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CHAPTER ONE
FUNDAMENTALS OF MANAGEMENT
1.1. Introduction
From the beginning of the civilization and from the time people began to live in groups, the practice
of management had began. As people started forming groups to achieve their goals, even be it say
for hunting, they quickly realized that managing is necessary to ensure proper coordination of all the
individuals in the group. Today if you look at the society you would realize that the society stands
on group effort and hence the importance of management. Ever since people begun forming groups
to accomplish aims, they could not achieve them as they intended as managing individuals has been
important to ensure the coordination of individual efforts. As society has come to rely increasingly
on group efforts and as many organized groups have become large, the task of managers has been
rising in importance.
Management is an exciting course for it deals with seeking, testing, and reaching objectives. Even in
the ancient time, although it was not formalized people planned their work, organized their
activities, assigned workers to those positions, led their workers, and checked whether they have
achieved their planned actions or not and these activities were prevalent and apparent. This is to say
management had existed in the past, exists today, and will continue to exist even with increasing
importance as the world is changing rapidly in every aspect. Had it not been for the utilization of
management principles and practices, the marvelous accomplishments like the obelisk of Axum, the
temple of Lalibela, the pyramids of Egypt, the Great Wall of China, and many others would not
have been possible. It is also possible to see how much management is essential for successful
accomplishment of individual as well as organizational goals just by looking at what takes place in
our vicinity.
We are all managers of our lives and the practice of management is found in every facet of the
human activities. It is not unique to business organizations but is common to all kinds of
organizations with certain objective to be achieved and resources to be deployed. Be the
organization is a school, a church, government unit, armed forces, charity organization, house hold,
etc, management is crucial for it enables an organization to achieve its objectives efficiently and
effectively.

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Management Key Concepts

 Organizations: A group of people working together in a structured and coordinated
fashion to achieve a set of goals.
 Goal: A desired future condition that the organization seeks to achieve.
 Management: The process of using organizational resources to achieve the organization’s
goals by... Planning, Organizing, staffing, Leading, and Controlling.
 Organizational Performance
Measures how efficiently and effectively managers use resources to satisfy customers and achieve
goals.
 Efficiency: A measure of how well resources are used to achieve a goal. It is
getting high output or the same amount of output at the same amount of input or
lower input, respectively.
 Maximizing the organization’s productivity by wise utilization of scarce resources.
 It is spending less & acquiring more by minimizing cost
 it is concerned with cost reduction
 it is doing things right
Usually, managers must try to minimize the input of resources to attain the same
goal.

 Technical efficiency = Output quality / Input quantity

 Effectiveness: A measure of the appropriateness of the goals chosen (are these the right
goals?), and the degree to which they are achieved.
It is providing the right product for the right person or customer.
 it is doing the right things at reasonable cost (efficiently)
 Determine the success of the organization b/c it is doing the right things
 Management is the process of working with and through others.
 Organizations are more effective when managers choose the correct goals
and then achieve them.

Effectiveness = Enterprise objectives/Input Quantity

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1.2 Definition of Management

There is no single, comprehensive and universally accepted definition of management. This holds
true due to the following major reasons among others:

 Different scholars view management from different perspectives.

 It has many areas of applications. It is applied in profit, not for profit, private, government,
social and business organizations.
 Management as a discipline is recent in origin and hence there are a number of theories being
added to the field.
 It is so broad that it is difficult to encompass all its aspects in a single definition
 It has undergone changes because of the developments in behavioral science and quantitative
techniques.
 There are different approaches to management, definitions change as the environment
changes. The environment of an organization changes due to changes in the political, social,
economic, ethical and others factors.

Yet, a definition of management is necessary to improve the practice of management. The following
are among the most widely accepted definitions of management:
 Management is the art of getting things done through and with people in a formally organized
group.
 It is the art of knowing what you want to do in the best and cheapest way
 It is a distinct process consisting of activities of planning, organizing, staffing, leading and
controlling performance to determine and accomplish stated objectives with the use of human
and non human resources.
 It can also be defined as the art of securing maximum results with a minimum of efforts so as
to secure maximum prosperity and happiness for both the employer and employees and give
the public the best possible service.
For the sake of convenience, we can define management as a distinct process consisting of
managerial functions so as to design and maintain conducive environment in order to achieve
common group goals in organization.

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NB Finally the definitions are not contradict or mutually exclusive. Management is the
synthesis of all the definitions given by different theorists.

1.3. Is Management an art, a science or a profession?

Basically management is an art, a science as well as a profession.
The question whether management is science or art has been an issue of debate for a long period of
time. Science can be defined as a systematized body of knowledge derived from observation, study,
and experimentation carried out in order to determine the nature and principles of the subject under
investigation. It is universally true and applied throughout the globe. Besides, it exploits
mathematical models.
Since management has a structured body of knowledge with its own distinct concepts, theories, and
principles that are developed with reference to the general truths underlying its practice, it is a
science. As science, management is a systematized body of knowledge representing a core of
principles or fundamental truth that tends to be true in most management situations. These
systematized bodies of knowledge of management help the practicing manager make decisions
rationally and objectively, rather than using rule of thumb, hunch or intuition as some used to do in
the past. Management science is not as comprehensive or accurate as physical sciences such as
physics and mathematics. This is true because management deals with human beings having an ever
changing, unpredictable and more complex behaviors. Hence, the application of management
principles alone may not yield the desired result. Therefore, managers also need artistic skills to
accomplish organizational objectives in the best way. That is, they have to use judgment in addition
to the principles of management.
Art is a system of doing a particular work in a way at a given time, place and condition tactfully,
wisely and creatively. It enables one to make decisions when there is insufficient data and
information or when there is a limit to use secondary sources of information. Art is characterized by
using common sense, personal feelings, beliefs and impulses. It tries to make adjustments based on
the possibilities through trail and error method. Management is one of the most creative arts as it
requires a vast knowledge and innovative skills to deal with new events. They should be able to
make decisions even when there is shortage of information. This leads us to the conclusion that “the
art of management begins from where the science of management stops.”

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 If science teaches one to know, art teaches one to do. Managers have to know and do things
effectively and efficiently to be successful. So management is indeed a unique scientific and
artistic combination in practice. In this context, science and art are not mutually exclusive, but
they are complementary.

Management is a profession. To consider a given field is a profession, it must fulfill the following
criteria:
 Specialized knowledge
 Competent application
 Community application
 Social responsibility
 Self control
So, management is a profession because it fulfills the above criteria.

1.4. Nature and Characteristics of Management

From the above definitions we can state the following points that show the nature of management.
 Management is a continuous process-whenever there is a group effort, the need for the
application of management arises.
 Management is viewed in terms of the managerial functions a manager does, i.e., planning,
organizing, staffing, leading, and controlling.
 Management deals with the coordination of both human and non human resources
 Universal application: it is applied wherever there is an organization with certain objective to
be achieved
 Goal oriented: an organization is established to attain objectives and management is important
for such organization with a pre stated goal to be achieved.
 It is a human activity: management activities are discharged by human beings not by
machines such as computers, that is, at best they can only assist rather than replace good
management practice.
 It signifies authority: since the significance of management is to direct, to guide and control, it
has to have authority. Authority is the power to order others to do something and to behave in
some way.
 It is multi disciplinary: it has grown as a body of discipline by taking the help of so many
social sciences like sociology, psychology, anthropology, economics, laws and others.
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 Leadership: a manager has to lead a team of workers. He must be capable of inspiring,

motivating, and winning their confidence.
 Management is an activity: management is a process of organized activity which is concerned
with the efficient use of resources of production. Resources include material, money, and
people in the organization.
 Management is getting things done: In the words of herald knootz, management is an art of
getting things done though and with people in formally organized group in other words, a
manager does not do any operating mark himself but gets it done through others.
 Management involves decision making: Management involves decision regarding various
aspects of management. Management is the decision –making process and the decision are
involved in all the function of management.
 Management is a profession: management is becoming a profession because there are
established principles of management which are being applied in practice.
 Management is both a science and an art: management has developed certain principle and
laws which are applicable to any group activity. It is also an art, because it is concerned with
the Management is dynamic, not static: management adopts itself to the social changes and
also introduces innovation.

1.5 Significance of Management

We all are affected by good or bad management practices and we should, therefore, learn to
recognize and influence the quality of management that affects our lives.
It affects the establishment and accomplishment of many social, economic, and political goals in any
country.
 It plays a crucial role in combining isolated efforts and disjointed information into meaningful
relationships. These relationships then work to solve problems and accomplish goals.
 The study of management is essential for making better economic life possible, improving
social standards, and achieving more efficient and effective government which is a challenge
to modern management caliber.
 It makes human efforts more productive: it brings better equipment, plants, offices, products,
services and human relations to our society. Improvement and progress are its constant watch
words.

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 The success or failure of the organization mostly depends on the management system.
Because, it is the wise utilization of scarce resources for unlimited human through proper
coordination of resources.
NB As a brain of an organization management gives direction for all other parts of organization.

1.6. Universality of management

Although the type, objectives, problems and other organizational constraints, and nature of different
organizations vary widely, the functions performed by each manager are nearly the same. This
means, to successfully attain the objectives of any organization, managers must plan, organize, staff,
lead, and control. These are the basic managerial functions.

To be more specific, management is regarded as a universal activity because of the following

factors:
 In all kinds of organizations, the basic managerial functions are used to make individuals
contribute to group objectives. Management thus, applies to any type of organization.
a) From small to large and complex
b) In profit making and non-profit making
c) In manufacturing and service giving
d) In all political systems; socialist, capitalist, mixed, etc.
 Management is important for any organization or entity regardless of objective(s) for
which it is established to reach the stated goals or objectives.
 Any person who holds managerial position in an organization performs the five functions
of management. The first level, middle level, and top level managers perform the same
functions. What varies from level to level is that the various management levels require
different amounts of time for each function, and the points of emphasis in each function
are different.
 The principles of management are universal. They are applicable to any kind of
organization wherever there is the coordinated effort of human beings. The type of
enterprise is not significant. The managerial principles are also transferable from
department to department.

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Therefore, since at higher levels of management the operating non-managerial component of the job
is fewer and the job is more purely managerial, there is great possibility of transferability of
management from organization to organization and from department to department.
1.7. Levels of Management and Types of Managers
Management Levels
We can classify managers either on the basis of their levels in the organization or by the range of
organizational activities for which they are responsible- so called functional and general
managers. Although all managers may perform the same basic duties and play similar roles, the
nature and scope of their activities differ from level to level. Here level refers to hierarchical
arrangements of managerial positions in an organization. They are steps between subordinates
and management organized to achieve organizational goals. The number of managerial levels in
an organization depends on the size of the organization. The larger the size, the more will be the
number of levels and the smaller the organization in size, the fewer will be its levels. In most
organizations, however, there are three distinct levels as depicted in the figure below.

Figure1.1 Levels of Management

Top Level

Middle Level

First Line/lower level

i. Top Level Managers: this level is composed of a comparatively small number of

executives and they are responsible to the overall management of the organization. They
establish operating policies and guide the organization’s interactions with its
environment. Typical titles include chief executive officers (CEOs), president, senior
vice president, general manager and the like. The major duties of top level managers are:
 Establishing broad objectives
 Designing major strategies and polices for the achievement of long term objectives
 Providing effective organizational structure that ensures integration
 Providing overall leadership and direction
 Making overall control of the organization

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 Dealing with external parties such as the government, community, businesses by

representing the organization
 Analyzing the changes in the external environment and responding to them.
Note that as one moves from the lower level to the higher level, the number of managers become
smaller and smaller and this is the reason why the level of management have such a pyramidal
shape.
i. Middle Level Managers: these are managers who direct the activities of lower level
managers and sometimes extend to supervision of operating employees. The middle
managers are known in many organizations as the department managers, plant managers, or
directors of operations. Middle level managers include all managers above the supervisory
level but below the level where overall company policy is determined and they have
authority over other managers. The following are specific functions of middle level
managers:
 Acting as intermediary between top and first line managers
 Translating long term plans into medium term plans
 Developing specific targets in their areas of responsibility
 Coordinating inputs, outputs and productivity of operating level managers
 Developing specific schedules to guide action and facilitate control

ii.First Line /Lower Level Managers: are managers who are responsible for the
work of operating employees only and do not supervise other managers. They are the lowest
level of management in the organizational structure. Typical titles in this level include office
managers, section chief, superintendents, foremen, chief clerks, supervisors and the like.
First line managers, often called ‘supervisors’, are mainly concerned with:
 Planning of day to day activities
 Assigning operating employees to specific tasks
 Keeping a watch on workers’ performance
 Sending reports and statements to superiors
 Maintaining close and personal contact with workers
 Issuing instructions at the work place, following up, motivating and evaluating workers.

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In the above discussion we noted that all managers perform the management functions of planning,
organizing, staffing, leading and controlling. However, the amount of time and effort devoted to
each function varies depending on the manager’s level. For example, front line managers usually
spend less time on long term planning than top level managers, but they spend much more time and
effort in leading their subordinates. At higher level, less time is spent on leading. The amount of
time and effort devoted to controlling are fairly equal at all levels of management. Moreover, top
level and middle level exercise staffing function more frequently than lower level managers do.
Types of Managers
Managers are also classified based on the scope of the activity they manage in to functional and
general managers.
A, Functional Managers
Functional managers supervise with specialized skills in a single area of operations, such as
accounting, personnel, finance, marketing and production.
B, General Managers
General Managers are responsible for the overall operations of more complex unit, such as
accompanier division .General managers hold fictional managements accountable for their areas and
usually coordinate two or more departments.
Who are managers?
 Manager - someone whose primary responsibility is to carry out the management process.
 Specifically, a manager is someone who plans, makes decisions, organizes, leads, and
controls human, financial, physical, and information resources.
 Managers are those who are responsible for achieving the organizational goals in an
effective and efficient manner through proper scarce resource utilization
A good manager is
 The one who feel sense of responsibility, belongingness, accountability…
 Who take initiative (innovator) for new things or discovery
 Who effectively & efficiently brings factors of production together

1.8. Managerial Functions: An Overview

Management functions are the activities that managers are supposed to perform as result of the
position held in the organization. Regardless of the type of firm, all managers have certain basic
functions-planning, organizing, staffing, leading and controlling. The scope and nature of these
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functions vary from one management level to another and from firm to firm. The order in which
these functions are performed is rarely as orderly as shown below even though all managers need to
be concerned with them. Below, these functions are briefly described. Later, each of them will be
discussed in greater detail in a separate chapter.
1)Planning: is the process of selecting mission and objectives and the course of action to attain
them. It is a decision making process that determines what to do, how to do it, why it is done,
when it is to be done, by whom it is to be done and with what resources. It serves as a bridge
that connects the present with the future as in planning what should be done in the future is
determined today.
2) Organizing: is the process of distributing the work among the group members and establishing
the relationships that are needed to ensure smooth accomplishment of jobs. It involves
identification of activities to be carried out, grouping these activities into working units,
assignment of responsibilities to each unit with corresponding authority.
3) Staffing: is the process of ensuring that employees are recruited, selected, trained, and
developed, and rewarded for successful accomplishment of goals. It is a continuous and vital
function of management which involves filling and keeping filled positions in a given
organizational structure.
4) Leading/Directing: is about inducing or motivating individuals and groups to exert their effort
towards organizational goals. In short, it is concerned with influencing people to work hard.
Leading encompasses three essential elements: motivation, leadership and communication.
5) Controlling: is the process of setting standards, measuring actual performance results,
comparing actual versus plan, identifying deviations and finally taking remedial actions if the
deviation between actual and plan is significant. The main objective is to ensure that events
conform to plans and if not, to bring them back to the normal track.
1.9. Managerial Roles and Skills
A) Managerial Roles
There are diverse activities that managers are expected to perform at various levels of the
organization. Many people consider managerial functions and managerial roles are synonyms. But
there are basic differences between the two.

Managerial functions are broad areas of activities that represent the ends for which management is
practiced. They are purposes that tell about what managers actually perform. They simply indicate

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the objectives of managers when they do their work. There must be the means to successfully
accomplish managerial functions and these means are managerial roles. They are categories of
actual managerial behavior. Managerial roles represent specific tasks that managers undertake to
ultimately accomplish the various functions of management. They are organized set of activities
belonging to an identified job that give more realism and systematize managerial functions. One of
the most frequently cited studies of managerial roles was conducted by Henry Mintizberg. He stated
that managers perform ten different but closely related roles and he categorized them into three
broad groups.

1)Interpersonal Roles: the three interpersonal roles are figurehead, leader and liaison roles.
These roles grow from the manager’s formal authority and focus on interpersonal relationships.
These roles require interaction with others in regular basis.

 Figurehead Role: this role is played by managers who are required to perform duties of
ceremonial and symbolic in nature. It is the most basic and the simplest of all managerial
roles. A president who greets a touring dignitary, a mayor who presents a key of the city to a
local hero, the supervisor who attends the wedding of a machine operator, a sales manager
who takes an important customer to lunch, and a manager who presents certificates to
outperforming employees all are performing ceremonial duties important to the organization’s
image and success. While these duties may not seem important, they are expected of managers
as they signify management’s concern for employees, customers and to the society at large.

 Leadership Role: the leadership role involves responsibility for directing and
coordinating the activities of subordinates in order to accomplish organizational objectives.
Some aspects of the leadership role have to do with staffing-hiring, training, disciplining and
promoting. Others aspects involve motivating subordinate to meet the organization’s goals.
Still other aspects relate to creating a vision that a company’s employees identify with.

 Liaison Role: this role refers to dealing with people outside the organization such as
clients, government officials, customers and suppliers. It also refers to dealing with managers
in other departments, staff specialists, and other department’s employees. In the liaison role,
the manager seeks support from people who can affect the organization’s success.

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2) Informational Role: effective managers build networks of contacts for sharing

information. Because of these contacts, managers emerge as the nerve center system of their
organization. Many contacts made while performing figurehead and liaison roles give managers
access to a great deal of important information. The following three roles describe the
informational aspects of managerial work:

 Monitor Role: this role involves seeking out, receiving and screening information. Just as
a radar unit scans the environment, managers scan their environment for information that may
affect their organization. Since much of the information received is oral-gossip, hearsay,
formal meetings-managers must evaluate and decide whether to use this information.

 Disseminator Role: here the manager shares information with subordinates and other
pertinent members. Sometimes the manager may pass along special or ‘privileged’
information to certain subordinates who would not originally have access to it and who can be
trusted not to let it go further. In practice, passing information along subordinates is often
difficult and time consuming. Therefore, a manager must decide which and how much
information will be useful.

 Spokesperson Role: in the spokesperson role managers transmit information to others,

especially those outside the organization. The manager is a person who speaks for his or her
work unit/organization or to people outside the work unit. Here the manager represents the
unit to other people.

3) Decisional Role: managers use information to make decisions about when and how to
commit their organization to new objectives and actions. Decisional roles are perhaps the most
important of the three categories of roles. Managers are the core of the organization’s decision
making system as they play the following four decisional roles:

 Entrepreneurial Role: this role involves designing and initiating planned changes in
order to improve the organization’s position. Managers play this role when they initiate new
projects, launch a survey, test a new market, or enter into new business.

 Disturbance Handler Role: this role is played by managers when they deal with
problems and changes beyond their immediate control. Typical problems include labor strikes,

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bankruptcy of major suppliers, or breaking of contracts by customers. Sometimes disturbances

may arise because a poor manager ignores the situation until it becomes a crisis. However,
even good managers cannot possibly anticipate all the consequences of their decisions or
control the actions of others.

 Resource Allocator Role: this role is about choosing among competing demands for
money, equipment, personnel, and other’s demand on manager’s time. What portion of the
budget should be earmarked for advertising and what portion for improving an existing
product line? Should the firm add a second shift or pay overtime to handle new orders?
Whether to automate certain plants or close others requires performing such a role.

 Negotiator Role: closely linked to the resource allocator role is the negotiator role. In
this role managers meet and discuss their differences with individuals or groups for the
purpose of reaching an agreement. Negotiations are an integral part of a manager’s job. They
are especially tough when a manager must deal with others like unions and political action
groups who do not share the manager’s objectives.
b) Managerial Skills
 Regardless of the level of management, managers ought to possess and seek to further
develop many critical skills. Skill is an ability or proficiency in performing particular
task. Management skills are learned and developed. Good management practices can also
be learned and applied. Management success depends both on a fundamental
understanding of the principles of management and on the application of technical, human
and conceptual skills. Successful managers are indeed eclectic in that they must possess
and be skilled in the three skills.

1. Technical Skill: is the ability to use specific knowledge, techniques, and resources in
performing works. It is knowledge and proficiency in activities involving methods,
processes, and procedures. Thus, it involves working with tools and specific machines.

Normally technical skills are more important at lower level of management and its
importance decreases as we go up the ladder. This holds true because supervisory managers
must train their subordinates in the proper use of work related tools, machines and

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equipments. This usually includes specialized knowledge and the ability to perform with that
specialty

2. Human skill: is the ability to work with people. It is cooperative effort, team work and
creation of an environment in which people feel secured and free to express their opinions. It
is also the ability to resolve conflict. Generally, human skill is the skill to motivate and
create enthusiasm in the minds of followers. Since managers must accomplish much of their
work through the efforts of other people, their ability to work with, motivate, counsel and
understand others is most important. Therefore, this skill is equally essential at all levels of
management.

