Abm Org and MGT Reading Materials 2019

ABM ORGANIZATION AND MANAGEMENT READING MATERIALS
Every human being has several needs and desires. But no individual can satisfy all his wants.
Therefore, people work together to meet their mutual needs which they cannot fulfil individually.
Moreover, man is a social being as he likes to live together with other people. It is by working
and living together in organised groups and institutions that people satisfy their economic and
social needs. As a result there are several types of groups, eg., family, school, government, army,
a business firm, a cricket team and the like. Such formal groups can achieve their goals
effectively only when the efforts of the people working in these groups are properly coordinated
and controlled. The task of getting results through others by coordinating their efforts is known
as management. Just as the mind coordinates and regulates all the activities of a person,
management coordinates and regulates the activities of various members of an organisation.
DEFINITION OF MANAGEMENT
It is very difficult to give a precise definition of the term ‘management’. Different scholars from
different disciplines view and interpret management from their own angles. The economists
consider management as a resource like land, labour, capital and organisation. The bureaucrats
look upon it as a system of authority to achieve business goals. The sociologists consider
managers as a part of the class elite in the society.
The definitions by some of the leading management thinkers and practitioners are given below:
 Management consists in guiding human and physical resources into dynamic, hard-hitting
organization unit that attains its objectives to the satisfaction of those served and with a
high degree of morale and sense of attainment on the part of those rendering the service.
—Lawrence A. Appley
 Management is the coordination of all resources through the process of planning,

organizing, directing and controlling in order to attain stated objectives. —Henry L. Sisk.
 Management is principally the task of planning, coordinating, motivating and controlling

the efforts of others towards a specific objective. —James L. Lundy
 Management is the art and science of organizing and directing human efforts applied to
control the forces and utilize the materials of nature for the benefit of man. —American
Society of Mechanical Engineers
 Management is the creation and maintenance of an internal environment in an enterprise

where individuals, working in groups, can perform efficiently and effectively towards the
attainment of group goals. —Harold Koontz and Cyrill O’Donnell
 Management is the art of knowing what you want to do and then seeing that it is done in
the best and cheapest way —F.W. Taylor
 To manage is to forecast and to plan, to organize to command, to coordinate and to

control. —Henry Fayol
ORGANIZATION AND MANAGEMENT READING MATERIALS Page 1

 Management is the function of executive leadership anywhere. —Ralph C. Davis
 Management is concerned with seeing that the job gets done; its tasks all center on
planning and guiding the operations that are going on in the enterprise. —E.F.L. Breach
 Management is a distinct process consisting of planning, organizing, actuating and

controlling performed to determine and accomplish the objectives by the use of people
and resources. —George R. Terry
 Management is guiding human and physical resources into dynamic organizational units,
which attain their objectives to the satisfaction of those served and with a high degree of
morale and sense of attainment on the part of those rendering service. —American
Management Association
 Management is a multi-purpose organ that manages a business and manages Managers

and manages Workers and work. —Peter Drucker
The simplest definition of management is getting things done through people. It implies that an
organization whether small, medium or large is composed of people. A business organization
exists for a purpose.
The management is the process of achieving organizational objectives through people and other
resources. It is also a function that coordinates the efforts of people to accomplish a common
goal or task in the organization.
CONCEPTS OF MANAGEMENT
The term management has been interpreted in several ways; some of which are given below:
MANAGEMENT AS AN ACTIVITY
Management is an activity just like playing, studying, teaching etc. As an activity management
has been defined as the art of getting things done through the efforts of other people.
Management is a group activity wherein managers do to achieve the objectives of the group. The
activities of management are:
l Interpersonal activities l Decisional activitiesl Informative activities
MANAGEMENT AS A PROCESS
Management is considered a process because it involves a series of interrelated functions. It
consists of getting the objectives of an organization and taking steps to achieve objectives. The
management process includes planning, organizing, staffing, directing and controlling functions.
Management as a process has the following implications:
 Social Process: Management involves interactions among people. Goals can be achieved
only when relations between people are productive. Human factor is the most important
part of the management.
 Integrated Process: Management brings human, physical and financial resources
together to put into effort. Management also integrates human efforts so as to maintain
harmony among them.

 Continuous Process: Management involves continuous identifying and solving
problems. It is repeated every now and then till the goal is achieved.
 Interactive Process:Managerial functions are contained within each other. For example,
when a manager prepares plans, he is also laying down standards for control.
NATURE AND CHARACTERISTICS OF MANAGEMENT
The salient features which highlight the nature of management are as follows:
 Management is goal-oriented: Management is not an end in itself. It is a means to
achieve certain goals. Management has no justification to exist without goals.
Management goals are called group goals or organisational goals. The basic goal of
management is to ensure efficiency and economy in the utilisation of human, physical
and financial resources. The success of management is measured by the extent to which
the established goals one achieved. Thus, management is purposefull.
 Management is universal: Management is an essential element of every organised

activity irrespective of the size or type of activity. Wherever two or more persons are
engaged in working for a common goal, management is necessary. All types of organi-
sations, e.g., family, club, university, government, army, cricket team or business, require
management. Thus, management is a pervasive activity. The fundamental principles of
management are applicable in all areas of organised effort. Managers at all levels perform
the same basic functions.
 Management is an Integrative Force: The essence of management lies in the

coordination of individual efforts in to a team. Man- agement reconciles the individual
goals with organisational goals. As unifying force, management creates a whole that is
more than the sum of individual parts. It integrates human and other resources.
 Management is a Social Process: Management is done by people, through people and

for people. It is a social process because it is concerned with interpersonal relations.
Human factor is the most important element in management. According to Appley, “Man-
agement is the development of people not the direction of things. A good manager is a
leader not a boss. It is the pervasiveness of human element which gives management its
special character as a social process”.
 Management is multidisciplinary: Management has to deal with human behaviour

under dynamic conditions. Therefore, it depends upon wide knowledge derived from
several disciplines like engineering, sociology, psychology, economics, anthropol- ogy,
etc. The vast body of knowledge in management draws heavily upon other fields of study.
 Management is a continuous Process: Management is a dynamic and an on-going

process. The cycle of management continues to operate so long as there is organised
action for the achievement of group goals.

 Management is Intangible: Management is an unseen or invisible force. It cannot be
seen but its presence can be felt everywhere in the form of results. However, the
managers who perform the functions of management are very much tangible and visible.
 Management is an Art as well as Science: It contains a systematic body of theoretical
knowledge and it also involves the practical application of such knowledge. Management
is also a discipline involving specialised training and an ethical code arising out of its
social obligations.
On the basis of these characteristics, management may be defined as a continuous social process
involving the coordination of human and material resources in order to accomplish desired
objectives. It involves both the determination and the accomplishment of organisational goals.
OBJECTIVES OF MANAGEMENT
The objectives of management are narrated as under.

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

Management is indispensable for the successful functioning of every organisation. It is all the
more important in business enterprises. No business runs in itself, even on momentum. Every
business needs repeated stimulus which can only be provided by management. According to

Peter Drucker,“ management is a dynamic lifegiving element in an organisation, without it the
resources of production remain mere resources and never become production”.
The importance of management has been highlighted clearly in the following points:
 Achievement of group goals: A human group consists of several persons, each
specialising in doing a part of the total task. Each person may be working efficiently, but
the group as a whole cannot realise its objectives unless there is mutual cooperation and
coordination among the members of the group. Manage- ment creates team-work and
coordination in the group. He reconciles the objectives of the group with those of its
members so that each one of them is motivated to make his best contribution towards
the accomplishment of group goals. Managers provide inspiring leadership to keep the
members of the group working hard.
 Optimum utilisation of resources: Managers forecast the need for materials, machinery,
money and manpower. They ensure that the organisation has adequate resources and at
the sametime does not have idle resources. They create and maintain an environment
conducive to highest productivity. Managers make sure that workers know their jobs well
and use the most efficient methods of work. They provide training and guidance to
employeers so that they can make the best use of the available resources.
 Minimisation of cost: In the modern era of cut-throat competition no business can

succeed unless it is able to supply the required goods and services at the lowest possible
cost per unit. Manage- ment directs day-to-day operations in such a manner that all
wastage and extravagance are avoided. By reducing costs and improving efficiency,
managers enable an enterprise to be competent to face competitors and earn profits.
 Survival and growth: Modern business operates in a rapidly changing environment. An

enterprise has to adapt itself to the changing demands of the market and society.
Management keeps in touch with the existing business environment and draws its
predictions about the trends in future. It takes steps in advance to meet the challenges of
changing environment. Changes in business environment create risks as well as
opportunities. Manag- ers enable the enterprise to minimise the risks and maximise the
benefits of opportunities. In this way, managers facilitate the continuity and prosperity of
business.
 Generation of employment: By setting up and expanding business enterprises, managers

create jobs for the people. People earn their livelihood by working in these organisations.
Managers also create such an environment that people working in enterprise can get job
satisfaction and happiness. In this way managers help to satisfy the economic and social
needs of the employees.
 Development of the nation: Efficient management is equally important at the national

level. Management is the most crucial factor in economic and social development. The
development of a country largely depends on the quality of the management of its
resources. Capital investment and import of technical knowhow cannot lead to economic
growth unless wealth producing resources are managed efficiently. By producing wealth,

management increases the national income and the living standards of people. That is
why management is regarded as a key to the economic growth of a country.
PRINCIPLES OF MANAGEMENT
A principle refers to a fundamental truth. It establishes cause and effect relationship between
two or more variables under given situation. They serve as a guide to thought & actions.
Therefore, management principles are the statements of fundamental truth based on logic
which provides guidelines for managerial decision making and actions.
HENRI FAYOLS 14 PRINCIPLES OF MANAGEMENT

1. Division of Work – specialization of work labor is necessary for organizational success.
2. Authority – the right to give orders must accompany responsibility.
3. Discipline – obedience and respect helps the organization run smoothly.
4. Unity of Command – each employee should receive order from only one superior.
5. Unity of Direction – the efforts of everyone in the organization should be coordinated
and focused in the same direction.
6. Subordination of Individual Interest – resolving the tug of war between personal and
organizational interest in favor of the organization is one of management’s greatest
difficulties.
7. Remuneration – employees should be paid fairly in accordance with their contribution.
8. Centralization – the relationship between centralization and decentralization is a matter
of proportion; the optimum balance must be found for each organization.
9. Scalar Chain – subordinates should observe the formal chain of command unless
expressly authorized by their respective superiors to communicate with each other.
10. Order – both material things and people should be in their proper places.
11. Equity – fairness that results from a combination to kindliness and justice will lead to
devoted and loyal service.
12. Stability and Tenure of Personnel – people need time to learn their jobs.
13. Initiative – one of the greatest satisfaction is formulating and carrying out a plan.
14. Esprit de Corps – harmonious efforts among individuals is the key to organizational
success.
THE MANAGER’S JOB
The manager’s job is to combine human and technical resources in the best way possible to
achieve the company’s goal. Managers are not involved directly in production; that is, they do
not produce finished products themselves. Instead, they direct the efforts of others to accomplish
goals.
Managers must exercise three basic types of skills: technical, human and conceptual skills.
All managers must acquire these skills in varying propositions, although the importance of each
type of skill changes at different management levels.
Technical Skills – are the manager’s ability to understand and use techniques, knowledge and
tools and equipment of a specific discipline or department.

Human Skills – are interpersonal skills that enable a manager to work effectively with and
through people. Human skills include the ability to communicate with, motivate, and lead
employees to accomplish the assigned activities. Managers need human skills to interact with
people both inside and outside the organization.
Conceptual Skills – determine a manager’s ability to see the organization as a unified whole and
to understand how each part of the overall organization interact with other parts. These skills
involve an ability to see the bigger picture by acquiring, analyzing and interpreting information.
Conceptual skills are especially important for top-level managers, who must develop long-range
plan for the future direction of the organization.
THE MANAGEMENT PROCESS

Management is a process, a non-stop process of ensuring continuity and growth within an
organization. It involves goal setting, executing the plan, Measuring results and Sustaining
operations-the four GEMS of Management. These GEMS assume the framework of a wheel,
signifying that the entire management process is a continuous cycle.
4 Gems of Management refers to Goal, Execution, Measurement and Sustenance, all of

which are important to the success of a business. There is a key role that a manager of a
company plays. The manager is responsible of ensuring the accomplishment of the
organizational goals by working with and through people. This includes planning, organizing,
staffing, leading, or directing and controlling to accomplish the organization’s goal.
The GEMS Management Wheel

Stage 1: Goal Setting 1. Synthesizing Information 2. Formulating Alternative 3. Deciding on
Courses of Action 4. Establishing Goals

Stage 2: Executing the Plan 5. Organizing 6. Communicating 7. Guiding
Stage 3: Measuring Results
Stage 4: Sustaining Growth 8. Promoting Change 9. Developing People
ROLE AND RESPONSIBILITIES OF A MANAGER
A manager in the workplace is responsible for a lot of duties-most of them supervisory in nature.
In a small business, the manager is often a jack-of-all-trades. Though he/she may oversee
aspects of the business, hhis/her responsibilities may be hands-on as well. In medium sized and
large corporations, you might find layers of management levels, each with specific duties.
Specifically, the responsibilities of a manager include the following:
1. Staffing
2. Communication
3. Training
4. Administrative Investigation and Discipline
5. Employee Relations
6. Business Growth and Sustainability
DIFFERENCE BETWEEN HARD SKILLS AND SOFT SKILLS
Here are the three differences between the two skills:

1. To be good at hard skills, it usually utilizes the Intelligent Quotients or IQ (also known
as your left-brain – the logical center; while to be good at soft skills usually takes
Emotional Quotient or EQ (also known as your right brain – the emotional center.
Examples of hard skills are math, physics, accounting, programming, biology, statistics,

chemistry etc. While examples of soft skills are self-management skills like self-
confidence, stress management and peole skills like communication nr networkign skills,
persistence and perseverance, patience etc.
2. Hard skills are rules where rule stay the same regardless of cicrcumstance, organization
culture and co-employee. In constrast, soft skills are skills where the rules change
depending on the circumstances, organizational culture and people you work with.
3. Hard skills can be learned in schools or trainings. There are usually designated levels of
expertise and a direct path as to how one excels with each hard skill. In contrast, there is
no simple path in learning soft skills. Most soft skills are not directly taught in school and
have to be learned during interaction with other people in school or during the on-the-job-
training.
All jobholders need to have hard skills and soft skills in order to succeed in their chosen career or
profession.
DEFINITION OF JOB COMPETENCY
Job Competency – is defined as the ability of an individual to do a job properly. A competency

is also the capacity to follow a set of defined behaviors. It is a structured guide that enable the
identification, evaluation and development of the behaviors of each employee. It is the
combination of knowledge, skills, abilities, and personal attributes that contribute to enhance
employee performance and ultimately result in organization success. Core competencies are
those that organizations identify as the contributing the most toward achieving strategic results.
According to Personnel Management in the 21st century, job competency is also defined as the
underlying characteristics of the employee (knowledge, skill, attitude and motivation) which
results in effective or superior performance.
The following are some of the common core competencies required of an employee for
excellence performance:
Adaptability Leadership Customer Focus
Commitment Independence Teamwork
Creativity Emotional Stability Cooperation
Motivation Analytical Reasoning Result Orientation
Foresight Communication Skills
There are competencies required depending upon the kind of job an employee is holding, the
culture of the company, and his/her rank or position in the organization. For managers and
executives, for example, leadership competencies required are talent management, change
management, team leadership, conflict management, project management, negotiation and
influence etc.

