The Top 3 Levels of Management

The main levels of management are:

1. Top level management.

2. Middle level management.

3. Supervisory level, operational or lower level of management.

1. Top Level Management:

Top level management consists of Chairman, Board of Directors, Managing Director, General Manager,
President, Vice President, Chief Executive Officer (C.E.O.), Chief Financial Officer (C.F.O.) and Chief
Operating Officer etc. It includes group of crucial persons essential for leading and directing the efforts of
other people. The managers working at this level have maximum authority.

Main functions of top level management are:

(a) Determining the objectives of the enterprise. The top level managers formulate the main objectives of
the organisation. They form long term as well as short term objectives.

(b) Framing of plans and policies. The top level managers also frame the plans and policies to achieve the
set objectives.

(c) Organising activities to be performed by persons working at middle level. The top level management
assigns jobs to different individuals working at middle level.
(d) Assembling all the resources such as finance, fixed assets etc. The top level management arranges all
the finance required to carry on day to day activities. They buy fixed assets to carry on activities in the
organisation.

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(e) Responsible for welfare and survival of the organisation—Top level is responsible for the survival and
growth of the organisation. They make plan to run the organisation smoothly and successfully.

(f) Liaison with outside world, for example, meeting Government officials etc. The top level management
remains in contact with government, competitors, suppliers, media etc. Jobs of top level are complex and
stressful demanding long hours of commitment towards organisation.

(g) Welfare and survival of the organisation.

2. Middle Level Management:

This level of management consists of departmental heads such as purchase department head, sales
department head, finance manager, marketing manager, executive officer, plant superintendent, etc.
People of this group are responsible for executing the plans and policies made by top level.

They act as a linking pin between top and lower level management. They also exercise the functions of top
level for their department as they make plans and policies for their department, organise and collect the
resources etc.

Main functions of middle level management are

(a) Interpretation of policies framed by top management to lower level. Middle level management act as
linking pin between top level and lower level management. They only explain the main plans and policies
framed by top level management to lower level.

(b) Organising the activities of their department for executing the plans and policies. Generally middle
level managers are the head of some department. So they organise all the resources and activities of their
department.

(c) Finding out or recruiting/selecting and appointing the required employees for their department. The
middle level management selects and appoints employees of their department.

(d) Motivating the persons to perform to their best ability. The middle level managers offer various
incentives to employees so that they get motivated and perform to their best ability.

(e) Controlling and instructing the employees, preparing their performance reports etc. The middle level
managers keep a watch on the activities of low level managers. They prepare their performance appraisal
reports.
(f) Cooperate with other departments for smooth functioning.

(g) Implementing the plans framed by top level.

3. Supervisory Level/Operational Level:

This level consists of supervisors, superintendent, foreman, sub-department executives; clerk, etc.
Managers of this group actually carry on the work or perform the activities according to the plans of top
and middle level management

Their authority is limited. The quality and quantity of output depends upon the efficiency of this level of
managers. They pass on the instruction to workers and report to the middle level management. They are
also responsible for maintaining discipline among the workers.

Functions of lower level management are:

(a) Representing the problems or grievances of workers before the middle level management. The
supervisory level managers are directly linked with subordinates so they are the right persons to
understand the problems and grievances of subordinates. They pass these problems to middle level
management.

(b) Maintaining good working conditions and developing healthy relations between superior and
subordinate. The supervisory managers provide good working conditions and create supportive work
environment which improve relations between supervisors and subordinates.

(c) Looking to safety of workers. Supervisory level managers provide safe and secure work environment
for workers.

(d) Helping the middle level management in recruiting, selecting and appointing the workers. The
supervisory level managers guide and help the middle level managers when they select and appoint
employees.

(e) Communicating with workers and welcoming of their suggestions. The supervisory level managers
encourage the workers to take initiative. They welcome their suggestions and reward them for good
suggestions.

(f) They try to maintain precise standard of quality and ensure steady flow of output. The supervisory level
managers make sure that quality standards are maintained by the workers.

(g) They are responsible for boosting the morale of the workers and developing the team spirit in them.
They motivate ‘the employees and boost their morale.

(h) Minimising the wastage of materials.

2. The Three Organizational Theories

THEORIES:- Management is very important in any organization.Organization can never achieve its objectives
without proper management. Management is getting things done with the help of others.In early organizations
theories were designed to predict and control the behaviour in organization. Theories are the best way to manage
organization.Their are three types of theories:-
1. Classical theory
2. Humanistic theory
3. Contingency theory
CLASSICAL THEORY:-It is the best way to mange the organization.It emerged in early twentieth century.classical
organization theory espouses two prospective.
1 Scientific management:- In scientific management their is good Relation between work and workers.
2Adminisrtative:- Addressing issues.In siple words we can say its more concerned about issues.
STRENGTHS OF CLASSICAL THEORY:-
1.Well organized:- It is well organized theory. Absolute chain of command.it follow proper structure like first proper
planning what to do and then organizing, then allocating taskes b/w staff members, giving them proper directon
maintain the co-ordination b/w them and end up with making a proper report of job.
Planning
Organizing
Staffing
Directing
CO-Ordinating
Reporting
Budgeting
2 EMPHASIS ON BURERUCRCY:- It can be any type their is no particular rule for its type it can be hirerachical or
it can be liner.In hirerchical it follow a proper hirerchy for example person A is at the top and person B is working
under person A. Person C is working under person B. Either it can be liner all persons A,B,C working at same level.
3 TIME MANAGEMENT:- It focus on time and motion studies to learn how to complete a task in the least amount
of time. It creates systems to gain maximum efficiency from workers and machines in the factory.
4 DIVISON OF LABOUR:- Divion of work is most important characterstick of classical management theory.
Complex taskes are
Broken down into many simple tasks which can be easily performed by workers.
WEAKNESS OF CLASSICAL MANGEMENT THEORY:-
1 EMPLOYES HAVE MINNIMUM POWER:- Their is one way of communication in classical management
theory.Decisions are made by top level and forward to downward.No suggestion are taken by bottom side of
employees.
2PREDICTED BEHAVIOUR:- In classical management theory behaviour of works is predicted like machines.If the
worker work according to perdiction ,set standards ,he/she retains in services otherwise replaced.
3AUTOCRATIC LEAEDERSHIP STYLE:- Autocratic style were follow in early age.It means that manger were the
person who made decision and perform all other function of mangemnet alone as directing ,commanding and
organinzing. It means workers were strictly controlled.
2 HUMANISTIC THEORY OF MANAGEMENT:- Human plays vital role in all organization. Humanistic theory
shows that we need to motivate our employes on time to time to achieve the target with measure period of time.
Motivation can be rewards ,it can be increment etc.
STRENGTHs:-1. Employess have maximum power in this theory.
2 Human power is not neglected they are not forced to work like machines.
3Motivation of employes play great role in humanistic theory, it is in the form of increment ,bonus,celebrations on
festivals to reduce stress etc.
Weakness:-1 It is considerd inappropriate theory Sometimes people(manger)become emotional with employes. It
leads to wastage of time because employes become lazy.
2: Employess are sometime become depended .
3.Employes expection are more as compare to other theories.
CONTIGENCY THEORY:- Contigency theory is a class of behavioral theory ,it claims that their is no best way to
organize management. Several contingency theories were developed in early 1960.
Features of contingency theory:-1 The Size its using.
2.The technology it uses.
3.Its operating environment.
Weakness of contingency theory:- 1. Least preferred co- worker scale.
2. It fails to explain adequately what organisations should do when there is a mismatch between the leader and the
situation in the workplace.
3. It has been criticised because it has failed to explain fully why people with certain leadership styles are more
effective in some situations then others.
3.Henri Fayol's management theory is a simple model of how management interacts with
personnel. Fayol's management theory covers ...

