PRINCIPLES OF MANAGEMENT

Dr.D.Vetrivelan, MBA/AP
INTRODUCTION TO MANAGEMENT
AND ORGANIZATIONS

Definition of Management – Science or Art – Manager Vs

Entrepreneur - types of managers - managerial roles and skills –
Evolution of Management – Scientific, human relations , system and
contingency approaches – Types of Business organization - Sole
proprietorship, partnership, company-public and private sector
enterprises - Organization culture and Environment – Current trends
and issues in Management.
 Definition of Management
Meaning :
• Managers Carty out the managerial functions of planning, organizing,
staffing, leading and controlling.
• Managers carry out their managerial function
• Applies to any kind of Organisation
• Applies to managers at all Organisational levels
• Aim is to create a surplus (profit)
• Concerned with productivity, implies effectiveness and efficiency
• Mgt of 4 M’s in the Orgn – Men, Machine, Materials & money
• Koontz and Weihrich Define as “Management is the process of designing
and maintaining an environment in which individuals, working together
in groups efficiently to accomplish selected aims”.
 THE FUNCTIONS OF MANAGEMENT

Managers

Planning Organizing Staffing Directing Controlling

activities to resources and the employees’ the
achieve the activities to organization activities organization’s
organization's achieve the with qualified toward activities
objectives organization’s people achievement to keep it
objectives of objectives on course
NATURE OF MANAGEMENT

 Management is multidisciplinary in nature

 Continuous process
 Universal activity
 Mgt is a science as well as an art
 Dynamic and not static
 Mgt is profession
 Mgt is a group activity
 Mgt aims at obtaining wealthy results
 Mgt is intangible
 Mgt implies good leadership
SCOPE OF MANAGEMENT

(i) Functional areas of management

(ii) Subject-matter of management
(iii) Management is an inter-disciplinary approach
(iv) Principles of management
(v) Management is an agent of change
(vi) The essentials of management
Management as an Art
According to Mary Parker Follett,
Harold Koontz and several others
management authors called
management “An Art of getting
things done through people”.
Management is an art due to the following reasons:
 Intelligence
 Initiative
 Innovative
 Management
Science is a systematicas a Science
body of knowledge which is universally accepted.
F. W. Taylor father of scientific management was perhaps the first person to
consider management as a science.
Sciences can be broadly divided into two groups:
• Physical Sciences
• Social Sciences

Management is a social science because it deals with human beings.

 Management
as an Art vs. as a Science
 CONCLUSIONS
From the study above, we say that:
management is both, art and science.
According to ASME (American Society of
Mechanical Engineers):
“Management is the art and the science of
preparing, organizing and directing human
efforts to control the forces and utilize the
material of nature for the benefit of men.”
Management has got two faces like a coin;
on one side it is art and on the other side it is
science.
“Management is a mixture of an art and
science – the present ratio is about 80% art
and 20% science.” – Dean Stanley.
ENTREPRENEUR VS MANAGER
ENTREPRENEUR
• Owns his own
company/firm/organization
• Invests his own money into
his venture
• Takes full risk for losses
• Gets full return of profits
• Risk taker
MANAGER
Is an employee in a
company/firm/organization
Low risk taker
Is not directly responsible for
losses to company
May not get much from
company’s profits
MANAGER VS ENTREPRENEUR

Manager Entrepreneur

Time based promotion Already a owner of his company/promotions do not

matter
Receives fixed salary each month May not get salary in the starting period of the venture

Fixed rise every year Almost own all the profits , rise with business

Cautious process based approach Risk taking, independent approach

Works by building consensus , harmony in between Works on the inputs by customer, may be erratic and
teams not based on a plan
Has a team to manage, Almost own all the profits , rise with business
 LEVELS OF MANAGEMENT

MANAGERIAL LEVELS AND TYPES OF MANGERS

Top
Management
President, CEO,
Executive
Vice Presidents

Middle Management
Plant Managers, Division Managers,
Department Managers

First-Line Management
Foreman, Supervisors, Office Managers

Non- Managerial Employees

Interpersonal Informational Decisional
Figurehead Monitor Entrepreneur

Leader Disseminator Disturbance

Handler
Liaison Spokesperson
Resource
Allocator

Negotiator
MANAGERIAL SKILLS

Managerial Skills

Primary Skills Secondary Skills

• Conceptual Skill • Design Skill
• Technical Skill • Communication Skill
• Human Skill • Leadership Skill
MANAGERIAL SKILLS
CONCEPTUAL SKILLS:
 This refers to the ability to think and conceptualize abstract
situations. These abilities are required for making complex
decisions.
In short it is:
 The mental capacity to develop plans, strategies and vision