3. Conceptual skill: is the ability to see the “big picture”, to recognize significant element
in a situation and to understand the relationship among elements. These skills are the abilities
needed to view the organization from a broad perspective and to see the interrelationships
among its components. Conceptual skills are important in strategic planning. Therefore, they
re more important to top level executives than to middle managers and supervisors. To
conceptualize requires imagination, broad knowledge, and the mental capacity to conceive
abstract ideas.
4/ Communication Skill; reflect a managerial ability to send receive information, thoughts,
feelings and attitudes. Communication skills are very crucial to all managers. It is equally
important for all levels of managers. , .
The relationship between management levels and skills of managers is illustrated in the
figure below.

Top Level conceptual skill

Middle Human Skill level

Technical skill

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Lower level

Figure 1.2 managerial levels vs. skills required

CHAPTER 2

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EVOLUTION OF MANAGEMENT THOUGHT

2.1 Introduction
For centuries scholars and business people alike have tried to understand the practice of
management. But as in most social sciences, management has no generally accepted theory. It
borrows principles from different fields as they best suit one’s needs. The present position of
management has evolved over a long period of time. In order to understand what management is and
what it involves today, we better look through its historical development.
Management as a theory is the result of the twentieth century, but management as a practice is as old
as the human civilization. Knowledge about management comes from the field of management itself
as well as many other fields. Most of the early writers were practicing executives who described
their own experience from which they developed broad principles. For the sake of convenience,
scholars generally group the development of management into four major stages as management in
antiquity, classical management theory, neo classical theory and modern approaches.

2.2 What is theory?

Plunkett, et al asserts that a theory is part of a science or an art that attempts to explain the
relationships between and among its underlying principles. Theories generally give people a reason
for doing things one way rather than another. Various management theories have arisen over past
decades; some aspects of each have failed the test of time, others have survived it and are used by
managers today.

What does theory contribute to the practice of management? The theory of relativity, for example,
helps physicists control the atom; through the laws of aerodynamics, engineers can predict the
effects of a proposed change in airplane design. Similarly, the theories and principles of
management make it easier for us to understand underlying processes and on that basis decide what
we must do to function most effectively as managers. Without theories all we have are intuition,
hunches and hope-all of which are of limited use in today’s increasingly complex organizations.
In essence, a theory is a principle or set of principles that explains or accounts for the relationship
between two or more observable facts or events. As managers we will have in our disposal many
ways of looking at organizations and at the activities, performance, and satisfaction of employees.
Each of these ways may be more useful in dealing with some problems than with others. For
example, a management theory that emphasizes the importance of a good work environment may be
more useful in dealing with a high employee turnover rate than with production delays. Because
there is no single universally accepted management theory, we must be familiar with each of the
major theories that currently coexist.

2.3 Management in Antiquity

This stage of management covers the time between the beginnings of man’s cooperative effort to the
start of his attempts to approach the study of management scientifically about 1880. Management as
a theory is the results of the twentieth century, but as practice it is as old as the human civilization.
When people could not achieve their needs independently, they started to organize themselves into
groups and as the groups become large, things become complex and application of management
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become inevitable. The groups elected an individual who had the skills to set objectives, group and
assign activities, coordinate members and control their performance, all of which are management
practices- the so called functions of management. Through these groups even in ancient time, people
accomplished surprising events. Generally, had there not been considerable skills in the various
management functions, those wonderful accomplishments like the Obelisk of Axum, the Great Wall
of China, the Pyramids of Egypt, the Temple of Lalibela, the Castle of Gondar, and many others
would not have been possible.
During that time, the contribution given by religious and military groups to management thought
were significant and undeniable. Introduction of mass production, large scale industry, the use of
complex and expensive machines, extended market, etc. made things very complex. In addition,
maintaining harmonious relationships between the employer and the employees was a problem.
These factors brought the need to more thoughtful, resourceful, and dynamic management.
Management on traditional lines became useless. Rule of thumb could no longer exist and gave way
to logical and rational principles and scientific approaches. That is, industrial revolution brought
about changes of management practices employed during that period.

Below some of the major scholars of the time and their contributions are discussed.
1)Robert Owen (1771-1858): he was a successful copartner and manager of the cotton
mills of New Lanark, Scotland. He was one of those individuals who developed approaches for
how to increase productivity by making the work easier to perform and how to motivate the
workers to take advantage of their new methods. He disliked the process of industrialization in
England that was built on tough, cheap and brutal exploitation of labor in unsatisfactory working
conditions. He recognized human resources as valuable as financial and material resources. He
focused on rewards rather than punishment to increase output. He experimented in the field of
management and recommended the following techniques:
 Prohibited employment of children whose age was under ten and recommended sending them
to school
 Reduced the length of work day
 Provided housing and marketing facilities to the employees
 improved working conditions within the factory through the provision of meal, bath and others
services
 Proposed that the basic managerial philosophy and formula for success should be combining
the production and people side of an organization. That is, attention should be paid not only to
productivity but also to employees.

2)Charles Babbage (1792-1871): he was a British professor of mathematics. In 1832 he

published on ‘the economy of machinery and manufacturers’, a study that presented the fruit of
his observations of the factory floor. He became convinced that the application of scientific
principles to work processes would both increase productivity and lower expense. He was an
early advocator of division of labor, profit sharing plans and bonus systems as ways to achieve
better relations between management and labor. By division of labor Babbage meant the division
of work into discreet processes that could be mastered quickly by one person.
He was interested in:
 Division of labor
 Development of scientific principles
 Sought ways to analyze and control manufacturing costs

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 Advocated dividing work into mental and physical activities

 Determining the price and costs for all tasks to be done

3) James watt and Bolton

 They developed many management techniques
 They were interceded in market research, costing, planned machine layout in terms of work
flow
 Attempted production planning
 Developed methods of calculation of cost and profits
 Training and development of workers and managers
 Studied payment by results
 Welfare programs

4)Adam Smith (1776- ): in his book titled ‘Wealth of Nations’ advocated the concept of
specialization.
Despite the suggestion given by early theories, owners and managers did not begin to raise the
concern of the problem of material and human efficiency. They raised the issue when market was
becoming saturated, demand for greater profits and when competition was becoming keen. Their
emphasis on cutting costing costs and increasing efficiency led to the emergency of the classical
school of management thought.
However, the study of how managers achieve the results is predominantly a 20 th century
phenomenon. In the early stages, management study could not develop because of
 Low esteem to business in society
 The different approaches of economists, political scientists, sociologist, etc towards business
organizations
 Treatment of management as an art and not as a science
 The attitudes that successful managers are born not made

The situation in the 20th century changed due to the following factors:
i. The development of capitalism and the emergence of industries forced originations to be
efficient or to find ways for efficiency
ii. The complexities of organizations increased due to:
 The increasing size of organizations
 High degree of division of labor and specialization
 Increase in government regulations and controls
 Organized trade unions
 Pressure of various conflicting interest groups in society

2.4 Classical Management Theory

Serious attention to management was given in the early 20 th century. One of the most critical
problems facing managers at that time was how to increase the efficiency and productivity of the
workforce. This theory includes the work of different individuals during the late 19 th century. The
works are probably known as scientific management, classical administrative and organizational
theories and bureaucracy.

2.4.1 Scientific Management Theory: this theory is mainly sought to determine

scientifically the best methods for performing any task. It applies scientific methods in the work

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place and in other managerial activities. It concentrated on the problems of lower level managers.
This period was characterized by:
 The need to expand productivity
 Expanding business and readily available capital
 Shortage of skilled labor

Management’s primary goal and responsibility was to find ways to increase the efficiency of
workers. They basically sought ways of increasing productivity by using existing labor more
efficiently. Fredric Winslow Taylor and his associates such as the Gilberths, Henry Lawrence and
Gantt, and Harrington Emerson built a body of principles that now constitute the essence of
scientific management.
 Fredric Winslow Taylor (1985-1915): the birth of scientific management is
generally credited to Fredric Winslow Taylor. His main concern was to improve productivity in
scientific methods. For his concern on scientific methods, Taylor is known as the “father of
scientific management”. According to Taylor, scientific management focused on discovering
‘one best way’ of doing jobs, determining the optimum work pace, training people to do the job
properly and rewarding successful workers.. He began developing his ideas after he joined
Midvale Steel Company in Philadelphia-USA. While working in different positions for a total of
eight years, he observed certain problems in factory operations like the following:
- No effective work standards were applied
- Managerial decisions were made based on hunches or guess work, intuition (without
conscious reasoning), inefficient rule of thumb methods
- Ignorance in both management and employee sides as to what constitutes fair day’s work and
fair day’s pay. No one had ever bothered to find out how much a worker would be able to
produce in a day.
- No incentive was introduced to improve employee’s performance
- Lack of systematic selection and training of employees. Workers were unwisely placed at
tasks for which they had little or no ability or aptitude.
- He also observed a defective system which led employees to restrict output. The reason for
this was a practice called ‘soldiering’ whereby workers deliberately work slowly while at the
same time trying to make their supervisors believe as if they working fast.
- The fallacious belief of workers that increased output would lead some of them out of work.
The workers feared that if they worked faster, they would complete their jobs early and be laid
off.
Cognizant of these problems, Taylor conducted a study and developed some principles so as to
mitigate them. In 1909, he published principles of scientific management The principles were
considered as the principles of scientific management/ Taylor’s principles. They are:
- Development of a science of work (beat methods of work) for each element with clearly stated
laws, rules and principles to replace the old guess work and rule of thumb methods.
- Scientific selection, training and development of workers. Workers must be studied just like
machines and be developed so that each worker can be given responsibility for the task that best
suited him/her.
- Relating together the best methods of work and the scientifically selected, trained, and
developed worker, ensuring ability-job- fit.
- Establishing heartily/close cooperation or harmony between management and labor regardless of
the need for division of labor and assignment of tasks and responsibility.

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- Introducing differential piece rate system of pay to improve worker’s performance. Workers
who surpass their previous performance standards should earn more with the differential piece
rate plan. The greater the output an individual produces, the greater the pay would be. He
thought that an incentive system rewarding fast workers and penalizing slow workers would
encourage them to adopt the new working methods.
- The need of complete mental revolution with the view that exact knowledge about every step is
essential to both parties. Both workers and managers must be developed to the fullest extent
possible and there must be mutual interest towards a common goal. Both parties must reach on
consensus with regard to fair day’s work and fair day’s pay. He believed that both parties must
strive for maximizing output.
- Emphasizing the importance of functional foremanship, that is, people can bear/accept dual
command. According to this principle, a worker is to receive orders from a number of functional
foremen.

 Henry L. Gantt (1861-1919): was a contemporary and colleague of Taylor at

Bethlehem steel Company, and he strongly supported the ideas of scientific management
propounded by Taylor. He also emphasized the concept of mutuality of interest between
management and employees. He stressed the need to appreciate that “in all problems of
management, the human element is the most important”.
Gantt made improvements in Taylor’s incentive system and developed what is known as the task
and bonus plan. This is the foundation of many incentive plans in our times. Under this
incentive plan, the worker is paid a guaranteed day wage whether or not he completes the
standard work. But if he completes four hour’s work in three hours, he is paid for four hours. In
remunerating employees, he believed that Taylor’s differential piece rate system (if no
performance, no payment) of payment is inhuman and provided a guaranteed minimum daily
wage and workers receive a bonus for completing their daily tasks and performing above the
standards.
He also emphasized on the social responsibility of managers, that is, manages should not only be
responsible to the owner’s interest but also to the needs of the society at large. They should
concentrate in providing services rather than profits as the ultimate goal.
Gantt is perhaps best known for his development of graphic methods of describing plans and
making possible better managerial control. He emphasized the importance of time, as well as
cost in planning and controlling work. This led eventually to the famous Gantt chart-a chart used
for planning and following up work progress against time. The Gantt chart is regarded by some
social historians as the most important social invention of the 20th century.

 Frank and Lillian Gilbreth: were husband & wife and regarded as important
contributors to scientific management. Frank Gilbreth (1868-1924) became interested in motion
study and reduced the number of movements in bricklaying from eighteen to five. This increased
productivity of bricklayers from 120 to 250 bricks per hour. Frank emphasized the need for
developing or discovering the “one best way of doing a given task”. Where as Lillian (1887-
1972) held that the most important cause of workers’ dissatisfaction was the lack of
management’s interest in them. They emphasized that management should understand their
needs and personality.
Frank Gilbreth’s system became known as speed of work and the speed came not from rushing the
workers to work faster but from cutting down unnecessary motions. He identified eighteen on the
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job motions and called them THERBLIGS-Gilbreth spelt backwards with the transposition of one
letter, T&H. the on the job motions are:
i. Search x. Load transport
ii. Find xi. Pre-position
iii. Select xii. Release load
iv. Grasp xiii. Transport empty
v. Position xiv. Wait when avoidable
vi. Assemble xv. Avoidable delay
vii. Use xvi. Rest for overcoming fatigue
viii. Disassemble xvii. Plan and
ix. Inspect xviii. hold
Frank Gilbreth also invented a flow chart which showed the progress of an entire operation through
time and various tasks involved in it. Every operation is broken down into tasks which enable the
identification and elimination of unnecessary motions. Lillian assisted her husband and expended on
his work after his death.
 Harrington Emerson (1853-1931): Emerson was one of the famous managers who
believed in the adoption of scientific management principles as a means of achieving efficiency.
Emerson’s major concepts were set forth in his book titled “The Principles of Efficiency”. His
principles of efficiency cover good human relations as well as work methods. When reviewed as
a whole, these principles formed basis for building today’s sound management system.

2.4.2Classical Administrative and Organizational Theories

This theory is another body of ideas developed at the same time as scientific management. These
ideas focused on the problems faced by top managers of large corporations. Since this branch of the
classical approach focused on the management of an organization as a whole while scientific
management focused on the management of work, it was labeled classical organization theory. Its
two major purposes were to 1) develop basic principles that could guide the design, creation and
maintenance of large corporations and 2) identifying the basic functions of managing organizations.
Engineers were the prime contributors to scientific management; practicing executives were the
major contributors to classical organization theory. As with scientific management, there were many
contributors to the classical organization theory. Henry Fayol, Mary Parker Pollet and Chester
Bernard are among the major contributors.
a) Henry Fayol (1841-1925): is perhaps the greatest contributor to the field of classical
administrative and organizational theory. He began his work life as engineer at the age of 19. He
spent his entire working life with the same company, rising to managing director at the age of 47
and retired after his 77th birthday. Under his leadership the company prospered despite near bankrupt
state when he took over.
He published a book titled “Administration Industrielle et Generale” in 1916 and that
brought to light the distillation of his lifetime’s experience of managerial work.
Fayol found that activities of an industrial undertaking could be divided into six groups as follows:
1) Technical- production
2) Commercial-buying, selling, and exchanging
3) Financial-search for and optimum use of capital

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4) Security-protection of property and persons

5) Accounting-including statistics
6) Managerial-planning, organizing, commanding, coordinating and control.

Although Fayol’s assessment of the importance of management has considerable merits, his greatest
contribution to management theory is his 14 principles of management. Fayol considered the
principles to be flexible and adaptable-not rigid rules or immutable laws.
His 14 principles of management are discussed below:
1) Division of labor: this is about specialization that economists consider necessary for
efficiency in the use of labor. Fayol applied the principles to all kinds of work, managerial as
well as technical. Specialization allows workers and managers to acquire an ability, sureness,
and accuracy that will increase output. He noticed that too much specialization can cause
workers to be bored.
2) Authority and Responsibility: the right to give orders and the power to excat
obedience are the essence of authority. He found authority and responsibility to be related with
the latter arising from the former. When authority is exercised, responsibility arises. He saw
authority as a combination of official factors, driven from the manager’s position and personal
factors like intelligence, experience, morale, past service, etc.
3) Discipline: he emphasized respect for agreements which are desired at achieving obedience,
energy, and the outward marks of respect. Discipline requires good superiors at all levels.
Discipline is absolutely essential for the running of business and without discipline no
enterprise could prosper.
4) Unity of Command: it means that employees should receive orders from only one
superior and report to only one superior.
5) Unity of Direction: it holds that all activists geared towards achieving the same objective
should be directed and controlled by one person and one plan.
6) Subordination of Individual to General Interest: here Fayol emphasized
that employees must learn to subordinate their individual interest to general interest, that is, the
interest of any individual or group of employees should not take precedence over the interest of
the organization.
7) Remuneration of Personnel: wages and salaries should be fair and afford
satisfaction to both the workers and the employer. Fayol proposed that managers should
impartially use reward system including profit sharing and bonuses to acknowledge higher
performance.
8) Centralization: managers should decide how much authority to be centralized at the top
of the organization and how much to be delegated to workers. Managers should retain ultimate
authority but also give their subordinates enough authority to do their job.
9) Scalar Chain: often called chain of command or line of authority, it points out the
importance of limiting the length of the chain of command extending from the top of the
organization to the bottom.
10)Order: both equipment and people must be well chosen, well placed and well organized for a
smooth running of the organization. That is, a place for every thing and everything in its place.
11)Equity: workers need to be treated with respect and justice if they are expected to perform at
better. There should not be any sort of discrimination and managers should be fair and kind to
their subordinates.

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12)Stability of Tenure of Personnel: long term employment helps employees

develop the skills they need to make significant contribution to the organization. Managers
must reduce employee turnover and must retain competent workers.
13)Initiative: subordinates should be given the freedom to conceive and carryout their plans
even though some mistakes may result. He defined initiative as the ability to think through,
develop a pan of action. The stated that most capable managers instill this attribute in their
subordinates.
14)Esprit de corps: this implies the principle that ‘in unity there is strength’. All members
of the organization should work together harmoniously to achieve a common goal. Promoting
tem spirit will build harmony and unit within the organization.

b) Mary parker Follett (1868-1933): another contributor to the administrative

school was American Political Scientist M.P. Follett. Her work in 1920’s focused on how
organizations cope with conflict and the importance of goal sharing among managers. She
emphasized the human elements in the organization and the need to discover and enlist individual
and group motivation. She believed that the first principle for both individual and group success is
the capacity of organized thinking. She believed that people could reach tier maximum potential
only through groups. She emphasized for the first time on the importance of individuals-managers
workers. No one can become a whole person except as members a group; human beings grow
through tier relationships with others in the organization.
c) Chester I. Bernard: was another American theorist of the administrative school. He
was president of New Jersey Bell Telephone Company. In his 1938 work, The Functions of the
Executives, Bernard argued that managers must gain acceptance for their authority. He advocated
the use basic management principles and cautioned managers to issue no order that could not or
would not be obeyed. According to Bernard, people come together in formal organization to
achieve ends that they cannot accomplish working alone. But as they pursue the organization’s
goals, they must also satisfy individual needs. An enterprise can operate efficiently and survive
only when the organization’s goals are kept in balance with the aims and needs of the individuals
working for it. To meet their personal goals within the confiners of the formal organization,
people come together in informal groups. To ensure its survival, the firm must use these informal
groups effectively.

2.4.3 Bureaucratic Theory

The chief advocate of the bureaucratic theory was Max Weber (1864-1920). Weber was a professor
of law and economics who wrote about social, political and economic issues. Weber was the first to
describe the principles of bureaucracies- rational organizations based on the control of knowledge.
Bureaucracy can be defined as management approach based on formal organizational structure with
a set of rules and regulations. The common features of bureaucracy are:
 Division of labor-specialization
 Authority hierarchy
 Impersonality
 Immutable written rules and regulations
 Top down command control approach in which managers provide many directions and have
considerable control over their subordinates.
 Hierarchy with many management levels and so on.
 Promotion based on achievement
 Efficiency

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He was mainly concerned with the issue of how organizations are structured. He believed in one
best organizational structure. Bureaucracy emerged out of the organization’s need for order,
precision and the workers’ demand for impartial treatment and rationality. Bureaucracy was
developed as a creation of personal subjugation, nepotism, cruelty, and the capricious and subjective
judgment which occurred during the early day of industrial revolutions. Rationality implies goal
directedness and impartiality implies objectivity in interpersonal relations.
However, bureaucracy is not free from defects, i.e., it has some ugly faces like the following:
 Bureaucratic organizational structure consists of hierarchies with many levels having
inflexible and routine procedures and rules. Night mares and red tapes, run around, ocean of
paper work, unhelpful clerks, and officials all combining to produce more frustration than
service for customers and clients.
 Bureaucracy tends to become rigid and unable to adjust to novelty in its environment.
Decision making tend to be categorized or choices are previously programmed. Workers are
expected to work to the prevailing rules nothing more, that is, employees are encouraged to
do only the work specified in their job description-no more no less. This condition prevents
spontaneous cooperation of people at work to solve unexpected problems.
 The insensitivity to people that comes from inflexible adherence to routine procedures and
rules is another bad reputation of bureaucracy.