THE FIRM AND IT’S ENVIRONMENT
Business Environment refers to the factors or elements affecting business organization. The
business environment may be classified into two types:
Internal Business Environment - refers to the forces/factors within the organization which my
affect, either positively or negatively, the performance of the organization.
External Business Environment - refers to the forces/factors outside the organization which my
affect, either positively or negatively, the performance of the organization.
The General External Business Environment Includes: • Economic • Socio-cultural • Politico-

legal • Demographic • Technological • World and ecological situations.
The Specific External Business Environment Includes: • Stakeholders • Customers • Pressure

groups • Investors • Employees
The Internal Business Environment Includes: • The organizations’ resources • Research and
Development • Production • Procurement of supplies • Products and services offered
ENVIRONMENTAL SCANNING
 Involves the seeking for and sorting through data about the organization’s environment.
 It is a process of gathering, analyzing, and dispensing information for tactical or strategic
purposes.
 It is monitoring and interpreting sweep of social, political, economic, ecological, and
technological events to spot budding trends that could eventually impact industry
COMPONENTS OF ENVIRONMENTAL SCANNING

 The development of a competitive mindset
 Considering of future business scenarios
 Business prediction/forecasting
 Benchmarking - The process of measuring or comparing one’s own products services
and practices with those of the recognized industry leaders in order to identify areas for
improvement
BUSINESS ORGANIZATION
 Is a collection of people working together to achieve a common purpose related to their
organization’s mission, vision, goals and objectives and sharing a common organizational
culture.
ORGANIZATIONAL CULTURE
 Is the set of beliefs and values shared by organization members and which guide them as
they work together to achieve their common purpose.

 Is a collection of people working together to achieve a common purpose related to their
organization’s mission, vision, goals and objectives and sharing a common organizational
culture.
 Is the set of beliefs and values shared by organization members and which guide them as
they work together to achieve their common purpose.
TYPES OF BUSINESS ORGANIZATION

 SIMPLE BUSINESS ORGANIZATION • Is an organization with few departments,
centralized authority with a wide span of control, with few formal rules and regulations
 FUNCTIONAL BUSINESS ORGANIZATION • Groups together people with similar
or related duties, practices, delegation of authority to functional managers like the
personal manager, sales manager or financial managers but allow CEOs to retain
authority for strategic decisions.
 DIVISIONAL BUSINESS ORGANIZATION • Is made up of semi-autonomous,
separate business units, with a division head responsible for his unit’s performance.
 NON-PROFIT BUSINESS ORGANIZATION • Are organizations designed for the
purpose of achieving their goals, giving service to clients without expecting monetary
gains or financial benefits for their endeavors
 PROFIT BUSINESS ORGANIZATION • Are organizations designed for the purpose
of achieving their goals and achieving stability through income generation and profit
making.
 OPEN/FLEXIBLE BUSINESS ORGANIZATION • Are formed to meet today’s
changing work environment and includes: Team structures, matrix business
organizations, project business structures, boundary less business organizations and
virtual business organizations.
COMPETITIVE ENVIRONMENT
 Refers to specific groups of people with which the company/firm interacts.
 The company’s customers, rival firms, new entrants, substitutes and suppliers make up
the firm’s competitive environment forces.
 The abovementioned competitive environment forces have the power to influence the
nature of the competition among rival companies so the firm must learn to adapt to or
influence also the said competition.
 The less power each of these competitive environment forces have, the more profitable
the industry will be.
 The firm’s managers must be able to identify the varying needs of its customers and focus
on creating customer value.
 The firm must also know the answers to the questions “who are our rival companies?”
“who are the new entrants to the industry?” “what are their different or new and better
ways of providing value to customers?”
 The firm must realize that the substitutes are the biggest opportunity or threat in an
industry and this implies that they may have to think of new strategies in order to
compete with them. (landline phones have cellphones as substitute)
 The firm must also realize the importance of their suppliers that provide them with major
inputs: raw materials for manufacturing goods, money from investors, and financial

institutions, and people who supply them with new ideas and help in the production of
goods and services that they offer.
THE LOCAL BUSINESS ENVIRONMENT

Local business is driven by specific local condition and market characteristics. Yet, it also
operates in a larger economic context. At the local level, the business must compete for
employees, resources from suppliers at a competitive price, local advertising and marketing
channels. The most successful businesses are well-managed creating a compelling value
proposition relative to its local competitors. So, business intelligence and local community
buyer values are critical for management pricing, inventory, and marketing strategies. Still, a
local business operates in a larger economic context. The mood and sentiments of the overall
economy influences local businesses dramatically. Many of these forces are beyond the control
of local businesses, yet, often determine success and failure. Access to capital, levels of
consumer spending, the overall health of the economy, ability to lease spacive and equipment,
unusual weather, all present challenges to local businesses. Finally, the regulatory environment
places controls, regulations and taxes on local businesses that directly affect profitability and
business sustainability.
THE INTERNATIONAL BUSINESS ENVIRONMENT

The international business environment is the government outside the Philippines and in
different sovereign countries with factors that are distinct to the home environment of the
organization and the foreign country where the organization operates.
For the most part, economic factors have a huge impact on companies working in an
international business environment. The foreign country’s monetary system, inflation and
interest rates are some of the items that organizations have to look into when putting up
businesses in other countries outside the Philippines. Then we have the political environment
which influences government legislations, rules and regulations that can either be friendly or
unfriendly to business.
THE ROLE OF BUSINESS IN RELATION TO THE ECONOMY

The critical role that business plays in the economy cannot be overemphasized. Image a world
where we have to produce everything that we consume –food, clothes, vehicle, furniture etc. It
not only take time and effort but oftentimes huge resources in order to build or manufacture what
we consume. Business obtains such resources as materials, labor and equipment to be able to
produce goods and services. As a result of business, commerce and markets, consumers are able
to live more comfortably and improve their standard of living conditions. Consumers are able to
enjoy a variety of goods and services because procedures and suppliers compete for markets and
regularly attempt to improve their products and services so that the same will be patronized.
ECONOMIC DEVELOPMENT
 Economic Development is a total process which includes not only economic growth or
the increase in the amount of goods and services produced by the country’s economy but
also consider the social, political, cultural and spiritual aspects of the country’s growth.

 Economic Development is the process by which a nation improves the economic,
political, and social well-being of its people.
 Economic Development can be defined as efforts that seek to improve the economic
well-being and quality of life for a community by creating and/or retaining jobs and
supporting or growing incomes and the tax base.
5 PHASES OF ECONOMIC DEVELOPMENT

1. MALTHUSIAN • Proposed by Thomas Robert Malthus (1766 – 1834) • A theory about
economic growth which depends on the rate of the population of a certain area • The
economic growth is inversely proportional to the population. The smaller population, the
higher the economic growth and vice versa.
2. GOVERNMENT – LED ( LOCAL ECONOMIC DEVELOPMENT) • An approach
towards economic development which allows and encourages local people to work
together to achieve sustainable economic growth and development. • Support the
formation of a partnership between local and national institutions towards strategic
implementations.
3. A LA KUZNETS (GOVERNMENT VS. ENVIRONMENT) • Proposed by Simon
Kuznets • The existence of a pattern or behavior, between economic growth and
environmental degradation, consistent with the environmental Kuznets curve (EKC)
hypothesis.
4. HUMAN CAPITAL BASED • Is a measure of the economic value of an employee’s
skill set. • Refers to the knowledge, skill sets and motivation that people have, which
provide economic value. • It could be invested in through education, training and
enhanced benefits that lead to an improvement in the quality and level of production.
5. POST DEMOGRAPHIC TRANSITION • proposed in 1929 by Warren Thompson • is
the transition from high birth and death rate to lower birth and death rate as the country
develops from pre-industrial to an industrialized economic system • fertility rate
decreases when child mortality is low, and is weakly dependent in GDP.
SCANNING THE ENVIRONMENT: PESTEL ANALYSIS
A PESTEL analysis or PESTLE analysis (formerly known as PEST analysis) is a framework

or tool used to analyse and monitor the macro-environmental factors that may have a profound
impact on an organisation’s performance. This tool is especially useful when starting a new
business or entering a foreign market. It is often used in collaboration with other analytical
business tools such as the SWOT analysis and Porter’s Five Forces to give a clear understanding
of a situation and related internal and external factors. PESTEL is an acronym that stand for
Political, Economic, Social, Technological, Environmental and Legal factors.
A PESTEL Analysis is an analytical tool for strategic business planning, incorporating strategies
and programs to reach the business goals. A PESTEL analysis is used to identify and analyse the
key drivers of change the external business environment, as well as when plans to launch a new
product, project or service into the market is considered. This can be used for business planning,
strategic planning, marketing planning, product development, organisational planning, and
research reports. The idea of this tool is to analyse the external environment from many different
angles, and to provide a complete evaluation when considering a certain idea or plan, providing

insight to whether a project is better placed than its competitors, and if its able to respond to
change more effectively. Understanding these environments helps to minimize threats, while
maximizing opportunities. Environmental scanning can help business identify opportunities in
the market while avoiding costly mistakes or risks.
All aspects (or environments) are important in delivering a multi visioned analysis of the
organisations external environment. Although different industries will hold higher value to one
environment over another, it is imperative to apply all aspects to any business strategy who
wants to develop, grow or even sustain their involvement in the market. A PESTEL analysis
forms a much more comprehensive result over a SWOT analysis.
When the factors for each environment are assessed, this information can then be analysed
further using a SWOT analysis to identify the threats and weakness associated with each of the
factors.
POLITICAL FACTORS:
These factors involve governmental influences effecting the economy and how a business can be
operated.These factors are all about how and to what degree a government intervenes in the
economy or a certain industry. Basically all the influences that a government has on your
business could be classified here. This can include government policy, political stability or
instability, corruption, foreign trade policy, tax policy, labour law, environmental law and trade
restrictions. Furthermore, the government may have a profound impact on a nation’s education
system, infrastructure and health regulations. These are all factors that need to be taken into
account when assessing the attractiveness of a potential market.
ECONOMIC FACTORS:
These factors determine an economy’s performance resulting in impacting the organisations
operational capabilities as well as their profitability and sustainability Economic factors are
determinants of a certain economy’s performance. Factors include economic growth, exchange
rates, inflation rates, interest rates, disposable income of consumers and unemployment rates.
These factors may have a direct or indirect long term impact on a company, since it affects the
purchasing power of consumers and could possibly change demand/supply models in the
economy. Consequently it also affects the way companies price their products and services.
SOCIAL FACTORS:
Also known as socio-cultural factors, these factors consider the beliefs, attitudes and trends of
the population that affect the market and community socially. This requires the advantages and
disadvantages the product holds to the community to be consideredThis dimension of the general
environment represents the demographic characteristics, norms, customs and values of the
population within which the organization operates. This inlcudes population trends such as the
population growth rate, age distribution, income distribution, career attitudes, safety emphasis,
health consciousness, lifestyle attitudes and cultural barriers. These factors are especially
important for marketers when targeting certain customers. In addition, it also says something
about the local workforce and its willingness to work under certain conditions.
TECHNOLOGICAL FACTORS:

In a world of technological innovation and increased demand on technology, these factors impact
the way organisations market their products, as well as platforms for marketing itself, while also
realizing technology often becomes outdated within a short period of time after its released.
These factors pertain to innovations in technology that may affect the operations of the industry
and the market favorably or unfavorably. This refers to technology incentives, the level of
innovation, automation, research and development (R&D) activity, technological change and the
amount of technological awareness that a market possesses. These factors may influence
decisions to enter or not enter certain industries, to launch or not launch certain products or to
outsource production activities abroad. By knowing what is going on technology-wise, you may
be able to prevent your company from spending a lot of money on developing a technology that
would become obsolete very soon due to disruptive technological changes elsewhere.
ENVIRONMENTAL FACTORS:
These factors consider ecological and environmental aspects including those which influence or
are determined by the the surrounding environment. Environmental factors have come to the
forefront only relatively recently. They have become important due to the increasing scarcity of
raw materials, polution targets and carbon footprint targets set by governments. These factors
include ecological and environmental aspects such as weather, climate, environmental offsets
and climate change which may especially affect industries such as tourism, farming, agriculture
and insurance. Furthermore, growing awareness of the potential impacts of climate change is
affecting how companies operate and the products they offer. This has led to many companies
getting more and more involved in practices such as corprate social responsibility (CSR) and
sustainability.
LEGAL FACTORS:
The legal considerations can be a make or break for an organisation. Although PESTEL analysis
is typically and external evaluation, Legal factors considered need both internal and external
consideration. With governmental laws laws effecting how an organisation acts, internal policies
are also taken into account when developing strategies for the company. If these factors are not
continually reviewed, large fines, imprisonment and business closure can become reality.
Although these factors may have some overlap with the political factors, they include more
specific laws such as discrimination laws, antitrust laws, employment laws, consumer protection
laws, copyright and patent laws, and health and safety laws. It is clear that companies need to
know what is and what is not legal in order to trade successfully and ethically. If an organisation
trades globally this becomes especially tricky since each country has its own set of rules and
regulations. In addition, you want to be aware of any potential changes in legislation and the
impact it may have on your business in the future. Recommended is to have a legal advisor or
attorney to help you with these kind of things.
ADVANTAGES OF A PESTEL ANALYSIS