HUMAN OR INTERPERSONAL SKILLS:

 This includes the ability to understand other people and interact
effectively with them. The human skills are also important in
creation of an environment in which people feel secure and free
to express their opinions.
In short it is:
 The ability to work with other people in teams
TECHNICAL SKILLS:
 These skills include the knowledge, abilities of and proficiency
in activities involving methods, processes and procedures in the
relevant fields as accounting, engineering, manufacturing etc.
Or in short:
 The ability to use the knowledge or techniques of a particular
discipline to attain ends

DESIGN SKILLS:
 These skills enable a manager to handle and solve any kind of
unforeseen or actual problems, that may crop up in the
organization. Such problems could arise due to internal factors
or external factors and/or both.
In short it is:
 The problem solving skill
COMMUNICATION SKILLS:
 The abilities of exchanging ideas and
information effectively. To understand
others and let others understand
comprehensively.

LEADERSHIP SKILLS:
 The abilities to influence other people to
achieve the common goal.
 Importance of management

•1. Attainment of group goals

•2. Effective functioning of business
•3. Resource development
•4. Management controls the
organization
•5. Sound organization structure
•6. Integrates individual efforts
•7.Motivation
•8. communication
•9. Coordination
•10. Decision making
•11. Leadership Quality
 EVOLUTION
OF
MANAGEMENT THOUGHT
 DIFFERENT APPROACHES
• SCIENTIFIC
CLASSICAL • ADMINISTRATIVE
• BUREAUCRATIC

BEHAVIOURAL • MASLOW’S NEED THEORY

• HAWTHORNE STUDIES
/

• SYSTEM
MODERN • CONTINGENCY
CLASSICAL APPROACH
Focuses on the
individual worker’s Focuses on the
productivity overall
organizational
system

Focuses on the
functions of
management
Evolution of management

• The Industrial Revolution, which began in Europe in the mid-1700s,

was the starting point for the development of management concepts
and theories.
Evolution of management is divided into the
following four stages:

• 1. Pre scientific or pre – classical management period.

2. Classical Management theory:
(a) Scientific management of Taylor
(b) Administrative management of Fayol
(c ) Bureaucratic model of Max Weber
Overview of classical theories
Approach Rationale Focus

Scientific One best way to do Job level

management each job

Administrative One best way to put Organizati

principles an organization onal level
together
Bureaucratic Rational and Organizati
organization impersonal onal level
organizational
arrangements
Scientific management

Itis an approach that emphasizes the

scientific study of work methods to
improve the efficiency of workers.

It became popular in 1900s.

Scientific management
Steps Description

Step 1 Develop a science for each element of

the job

Step 2 Scientifically select employees and

then train them

Step 3 Supervise the employees

Step 4 Continue to plan but get the work done

by the workers
Major contributors of scientific management
theory are as follows

• 1.Frederick Taylor ( 1856-1915)

• He was often called “Father of scientific management and he

served with the Bethlehem steel plant where he experimented
his ideas. Taylor tried to analyze the causes of low efficiency in
industry and came to the conclusion that much of waste and
inefficiency is due to the lack of order and system in methods of
management
F.W Taylors scientific management

• FW.taylor joined as a alabour at midevale steel company in U.S.A in

1878.
• He became chief engineer in the year 1884 in the same company and
later he served with the Bethlehem steel works .

• Taylor attempted a more scientific approach to management as well

as the problems and the approach was based upon four basic
principles:
• 1.Study each part of the task scientifically and develop the best
method to perform it.
• 2.Carefully select workers and train them to perform a task using the
scientifically developed method.
• 3.Cooperate fully with workers to ensure they use the proper
method.
• 4.Divide work and responsibility. So, the management is responsible
for planning work methods using scientific principles and workers are
responsible for executing the work accordingly.
Elements of Scientific Management

• Taylor conducted various experiments at the work place to find out

how human beings could be made more efficient by standardizing
the work.
• The following are the elements or features of Taylors scientific
management:

(1) Planning the Task: (a)Taylor suggest the separation of planning

from actual doing
(b) Taylor says that the supervisors should do the planning.
© The workers only concentrate on doing the work.
(2) Scientific task and rate setting (Work study)

Work study can be determined by method, motion , time and fatigue

studies.