Merits and Demerits of Classical Management Approach

Classical management theory has contributed a lot to development of management theories.
 The greatest contribution of this school of thought was that it identified management as an
important element of organized society. Management has increased in importance.
 It resulted in overall improvement in factory management by saving time, eliminating
unnecessary motions, and bringing the application of science in areas of management. Using
the scientific methods, workers became more efficient and productive as they learn new and
better methods of doing the work.
 The identification of management functions such as planning, organizing and controlling
provided the basis for training new managers.
 It has also resulted in many management techniques being used today such as time and motion
analysis, work simplification, incentive systems, production scheduling, personnel testing and
budgeting.
 This school opened the door for the next important school: the behavioral/ the human relations
school.
However, classical management theory has some limitations as discussed below:
 The theory viewed workers merely as an economic being focusing only on the improvement
of productivity. Advocators believed that workers are motivated primarily by a desire to earn
money to satisfy their needs. In the real world, however, financial gain is not the only thing
that matters people and thus workers are likely to go out for strike over job conditions rather
than salary demands and leave the job if they are unhappy in it.
 The advocators failed to recognize that one method of doing things is less appropriate in a
dynamic environment. To be the fittest, as the working environment changes the way to
perform the task must be changed. Moreover, following only one method makes the work to
be repetitive and highly repetitive jobs often produce boredom and alienate employees from
their job.
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 They overlooked social needs of the workers. They failed to consider informal groups in the
organization by stressing only on the formal relationships in the organization.

2.5 Neo Classical /Behavioral Management Theory

This theory consists of human relations and behavioral movements. It is built on the bases of
classical management theories. It modified, unproved, extended and the classical theory. Unlike
classical theory which emphasized on job content and management physical resources, behavioral
theory gave greater emphasis to the man behind the machine and stressed on the importance of
individual as well as group relationship in the workplace. Below the two branches of neo classical
theory are discussed.
2.5.1 Human Relations Movement
The term human relations refer to the manner in which managers interact with subordinates. To
develop good relations, followers of this approach believed, managers must know why their
subordinates behave as they do and what psychological and social factors influence them. This
branch emphasizes on the social environment of an organization.
The most profound contribution to the human relations school came from the studies of Professor
Elton Mayo, an Australian psychologist. He has conducted the studies at Western Electric Company
in Chicago, USA which spanned for eight years period and popularly known as “Hawthorne
Studies”. These studies were divided into five major phases as:
i. First sage iv. Forth stage
ii. Second stage v. Final stage
iii. Third stage
i. First stage (1924-1927): this stage was designed to prove the impact of physical
surroundings such as noise, light, etc on productivity. Two groups of comparable performance
were isolated from the rest and located in separate parts of the plant. One group, the control
group, had a consistent level of lighting; the other group, the experimental group, had its lighting
varied. To the surprise of the researchers, the output of both groups increased. Even when
lighting of the experimental groups was reduced to a very low level, they still produced more.
This stage is often called the illumination experiment.

ii. Second Stage (1927-1929): this stage became known as the Relay Assembly Test
Room. The objective was to make a closer and more detailed study of the effects of different
physical conditions on productivity. At this stage there was no deliberate intention to analyze
social relationships and employee attitudes. Six women workers in the relay assembly test section
were segregated from the rest in a room of their own. By discussing with the women, changes in
rest periods and lunch times were made in timing and length. Productivity increased whether the
conditions were made better or worse. Later, the working week was changed but once again
productivity increased. The women’s reaction to the changes, i.e., increased output regardless of
whether conditions improved or worsened, has come to be known as “the Hawthorne Effect”.
That is to say the women were responding not so much to the changes because they were the
center of attention- a special group.
iii. Third Stage (1928-1930): before the relay assembly test had come to an end, the
company had decided to implement an interview program designed to ascertain employee
attitudes towards working conditions, their supervision and their jobs. The interviews were
conducted by selected supervisors, first in structured basis and next in unstructured basis. Before
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the program was conducted, about 20,000 employees were interviewed and the pool of material
amassed was used to improve several aspects of working conditions and supervision. It also
became clear from the responses that relationships with people were an important factor in the
attitudes of employees. This phase is referred to as massive interview program.

iv. Forth stage (1932): this was known as the bank wiring observation room. Here
fourteen men in the bank wiring were removed to a separate observation room where apart a few
differences their principal working conditions were the same as those in the main wiring area.
The aim was to observe a group working under more or less normal conditions over a period of
six months or so. The group was soon developing its own rules and behavior-it restricted
production in accordance with its own norms; it short circulated the company wade incentive
scheme and in general protected its own sectional interests against those of the company. The
supervisors concerned were powerless to prevent this situation. The group has developed its own
unofficial organization-run in such away that it was able to protect itself from outside influences
while controlling its internal life too.

v. Final stage (1936): this stage was based on the lessons learned from the earlier studies. It
was mainly employees’ relations and took the form of personnel counseling. The counselors
encouraged employees to discuss their problems at work and the results led to improvements in
personal adjustments, employee-supervisor relations and employee-management relations.

The main conclusions drawn from these studies are:

 Individual workers cannot be treated in isolation, but must be seen as members of a group.
 The need to belong to a group and have status within it is more important than monetary
incentives or good physical working conditions.
 Supervisors and managers need to be aware of these social needs and cater for them if workers
are to collaborate with the official organization rather than work against it.
2.5.2 The Behavioral Science Approach
The individuals in the behavioral science branch of the neo classical approach believed that man is
much more complex than “the economic man” description of classical approach and “the social
man” description of the human relations approach. The emphasis of the behavioral science approach
is on the nature of work itself and the degree to which it can fulfill the human need to use skills and
abilities. Behavioral scientists believe that an individual is motivated to work for many reasons in
addition to making money and forming social relationships. They also focused on communication,
motivation and leadership areas.

The behavioral management school brought the human dimensions of work firmly into the
mainstream of management thought. The results continue today. Many managers today work hard to
discover what employees want from work, how to enlist their cooperation and commitment; and
how to unleash their talents, energy, and creativity. The behaviorists integrated, for the first time,
ideas from sociology, anthropology and psychology with management theory. One result of the
behavioral school was the creation of positions for professional resource managers. This theory
paved ways to modern day employee assistance programs.
The major limitation of behavioral management theory is its complexity. It does not yield quick or
simple conclusions, and it does not conclusively explain or predict the actions of individuals or
groups. Behavioral theory becomes even more complicated in light of the facts that people are
motivated by more than one need at any given time and that they must constantly reconcile
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conflicting demands. No simple formula can always motivate all individuals in the work place.
What is more, people’s needs change with time, making the same person tough to manage one day
and a delight the next. Nevertheless, by considering psychology, managers can prepare themselves
to effectively manage their most important and complex resource-people.

2.6 Modern Approaches

Modern management theories indicate further refinement, extension and synthesis of all classical
and neo classical management approaches. Classical approach satisfied the basic economic needs of
the organization and the society. Neo classical approach tried to satisfy security and social needs of
employees. Modern management must have the twin primary objective of productivity (classical
approach) and employee’s satisfaction-neo classical approach. The earlier theorists considered their
respective views as best and universally applicable, that is, they were highly biased towards their
own view and they did not try to take even the good ideas from others. One simply criticizes the
other and rejects in its totality. They studied management by taking things independently. They
assumed that the whole is explained in terms of its parts.
Beginning from the World War II and some time in 1960’s modern management theorists have tried
to integrate the findings of the scientific, administrative, and human relation movements to solve
war time problems. Under the modern approach, we have the following streams:
a)The Management Science Approach
The management scientists, led by operations researchers and systems analysts see management as
“a system of mathematical models and processes”. They hold that since managing a logical and
rational process, it can be expressed in terms of mathematical relationships and models. New
mathematical and statistical tools are applied in the field of management. Particularly, it can be
employed in decision making with respect to complex problems such as resource allocation,
replacement of capital equipment, inventory control, production scheduling, and quality control and
so on. This will lend exactness to management process and substitute certainty for guesswork,
knowledge for judgment, hard facts for experience. Some of the quantitative techniques suggested
are liner programming, critical path method, economic order quantity, queuing theory, probability
theory and so forth.
b)Systems Approach
In this approach an organization was viewed as organic and open system which is composed of
interacting and interdependent parts, called subsystems. From the systems perspective, management
involves managing and solving problems in each part of the organization but doing so with the
understanding that actions taken in one part of the organization affect other parts as well. Each part
tightly linked to other organizational parts; no single part of an organization exists and operates in
isolation from the others. Thus, in solving problems, managers must view the organization as a
dynamic whole and try to anticipate the unintended as well as the intended impacts of their
decisions.
The systems approach views the elements of an organization as interconnected. The approach also
views the organization as linked to its environment. Organizational effectiveness, even survival,
depends on the organization’s interaction with its environment. A system has the following features:
 System: a set of interrelated parts that work together to achieve common objective. A
company, a university, a human body are examples of a system.
 Subsystems: set of related parts those works together to achieve a common objective are
known as subsystems or components.
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 Open and closed system: open systems interact freely with their environment. Closed
systems, on the contrary, do not interact with their environment.
 Input- transformation process-output system: an open system receives inputs from its
environment which it transforms into outputs.
 Synergy: this shows the fact that “the whole is greater than the sum of its parts”.
 System boundary: is the boundary that separates each system from its environment. It is
rigid in closed system and flexible in open system.
 Feedback: the part of system control in which the results of actions are returned to the
individual, allowing work procedure to be analyzed.

c) The Contingency Approach

The systems approach forces managers to recognize that organizations are systems made up of
interdependent parts and that the change in one part affects other parts. It seeks to identify the
characteristics of jobs, people and organization and allow managers to see the interdependence
among the various segments or units.
Contingency/situational management theory states that management actions and leadership styles
should be dependent up on the circumstance/situation confronting the manager. The contingency
approach can be summarized as “it all depends” device. Right and proper conduct under one set of
circumstances may totally fail under another set. Since no two problems possess identical details,
neither should any solution. Several solutions and approaches may be possible and might yield
equally good results. Supporters of this theory would acknowledge that many roads lead to a city
from several direction; they would also stress that the route that appears the shortest might not be the
best choice if it is undergoing repairs.

In short, this theory emphasizes that there is no one best of performing any managerial task and it all
depends on the confronting the managers. This theory tells managers look to their experience, the
past and consider many options before choosing alternatives. It also tells that intelligent choice
comes only adequate preliminary research.

d)The Decision Theory Approach

This approach looks upon management process as a decision making process. In the view of the
decisional theorists, since the performance of various management functions can be studied from the
study of the process of decision making, the entire field of management can be studied from the
process of decision making. They have expanded their area of theory building from the decision
making process to the study of the decision, the decision maker and the social and psychological
environment of the decision maker. The decision theorist started with a small area of decision
making and then looked at the entire field of management through this keyhole.
Though every task of a manager involves decision making, the totality of management is, however,
something more than decision making. The most important tasks of a modern manager are
innovating, integrating the organization with its external environment and creation of an
organizational climate that is conducive to the optimum performance by its members. Such things
and others, though the involve decision making, they also require the art of management and
leadership.

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Chapter Three
Planning
3.1 Overview
Planning is the most fundamental function of management. An organization can succeed in effective
utilization of its resources when its management decides in advance its objectives, and methods of
achieving them. Without this purpose and coordinated effort the results are chaos, confusion and
wastage of resources. For a manager and a group of employees one important thing to be decided or
identified is the objective to be accomplished and the next step is accomplishing them by devising a
course of action. This rises the question of what work needs to be done, when, how it will be done,
what the necessary work components should be, the contribution of each components, and the
manner of accomplishing them.
Planning represents the expenditure of thought and time now for an investment in the future. It is
true that some goals are accomplished through little planning effort. But in this modern age where
many tasks have become quite complex-more technology is involved, more people want to be
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informed and participate in what is going to be done and with the ever increasing diversity of
products and services-planning has become a necessity.

2.2. Concepts and Need for Planning

2.2.1. Concepts of planning
Planning is the management of the organization's future in an uncertain environment.
 Planning - is the process of setting objectives and determining the steps needed to attain
them.
 Is systematic preparation for tomorrow, today
 Is an orderly process that allows managers to determine what they want and how
they get it.
 Deals with ends (what is to be done).
 Planning answers six basic questions in regard to any intended activity (objective).
what ,when, where, who, how and how much
 in planning managers:
 Assess the future
 Determine objectives of the organization and develop the overall strategies.
 Determine resources needed to achieve the objectives
Leaders are proactive. They make change happen instead of reacting to change. The future requires
corporate leadership with the skills to integrate many unexpected and seemingly diverse events into
its planning. Every organization must plan for change in order to reach its ultimate goal. Effective
planning helps an organization adapt to change by identifying opportunities and avoiding problems.
It sets the direction for the other functions of management and for teamwork. Planning improves
decision-making. All levels of management engage in planning.
2.2.2 Need for planning
We discussed in the first chapter that a need for management was felt as people started forming
groups to achieve their goals. They were quick to realize that managing is necessary to ensure
proper coordination of all the individuals in the group. If the group effort is to be successful, every
member should know exactly what is expected of him/her. This is the fundamental function of
planning. This is a basic function of the manager. Planning is the most crucial part of the functions
of the manager. The importance of planning cannot be over emphasized. It has been rightly said that
failure to plan is planning to fail. Most of the organizations very often fail due to poor planning. In
spite of the entire resources one may have, without planning one cannot move ahead.
Planning is determining the objectives and formulating the methods to achieve them.
However, the concept is simpler said than done. It is believed that a job well planned is half done.
Moreover, to better appreciate the needs for planning consider the following five essential points:
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i. Increasing time spans between present decisions and future results: the time span separating the
beginning of a project and its competition is increasing in most organizations. Obviously
planning becomes very critical in situations where the results will occur long after the decisions
actually are made.
ii. Increasing organizational complexity: as organizations become large and more complex, the
manager’s job also becomes bigger and more complicated due to the interdependence among the
organization’s various parts. For instance, the more products a company offers and the more
markets it competes in, the greater the volume of planning and decision making. Planning enables
each unit in the organization to define the jobs that need to be done and the way to go about
doing them.
iii. Increased external changes: the faster the pace of change becomes, the greater the necessity for
organized response at all levels in the organization and organizing responses spring from well
thought out plans.
iv. Planning and other management function’s relation: the need to planning is evidenced by the
relationship between planning and other functions. Before a manager can organize, staff, lead and
control, he/she must have a plan. Otherwise, these activities have no purpose or direction. Clearly
defined objectives and well developed strategies set the management function into motion.
v. If one is left with no alternatives, there is no scope for planning or choosing. It is essentially an
intellectual process requiring knowledge, experience and intelligence. Planning is needed to
make things happen or to cope up with the changes. In other circumstances, one can simply be a
spectator and watch things in action.

2.3 Advantages of planning

Without planning, business decisions would become random, ad hoc choices. Some of the concrete
reasons for the paramount importance of planning function are the following:
1) Planning is unique in that it establishes the objectives necessary for all group effort: Planning
sets objectives and how to achieve them; it is necessary in determining a.) What kind of
organization structure is required b.) What kinds of people are required? c.) How to lead
people effectively d.) Determining standards for control.
2) Minimizes risk and uncertainty: it provides more rational, fact based procedure for making
decisions. It allows managers and organizations to minimize risk and uncertainty.
3) Helps focus attention on organizational objectives: planning helps managers focus attention
on organizational objectives and direction of action for achieving these objectives. This makes
it easier to apply and coordinate the resources of the organization more efficiently.
4) Facilitates control: in planning, the manager gets goals and develops plan to accomplish these
goals. These goals and plans then become standards or benchmarks against which
performance can be measured. The function of control is to ensure that the activities conform
to the plans. Thus, controls can be exercised only when there are plans.
5) Leads to success: planning does not guarantee success, studies have shown, often things being
equal, that companies which plan outperform not only the non planners but also outperform
their own past result.
2.4 Limitations of planning
Planning is subject to certain limitations and a proper understanding of them will go away in
improving efficiency of planning.

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1. Lack of reliable or dependable information: Perfect information is the basis of plans. If reliable
and accurate information or dependable data are not available, planning is sure to be a failure. The
period of planning should also be short. The advanced forecasting techniques should be utilized
for good planning.
2. Internal inflexibilities and procedural rigidities: Business enterprises operate under changing
environment. Industries and units working under dynamic conditions and confronting changed
move rapidly, face new problems and complications of instability. Internal inflexibilities dominant
the enterprises, management tend to become bureaucratic and rule-centered. The managers may be
negligent in revising plans, policies and procedures. All this makes planning job extremely
difficult.
In order to overcome these difficulties, the managers must be properly directed. Initiative and
development can be aroused.
3. Time consuming and expensive: Planning is a time consuming and expensive process. Planning
cost goes up with every increase in its period. It should be remembered that the value expected of
planning should be more than the cost involved in it.
4. Planning premises may not be fully reliable: The basis and framework for future productions
may be provided by planning premises. Premising is always a subject to a margin of error and
guesswork, which reflects in various plans based on them. Hence, to overcome this difficulty,
there must be accurate premises.
5. Philosophy of management and personnel: It can be a very serious limitation of planning.
Traditional concepts and beliefs are so deeply rooted in the minds of employees that planning
outside, their views of philosophy becomes extremely difficult. Psychologically people are not
willing to accept changing views. Therefore, efforts must be taken to convince the people about
the value of changes to overcome this difficulty.
6. Other factors: There is very little scope for the management to control external limitations. E.g.
Government policies, rules and regulations, taxation laws, competition and technological changes.
All these factors act as limitations to planning in differing degrees for different problems,
situations and different times.

2.6 Types of Plans

Plan can be classified in to different types based on various criteria (basis): repetitiveness, time
dimension and scope or breadth dimension (organization level).

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A. Classification of plans based on repetitiveness

On the basis of repetitiveness plans can be classified in to two:
i. Single use plans
ii. Standing plans

i. Single use plans

Single use plans are those plans which have no more use after objective is accomplished. Once
activity for which they have been made is over, single use plans have little or no use at all. They
include: programs, projects, Budgets, and schedule.
 Programs- defined as a comprehensive plan that includes future use of different
resources in an integrated pattern and establishes a sequence of required actions and
time schedules for each in order to achieve the stated objectives. Thus, a program
includes objectives, policies, procedures, methods, standards and budgets. For example,
launching of a satellite will require programming.

 Project- is specific action plan formulated to complete various aspects of a program

which can be distinctly identified as a clear-cut grouping of activities with definite
objectives and completion time. Smaller in scale than programs or part of a program.
 Budget - is a statement of expected results expressed in numerical terms. Budget is a
plan that shows how money will be spent over a certain period of time. Even if
budget is often thought as control technique, it is also a plan since it sets forth
objective to attain. Sometimes called as 'numerical plan' as they are quantitative in
nature.
 Schedule –arranges time for a given activities only.
ii. Standing Plans
Standing plans are type of plans which can be used again and again once they made. They remain
useful for long period in dealing with repetitive situations. Unlike single use plan, a standing plan
specifies how to handle continuing or recurring activities such as hiring, granting credit,
maintaining equipment. Once constructed, they continue to be useful over many years. Examples
include policy, procedure, rule and strategy.
 Strategy: is the process of determining the major objectives of an organization and
the policies. It is a program that governs the acquisition, use and disposition of
resources to achieve those objectives. In other words, strategy is then general program
of action and deployment of resources to attain comprehensive objectives. Thus, an
entrepreneur needs to decide what kind of business he/she is going to do. A strategy
may also involve designing a set of policies for the sales department of an organization.
Treatment of strategy as a type of plan is justified by its practical advantage and the
importance it is likely to have in giving guidance.

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 Policy: is a general statement or understanding which guides or channel thinking in

decision-making. Policy defines an area within which a decision is to be made and
ensures that the decision is consistent with the objectives of an organization.
 Procedure: is a subdivision of policy. It states a series of related steps or tasks to be
performed in a sequence. Is a sequence of steps or operations describing how to carry
out an activity and usually involves a group. It is more specific than a policy and
establishes a customary way of handling a recurring activity
 Rule: is also a plan that prescribes a course of action and explicitly states what is to be
done under a given set of circumstances. Dictates actions that must or must not be taken
in a given situation.

B. Classification of plans based on duration/ time dimension

Taking time in consideration a plan can be categorized in to three. Basically planning deals with
future and the future is measured in time. Hence it is convenient and acceptable to think of different
kinds of planning in terms of the time periods for which the planning is intended.

I. Long range plans

Long range plans are those plans which have longer time horizon; they are concerned with distant
future than immediate future. Plan for five or more year E.g. Long term plans on production or ware
house facilities.

II. Intermediate plans

Intermediate range plans are those plans with a time horizon between one and five years. They
range between long and short-term plans. E.g. development of new products, modernization of
facilities,etc.

III. Short range plans

The period is generally one year or less.E.g annual plan of sales, revenue, production material
requirement operating expenses budget.

c. Classification Based Scope/Organizational Level

Scope of plan refers to the range of activities covered by the plan. In this system of classification
there are three types of plans as described below.
 Strategic plan: is the process of analyzing and deciding on the organizational mission,
objectives, major courses of action/strategy and major resource allocation. Strategic
planning is done by taking into account environmental analysis- strengths, weaknesses,
opportunities and threats (SWOT analysis). Generally, strategic planning is performed by
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top level managers, mostly long range in its time frame, expressed in relatively general non
specific terms and provides general direction to the organization.
 Tactical planning: strategic/long range planning answers the questions: where are we
now? & where we want to go? Tactical planning answers the question: how do we get there?
In other words, tactical plans refer to the processes of developing action plans through which
strategies are executed. Tactical plans are narrower in scope than strategic plans. Strategic
plan is concerned with both the means and ends where as tactical planning is mainly
concerned with the means. Middle level managers are often involved in tactical planning.