Henri Fayol's management theory is a simple model of how management interacts with personnel. Fayol's management theory
covers concepts in a broad way, so almost any business can apply his theory of management. Today the business community
considers Fayol's classical management theory as a relevant guide to productively managing staff.

The management theory of Henri Fayol includes 14 principles of management. From these principles, Fayol concluded that
management should interact with personnel in five basic ways in order to control and plan production.

1. Planning. According to Fayol's theory, management must plan and schedule every part of industrial processes.

2. Organizing. Henri Fayol argued that in addition to planning a manufacturing process, management must also make certain all of
the necessary resources (raw materials, personnel, etc.) came together at the appropriate time of production.

3. Commanding. Henri Fayol's management theory states that management must encourage and direct personnel activity.
4. Coordinating. According to the management theory of Henri Fayol, management must make certain that personnel works
together in a cooperative fashion.

5. Controlling. The final management activity, according to Henri Fayol, is for the manager to evaluate and ensure that personnel
follow management's commands.

4.Neo-Classical Theory – Explained!

Neo-Classical Theory: Human Relations and Behavioural Sciences Movement!
Neo-classical theory deals with the human factor. Elton Mayo pioneered the human relations to improve
levels of productivity and satisfaction. This approach was first highlighted by the improvements known as
‘Hawthrone Experiments’ conducted at Illionois plant of Western Electric Company between 1927 and
1932. Elton Mayo and Mary Parker Follett are the main contributors of human relations approach. Neo-
classical approach also causes ‘Behavioural Science Management’ which is a further refinement of human
relations approch.

I. Human Relations Movement:

Human relations movement deals with the factors which encourage higher performance on the part of
workers. The improvement of working conditions, lowering of hours of work, improvement of social
relations of workers, besides monetary gains help in increasing productivity.

Hawthorne Studies:
Mayo is known for his work on the project which is commonly referred to as the Hawthorne studies. An
extensive investigation was started in 1927 at the Hawthorne plant, near Chicago, of the Western Electric
Company. These studies were conducted to determine the effect of better physical facilities on workers’
output. A number of experiments were conducted on the workers to find out the impact of different
situations on their efficiency.

(i) The first phase of these experiments involved five girls engaged in electrical assembly testing. These
girls were separated from the rest and placed in a separate room known as Relay Assembly Test Room. A
supervisor was attached to them to maintain a record of their performance and maintain a friendly
atmosphere. This experiment continued for over 42 years and changes like; extended rest periods,
reducing working week from 48 to 42 hours every change showed an improvement in performance

(ii) All the improvements introduced earlier were systematically removed. Though the output fell a little
but still it was more than it was before the experiments.

(iii) The improvements were reintroduced. The output roared and even working for 42 hours it was more
than the previous records.

The researches were baffled and could not explain the reasons for such changes. It was later pointed out
that morale of employees improved because of their recognition for experiments and hence their
performance was better. The girls became a closely knit group and co-operated happily with researches.
They were made to feel that they were governing their own fate. The attention they received from others,
for being part of research, also acted as a motivating factor.

(iv) The last phase of these studies consisted of an investigation into the work practices on non-
experimental group, consisting of fourteen men and four supervisors, working in the Bank Wiring
Observation Room. It was noticed that there was a definite code of conduct operating among employees
and they restricted their output between ‘rate-busting’ (producing too much) and chiseling (producing too
little). It was clear that attachment to this ‘informal’ organization was stronger than both the individual’s
desire for greater earnings and the company’s formal requirements.

Hawthorne studies revealed that an organization is not only a formal arrangement, of men and functions,
but also a social system which can be operated successfully only with the application of the principles of
psychology and other behaviour sciences.

Conclusions of Hawthorne Studies:

Hawthorne studies brought out the following observations:
1. Impact of Social Factors:
The impact of social factors was visible on the productivity of workers. The normally known ‘monetary
incentives’ for increasing output were not visible. Elton Mayo described organization as a ‘social system’
and social norms at work play an important role in motivating people. It was the restructuring of social
relationships that was the main cause of changes in productivity at Hawthorne studies. It was made clear
that man was primarily motivated by his social needs i.e., a sense of security, recognition, morale and
belongingness. The output increased in Relay Room due to the effectively functioning of social group with
a warm relationship with its supervisors.

2. Importance of Informal Groups:

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It was observed that in order to overcome the shortcomings of formal groups, workers create informal
groups. Informal work groups have a great influence on productivity and attitudes of the workers towards
work performance. Social pattern and pressure of a group, rather than management demands, frequently
had the strongest influence on how productive workers would be.

3. Leadership:
Leadership is required to direct group activities. A formal supervisor as appointed by the management
may not be able to achieve the desired results. The ‘informal leaders’ acceptable to t he informal groups
have more influence on their behaviour pattern because they associate themselves with the groups. A
supervisor formally appointed should associate himself with the social problems of the group for getting
co-operation and better work from the workers.

4. Proper Communication:
Proper communication system is necessary for better understanding between management and workers.
The experiments showed that if workers are explained the logic of taking various decisions and also their
participation in decision making brought much better results. Management should understand the
attitudes and viewpoints of workers and giving them due recognition will help in overcoming many
difficulties.

5. Balanced Approach:
The experiments showed that a balanced approach should be taken to the whole situation. The problems
of workers could not be explained by taking one factor or management could not achieve the results by
emphasising one aspect. All the things should be discussed and decision be taken for improving the whole
situation. A balanced approach to the whole situation can show better results.

5.Modern Management Theory: Quantitative,

System and Contingency Approaches to
Management
Modern Management Theory: Quantitative, System and Contingency Approaches to
Management!
The Modern Period (1960 to present). After, 1960 management thought has been turning somewhat away
from the extreme human relations ideas particularly regarding the direct relation between morale and
productivity. Present management thinking wishes equal emphasis on man and machine.

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The modern business ideologists have recognized the social responsibilities of business activities and
thinking on similar lines. During the period, the principles of management reached a stage of refinement
and perfection. The formation of big companies resulted in the separation of ownership and management.

This change in ownership pattern inevitably brought in ‘salaried and professional managers’ in place of
‘owner managers’. The giving of control to the hired management resulted in the wider use of scientific
methods of management. But at the same time the professional management has become socially
responsible to various sections of society such as customers, shareholders, suppliers, employees, trade
unions and other Government agencies.

Under modern management thought three streams of thinking have beers noticed since
1960:
(i) Quantitative or Mathematical Approach

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(ii) Systems Approach.

(iii) Contingency Approach.

(I) Quantitative or Mathematical Approach or Management Science Approach:

Mathematics has made inroads into all disciplines. It has been universally recognised as an important tool
of analysis and a language for precise expression of concept and relationship.

Evolving from the Decision Theory School, the Mathematical School gives a quantitative basis for
decision-making and considers management as a system of mathematical models and processes. This
school is also sometimes called, ‘ Operations Research” or “Management Science School’. The main
feature of this school is the use of mixed teams of scientists from several disciplines. It uses scientific
techniques for providing quantitative base for managerial decisions. The exponents of this school view
management as a system of logical process.

It can be expressed in terms of mathematical symbols and relationships or models. Different

mathematical and quantitative techniques or tools, such as linear programming, simulation and queuing,
are being increasingly used in almost all the areas of management for studying a wide range of problems.

The exponents of this school believe that all the phases of management can be expressed in quantitative
terms for analysis. However, it is to be noted that mathematical models do help in the systematic analysis
of problems, but models are no substitute for sound judgement.

Moreover, mathematics quantitative techniques provide tools for analysis but they cannot be treated an
independent system of management thought. A lot of mathematics is used in the field of physical sciences
and engineering but mathematics has never been considered as separate school even in these fields.