(a) Method study

(b) Motion study
(c) © time study
(d) Fatigue study- it speaks about rest.
(e) Rate setting- Piece wage system under which workers performing
the standard task within prescribed time paid higher per unit that
inefficient workers who are able to come up to the standard set.
• (3) Scientific selection and training-
(a) he suggests that workers should scientifically selected by a
central personnel department.
(b) A workers should be physically and technically most suitable for
the selected post.
© After selection the workers should be given a proper training
which makes, which makes them more effective.
4. Standardization- it must be maintained in the aspect of equipment's
and tools, materials, period of work, amount of work, working
conditions etc.
5. Specialization- Here Taylor developed a theory called functional
foremanship based on the specialization of function. Under this plan,
the two functions of ‘planning and ‘doing’ are separated in the
organization of the plant
• In this system eight functional foreman were involved to direct and
control the activities of the workers:

• (1) route clerk- lays down the sequence of operation

• (2) instruction card clerk- to prepare the detailed instructions
regarding different aspects of work
• 3. Time and cost clerk- to send all information relating to their pay of
the workers
• 4) shop disciplinarian- to deal with cases of breach of discipline
• 5)gang boss- to assemble and set up tools and machines and to teach
the workers to make all their personal motions at the quickest and
best way.
• 6)speed boss- to ensure that machines are run at their best speeds
• 7) repair boss- to ensure that each worker keeps his machines in a
good condition
• 8) Inspector- to show to the worker how to do the work.
6) Financial incentives

• Financial incentives can motivate the workers to put up the

maximum efforts.
• Taylor suggested that wages should be based on individual
performance and not on the position which he occupies.
ADMINISTRATIVE MANAGEMENT

Five management functions

Focused on principles
• planning
that could be used by
managers to coordinate • organizing
the internal activities of • commanding
organizations • coordinating
• controlling
HENRI FAYOL
 A French mining engineer identified 14
principles of management based on his
management experiences.
 Father of modern theory of general and
industrial management.

 Prominent European management theorist

 Wrote General and Industrial Management

FAYOL’s PRINCIPLE OF MANAGEMENT

1. Division of work 8. Centralization

2. Authority and responsibility 9. Scalar chain

3. Discipline 10. Order- Material order & social

order

4. Unity of command 11. Equity

5. Unity of direction 12. Stability of tenure of personnel

6. Subordination of individual interest

to the common good 13. Initiative

7. Remuneration of personnel 14. Esprit de corps- union is strength.

 Administrative Management, Fayol’s
Principles
 Henri Fayol, developed a set of 14 principles:
1. Division of Labor: allows for job specialization.
 Fayol noted firms can have too much specialization leading to
poor quality and worker involvement.
2. Authority and Responsibility: Fayol included both formal
and informal authority resulting from special expertise.
3. Unity of Command: Employees should have only one
boss.
4. Line of Authority: a clearchain from top to bottom of the
firm.
5. Centralization: the degree to which authority rests at the
very top.
 Fayol’s Principles
6. Unity of Direction: One plan ofaction to guide the
organization.
7. Equity: Treat all employees fairly in justice and
respect.
8. Order: Each employee is put where they have the
mostvalue.
9. Initiative: Encourage innovation.
10. Discipline: obedient, applied, respectful employees
needed.
 2-11

Fayol’s Principles
11. Remuneration of Personnel: The payment system
contributes to success.

12. Stability of Tenure: Long-term employment is

important.

13. General interest over individual interest: The

organization takes precedence over the individual.

14. Esprit de corps: Share enthusiasm or devotion to the

organization. Union is strength.
 BUREAUCRATIC MANAGEMENT

Focuses on the overall organizational system.

Need for organization's to function on a rational basis

Bureaucratic management is based upon:

• Firm rules
• Policies and procedures
• A fixed hierarchy
• A clear division of labor
BUREAUCRATIC MANAGEMENT: Weber

• A German sociologist and historian who

MAX envisioned a system of management
WEBER • “a bureaucracy is a highly structured,
formalized and impersonal organization.”

• Division of labor
• Hierarchy of authority
FIVE • Rules and procedures
PRINCIPLES • Impersonality
• Employee selection and promotion
THREE TYPES OF AUTHORITY EXIST IN NATURE:

Traditional - subordinates obedience is based upon

custom. E.g., Kings, queens, chiefs.
Charismatic - based upon special personal qualities
associated with certain social reformers,
political leaders, religious leaders, org.
leaders (eg., Gandhi, Jawaharlal Nehru,
Dr. A.P.J. Abdul Kalam)
Rational – legal- based upon the position held by superiors
within the org. (eg., Police officers,
executives)
Behavioral Management theory