 Operational Planning: is most specific and detailed. It is made at the operational level
and is concerned with the day to day and week to week activities of an organization. It is
mainly of short range, usually covering one year or less.
Strategic planning and tactical planning are highly complementary in that they are like two sides of
the same coin. Strategic planning provides the big picture; operational planning provides the detail
without which the big picture would remain in blank outline.

2.6. Planning process (Steps in Planning)

Planning is not something which is made all once at a time. The planning process is rational and
amenable to the scientific approach to problem solving. It consists of a logical and orderly series of
steps. A person involved in planning pass through number of steps to make effective plans. Process
of planning indicates the major steps taken place in planning. The steps generally involved in
planning are:

Step-1 Establishing objectives

The first step in planning is to establish objectives for the enterprise and then for each subordinate
work unit. Objectives are the driver of planning processes. Objectives are established at all levels
of the structure, beginning at the top level and running down to first line managers. Strategic goals
and objectives are developed to bridge the gap between current capability and the mission. They are
aligned with the mission and form the basis for the action plans. Objectives are sometimes referred
to as performance goals. Generally, organizations have long-term objectives for such factors as
return on investment, earnings per share, or size. Furthermore, they set minimum acceptable
standards or common-sense minimums. In addition, certain limitations, either explicit or implicit,
such as "must provide jobs for existing employees" may exist. Objectives elaborate on the mission
statement and constitute a specific set of policy, programmatic, or management objectives for the
programs and operations covered in the strategic plan. They are expressed in a manner that allows a
future assessment of whether an objective has been achieved.

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Step 2. Environmental Analysis and forecasting

The next point for planning is an awareness of environment, both internally and externally.
Organization should maintain a continual assessment of the environment to determine its own
weaknesses and strengths internally and to be aware of opportunities and threats in external
environment. . Based on this analysis of internal and external environment forecasting (predicting)
of different environmental factors such as economics, technological, political etc can be made to
assist real planning. Conduct a situation or SWOT analysis by assessing strengths and
weaknesses and identifying opportunities and threats. A situation or SWOT (Strengths,
Weaknesses, Opportunities, and Threats) analysis is critical to the creation of any strategic plan. The
SWOT analysis begins with a scan of the external environment. Organizations must examine their
situation in order to seek opportunities and monitor threats. Sources of information include
customers (internal and external), suppliers, governments (local, state, federal, international),
professional or trade associations (conventions and exhibitions), journals and reports (scientific,
professional, and trade).

SWOT is the assumptions and facts on which a plan will be based. Analyzing strengths and
weaknesses comprises the internal assessment of the organization. Assess the strengths of the
organization. What makes the organization distinctive? (How efficient is our manufacturing? How
skilled is our workforce? What is our market share? What financing is available? Do we have a
superior reputation?) Assess the weaknesses of the organization. What are the vulnerable areas of
the organization that could be exploited? (Are our facilities outdated? Is research and development
adequate? Are our technologies obsolete?) What does the competition do well?

Analyzing opportunities and threats comprises the external assessment of the environment. Identify
opportunities. In which areas is the competition not meeting customer needs? (What are the
possible new markets? What is the strength of the economy? Are our rivals weak? What are the
emerging technologies? Is there a possibility of growth of existing market?) Identify threats. In
which areas does the competition meet customer needs more effectively? (Are there new
competitors? Is there a shortage of resources? Are market tastes changing? What are the new
regulations? What substitute products exist?) The best strategy is one that fits the organization's
strengths to opportunities in the environment.

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The SWOT analysis is used as a baseline for future improvement, as well as gap analysis.
Comparing the organization to external benchmarks (the best practices) is used to assess current
capabilities. Benchmarking systematically compares performance measures such as efficiency,
effectiveness, or outcomes of an organization against similar measures from other internal or
external organizations. This analysis helps uncover best practices that can be adopted for
improvement. (See Camp, R. C. Benchmarking: The search for industry best practices that lead to
superior performance. Norcross, GA: Industrial Engineering and Management Press, 1993.)
Benchmarking with other organizations can help identify a gap. Gap analysis identifies the progress
required to move the organization from its current capabilities to its desired future state. In this way,
the organization can adapt to the best practices to improve organizational performance.

Step 3. Determining alternative course of Action

Once objectives are set, the management must identify alternative ways for reaching them. When
developing alternatives. A manager should try to create as many roads to each objective as possible.
In fact, in most cases the challenging is not to find alternative ways but to decide which ones are
best. To decide on best ones it requires evaluation.

Step 4. Evaluating the alternatives

Each alternative needs to be evaluated to determine which one best achieves the objectives. In
evaluating managers should assess cost (disadvantages) and benefits (advantages) of all alternatives.
The assessment may include both financial and non financial considerations.

Step 5. Select the best alternatives

After evaluating all possible alternatives, managers will select alternative that remains better than
others. It may be an alternative with least disadvantages and most advantages.

Step 6. Implementing the plan

After the alternative course of action selected, it is important to develop an action plan to execute
the plan. In this step method for implementation will be suggested.

Step 7. Controlling and evaluating the results

Once the plan is implemented it needs monitoring. Managers should monitor the progress being
made, evaluate the reports made based on results, and make any necessary modifications, because
factors in environment are constantly changing, plans must be modified to cope up with changes.

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2.5 PLANNING TECHNIQUE

Managers Can Improve the Quality of their planning by applying variety of Planning tools and
techniques .The important fanciful of planning is management by objectives (MBO).
Management by Objective (MBO)
MBO is a system in which specific performance objectives are jointly determined by subordinates
and their superiors, progress toward objectives is periodically reviewed, and rewards are allocated
on the basis of this progress. An effective planning tool to help the supervisor set objectives is
Management by Objectives (MBO). MBO gained recognition in 1954 with the publication of Peter
Drucker's book The Practice of Management. MBO is a collaborative process whereby the manager
and each subordinate jointly determine objectives for that subordinate. To be successful MBO
programs should include commitment and participation in the MBO process at all levels, from top
management to the lowest position in the organization.

MBO begins when the supervisor explains the goals for the department in a meeting. The
subordinate takes the goals and proposes objectives for his or her particular job. The supervisor
meets with the subordinate to approve and, if necessary, modify the individual objectives.
Modification of the individual's objectives is accomplished through negotiation since the supervisor
has resources to help the subordinate commit to the achievement of the objective. Thus, a set of
verifiable objectives for each individual are jointly determined, prioritized, and formalized.

The supervisor and the subordinate meet periodically to review the latter's progress. Communication
is the key factor in determining MBO's success or failure. The supervisor gives feedback and may
authorize modifications to the objectives or their timetables as circumstances dictate. Finally, the
employee's performance is measured against his or her objectives, and he or she is rewarded
accordingly.

Elements of MBO
1. Top level goal setting: effective MBO begins with the objective being set by top managers
which is open for discussion by managers and subordinates to reach up on the common
objectives.

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2. Individual targets- in an effective MBO each manager and subordinate has clearly defined
responsibilities or expected results
3. Participation- both managers and subordinates are participating in objective setting.
4. Autonomous of individuals- Once the objective is set, subordinates have a right to
select methods of attaining the objectives.
5. Performance review- managers and subordinates periodically meet to review progress toward
the objectives
6. Reward- those individuals who meet the objectives in performance review are rewarded. The
rewords may be recognition, praise, pay increase, etc.

Shortly, MBO Principles are:



 Cascading of organizational goals and objectives
Specific objectives for each member
Participative decision making
explicit time period
Performance evaluation and feedback.

Steps in MBO
Effective MBO passes through different steps:
1. Setting individual objectives and plans
With each subordinate the manager jointly set objectives the participation of
subordinates in the objective setting process is away of strengthen their commitment
to achieve their goals.
2. Giving feedback and evaluating performance
Employees must know how much they are progressing toward their objectives.
Thus, managers and subordinates should meet frequently to review progress and
evaluate performance communication is key factor in determining success of failure
of MBO
3. Rewarding according to performance

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Employees' performance should be measured against their objectives. Employees

who meet their objectives should be rewarded through recognitions, praises. Pay rises
and so on.

Fig 2.1 Management by

Objective

Research has demonstrated that when top management is committed and personally involved in
implementing MBO programs, they significantly improve performance. This finding is not
surprising when one considers that during the MBO process employees determine what they will
accomplish. After all, who knows what a person is capable of doing better than the person does him
or herself?

Benefits and limitations of MBO

Benefits
1. MBO uplifts workers motivation
2. MBO allows managers and subordinates share experience

Limitation
1. It consumes much time

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3.2 Planning Defined

Some of the most common definitions of planning are the following:
 Planning is the process of establishing objectives and choosing the most suitable means for
achieving these objectives prior to taking action.
 Planning is preparing for tomorrow today; it is the activity that allows managers to determine
what they want and how to get it.
 It encompasses defining the organization’s objectives or goals, establishing an overall
strategy, and developing a comprehensive hierarchy of plans to integrate and coordinate. It is
concerned with ends (what is to be done) and means-how it is to be done.
From the above definitions one can infer that when planning, managers have five key
responsibilities as described below.
1. Construct, review, and/or rewrite their organization’s mission
2. Identify and analyze their opportunities
3. Establish the goals they wish to achieve
4. Identify, analyze and select the course or courses of action required to reach their goals
5. Determine resources they will need to achieve their goals.

3.3 Characteristics of Good Plan

Every sound business plan must have the characteristics mentioned below:
 Planning should, first of all, be based on objective thinking. It should be factual, logical and
realistic. It also needs to be directed to achieve organizational goals rather than personal
objectives.
 Since a plan is a forecast of some future action, it must have the quality of future. A plan must
foresee with reasonable accuracy the nature of future events affecting the firm.
 Because no one can foresee the future, plans must be flexible. The more difficult it is to predict
the future, the more flexible the plan must be.
 Stability is related to flexibility. A stable plan will not have to be abandoned because of long term
changes in the company’ situation. It may affected by long range developments but it should not
be changed materially from day to day.
 A business plan must be comprehensive enough to provide adequate guidance but not so detailed
as to be unduly restrictive.
 Although a good plan must be comprehensive, it should also be simple.
 A plan should not be ambiguous. Lack of clarity makes understanding and implementation
difficult.
 Planning is a continuous process rather than behavior at a given point of time
 Planning is undertaken at all levels of the organization

3.4 Importance/Purpose of planning

Without planning, business decisions would become random, ad hoc choices. Some of the concrete
reasons for the paramount importance of planning function are the following:
6) Planning is unique in that it establishes the objectives necessary for all group effort: Planning
sets objectives and how to achieve them; it is necessary in determining a.) What kind of
organization structure is required b.) What kinds of people are required? c.) How to lead
people effectively d.) Determining standards for control.
7) Minimizes risk and uncertainty: it provides more rational, fact based procedure for making
decisions. It allows managers and organizations to minimize risk and uncertainty.

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8) Helps focus attention on organizational objectives: planning helps managers focus attention
on organizational objectives and direction of action for achieving these objectives. This makes
it easier to apply and coordinate the resources of the organization more efficiently.
9) Facilitates control: in planning, the manager gets goals and develops plan to accomplish these
goals. These goals and plans then become standards or benchmarks against which
performance can be measured. The function of control is to ensure that the activities conform
to the plans. Thus, controls can be exercised only when there are plans.
10) Leads to success: planning does not guarantee success, studies have shown, often things
being equal, that companies which plan outperform not only the non planners but also
outperform their own past result.

3.5 Understanding the Need for Planning

We discussed in the first chapter that a need for management was felt as people started forming
groups to achieve their goals. They were quick to realize that managing is necessary to ensure
proper coordination of all the individuals in the group. If the group effort is to be successful, every
member should know exactly what is expected of him/her. This is the fundamental function of
planning. This is a basic function of the manager. Planning is the most crucial part of the functions
of the manager. The importance of planning cannot be over emphasized. It has been rightly said that
failure to plan is planning to fail. Most of the organizations very often fail due to poor planning. In
spite of all the resources one may have, without planning one cannot move ahead.
Planning is determining the objectives and formulating the methods to achieve them.
However, the concept is simpler said than done. It is believed that a job well planned is half done.
Moreover, to better appreciate the needs for planning consider the following five essential points:
vi. Increasing time spans between present decisions and future results: the time span separating the
beginning of a project and its competition is increasing in most organizations. Obviously
planning becomes very critical in situations where the results will occur long after the decisions
actually are made.
vii. Increasing organizational complexity: as organizations become large and more complex, the
manager’s job also becomes bigger and more complicated due to the interdependence among the
organization’s various parts. For instance, the more products a company offers and the more
markets it competes in, the greater the volume of planning and decision making. Planning enables
each unit in the organization to define the jobs that need to be done and the way to go about
doing them.
viii. Increased external changes: the faster the pace of change becomes, the greater the necessity
for organized response at all levels in the organization and organizing responses spring from well
thought out plans.
ix. Planning and other management function’s relation: the need to planning is evidenced by the
relationship between planning and other functions. Before a manager can organize, staff, lead and
control, he/she must have a plan. Otherwise, these activities have no purpose or direction. Clearly
defined objectives and well developed strategies set the management function into motion.
x. If one is left with no alternatives, there is no scope for planning or choosing. It is essentially an
intellectual process requiring knowledge, experience and intelligence. Planning is needed to
make things happen or to cope up with the changes. In other circumstances, one can simply be a
spectator and watch things in action.

3.6 Types of Plan

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We have seen that planning is essential for the success and survival of any organization.
One should also understand that there exist many different types of plans. One can plan effectively
only if one understands the different types of plans and its purposes.
 Objective is the ultimate goal toward which the activities of the organization are directed. In case
of a university, teaching, research and enlightening of students are the objectives. The objective
of the examination department of a university would be to conduct the exam in a fair and reliable
manner and declare the results on time. Though the objectives of the departments are different,
they are consistent with the purpose. One department alone is not capable of accomplishing the
purpose.
Since organizations may be involved in quite a large number of plans that are widely varying in their
degree of importance to the organization, there has to be a method to classify plans. Accordingly,
plans can be classified on different bases-time/duration, use dimension/repetitiveness, scope/the area
they cover, and on flexibility bases.
i. Classification Based on Duration/Time Dimension
All planning deal with the future and the future is measured in time. Hence, it is convenient and
acceptable to think of different kinds of planning in terms of the time periods for which the
planning is intended. Plans can be classified into three based on time as: long range, intermediate
and short range.
a) Long range plan: has longer time horizon; it is concerned with not with the immediate
future, but the distant future. It is concerned mainly with the future direction of organization.
The time may range from five to fifteen years.
b) Intermediate plan: is a plan ranges between long range and short range plan. What is long
range or what is short range cannot be generally defined. In most of the cases it depends on the
size of the organization and the type of business it is in. For example, for wheat farm it takes
six months to harvest and this can be considered as a short range but for an orange farmer a
harvest takes 6-7 years and it can be taken as short range.
c) Short range plan: are not prepared separately, they are complementary of long range
plans. The period is generally one year or less. Sometimes it can go up to two years.

ii. Classification Based On Repetitiveness/Use Dimension

Based on use dimension, plans can be divided as:
2. Singe use plans: are predetermined courses of actions developed for unique, nonrecurring
situations. It becomes obsolete whenever the time period for which it is prepared expires.
They have clear time usefulness. These types of plan include program and budget.
 Programs: defined as a comprehensive plan that includes future use of different
resources in an integrated pattern and establishes a sequence of required actions and
time schedules for each in order to achieve the stated objectives. Thus, a program
includes objectives, policies, procedures, methods, standards and budgets. For example,
launching of a satellite will require programming.
 Budget: is a statement of expected results expressed in numerical terms. It is a
quantitative expression of a plan. It varies in accuracy, detail and purpose. Master
budget contains the consolidated plan of action of the whole enterprise and is in a way
the translated version of the overall business plan of the organization. Production
budget is the plan for the production department. The capital expenditure budget, raw,
material budget, labor budget, etc are budgets for the production department. Some

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budgets vary according to the organization’s level of output. These are called variable
or flexible budgets.
3. Standing plan: unlike single use plan, a standing plan specifies how to handle continuing
or recurring activities such as hiring, granting credit, maintaining equipment. Once
constructed, they continue to be useful over many years. Examples include policy, rule and
procedure and strategy.
 Policy: is a general statement or understanding which guides or channel thinking in
decision-making. Policy defines an area within which a decision is to be made and
ensures that the decision is consistent with the objectives of an organization.
 Rule: is also a plan that prescribes a course of action and explicitly states what is to be
done under a given set of circumstances. Here, you need to observe the differences
between rules, procedures and policies. The policies are guides to decision-making and
allow the managers to use their discretion. Rules and procedures allow no such
discretion.
 Procedure: is a subdivision of policy. It states a series of related steps or tasks to be
performed in a sequence.
 Strategy: is the process of determining the major objectives of an organization and
the policies. It is a program that governs the acquisition, use and disposition of
resources to achieve those objectives. In other words, strategy is then general program
of action and deployment of resources to attain comprehensive objectives. Thus, an
entrepreneur needs to decide what kind of business he/she is going to do. A strategy
may also involve designing a set of policies for the sales department of an organization.
Treatment of strategy as a type of plan is justified by its practical advantage and the
importance it is likely to have in giving guidance.
A procedure should be stable yet flexible enough to allow emergencies and unique situations to
occur. It is noteworthy to understand that procedures and rules offer the advantage of standardizing
behavior; but they restrict individual creativity and encourage blind obedience. The more of both
exist, the less discretion/ freedom employees have to adjust to changing situations.

iii. Classification Based On flexibility

Plans are also classified on their degree of flexibility to respond to environmental uncertainties.
There are three types of plans related to flexibility:
 Variable plan: states figures in terms of ranges to allow flexibility for the uncertainties of
the environment. It is a type of plan having tolerable limits. For example, “three months plus
or minus one week” to finish a project.
 Alternative/contingency plan: is similar to variable plan in recognizing environmental
uncertainties but in this case the planners set up two or more entirely separate plans. These
kinds of planning are costly since many alternatives are developed and some may never be
used.
 Supplementary plans: are used to reduce the constraining effects of the original plan by
providing a prearranged channel.

iv.Classification Based Scope/Organizational Level

Scope of plan refers to the range of activities covered by the plan. In this system of classification
there are three types of plans as described below.

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 Strategic plan: is the process of analyzing and deciding on the organizational mission,
objectives, major courses of action/strategy and major resource allocation. Strategic
planning is done by taking into account environmental analysis- strengths, weaknesses,
opportunities and threats (SWOT analysis). Generally, strategic planning is performed by
top level managers, mostly long range in its time frame, expressed in relatively general non
specific terms and provides general direction to the organization.
 Tactical planning: strategic/long range planning answers the questions: where are we
now? & where we want to go? Tactical planning answers the question: how do we get there?
In other words, tactical plans refer to the processes of developing action plans through which
strategies are executed. Tactical plans are narrower in scope than strategic plans. Strategic
plan is concerned with both the means and ends where as tactical planning is mainly
concerned with the means. Middle level managers are often involved in tactical planning.

 Operational Planning: is most specific and detailed. It is made at the operational level
and is concerned with the day to day and week to week activities of an organization. It is
mainly of short range, usually covering one year or less.
Strategic planning and tactical planning are highly complementary in that they are like two sides of
the same coin. Strategic planning provides the big picture; operational planning provides the detail
without which the big picture would remain in blank outline.

3.7 Basic Planning Processes

All types of planning require a manager regardless of their organizational levels to use basically the
same planning steps even though the plans being developed may be different. In order to better
understand the managerial planning process, one should grasp the following eight steps of planning
process:
1) Being aware of the existing situations: an awareness of opportunities and threats
in the external environment as well as the strengths and weaknesses within the organization is the
real starting point of planning. All managers should know where they stand in the light of their
strengths and weaknesses, understand what problems they wish to solve and why, and know what
they expect to gain. Setting a realistic objective depends on this awareness.
2)Developing Planning Premises: this step in planning is concerned with establishing,
circulating and obtaining agreement to utilize critical premises such as forecasting, applicable
basis principles and analyzing existing company plan. Planning premises are assumptions about
the environment in which the plan is to be carried out. Forecasting is important here. Although
the future is full of uncertainties, the manager must make certain assumptions about it in order to
plan properly. These assumptions are based on forecasts of the future. The assumptions are
developed for both internal and external environment such as availability of capacity, required
skills, company policy, and procedure, economic condition, labor supply, government control,
etc.
3)Setting clear cut Objectives: Objectives or goals are the end results towards which
activities are aimed. It is not only the end point of planning but the end towards which
organizing, staffing, leading and controlling are aimed. When a manager sets objectives (goals),
he or she is deciding on a target for the energies and efforts of the organization or its sub units.
Peter Drucker has developed an effective aid to objective setting, that is, management by

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objective (MBO) which is a management philosophy emphasizing on collaborative objective

setting by managers and employees. According to MBO, managers and employees jointly set
objectives for the subordinates. MBO usually results in employees who are more committed to
the achievement of the objectives than they might be if they were not involved in setting their
objective.