 Helps to understand and provide insight into the business environment
 Encourages strategic thinking and promotes innovation
 Reduces risk when introducing new strategies
 Reduces the effects of future threats to the organisation
 Opens new opportunities

 Model is simple to use
 Promotes team collaboration
DISADVANTAGES OF A PESTEL ANALYSIS

 Continual analysis and updates given the changing market
 Requires diversity in perspectives to achieve deeper analysis
 Mainly based on assumptions given its future vision
 Collaboration of of data can be time consuming and expensive
 Missing data or unexpected changes in the market can lead to financial losses
SWOT ANALYSIS
SWOT analysis (or SWOT matrix) is a strategic planning technique used to help a person or
organization identify strengths, weaknesses, opportunities, and threats related to business
competition or project planning. It is intended to specify the objectives of the business venture or
project and identify the internal and external factors that are favorable and unfavorable to
achieving those objectives.
Users of a SWOT analysis often ask and answer questions to generate meaningful information
for each category to make the tool useful and identify their competitive advantage. SWOT has
been described as the tried-and-true tool of strategic analysis, but has also been criticized for its
limitations.
Strengths and weakness are frequently internally related, while opportunities and threats
commonly focus on the external environment. The name is an acronym for the four parameters
the technique examines:
 Strengths: characteristics of the business or project that give it an advantage over others.
 Weaknesses: characteristics of the business that place the business or project at a
disadvantage relative to others.
 Opportunities: elements in the environment that the business or project could exploit to
its advantage.
 Threats: elements in the environment that could cause trouble for the business or project.
The degree to which the internal environment of the firm matches with the external environment
is expressed by the concept of strategic fit. Identification of SWOTs is important because they
can inform later steps in planning to achieve the objective. First, decision-makers should
consider whether the objective is attainable, given the SWOTs. If the objective is not attainable,
they must select a different objective and repeat the process.
FORMS OF BUSINESS ORGANIZATIONS

Business firms are organized into three district groups. They are as follows:
1. The major forms
2. The minor forms
3. The modified corporate form.
MAJOR FORMS OF BUSINESS ORGANIZATION

The major forms of business organization are the most common and they consist of the
following:
1. Sole Proprietorship- is a business firms owned and operated by a single person. The sole
proprietorship hires other people to help him in operating the business. The sole
proprietorship is the most popular form of business organization.
2. Partnership -is that form of business organization owned and operated by two or more
person.
Types of Partnership – Prospective partners are provided with two options in organizing
a partnership. They may establish any of two types of partnership which are as follows:
 General Partnership – is an association of two or more person who are actively
involved in the business and all of which have limited liabilities.
 Limited Partnership - is an arrangement whereby the liability of one or more
partners is limited to the amount invested in the business. It is a requirement,
however that there must be at least one partner with limited liability.
3. Corporation–is a business firm owned by individuals or other corporations.
MAJOR FORMS OF BUSINESS ORGANIZATION:
POSITIVE AND NEGATIVE FEATURES

Business Aspect Sole Partnership Corporation
Proprietorship
Liability of owners Unlimited Limited/unlimited Limited
Ease of expansion Not easy Not easy Easy
Life of firm Dependent on Dependent on the partners Not dependent on
the owner the owners
Decision making Can be made Tends to be slower Tends to be the
quickly slowest
Taxation of income Once Once Twice
Ease of formulation Easiest Easy Not easy
THE MINOR FORMS OF BUSINESS ORGANIZATION

 The joint stock company - is a form of business wherein the capital is divided
into small units permitting a number of investors to contribute varying amounts to
the total profits being divided between the stockholders in proportion to the
number of shares they own.
 The joint venture - is a partnership established for a specific project or for a
limited time. A joint venture is formed when a foreign company finds a local
partner to share the costs and operation of the business.
 The business trust - is a legal form of a business organization where a trustee is
appointed to manage the business and its operations through a trust relationship.
THE MODIFIED CORPORATE FORM OF BUSINESS ORGANIZATION
The corporate form of ownership was modified to suit special requirements. These are two forms
which have become popular: the cooperatives and mutual companies.

 Cooperatives- A cooperative is a firm owned by a group of people who have a
common objective and who collectively bear the risks of the enterprise and share
its profits. Cooperatives are formed to make their members individually profitable
or to save money. There are different kinds of cooperatives. They are the
following:
 Credit union- This is one that accepts deposit from its members and lends
money, also to its members, at reasonable rates.
 Producer’s Cooperative – This is organized by members to mutually assist one
another in the procurement of raw materials, machinery equipment, and other
needs of the producers.
 Marketing Cooperative- This is organized to assist its members in the marketing
of their products.
 Consumer’s Cooperative- The purpose of this firm is to provide members with
quality goods and services at reasonable prices.
 Service Cooperative- This firm is organized to make services readily available to
its members at a lower cost.
 Mutual Companies – A mutual company is a financial service firm (such as an
insurance company or a savings and loan association) owned by its policyholders
or depositors. There are two types of mutual companies. They are the following:
 Mutual Savings Banks – These are firms owned by depositors which specialize
in savings and mortgage loans. The profits of these companies are remitted to the
depositors.
 Mutual Insurance Company – This is Cooperative Corporation organized and
owned by the policyholders.
SOURCES OF FINANCING FOR BUSINESS FIRMS
Types of Organization Financing Source

Single proprietorship -owner’s personal funds
-borrowings from private persons or banks
Partnership -partner’s personal funds
-borrowings from private persons or banks
Corporation -sale of shares of stocks
-borrowings through insurance of debt instruments
like bonds and promissory notes
- borrowings from banks
NATURE AND ROLE OF THE FIRM
 Human Resource Management –is the entire spectrum of management of

people that serves to maximize their performance in order to meet the
organization’s strategic objectives. It covers, among others, the major functions
of recruitment, selection and placement, training and development, employee
relations, and compensation and benefit administration.

 Marketing Management – marketing is the management process responsible for
identifying, anticipating and satisfying consumer requirements profitability.
 Operations Management – involves overseeing, designing, controlling the

process of production, and redesigning business operations in the production of
good and services. In a manufacturing setting, the company has to ensure the
design of effective and efficient production process, timely acquisition of raw
materials needed for production, deployment or adequate number of trained
workers and the proper maintenance of equipment and other resources required.
In a service-oriented setting, on the other hand, the company has to ensure the
availability of trained and customer -oriented personnel, presence of customer
service locations, and excellent provision of customer services.
 Financial Management – The goal of any finance function is to achieve three

benefits: business support service, lowest costs and effective control of the
environment. Toward the end, the firm has to ensure that it sets up effective and
efficient internal process designed to achieve all these, while maintaining the
values of being vision-oriented, growth-focused, intuitive and risk-taking.
 Material And Procurement – it is the responsibility of the firm to ensure that it

manages the procurement process and the supply base effectively and efficiently.
This includes buying high quality products and services at the right price from the
right, reliable source based on the right specifications, in the right quality for
delivery at the right time to the right customers.
 Office Management – according to BusinessDictionary.com involves the design,

implementation, evaluation and maintenance of the process of work within an
organization, in order to maintain and improve efficiency and productivity.
 Information And Communication Technology Management –this includes a

related form of communication or application that encompasses radio, television,
cellular phones, computer and network hardware and software, satellite system
and so on, as well as the various services and applications associated with them
such as video conferencing and distance learning. It is the responsibility of the
firm to provide the necessary information and communication facilities to all its
business units in order to ensure that they are able to perform their functions more
effectively and efficiently.
TYPES OF ORGANIZATION STRUCTURE
There are different types of organizational set-up or structure. These set-up or structure are
designed to accomplish different goals. The structure of an organization is a crucial part in the
progress of an organization since it can help or hinder the organization in the movement toward
accomplished these goals. Organizations, large and small in scale can achieve higher sales and
other profits by properly matching their needs with the structure they use to operate.

A basic organization framework is called the line structure. A line structure organization has
only direct, vertical relationships between different levels in the firm.
Difference Between Line Function And Staff Function

A line function is a position that has a direct chain of command and that is responsible for the
achievement of an organization’s goals. A staff function, on the other hand is intended to
provide expertise, advice and support for the line positions. An example of staff functions are
HR, Quality Assurance and Corporate Planning.
Sample of Line Structure
THREE COMMON TYPES OF ORGANIZATIONAL STRUCTURE

 Functional Structure
 Divisional Structure
 Matrix Structure
FUNCTIONAL STRUCTURE – it is a set up wherein each department of the organization is

grouped according to its function or purpose. The functional structure works very well for small
businesses in which each department can support itself by relying on the talent and knowledge of
its workers. However, one of the drawbacks in fuctional structure is the restriction in
coordination and communication.
Sample of Functional Structure

DIVISIONAL STRUCTURE is another type of organization structure. This is typically used in
larger companies or organizations with several branches or outlets that operate in a wide
geographic area or that have separate smaller organizations within the umbrella group to cover
different types of products or market areas. Divisional structure could also be costly because of
its size and scope.
Sample of Divisional Structure
MATRIX STRUCTURE is a hybrid of two structures namely divisional and functional

structure. Typically used in large multinational companies. The matrix structure allows for the
benefits of functional and divisional structures to exist in one organization. However, this can
create power struggles because most areas of the company will have a dual management – a

functional manager and a product or divisional manager working at the same level and covering
some of the same managerial territory.
Sample of Matrix Structure
GOAL-SETTING PROCESS (PLANNING)
G- which stands for Goal-setting is the first stage of the management cycle. It involves four
steps directed toward the establishment of the goals and objectives for the company or
organization. Goals are derived from a sound and clear understanding of the vision and mission
or purpose of the organization.
To fulfill this function, the manager must engage in the following steps or activities
 Gathering and synthesizing information
 Formulating alternatives
 Deciding on the course of action
 Establishing goals.
SHARED VISION, MISSION AND VALUES
To be an effective leader/manager of a business, he/she should ensure that his/her personal

vision, mission and values are aligned to those of the organization. It is the responsibility of the
leader/manager to define the company vision, mission and values to share these to everyone in
the organization.
What is Vision? –It is commonly shared picture of what the organization wants and is
committed to become sometime in the future. It is the guiding and motivating compass of the
organization – capturing the desired spirit of its people can passionately make the organization to
become.

What is a Mission Statement? – It is an enduring statement of purpose of an organization’s
existence that distinguishes itself from others. It answers the questions: Who are we? Why do
we exist?
What are Values? – Values are fundamental and shared beliefs that will provide the
organization’s behavior in meeting its objectives and in dealing with others.
Articulating the company’s share vision, mission and values provide the momentum to proceed
with the goal setting process.
STRATEGIC MANAGEMENT FRAMEWORK

In line of setting the goal of the organization, two key concepts were established – the SWOT
Analysi and the Strategic Management Framework (SMF). It integrates the SWOT Analysis and
the Balance Score Card.
The SMF involves an organization analysis from different perspectives.

SWOT Analysis is an organized method of assessing a company’s internal strengths and
weaknesses and its external opportunities and threats. The basic premise of this review is that a
critical internal and external study of reality should lead managers to select the appropriate
strategy to accomplish their organization objectives. SWOT Analysis encourages a practical
approach to planning based on realistic view of a firm’s situation and scenarios of likely future
events and conditions.
The Balance Score Card (BSC) summarizes the result of SWOT Analysis from the four
perspective: the owner, customer, employees and the store operations. It facilitates the
subsequent formulation of the Balance Score Card (BSC) which creates the foundation for your
strategic plan.
What is SMART?
SMART is and acronym that stand for Specific, Measurable, Attainable, Result-focused and
Time-bound.
Good goals should be :

Specific – goals should reflect accomplishments that are desired, not ways to accomplish them.
Goals should generate specific action and be detailed enough to be understandable and give
direction to others.
Measurable – goals should be measurable to determine when they have been accomplished. A
method of measuring must be defined, preferably in quantitative terms.
Attainable – the real art of setting goals is to create a challenging, achievable target. A goal is a
standard of achievement. It should be challenging but should not demand the impossible. It
should be attainable considering available resources.
Result-focused – goals should specify an end-result or outcome.