• Classical theory ignored employee motivation and

behavior. As a result the behavioral theory was a
natural outcome of this revolutionary management
experiment.
• It modified, improved and extended the classical
theory.
• The behavioral theory pointed out the role of
psychology and sociology in understanding of
individual and group behavior in an organization.
• Several individuals and experiments contributed to
this theory.
Major Contributors to behavioral Mgt

Mary Parker Follet

Elton Mayo-(Hawthorne experiments)
Abraham Maslow
Douglas McGregor
1.Mary Parker Follet (1868-1933)

She felt that Taylor was ignoring the human side of

the organization.
She pointed out that the management often ignores
the various ways in which employees can contribute
to the organization when managers allow them to
participated in their everyday work lives.
She felt that managers are needed to coordinate and
harmonize group effort rather force and compel
people.
2.Elton Mayo (1880-1949)

• Elton Mayo’s contribution came as a part of the

Hawthorne studies which is a series of experiments
that rigorously applied.
• A team of researchers from Harvard University led
by Elton Mayo conducted some experiments
(Known as Hawthorne studies) and investigated
informal groupings, informal relationships, patterns
of communication, patterns of informal leadership
etc.
Led the team which conducted a study at Western
Electric’s Hawthorne Plant
To examine the impact of illumination levels on worker
productivity
The experiments were conducted in four phase:
Illumination experiments
Relay assembly test room experiments
Interview phase
Bank wiring observation room experiments
 HAWTHORNEEXPERIMENT

Conducted between 1924-1932

Conducted at WESTERN ELECTRIC

COMPANY, Chicago, USA

Conducted by,
 Elton Mayo
White Head
Roethlisberger
 GeorgeEltonMayo
He was an Australian Psychologist, Sociologist
and Organization Theorist.

Lectured at University of Queensland before

moving to the University of Pennsylvania

Spent most of his career at Harvard Business

School and was the Professor of Industrial
Research

Known as the founder of Human Relations

Movement

Also known for his research including

Hawthorne Studies
GeorgeEltonMayo
 Illumination Studies
• 1924-1927
• Funded by General Electric
• Conducted by The National Research Council (NRC) of the National Academy
of Sciences with engineers from MIT
• Measured Light Intensity vs. Worker Output
• Result :
– Higher worker productivity and satisfaction at all light levels
– Worker productivity was stopped with the light levels reached moonlight
intensity.
• Conclusions:
– Light intensity has no conclusive effect on output
– Productivity has a psychological component

• Concept of “Hawthorne Effect” was created

 Relay Assembly Test Experiments
• 1927-1929
• Experiments were conducted by Elton Mayo

• Manipulated factors of production to measure effect on output:

– Pay Incentives (Each Girls pay was based on the other 5 in the group)
– Length of Work Day & Work Week (5pm, 4:30 pm, 4pm)
– Use of Rest Periods (Two 5 minutes break)
– Company Sponsored Meals (Morning Coffee & soup along with sandwich)

• Results:
– Higher output and greater employee satisfaction

• Conclusions:
– Positive effects even with negative influences – workers’ output will increase as a
response to attention
– Strong social bonds were created within the test group. Workers are influenced by
need for recognition, security and sense of belonging
 3. Bank Wiring test room experiment

• This experiment was conducted by Rothlisberger and

W.L.Warner, with a view to find out the causes which
restrict the output.
• The experiment was conducted to study a group of14
workers under conditions which were a s close as possible
to normal.
• Basically, they put these workers in a special room and
place an observers full time in the room to record
everything that happened.
• After the experiment, the production records of this group
were compared with their earlier production records.
• It was observed that the group set its own production norms for each
individual worker which made lower that set by the management.
• Because of this, workers would produce only the required amount
there by defeating the incentive system.
• Those workers who tried to produce more than the group norms were
isolated, harassed or punished by the group..
• These results show that the workers were more responsive to the
social force of their peer groups than the control and incentives of
management.
4. Mass Interview programme

• The workers were interviewed in attempt to validated

the Hawthrone studies.
• The participants were asked about the supervisory
practices and employee moral.
• The results proved that the upward communication in
an organization created a positive attitude in the work
environment.
• The workers feel pleased that their ideas are being
heard.
• The general conclusion from the Hawthrone studies
was human relations and the social needs of workers
are crucial aspects of business management
CRITICISM OF HAWTHORNE STUDIES:
The procedures, findings and conclusions reached
were questionable
Researchers considered themselves as social
engineers
The relationship made between the satisfaction or
happiness of workers and their productivity was
too simplistic
4. Abraham Maslow (1980-1970)