Management by objectives is a comprehensive managerial system that integrates many key

managerial activities in a systematic manner and that is consciously directed toward the effective
and efficient achievement of organizational and individual objectives.
Features of MBO
 Superiors and subordinates jointly identify the common objective, the results that should be
achieved and the contribution of each individual.
 Objective orientation is its essence; the basic emphasis of MBO is an Objective
 It tries to match the objective and available resources.
 The MBO is characterized by the participation of concerned managers and employees in
objective setting and performance reviews.
 Periodic review of performance is an important feature of MBO

Process of MBO
MBO is a stepwise activity which involves the steps given below:
1) Setting of organizational purpose and objectives
 The first step in MBO is to determine the purpose or mission and the more important goals
of the enterprise for a given period ahead
 Why does the organization exist?
 What business are we in?
 What should be our business?
2) Identifying Key Result Areas (KRA’s): KRA’s are derived from the expectations of the
various stakeholders and indicate the priorities for organizational performance i.e., profitability,
productivity, market standing, labor reactions, innovations and diversification.
3) Setting subordinate’s objective: The subordinate’s states his own objective as perceived
by him. Objectives are set by mutual negotiation.
4) Matching resources with objectives: The next step is to match the resources with the
objectives and verify that resources are adequate to fulfill the individual and organizational
objectives.
5) Appraisal (Evaluation): Measuring whether the subordinate is achieving his/her objective or
not. On going process with a review to find out deficiency and to remove it promptly.
Benefits of MBO
 Better management: MBO forces managers to think about planning for results, rather than
merely planning activities or work.
 Clarity in organizational action: MBO tends to provide the KRA’s. It provides basis for
long-range planning.
 Encouragement of personal commitment: It encourages people to commit themselves to
their goals
 Development of effective controls: It aids in effective control because it provides a clear set
of verifiable goals as the best guide.
Limitations of MBO

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 Failure to understand the philosophies of MBO: Managers fail to understand and appreciate
this new approach. MBO demands vigorous analysis as an integral element of the
management process.
 Difficulty in setting goals: truly verifiable goals are difficult to set, Objectives are more in the
form of statement rather than in quantitative form
 Emphasis on short-run goals: There is a danger of emphasizing on the short run at expense of
the longer range. Periodic review of performance e.g. sales manager.
 Danger of inflexibility: Managers often hesitates to change objectives
 Frustration: introduction to MBO tends to arise high expectations for rapid changes (the
vision of new world)
Characteristics of Effective Objectives
Objectives set by a company should, in general, possess the key features stated below. In short, they
should be SMART.
 Specific: objectives should be as specific as possible i.e. they ought not to be general.
 Measurable: objectives should be expressed in numerical terms such as increase in ROI by
5%, so that whether they are attained or not can be easily known.
 Achievable but challenging: challenging goals inspire employees to work hard; however, if
they are beyond what can be achieved with the available resources, they can result in
frustration and low motivation of employees. Objectives should not be too easy or too
difficult to achieve.
 Realistic: what is aimed to achieve should be something that can be realized or possible.
E.g. an agro business which plans to cause rain to fall may not realize it as it is unrealistic.
Rather, such a business can plan to use water from wells through irrigation.
 Time bound: objectives should be set for a definite period of time during which they have to
be achieved such as six months, one year, etc.
 Focus on key result areas: activities that contribute most to the firm need to be focused
while setting objectives.
 Linked to rewards: employees should be privileged to rewards upon the achievement of
stated objective.
4)Determining alternative courses of actions:
This step focuses on constructing a list of possible courses of actions that will lead to goal
achievement. Courses of actions available to a manager to reach a goal represent alternative paths to
a destination. When developing alternatives, a manager should try to create as many as possible
roads to each objective so that the best alternative can be selected among them.

5)Evaluating alternative course of actions

Each alternative must be evaluated to determine which one or which combination is most likely to
achieve the set objectives efficiently and effectively. Most managers begin their evaluation by
listing advantages (benefits) and disadvantages (cost) for each alternative. When evaluating
alternatives, managers need to know the kind and amount of resources including time that each
alternative will require. In addition to financial and time factors, managers need to consider the
effects each alternative is likely to have on organizational members and external society at large.

6)Select the best alternative

The analysis of each alternative’s benefit and cost should result in determining one course of action
that appears better than others. If no single alternative emerges as a clear winner, managers should
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consider combining two or more of them, either in part or in their entirety. The alternatives not
selected now may be considered as possible fall back position- a choice for contingency plan or
derivative plan that supports the major plan.
7) Implementing the Plan
After the optimum alternative/s selected, the manager needs to develop an action pan to implement
it/them. Among the issues to be resolved include: who will do what? By what date will each task be
initiated and completed? What resources will each person have to perform the task? What type and
degree of authority will be granted to achieve the ends? & so forth.
8)Evaluation and control
Once the plan is implemented, managers must monitor the progress being made and be prepared to
make any necessary modification. Since environmental conditions are constantly changing, pans
must often be modified. Modification may also be required due to problems with implementation
process. Generally, the essence of evolution and control is to see whether the desired objective is
achieved or not.

3.8 Barriers to Planning

All managers want their plans to be effective-yield the desired results. They must be aware of the
potential barriers and work to avoid/overcome them. Here are some of the common barriers that
inhibit success of planning:
1) Inability to Plan: people are not born with the ability to plan. Some managers are not
successful planners because they lack the background to plan. Some may not have conceptual
ability; this is a more difficult barrier to overcome. Most people can, however, improve their
planning ability through training and practice.
2) Improper planning process: some managers have not been exposed to the idea of
planning as a process and do not know how to plan and how to go about it, but it can be
remedied with management training.
3) Lack of commitment to the planning process: Some managers merely react to
situations rather than try to anticipate the events through sound planning. The development of
plan is hard work; it is much easier for a manager to claim there is no time for planning.
Another reason is the fear of failure. This happens if the organizational climate discourages
innovation and punishes failures.
4) Improper information: Information that is outdated, inaccurate, of poor quality, or of
insufficient amount can be a major barrier to planning.
5) Focusing on the present at the expense of the future: failure to consider the long
term implications because of emphasis on the short-term problems will lead to troubles in
coordinating plans and getting ready for the future. Emphasis on immediate profit can turn the
manager’s attention away from long range goals and efforts to guarantee profits in the future.
6) Too much reliance on the planning Department: Planning departments conduct
studies, do research, build models, and project probable results, but they do not implement
plans. They are aids in planning. Somewhere, somehow, a manager or managers must be able
to translate the planning department’s output in to programs to achieve specific goals at
specific times. The values of vast experience acquired by managers outside the planning
departments are sometimes ignored.
7) Over emphasis on controllable variables: managers concentrate on the things
and events within their powers to control while failing to consider outside factors. Managers
show a decided preference for the known and an aversion to the unknown. But plans are
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educated guesses about the future. They are only attempts to predict the impact of present
decisions on the future and the future’s impact on the organization.
Making Planning Effective
To improve the effectiveness of planning, one may employ the following guidelines:
 Use as much information as possible: the manager should increase the probability
of having both the proper quantity and quality of information needed by acquiring as much
data as possible within the limits of time and money.
 Multiple sources of information: by developing multiple sources of information, the
manager can overcome the limitation brought about by focusing on a goal from only one
view point. Additional critical information can be received from accounting, legal counsel,
personnel and production. All potential sources need to be cultivated.
 Take time to plan: Planning should never be done in haste and repent. One may save
some time by developing a plan quickly. But in the event of things going wrong, if you have
not considered all the factors in a hurry, you are under pressure of both the time and
resources. This becomes a sure recipe for trouble. The trouble is not only for the individual,
but also for the organization.
 Involve and communicate with all those concerned: opening the planning
process to those who have the ability and interest could result in more and perhaps better
plans. Such an exercise inculcates in people a commitment to achieve the goals.
Participation in the process of planning gives a sense of pride and binds them to the
objectives.
 Evaluate and revise: Evaluate the plans at regular intervals to make sure that it is
contributing to the objectives in the expected manner

3.9 Skills Required In Planning

Forecasting and decision making are the two indispensable skills required in planning.
a) Forecasting: is the attempt to predict outcomes and future trends that can serve as basis for
planning by inference from known things. By relating the past and the present information,
management should be able to anticipate the future environment.
Forecasting Methods
We can use both qualitative and quantitative forecasting methods to predict future situations.
 Qualitative Forecasting: is a judgment based forecasting technique used when hard data are
scarce or difficult to find.
 Quantitative Techniques: is a technique used when enough hard data exist to specify
relationships among variables. Quantitative forecasting can be used if information about the
past and the present exists and if this information can be specified numerically and if it can
be assumed that the pattern of the past will continue. On the contrary, inputs to the
qualitative forecasting come mainly from intuitive thinking, judgment and accumulated
experience.

b)Decision Making
Decision making is defined as the process of selecting, based on some criteria, the best course of
among a number of alternatives. It is rational choice among alternatives. There should be options to
choose from; otherwise choosing is not possible and no decision. Decision making is a process; not
a single act like switching/opening light.

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Managers at all levels as well as non managers are engaged in decision making, thus decision
making is indeed universal. Although decision making is part of everyone’s life, it is an important
function of managers because the quality of the decision made by them determines the success or
failure of the business and, like it or not, managers are evaluated and rewarded on the bases of the
importance, number, and results of their decision. In management, the term decision making and
problem solving are used interchangeably because managers mostly make decisions to solve
problems. But all decision makings are not aimed at solving problems. Many decisions are made to
seize opportunities. Managers see a chance, event or breakthrough that requires a decision to be
made.
Types of Decision Making
Not all decision making situations are identical. The nature of the decision often dictates the
manager what approach to take. In this section, various types of decisions will be discussed.

a)Programmed and Non Programmed Decisions

 Programmed decision: decisions are said to be programmed if they are repetitive and a
definite procedure or policy has been developed for determining when the decision should be
made and what actions should be taken.
 Non programmed decision: decisions are non programmed when they are novel,
unique, one time and unstructured. This calls for general problem solving process, judgment,
intuition and creative problem solving abilities of the manager. Ideally the main concern of
top level managers should be non programmed decisions while programmed decisions
deserve attention of managers at the first level.
b)Proactive and Reactive Decisions
 Proactive decisions: decisions made in anticipation of external changes or other future
conditions are referred to as proactive decisions.
 Reactive decisions: a reactive decision is one made in response to changes that have
already occurred.
c) Intuitive and Systematic Decisions
 Intuitive decision: it involves the use of estimates, guesses, or hunches to decide among
alternative courses of action. Sound intuition is developed primarily from experience and
training.
 Systematic decision: in contrast to purely intuitive decision making, systematic decision
requires a clear set of objectives, relevant information basis and sharing of ideas among key
managers and other employees.
Decision Making Conditions
Decisions can also be classified according to the level of risk and certainty associated with them.
Based on degree of certainty, there are three conditions of decision making-certainty, risk and
uncertainty.
 Certainty: this is the condition in which the decision maker has full information about the
problem, the alternative solutions, complete knowledge of the probability of the outcomes
of each alternative. It is rare to find decisions made under certainty condition in highly
dynamic environment.
 Risk: in this situation, the manager knows what the problem is, knows the alternatives, but
does not know how each alternative will workout even though he/she has some estimate of

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the probability of possible outcomes of each alternative. Decision making under risk is,
probably, the most common situation faced by managers.
 Uncertainty: in this situation, there may be limited information about the alternative
solutions, but the decision maker has absolutely no knowledge of the probability of the
outcome of each alternative. Confidence in decision making is low because decisions are
made on educated guesses, relevant experience, subjective judgment and intuition. Thus,
decision making under uncertainty is mostly non programmed decision.

Decision Making Process

Because decision making is such an important part of a manager’s job, we need to have clear
understanding regarding it. One of the most effective measures to this end is to follow a conscious,
rational decision making process. Decision making is a sequential process. It includes the following
major steps:
1. Identifying the Problems or Opportunities: the decision making process begins with
the determination of a problem or opportunity that may exist. This is the most crucial step as the
accuracy of this step affects all the steps that follow. Problem is the realization that discrepancy
exists between a desired state and current reality. Opportunities must also be clarified before any
decision can be made. Opportunity is a chance, occasion, event, breakthrough that requires a
decision to be made.
In problem solving a manager must differentiate between a problem and symptoms. A symptom
is signals that something is wrong and draws the manager’s attention to find the cause-the
problem. To isolate symptoms from problems, a manager needs to develop a sound questioning
process and ask the right questions. According to peter Drucker, the most common sources of
mistakes in management is the emphasis on finding the right answer rather than the right
question. Searching for the root cause of a problem leads to better definition of the problem. It is
difficult to determine a solution to a problem if the root cause of the problem is unknown. For
instance, large number of a bank’s customers may close their accounts. The cause of the problem
should not be stated as loss of account since this is just a symptom or visible indicator of other
root cause resulting in awareness that a problem exists. The bank might have identified
dissatisfaction of customers as a cause to the problem. Still this is not enough until the root cause
for customer dissatisfaction is known which may be impolite treatment of customers by the
bank’s tellers or a very low interest rate that the bank pays for deposits.

2. Establishing Priorities: all problems are not equal in importance. As a result it is necessary
establish priorities for problems by determining their significance level and resource
requirements. Based on this fact we can consider the following issues:
 Urgency: time is critical factor for success. For example, fighting a fire that broken out
in the store is more urgent problem than fixing a broken machine. On the other hand, the
machine fixing is more likely to be urgent than repairing a type writer.
 Impact: describes the seriousness of a problem. It may affect people, sales, equipment
and any other organizational resource. Impact also describes whether effects of the
problem are short term or long term.
 Growth tendency: addresses future consideration even though a problem may
currently be of low urgency and have little impact if allowed to go unattended it may
grow.

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3. Developing Potential Alternative Solutions: at this point, it is necessary to look at,

develop and list as many possible alternative solutions to the problems as possible. These
alternative solutions should eliminate, correct or neutralize the problem. Note that doing nothing
about a problem sometimes is a proper alternative, until the situation has been thoroughly
analyzed. Occasionally, just the passing of time provides cure. Decision maker must always seek
out alternatives to ensure that there are choices to be made, and it is to be hoped that the best
choice will result in the best decision. Feasible alternatives to the problem should be developed
using one’s own creativity and brain storming techniques and the possible consequences of each
alternative should be evaluated.

4. Evaluating Alternative Solutions

Once alternative solutions have been developed, they may be evaluated and compared. In every
decision situations the purpose is to select the alternative that will produce the most favorable
result. The purpose of this step is to evaluate the relative merits and demerits of each alternative.
To evaluate the alternatives, decision criteria and weight to each criterion should be allocated so
that rational/ proper selection will result.
5. Selecting The Best Alternative Solution
After we evaluate the alternatives, the next logical step is to select the best alternative that suits
to solve the decision problem. After the alternatives have been listed along their corresponding
merits and demerits, a decision maker selects the best one. In selecting an alternative or
combination of alternatives, one must find a solution that appears to offer the fewest serious
disadvantages and the most advantage. Thus, this is critical point of the decision making, the
point where a decision is actually made.

6. Implementing The Best Alternative Solution

Any decision is little more than an abstraction if it is not implemented; and it must be
implemented effectively if it is to achieve the desired objective. It is entirely possible for a good
decision to be hurt by poor implementation. Therefore, a manager’s job is not only to choose
sound course of action but also to transform the choice into effective action. Everyone involved
in carrying out the decision must know what he/she must do, how to do it, why and when it must
be done.

7. Establishing Evaluation And Control Systems:

Effective decision making involves periodic assessments of results of the chosen course of
action. If actual results are not conforming planned results, change must be made. On the other
hand, once a course of action has been decided upon, a manager cannot simply assume that its
implementation will match with the objectives; action must be monitored and their consequences
assessed. This final step provides feedback on how well the decision is being implemented, what
the negative and positive results are and what adjustments are necessary to get the results that
were desired when the solution was chosen.

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Chapter Four
Organizing
4.1 Meaning and Definition of Organizing
What to do and how to do have already been determined in the planning process. The result of a
good planning process is a detailed program of what actions are to be taken to accomplish
predetermined objectives, how long it will take, and where it will take place. The next task becomes
that of organizing.
Organizing is the process of identifying and grouping tasks to be performed, assigning
responsibility, delegating authority and establishing relationships for the purpose of enabling to
work most effectively together in the accomplishment of objectives. Organizing is a detailed
arrangement of work and working conditions in order to perform the assigned activities in an

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effective manner. Put more specifically, the organizing function has the following four distinct
activities:
 It determines what work activities are to be done to accomplish organizational objectives
 It classifies the types of work needed and groups them into manageable way
 It assigns the grouped work to individuals and entrusts appropriate responsibility
 It designs a hierarchy of decision making relationships

4.2 Formal Vs. Informal Organization

Formal organizations, as depicted in an organizational chart, are characterized by well defined
authority relationships, job titles, policies, and specific job duties necessary to achieve set goals.
Informal organizations exist within the formal organization but operate outside formal authority
relationships. Formal organization is deliberately and rationally designed and approved by
management through the organizing process so as to achieve organizational objectives. Informal
organizations are natural groupings of people in the work situation based on their behavioral
patterns, interests, beliefs, objectives, etc. informal organizations appear in response to the social
needs-the need of people to associate with others.
Even though informal organization is not established officially, it always exists within the formal
organization. It may affect the formal organization negatively or positively. Managers should
recognize that the informal organization exists in the formal organization; nothing can destroy it.
Therefore, managers should try to use the informal organization for the benefit of the formal
organizations, instead of trying to eliminate it.
Informal organization is characterized by the following:
 Group Norms: are unwritten laws that govern the behavior of members of the informal
organization
 Group Cohesiveness: is an atmosphere of closeness or common attitudes, behavior and
performance. There is common agreement on group views. The group members develop a
cooperative spirit which is important for success. Cohesiveness is affected by such factors as
time spent together, group size, the gender make up, external threats, previous success,
frequency of interaction, etc.
 Group Leadership: the informal organizational has a group leader. This person is the one
who most actively seeks the fulfillment of the group’s informal objective.
 Communication Network: the informal organization has a communication network called
grapevine.

4.3 Importance of Organizing

Organizing is important as a way to achieve organizational goals. The points described below show
the main significance of organizing.
 It clarifies the work environment: everyone understands what to do. The tasks and
responsibilities of all individuals, departments, and major organizational divisions are clear.
The type and limits of authority is determined.
 It creates a coordinated environment: confusion is minimized and obstacles to
performance are removed because it defines the interrelationships of the various work units
and establishes guidelines for interaction among personnel.

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 It achieves the principle of unity of direction: the principle of unity of direction calls
for the establishment of one authority figure for each designated task of the organization; this
person has the authority to coordinate all plans concerning that task.
 It establishes the chain of command: the chain of command is the unbroken line of
reporting relationships from the bottom to the top of the organization. It defines formal
decision making structure and provides for the orderly progression up and down the hierarchy
for both decision making and communication. As result, the confusion highlighted by the
question, “who is in charge here, anyway?” does not occur.

4.4 Organizing process

The organizing function is consists of the following five basic steps:
1) Reviewing plans and goals
2) Determining work activities
3) Classifying and grouping activities
4) Assigning work and delegating authority
5) Designing a hierarchy of relationships
Below, each of the five processes of organizing is discussed.
1)Reviewing Plans and Goals
A company’s goals and its plans to achieve them dictate its activities. Some purposes and
activities are likely to remain fairly constant once a business is established. For example, the
business will continue to seek profit and it will continue to employ people and other resources. In
time and with new plans, however, the ways in which basic activities are carried out will change.
New departments may be added, old ones may be given additional responsibilities; some
departments may cease to exist and new relationships among groups of decision makers may
come into being as well. Organizing will create the new structure and relationships and modify
the existing ones.
2) Determining Work Activities:
In the second step, managers ask what work activities are necessary to accomplish these goals.
Creating a list of tasks to be accomplished begins with identifying ongoing tasks and ends with
considering the tasks unique to this business. Hiring, training, and record keeping are part of the
regular routine for running any business. What, in addition, are the unique needs of this
organization? Do they include assembling, machining, shipping, storing, inspecting, selling, and
advertising? Identifying all necessary activities is of paramount importance as ignoring any may
lead to disorder, confusion and interruption of the normal flow of tasks.
Specialization: refers to the degree to which organizational tasks are subdivided into
separate jobs. Degree of required specialization dictate the number of tasks assigned to a person;
the greater the degree of specialization, the fewer the number of tasks assigned to a person and
vice versa. Specialization, also known as division of labor, refers to the breaking down of
potentially complex jobs into simpler tasks or activities. The result of specialization is that one
person or group may complete only a single activity or group of related activities. Division of
labor creates many different and often narrow jobs which intensifies the need for effective
managerial coordination.
Advantages of Work Specialization
 Work can be performed more effectively if employees are allowed to specialize.
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 It facilitates the process of selecting employees as well as decreases training requirements.