Time-bound –specify a relatively short time for meeting the goal, from a few weeks to no more
than a year. Goals are generally more manageable this way.
KRAs and KPIs
KRAs or Key Result Areas are highly selective areas (usually four to five only) in which an
organization must achieve a high level of performance, They are critical success factors for the
business. Since these are critical to its success.
KPIs or Key Performance Indicators are indicators of performance established for KRA.
EXECUTING THE PLAN
Definition of Execution
 Execution is the carrying out of a plan, order or course of action. Execution has been
described as a missing link. It is accordingly the main reason companies fall short of
their promises. It is the gap between what a company’s leaders want to achieve and the
ability of their organizations to deliver.
 Execution is not simply tactics but a system of getting things done through questioning,
analysis and follow through. It was also described as a discipline for meshing strategy
and reality, aligning people with goals and achieving the results promised.
EXECUTION AS A COMPETENCY
The manner, style or result of performance: “the plas was sound, its execution faulty” is the
common concern among leaders and managers. There is an expectation that whatever is started
as a plan will lead to implementation and eventually results.
(Bossidy and Charon) listed that the number one block to ensure execution is the Leader’s
Seven Essential Behaviors, as follows:
1. Know your people and your business
2. Insist on realism
3. Set clear goals and priorities
4. Follow through
5. Reward the doers
6. Expand people’s capabilities
7. Know yourself
THE PLANNING AND EXECUTION QUADRANT

Quadrant 1. The non-planning and execution leader. No action. Therefore, no expected results.
Quadrant 2. The executioner. Implements but actions are not backed up by planning.
Implementation may be faulty.
Quadrant 3. The planner. Plans but does not see through the implementation of whatever was
started. Absence of completion.
Quadrant 4. The planner and executioner. Ideally, every leader wants to be in this quadrant. One
can say that planning and execution are Siamese twins. They should always go

together. There is no question that from the 4 quadrants, the ideal box is where
you have a leader who is good in both planning and execution.
EXECUTION AS LINK AMONG MANAGEMENT FUNCTIONS
Execution links the other management functions of organizing, staffing and leading. Planning
sets the stage of execution. Controlling measures results after the execution of the plan.
Organizing is a management function that determines the structure and allocation of jobs.
Execution will not be possible without establishing the necessary organization structure where
roles and responsibilities of employees are specified. When roles and responsibilities are explicit
and clear, employees know exactly what to do. Division of labor is achieved. Delineation of
functions is emphasized. Confusion and encroachment of functions are avoided.
Staffing is the manning of jobs. It is ensuring that the right peolpe are placed particularly in
critical jobs. These people will be the ones who will be relied upon by the organization to
execute the plan properly.
Finally, the leading function reinforces execution. As the saying goes, all organization efforts
depend on effective leadership. Without a good leader, execution will not come into fruition.
Organization efforts have to be top-led, line-managed and staff supported. Most important of all,
effective leadership sets the stage for excellent execution and achievement of positive results.
COMMUNICATION AND MOTIVATION
Other than the management functions, two other functions – communication and motivation, are
critical in the organization.
Communication is the process of sharing information through verbal and nonverbal means,
including words, messages, and body movements. Communication can be either top-down,
bottom-up, and horizontal. Effective communication promotes understanding, cooperation,
harmony and teamwork in the workplace. Unfortunately, too often, our attempt at
communication gets lost in translation despite our best intentions. In the process, conflicts
ensue.
Second, motivation is inducing others to act in a desired manner. Since employees are expected
to be competent, committed and are able to distribute, motivational approaches by leaders should
not be taken for granted.
PLANNING, ORGANIZING, LEADING, AND CONTROLLING
The principles of management can be distilled down to four critical functions. These functions
are planning, organizing, leading, and controlling. This P-O-L-C framework provides useful
guidance into what the ideal job of a manager should look like.

A manager’s primary challenge is to solve problems creatively. While drawing from a variety of
academic disciplines, and to help managers respond to the challenge of creative problem solving,
principles of management have long been categorized into the four major functions of planning,
organizing, leading, and controlling (the P-O-L-C framework). The four functions, summarized
in the P-O-L-C figure, are actually highly integrated when carried out in the day-to-day realities
of running an organization. Therefore, you should not get caught up in trying to analyze and
understand a complete, clear rationale for categorizing skills and practices that compose the
whole of the P-O-L-C framework.
It is important to note that this framework is not without criticism. Specifically, these criticisms
stem from the observation that the P-O-L-C functions might be ideal but that they do not
accurately depict the day-to-day actions of actual managers (Mintzberg, 1973; Lamond, 2004).
The typical day in the life of a manager at any level can be fragmented and hectic, with the
constant threat of having priorities dictated by the law of the trivial many and important few (i.e.,
the 80/20 rule). However, the general conclusion seems to be that the P-O-L-C functions of
management still provide a very useful way of classifying the activities managers engage in as
they attempt to achieve organizational goals (Lamond, 2004).
Figure 1.7 The P-O-L-C Framework
PLANNING
Planning is the function of management that involves setting objectives and determining a course
of action for achieving those objectives. Planning requires that managers be aware of
environmental conditions facing their organization and forecast future conditions. It also requires
that managers be good decision makers.
Planning is a process consisting of several steps. The process begins with environmental
scanning which simply means that planners must be aware of the critical contingencies facing
their organization in terms of economic conditions, their competitors, and their customers.
Planners must then attempt to forecast future conditions. These forecasts form the basis for
planning.
Planners must establish objectives, which are statements of what needs to be achieved and when.
Planners must then identify alternative courses of action for achieving objectives. After
evaluating the various alternatives, planners must make decisions about the best courses of action
for achieving objectives. They must then formulate necessary steps and ensure effective

implementation of plans. Finally, planners must constantly evaluate the success of their plans and
take corrective action when necessary.
There are many different types of plans and planning.

1. STRATEGIC PLANNING involves analyzing competitive opportunities and threats, as
well as the strengths and weaknesses of the organization, and then determining how to
position the organization to compete effectively in their environment. Strategic planning
has a long time frame, often three years or more. Strategic planning generally includes
the entire organization and includes formulation of objectives. Strategic planning is often
based on the organization’s mission, which is its fundamental reason for existence. An
organization’s top management most often conducts strategic planning.
2. TACTICAL PLANNING is intermediate-range (one to three years) planning that is
designed to develop relatively concrete and specific means to implement the strategic
plan. Middle-level managers often engage in tactical planning.
3. OPERATIONAL PLANNING generally assumes the existence of organization-wide or
sub-unit goals and objectives and specifies ways to achieve them. Operational planning is
short-range (less than a year) planning that is designed to develop specific action steps
that support the strategic and tactical plans.
ORGANIZING
Creating or enhancing the structure of an organization defines managers’ Organizational Design
task. Organizational design is one of the three tasks that fall into the organizing function in the
planning-organizing-leading-controlling (P-O-L-C) framework. As much as individual- and
team-level factors influence work attitudes and behaviors, the organization’s structure can be an
even more powerful influence over employee actions.
Organizing is the function of management that involves developing an organizational structure

and allocating human resources to ensure the accomplishment of objectives. The structure of the
organization is the framework within which effort is coordinated. The structure is usually
represented by an organization chart, which provides a graphic representation of the chain of
command within an organization. Decisions made about the structure of an organization are
generally referred to as organizational design decisions.
Organizational structure refers to how individual and team work within an organization are
coordinated. To achieve organizational goals and objectives, individual work needs to be
coordinated and managed. Structure is a valuable tool in achieving coordination, as it specifies
reporting relationships (who reports to whom), delineates formal communication channels, and
describes how separate actions of individuals are linked together. Organizations can function
within a number of different structures, each possessing distinct advantages and disadvantages.
Although any structure that is not properly managed will be plagued with issues, some
organizational models are better equipped for particular environments and tasks.
Organizing also involves the design of individual jobs within the organization. Decisions must be
made about the duties and responsibilities of individual jobs, as well as the manner in which the
duties should be carried out. Decisions made about the nature of jobs within the organization are
generally called “job design” decisions.

Organizing at the level of the organization involves deciding how best to departmentalize, or
cluster, jobs into departments to coordinate effort effectively. There are many different ways to
departmentalize, including organizing by function, product, geography, or customer. Many larger
organizations use multiple methods of departmentalization.
Organizing at the level of a particular job involves how best to design individual jobs to most
effectively use human resources. Traditionally, job design was based on principles of division of
labor and specialization, which assumed that the more narrow the job content, the more
proficient the individual performing the job could become. However, experience has shown that
it is possible for jobs to become too narrow and specialized. For example, how would you like to
screw lids on jars one day after another, as you might have done many decades ago if you
worked in company that made and sold jellies and jams? When this happens, negative outcomes
result, including decreased job satisfaction and organizational commitment, increased
absenteeism, and turnover.
Recently, many organizations have attempted to strike a balance between the need for worker
specialization and the need for workers to have jobs that entail variety and autonomy. Many jobs
are now designed based on such principles as empowerment, job enrichment and teamwork.
Organizational change is the movement of an organization from one state of affairs to another.
A change in the environment often requires change within the organization operating within that
environment. Change in almost any aspect of a company’s operation can be met with resistance,
and different cultures can have different reactions to both the change and the means to promote
the change. To better facilitate necessary changes, several steps can be taken that have been
proved to lower the anxiety of employees and ease the transformation process. Often, the simple
act of including employees in the change process can drastically reduce opposition to new
methods. In some organizations, this level of inclusion is not possible, and instead organizations
can recruit a small number of opinion leaders to promote the benefits of coming changes.
ORGANIZATIONAL CULTURES
Organizations, just like individuals, have their own personalities—more typically known as
organizational cultures. Understanding how culture is created, communicated, and changed will
help you to be a more effective manager. But first, let’s define organizational culture.
Organizational Culture refers to a system of shared assumptions, values, and beliefs that show
people what is appropriate and inappropriate behavior (Chatman & Eunyoung, 2003; Kerr &
Slocum, 2005). These values have a strong influence on employee behavior as well as
organizational performance. In fact, the term organizational culture was made popular in the
1980s when Peters and Waterman’s best-selling book In Search of Excellence made the argument
that company success could be attributed to an organizational culture that was decisive,
customer-oriented, empowering, and people-oriented. Since then, organizational culture has
become the subject of numerous research studies, books, and articles. Organizational culture is
still a relatively new concept. In contrast to a topic such as leadership, which has a history
spanning several centuries, organizational culture is a young but fast-growing area within
management.

Culture is largely invisible to individuals just as the sea is invisible to the fish swimming in it.
Even though it affects all employee behaviors, thinking, and behavioral patterns, individuals tend
to become more aware of their organization’s culture when they have the opportunity to compare
it to other organizations. It is related to the second of the three facets that compose the P-O-L-C
function of organizing. The organizing function involves creating and implementing
organizational design decisions. The culture of the organization is closely linked to
organizational design. For instance, a culture that empowers employees to make decisions could
prove extremely resistant to a centralized organizational design, hampering the manager’s ability
to enact such a design. However, a culture that supports the organizational structure (and vice
versa) can be very powerful.
LEADING
Leading involves the social and informal sources of influence that you use to inspire action
taken by others. If managers are effective leaders, their subordinates will be enthusiastic about
exerting effort to attain organizational objectives.
The behavioral sciences have made many contributions to understanding this function of
management. Personality research and studies of job attitudes provide important information as
to how managers can most effectively lead subordinates. For example, this research tells us that
to become effective at leading, managers must first understand their subordinates’ personalities,
values, attitudes, and emotions.
Studies of motivation and motivation theory provide important information about the ways in
which workers can be energized to put forth productive effort. Studies of communication provide
direction as to how managers can effectively and persuasively communicate. Studies of
leadership and leadership style provide information regarding questions, such as, “What makes a
manager a good leader?” and “In what situations are certain leadership styles most appropriate
and effective?”
LEADING PEOPLE AND ORGANIZATIONS

Perhaps this is obvious, but leadership is the first of five facets constituting a manager’s leading
function in the P-O-L-C framework. Leadership may be defined as the act of influencing others
to work toward a goal. Leaders exist at all levels of an organization. Some leaders hold a position
of authority and may use the power that comes from their position, as well as their personal
power, to influence others; they are called formal leaders. In contrast, informal leaders are
without a formal position of authority within the organization but demonstrate leadership by
influencing others through personal forms of power. One caveat is important here: Leaders do
not rely on the use of force to influence people. Instead, people willingly adopt the leader’s goal
as their own goal. If a person is relying on force and punishment, the person is a dictator, not a
leader.
What makes leaders effective? What distinguishes people who are perceived as leaders from
those who are not perceived as leaders? More importantly, how do we train future leaders and
improve their leadership ability? These are important questions that have attracted scholarly
attention in the past several decades. In this chapter, we will review the history of leadership

studies and summarize the major findings relating to these important questions. Around the
world, we view leaders as at least partly responsible for their team’s or company’s success and
failure. Company chief executive officers (CEOs) are paid millions of dollars in salaries and
stock options with the assumption that they hold their company’s future in their hands.
In politics, education, sports, and profit and nonprofit sectors, influence of leaders over the
behaviors of individuals and organizations is rarely questioned. When people and organizations
fail, managers and CEOs are often viewed as responsible. Some people criticize the assumption
that leadership always matters and call this belief “the romance of leadership.” However,
research evidence pointing to the importance of leaders for organizational success is
accumulating (Hogan, et. al., 1994).
SOCIAL NETWORKS can be considered “the invisible organization”—they are the pathways
through which communication and resources flow and how work actually gets done. We include
this chapter on social networks in the organizing section of the book because, like organizational
design, the management of social networks is important in the planning-organizing-leading-
controlling (P-O-L-C) framework. An organization chart might communicate who reports to
whom, but it is ultimately the internal (within organization) and external (ties between members
of the organization and people outside the organization such as suppliers or customers) social
networks that really explain productivity (or impediments to productivity).
WHAT IS DECISION MAKING?
Decision Making refers to making choices among alternative courses of action—which may also
include inaction. While it can be argued that management is decision making, half of the
decisions made by managers within organizations fail (Ireland & Miller, 2004; Nutt, 2002; Nutt,
1999). Therefore, increasing effectiveness in decision making is an important part of maximizing
your effectiveness at work. This chapter will help you understand how to make decisions alone
or in a group while avoiding common decision-making traps.
Individuals throughout organizations use the information they gather to make a wide range of
decisions. These decisions may affect the lives of others and change the course of an
organization.
Each of these people made a decision, and each person, as well as others, is now living with the
consequences of his or her decisions.
Because many decisions involve an ethical component, one of the most important considerations
in management is whether the decisions you are making as an employee or manager are ethical.
Here are some basic questions you can ask yourself to assess the ethics of a decision (Blanchard
& Peale, 1988).
 Is this decision fair?
 Will I feel better or worse about myself after I make this decision?
 Does this decision break any organizational rules?
 Does this decision break any laws?
 How would I feel if this decision was broadcast on the news?

