall also guide and
controlproperly its policies and activities. At the same time, they shall appreciatethe
responsibility of the business to other sections of society: to theworkers, consumers
and the community.
2. Responsibility to Employees
The success of an organisationdepends to a very large extent on the morale of
the employees and theirwhole-hearted co-operation. Employee morale depends to a
large extenton the discharge of the company's responsibilities to them and
theemployer-employee relationship. The responsibility of the organisation tothe
workers includes the following: *
(i) The payment of fair wages;
(ii) The provision of the best possible working conditions;
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(iii) The establishment of fair work standards and norms;

(iv) The provision of labour welfare facilities to the extent possible and
desirable;
(v) Arrangements for proper training and education of the workers;
(vi) Reasonable chances and proper system for accomplishment and
promotion;
(vii) Proper recognition, appreciation and encouragement of special skills and
capabilities of the workers;
(viii) The installation of an efficient grievance handling system;
(ix) An opportunity for participating in managerial decisions to the extent
desirable.
The Committee that conducted the social audit of Tata Iron and Steel
Company (TISCO) observes that "not only should the company carry out its various
obligations to the employees as well as the larger community as a matter of
principle, but this has also led to a higher degree of efficiency in TISCO works and
an unparalleled performance in industrial peace and considerable team spirit and
discipline which have all resulted in high productivity and utilisation of capacity".
Thus, by discharging its responsibilities to the employees, the business advances
.its own interests.
It may, however, be pointed out that the expenditure on labour welfare, etc.,
should have relevance to the financial position of the company and the economic
conditions of the nation. This aspect has to be particularly taken note of by public
sector enterprises. Such expenditure shall not exceed the socially and economically
warranted limits and shall not cause undue burden on the consumers or the
general public. It shall not result in the formation of islands of affluence or comfort
in the midst of poverty and suffering at the expense of society.
3. Responsibility to Consumers
According to Peter Drucker, "there is only one valid definition of business
purpose; to create a customer." Drucker observes: "The customer is the foundation
of a business and keeps it in existence. He alone gives employment. To supply the
wants and needs of a consumer, society entrusts wealth-producing resources to the
business enterprise". It has been widely recognised that customer satisfaction shall
be the key to satisfying the organisational goals. Important responsibilities of the
business to the customers are:
(i) To improve the efficiency of the functioning of the business so as to increase
productivity and reduce prices, (b) improve quality, and (c) smoothen the
distribution system to make goods easily available.
(ii) To do research and development, to improve quality and introduce better
and new products.
(iii) To take appropriate steps to remove the imperfections in the distribution
system, including black-marketing or profiteering by middlemen or anti-social
elements.
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(iv) To supply goods at reasonable prices even when there is a seller'smarket.

(v) To provide the required after-sales services.
(vi) To ensure that the product supplied has no adverse effect on the
consumer.
(vii) To provide sufficient information about the products, including their
adverse effects, risks, and care to be taken while using the products.
(viii) To avoid misleading the customers by improper advertisements or
otherwise.
(ix) To provide an opportunity for being heard and to redress genuine
grievances.
(x) To understand customer needs and to take necessary measures to satisfy
these needs.Despite the popularity of the Marketing Concept and the growing
awareness of consumer rights, consumers all over the world are, by and large,
dissatisfied. Consumerism is an organised endeavour of the consumers to protect
their rights. In shortage economies like India many businessmen pay scant
attention to their responsibilities to consumers. To protect consumer rights and to
make the business discharge its responsibilities to them, the consumers should
give up their indifferent attitude and build up a strong consumer movement.
4. Responsibility to the Community
A business has a lot of responsibility to the community around its location and
to the society at large. These responsibilities include:
(i) Taking appropriate steps to prevent environmental pollution and to preserve
the ecological balance.
(ii) Rehabilitating the population displaced by the operation of the business, if
any.
(iii) Assisting in the overall development of the locality.
(iv) Taking steps to conserve scarce resources and developing alternatives,
wherever possible.
(v) Improving the efficiency of the business operation.
(vi) Contributing to research and development.
(vii) Development of backward areas.
(viii) Promotion of auxiliaries and small-scale industries.
(ix) Making possible contribution to furthering social causes like the promotion
of education and population control.
(x) Contributing to the national effort to build up a better society
24.4 REVISION POINTS
Position of supervision, Function of supervision, Qualities of supervision,
Rensis Likert
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24.5 INTEXT QUESTIONS

1. What is supervision? Discuss the position of supervision in an organization.
2. What are the functions and qualities of a good supervision?
24.6 SUMMARY
Social responsibilities‘ contemporary review – Anti social elements- Ten factors
affecting social responsibilities – Responsibilities of a different sections like. State
holders, employees, consumers and community.
24.7. TERMINAL EXERCISES
Choose correct answer from the following
1. The first step in an MBO program is................
a. Formulating action plans.
b. Clarifying organisational roles.
c. Establishing specific goals for various departments.
d. Developing overall organisational goals.
2. Which of the following is NOT an effective supervisory practice?
a. Avoid close supervision
b. Promoting individual cohesiveness
c. Promoting group cohesiveness
d. Devoting more time in planning
22.8. SUPPLEMENTARY MATERIALS
1. Developed company articles
2. Economic times.
22.9. ASSIGNMENTS
1. Write down their comments and discuss how these ideas might help you be
a better supervision.
22.10. SUGGESTED READINGS /REFERENCE BOOKS/SET BOOKS
1. T. Ramaswamy, Principles of Management, Himalaya Publishing House,2011
2. M. Govindarajan and Natarajan.S,Principles of Management
22.11. LEARNING ACTIVITES
1. Explain the social responsibility of an organization.
22.12. KEYWORDS
Supervision - Qualities - Rensis Likert.
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346EN110
Annamalai University Press :2016 – 2017