The contributions of mathematicians in the field of management are significant. This has contributed
impressively in developing orderly thinking amongst managers. It has given exactness to the management
discipline. Its contributions and usefulness could hardly be over-emphasized. However, it can only be
treated as a tool in managerial practice.

Limitations:
There is no doubt that this approach helps in defining and solving complex problems resulting in orderly
thinking. But the critics of this approach regard it as too narrow since it is concerned merely with the
development of mathematical models and solutions for certain managerial problems.

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This approach suffers from the following drawbacks:

(i) This approach does not give any weight age to human element which plays a dominant role in all
organisations.

(ii) In actual life executives have to take decisions quickly without waiting for full information to develop
models.
(iii) The various mathematical tools help in decision making. But decision making is one part of
managerial activities. Management has many other functions than decision-making.

(iv) This approach supposes that all variables to decision-making are measurable and inter-dependent.
This assumption is not realistic.

(v) Sometimes, the information available in the business for developing mathematical models are not upto
date and may lead to wrong decision-making.

Harold Knootz. Also observes that “it is too hard to see mathematics as a separate approach to
management theory. Mathematics is a tool rather than a school.”

(ii) Systems Approach:

In the 1960, an approach to management appeared which tried to unify the prior schools of thought. This
approach is commonly known as ‘Systems Approach’. Its early contributors include Ludwing Von
Bertalanffy, Lawrence J. Henderson, W.G. Scott, Deniel Katz, Robert L. Kahn, W. Buckley and J.D.
Thompson.

They viewed organization as an organic and open system, which is composed of interacting and
interdependent parts, called subsystems. The system approach is to look upon management as a system or
as “an organised whole” made up of subsystems integrated into a unity or orderly totality.

System approach is based on the generalization that everything is inter-related and inter-dependent. A
system is composed of related and dependent element which, when in interaction, forms a unitary whole.
A system is simply an assemblage or combination of things or parts forming a complex whole.

One of its most important characteristic is that it is composed of hierarchy of sub-systems. That is the
parts forming the major systems and so on. For example, the world can be considered to be a system in
which various national economies are sub-systems.

In turn, each national economy is composed of its various industries, each industry is composed of firms;
and of course, a firm can be considered a system composed of sub-systems such as production, marketing,
finance, accounting and so on.

The basic features of systems approach are as under:

(i) A system consists of interacting elements. It is set of inter related and interdependent parts arranged in
a manner that produces a unified whole.

(ii) The various sub-systems should be studied in their inter- relationships rather, than in isolation from
each other.

(iii) An organisational system has a boundary that determines which parts are internal and which are
external.
(iv) A system does not exist in a vaccum. It receives information, material and energy from other systems
as inputs. These inputs undergo a transformation process within the system and leave the system as
output to other systems.

(v) An organisation is a dynamic system as it is responsive to its environment. It is vulnerable to change in

its environment.

In the systems approach, attention is paid towards the overall effectiveness of the system rather than the
effectiveness of the sub-systems. The interdependence of the sub-systems is taken into account. The idea
of systems can be applied at an organizational level. In applying system concepts, organizations are taken
into account and not only the objectives and performances of different departments (subsystems).

The systems approach is considered both general and specialized systems. The general systems approach
to management is mainly concerned with formal organizations and the concepts are relating to technique
of sociology, psychology and philosophy. The specific management system includes the analysis of
organisational structure, information, planning and control mechanism and job design, etc.

As discussed earlier, system approach has immense possibilities, “A system view point may provide the
impetus to unify management theory. By definitions, it could treat the various approaches such as the
process of quantitative and behavioural ones as sub-systems in an overall theory of management. Thus,
the systems approach may succeed where the process approach has failed to lead management out of the
theory of jungle. ”

Systems theory is useful to management because it aims at achieving the objectives and it views
organization as an open system. Chester Barnard was the first person to utilise the systems approach in
the field of management.

He feels that the executive must steer through by keeping a balance between conflicting forces and events.
A high order of responsible leadership makes the executives effective. H. Simon viewed organization as a
complex system of decision making process.
Evaluation of System Approach:
The systems approach assists in studying the functions of complex organisations and has been utilised as
the base for the new kinds of organisations like project management organisation. It is possible to bring
out the inter-relations in various functions like planning, organising, directing and controlling. This
approach has an edge over the other approaches because it is very close to reality.

This approach is called abstract and vague. It cannot be easily applied to large and complex organisations.
Moreover, it does not provide any tool and technique for managers.

(iii) Contingency or Situational Approach:

The contingency approach is the latest approach to the existing management approaches. During the
1970’s, contingency theory was developed by J.W. Lorsch and P.R. Lawrence, who were critical of other
approaches presupposing one best way to manage. Management problems are different under different
situations and require to be tackled as per the demand of the situation.

One best way of doing may be useful for repetitive things but not for managerial problems. The
contingency theory aims at integrating theory with practice in systems framework. The behaviour of an
organisation is said to be contingent on forces of environment. “Hence, a contingency approach is an
approach, where behaviour of one sub-unit is dependent on its environment and relationship to other
units or sub-units that have some control over the sequences desired by that sub- unit.”

Thus behaviour within an organisation is contingent on environment, and if a manager wants to change
the behaviour of any part of the organization, he must try to change the situation influencing it. Tosi and
Hammer tell that organization system is not a matter of managerial choice, but contingent upon its
external environment.

Contingency approach is an improvement over the systems approach. The interactions between the sub-
systems of an organisation have long been recognised by the systems approach. Contingency approach
also recognises that organisational system is the product of the interaction of the sub systems and the
environment. Besides, it seeks to identify exact nature of inter-actions and inter-relationships.

This approach calls for an identification of the internal and external variables that critically influence
managerial revolution and organisational performance. According to this, internal and external
environment of the organisation is made up of the organisational sub-systems. Thus, the contingency
approach provides a pragmatic method of analysing organisational sub-systems and tries to integrate
these with the environment.

Contingency views are ultimately directed towards suggesting organisational designs situations.
Therefore, this approach is also called situational approach. This approach helps us to evolve practical
answers to the problems remanding solutions.

Kast and Rosenzweig give a broader view of the contingency approach. They say, “The contingency view
seeks to understand the inter-relationships within and among sub-systems as well as between the
organization and its environment and to define patterns of relationships or configurations of variables
contingency views are ultimately directed toward suggesting organization designs and managerial actions
most appropriate for specific situations.

Features of Contingency Approach:

Firstly, the contingency approach does not accept the universality of management theory. It stresses that
there is no one best way of doing things. Management is situation, and managers should explain
objectives, design organisations and prepare strategies, policies and plans according to prevailing
circumstances. Secondly, managerial policies and practices to be effective, must adjust to changes in
environment.
Thirdly, it should improve diagnostic skills so as to anticipate and ready for environmental changes.
Fourthly, managers should have sufficient human relations skill to accommodate and stabilise change.

Finally, it should apply the contingency model in designing the organization, developing its information
and communication system, following proper leadership styles and preparing suitable objectives, policies,
strategies, programmes and practices. Thus, contingency approach looks to hold a great deal of promise
for the future development of management theory and practice.

Evaluation:
This approach takes a realistic view in management and organisation. It discards the universal validity of
principles. Executives are advised to be situation oriented and not stereo-typed. So executives become
innovative and creative.

On the other hands, this approach does not have theoretical base. An executive is expected to know all the
alternative courses of action before taking action in a situation which is not always feasible.

6What Is Business Process Reengineering?