UNDERSTANDING COMMUNICATION
Communication supports each of a manager’s P-O-L-C functions. The ability to effectively
communicate is a necessary condition for successfully planning, organizing, leading, and
controlling.
Communication is vital to organizations—it’s how we coordinate actions and achieve goals. It is

defined in the Merriam-Webster’s dictionary as “a process by which information is exchanged
between individuals through a common system of symbols, signs, or behavior (Merriam-
Webster, 2008).” We know that 50%–90% of a manager’s time is spent communicating
(Schnake, et. al., 1990) and that communication ability is related to a manager’s performance
(Penley, et. al., 1991). In most work environments, a miscommunication is an annoyance—it can
interrupt workflow by causing delays and interpersonal strife. And in some work arenas, like
operating rooms and airplane cockpits, communication can be a matter of life and death.
For leaders and organizations, poor communication costs money and wastes time. One study
found that 14% of each workweek is wasted on poor communication (Armour, 1998). In
contrast, effective communication is an asset for organizations and individuals alike. Effective
communication skills, for example, are an asset for job seekers. A recent study of recruiters at 85
business schools ranked communication and interpersonal skills as the highest skills they were
looking for, with 89% of the recruiters saying they were important (Alsop, 2006).
Good communication can also help a company retain its star employees. Surveys find that when
employees think their organizations do a good job of keeping them informed about matters that
affect them and they have ready access to the information they need to do their jobs, they are
more satisfied with their employers (Mercer, 2003). So, can good communication increase a
company’s market value? The answer seems to be yes. “When you foster ongoing
communications internally, you will have more satisfied employees who will be better equipped
to effectively communicate with your customers,” says Susan Meisinger, President/CEO of the
Society for Human Resource Management, citing research findings that for organizations that are
able to improve their communication integrity, their market value increases by as much as 7.1%
(Meisinger, 2003)
THE COMMUNICATION PROCESS

Communication fulfills three main functions within an organization: (1) transmitting
information, (2) coordinating effort, and (3) sharing emotions and feelings. All these functions
are vital to a successful organization. Transmitting information is vital to an organization’s
ability to function. Coordinating effort within the organization helps people work toward the
same goals. Sharing emotions and feelings bonds teams and unites people in times of celebration
and crisis. Effective communication helps people grasp issues, build rapport with coworkers, and
achieve consensus. So, how can we communicate effectively? The first step is to understand the
communication process.
We all exchange information with others countless times a day, by phone, e-mail, printed word,
and of course, in person. Let’s take a moment to see how a typical communication works using
the Process Model of Communication as a guide.

A Sender, such as a boss, coworker, or customer, originates the Message with a thought. For
example, the boss’s thought could be: “Get more printer toner cartridges!”
The Sender encodes the Message, translating the idea into words.
The boss may communicate this thought by saying, “Hey you guys, we need to order more
printer toner cartridges.”
The medium of this encoded Message may be spoken words, written words, or signs.
The receiver is the person who receives the Message.
The Receiver decodes the Message by assigning meaning to the words.
In this example, our Receiver, Bill, has a to-do list a mile long. “The boss must know how much
work I already have.” the Receiver thinks. Bill’s mind translates his boss’s Message as, “Could
you order some printer toner cartridges, in addition to everything else I asked you to do this
week…if you can find the time?”
The meaning that the Receiver assigns may not be the meaning that the Sender intended because
of such factors as noise. Noise is anything that interferes with or distorts the Message being
transformed. Noise can be external in the environment (such as distractions) or it can be within
the Receiver. For example, the Receiver may be highly nervous and unable to pay attention to the
Message. Noise can even occur within the Sender: the Sender may be unwilling to take the time
to convey an accurate Message or the words she chooses can be ambiguous and prone to
misinterpretation.

Picture the next scene. The place: a staff meeting. The time: a few days later. The boss believes
her Message has been received.
“Are the printer toner cartridges here yet?” she asks.
“You never said it was a rush job!” the Receiver protests.
“But!”
“But!”
Miscommunications like these happen in the workplace every day. We’ve seen that
miscommunication does occur in the workplace. But how does a miscommunication happen? It
helps to think of the communication process. The series of arrows pointing the way from the
Sender to the Receiver and back again can, and often do, fall short of their target.
Communication is vital to organizations. Poor communication is prevalent and can have serious
repercussions. Communication fulfills three functions within organizations: transmitting
information, coordinating, and sharing emotions and feelings. Noise can disrupt or distort
communication.
MANAGING GROUPS AND TEAMS

Groups and teams are ubiquitous on the organizational landscape and managers will find that
team management skills are required within each of the planning-organizing-leading-controlling
(P-O-L-C) functions. For instance, planning may often occur in teams, particularly in less
centralized organizations or toward the higher levels of the firm. When making decisions about
the structure of the firm and individual jobs, managers conducting their organizing function must
determine how teams will be used within the organization. Teams and groups have implications
for the controlling function because teams require different performance assessments and
rewards. Finally, teams and groups are a facet of the leading function. Today’s managers must be
both good team members and good team leaders. Managing groups and teams is a key
component of leadership.
Because many tasks in today’s world have become so complex, groups and teams have become
an essential component of an organization’s success. The success of the group depends on the
successful management of its members and making sure all aspects of work are fair for each
member. Being able to work in a group is a key skill for managers and employees alike.
TYPES OF GROUPS: FORMAL AND INFORMAL

What is a group? A group is a collection of individuals who interact with each other such that
one person’s actions have an impact on the others. In organizations, most work is done within
groups, and managing groups is key to each of the P-O-L-C functions. How groups function has
important implications for organizational productivity. Groups where people get along, feel the
desire to contribute, and are capable of coordinating their efforts may have high performance
levels, whereas those characterized by extreme levels of conflict or hostility may demoralize
members of the workforce.

In organizations, groups can be classified into two basic types: informal and formal. Informal
work groups are made up of two or more individuals who are associated with one another in
ways not prescribed by the formal organization. For example, a few people in the company who
get together to play tennis on the weekend would be considered an informal group. A formal
work group is made up of managers, subordinates, or both with close associations among group
members that influence the behavior of individuals in the group.
DIFFERENCES BETWEEN GROUPS AND TEAMS

Organizations consist of groups of people. What exactly is the difference between a group and a
team? A group is a collection of individuals. Within an organization, groups might consist of
project-related groups such as a product group or division or they can encompass an entire store
or branch of a company. The performance of a group consists of the inputs of the group minus
any process losses such as the quality of a product, ramp-up time to production, or the sales for a
given month. Process loss is any aspect of group interaction that inhibits group functioning.
Why do we say group instead of team? A collection of people is not a team, though they may
learn to function in that way. A team is a particular type of group: a cohesive coalition of people
working together to achieve mutual goals. Being on a team does not equate to a total suppression
of personal agendas, but it does require a commitment to the vision and involves each individual
working toward accomplishing the team’s objective. Teams differ from other types of groups in
that members are focused on a joint goal or product, such as a presentation, discussing a topic,
writing a report, creating a new design or prototype, or winning a team Olympic medal.
Moreover, teams also tend to be defined by their relatively smaller size. For instance, according
to one definition, “A team is a small number of people with complementary skills who are
committed to a common purpose, performance goals, and approach for which they are mutually
accountable (Katzenbach & Smith, 1993).”
MOTIVATION
Motivation is defined as “the intention of achieving a goal, leading to goal-directed behavior
(Columbia Encyclopedia, 2004).” When we refer to someone as being motivated, we mean that
the person is trying hard to accomplish a certain task. Motivation is clearly important for
someone to perform well. However, motivation alone is not sufficient. Ability—having the skills
and knowledge required to perform the job—is also important and is sometimes the key
determinant of effectiveness. Finally, environmental factors—having the resources, information,
and support one needs to perform well—are also critical to determine performance.
What makes employees willing to “go the extra mile” to provide excellent service, market a
company’s products effectively, or achieve the goals set for them? Answering questions like this
is of utmost importance to understand and manage the work behavior of our peers, subordinates,
and even supervisors. As with many questions involving human beings, the answers are anything
but simple. Instead, there are several theories explaining the concept of motivation.

NEED-BASED THEORIES OF MOTIVATION
Need-Based Theories describe motivated behavior as individual efforts to meet needs.
According to this perspective, the manager’s job is to identify what people need and then to
make sure that the work environment becomes a means of satisfying these needs. Maslow’s
Hierarchy categorizes human needs into physiological, safety, social, esteem, and self-
actualization needs. ERG Theory is a modification of Maslow’s hierarchy, where the five needs
are collapsed into three categories (existence, relatedness, and growth). The Two-Factor Theory
differentiates between factors that make people dissatisfied on the job (hygiene factors) and
factors that truly motivate employees. Finally, Acquired-Needs Theory argues that individuals
possess stable and dominant motives to achieve, acquire power, or affiliate with others. Each of
these theories explains characteristics of a work environment that motivate employees.
PROCESS-BASED THEORIES
Process-Based Theories use the mental processes of employees as the key to understanding
employee motivation. According to Equity Theory, employees are demotivated when they view
reward distribution as unfair. In addition to distributive justice, research identified two other
types of fairness (procedural and interactional), which also affect worker reactions and
motivation. According to Expectancy Theory, employees are motivated when they believe that
their effort will lead to high performance (expectancy), that their performance will lead to
outcomes (instrumentality), and that the outcomes following performance are desirable
(valence). Reinforcement Theory argues that behavior is a function of its consequences. By
properly tying rewards to positive behaviors, eliminating rewards following negative behaviors
and punishing negative behaviors, leaders can increase the frequency of desired behaviors. In job
design, there are five components that increase the motivating potential of a job: Skill variety,
task identity, task significance, autonomy, and feedback. These theories are particularly useful in
designing reward systems within a company. Goal-Setting Theory is one of the most influential
theories of motivation. To motivate employees, goals should be SMART (specific, measurable,
achievable, realistic, and timely). Setting goals and objectives is a task managers undertake when
involved in the planning portion of the P-O-L-C function.
CONTROLLING
What Is Organizational Control?
The fourth facet of P-O-L-C, Organizational Control, refers to the process by which an
organization influences its subunits and members to behave in ways that lead to the attainment of
organizational goals and objectives. When properly designed, such controls should lead to better
performance because an organization is able to execute its strategy better (Kuratko, et. al., 2001).
As shown in the the P-O-L-C framework figure, we typically think of or talk about control in a
sequential sense, where controls (systems and processes) are put in place to make sure
everything is on track and stays on track. Controls can be as simple as a checklist, such as that
used by pilots, flight crews, and some doctors (The Health Care Blog, 2008). Increasingly,
however, organizations manage the various levels, types, and forms of control through systems
called Balanced Scorecards.
Controlling involves ensuring that performance does not deviate from standards. Controlling
consists of three steps, which include (1) establishing performance standards, (2) comparing
actual performance against standards, and (3) taking corrective action when necessary.

Performance Standards are often stated in monetary terms such as revenue, costs, or profits but
may also be stated in other terms, such as units produced, number of defective products, or levels
of quality or customer service.
The measurement of performance can be done in several ways, depending on the performance
standards, including financial statements, sales reports, production results, customer satisfaction,
and formal performance appraisals. Managers at all levels engage in the managerial function of
controlling to some degree.
The managerial function of controlling should not be confused with control in the behavioral or
manipulative sense. This function does not imply that managers should attempt to control or to
manipulate the personalities, values, attitudes, or emotions of their subordinates. Instead, this
function of management concerns the manager’s role in taking necessary actions to ensure that
the work-related activities of subordinates are consistent with and contributing toward the
accomplishment of organizational and departmental objectives.
Effective controlling requires the existence of plans, since planning provides the necessary
performance standards or objectives. Controlling also requires a clear understanding of where
responsibility for deviations from standards lies. Two traditional control techniques are budget
and performance audits. An audit involves an examination and verification of records and
supporting documents. A budget audit provides information about where the organization is
with respect to what was planned or budgeted for, whereas a performance audit might try to
determine whether the figures reported are a reflection of actual performance. Although
controlling is often thought of in terms of financial criteria, managers must also control
production and operations processes, procedures for delivery of services, compliance with
company policies, and many other activities within the organization.
Organizational controls can take many forms. Strategic controls help managers know
whether a chosen strategy is working, while operating controls contribute to successful
execution of the current strategy. Within these types of strategy, controls can vary in terms of
proactivity, where feedback controls were the least proactive. Outcome controls are judged by
the result of the organization’s activities, while behavioral controls involve monitoring how the
organization’s members behave on a daily basis. Financial controls are executed by monitoring
costs and expenditure in relation to the organization’s budget, and nonfinancial controls
complement financial controls by monitoring intangibles like customer satisfaction and
employee morale.
STRATEGIC HUMAN RESOURCE MANAGEMENT

You have probably heard the saying, people make the place. In today’s fast-changing
environment, organizations need employees who understand the organization’s strategy and are
empowered to execute it. To achieve this, organizations need to follow a strategic human
resource management (SHRM) approach. SHRM ensures that people are a key factor in a firm’s
competitive advantage. Thus, as summarized in the following figure, SHRM is an integral part
of the control portion of the planning-organizing-leading-controlling (P-O-L-C) framework.

Organizations need human resources (HR) to be a partner in identifying, attracting, and hiring
the type of employees who will be most qualified to help the company achieve its goals. SHRM
requires attracting the right employees to the company, identifying metrics to help employees
stay on target to meet the company’s goals, and rewarding them appropriately for their efforts so
that they stay engaged and motivated. Having all these components in place—designing a high-
performance work system—improves organizational performance and unleashes employee
talent.
The role of HR is changing. Previously considered a support function, HR is now becoming a

strategic partner in helping a company achieve its goals. A strategic approach to HR means going
beyond the administrative tasks like payroll processing. Instead, managers need to think more
broadly and deeply about how employees will contribute to the company’s success.
HR AS A STRATEGIC PARTNER
Strategic Human Resource Management (SHRM) is not just a function of the HR department
—all managers and executives need to be involved because the role of people is so vital to a
company’s competitive advantage (Becker & Huselid, 2006). In addition, organizations that
value their employees are more profitable than those that do not (Huselid, 1995; Pfeffer, 1998;
Pfeffer & Veiga, 1999; Welbourne & Andrews, 1996). Research shows that successful
organizations have several things in common, such as providing employment security, engaging
in selective hiring, using self-managed teams, being decentralized, paying well, training
employees, reducing status differences, and sharing information (Pfeffer & Veiga, 1999). When
organizations enable, develop, and motivate human capital, they improve accounting profits as
well as shareholder value in the process (Brian, et. al., 2002). The most successful organizations
manage HR as a strategic asset and measure HR performance in terms of its strategic impact.
Here are some questions that HR should be prepared to answer in this new world (Ulrich, 1998).
 Competence: To what extent does our company have the required knowledge, skills, and
abilities to implement its strategy?
 Consequence: To what extent does our company have the right measures, rewards, and
incentives in place to align people’s efforts with the company strategy?
 Governance: To what extent does our company have the right structures,
communications systems and policies to create a high-performing organization?
 Learning and Leadership: To what extent can our company respond to uncertainty and
learn and adapt to change quickly?
THE IMPORTANCE OF HUMAN CAPITAL
Employees provide an organization’s human capital. Your human capital is the set of skills that
you have acquired on the job, through training and experience, and which increase your value in
the marketplace. The Society of Human Resource Management’s Research Quarterly defined an
organization’s human capital as follows: “A company’s human capital asset is the collective
sum of the attributes, life experience, knowledge, inventiveness, energy and enthusiasm that its
people choose to invest in their work (Weatherly, 2003).”