He is a Psychologist developed one of the most widely

recognized hierarchy of needs theory.
It is a theory of motivation based upon a consideration of
human needs.
His theory of human needs was based on the following
three assumptions:
1.Human beings have need that are never completely
satisfied.
2.Human behavior is aimed at satisfying the needs that are
yet unsatisfied at a given point in time.
3.Motivation needs can be classified according to a
hierarchical structure of importance
The Hierarchal Model
Being Need

Deficit
Needs
Physiological Needs
Physiological Needs
• Mostly, literal requirements for human survival
• If not met, the human body cannot function
• Metabolic needs – air, water, food, rest
• Clothing, shelter – needed by even animals
• Could be classified as basic animal needs
Safety Needs
Safety Needs
• Once physical needs are met, safety needs take
over
• Personal including emotional
• Health and well-being
• Financial, job security
• Safety of property against natural disasters,
calamities, wars, etc
• Law & order
Social Needs
Social Needs
• Need to love and be loved
• Need to feel a sense of belonging and
acceptance
• Small groups – clubs, office teams,
school/college houses
• Large groups – political parties, Sports teams,
facebook
Esteem Need s
Esteem Needs
• Need to be respected by others and in turn
respect them
• Sense of contribution, to feel self-valued, in
profession or hobby
• Lower - respect of others, the need for status,
recognition, fame, prestige, and attention
• Higher - self-respect, the need for strength,
competence, mastery, self-confidence,
independence and freedom
Self Actualization Needs
Self Actualization Needs
• What a man can be, he must be
• Intrinsic growth of what is already in a person
• Growth-motivated rather than deficiency-
motivated
• Cannot normally be reached until other lower
order needs are met
• Rarely happens - < 1%
• Acceptance of facts, spontaneous, focused on
problems outside self, without prejudice
4. Douglas Mc Gregor ( 1906-1964)

• He was heavily influence by both the Hawthorne studies Maslow.

• He believed that two basic kinds of managers exist.
• In one type, the theory X manager has a negative view of employees
and assumes that they are lazy, untrustworthy and incapable of
assuming responsibility.
• On the other hand, the theory Y manager assumes that the
employees are not only trustworthy and capable of assuming
 SYSTEM APPROACH IN MODERN MANAGEMENT
THEORY
System is a set of interrelated and interdependent parts
arranged in a manner which produces a unified whole.

Org. as a whole system, the various components / parts

within it are called subsystem.
Five elements

• 1. Input
• 2. transformation Process.
• 3. Output
• 4. Feed Back
• 5.Enviornment- the set of forces and condition operate
beyond an organisations boundaries but it affects a
managers' ability to acquire and utilize resources.
CONTINGENCY THEORY

There is no “One Best Way” to manage all the

situations.

Also known as ‘Situational Theory’.

Developed by managers, consultants, and researchers

who tried to apply the concepts depending on various
Internal and External factors
 “no one best way to do things”
 William Richard Scott

"The best way to organize depends on the

nature of the environment to which the
organization must relate".
 important ideas of
Contingency Theory
 There is no universal or one best
way to manage

 Wide range of external and internal

factors must be considered and the
focus should be on the action that
best fits the given situation
 Effective organizations not only
have a proper 'fit' with the
environment but also between its
subsystems
 The needs of an organization are better
satisfied when it is properly designed and
the management style is appropriate both
to the tasks undertaken and the nature of
the work group.

 Each managers situation must be viewed

separately
 Managers need to be developed in skills that
are most useful in identifying the important
situational factors.
 Theory is practical and it is equally important
for every organization

 Theory doesn't believe in 'one best way' so

many methods and principles may be used in

 Every situation is unique so manager HASTO

be able to analyze each and every situation
INDIVIDUALLY.
 “an authoritarian leadership style
may be more appropriate than a
leadership style that tries to get
workers internally motivated.”
 Applied in activities of motivating, leading
and structuring the organisation.
 The other potentials of application are;

A. employee development and training

B. Decision of decentralization
C. Establishment of communication and
control systems
D. Planning info decision systems
EFFECT ON A MANAGER
 By applying contingency theory to the study of
management, you will be able to identify and to
solve problems under different situations.
 You will recognize that the successful application
of a technique in one situation does not
guarantee success in another.
 Rather, you will be able to examine each
situation in terms of how it is affected by the
contextual, organizational, and human
dimensions.
 As a result, your overall ability to correct
problems and to become more effective as a
manager will increase.
STORY OF A SHOE
MAKER
 . A shoe manufacturer is faced with
decreasing profits

 As a manager - time study from the belief

that the decline in profits is due to lower
productivity on the part of the workers

(classical management theory).

 may attempt to involve workers more fully in
decisions concerning the methods to use in
producing the shoes based on the premise
that this will motivate workers to produce
more

( Behavioural management
theory) .
 may establish a committee of sales and
production personnel to coordinate the
production and distribution of goods under
the assumption that large inventories are
responsible for the decline in profits

(systems theory).
 Application of a contingency
perspective
 will enable the manager to examine
the situation and to determine the cause of
decreased profits before a new procedure or
program is implemented.
 Contingency theory is designed to provide

the manager with the capabilities to examine

numerous possible solutions to a problem

Business Organization

 Business means ‘State of being busy’, throughout.