Business process reengineering (BPR) involves the examination and redesign of business processes and workflows in your organization. A business process is a set
of related work activities that are performed by employees to achieve business goals. Basically, a business process is the way we perform our work and business
process reengineering is the process of changing the way we do our work so we do it better to accomplish the goals of our business.

Why Engage in Business Process Reengineering

The idea behind business process reengineering is to make your company more flexible, responsive, efficient and effective for all stakeholders, including customers,
employees and owners. In order for BPR to work, your business must be willing to make the following changes:

 Change from a management focus to a customer focus - the boss is not the boss, the customer is the boss.
 Empower your workers that are involved in each process to have decision-making and ownership in the process.
 Change your emphasis from managing activities to focusing on results.
 Get away from 'score keeping' and focus on leading and teaching so employees can measure their own results.
 Change the company's orientation from a functional orientation to a process or cross-functional orientation. This allows for an increase in organizational
knowledge among its members and a greater degree of flexibility in accomplishing tasks.
 Move from serial operations to concurrent operations. In other words, multitask instead of just doing one thing at a time.
 Get rid of overly complex and convoluted processes in favor of simple, streamlined processes. Use the KISS Principle - keep it simple, stupid.
 Stop trying to build an empire and protect the status quo. Instead, invent new systems and processes that look towards the future.

What is Benchmarking?
The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to
best practice and to identify areas and means of performance improvement.
Revision Video - Benchmarking

The search for best practice can exist inside a particular industry and also in other industries - are there lessons to be learned from
other industries?

The Benchmarking Process

Benchmarking involves looking outward (outside a particular business, organisation, industry, region or country) to examine how
others achieve their performance levels, and to understand the processes they use.
 In this way, benchmarking helps explain the processes behind excellent performance. When lessons learned from a benchmarking
exercise are applied appropriately, they facilitate improved performance in critical functions within an organisation or in key areas of
the business.

The application of benchmarking involves four key steps:

1. Understand in detail existing business processes

2. Analyse the business processes of others
3. Compare own business performance with that of others analysed
4. Implement the steps necessary to close the performance gap

Benchmarking should not be considered a one-off exercise. To be effective, it must become an integral part of an ongoing
improvement process, the goal being to abreast of ever-improving best practice.

What Is Benchmarking?
Benchmarking is the process of comparing your own organization, operations, or processes against other organizations in
your industry or in the broader marketplace. Benchmarking can be applied against any product, process, function or
approach in business. Common focal points for benchmarking initiatives include: measures of time, quality, cost and
effectiveness and customer satisfaction.

Empowerment in an organization Empowerments is the process of enabling or authorizing an individual

to think, behave, take action, and control work and decision making in autonomous ways.

6 Main Importance of Empowerment in an Organisations in Recent Years

i) The increasing pace of change, turbulence of the environment, and the speed of competitive response
and the acceleration of customer demands require a speed and flexibility of response which is
incompatible with the old-style command and control model of organisational functioning.

ii) Organisations themselves are changing. The impact of downsizing, de-layering and decentralising
means that the old methods of achieving co-ordination and control are no longer appropriate. Achieving
performance in these new circumstances requires that staff take and exercise much greater responsibility.

iii) Organisations require more cross-functional working, more cooperation between areas, and more
integration in their processes if they are to meet the customers’ needs. Such co-operation can be achieved
through empowerment.

iv) Excellent managerial talent is increasingly perceived as scarce and expensive. Using it for direct
supervision of efficient staff compounds these difficulties. On the other hand, empowerment enables
managerial talent to be focused more on external changes and less on internal problem-solving.

v) Empowerment may reveal sources of managerial talent, which were previously unrecognised, and
creating circumstances in which such talent can flourish.

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vi) Staff is no longer prepared to accept the old command and control systems. Much wider availability of
education, greater emphasis on lifetime development and the end of the previous certainities of job
 security and steady advancement have contributed to a situation where jobs are valued for the
development of opportunities that they offer, rather than in themselves.

Organisations which fail to meet these aspirations will not generate the performance they require and will
suffer a continuous drain of their best staff.

Systems Approach to Management

Systems approach to management developed after 1950. Many pioneers during as E.L Trist, AK Ria, F.E. Kast,
and R.A Johnsm have made significant contributions to this approach.
This systems approach looks upon the management as a ‘System’ of as an organized whole make up of sub-systems
integrated into a unity or orderly totality. The attention should be given so overall effectiveness of the system rather
than effectiveness of any sub-system if isolation. It took where management process school left off in attempting to
unify management theory. It emphasizes the inter-relatedness and inter-dependence of all activities within an
organisation. It is based on system analysis. It attempts to identify the nature of relationships of various parts of the
system. A system is a set of inter-connected elements or component parts to achieve certain goals. An organisation
is viewed by the modern authors as an open system. An organisation as a system has five basic parts:

1. Input,
2. Process,
3. Output,
4. Feedback and
5. Environment.

Systems approach to management provides a conceptual basis as well as guidelines for establishing a more efficient
system for planning, organisation, directing and controlling. It forces the manager to look upon his business as an
open adaptive system. Information is an important part of the system because an organisation must act and interact
with its environment.
Systems are of two types:

1. Closed system: if closed system has no interaction with the outside world.
2. Open system: continually interacts with its environment. All living systems are open system.

Features of Systems Approach to Management

1. An organisation consists of many sub-systems.

2. All the sub-systems are mutually related to each other.
3. The sub-parts should be studied in their enter-relationships rather than in isolation from each other.
4. The organisation provides a boundary, which separates it from other systems. It determines which parts are
internal and which parts are external.
5. The organisation is responsive to environmental effect. It is vulnerable is the changes in environment.
6. An organisation is a system consisting of many interrelated and interdependent parts or sub-systems. These
elements are arranged orderly according to some scheme such that the is more than the sum of the parts.
7. As a system an organisation draws inputs (energy. Information, materials, etc.). From its environment. It
transforms these inputs and returns the output back into the environment in the form of goods and services.
8. Every system is a part of a super system.
9. Organisation is an open system and it interacts with its environment. It is also a dynamic system ass the
equilibrium in it is always changing.
10. Management is expected to regulate and adjust the system to secure better performance.
11. Management is multidisciplinary as it draws and integrates knowledge from various disciplines.
1.12. Total Quality Human ResourcesManagement
2.13. Introduction
3.14. Total quality human resources management (TQHRM) is “an approach to humanresources management that
involves many of the concepts of quality management.” Theprimary goal of TQHRM is employee empowerment.
Several differences exist betweenthe traditional human resources approach and TQHRM. Thomas Foster developed a
tablethat was adapted from an article by Cardy and Dobbins.
4.15. “The full potential of employee empowerment is realized in the empowered organization,when
employees: align their goals with appropriate higher organization purpose; have theauthority and
opportunity to maximize their contribution; are capable of takingappropriate action; are committed to the
organization’s purpose; and have the means toachieve it.”
5.16. Companies are beginning to realize that employee involvement is critical to product andservice quality, and
thus essential to the total quality management strategy.
6.17. How to implement TQHRM
7.18. The primary goal of TQHRM is to provide an atmosphere that promotesemployee empowerment.
Empowerment requires the alignment, authority, capability, andcommitment of employees. In order to achieve these
goals, Juran has identified severalsteps that must be taken to achieve each goal.
8.19. Alignment.
9.20. Alignment can be realized if employees:
10.21. •
11.22.
12.23. Know the needs of customers and stakeholders
13.24. •
14.25.
15.26. Know, concur in, and be prepared to contribute effort to organization strategies,goals, objectives, and plans
16.27. Authority.
17.28. In order for employees to the have the authority and opportunity to contributeto the organization, the following
steps are required:
18.29. •
19.30.
20.31. Individual authority, responsibility, and capability are consistent
21.32. •
22.33.
23.34. Barriers to successful exercise of authority have been removed
24.35. •
25.36.
26.37. The necessary tools and support are in place
27.38. Capability.
28.39. Employee capability can be developed through:
29.40. •
30.41.
31.42. Organizational training initiatives
32.43. •
33.44.
34.45. Educational development
35.46. Commitment.
36.47. An organization must earn the commitment of employees through:
37.48. Reinforcement
38.49. Recognition
39.50.
40.51. TQHRM in Action
41.52. Eastman Chemical Company is an excellent example of TQHRM in action.Eastman Chemical designed an
“employee development system” for employeedevelopment and coaching to replace its traditional performance appraisal
system. Table2 shows the new process.
42.53. Table 2
43.54. UnplannedDevelopmentNeedsC o a c h i n g F e e d b a c k Feedback Assignmentspr
ojectsDone on an ongoing basisDone every 6 monthsMgmt. Process forSuccessful
ExecutionImprovedEmployeeContribution
 44.55. OngoingD e v e l o m e n t
45.56. PersonalDevelopmentActivities
46.57. DocumentDevelopmentAssessEmployeeAgree on JobExpectations
47.58. In addition to the employee development system, Eastman Chemical was successful inimplementing an
empowered management system to aid in the successful management of employees in an empowered environment.
Eastman Chemical identified the specificchanges that needed to be made to its traditional human resources management
style inorder to implement TQHRM. They then set up guidelines and training programs to ensurethat these changes were
made