 It enables a person performing a task to become proficient at it in relatively short time and
this in return increases efficiency.
 It saves time that always lost in shifting from one job to another.
 There is less wastage of materials in the learning process when specialization is employed.
 It allows managers to supervise more employees
 As each job is simplified, managers know what performance standards to expect and can
detect job related performance problems quickly.

Disadvantages of Work Specialization

Despite its disadvantages, specialization can create problems such as the ones mentioned below:
 When specialization is over done, jobs become too simplified and when employees do one
simple task- for example, tightening a nut-for eight hours day, five days a week, they
become bored and tired.
 When employees become bored and tired, safety problems and accident rates increase,
absenteeism rises and the quality of work may suffer.
 The specialist lacks job enrichment, that is, his skills will be limited to only few jobs

3)Classifying and Grouping Activities

Once managers know what tasks must be done, they classify and group these activities into
manageable work units. When managers group jobs that are similar in terms of tasks, processes,
or skills they are grouping them by the principle of functional similarity or similarity of activity.
This principle asks managers to apply three steps:
1. They examine each activity identified to determine its general nature. Normally,
identifiable areas include marketing, production, finance, and human resources.
2. they group the activities into these related areas
3. they establish the basic department design for the organizational structure

In practice, the first two steps occur simultaneously, sales, advertising, packaging and shipping can
be considered marketing related activities. Thus, they are grouped under the marketing heading.
Machining, grinding, assembly and inspection are manufacturing processes; they can be grouped
under production. Personnel related activities include recruiting, hiring, training, and compensation;
they are grouped under human resources.
As the tasks are classified and grouped into related work units (production, marketing, finance, and
human resources), the third step, departmentalization, is being finalized, that is, a decision is being
made on the basic organizational format or departmental structure. Groups, departments and
divisions are being formed on the basis of the organization’s objectives. Management can choose
one of the five departmental types.
1. Functional Departmentalization
2. Geographic Departmentalization
3. Product Departmentalization
4. Customer Departmentalization
5. Matrix Departmentalization
1. Functional Departmentalization
It involves creating departments on the basis of specialized activities of the organization like
finance, marketing, production, human resource. It groups activities based on similar skills,
expertise, and resources. It is the most common form of format for departmentalization.

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Advantages of Functional Departmentalization

 Putting specialists together results in economies of scale
 It minimizes duplication of personnel and equipments.
 Employees feel comfortable in a functional structure because it gives them the opportunity to
talk the same language with their peers.
 As the structure acknowledges occupational specialization, it also simplifies training.
 It offers a way to centralize decision making and provide unified direction from the top.
 It increases the quality of technical problem solving as it gives workers quick access to those
with technical expertise.
Disadvantages of Functional Departmentalization
 Because functions are separated from one another, employees may have little understanding of
and concern for the specialty areas outside their own functional area.
 This narrowness can lead to barriers in communication, cooperation and coordination.
Departments may develop their own focus rather than a company focus.
 As the structure has rigid and separate chains of command, response time to changes in the
environment may be slow.

President

Marketing Finance Human Resource Production

Sales Research Credit Accounting Training Wage&salary Inventory Assembly

Fund Acquisition Benefits admin Machining process

Advertising

Figure 4.1 Department by function

2. Geographic Departmentalization
This is concerned with grouping activities and responsibilities according to territory. All activities in
a geographic area are assigned to a particular manager. This individual is in charge of all operations
in that geographic area. A business firm that is dispersed geographically often uses territory as a
departmentalization basis. The territorial basis is frequently used by firms whose operations are
similar from region to region. Banks and universities employ geographic departmentalization.
The main advantages of territorial departmentalization include:
 It provides a training ground for new managers. The company can place managers out in
territories and then assess their progress. The division managers gain a broad range of
experience in running their autonomous units.
 The experienced manager’s gain away from headquarters can provide invaluable insights into
how the organization’s products or services are accepted in the field. An organization that has
a large number of divisions is developing a number of generalists for the company’s top
positions.
 It also helps a firm develop local market knowledge and adjust its offerings more quickly to
local customer’s needs.
 Coordination among different functions within the division benefits from singleness of
purpose.
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 As each division is a self contained unit, responsibility and accountability for performance are
easier to target.
The disadvantages associated with territorial departmentalization include:
 Difficulties in maintaining consistent adherence to company policy and practices
 Duplication of activities and resources
 The necessity of having relatively large number of managers.
 The company that uses this type of departmentalization often needs large number of
headquarters staff to control the dispersed operations.
 The structure lacks efficiency and economies of scale; and lack of technical specialization,
expertise and training can result.

President

Personnel Finance Marketing Production

Mekelle Awassa Bahir Dar Diredawa

Personnel Finance Marketing Production

Figure 4.2 Geographical Departmentalization
3. Product Departmentalization
This type of arrangement assembles the activities of creating, producing, and marketing each
product into a separate department. This option is adopted when each product of a company requires
a unique marketing strategy, production process, distribution system or financial resources. In many
large, diversified companies, activities are grouped on the basis of product.
The main advantages of product departmentalization include:
 As a firm grows, coordinating its various functional departments becomes more difficult, and
product departmentalization can ease coordination problems.
 This form of structure allows personnel to develop total expertise in research, manufacturing,
and distribution one product line.
 Concentrating authority, responsibility and accountability in a specific product department
allows top management to better coordinate its activities. The need for coordinating
production, engineering, sales and service cannot be overestimated.
The main disadvantages of product departmentalization include
 Within each product line, there is production, marketing, personnel and finance-duplication of
personnel and other resources.
 Since group executives coordinate the sales, manufacturing and distribution of a product, they
become overseers of a profit center. This is the manner in which profit responsibility is
exacted from product organizational arrangement.
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President

Personnel Finance Marketing Production

Product A Product B Product C Product D

Personnel Finance Marketing Production

Figure 4.3 Product Departmentalization

4. Customer Departmentalization
This type of arrangement groups activities and responsibilities in departments based on the needs of
specific customer groups. Customers are the key to the ways activities are grouped when each of the
different things an enterprise does for them is managed by one department head. Business owners
and managers frequently arrange activities on this basis to cater to the requirements of clearly
defined customer groups. For example, Arba Minch University offers regular, weekend, evening and
distance education services to its various clients.

President

Personnel Finance Marketing Production

Business customers Industrial customers Consumer customers

Figure 4.4 Customer Departmentalization

The main advantages of customer departmentalization include:
 It enables to address the special and widely varied needs of customers for clearly defined
services.
 It implies the interest and commitment of the firm to serve the various customer groups as per
their special needs and wants.
 It allows the firm to gain expertise in the businesses of its customers.

The main disadvantages of customer departmentalization include:

 The difficulty of coordination among customer departments and those organized on other
bases, with constant pressure from the manager of customer department for special treatment.
 It requires managers and staff specialists familiar with the customers’ situations.

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 The possibility of underemployment of facilities and specialized workers like during periods of
recession, some customer groups may disappear.
5. Matrix Departmentalization
Another kind of departmentalization is matrix or grid or project organization. The essence of matrix
organization, normally, is combining different bases of departmentalization in a single
organizational structure. This type of arrangement is prevalent in construction, marketing,
installation of an electronic data processing system, in management consulting firms whereby
experts from various fields work together.

The main problems of matrix departmentalization include:

 A state of conflict exists between functional and project managers, as both compete for limited
resources.
 Role conflict, role ambiguity and role overload may result in stress for functional and project
managers as well as for the team members.
 Imbalance of authority and power, as well as horizontal and vertical influence of the project
and functional managers can lead to problems.
 Due to the potential conflict, managers may want to protect themselves against blame by
putting everything in writing which increases administration cost.
 It requires many time consuming meetings

Guidelines for making matrix management effective

 Define the objectives of the project manager
 Clarify the roles, authority, and responsibilities of managers and team members
 Ensure that influence is based on knowledge and information, rather than on rank
 Balance the power of functional and project managers
 Select an experienced manager for the project who can provide leadership
 Undertake organizational and team development
 Install appropriate cost, time and quality controls that report deviations from standards in
timely manner.
 Reward project managers and team members fairly.
Director of Engineering

Chief Preliminary Chief Mechanical Chief Electr FORMS Chief Hydraulic

Design Engineer OF Engineer
DEPARTME
Project A Manager

Project B Manager

Project C Manager

Project D Manager

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Figure 4.5 Matrix Departmentalization

4)Assigning Work and Delegating Authority

So far activities necessary to achieve objectives has been identified, they are classified and grouped
into and organizational structure has been selected. The activities now must be assigned to
individuals who are simultaneously given the appropriate authority to accomplish the tasks. The
nature, purpose, task, and expectations dictate the amount and type of authority the manager needs
to be able to function. Authority does not come first; assignment of activities establishes the basis
for authority. Below let us define authority and see its types.
Authority is the formal and legitimate right of managers to make decisions, give orders, and
allocate resources. All managers in an organization have authority of different degree based on the
level of management they occupy. Authority is vested in manager because of the position he/she
holds. The person who occupies a position has his formal authority as long as he remains in that
position. As the job changes in scope and complexity, so should the amount and kind of authority
possessed.
Types of authority
 Line Authority: Defines the relationship between superior and subordinate. It is a direct
supervisory relationship. Managers with line authority are those people in the organization
who are directly responsible for achieving organizational goals. Line authority is represented
by the standard chain of command. Line authority is based primarily on legitimate power.
 Staff Authority: Is advisory in nature. Advisory authority does not provide any basis for
direct control over the subordinates or activities of other departments with whom they consult.
They provide services and advices to line managers. Staff authority is based primarily on
expert power.
Line and Staff Departments: line and staff departments have different roles or positions within the
organizational structure.
 Line Department: are the departments established to meet the major objectives of the
organization. Ex: production, marketing & finance. In functioning with the employees and
departments under their control, line managers exercise line authority.
 Staff Departments: provide assistance to the line departments and to each other. They
can be viewed as making money indirectly for the company – through advice, service and
assistance e.g.: legal, personnel and public relations.
There are some real dangers inherent in line staff interaction that all management should be
aware of. Because staff people must “sell” their ideas, there is a possibility that the line
personnel will view the staff members as “pushy” or, as undermining the line manager. Staff
managers need to develop tact and persuasive skills along with ideas. They also need to foster
credibility for their ideas to be accepted: Bad advice can result in no audience the next time.
Finally, line managers are inclined to feel that” the buck stops here” with them. In other words,
because it is line managers who ultimately make the decisions, staff is not responsible for the
results.

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 Functional authority: is authority delegated to an individual or department over specific

activities undertaken by personnel in other department. Staff departments may be given
functional authority to control their system’s procedures in other departments e.g. a personnel
department monitors and receives compliance in operating departments for recruitment,
selection and performance appraisal systems.
Delegation is a downward transfer of formal authority from higher level to lower level.
Superiors delegate or pass authority to subordinates to facilitate the accomplishment of work. It is a
concept describing the passing of formal authority to another person. It is the act of assigning formal
authority and accountability for carrying out specific activities. Managers delegate not only routine
matters but also tasks. Delegation causes employees to accept accountability and exercise judgment.
Delegation may become necessary when managers are absent from their jobs or just may be the
philosophy of the manager in order to develop subordinates.
Obstacles to Delegation
Some managers do not delegate their authority to subordinates for different reasons such as the
following:
 They fear giving up authority
 They may lack confidence in subordinates
 Others may worry that the employees perform the job better than they can, are too detail
oriented, impenitent to let the subordinates to undertake the activities
 Others even do not know how to delegate
 Delegation is also hindered by the subordinates who are reluctant to assume an equal amount
of responsibility because either the subordinates believe that decision making is the boss’s job
or they fear criticism for making bad decisions, i.e., they lack confidence..
 Managers may pay no incentive for subordinates for assuming higher responsibility

Sequence of Events in Delegation

 Allocation of duty: the manager must identify specific tasks or duties to assign to the
subordinates. Before authority can be delegated, the duties over which the authority rests
must be allocated to subordinates.
 Delegation of authority: In order for the subordinate to complete the duties or tasks, the
authority necessary to do them should be delegated by the manager to the subordinate. This is
passing of formal rights to act on behalf of another. The guideline for the amount of authority
to be delegated is that it be adequate to complete the task; no more no less.
 Acceptance of responsibility: responsibility is the obligation to carryout one’s
assigned duties to the best of one’s ability. Responsibility is not delegated by a manager to an
employee, but the employee becomes obligated when the assignment is accepted. When one
is given rights, one must also be assigned a corresponding obligation to perform.
 Creation of accountability: Accountability is having to answer to someone for your
actions. It means taking the consequences, either credit or blame. When the subordinate
accepts the assignment and the authority, he or she will be held accountable or answerable for
the actions taken. Accountability is the result of delegation, when subordinates are given jobs
to accomplish. Delegation is done by superior to subordinate level whereas accountability is
from subordinate to superior.
Note that delegation does not relieve managers from responsibility and accountability. Managers
are responsible for the use of their authority and for their personal performance as well as the
performance of subordinates.

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5)Designing a Hierarchy of Relationships

The last step requires managers to determine the vertical and horizontal operating relationships of
the organization as a whole which is known as organizational structure.
The vertical structure of the organization results in decision making hierarchy that shows who is in
charge of each task, each specialty areas and the organization as a whole. Levels of management are
established from bottom to top in the organization. These levels create a chin of command or
hierarchy of decision making levels in the company.
The horizontal structuring has two important effects: 1) it defines the working relationships between
operating departments, and 2) it makes the final decision on the span of control of each manager.
Span of control is the number of subordinates under the direction of a manager.
The result of this step is a complete organizational structure which is the arrangements and
relationships of the component parts and positions of an organization. An organizational chart
shows this structure visually. The organization chart tells us about:
 Who reports to whom? This specifies the chain of command
 How many subordinates work under each manager-this is the span of control
 The channels of official communication. Communication channels are shown by the lines that
connect each job.
 The work being done in each position. The labels in each box describe each person’s
activities.
 The hierarchy of decision making. This details where the ultimate decision maker for a
request, problem, appeal or grievance is located.
 The types of authority relationships. The solid connections between boxes illustrate line
authority, single arrows show staff authority, and double arrows trace functional authority.
The chart does not, however, show the degree of authority, informal communication channels, and
informal relationships- all keys in managing successfully.
President

Vice President Vice President

Marketing Production

General General General General General

Manager Manager Manager Manager Manager
Sales Advertising Research Manufacturing quality control

Division sales Division sales Manager Manager

Manager Manager Product Consumer
Appliances Electronics Research Research

Figure 4.6 Organizational chart

Manager Manager Manager
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Line Authority
Staff authority
Functional authority

4.5 Major Organizing Concepts

a)Power: is the ability to exert influence in the organization, that is, the ability to change the
attitudes or behavior of individuals or groups. Having power can multiply the manager’s
effectiveness to influence people beyond what they can attain through formal authority alone.
Authority is positional-it will be there when the incumbent leaves. But power is personal-it
exists because of the person. A person does not need to be a manager to have power.
b)Span of Control: the span of control or span of management is concerned with the number of
subordinates each manager should have to direct. As a general rule, the more complex a
subordinate’s job, the fewer should be that manager’s number of subordinates. Another
predictable guide is that the more routine the work of subordinates, the greater the number of
subordinates that can be effectively directed and controlled. Because of these general rules,
organizations always seem to have narrow spans at their top end and wider spans at lower levels.
The higher one goes in the organization’s hierarchy, the fewer will be his or her subordinates.
Narrow Span of Control: Tall hierarchy, number of levels will be more.
Advantages
 Close supervision and control
 fast communication
Disadvantages
 Many levels of management,
 high costs, and
 Superiors tend to get too involved in subordinate’s work.
 Excessive distance between lower level and top level

Wide span of control: Flat hierarchies, number of levels will be less.

Advantages:
 Superiors are forced to delegate
 Clear policies must be made, and
 Subordinates must be carefully selected.
Disadvantages:
 Tendency of overloaded superiors to become decision bottlenecks-delay in decision making
 danger of superior’s loss of control
 Requires exceptional quality of managers.

Given the above guidelines, how many subordinates should one manager have? The answer depends
on many factors and must be determined in terms of:
 The complexity and variety of the subordinate’s work
 The ability of the manager
 The ability and training of the subordinates themselves
 The superior’s willingness to delegate authority
 The company’s philosophy for centralization or decentralization of decision making.

c) Centralization Vs Decentralization: The terms centralization and decentralization

refer to a philosophy of organization and management that focuses on either the systematically
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retaining authority in hands of higher level managers /centralization or systematically delegating

authority through out the organization to middle and lower level managers/decentralization. In
short centralization is concerned with the concentration of decision making authority on the
hands of higher level managers where as decentralization, on the contrary, refers to the dispersion
of decision making authority to lower level managers. The question of where authority resides is
resolved in an operating philosophy of management-either to concentrate authority for decision
making in the hands of one or a few or to force it down the organization structure into the hands
of many.

Some Guidelines
 The greater the number of decisions made at the lower levels of management, the more the
company is decentralized.
 The more important the decisions made at lower levels, the greater the decentralization.
 The more flexible the interpretation of company policy at the lower levels, the greater the
degree of decentralization.
 The more widely dispersed the operations of the company geographically, the greater the
degree of decentralization.
 The less a subordinate has to refer to his or her manager prior to a decision, the greater the
decentralization.
Advantages and Limitations of Decentralization
The common advantages of decentralization include:
 Relives top management of some burden of decision-making and forces upper level
managers to let go
 Encourages decision-making and assumption of authority and responsibility
 Gives managers more freedom and independence in decision-making
 Promotes establishment and use of broad controls which may increase motivation
 Makes comparison of performance of different organizational units
 Helps in setting up profit centers
 Facilitates product diversification
 Promotes development of general managers
 Aids in adaptation to fast-changing environment

Limitations of Decentralization
 Makes it more difficult to have a uniform policy
 Increases complexity of coordination of decentralized organizational units
 May result in loss of some control by upper-level managers
 May be limited by inadequate control techniques
 May be constrained by inadequate planning and control systems
 Can be limited by the availability of qualified managers
 Involves considerable expenses for training managers
 May be limited by external forces (national labor unions, governmental controls, tax policies)
 May not be favored by economies of scale of some operations

Relationship of Centralization to Span of Control: The Company’s philosophy of

centralization or decentralization in decision making can influence the span of control of subordinate
managers. A philosophy of decentralized decision making generally means that the span of control

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should be wider for each manger. Conversely, a philosophy of centralized decision making should
result in a narrower span of control and more levels of management.

Chapter Five
Staffing
5.1 Introduction
The primary purposes of staffing are to attract, hire, train, develop, reward and retain the required
number of good people, helping them meet their needs while they help the organization meet its
needs. Good people are those with proven performance records or potential that demonstrates they
will fit into the organization’s culture and climate. Since most job applicants have some
deficiencies, the key issue is the employer’s willingness and ability to help applicants remedy their
deficiencies. Providing needed investment, for example training, makes good people even better,
making them more confident, capable and more valuable to their organizations.
Once good people are on board, organizations must retain them. Human resource is the only factor
of production that contributes more than its input. Human resources are considered as human assets.
They produce synergic effect. It is the only factor that can be motivated.
5.2 Meaning and Definition of Staffing
Staffing involves the proper and effective recruitment, selection, placement, training and
development, performance appraisal and retention of employees with appropriate qualification to fill
positions created by the manager. Staffing, which follows organizing, links people and processes.
People create an organization’s intellectual capital which makes the organization unique and
separates it from its competitors. Without dedicated, knowledgeable, and motivated employees, the
best laid plans cannot bear fruit. Empowered people working in a diverse and open climate-one
based on mutual trust and respect- can make bad plans work and good plans better. It is also defined
as efforts designed to attract, hire, train, develop, reward and retain the people needed to attain an
organization’s goals and provide job satisfaction.
Staffing is another name for managerial function of human resource management. The managerial
function of staffing is defined as filling, and keeping filled, positions in the
organization structure. This includes identifying work-force requirements, inventorying the
people available and recruiting, selecting, placing, promoting, appraising, planning the careers of,
compensating and training or otherwise developing both candidates and current jobholders to
accomplish their tasks effectively and efficiently. In other words, human resource management
encompasses those activities designed to provide, motivate and coordinate the human resources of
an organization.

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Without competent people, organizations will either pursue inappropriate goals or find it difficult to
achieve the desired goals. Human dynamics play an important role in surmounting obstacles,
defusing complex situations and achieving organizational goals. It is because of this reason that
some organizations succeed in spite of major obstacles, environmental changes and challenges,
while others crumble rather quickly under external pressures.
In small organizations, every manager is responsible for the staffing function, even worker teams
can participate. A large firm usually establishes a separate department dedicated to staffing. A sub
unit that focuses on staffing is usually called a personnel or human resource department. Manages of
such a department-human resource managers or personnel managers-assist others by planning,
organizing, staffing, coordinating, controlling, and sometimes executing specific personnel and
human resource management functions.
Some human resource managers and practitioners are specialists who focus on a separate aspect of
human resource management such as compensation, training, or recruiting and so forth. Others are
generalists who are responsible for several functions.
5.3 Staffing processes
The staffing process involves the following eight basic activities:
1) Human resource planning 5) Training and development
2) Recruitment 6) Performance appraisal
3) Selection 7) Transfers, promotion & demotion
4) Orientation 8) Separation
1) Human Resources Planning
It is the process of translating overall organizational objectives, plans and programs to achieve
specific performance into workforce needs. It is the systematic and continuing process of analyzing
an organization’s human resource needs under changing conditions and developing personnel
policies, appropriate to the long term effectiveness of the organization. It is an integral part of
corporate planning.
Human resource planning has the following components:
 Job Analysis: before managers can determine personnel needs, they must perform a job
analysis for each job. The first step in a job analysis is to prepare up to date descriptions that list
the duties and responsibilities each job holder. It is important to develop job specification and job
description.
Job description: A written description of a management position, covering job title, duties
and responsibilities, the level of authority above and below the jobholder; the equipment and
materials the jobholder must use, and any physical demands or hazardous conditions the job may
involve.