FOCUS ON OUTCOMES
Unfortunately, many HR managers are more effective in the technical or operational aspects of
HR than they are in the strategic, even though the strategic aspects have a much larger effect on
the company’s success (Huselid, et. al., 1999). In the past, HR professionals focused on
compliance to rules, such as those set by the federal government, and they tracked simple metrics
like the number of employees hired or the number of hours of training delivered. The new
principles of management, however, require a focus on outcomes and results, not just numbers
and compliance. Just as lawyers count how many cases they’ve won—not just how many words
they used—so, too must HR professionals track how employees are using the skills they’ve
learned to attain goals, not just how many hours they’ve spent in training (Ulrich, 1998).
KEY ELEMENTS OF HR
Beyond the basic need for compliance with HR rules and regulations, the four key elements of
HR are summarized in the following figure. In high-performing companies, each element of the
HR system is designed to reflect best practice and to maximize employee performance. The
different parts of the HR system are strongly aligned with company goals.
SELECTION AND PLACEMENT

When hiring, acquaint prospective new hires with the nature of the jobs they will be expected to
fulfill. This includes explaining the technical competencies needed (for example, collecting
statistical data) and defining behavioral competencies. Behavioral competencies may have a
customer focus, such as the ability to show empathy and support of customers’ feelings and
points of view, or a work management focus, such as the ability to complete tasks efficiently or
to know when to seek guidance.
In addition, make the organization’s culture clear by discussing the values that underpin the
organization—describe your organization’s “heroes.” For example, are the heroes of your
company the people who go the extra mile to get customers to smile? Are they the people who
toil through the night to develop new code? Are they the ones who can network and reach a
company president to make the sale? By sharing such stories of company heroes with your
potential hires, you’ll help reinforce what makes your company unique. This, in turn, will help
the job candidates determine whether they’ll fit into your organization’s culture.
JOB DESIGN
Design jobs that involve doing a whole piece of work and are challenging but doable. Job design
refers to the process of putting together various elements to form a job, bearing in mind
organizational and individual worker requirements, as well as considerations of health, safety,
and ergonomics. Train employees to have the knowledge and skills to perform all parts of their
job and give them the authority and accountability to do so (Lawler, 1992). Job enrichment is
important for retaining your employees.
One company that does training right is Motorola. As a global company, Motorola operates in
many countries, including China. Operating in China presents particular challenges in terms of
finding and hiring skilled employees. In a recent survey conducted by the American Chamber of
Commerce in Shanghai, 37% of U.S.-owned enterprises operating in China said that recruiting
skilled employees was their biggest operational problem (Lane & Pollner, 2008). Indeed, more
companies cited HR as a problem than cited regulatory concerns, bureaucracy, or infringement
on intellectual property rights. The reason is that Chinese universities do not turn out candidates
with the skills that multinational companies need. As a result, Motorola has created its own
training and development programs to bridge the gap.
COMPENSATION AND REWARDS

Evaluate and pay people based on their performance, not simply for showing up on the job. Offer
rewards for skill development and organizational performance, emphasizing teamwork,
collaboration, and responsibility for performance. Help employees identify new skills to develop
so that they can advance and achieve higher pay and rewards. Compensation systems that
include incentives, gainsharing, profit-sharing, and skill-based pay reward employees who learn
new skills and put those skills to work for the organization. Employees who are trained in a
broad range of skills and problem solving are more likely to grow on the job and feel more
satisfaction. Their training enables them to make more valuable contributions to the company,
which, in turn, gains them higher rewards and greater commitment to the company (Barnes,
2001). The company likewise benefits from employees’ increased flexibility, productivity, and
commitment.
When employees have access to information and the authority to act on that information, they’re
more involved in their jobs and more likely to make the right decision and take the necessary
actions to further the organization’s goals. Similarly, rewards need to be linked to performance,
so that employees are naturally inclined to pursue outcomes that will gain them rewards and
further the organization’s success at the same time.
DIVERSITY MANAGEMENT
Another key to successful SHRM in today’s business environment is embracing diversity. In past
decades, “diversity” meant avoiding discrimination against women and minorities in hiring.
Today, diversity goes far beyond this limited definition; diversity management involves actively

appreciating and using the differing perspectives and ideas that individuals bring to the
workplace. Diversity is an invaluable contributor to innovation and problem-solving success.
Human resources management is becoming increasingly important in organizations

because today’s knowledge economy requires employees to contribute ideas and be engaged
in executing the company’s strategy. HR is thus becoming a strategic partner by identifying
the skills that employees need and then providing employees with the training and
structures needed to develop and deploy those competencies. All the elements of HR—
selection, placement, job design, and compensation—need to be aligned with the company’s
strategy so that the right employees are hired for the right jobs and rewarded properly for
their contributions to furthering the company’s goals.
The management functions of planning, organizing, leading, and controlling are widely
considered to be the best means of describing the manager’s job, as well as the best way to
classify accumulated knowledge about the study of management. Although there have been
tremendous changes in the environment faced by managers and the tools used by managers
to perform their roles, managers still perform these essential functions.
WHAT IS STAFFING?
The manager must be concerned with putting the right persons in various positions within his
area of concern. Although some of the important aspects of staffing may be delegated to human
resource department, the manager assumes a great responsibility in assuring that the right
persons are assigned to positions that fit their qualifications.
STAFFING may be defined as a management function that determines human resources needs,
recruits, selects, trains, and develop human resources for jobs created by an organization.
Staffing is undertaken to match people with jobs so that the realization of the organization’s
objective will be facilitated.
WHAT IS A JOB?
JOB may be defined as “collection or aggregation of tasks, duties and responsibilities which as a
whole, are regarded as a regular assignment to individual employees.”
JOB ANALYSIS is the process of studying and collecting information relating to the operations
and responsibilities of a specific job. The immediate products of this analysis are job description
and job specification.
Job analysis involves following steps:

 Collecting and recording job information
 Checking the job information for accuracy
 Writing job description based on information
 Using the information to determine the skill, abilities and knowledge
 Updating the information from time to time

JOB DESCRIPTION - A lists of job’s duties, responsibilities, reporting relationship, working
conditions, and supervisory responsibilities.
JOB SPECIFICATION - A list of job’s “human requirements” that is, the requisite education,
skills, personality and so on.

RECRUITMENT
 It is the process of finding and attracting capable applicants for employment. The process
begins when new recruits are sought and ends when their applications are submitted. The
result is pool of applicants from which new employees are selected.
 The Process of generating a pool of qualified candidates for a particular job.
 The Process of discovering potential candidates.
INITIATING THE RECRUITMENT PROCESS

Prior to initiating a recruitment procedure, the following matters should be considered:
 Clarification of the scope and skill sets required to successfully perform the duties of the
position
 Review of the Job Fact Sheet or Position Description to ensure that the skills and abilities
required coincide with the current expectations of the position. If they do not, then a
position evaluation should be undertaken.
 Review of the compensation available to the position (i.e. salary and benefit plans, etc.)
 Analysis of the impact that the hiring will have on the budget
FACTORS AFFECTING RECRUITMENT

The extent and intensity of recruitment efforts vary from organization to organization. These
efforts will depend on various factors, which are as follows:
 Size of the organization
 Employment conditions in the community where the organization is located.
 The effectiveness of past recruitment efforts.
 Working conditions, salary, and benefit packages offered by the organization
 The growth of the organization.
THE PROCESS OF RECRUITMENT

Recruitment is a process consisting of the following steps:
 Preparation of the HR Plan.
 Keeping contact with recruitment sources inside and outside the organization.
 Manager notifies HR department about a job opening that needs to be filled.
 The recruitment officer and the manager review the job description and job specification
of the job to be filled.
 Internal sources are checked.
 External sources are contacted.
 Candidates are selected.
 Evaluation of the effectiveness of the recruitment efforts.
THE SOURCES OF RECRUITMENT

There are two general sources of recruitment the organization can tap:
The Internal Sources of recruitment include the following:

 Present Employees
 Friends of Employees

 Former Employees
The External Sources of Recruitment consist of the following:
 Advertising –the most popular means used in recruiting.
 Employment Agencies – these are organizations that assist job applicants for jobs abroad
and assisting local employers in the recruitment of personnel.
 Campus Recruiting – the more progressive organizations send representatives to recruit
promising talents inside the school campuses.
 Executive Search Firms – there are firms that specialize in the recruitment of
executives.
 Professional Organizations – usually maintains listings of their members, which can be
useful to the recruiter.
 Walk-in Applicants – when jobseekers casually enter offices to inquire on the
availability of the jobs.
 Electronic Recruiting – using the Internet to recruits qualified applicants.
SELECTION
 Selection is the process of differentiating between applicants in order to identify those
with a greater likelihood of success in a job.
 Selection refers to the process of choosing individuals from a pool of applicants who are
most likely to achieve the goals of the jobs that may be assigned to them.
 The Process of making ”Hire” or “No Hire” decision regarding each applicant for a job.
The selection of a candidate with the right combination of education, work experience, attitude,
and creativity will not only increase the quality and stability of the workforce, it will also play a
large role in bringing management strategies and planning to fruition.
THE SELECTION PROCESS

In selecting job applicants, several steps are involved. The steps are like hurdles making one
step a pre-requisite to another. In each step, a decision is made on whether or not to proceed to
the next step. A typical selection process contains the following steps:
 Initial Screening
 Completion of the application form
 Employment tests
 Comprehensive interview
 Background investigation
 Physical examination
 Final job offer
INITIAL SCREENING
The formal selection process begins with initial screening whereby inquiries about a job are
screened. When confronted with a number of applicants, the following factors may be sufficient
to eliminate some of them.
 Inadequate or inappropriate experience
 Inadequate or inappropriate education
 Low salary offered for the job

 Working conditions
COMPLETION OF THE APPLICATION FORM

Application forms are designed to provide the company with a profile of the job applicant. The
information gathered through the use of the form serve as starting points in the comprehensive
interview that may follow. The form is also a means to verify impressions in the initial
screening.
EMPLOYMENT TESTS
Tests are used to determine the ability of the applicant to perform an assigned job. The type of
test administered depends on the nature of the job vacancy. The various types of tests and their
applications include the following:
1. Aptitude Tests –these are used to measure an applicant’s capacity or potential to learn and
perform a job.
Aptitude Tests may be classified as follows:
A. Verbal Ability Test – this is used in measuring a person’s ability to use words in
thinking, planning and communicating.
B. Numerical Ability Test – this is used in measuring ability to perform the
fundamental mathematical operations.
C. Perceptual Speed Test –this test is used to measure applicant‘s ability to
recognize similarities and differences.
D. Spatial Test –this one is used to measure ability to visualize objects and
determine their relationships.
E. Reasoning Test – this a test used to measure ability to analyze facts and make
correct judgments based on logic.
2. Psychomotor Tests – these tests are used to measure an applicant’s strength, finger
dexterity, manual dexterity, wrist-finger speed and speed of arm movement.
3. Job Knowledge Tests – these are used to measure the knowledge of the applicant
regarding the job.
4. Proficiency Tests – these are used to measure how well an applicant performs a portion
(or sample) of the job.
5. Interest Tests – when properly administered, interest tests will show how interested an
applicant is to the job.
6. Personality Tests –the purposed of these tests are to determine if the personality
characteristics of the applicant fit well to the proposed job.
COMPREHENSIVE INTERVIEW
After passing the employment tests, the applicant will be subjected to comprehensive interview.
The applicant will be interviewed by any or all of the ff: Senior Managers, HRM interviewers,
and potential supervisors. Oftentimes, the interviewers sit as a panel. The usual points of inquiry
delve on areas not presented fully in completed application forms and test. Interviews may be
structured, when all questions are planned in advance and are asked of each candidate in the
same order. It may be semi-structures where the interviewers do some planning but also allows
flexibility in asking questions. There are also unstructured interviews where questions are asked
impromptu.

BACKGROUND INVESTIGATION
After passing the comprehensive interview, the applicant is subjected to background
investigation. To further ascertain the potentials of the applicant, personal references may be
contacted. The checking of credit references and criminal records are in some cases, a basic
requirement. Most often, the applicant is required to submit clearances issued by the police, the
NBI, and the court.
PHYSICAL EXAMINATION
The last step undertaken before the job offer is the physical examination. Jobs require certain
levels of physical condition of the applicants. The level varies from job to job.
THE JOB OFFER

After the selected applicants have successfully passed the preceding steps, the manager who
requisitioned the personnel must make a decision. Informing the applicant about the job offer
however rests with the HR department. At this late stage, there is a possibility that any or all of
the selected applicants may reject the job offer. If this happens, it may be an indication that there
was a failure in the selection process. If the job offers are taken, on the other hand, the hiring
papers are processed.

SELECTING MANAGERS
Assessment centers and panel interview are two of the usual means of selecting managers.
ASSESSMENT CENTERS
An assessment center is a process in which multiple raters evaluate applicants or job incumbents
on their managerial potential. The center employs multiple selection method using activities
such as role-playing, pencil and paper tests, cases, leaderless group discussions, management
games, in-basket exercises and peer evaluations.
PANEL INTERVIEW
An interview undertaken by a panel is an alternative to assessment centers. The panel’s objective
is to produce a description of the past behavior of the candidates in situations that are similar to
the proposed management positions. The panel for the purpose of collecting information, which
may be used in evaluating management potential, may also do the checking of references.
Proper recruitment and selection are important to the overall success of HRM. Many of the
possible problems regarding manpower may be avoided if these twin tasks are performed
effectively. It is important that a sufficient number of recruits be gathered so that selection can
be effectively exercised.
ORIENTATION AND TRAINING
When the hiring process is through, the new recruits will have to undergo orientation and most
probably training. Orientation is a requirement before the recruit starts working. Depending on
circumstances, training may follow immediately or at a later date. The importance of orientation
and training is something that must be fully appreciated by management, including HRM and the
rank-and-file. The ways in which orientation and training will facilitate the achievement of
HRM must also be understood.
WHAT IS ORIENTATION?
Writers in various ways have described orientation. It may be defined, however as a set of
activities, such as familiarizing new employees with company rules, policies and procedures,
with the view of making the employee well-adapted to the work environment.
PURPOSES OF ORIENTATION
When effectively executed, orientation serves various purposes these are as follows:
1. It creates an initial favorable impression. – A new employee who has a good
impression of the company and the work environment especially on the first day of
employment will find adjustment easier.
2. It enhances interpersonal acceptance – Orientation helps the new employee in meeting
the expectations of the company and his work group.
3. It helps the new recruit adjust himself to the job. – Effective orientation creates a
sense of security, belongingness and confidence to the new recruit.