The Work of the Manager

Have you ever witnessed the "plate spinner" at the circus? This is the individual who places a breakable
dinner plate on a stick and starts it spinning. The entertainer repeats this task a dozen or more times, and
then runs around and striving to keep all of the plates spinning without letting any crash to the floor. On
many occasions, the role of manager feels a great deal like this "plate spinner." The manager’s functions
are many and varied, including:
 Hiring and staffing.
 Training new employees.
 Coaching and developing existing employees.
 Dealing with performance problems and terminations.
 Supporting problem resolution and decision-making.
 Conducting timely performance evaluations.
 Translating corporate goals into functional and individual goals.
 Monitoring performance and initiating action to strengthen results.
 Monitoring and controlling expenses and budgets.
 Tracking and reporting scorecard results to senior management.
 Planning and goal-setting for future periods.
The daily work of the manager is filled with one-on-one or group interactions focused on operations. Many
managers use early mornings or later evenings to complete their reports, catch-up on e-mail and update
their task lists. There is never a dull moment much less time for quiet contemplation in the lives of most
managers.

Universality of Management
Often, we hear the statement that the activity of management is ‘Universal’. Universality proposes that the
field of management is applicable to Government, business, university and other non-profit organizations
like clubs, cinema theatres, hospitals, etc. The manager uses the same managerial skills and principles in
each managerial positions held in such organizations. The management problems that these diverse
organizations face are alike, and the duties of their managers are equally similar.
Universality implies transferability of managerial skills across industries, countries. In fact, Management,
is one of the important exports of the international firms.

Arguments in favour of and Against Universality of Management

Arguments in Favour of Universality of Management
1. Similar Functions
Quite often, it is wrongly thought that management exists only in a business and not in other enterprises.
However, the fact is, that while acting in their respective managerial capacities not only the company
President but also the office supervisor perform the basic functions of management. The difference lies
only in things like broadness of the objectives, the importance of the decisions taken, the organizational
relationships affected, etc. Managers perform essentially the same functions irrespective of their level in
the organization, industry or country.

2. Universal Principles
Classical writers like Fayol, Urwick, and others believed that there are certain principles in management
that are universally applicable. They are:

 the principle of departmentation,

 principle of division of labour,
 principle of span of control,
 the scalar principle,
 principle of unity of command, etc.
These principles have been translated into practice for a long time and have found universal expression
irrespective of the nature and level of management in organizations.

3. Same Fundamentals
Management occurs in parks, hospitals, farms, universities, cities, police agencies, churches, air ports,
community organizations, industries, etc. The fundamentals governing the management of a business, a
church or a university are same. The difference lies only in the techniques employed and practices
followed.

All managers are accountable for performance of other people. They plan, make decisions, organize work,
motivate people and implement controls and so on. With a view to achieve objectives, the techniques used
should vary based on situational factors like culture, tradition, attitude, etc. Same is the case with
management practices also.

4. Practical Evidence
Management is found in all the functions, levels and sizes of organizations. As observed by Peter F.
Drucker,

the rapid development of Brazil, the rapid development of non-communist countries, that is, Hong
Kong, Singapore and Taiwan, the rapid development of so poor and backward peasant country as Iran
are all traceable to the impact of management.

Arguments Against Universality of Management

1. Impossibility of Complete Substitutability
 It is true that the manager’s job has become most universal at the upper levels of organizations. The
higher, one moves in an organization, the more he performs the common functions of management like
planning, organizing, directing and controlling and the less he moves, the less he is involved in day-to-day
technical matters. The relationship between performance and functions entrusted becomes more intense
as one moves lower down the order.

2. Varying Organizational Philosophies

As pointed out by Dale Yoder, no individual could be a good administrator in religious, academic,
military, and business institutions of both communist and democratic countries. This is because, the
philosophies which underlie each are drastically different and one person could not encompass so much.
For instance, in one concern, the emphasis may be profit maximization and in the other, the emphasis
may be social responsibilities. Such conflicting demands affect managerial actions and what a manager
could apply with success in one concern may not find a meaningful expression in the other concern where
the underlying philosophy is different.

3. Impossibility of Universal Principles

Classical management principles were written by practitioners in management and were based on their
personal experience only. They have only made an attempt to pass on their ideas as universal truths.
These principles are vague and too general and, therefore, are very difficult to apply to a specific
organization. They often overlap and are sometimes incompatible with one another. Thus, the statement
of ‘Universal Principles‘ is quite unblessed.
4. Management is an Output of the Culture
Managers have to operate within the broad constraints operating in an economy like culture, tradition,
organizational philosophies, etc. Managerial behavior in a deeply traditional, religious economy is bound
to be different from the advanced and scientifically-oriented economy. It is fruitful to search for a
common set of ‘principles’ where managers have to operate in highly diverse cultures.

The writers who argues that management principles are culture bound, seem to ignore that the basic
principles governing the management of business concerns in India, Japan, U.S.A., and Brazil are the
same, and they are applicable and adaptable in various cultures. Otherwise, it would not have been
possible for Indian Managers doing successful business in Great Britain, Chinese management thinkers
teaching in America, etc.

The universality of management thesis is well supported by several research studies especially by Haire,
Porter, Negandhi and Richman. As per the opinion of these researchers, cultural and situational factors
may influence the way in which a manager perform his functions but the basic principles of management
remain unchanged.

Summary
 Universality of Management
 Arguments in Favour of Universality of Management
o 1. Similar Functions
o 2. Universal Principles
o 3. Same Fundamentals
o 4. Practical Evidence
 Arguments Against Universality of Management
o 1. Impossibility of Complete Substitutability
o 2. Varying Organizational Philosophies
o 3. Impossibility of Universal Principles
o 4. Management is an Output of the Culture

The Importance of Management Principles for an

Organisation
The Importance of Management Principles for an Organisation!
Proper understanding of management principles is very necessary and helpful for managers as these
principles act as guidelines for managerial activities. By practising principles managers can avoid various
mistakes while dealing with people in the organisation.

The significance of management principles is due to following reasons:

(1) Providing managers with useful insight into reality:

Management principles act as guidelines for the managers. These principles improve knowledge, ability
and understanding of managers under various managerial situations. The effects of these principles help
the managers to learn from their mistakes. These principles guide managers to take right decision at the
right time.