 The term ‘organization’ refers the process of bringing various
elements of business together with the object of
establishing harmonious relationship and adjustment in their
functioning.
Types of Business Organisation

• Individualistic Institutions • Government Institutions

• 1. Sole traders • 1. Departmental undertaking

• 2. Partnership • 2. Public corporation
• 3.Joint Hindu family • 3. Government Company
• 4. Co-Operative • 4. Board organization.
• 5. Multinational Companies
Sole Trading

 Business unit which is owned and controlled by a single individual is

known as a ‘Sole trading concern’.
 He may use his own savings for carrying out the business.
 The sole trader makes all purchases and sells on his own and
maintains all accounts.
 He alone enjoys all profits and bears all losses in business.
 Sloe proprietorship is a form of organization in which the individual
invest the entire capital of his own skill and it is solely responsible for
the results of his business.
 The person who contributes capital and manages the business is
called as ‘sole trader’
Defintion

• According to J.L Hansen

“ Sole trader is a type of
business unit where a
person is solely
responsible for
providing the capital,
for bearing the risk of
the enterprise and for
the management of
business”.
Characteristic of sole Proprietorship

• One man ownership and control

• Unlimited liability- if loss occurs even his private property is also
liable for business obligations.
• Enjoyment of entire profit.
• No separate legal entity- a sole trading concern has no legal entity
(organization) from its owner.
• Simplicity- it is very simple to start a business
• Self employment- he uses his own labour to conduct the business. He
may employ a few paid servants .
• Secrecy- All important decisions are taken by the owner himself.
Advantages of sole trading

• It is easy to form and close the business

• It is easy for decision making
• It has full control of business activities
• It promotes self employment of individual
• It has liberal legal formalities to start the business
• It is easy to expand or reduce the size of the business
• It is easy to accessibility of consumers.
Disadvantages

• Limited resources
• Short life
• Lack of consultation
• risk of entire loss
• Uncertainty.
PARTNERSHIP
A Partnership is a legal relationship formed by the
agreement between two or more individuals to carry
on a business as co-owners.

Each member of such a group is individually known as

‘partner’ and collectively the members are known as a
‘partnership firm’.
These firms are governed by the Indian Partnership
Act, 1932.
Definition

• According to Kimball and Kimball “ A Partnership

firm as it is often called is then a group of men who
have joined capital or serves for the prosecution of
some enterprise.”

• Acording to L.H.Haney “ Partnership is the relation

between persons competent to make contracts who
have agreed to carry on a lawful business in
common with a view to private gain”
Characteristics or features of
Partnership.
1. Number of Partners: Maximum limit is 10 in case of banking
business and 20 in case of all other types of business.
2. Contractual Relationship: The agreement in writing is known
as a ‘Partnership Deed’.
3. Competence of Partners: Minors and insolvent persons are not
eligible.
4. Sharing of Profit and Loss: In absence of an agreement, they
share it equally.
5. Transfer of Interest: No partner can sell or transfer his interest in
the firm to anyone without the consent of other partners.
6. Voluntary Registration: Registration of partnership is not
compulsory. But since registration entitles the firm to several
benefits, it is considered desirable.
Advantages
 Relatively easy to start
 The ability to raise funds
 More skilled persons
 Loss sharing
 No Loss in absence
Disadvantages
 Unlimited liability
 Profit sharing
 Conflicts
 Limited life
 Transferability is difficult
Suitability of PF
Such firms are most suitable for comparatively
small business such as