WHO IS RESPONSIBLE FOR ORIENTATION
At least three people must be responsible for orienting new recruits. They are the following:
1. The Chief Executive Officer
2. The Head of the HR Department
3. The supervisor of the new employee
LEVELS OF ORIENTATION
Orienting new employees may be classified into two levels:

1. Organizational Orientation – topics of relevance and interest to all employees are
presented.
2. Departmental and Job Orientation – topics concerning the specific department and the
job are presented.
HOW ORIENTATION PROGRAMS ARE PRESENTED
Orientation programs are aimed at providing relevant information to the new employees. These
are achieved through the use of various means such as:
1. Classes
2. Meetings
3. Tour of the company offices and plants
4. Films
5. Employee Handbook
6. Information Leaflets
7. Slides
8. Charts
WHAT IS TRAINING
Training is an attempt to improve the employee’s ability to perform his job. The supervisor and
the personnel manager or the training directors are the persons responsible for training.
Training is undertaken to make employees efficient and effective. To determine whether training
is necessary or not, needs assessment is undertaken.
Training is not an end in itself but rather a means to an end. Needs assessment is a process
designed to determine whether training is necessary or not. There are various methods of
identifying training needs are as follows:
1. Performance Reviews or Appraisal
2. Development Centers
3. Human Resource Audit
4. Interviews
5. Questionnaires
6. Observation
7. Review of Organization or Business Plan
8. Deck Research

9. Group Discussion
10. Job Analysis and Evaluation
THEORIES OF LEARNING
As training is a learning process, it is important for one involved on it to be familiar with some of
the basic theories of learning. Two important theories of learning worth knowing are: Operant
Conditioning and Social Learning.
1. Operant Conditioning – is a type of conditioning in which desired voluntary behavior

leads to a reward or prevents punishment.
2. Social Learning – also known as Observational Learning and Modeling refers to

learning new behavior by watching and imitating the behavior of others in a social
situation.
TRAINING METHODS
Training methods may be classified into various types. They are as follows:
1. On-the-job Training – is a method that places the trainee in the actual work situation
where he is shown how to perform the job and is allowed to do it but under the
supervision of the trainer.
2. Apprenticeship – to qualify for any of the highly skilled occupations, trainees are
required to undergo apprenticeship for extended periods of time. They are subjected to a
comprehensive exposure to the practical and theoretical aspects of their chosen jobs. The
practical aspects are learned on-the-job, while a trained instructor in a classroom setting
provides the theoretical aspects.
3. Off-the-Job Training – is training made outside of the actual workplace. They consist
of classroom instruction, film and videos, demonstrations, case studies, simulation, role-
playing, programmed learning, management games and distance learning.
a. Classroom Instruction – in this method, a trainer is assigned to provide lectures
to a group of trainees.
b. Films and Videos – there are various audio-visual means that can be used for
training. Films and videos and slides with pre-recorded contents of various topics
have become common training tools. Many of them are produced by independent
companies and are offered for sale in the market.
c. Demonstrations - under this method, the trainees are allowed to observe an
actual activity performed by the trainer. This method is a reliable way of relating
theory to practice.
d. Case Studies – this method makes use of cases that the trainer requires the
trainees to read and analyze. The case method is an expensive way of training
employees, especially managers, in decision-making.
e. Simulation – is a duplicate of the actual work situation where the trainee is
allowed to see the result of his decision.
f. Role-playing – in this training method, the trainee is required to assume a role
and to act out the scenario presented.

g. Programmed Learning - this method presents condensed information which are
highly organized and in logical sequence. After a certain amount of information
is provided, the trainee is asked to make decision or answer questions.
h. Management Games – these are either board games or computer simulation
exercises, which are primarily used for training managers. Under this method,
trainees must gather information, analyze it and make decisions. Management
games are highly competitive.
i. Distance Learning – through the telephone, distance learning can now be made
by way of audio-conferencing, video-conferencing and docu-conferencing.
Through this method, companies can now provide information about new
products, policies or procedures and also provide skills training and expert
lectures.
EVALUATING TRAINING PROGRAMS

Training programs may be evaluated by knowing what outcomes are expected and what ways
may be devised to measure them. What these outcomes are and what are measured are listed as
follows:
1. Cognitive Outcomes – these are used to determine the degree of familiarity of the
trainees with principles, facts, techniques, procedures and processes that were discussed
in the training program. To measure cognitive outcomes, pencil and paper tests are
commonly used.
2. Skill-based Outcomes – these are used to assess the level of technical or motor skills and
behavior of the trainees.
3. Affective Outcomes – these are used to measure attitudes and motivation of trainees.
4. Result Outcomes – These are used to determine the benefits afforded by the training
program to the company. The benefits may be expressed in terms of reduced employee
turnover, absences and accidents, increased sales improved collection of receivables etc.
EMPLOYEE DEVELOPMENT AND CAREER MANAGEMENT

Organizations that are able to maintain their employees especially those with high potential are
assured of stability. This is made possible through employee development and career
management.
Employment Development also referred to as Human Resource Development, may be defined

as an activity that focuses on increasing the capabilities of employees for continuing growth and
advancement in the organization. Employee Development is future-oriented and more concerned
with educating the employee by providing him with analytical, human and conceptual skills.
Employee Development- is an attempt to provide the employee with the ability:

1. To understand cause – and – effect relationships
2. To synthesize from experience
3. To visualize relationships and
4. To think logically
METHODS OF EMPLOYEE DEVELOPMENT FALL UNDER TWO GENERAL

CATEGORIES:

1. ON-THE-JOB-METHODS - consists of the job rotation, assistant to positions
mentoring, special projects and committee assignments.
 Job Rotation - this refers to the process of moving an employee from one
position to another on a systematic basis to broaden his knowledge and
experience.
 Assistant–to Position - some positions directly assisting managers may be
created to develop promising managers.
 Mentoring - the mentor assumes the roles of coach counselor and sponsors. As
coach the mentor helps to develop the protégée’s skills.
 Special Projects – a manager may be asked to undertake special projects so he
may further develop his managerial skills. Special projects have the additional
advantage of being used in a wide variety of concerns such as determining
customer response to a new product offering reducing absenteeism devising a new
set-up for a certain department and others.
 Committee Assignments - committees are formed to address special concerns of
organizations like exchange of information, coordination of activities, generation
of development of new procedures, or solution of specific problems.
2. OFF-THE-JOB METHODS - consist of formal education and outdoor training.

 Formal Education - this method uses formal education programs to develop
employees. They may either be offsite or onsite, or consist of the following:
 Those especially designed for the organization’s employees
 Short courses offered by consultants and universities; and
 M.B.A. and other programs offered by universities.
 Outdoor Training - under this scheme, the trainees are subjected to a challenging
physically and emotional exercise outdoors, usually in a jungle setting.
REQUISITES FOR SUCCESSFUL EMPLOYEE DEVELOPMENT
To make employee development efforts successful the following conditions are required:
1. Top management support and
2. Understanding of development interrelationships
THE INTERRELATIONSHIPS BETWEEN DEVELOPMENT AND OTHER

ACTIVITIES
Changes in the organization’s environment are inevitable and the organization cannot remain
very long in any particular form. Organization must adapt to its environment on a continuing
basis. To do otherwise is catastrophic. When undertaken in conjunction with employee
development, organization development can lead the way to the achievement of the
organization’s objective.
ORGANIZATIONAL DEVELOPMENT (OD) May be defined as that part of HRM that deals
with facilitating system wide change in the organization. It is often construed, however, as
managing changes in the organizational cultures.

PERFORMANCE APPRAISAL
DEFINITION: PERFORMANCE APPRAISAL is defined as a systematic process, in which

the personality and performance of an employee is assessed by the supervisor or manager,
against predefined standards, such as knowledge of the job, quality and quantity of output,
leadership abilities, attitude towards work, attendance, cooperation, judgment, versatility, health,
initiative and so forth.
It is also known as performance rating, performance evaluation, employee assessment,

performance review, merit rating, etc.
Performance Appraisal is carried out to identify the abilities and competencies of an employee
for future growth and development. It is aimed at ascertaining the worth of the employee to the
organization, in which he/she works.
RELATIONSHIP OF PERFORMANCE APPRAISAL AND JOB ANALYSIS
Performance Appraisal relates to job analysis, in the sense that job analysis establishes job
requirement, which converts the analysis into standard, on which performance is judged, and
results in defining the basis for performance appraisal.
OBJECTIVES OF PERFORMANCE APPRAISAL

 To promote the employees, on the basis of performance and competence.
 To identify the requirement for training and development of employees.
 To provide confirmation to those employees who are hired as probationary employees,
upon completion of the term.
 To take a decision regarding the hike in employees pay, incentives etc.
 To facilitate communication between superior and subordinate.
 To help employees in understanding where they stand in terms of performance.

Data obtained from the appraisal of performance, are documented and used for different
organizational purposes.
PERFORMANCE APPRAISAL PROCESS
The figure shown above is a standard performance appraisal process that takes place in an
organization, wherein each step is important and arranged in a systematic manner. The process is
conducted periodically, usually twice a year, i.e. semi-annually and annually called as mid-term
review and annual review respectively.
METHOD OF PERFORMANCE APPRAISAL

In the process of designing performance appraisal process, it is important to identify the best
method for assessment. There are a number of methods introduced to gauge the quantity and

quality of work performed by an individual. These methods are broadly classified into two
categories:
1. Past-oriented Methods (Also known as Traditional Methods of Performance Appraisal)
2. Future Oriented Methods (Also known as Modern Methods of Performance Appraisal)
PAST-ORIENTED METHODS (ALSO KNOWN AS TRADITIONAL METHODS OF

PERFORMANCE APPRAISAL)
1. Rating Scales: The numerical scale is prepared that represents the job evaluation
criterion such as the output, initiative, attendance, attitude, dependability, etc. and ranges
from excellent to poor. Thus, each employee is given the rating based on his performance
against each set criteria and then the consolidated score is computed accordingly. The
rating scales are one of the easiest traditional methods of performance appraisal and can
be applied to any job.
2. Checklist: A checklist of employee traits in the form of statement is prepared where the
rater put a tick mark in “Yes” or “No” column against the trait checked for each
employee.Once the checklist gets completed the rater forwards the list to the HR
department for the final evaluation of the employee.
3. Forced Choice Method: Under this method, the rater is forced to answer the ready-made
statements as given in the blocks of two or more, about the employees in terms of true or
false.Once he is done with the list, it is forwarded to the HR department for the final
assessment of the employee.
4. Forced Distribution Method: This method of performance appraisal is based on the

assumption that employee’s job performance conforms to the normal distribution curve
i.e. a bell shaped curve.Hence, the rater is compelled to put employees on each point on
the scale. It is seen that cluster of employees is placed at the highest point on a rating
scale.
5. Critical Incidents Method: Under this method, the critical behavior of each employee
that make a difference in the effective or non-effective performance is recorded by the
supervisor and is taken into consideration while evaluating his performance.
6. Behaviorally Anchored Rating Scale: The descriptive statements about employees’

behavior, both effective and ineffective are put on the scale points, and the rater is asked
to indicate which behavioral point describes the employee behavior the best.
7. Field Review Method: Under this method, the performance evaluation of an employee is
done by someone who does not belong to his department or is usually from the corporate
office or the HR department.The outsider reviews the performance of an employee
through his records and holds interviews with the assessee and his superiors.

8. Performance Tests and Observations: The test either written or oral is conducted to test
the knowledge and the skills of employees. Sometimes the employee is asked to
demonstrate his skills in the given situation and then he is evaluated on that basis.
9. Confidential Reports: The confidential reports are mostly prepared by the government
departments, wherein the employee is evaluated on some of the following parameters:
 Attendance
 Leadership
 Self-expression
 Ability to work with others
 Initiative
 Technical ability
 Integrity
 Responsibility, etc.
10. Essay Method: Under this method, the detailed description of the employee performance
is written by the rater. The performance of an employee, his relations with other Co-
workers, requirements of training and development programs, strengths and weaknesses
of the employee, etc. are some of the points that are included in the essay.The efficiency
of this traditional method of performance appraisal depends on the writing skills of the
rater.
11. Cost Accounting Method: In this method, the employee’s performance is evaluated in
monetary terms, i.e. how much cost company is incurring on keeping the employee and
how much he is contributing to the firm in terms of his output.
12. Comparative Evaluation Approaches: Under this method, several comparative analysis
are done, wherein the performance of one employee is compared with that of another Co-
worker, and the rating is determined accordingly.The Ranking Method and the Paired
Comparison Method are the usual comparative forms used in this approach.
 Ranking Method: In the Ranking Method, superiors give the rank from best to
worst, to their subordinates on the basis of their merits. Here, the detailed
description of why best or why the worst is not given.
 Paired Comparison Method: Under this method, the performance of each
employee is compared with the other employee and then the decision on whose
performance is better is made.
FUTURE ORIENTED METHODS (ALSO KNOWN AS MODERN METHODS OF

PERFORMANCE APPRAISAL)
1. Management by Objectives: This concept was given by Peter.F.Drucker, according to

him, the performance of an employee can be assessed on the basis of the targets achieved
by him as set by the management of an organization. Firstly, the management sets the
goals and communicate the same to the employees, and then the performance of an
employee is compared against these set goals and is evaluated on this basis.