(2) Optimum utilisation of resources:

The management principles insist on planned activities and systematic organisation of men and materials
in the organisation. Principles are designed to get maximum benefits from the human efforts and other
resources.

ADVERTISEMENTS:

For example, scientific principles suggest to cut down the wasteful movements and setting up of standard
time to complete a task. By saving time, energy and efforts activities can be made economical and result in
maximum utilisation of resources.
(3) Scientific decisions:
Managers have to take number of decisions every day. So they need to assess the resources of
organisations very carefully so that the appropriate decision can be taken by using the available resources
in best possible manner. The management principles enable the managers to approach various problems
systematically and scientifically.

For example, Taylor’s principles always insisted on replacement of rule of thumb by scientific approach
i.e., he suggested to conduct the time study to set up the standard time required to perform a job rather
than leaving it at the discretion or will of manager.

(4) Meeting changing environment requirement:

Every businessman has to make changes in the organisation according to changes taking place in the
business environment. Management principles train the managers in implementing the changes in right
direction and at right level in the organisation. Although management principles are relative and general
guidelines yet by modifying these principles changes can be made in the organisation.

(5) Effective administration:

Administration is the function of top level management. In this function major plans and policies are
formed. The management principles act as guidelines and base to form various administrative policies to
have systematic working in the organisation. Management principles make administration more effective
by discouraging personal prejudices and biases. These principles insist on objectivity and scientific
decisions.

For example, principle of unity of command, scalar chain, and unity of direction leads to systematic and
smooth functioning of the organisation as unity of command avoids confusion of more bosses. Unity of
direction unifies the efforts of all the employees in common direction and scalar chain results in
systematic flow of information. So all these principles definitely bring effective and efficient
administration.

(6) Fulfilling Social responsibilities:

A business is creation of society and makes use of resources of society so it must do something for society
also by performing some social responsibilities. Management principles not only act as guidelines for
achieving organisational objectives but these principles also guide the managers to perform social
responsibilities.

For example, the principle of fair remuneration insists on adequate salary to employees and takes care of
interest of employees also.

(7) Management Training, Education and Research:

The management principles stress on scientific judgements and logical thinking. As a result these
principles act as base of doing research and development in management studies. As these principles
provide organised body of knowledge to perform research work and generate more and more knowledge,
they have provided new ideas, imagination and base for research and development.

1. Planning
It is the basic function of management. It deals with chalking out a future course of action & deciding in
advance the most appropriate course of actions for achievement of pre-determined goals. According to
KOONTZ, “Planning is deciding in advance - what to do, when to do & how to do. It bridges the gap from
where we are & where we want to be”. A plan is a future course of actions. It is an exercise in problem
solving & decision making. Planning is determination of courses of action to achieve desired goals. Thus,
planning is a systematic thinking about ways & means for accomplishment of pre-determined goals.
Planning is necessary to ensure proper utilization of human & non-human resources. It is all pervasive, it is
an intellectual activity and it also helps in avoiding confusion, uncertainties, risks, wastages etc.
2. Organizing
It is the process of bringing together physical, financial and human resources and developing productive
relationship amongst them for achievement of organizational goals. According to Henry Fayol, “To
organize a business is to provide it with everything useful or its functioning i.e. raw material, tools, capital
and personnel’s”. To organize a business involves determining & providing human and non-human
resources to the organizational structure. Organizing as a process involves:

 Identification of activities.
 Classification of grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility relationships.
3. Staffing
It is the function of manning the organization structure and keeping it manned. Staffing has assumed
greater importance in the recent years due to advancement of technology, increase in size of business,
complexity of human behavior etc. The main purpose o staffing is to put right man on right job i.e. square
pegs in square holes and round pegs in round holes. According to Kootz & O’Donell, “Managerial function
of staffing involves manning the organization structure through proper and effective selection, appraisal &
development of personnel to fill the roles designed un the structure”. Staffing involves:
  Manpower Planning (estimating man power in terms of searching, choose the person and giving
the right place).
 Recruitment, Selection & Placement.
 Training & Development.
 Remuneration.
 Performance Appraisal.
 Promotions & Transfer.
4. Directing
It is that part of managerial function which actuates the organizational methods to work efficiently for
achievement of organizational purposes. It is considered life-spark of the enterprise which sets it in motion
the action of people because planning, organizing and staffing are the mere preparations for doing the
work. Direction is that inert-personnel aspect of management which deals directly with influencing,
guiding, supervising, motivating sub-ordinate for the achievement of organizational goals. Direction has
following elements:

 Supervision
 Motivation
 Leadership
 Communication

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

a. Establishment of standard performance.

b. Measurement of actual performance.
c. Comparison of actual performance with the standards and finding out deviation if any.
d. Corrective action.

Social Responsibility

According to Peter F Druker, “Social responsibility requires managers to consider whether their actions
are likely to promote the public good, to advance the basic belief of society, to contribute to its stability
strength and harmony.” Social responsibility refers to the voluntary efforts on the part of the business to
contribute to the social well being. The moral idea behind this is that the businesses use resources of the
society so they must give something back to the society.

The Need for Social Responsibility

 Self-interest: It is in the self-interest of the business to have a social responsibility as it opens

opportunities for understanding the problems and issues of society.

 A better environment for Business: In today’s cynical age, social responsibility keeps the businesses honest
and the markets stable.

 Public image: When a business takes initiative to solve the problems of the society, it puts the business in
the goodwill of the people.

 Social power: A leader is a helper. Helping the society is a form of social responsibility. Executing social
work helps the business attain social power within the society.

Arguments Supporting Social Responsibility

 The justification for existence and growth: The primary goal of business is to make profits as only profits
can help the business sustain and expand. Profits should only be made as a return of service to the society
by producing goods and services.

 The long-term-term interest in the firm: A firm is to gain maximum profits in the long run if it has it’s the
highest goal as service to society. As humans are social beings, when they notice that a particular
corporation is not serving its the best interest socially, they do not support the organization further.

 Avoidance of government regulations: Government is the highest authority in the nation. When a
government feels that the business is not socially responsible or is creating problems like pollution, the
government limits its freedom.

 Maintenance of Society: Business is one of the important pillars on which society survives. It is the
responsibility of business to take care of society’s needs. Law alone cant help people with the issues they
face. Therefore businesses contribute to the well being, peace and harmony of society.

 Availability of resources with Business: Business enterprises have huge financial resources, very efficient
managers & contacts and thereby they can ensure that a social problem can be solved easily.

 Converting problems into opportunities: Business means risk. And turning risky situations into profits can
also be related to solving social problems.

 Holding Business responsible for Social problems: Business enterprises are responsible for many problems
such as pollution, discriminated employment, corruption, etc. It is the duty of the business to solve the
problems created by them.
Arguments Against Social Responsibility

 Violation of maximization of the profit motive: This statement argues that business exists only for
maximizing profits and businesses fulfil their social responsibility best by maximizing profits by increasing
efficiency and reducing costs. They need not take up any additional obligations.

 Side effects on Consumers: Customers suffer because of the solving social problems and taking social care
require huge financial investment. As the money within the business is used in social help, the business
increase the cost of their products and services.

 Lack of Social skills: It is often stated that businessmen don’t fully under the social problems and thus
can’t solve them efficiently.

 Personal resistance: People tend to dislike interference from businesses in their problems.

The Reality of Social Responsibility

 The threat of Public Regulation: Government agencies keep watchful eye on all the business operations.
So to avoid government action, business should behave in a responsible manner.

 The pressure of Labour movement: Labour play an important role not only in production but also in the
managerial factors of the organization. Labour nowadays are more educated and their movements are
more powerful. ‘Hire and fire’ policy no longer work. Managers now have to be more responsible while
dealing with labors.