Job specification: this lists human dimensions that a position requires. These include level of
education, experience, skills training and knowledge needed to perform the job effectively. To
avoid even the appearance of discrimination, those who prepare specifications must take care to
list only those factors directly linked to successful work performance.
 Human Resource Inventory: It provides information about the organization’s current
personnel. Human resource inventory states the skills, abilities, interest, training, experience,
qualifications and promotion potential of each person in an organization. The information need to
be updated periodically and supplemented by the most recent appraisals given to job holders.
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 Human Resource Forecasting: It is based on the analysis of the plan and objectives of
the organization. It attempts to assess the future personnel need of a firm. Here managers need to
consider the strategic plans of the company and its normal level of attrition. Strategic plans
determine the company’s direction and its needs for people. A long term plan to stabilize the
company at its current level will mean the need to replace those who leave.
 Inventory and forecast comparison: by comparing the inventory and forecast,
managers determine who in the organization is qualified to fill the projected openings and which
personnel needs must be met externally. It helps the manager develop the plan for the quantity
and quality of the personnel needed in the future as well as ensure the availability of the workers.
Human resource planning is designed to ensure that personnel needs will be constantly and
appropriately met. It has the following four basic aspects:
1. Planning for future needs: how may people with what abilities will the organization need to
remain in operation for the foreseeable future?
2. Planning for future balance: how many people presently employed can be expected to stay
with the organization? The difference between this number and the number the organization
will need leads to the next step.
3. Planning for recruiting and selection or layoff of employees: how can the organization attain
the number of people it will need?
4. Planning for development of employees: how should the training and movement of
employees within the organization be managed so that the organization will be assured to
continued supply of experienced and capable personnel?
2) Recruiting
It is defined as the activities of developing a pool of qualified candidates from which the
organization may choose the most appropriate employees. It can also be defined as announcing and
advertising vacant positions and developing sources of applicants and receiving applications. It is
the process of locating and soliciting a sufficient number of qualified candidates.

Recruitment takes place within a labor market. This includes a mass of available people who have
the skills to fill open positions. Sources for recruitment depend on the availability of the right kinds
of people in the local labor market as well as on the nature of the positions to be filled. An
organization’s ability to recruit employees often hinges as much on the organization’s reputation and
the attractiveness of its location as on the attractiveness of the specific job offer. In general, the
sources of employment can be classified into the following two types:
• Internal source of Recruitment: Many organizations have a policy of recruiting or
promoting from within except in very exceptional circumstances. Filling a job opening from within
the organization has the following advantages:
 Individuals recruited from within are already familiar with the organization and its members
and this knowledge increases the likelihood they will success
 A promotion from within fosters loyalty and inspires greater effort among organization
members
 It is usually less expensive to recruit or promote from within than to hire from outside the
organization
The disadvantages of the internal recruitment are as follows:
 The obvious limitations of available talents
 It may encourage complacency among the employees who assume promotions
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 It reduces the chances of fresh viewpoints entering the organization

• External source of Recruitment: The process of evaluating and deciding the best and
qualified candidates out of the pool of applicants received in the recruitment process for job
openings based on their abilities, skills and performance. If human resource managers are to make
good match between jobs and candidates, they should use the job description and job specification
before they decide on the application.
3) Selection
Selection is the process of deciding which candidate out of the pool of applicants possesses the
qualifications for the job to be filled. Selection begins where recruitment ends. Once the recruiting
effort has developed a pool of candidates, the next step in the staffing process is to determine who is
best qualified for the job. This step is called the selection process. Selection involves mutual
decision and prediction. The enterprise decides whether to make a job offer and how attractive the
offer should be. The job candidate decides whether the enterprise and the job offer fit his or her
needs and personal goals. The process also seeks to predict which applicants will be successful if
hired. Success, in this case, means performing well on the criteria the enterprise uses to evaluate
employees.
Correct selection decisions are those where the candidate was predicted to be successful in advance
and prove to be successful on the job. At times the applicant is predicted to be unsuccessful and, as
expected, performs unsatisfactorily after getting selected. While in the first case, we say the worker
is successfully accepted, in the later the worker is successfully rejected. Errors arise when we reject
a candidate who would have performed successfully on the job. This is termed as reject error. In
certain situations a worker is accepted ultimately and performs unsatisfactorily. This is called accept
errors. Both the above errors can be minimized if the system is impartial, has a degree of objectivity
and follows a fairly uniform standard of assessment.
Steps in the Selection Process
The common steps of the selection process are:
 Preliminary interview: by which the obvious unqualified are screened out and observable factors and
preliminary checks are made say, on expectations and interests.
 Filing application form: by which factual information is obtained with carefully designed questions
including identification information, personal information, physical characteristics, education,
experience, etc.
 Reference letters: which can be specifically addressed or written in a “to whom it may concern”
form, confidential or non confidential, and refer to character, experience and other elements.
 Employment interview: which is most of the time used as a single screening mechanism provides an
opportunity to have face to face contact, serves to verify information acquired through other
methods, and enables the employer to investigate the candidate’s ability in work related areas.
 Employment tests: are practical examination of the candidate’s abilities and knowledge in the areas
of the future job assignments. They may include intelligence tests, achievement tests, aptitude
tests, etc.
 Physical examination: is carried out to check the physical fitness of the candidates, to prevent
existing employees from the communicable disease and from unwanted claims in the form of
medical and insurance expenses.

4) Orientation:

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The new hire needs a warm welcome so he/she can begin contributing as soon as possible. The
newcomer needs to be introduced to his or her workstation, team, and coworkers. A new employee’s
first impressions and early experiences should be realistic and as positive as possible. Orientation is
the beginning of a continuing socialization process that builds and cements employee’s
relationships, attitudes, and commitment to the company. Here, new employee learn about their
working environment, meet their co-worker and learn about the rules and regulations and benefits
expected. Orientation should be thoroughly planned and skillfully executed.
5)Training and Development
Training supplies the skills and knowledge needed by the individual to perform their present job.
Training programs are directed toward maintaining and improving current job performance.
Training is mainly given to non managers to improve their technical skills. Development is training
at present offered for future upgrading to higher level positions. Developmental programs seek to
develop skills for future jobs. Managers receive assistance in developing the skills required in future
jobs- conceptual and human relations skills.
Both training and development are designed to give people something new and both have three
prerequisites for success:
 Those who design training or development programs must create needs assessment to
determine what the content and objectives of the programs should be
 The people who execute the programs must know how to teach, how people learn, and what
individuals need to be taught, and
 All participants-trainers, developers, and those receiving the training or development-must be
willing participants.
Training has many objectives which include:
 To provide the knowledge, skills and attitudes for individuals to undertake their current jobs
more effectively. Part of the process also is to assist employees at all levels to extend their
untapped talents and to understand the implications and significance of their roles.
 To help employees become capable of assuming other responsibilities within an organization
either at more senior or at their current levels.
 To help employees adapt to changing circumstances facing organizations such as new
technologies, new business environment, new products, etc.
 To reduce waste and increase efficiency, that is, to improve performance
 To relieve supervisors from close supervision for other duties.
 To orient new employees: while schools and training institutions provide general education in
many skills, new employees require additional training to acquaint them with specific
situations of the organization and the job.
Training Methods
There are two different methods of training: on the job and off the job training
a) On-the-job training: involves learning methods and techniques by actually doing the
job and increasing the levels of skills of the employees. The employee usually learns under the
supervision of the immediate boss or coworker who has greater knowledge and skill about the
job. It is widely used because it is economical and convenient; no special facilities,
equipments, and training places are required and the employee produces and contributes to the
organizational objectives and at the same time he/she learns. Job rotation, coaching, and
internship are some of the on the job techniques. It is convenient for small number of trainees.
Some of its disadvantages include:

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i. It creates disinterest of employees as they have dual responsibility

ii. It is not convenient for large number of trainees.
b) Off-the-job Training: this technique involves participation of employees in a series of
events removed from the actual performance of the organization and the work situation.
Advantages of the off training method include:
 It creates interest of employees as they are removed from their routine activities and are
moved to new environment.
 It is convenient to large number of trainees

Its disadvantages include:

 It is expensive: there are costs of trainers, facilities, and also the employee does not
contribute while training
 There is a problem of transfer of knowledge from the training situation to the actual
situation of the job.

6)Performance Appraisal
It is a formally structured system designed to measure the actual job performance of an employee
with designated performance standard. It is the evaluation of an employee’s job performance by his
superiors. These standards are introduced and reinforced in the selection and training processes.
Purposes of Performance Appraisal
Most organizations use appraisals to:
 Provide feedback about the success of previous training and disclose the need for additional
training
 Develop individual’s plans for improving their performance and assist them in making such plans
 Determine whether rewards such as pay increases, promotions, transfers, or commendations are
due or whether warning or termination is required.
 Identify areas for additional growth and the methods that can be utilized to achieve it
 Develop and enhance the relationship between the person being evaluated and the supervisor
doing the evaluation
 Give the employee a clear understanding of where he or she stands in relation to the supervisor’s
expectations and in relation to the achievement of specific goals
Components of Appraisal System
Performance appraisal system includes three major components:
1. The criteria (factors and standards) against which the employee’s performance is measured.
Criteria could include quality of work, efforts at improvement, specific attitudes, and quantity
of output.
2. the rating that summarizes how well the employee is doing
3. The methods used to determine the ratings. Methods could involve specific forms, people and
procedures.
Different personalities, jobs, organizations and subsystems call for different criteria, ratings and
methods. Appraisal systems can be classified as subjective or objective. Subjective systems allow
raters to operate from their own personal points of view. Raters may be allowed the freedom to
create factors, define what each factor means, and determine the employee’s proficiency in each
category. Objective performance appraisals attempt to remove rater bias. Criteria are clearly defined
and shared with the employee well in advance of the actual rating.

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7)Promotion, Demotion and Lateral Transfer

a)Promotion is movement of employee to a higher level position that has more prestige,
higher status, pay and greater responsibility based on good performance. Promotion is job
changes that lead to higher pay and greater authority and that reward devoted, outstanding
effort. It serves as incentive as well, offering the promise of greater personal growth and
challenges to those who seek them. Employees usually earn a promotion by exhibiting
superior performance and going beyond what is expected.
Sometimes past performance is not the sole criteria for promotion. Affirmative action requires
that understanding groups such as women and minorities be better represented at all levels
within an organization. Advancement within an organization is ordinarily labeled as
promotion. Ordinarily, the change to the higher job is accompanied by increased pay and
privileges but not always. The term dry promotion refers to an increase in responsibility and
status without any increase in pay. On the basis of factors involved in promotion, it can be
classified into the following two forms:

Basis for Promotion

Many complex and interrelated factors enter into the decision in a promotion system.
Management faces difficult task of deciding whom to promote since there are usually more
candidates than openings. The bases on which decision can be made concerning promotion
are:
 Merit: management personnel generally prefer merit as determined by job performance
and by analysis of employee’s potential for promotion. In this way, they ensure that
competence shall be the fundamental determinant of progress. If promotion is to be an
incentive, the best performing employee ought to be promoted. When merit is taken as base
for promotion, efficiency is ensured in the organization. However, the argument for merit
has little foundation unless conscientious and systematic attempts are undertaken to
measure merit. The main difficulty in weighing merit, while making a promotion decision,
is the lack of objective criteria.
 Seniority: distinguishing among persons on the basis of seniority is as old as civilization
itself. Seniority is widely recognized in all types of organizations such as military,
government and business organizations. The extent to which promotions should be based
on seniority is always an area of dispute between work force’s unions and management.
Seniority can be defined as the length of recognized service in an organization. Seniority
and experience are not necessarily equivalent, although they may be generally associated.
Experience measured in years has little value except as applied to particular individuals
who make the experience meaningful in on-going situations. While determining the
seniority of individuals in an organization, the rules should be carefully and specifically
spelled out. If they are not, seniority can generate more personnel problems than it can
eliminate.
b)Demotion: is a reassignment to a lower rank in an organization’s hierarchy. In today’s
business climate, demotions are rarely used as punishment for ineffective performers are fired,
not retained. Demotions are used to retain employees who lose their positions through no fault
of their own. Some people prefer taking a lower status, lower paying job to the alternative of
being laid off. Others choose a demotion to decrease stress, allow them more freedom to
pursue outside interests, or meet challenges such as having to care for children or an elderly
parent.
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c) Lateral Transfer: refers to the movement of an employee from one job to position to
another without involving any significant change in the employment status, salary, and
responsibility. It is movement of employees from one position to another at similar levels with
same pay and responsibility within an organization. For years, companies have used lateral
moves in attempt to train and develop employees. Job rotation is one way of exposing people
to different aspects of an organization and helping them see big corporate picture. Transfers
can help people advance by moving from one area where few opportunities exist to an area
that offers a less congested career track.
8)Separation/Termination: separation is the termination of the relationship between the
workers and the organization due to various reasons such as retirement, resignation, lay off.
Separation, a departure of an employee from an organization, may be voluntary or involuntary.
Voluntary separation includes resignation and retirements. Involuntary separation includes
firings, layoff and death. Employers sometimes, encourage voluntary separation by offering
incentives to encourage employees to retire early. Layoffs due to declining business, personal
performance, or company bankruptcies have cost millions of employees their job.

5.4 Factors affecting staffing

The actual process of staffing is affected by many environmental factors and these factors can be
categorized into two broad categories as external and internal environmental factors.

a) External Environment: these influences can be grouped into educational, socio-

cultural, and economic constraints, legal, equal employment opportunity and women
management.
 Educational: the high technology used in many industries requires extensive and
intensive education.
 Socio cultural: managers want to become active participants in decision making process.
They have to respond to public’s legitimate needs.
 Economic and competitive: determines the external supply of, and demand for managers.
 Legal and political: requires that firms follow law and guidelines issued by various
governments.
 Equal Employment Opportunity (EEO): The law prohibits employment practices that
discriminate on the basis of race, color, religion, national origin, sex, or age. Equal
Employment opportunity is based on federal, state, and local laws and these laws have
impact on staffing. Example, Equal employment opportunity for ages 40-70, equal pay
for equal work regardless of sex, EEO during pregnancy, and reasonable affirmative
action for handicapped people.
 Women in Management: Women have made significant progress in obtaining responsible
positions in organizations due to laws governing fair employment practices, changing
societal attitudes towards women in the work place and women’s representation in top
posts etc.

b) Internal environment: Internal factors that affect staffing include:

 Organizational goals
 Tasks and technology
 Organization structure and the kinds of people employed
 the demand for and supply of managers within the enterprise
 the reward system, and
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 Various kinds of policies.

CHAPTER SIX
LEADING/DIRECTING
6.1 Overview of Leading
Leading is one of the functions of management. It is vital to the execution of the other four
functions. Leading people and their organizations requires the ability to do many activities. The
principles governing communication, decision making and motivation form the foundation of
leading. At the top of any organizations leading is most concerned with:
 Establishing values, cultures and climate
 Defining vision
 Identifying core competencies
 Scanning environments
 Sensing the need for change

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 Creating a vision for the future

 Enlisting cooperation and support for the vision
 Keeping people and processes focused on satisfying various customers
 Unleashing the potential in and soliciting contributions from all the organization’s human
resources through training, development, and empowerment.
Leading is the process of integrating the people with the organization so as to obtain their willing
and enthusiastic cooperation for the achievement of its goals. This requires integration of
organizational goals with individual and group goals. Employees as individuals and as group
members contribute their abilities and efforts for the achievement of organizational goals to the
extent that they perceive that it simultaneously results in advancement towards their own individual
and group goals. People with the ability to lead, however, must exist at all organizational levels and
within each of its units and teams.

6.2 Importance of Directing

Directing is a function that enables a manager to convert his/her decision into effective actions. In
fact, there is a high degree of correlation between directing and work performance. There is a
dominant feeling that directing is more of an art than it is a science since considerable amount of
skill is required to understand and work with people.
The importance of the directing function in an organization can be presented as follows:
 Directing initiates by giving directives and guidance to employees
 Directing integrates employees’ effort by coordinating actions of the members and leading
toward the objectives
 Directing attempts to get the maximum out of individuals by providing ways to fully utilize
the potentials and capabilities of employees.
 Directing facilitates changes by incorporating environmental and internal changes into the
organization
 Directing provides stability by balancing the different parts of the organization.

Managers should try to integrate both organizational and individual objectives in order to get the
work done by subordinates. Managers must be good leaders to guide, counsel and influence
subordinates so as to win their confidence and acceptance. To this end, managers should motivate
their subordinates to volunteer themselves for the accomplishment of organizational objectives.

6.3 Definition and Elements of Leading

6.3.1 Definition of Leadership
The following are among the common definitions of leadership provided by various authors:
 Leadership is the function of management involving the process of influencing people so that
they will contribute willingly to the organization and group goals. Influence is the power to sway
other people to one’s will or views. Leaders-those who practice leadership- guide, direct,
persuade, coach, counsel, and inspire others.
 Leading is the process by which managers seek to influence subordinates to accomplish goals by
communicating with them.
 Leadership is defined as the interpersonal process by which managers try to influence employees
to accomplish set task goals.

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 According to Stoner, Freeman and Gilbert, leadership is the process of directing and
influencing the task related activities of group members.
 According to Terry and Franklin, leadership is the relationship in which the leader influences
others to work together willingly on related influences others to work together willingly on
related tasks to attain goals desired by the leader or group.
 “Leadership is influencing people to follow in the achievement of a common goal”- Harold
Koontz and Cyril O’Donnell.
6.3.2 Elements of Leading
Leading has three major components/elements: leadership, motivation and communication. Below
each of the components will be discussed in detail.
a) Leadership
Leadership is the art of influencing individual or group activities towards the achievement of
organizational objectives. Leaders are extremely important in a variety of organizations. Leadership
has the following features:
1. Leadership involves people: employees or followers by their willingness to accept directions
from the leader, group members help define the leader’s status and make the leadership
process possible.
2. Leadership involves unequal distribution of power between leaders and group members.
Group members can shape group activities but leader will have usually more power.
3. Leadership has the ability to use the different forms of power to influence follower’s
behaviors in a number of ways.
4. Leadership constitutes values. It concerns values and requires that followers be given
enough knowledge of alternatives to make intelligent choices when it comes to respond to a
leader’s proposal to lead.
5. The ability to comprehend that human beings have different motivation forces at different
times and in different situations.
Leadership Styles
Leadership style implies the way in which the leader exercises leadership; it is the way in which the
functions of leadership are carried out or the way how the leaders behave towards their subordinates
in the accomplishment of the work. These ways of behaving towards subordinates are influenced by
management philosophy towards work and people. Behind every managerial decisions or actions are
assumptions about human nature and human behavior. There are three common leadership styles.
Moreover, managers’ orientation towards either employees or tasks can also be considered as
leadership style and described below:

1. Autocratic style/ “I” approach: a manager who uses autocratic style does not share decision
making authority with subordinates. The manager makes the decision and then announces it.
Autocratic managers may ask for subordinates’ ideas and feedback about the decision, but input
does not usually change the decision unless it indicates that something vital has been
overlooked. The hallmark of this style is that the manager, who retains all the authority, executes
the entire process. Consequently, the autocratic style is sometimes called the “I” approach.
Under certain conditions, the autocratic style is appropriate. When a manager is training a
subordinate, for instance, the content, objective, pacing, and execution of decisions properly
remain in the hands of the trainer. However, the manager has to elicit feedback from the trainee.
During a crisis like a hazardous material spill or bomb threat, leaders are expected to take
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charge, issue orders and make decisions. When a subordinate directly challenges a manager’s
authority, an autocratic response may be needed to preclude acts of insubordination. Some
subordinates do not want to share authority or become involved in any way beyond the
performance of their routine duties. Managers should respect these preferences but also make
incentives and growth opportunities available. The autocratic style is effective when managers
face issues that they are best equipped to solve, create solutions whose implementation do not
depend on others and desire to communicate through orders and instructions.