In case the employee is not able to achieve the pre-established goals, then management
decides on a new strategy or policy that should be undertaken for the accomplishment of
unattainable goals.
2. Psychological Appraisals: This is one of the most frequently used modern methods of
performance appraisal, wherein the psychologist assesses the employee’s potential for the
future performance rather than the past one. Under this method, the psychologist
conducts the in-depth interviews, psychological tests, discussions with the supervisors
and the reviews of other evaluations.
This assessment is done to determine the intellectual, emotional, motivational and other
related characteristics of an employee that is necessary to predict his potential for the
future performance.
3. Assessment Centres: The assessment center is the central location where the managers
come and perform the job exercises. Here the assessee is requested to participate in in-
basket exercises, role playing, discussions, computer simulations, etc. Where they are
evaluated in term of their persuasive ability, communication skills, confidence, sensitivity
to the feelings of others, mental alertness, administrative ability, etc.
This entire exercise is done under the trainer who observes the employee behavior and
then discusses it with the rater who finally evaluates the employee’s performance.
4. 360-Degree Feedback: It is a feedback method wherein the details of an employee’s

performance is gathered from other stakeholders such as superiors, peers, team members
and self. In this method, the employee is asked about himself, i.e. what he feels about his
performance, and then accordingly he can realize his strengths and weaknesses.
Also, the peers or team members are asked about assessee’s performance through which
the employee knows about what others feel about him and can overcome his disbeliefs if
any. Thus, this method is used to have a detailed evaluation of an employee from all the
perspectives.
5. 720-Degree Feedback: This is an another feedback method, wherein the assessment is

done not only by the stakeholders within the company but also from the groups outside
the organization. These external groups who assesses the employee’s performance are
customers, investors, suppliers and other financial institutions.
It is one of the most crucial modern methods of performance appraisal because this is the
only group that determines the success of the organization as a whole.
Nowadays, companies use the modern methods of performance appraisal which have a broader
scope than the traditional methods and provides a more accurate and comprehensive evaluation
of an individual.
Thus, the performance of an individual can be evaluated using either of the methods that best
measures the behavior of an employee and gives the exact evaluation of worker’s doings.
Performance Appraisal is a part of performance management. It helps in gaining the competitive

edge, by improving the performance level of the employees working in the organization, making

rational decisions regarding hike in salaries, promotions, transfers, discharge of the employees,
reducing job dissatisfaction and employee turnover.
COMPENSATING EMPLOYEES
Compensation is the most important factor in motivating employees. It is what employees
receive in exchange for their work. Compensation may also be viewed as a function of personnel
management, which makes sure that adequate and equitable remuneration is given to personnel
for their contribution to organizational objectives.
WHAT IS COMPENSATION?
COMPENSATION is an important aspect of HRM. As such, it becomes necessary to define it

as well as other terms related to it.
COMPENSATION is what employees receive in exchange for their work. Compensation may
be defined in another light, as a function of personnel management. In this case, compensation
refers to the function of providing adequate and equitable remuneration of personnel for their
contribution to organization objectives.
COMPENSATION ADMINISTRATION, a term related to compensation refers to the process

of managing a company’s compensation program.
STRATEGIC COMPENSATION is a pattern of planned compensation programs intended to

enable an organization to achieve its goals.
PAY FOR PERFORMANCE is a system that rewards employees based on their performance.
OBJECTIVES OF COMPENSATION
Maintaining an effective compensation program requires the achievement of certain objectives
like the following:
1. It must attract and maintain employees of the right quality and mix
2. It must continually motivate employees to attain the desired level of output.
3. It must be maintained at the desired competitive level.
4. It must be fair and equitable.
5. It must be cost efficient, i.e. producing the desired outputs at the lowest possible costs.
6. It must comply with legal requirements
7. It must be acceptable to the employees.
8. It must support the organization’s corporate strategy.
THE BASES FOR COMPENSATION

Compensation may be based on any of the following:
1. Time
2. Productivity, or
3. A combination of time and productively.
TYPES OF COMPENSATION

Reward that are used to compensate employees for the efforts may be classified into three types.
They are pay, incentive, and benefits.
 Pay, also known as base salary, refers to standard you salary that an employee receives
for doing a job. Every regular employee in an organization is assured of this form of
compensation.
 Incentives are rewards given to employees for performing beyond the standard
requirements. This is normally given apart from the base salary. It is expected that only a
portion of the total Number of employees will be entitled to this form of compensation.
 Benefits are rewards given to employee for maintaining membership in the organization.
DETERMINING REWARDS
The rate of employee compensation is influenced directly or indirectly by a combination of
internal and external factors.
THE EXTERNAL FACTORS

The External factors that may affect the determination of rewards consist of labor market
conditions, area wage rates, cost of living, and collective bargaining.
 Labor Market Condition
The price of any commodity including labor depends much on supply and demand. When
there is an oversupply of labor, wage rates tend to be lower. Supply however cannot be
referred to labor in general because not all segments of the labor force are in the same
supply situation.
 Area Wage Rates
Organization within a given area compete with one another in attracting qualified
manpower. This forces employers to adapt wage rates that are competitive. When
employers’ pay too high compared with others within the area, their labor cost will be
excessive and they may lose to competitors in keeping the prices of their products or
services competitive.
 Cost of Living
Inflation erodes the purchasing power of employees. To help them, there is a need to
make periodic adjustments in the compensation they receive. Employers in developed
countries are more inclined to this because of updated legislation as well as pressure from
well-established unions. In implementing adjustments to compensation, the Consumer
Price Index (CPI) has become an important reference. Condition in the Philippines
however, make such moves difficult to adapt. For one reason or another, many employers
would only make adjustments if forced to do so by extreme pressure. The exceptions are
the progressive companies, which make the necessary adjustments from to time to time
 Collective Bargaining
When labor unions exist, collective bargaining becomes a routine activity jointly
undertaken by labor and management. There are various issues dealt with in a collective
bargaining and compensation constitutes a major concern.
THE INTERNAL FACTORS

There are also internal factors that affect compensation rates. They are refer to: employer’s
compensation policy, worth of a job, employee’s relative worth and employer’s ability to pay.
 Employers, Compensation Policy

Organizations differ in terms of compensation policy. Some want to maintain leadership
position in terms of compensation policy. Companies that are concerned with maintaining
low price of their products or service will have to adapt lower wages rates. This is not the
case when the selling price of the company’s products or services is not the primary tool
of competition.
 Worth of a Job
One factor, which may be considered in determining rewards, is the value or worth of
specific jobs. Some jobs may be more important than others or some may be more
difficult than others. To determine the values of the various jobs, an activity called job
evaluation is undertaken. When the hierarchy of jobs is established, it becomes easier to
assign corresponding rewards for each job.
 Employee’s Relative Worth
When employees are paid according to the worth of jobs, they are holding, it is presumed
that those with similar jobs, the same level of performance. This is difficult to attain,
however, because persons differ from one another and as result, their performances will
also be different. Since performance makes organization effective, it may be used as a
basis for rewarding employees. This means better performers must be rewarded properly.
If this is adapted, it can be made effective it an effective performance evaluation system
is installed.
 Employers Ability to Pay
Even if employers want to provide higher levels of compensation to employers, some of
them cannot afford it. The affordability factor, however, is dependent on the funds
allotted by the employer for operation expenses which include those concerning
compensation.
COMPONENTS OF A COMPENSATION PROGRAM

The various objectives of compensation can be achieved if a systematic compensation program is
installed. This program consists of the following components:
1. Job Analysis which will specify skills, responsibilities, hazard and work complexity
pertaining to each job.
2. Job Evaluation which determines the worth of each job to the organization.
3. Salary Survey which is used to determine the competitive position of the organization
within the industry in terms of compensation.
4. Performance Evaluation which is used to determine the performance level of every
employee.
5. Pay For Performance which indicates the relationship between performance and
increases in pay as well as the desired behaviour of the employee.
JOB EVALUATION SYSTEMS
One of the factors considered in determining the level of rewards for each job is the relative
worth of such jobs in the organization. The worth of each job may be determined through job
evaluation. As such, job evaluation may be defined as the process of determining the relative
worth jobs in an organization
Job evaluation system consists of four distinctive types:

1. Ranking Method
2. Classification Method
3. Factor Comparison Method
4. Point Method
THE RANKING METHOD

The ranking method of evaluation jobs involves the arrangement of jobs in a simple rank order
from highest to lowest. The most improtant job is ranked highest and the least important, the
lowest. The jobs are not broken down into sub-components nullifying the application of
weighted criteria for the various components.
The ranking method is simple and can be made within a short period. This method is ideal for
small organization. This is not applicable in large organization, however, where a large number
of different jobs exist. Under the set-up of the large organization, the evaluators will find it
difficult to make fair assessments of the relative worth of each job.
THE CLASSIFICATION METHOD

The classification method is a type of job evaluation where the various jobs are categorized
under various classes or grades. A particular grade is assigned a certain degree of knowledge,
training, or the type of decision-making exercised by a jobholder.
THE FACTOR COMPARISON METHOD

The factor comparison method compares all the jobs on a factor-to-factor basis. Instead of
ranking jobs as a whole, they are ranked one factor at a time. As a result, the jobs are compared
and ranked as many times as there are factors to be considered. Point values are assigned to each
factor ranking made. The sum of all the points pertaining to the jobs is determined and the
overall ranks of all the jobs are established. This makes the computation of total compensation
for a given period easier.
THE POINT METHOD

The point method is a type of job evaluation where jobs are broken down into characteristics or
factors like skill, responsibility, complexity and decision making. In turn, the factors are also
broken down into sub-factors and expressed in degrees or levels.
THE COMPENSATION STRUCTURE

The main purpose of any job evaluation system is to established compensation structure.
Whatever is the outcome of the job evaluation, whether the worth of the jobs are stated in ranks,
classes, points or monetary values, there is a need to express them in terms of hourly, daily,
weekly, monthly or annual compensation for each job.
The compensation structure is set after certain decisions in compensation are made. These
decisions may be classified as follows:
1. Pay Level Decision – which concerns the level at which the organization wants to
compete in the labor market.
2. Pay-Structure Decision – which concerns setting a value for each job within the
organization to all other jobs.

3. Individual Pay Decision – which concerns the pay of employees working on the same
job within the organization.
PAY SURVEY
In making decision regarding compensation, pay surveys are used as tools. The pay survey, also
referred to as compensation survey, is a means used to gather information on compensation
paid on various jobs within an area or industry.
SAFETY AND HEALTH

Employee who are healthy and who feel safe in the place where they work may be expected to
perform well. As such, maintaining the overall well being of the individual employee is an
important activity of the organization.
HEALTH- refers to that condition which indicates that a person is free of illness, injury or
mental and emotional problems that impair normal human activity.
SAFETY- defined as freedom from danger or risk. Excluded in this definition is the concern
about the mental and emotional well-being of the employee.
CAUSES OF ACCIDENTS AND ILLNESSES IN THE WORKPLACE

1. Tasks
2. Working Condition
3. Nature of the Employees
WORKING CONDITION- refers to the environment where the workers perform their job.
PREVENTING ACCIDENTS
Accidents may be prevented with the adaptation of certain strategies that includes the ff.
1. Employee Selection
2. Employee Training
3. Safety Incentive Program
4. Safety Adults
5. Accidents Investigation
6. Safety Committees

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ABM ORGANIZATION AND MANAGEMENT READING MATERIALS

 Management is the coordination of all resources through the process of planning,

 Management is principally the task of planning, coordinating, motivating and controlling

 Management is the creation and maintenance of an internal environment in an enterprise

 To manage is to forecast and to plan, to organize to command, to coordinate and to

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 1

 Management is a distinct process consisting of planning, organizing, actuating and

 Management is a multi-purpose organ that manages a business and manages Managers

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 2

NATURE AND CHARACTERISTICS OF MANAGEMENT

 Management is universal: Management is an essential element of every organised

 Management is an Integrative Force: The essence of management lies in the

 Management is a Social Process: Management is done by people, through people and

 Management is multidisciplinary: Management has to deal with human behaviour

 Management is a continuous Process: Management is a dynamic and an on-going

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 3

The objectives of management are narrated as under.

ROLE AND IMPORTANCE OF MANAGEMENT

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 4

 Minimisation of cost: In the modern era of cut-throat competition no business can

 Survival and growth: Modern business operates in a rapidly changing environment. An

 Generation of employment: By setting up and expanding business enterprises, managers

 Development of the nation: Efficient management is equally important at the national

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 5

HENRI FAYOLS 14 PRINCIPLES OF MANAGEMENT

THE MANAGER’S JOB

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 6

THE MANAGEMENT PROCESS

4 Gems of Management refers to Goal, Execution, Measurement and Sustenance, all of

The GEMS Management Wheel

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 7

ROLE AND RESPONSIBILITIES OF A MANAGER

DIFFERENCE BETWEEN HARD SKILLS AND SOFT SKILLS

Here are the three differences between the two skills:

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 8

DEFINITION OF JOB COMPETENCY

Job Competency – is defined as the ability of an individual to do a job properly. A competency

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 9

The General External Business Environment Includes: • Economic • Socio-cultural • Politico-

The Specific External Business Environment Includes: • Stakeholders • Customers • Pressure

COMPONENTS OF ENVIRONMENTAL SCANNING

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 10

TYPES OF BUSINESS ORGANIZATION

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 11

THE LOCAL BUSINESS ENVIRONMENT

THE INTERNATIONAL BUSINESS ENVIRONMENT

THE ROLE OF BUSINESS IN RELATION TO THE ECONOMY

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 12

5 PHASES OF ECONOMIC DEVELOPMENT

SCANNING THE ENVIRONMENT: PESTEL ANALYSIS

A PESTEL analysis or PESTLE analysis (formerly known as PEST analysis) is a framework

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 13

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 14

ADVANTAGES OF A PESTEL ANALYSIS

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 15

DISADVANTAGES OF A PESTEL ANALYSIS

FORMS OF BUSINESS ORGANIZATIONS

MAJOR FORMS OF BUSINESS ORGANIZATION

ORGANIZATION AND MANAGEMENT READING MATERIALS Page 16

MAJOR FORMS OF BUSINESS ORGANIZATION:

POSITIVE AND NEGATIVE FEATURES

THE MINOR FORMS OF BUSINESS ORGANIZATION