 Impact of Consumer Consciousness: In this era, consumers are well aware of the quality and price of the
product. Consumers are understanding their rights over the product and even in small issues, they file a
suit in consumer court.

 Development of a Social standard for Business: New social standards consider business enterprises as
legitimate but with a condition, they must also serve social needs.

 Development of Business Education: Business education has created an awareness among investors,
consumers, employees, etc and the world is more sensitive towards social issues.

 The relationship between Social interest and Business Interest: People know that social interest and
business interest are complementary. This means long-term benefits of the business.

 Development of Professional and Managerial Class: Earlier business houses only aimed at profit
maximization but now professional management and educational institution have made a new kind of
managers that give similar importance to social responsibility.
 From the above seen ‘Realities of Social Responsibility’ it is clear that business houses must
assume social responsibility for their survival, growth, and sustainability. Types of
Strategic Alternatives

Strategic Alternatives are developed to sets direction in which

human and material resources of a business will be applied for a greater chance of achieving selected goals.
The strategy is a comprehensive concept and, for this reason, it is often used in different ways.
But this difference creates a major problem when some writers focus on both the endpoints (mission, goals,
objectives) and the means of achieving them (policies and plans), but the others emphasize the means only rather
than the ends in the strategic process.
Strategy, as has already been said, refers to the
Determination of the purpose or mission and the basic long-term objectives of an enterprise, and the adoption of
courses of action and allocation of resources necessary to achieve these aims.
Therefore,
Objectives discussed earlier are a part of strategy formulation.
Policies are general statements which guide managers’ thinking to take a decision. They provide a broad boundary
within which decisions should fall.
Therefore the essence of policy is discretion. Strategy,
However,
concerns the direction in which human and material resources will be applied with a view to increasing the chance of
achieving selected objectives.
The key function of strategies and policies is to unify and give direction to plans. But if one of them stands alone, can
hardly ensure that an organization will reach its goal.
Apparently, strategic planning seems to be a simple exercise; analyses the current and expected future situation,
decides the direction of the firm, and develops the means for achieving the goal.
In reality,
Strategic Planning is a very complicated process that demands a systematic approach to identify and analyze
factors external to the organization and matching them with the firm’s capabilities.
Features of Strategic plans
The following are some of the most important characteristics of strategic plans:
1. They are long-term in nature and place an organization within its external environment.
2. They are comprehensive and cover a wide range of organization activities.
3. They integrate guide and control organizational activities for the immediate and long-range future.
4. They set the boundaries for managerial decision making. Since strategic plans are the primary documents of an
organization all managerial decisions are required to be consistent with its goals. Strategic plans, thus, set forth the
long-term objectives, intermediate objectives and main purpose or the basic role of an organization.
Types of Strategic Alternatives
Most businesses today also develop strategies at two distinct levels.
1. Business-level strategy.
2. Corporate-level strategy.
Business-level strategy
Business-level strategy is the set of strategic alternatives from which an organization chooses as it conducts business
in a particular industry or market.
Such alternatives help the organization to focus its efforts on each industry or market in a targeted fashion.
Corporate-level strategy
The corporate-level strategy is the set of strategic alternatives from which an organization chooses as it manages its
operations simultaneously across several industries and several markets.
Companies today compete in a variety of industries and markets.
So; as they develop business-level strategies for each industry or market, they also develop an overall strategy that
helps define the mix of industries and markets that are of interest to the firm.
These levels provide businesses a rich combination of strategic alternatives.

What is Diversification?
Diversification occurs when a business develops a new product or expands into a new market. Often,
businesses diversify to manage risk by minimizing potential harm to the business during economic
downturns. The basic idea is to expand into a business activity that doesn't negatively react to the same
economic downturns as your current business activity. If one of your business enterprises is taking a hit in
the market, one of your other business enterprises will help offset the losses and keep the company viable.
A business may also use diversification as a growth strategy.

What are Mergers and Acquisitions?

Mergers and acquisitions are both changes in control of companies that involve combining the operations of
multiple entities into a single company.
In a merger, two companies agree to combine their operations into a single entity.
In an acquisition, one company purchases another company, and has the right to sell off operations, merge them into
similar groups in the purchasing company, or close facilities or cancel products altogether.

Why Merge?
Companies would choose to merge together for different reasons:

1. The combined entity would be larger, and have corresponding larger resources for marketing, product
expansion, and obtaining financing. This could help them better compete in the marketplace.
2. The combined entity could merge similar operations to reduce costs. Corporate and administrative
functions, such as human resources and marketing, are often targets for combinations. They might also
combine the production areas if the companies produce similar products and reduce costs by having fewer
plants or facilities in operation.
3. The combined entity might have less competition in the marketplace. If the products of the two companies
competed for customers, they could combine their offerings and use resources for improving the product,
rather than marketing against each other.
 4. The combined entity might have synergy in operations. Synergy is when combined operations show lower
costs or higher profits than would be expected by just adding their financial information together on paper.
This could be due to economies of scale, where costs are lower due to higher volume of production, or due
to vertical integration, where greater control over the production process is achieved due to owning more
steps in the production process.

Why Acquire?
Acquisitions are undertaken for strategic reasons. For example:

1. A company might acquire another company to obtain a specific product. It can be less expensive to
purchase a company offering a product you'd like to sell than building the product yourself. Software
companies often purchase smaller companies that offer extensions to their product line if they become
popular with customers, so they can add the functionality to their primary offering.
2. A company might acquire other companies to increase its size. A larger company may have more visibility
in the marketplace, and also better access to credit and other resources.
3. A company might acquire another to obtain control over a critical resource. For example, a jewelry
company might acquire a gold mine, to ensure they have access to gold without market price fluctuations.

W HAT ARE RATIONAL MODELS?

Rational decision making models involve a cognitive process where each step follows in a logical order from
the one before. By cognitive, I mean it is based on thinking through and weighing up the alternatives to come
up with the best potential result.
There are different types of rational models and the number of steps involved, and even the steps themselves,
will differ in different models.
Some people assume that decision making is equivalent to problem solving. Some decisions however are not
problem oriented and I've taken this into consideration when describing the general outline of a rational
model below.

STEPS IN A RATIONAL DECISION MAKING MODEL

 Define the situation/decision to be made

 Identify the important criteria for the process and the result
 Consider all possible solutions
 Calculate the consequences of these solutions versus the likelihood of satisfying the criteria
 Choose the best option

The comparison is often performed by filling out forms or charts that have many names. Decision matrix, Pugh
matrix, decision grid, selection matrix, criteria rating form, amongst others. A relative importance is given to
each criterion and the options are scored against each of the criteria and the highest 'wins'.

PROS AND CONS

A rational decision model presupposes that there is one best outcome. Because of this it is sometimes called
an optimizing decision making model. The search for perfection is frequently a factor in actually delaying
making a decision.
Such a model also presupposes that it is possible to consider every option and also to know the future
consequences of each. While many would like to think they know what will happen, the universe often has
other plans!
It is also limited by the cognitive abilities of the person making the decision; how good is their memory? h ow
good is their imagination? The criteria themselves, of course, will be subjective and may be difficult to
compare. These models require a great deal of time and a great deal of information. And, of course, a rational
decision making model attempts to negate the role of emotions in decision making.
Learn how it's possible to combine a rational decision making model with your own intuition, or read about
the different types of decision making models.