retail and wholesale trade,

professional services,
medium sized mercantile houses and
small manufacturing units.
Joint Stock Company
It is a voluntary association of persons to carry on
business.
Members of a joint stock company are known as
shareholders and the capital of the company is
known as share capital.
The companies are governed by the Indian Companies
Act, 1956.
Tata Iron & Steel Co. Limited, Hindustan Lever
Limited, Reliance Industries Limited, Steel
Authority of India Limited, Ponds India Limited etc.
TWO TYPES OF CORPORATIONS
1. PRIVATE COMPANY
 Closely held by a few people
 Minimum 2 and maximum 50
shareholders
 Stocks cannot be traded on exchanges
and private equity cannot be raised
 Less regulations as compared to Public
Companies
2. PUBLIC COMPANY
 Stocks are held by a
large number of people
 Minimum 7
shareholders and no
limit for maximum
 Can be listed on stock
exchange and can go
public
 Have to follow many
laws with regards to the
board composition and
AGM.
Features of JSC
1. Artificial Person.
2. Separate Legal Entity.
3. Common Seal.
4. Perpetual Existence.
5. Limited Liability.
6. Transferability of Shares.
8. Membership: Minimum membership of two persons
and maximum fifty is known as a Private Limited
Company. But in case of a Public Limited Company,
the minimum is seven and the maximum
membership is unlimited.
ADVANTAGES OF JSC

1. Limited Liability.
2. Continuity of existence.
3. Benefits of large scale operation.
4. Professional Management.
5. Social Benefit.
DISADVANTAGES OF JSC
1. Formation is not easy.
2. Control by a Group.
3. Excessive government control.
4. Delay in Policy Decisions.
SUITABILITY OF JSC

A joint stock company is suitable where the

volume of business is quite large, the area
of operation is widespread;
certain businesses like-
banking and insurance.
 Co-operative Society
Any ten persons can form a co-
operative society. It functions
under the Cooperative Societies
Act, 1912 and other State Co-
operative Societies Acts. The
main objectives of co-operative
society are:
(a) rendering service rather than earning profit,
(b) mutual help instead of competition, and
(c) self help in place of dependence.
Classification of co-operatives

On the basis of objectives, various types of co-

operatives are formed:
a. Consumer co-operatives
b. Producers co-operatives.
c. Marketing co-operatives.
d. Housing Co-operatives.
Characteristics of Co-Operative Societies

1. Voluntary association
2. Equal voting rights
3. Service motive
4. Separate legal activity- it is under cooperatives societies act 1919
or other state co-operative societies act. After registration, a
cooperative enterprise becomes a corporate independent of its
member's
5. Open Membership- any body can become a member
6. State control.
7. Liability- members of cooperative society is limited.
8. No share transfer
9. Statutory audit- government inspects the activities
10. Cash trading- it is not permitted in the societies.
Suitability of Co- operative socieities

Generally it seems that a co-operative society is

suitable for small and medium size operations.
However, the large sized ‘IFFCO’ [Indian Farmers
and Fertilisers Cooperative] and
the Kaira Co-operative Processing Milk under the
brand name ‘AMUL’ are the illustrious
exceptions.
ORGANIZATIONAL CULTURE
 Organization can be characterized in a similar way
we classify people, for example, rigid, friendly,
aggressive, warm, innovative, or conservative.
 Organization culture prescribes norms and
procedures for the employees actions towards
clients competitors, supervisors, subordinates and
peers.
 Organization culture is a system of share
assumptions, values and beliefs, which governs
how people behave in organizations.
Definition:

O.C is a system of informal rules that spells how

people have to behave most of the time” – Deal and
Kennedy.
Characteristics
1. Risk tolerance- employees encourage to be aggressive ,
innovative and risk taking.
2. Direction- it creates the correct direction
3. Unit integration- it leads coordination
4. Reward system- best employees are motivated by salary
increase
5. Control- no of rules and regulations.
6. Conflict Tolerance- it is which employees are encourage to
air conflicts and criticisms openly.
7. Communication patterns
Sources of Culture

1.Rituals- it is a repetitive sequences of activities

which express and reinforce the key values of
organization.
2. Language- many organization use language as a way
to identify members of culture or subculture.
3. Material Symbol- The organization provides all
facilities and freedom to their employees. The
organization may provide car, bungalow etc.
4. Stories- Parents tell the stories of outstanding
personalities to children and children try to transfer
them into practice. Nowadays organizations are also
conveying stories to motivate their employees.
TYPES OF ORGANIZATIONAL CULTURE
1. Sub culture- it is typically a result of problems or
experience which are share by members of a department or
unit.
2. Dominant Culture- majority of the organization share the
core values. This kind of sharing of the core value is
dominant culture
3. Strong culture- if the core values of the organization are
being accepted then it is called strong culture.
4. Weak culture- if the core values of the organization are not
being accepted and followed with commitment by more
members of the organization the culture is weak.
5. Authoritarian – the leader of the organization exercise full
control over the subordinates
6. Participative- superiors motivate their subordinates to
attain goals or the organization.
7. Normative- in such a culture, the norms and
procedure of the organization are predefined and the
rules and regulations are set as per the existing
guidelines.
8.Pragmatic culture- it much emphasis is placed on
the clients and the external parties. Customer
satisfaction is the main motive of the employees in a
pragmatic culture.
CHANGING ORGANIZATIONAL CULTURE
Recruit personnel with previous experience so
that they are able to interact well.
The reward system can be changed to support the
cultural change.
Set unique goals
Make changes from top to bottom so that a
consistent message is delivered.
Include employees in the process of change when
making changes in rules and policies.
Managers must change employee’s ideas about what
is and what is not appropriate behaviour.
They must create new role modes heroes and new
stories to help employees understand the meaning of
what is happening around them.
 ORGANIZATION AND
ENVIRONMENTAL FACTORS

•There are events or situations that occur that affect the way
business operates, in a Positive or negative way.

•All organizations whether they are engaged in business or

non-business activities draw input from the environment and
convert it into output and send them back to the
environment.
 Organizational Environments
Factors that control an organizational environment are classified into internal &
external factors.

Technological General Environment

Customers

Competitors
Labor Market

Task Environment

Management

Suppliers
Internal
Environment

Suppliers
 Internal environment

• The internal environment is composed of the elements within the organization,

including current employees, management - and especially corporate culture,
which defines employee behavior.

• Trade unions, management, current employees, share holders, etc. control the
internal environment.
 External environment
• The external environment of
an organization refers to the
forces and institutions
outside the organization that
potentially affect its
performance.

• External environment has

two layers –

• general environment
• task environment
 GENERAL ENVIRONMENT
• The general environment refers to the non-specific elements of an
organization’s surrounding that might affect the organization
indirectly.

• These external forces are:

• Political
• Economic
• Technological
• Socio-cultural
POLITICAL ENVIRONMENT
The political or legal environment refers to the government laws,
regulations, policies and activities which are designed to influence
organizations indirectly and set boundaries on what they can or
cannot do.
 ECONOMIC ENVIRONMENT
• Economic environment includes the impact of economic factors
like interest rates, inflation, monetary & fiscal policy, taxes,
wage rates, GDP, etc.

• These forces are most likely to affect an organization’s

production of goods and services.
TECHNOLOGICAL ENVIRONMENT

• Technological environment refers to the changes in technology

that affect the way that organizations operate and the services
they provide.
 SOCIO-CULTURAL ENVIRONMENT
• There are some important socio-cultural factors that organizations
must analyze. These factors play an important role because they
determine the kind of goods, services and standards that society
values. The socio-cultural force includes the demographics and
values of the particular customer base.

• The demographics and values considered

are:
• Age
• Population density
• Education levels
• Geographical distribution
• Culture
• Lifestyle
 Task environment
• The task environment is
inclusive of those outside
sectors that have a direct
working relationship with an
organization.

• The main variables in the task

environment are:
• Owners
• Customers
• Suppliers
• Labor
• Competition
• Pressure groups
 Owners SUPPLIERS

Owners expect managers to watch over Suppliers are the people or organizations
their interests and provide a return on who provide the raw material that a
investments. particular organization use to produce
their output.

A supplier’s pricing strategy affects the

CUSTOMERS revenue the organization earns.

LABOR
Customers are the final purchasers of a good
or service, or absorbs the organizational Labor market includes the people
output. available for hire.

Studies or analyses of the expectations of the Qualities, skills and knowledge

targeted customer base helps organizations possessed by the employees affect the
deliver. performance of an organization to a
great extent.
 Competition
Competitors present challenges as they vie for customers in a marketplace with
similar products or services. The management of an organization should be
prepared to respond to the competitor policies.

PRESSURE GROUPS

It is also necessary for organizations to identify special interest

groups that attempt to influence it.
• An organisation interacts with the external environment,
exchanges resources with it, influences it, and in turn is
influenced by the various variables therein.

• The interface highlights the effect of the business

environment in an organization beyond its economic factors.
 ORGANISA
TION

OUTPUT: INPUT:
PRODUCTS AND SERVICES RAW MATERIAL,
LABOUR, etc.

ENVIRONM
ENT
 Current Trends and issues in
management
• Changes in socio-economic and political conditions are bound to bring the
changes in the environment within the organization.
• The mangers of today may find themselves obsolete because of the rapid
changes in the environment and therefore , they should update their
knowledge and skills to attain the needs and objectives of organization.

• Workforce diversity
• Changing demographics of workforce
• Changing employee expectations
• Internal environment
• Building organizational capabilities
• Job design and organizational structure
• Changing psycho-social system
• Technological advances
• Changing in legal environment
• Expanding globalisation.