SPECIFIC TYPES OF RATIONAL DECISION MAKING MODELS

Models have been described with six or seven steps, and there is even a 9 step decision model.
Bounded rational decision making models
A decision maker is said to exhibit bounded rationality when they consider fewer options than are actually
available, or when they choose an option that is not "the best overall" but is best within the current
circumstances. E.g., someone spills coffee on a shirt in a restaurant, and goes next door and buys a poorly
fitting shirt to change into immediately.
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Obviously it would be optimal to buy a proper fitting shirt. But if the person is in a hurr y and cannot wear a
wet, coffee stained shirt, then buying the poorly fitting one is appropriate. This is called satisficing.
(When you think about it, most of our decisions are like this, partly because we save time by not considering
every single possibility available to us. We only choose the most useful.)

VROOM -J AGO DECISION MODEL

This model originally was created by Vroom and Yetton in 1973 and later modified by Vroom and Jago.
Basically there are five situations for making decisions, from a single individual making the decision, to an
individual making the decision with varying amounts of input from the rest of the group, to the whole group
making the decision.
The Vroom-Jago decision model has a series of seven yes/no questions that elicit the important criteria and
indicate which of the five decision-making processes is the most appropriate.

Effective Problem Solving and Decision Making

Types of Decision Makers

Problem solving and decision making belong together. You cannot solve a problem without making a decision.
There are two main types of decision makers. Some people use a systematic, rational approach. Others are more
intuitive. They go with their emotions or a gut feeling about the right approach. They may have highly creative ways
to address the problem, but cannot explain why they have chosen this approach.
 Six Problem-Solving Steps

The most effective method uses both rational and intuitive or creative approaches. There are six steps in the process:

1. Identify the problem

2. Search for alternatives
3. Weigh the alternatives
4. Make a choice
5. Implement the choice
6. Evaluate the results and, if necessary, start the process again

Identify the problem

To solve a problem, you must first determine what the problem actually is. You may think you know, but you need
to check it out. Sometimes, it is easy to focus on symptoms, not causes. You use a rational approach to determine
what the problem is. The questions you might ask include:

 What have I (or others) observed?

 What was I (or others) doing at the time the problem occurred?
 Is this a problem in itself or a symptom of a deeper, underlying problem?
 What information do I need?
 What have we already tried to address this problem?

For example, the apprentice you supervise comes to you saying that the electric warming oven is not working
properly. Before you call a repair technician, you may want to ask a few questions. You may want to find out what
the apprentice means by “not working properly.” Does he or she know how to operate the equipment? Did he or she
check that the equipment was plugged in? Was the fuse or circuit breaker checked? When did it last work?

You may be able to avoid an expensive service call. At the very least, you will be able to provide valuable
information to the repair technician that aids in the troubleshooting process.

Of course, many of the problems that you will face in the kitchen are much more complex than a malfunctioning
oven. You may have to deal with problems such as:

 Discrepancies between actual and expected food costs

 Labour costs that have to be reduced
 Lack of budget to complete needed renovations in the kitchen
 Disputes between staff

However, the basic problem-solving process remains the same even if the problems identified differ. In fact, the
more complex the problem is, the more important it is to be methodical in your problem-solving approach.

Search for alternatives

 It may seem obvious what you have to do to address the problem. Occasionally, this is true, but most times, it is
important to identify possible alternatives. This is where the creative side of problem solving really comes in.

Brainstorming with a group can be an excellent tool for identifying potential alternatives. Think of as many
possibilities as possible. Write down these ideas, even if they seem somewhat zany or offbeat on first impression.
Sometimes really silly ideas can contain the germ of a superb solution. Too often, people move too quickly into
making a choice without really considering all of the options. Spending more time searching for alternatives and
weighing their consequences can really pay off.

Weigh the alternatives

Once a number of ideas have been generated, you need to assess each of them to see how effective they might be in
addressing the problem. Consider the following factors:

 Impact on the organization

 Effect on public relations
 Impact on employees and organizational climate
 Cost
 Legality
 Ethics of actions
 Whether this course is permitted under collective agreements
 Whether this idea can be used to build on another idea

Make a choice

Some individuals and groups avoid making decisions. Not making a decision is in itself a decision. By postponing a
decision, you may eliminate a number of options and alternatives. You lose control over the situation. In some cases,
a problem can escalate if it is not dealt with promptly. For example, if you do not handle customer complaints
promptly, the customer is likely to become even more annoyed. You will have to work much harder to get a
satisfactory solution.

Implement the decision

Once you have made a decision, it must be implemented. With major decisions, this may involve detailed planning
to ensure that all parts of the operation are informed of their part in the change. The kitchen may need a redesign and
new equipment. Employees may need additional training. You may have to plan for a short-term closure while the
necessary changes are being made. You will have to inform your customers of the closure.

Evaluate the outcome

Whenever you have implemented a decision, you need to evaluate the results. The outcomes may give valuable
advice about the decision-making process, the appropriateness of the choice, and the implementation process itself.
This information will be useful in improving the company’s response the next time a similar decision has to be
made.

Creative Thinking
 Your creative side is most useful in identifying new or unusual alternatives. Too often, you can get stuck in a pattern
of thinking that has been successful in the past. You think of ways that you have handled similar problems in the
past. Sometimes this is successful, but when you are faced with a new problem or when your solutions have failed,
you may find it difficult to generate new ideas.

If you have a problem that seems to have no solution, try these ideas to “unfreeze” your mind:

 Relax before trying to identify alternatives.

 Play “what if” games with the problem. For example, What if money was no object? What if we could organize a
festival? What if we could change winter into summer?
 Borrow ideas from other places and companies. Trade magazines might be useful in identifying approaches used by
other companies.
 Give yourself permission to think of ideas that seem foolish or that appear to break the rules. For example, new
recipes may come about because someone thought of new ways to combine foods. Sometimes these new
combinations appear to break rules about complementary tastes or break boundaries between cuisines from different
parts of the world. The results of such thinking include the combined bar and laundromat and the coffee places with
Internet access for customers.
 Use random inputs to generate new ideas. For example, walk through the local shopping mall trying to find ways to
apply everything you see to the problem.
 Turn the problem upside down. Can the problem be seen as an opportunity? For example, the road outside your
restaurant that is the only means of accessing your parking lot is being closed due to a bicycle race. Perhaps you
could see the bicycle race as an opportunity for business rather than as a problem.

Decision-making tools and techniques

While the basic principles might be the same, there are dozens of different techniques and tools that can be used
when trying to make a decision. Here are some of the more popular options, many of which use graphs, models or
charts. You may want to use a combination of these techniques to arrive at your final decisions.

 Decision matrix: A decision matrix is used to evaluate all the options of a decision. When using the matrix,
create a table with all of the options in the first column and all of the factors that affect the decision in the first
row. Users then score each option and weigh which factors are of more importance. A final score is then tallied
to reveal which option is the best.
 T-Chart: This chart is used when weighing the plusses and minuses of the options. It ensures that all the
positives and negatives are taken into consideration when making a decision.
 Decision tree: This is a graph or model that involves contemplating each option and the outcomes of each.
Statistical analysis is also conducted with this technique.
 Multivoting: This is used when multiple people are involved in making a decision. It helps whittle down a large
list options to a smaller one to the eventual final decision.
 Pareto analysis: This is a technique used when a large number of decisions need to be made. This helps in
prioritizing which ones should be made first by determining which decisions will have the greatest overall
impact.
 Cost-benefit analysis: This technique is used when weighing the financial ramifications of each possible
alternative as a way to come to a final decision that makes the most sense from an economic perspective.
 Conjoint analysis: This is a method used by business leaders to determine consumer preferences when making
decisions.
 SWOT Analysis: SWOT stands for strengths, weaknesses, opportunities and threats, which is exactly what this
planning tool assesses.
 PEST Analysis: An acronym for political, economic, social and technological, PEST can improve decision-
making and timing by analyzing external factors. This method considers present trends to help predict the future
ones.