2. Participative/ Democratic/“We” approach : managers who use the

participative style share decision making authority with subordinates. The degree of sharing can
range from the manager’s presenting a tentative decision that is subject to change to letting the
group or subordinate participate in making the decision. Sometimes called the “we” approach,
participative management style involves others and lets them bring their unique viewpoints,
talents, and experiences to bear on an issue. This style is strongly emphasized today because of
the trends toward downsizing, employee empowerment and worker teams.
A consultative and democratic approach works best for resolving issues that affect more than
just a manager or decision maker. People affected by decisions support them more
enthusiastically when they participate in the decision making than when decisions are imposed
on them. Also, if others in the management’s unit know more than the manager does about the
issue, common sense urges their inclusion in decisions concerning it.
Before subordinates can be brought into the process, mutual trust and respect must exist between
them and their managers. The subordinates must be willing to participate and be trained to do so.
People need training in rational decision making. They must also possess the related skills and
knowledge needed to cope with the problems they are expected to solve. It takes time to give
people the confidence and competence needed to make decisions. Managers must have time,
means and patience to prepare subordinates to participate. When employees participate, they
devise solutions they feel they own. This sense of ownership increases their commitment to
making solutions work.
Limits on subordinate’s participation must be clearly spelled our beforehand; there should be no
misunderstanding about who holds authority to do what. Mistakes will be made and some waste
will occur, but the power of the participative style to motivate and energize people is great.

3. Laissez faire style/Free rein style/ “They” approach : often called

“they” approach or the spectator style, the free rein style empowers individuals or groups to
function on their own, without the involvement from the managers to whom they report. The
style relies heavily on delegation of authority and works best when the parties have expert
power, when participants have know how to use the tools and techniques needed for their tasks.
Under this style, managers set limits and remain available for consultation. The managers also
hold participants accountable for their actions by reviewing and evaluating performance. Free
rein leadership works particularly well with managers and experienced professionals in
engineering, design, research, and sales. Such people generally resist other kind of supervision.
In most organizations managers must be able to use the decision making style that circumstances
dictate. As people and circumstances constantly change, managers should also switch from one
style to another depending on the situation they face at a time.
Laissez faire leaders are characterized by the following behavioral patterns:
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 They make few attempts to increase productivity or to meet subordinates’ psychological

needs
 They use their power very little, if at all, giving subordinates a high degree of
independence in their operation.
 These leaders maintain hands off policy where each subordinate’s work is clearly defined.
 Such leaders depend on subordinates to set their own goals and the means of achieving
them, and they see their role as one of aiding the operations of followers by furnishing
them information and acting primarily as a contact with the groups in the external
environment.
4. Employee oriented vs. Task oriented leadership style: the way managers
lead varies along at least two important directions:
 People/ employee centered leadership style.
 Task oriented leadership style.
i. Employee oriented leadership style: The leader focuses on the people, considering their
feelings and the quality of their mutual relationship. The employee-oriented leader is described
as democratic, permissive, follower-oriented, participative or considerate. The essence of this
leader’s style is sensitivity to subordinates as persons. They seek friendly, trusting and
respectful relationships with employees. Research findings on the effects of people centered
leadership on productivity, employee satisfaction and group cohesiveness can be summarized as
follows:
 People centered leadership is not consistently related to productivity. There is no assurance
that the leader’s being more people centered can increase group productivity.
 People centered leadership does not tend to enhance employee satisfaction; it also tends to
enhance group cohesiveness.
ii. The task oriented leadership style: The leader focuses on the task to be performed, the
progress being made, and the means of accomplishing the work. The leader closely supervises
employees to make sure the task is performed satisfactorily. The emphasis is given on getting
the job done, rather than employee’s growth or personal satisfaction. The tasks centered leader
is described variously as autocratic, restrictive, socially distant, directive and structuring. The
essence of this leader’s style is overriding concern with the task itself and not with workers as
people.
Research findings on the effects of task centered leadership on productivity; satisfaction and
group cohesiveness can be summarized as follows;
 Task centered leadership concentrates positively with productivity.
 Task centered leadership tends to depress satisfaction and cohesiveness. But structuring the
subordinate’s task, in the sense of letting them know what is expected of them, tends to
increase their satisfaction and cohesiveness.

Theories of Leadership
Here, three important leadership theories are discussed.
i. Trait Theory of Leadership: traits are inborn and inherent personal qualities of
individuals. This theory believes leaders possess certain specific inborn traits, which are
inherited rather than acquired. It has its root from “the great man theory” dating back to the
ancient Greeks and Romans time, holds that leaders are born not made.

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The trait theory studies focused on the personal traits of leaders and attempted to identify a set of
individual characteristics that distinguish leaders from followers and also successful leaders from
unsuccessful ones. In general, trait theory hasn’t been fruitful approach to explain leadership.

ii. The Behavioral Theory of Leadership: The behavioral theory of leadership

focuses on what leaders do rather than their traits. Studies showed that one set of
traits/leadership styles might not be equally appropriate in all situations. This theory suggested
that there were two distinct types of leadership which are known as employee oriented/people
oriented and task/production oriented.

iii. The Situational/Contingency Theory of Leadership: According to this

theory, leadership is strongly affected by a situation from which a leader emerges and in which
he/she works. It is a function of the leader, the followers and the situation. It attempts to discover
that the one unique set of leadership traits were largely unsuccessful. Modern management
theories are more prone to the belief that leadership is more complex; that is, it can not be
represented by one set of traits or by single set of behavior. Thus, effective leadership behavior
depends on the environment or the situation.

b) Motivation
Simply defined, motivation is the act of stimulating someone or oneself to take a desired course of
action. It is the act or process of furnishing with an incentive or inducement to action. It is an
internal drive that pushes people to do something. Management requires the creation and
maintenance of an environment in which individuals work together in groups towards the
accomplishment of common objectives. To motivate employees requires to have knowledge about
what motivates them.
The primary task of managers is to get people to contribute activities that help to achieve the
mission and goals of an organization. To guide people’s activities in desired directions requires
knowing what leads them to do things, i.e., what motivates them. The basic element of all human
behavior is some kind of activity whether physical or mental. Activities are goal oriented, i.e. people
do things that lead them to accomplish their goals. Human motives are based on needs felt.
Motivation plays a central role in shaping behavior and specifically in influencing work
performance. However, motivation is not the only thing that determines performance. There are
various determinants of job performance. Job performance can be viewed as a function of the
capacity to perform, the opportunity to perform and the willingness to perform. The capacity to
perform is related to the degree to which an individual possesses task related skills, abilities,
knowledge and experience. Unless an employee knows what is supposed to be performed and how
to dot it, high level of job performance is not possible. The opportunity to perform refers to the
availability of needed resources at the employee’s disposal. Willingness to perform is related to the
degree to which an individual both desires and is willing to exert effort toward attaining job
performance. The willingness to perform indicates motivation. No combination of capacity and
opportunity will result in high level of job performance in the absence of motivation.

Theories of Motivation
There are several theories of motivation. In general, these theories can be grouped into two as
content theories and process theories. Theories that belong to the former category include: Abraham
Maslow’s hierarchy of needs theory, Herzberg’s two factor theory, McClelland’s need for
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achievement theory and Alderfer’s ERG theory. Theories that belong to the latter category include:
V. Vroom’s expectancy theory, B.F. Skinner’s reinforcement theory, equity theory and goal setting
theory. Below, some of these theories are discussed briefly while the rest theories are to be covered
in advanced courses.

a) Content Theories: these theories focus on the factors within the person that energize, direct,
sustain, and stop behavior. They attempt to determine the specific needs that motivate people.
 Maslow's Need Hierarchy Theory
This is one of the most widely known theories of motivation. The critical part of this theory is that
needs are arranged in hierarchy. Since one need does not disappear when another emerges, all needs
tend to be partially satisfied in each area. According to Maslow, human needs can be categorized
into five as: physiological needs, safety needs, social needs, esteem needs and self actualization
needs.
 Physiological Needs: The physiological needs are at the bottom of the hierarchy
because they tend to bear the highest strength until they are reasonably satisfied. Unless these
needs are satisfied to the degree necessary for the efficient operation of the body, the majority
of a person’s activities will probably be at this level. The other levels will provide him with
little motivation. These needs include the need for food, shelter, cloth, water, rest, air, sex, etc.
They are survival needs without which human being’s survival will be in danger.

 Safety Needs: until the physiological needs of the human race are addressed to a
reasonable degree, safety needs will not be fully addressed. The degree of reasonableness is
subjective. In this hierarchy comes the need for safety- a need for being free of physical
danger also referred to as self-preservation. These needs show the need to live in an
environment where there is no harm. In the industrial society, safety needs may gain
considerable importance in the context of the dependent relationship of employees to
employers. As pointed out by McGregor, safety needs may serve as motivators in such
circumstances as arbitrary management actions, behavior which arouses uncertainty with
respect to continued unemployment and unpredictable administration of policy.
 Social Needs: After the first two needs are satisfied, social needs become important in
the need hierarchy. This category includes the need for friendship, affection, acceptance, and
interaction with others. Since man is a social being, he has a need to belong and to be accepted
by various groups. When social needs become dominant, a person will strive for meaningful
relations with others. If the opportunity for association with other people is reduced,
individuals often take vigorous action against the obstacles to social interaction. In the
organization, individuals form informal group environments.
 Esteem Needs: Esteem needs are concerned with self-respect, self-confidence, a feeling
of personal worth, feelings of being unique and a need to be recognized by one and all.
Satisfaction of these needs produces feelings of self-confidence, prestige, power and control.
The satisfaction of esteem needs is not always obtained through mature or adaptive behavior.
It is sometimes generated by disruptive and irresponsible actions. Some of the social problems
have their roots in the frustration of esteem needs
 Self Actualization Needs: includes self fulfillment and realization of one’s potential.
Self actualization is the need to maximize one’s potential, whatever it may be. This is related
to the development of intrinsic capabilities which lead individuals to seek situations which can
utilize their potential. This includes competence which implies control over environmental
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factors, both physical and social, and achievement. An individual with high levels of
achievement needs will be restless unless he can find fulfillment in doing what he is trained to
do best. As Maslow puts it, "this need might be phrased as the desire to become more and
more what one is, to become everything that one is capable of becoming."

Self
Actualization Needs
Esteem Needs

Social Needs

Safety Needs

Physiological Needs

Figure 6.1 Maslow's Need Hierarchy

The major assumptions upon which the need hierarchy theory is based are:
- A satisfied need ceases to motivate; i.e. it is no longer a motivator.
- Unsatisfied need can cause frustration, conflict, and stress. It is the unsatisfied need that
motivates an individual.
- A person should minimally satisfy a lower level need before starting thinking about the
satisfaction of the next higher level need.
- The needs are arranged in the order of importance; i.e. as one goes up the hierarchy, the
importance one attaches to the corresponding needs falls.
- A person redirects his effort to the already satisfied and passed level need upon the
disturbance of that need. Sudden unemployment or loss of loved one could lead a person to
shift his/her concern.
The main drawbacks of this theory include:
- There is no evidence that human needs are found arranged in such a hierarchy.
- There is also little evidence to support the idea that people must meet their needs in sequence
up the hierarchy as outlined by Maslow.
However, the significance of this theory to management is to apply different motivators to different
employees found in the hierarchy.
 Herzberg’s Two Factor Theory
The findings of the two factor theory indicate that the work characteristics associated with
satisfaction are quite different from those pertaining to dissatisfaction which prompted the notion
that two factors influence work motivation, namely hygiene factors and motivation factors. Hygiene
factors include salary, job security, status, company policies, quality of technical supervision and
quality of interpersonal relationships among peers, supervisors and subordinates. These are the
primary elements involved in job dissatisfaction. When present in sufficient amount, they have no
effect; when absent, they lead to job dissatisfaction. Motivation factors include achievement,
recognition, responsibility, advancement, the job itself and possibility of growth. These are the
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primary elements involved in job satisfaction. When present, they can stimulate personal and
psychological growth.

b) Process Theories of Motivation: these theories provide a description and analysis of how
behavior is energized, directed, sustained and stopped. In other words, while the content theories are
concerned with what motivates people, the process theories are concerned with how people are
motivated. Below, three such theories are elaborated.
 Vroom’s Expectancy Theory: this theory is based on the belief that people will act to
maximize their rewards. Vroom defines motivation as a process governing choices among
alternative forms of voluntary activities. Motivation-the spur to act- is a function of how badly
we want something and how likely we think we are to get it. Its intensity functions in direct
proportion to perceived or expected rewards. Expectancy theory includes three variables:
- Effort-Performance link: will the effort achieve performance? How much effort will
performance require? How probable is success?
- Performance-reward link: what is the possibility that a certain performance will produce the
desired reward or outcome?
- Attractiveness/valence: how attractive is the reward? This factor relates to the strength or
importance of the reward to the individual and deals with his or her unsatisfied needs.

 Adam’s Equity Theory: this theory states that people’s behavior relates to their
perception of the fairness of treatment they receive. It also includes the fairness that an
individual perceives in the relationship between effort expended and reward. People calculate
equity by calculating a simple ratio: the efforts they are expected to invest on the job (their
input) in relation to what they expect to receive after investing that effort (their outcome). Equity
exists when the ratios are equivalent. Inequity exists when, in the employee’s mind, inputs
exceed the relative or perceived values of the outcomes.
 Skinner’s Reinforcement Theory: states that behaviors result in desirable
consequences are likely to recur; and those that result in undesirable consequences will be less
likely to recur. There are various types of reinforcement as mentioned below.
- Positive reinforcement: is a type of reinforcement that strengthens behavior by providing a
desirable consequence when a desirable behavior occurs. Thus, it increases the likelihood that
a desired behavior will be repeated. Positive reinforcement can be praise, pay, or promotion.
- Avoidance: this reinforcement attempts to increase the probability that a positive behavior will
be repeated by showing the consequences behavior the manager does not desire. The
employee is allowed to avoid those consequences by displaying the desired behavior. For
example, a manager has a policy of penalizing all employees who do not turn in reports in
time.
- Extinction: managers can ignore the behavior of subordinates in order to weaken the behavior.
This approach is most effective when behavior is temporary and not serious. The supervisor’s
hope is that behavior will go away or disappear soon if it is ignored. Say a manager and en
employee have developed the habit of talking during working hours about off –the- job topics.
After the manager is promoted to another job in another area, the employee continues to drop
by, a practice that makes the manager uncomfortable. If the manager continues to work while
the employee is there, the employee will eventually get the message and the behavior will be
extinguished.

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- Punishment: managers might attempt to decrease the recurrence of a behavior by applying

negative consequences. The trouble with punishment as a response to behavior is that the
person will learn what not to do but will not necessarily learn the desired behavior.

Theory X and Theory Y

Douglas McGregor, a professor of industrial management, said that an individual’s management
philosophy reflects one of two assumptions about workers. He called the two sets theory X and
theory Y. Theory X is a philosophy of management with a negative perception of subordinates’
potential for work and attitudes toward them. It assumes that subordinates dislike work, are poorly
motivated, and require close supervision. A manager with these beliefs tends to control the group,
use negative motivation, and refuse to delegate decision making.
Theory Y is philosophy of management with a positive perception of subordinates’ potential for
attitudes toward work. It assumes that subordinates can be self directing, seek responsibility and find
work as natural as play or rest. The outcome of this belief is a manager who encourages people to
seek responsibility, involves people in decision making, and works with people to achieve their
goals.
The theory can be summarized in the following manner.

Theory X Theory Y
 People basically dislike work and avoid it  Most people find work as natural as play or
whenever possible rest and develop an attitude toward it based
 Because most people dislike work, they on their experience with it.
have to be closely supervised &threatened  People do not need to be threatened with
with punishment punishment; they will work voluntarily
 Most people prefer to be told what to do, towards organizational objectives to which
have little ambition, want to avoid they are committed.
responsibility& want security above all  The average person working in an
else environment with good human relations
 Most people have little creativity; they are will accept and seek responsibility.
not capable of solving problems. Rather,  Most people possess a high degree of
they must be directed. imagination, ingenuity, and creativity with
 Most people have limited intellectual which to solve organizational problems.
potential. Contribution above basic  Although people have intellectual
performance should not be expected. potential, modern industrial life utilizes
only part of it.
c) Communication
Communication is the process through which people and organizations accomplish objectives. By
communicating with others we share attitudes, values, emotions, ambitions, wants, and needs.
Behind every success, there is effective communication that is well planned and thoughtfully
executed. Successful managers effectively communicate their vision for a work unit or the company
as a whole. The following points show the importance of communication in organizations.
“Communicate everything you possibly can to your partners. The more they know, the more they
will understand. The more they understand, the more they will care. Once they care, there is no
stopping them. If you don’t trust your associates to know what is going on, they will know you don’t

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really consider them partners. Information is power and the gain you get from empowering your
associates more than offsets the risk of informing your competitors".
“Listen to everyone in your company and figure out ways to get them talking. The folks on the front
lines-the ones who actually talk to the customer- are the only ones who really know what is going
out there. You would better find out what they know. This really is what total quality is all about. To
push responsibility down in your organization, and to force good ideas to bubble up within it, you
must listen to what your associates are trying to tell you”.

Communication Process
Communication is the transmission of information-data in a coherent, usable form-from one person
to one person or group to another. Rational communication strives to achieve a common
understanding-agreement about the meaning and intent of the message-among all parties to each
communication. Although much of the managerial information that managers rely on is in numeric
form, the greatest portion of managerial activity depends on verbal communication and competent
use of language. Able communicators respect the conventions of language-grammar, spelling and
punctuations. They know precisely what they wish to say and thoughtfully select the best way to say
it. In addition, the communicator needs to be certain that the person who receives the information
actually understands the message.
Communication is a process- a set of steps usually taken in a definite sequence. As a process,
communication is consists of the major elements described below.
1. Sender: is the initiator or source of the information.
2. Receiver: is the person or group that gets the information
3. Encoding: it takes place when the sender translates the information to be transmitted into a series
of symbols. It is the mechanism through which one’s mental thoughts into understandable
symbols.
4. Decoding: is the process by which the receiver interprets the message and translate it into
meaningful information.
5. Medium/Channel: is the means chosen by the sender to transmit the message
6. Message: is the information that the sender wants to transmit.
7. Feedback: is the mechanism that enables the sender and the receiver to assure if the intended
communication has taken place and mutual understanding has been achieved.
8. Noise: is any factor that disturbs, confuses or interferes with communication. Noise can arise
along what is called the communication channel or method of communication.

The communication process is depicted in the following diagram.

Message

Sender/source Encoding Channel Decoding Receiver

Noise

Feedback
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Types of Communication
Communication can be classified into two broad categories as forma and informal communication.
a) Formal Communication: is communication that results from company’s organizational
structure. These designated pipelines for messages run in three directions: upward, downward
and horizontally. Managers are charged with the responsibility of creating, using, and keeping
these channels open and available to organization’s members. The channels act as connections
between members and outsiders and as paths through which official communication flows. One
look at a company’s formal organizational chart will reveal who is connected to whom and,
therefore, in which direction communication flows.
- Downward Communication: it takes place daily, in on-the-job conversation and
interactions between managers and team leaders and their subordinates. It conveys such
information as CEO’s vision, company mission, changes in rules and regulations, delegation
of authority, job designs, performance appraisal results, orders, etc. Typical devices used to
carry downward communication include company procedure manuals, newsletters, public
relation’s announcements, annual statements, and various types of memos, reports, letters, and
directives.
- Upward communication: this provides the feedback required by downward
communication. It allows workers to request assistance in solving some problems, and it
provides a means for workers to recommend solutions to others. Workers also use upward
communication to provide status reports and inform higher authorities about employee
complaints. It conveys such information as complaints, feedback, recommended solutions,
research results, etc. The tools of upward communication include employee surveys, regular
meetings between managers and their subordinates, suggestion systems, team meetings and
open-door policy which provides to employees access to managers.

- Horizontal communication: connects people of similar rank and status within an

organization and outside stakeholders with those insiders who can best meet their needs.
Through horizontal channels, workers and managers provide feedback, keep teammates
informed, coordinate activities, seek assistance, and stay in contact with customers.
b) Informal Communication: informal communication networks carry casual, social and
personal messages on a regular basis in or around the workplace. These channels are often called,
collectively, the grapevine. Informal communication channels disseminate rumors, gossip,
accurate as well as inaccurate information and occasionally official messages. Anyone inside or
outside an organization can originate a grapevine message. Grapevine messages are transmitted
in many ways-face to face, by telephone, e-mail, etc.
Messages transmitted through informal channels usually result from incomplete information from
official sources, environmental influences in the organization or outside it, and the basic human
needs to socialize and stay informed. When changes occur, people like to speculate about what
they will mean. When people feel insecure or fearful because of cutbacks and layoffs, rumors fly
about what will happen next. Grapevine has the following characteristics:
 It can penetrate the tightest security
 It spreads in a higher speed like wildfire
 It tends to carry messages from anonymous sources
 Its messages are difficult to stop or counter once they get started
 It is accessible to every person in an organization
 It can be supportive or destructive to management efforts
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Chapter 7
Controlling
7.1 Controlling Defined
 Controlling is the process of ensuring that actual activities conform to planned activities. Control
is more pervasive than planning. Control helps managers to monitor the effectiveness of their
planning, organizing and leading activities. An essential part of the control process is taking
corrective actions as needed.
 Controlling is the measurement and correction of performance in order to make sure that
enterprise objective and plans are accomplished.
 “Controlling means the process of gathering and ‘feeding back’ information about performance
so that decision makers can compare actual results and decide what to do about any apparent
discrepancies or problems”.
 Management control is systematic effort to set performance standards with planning objectives,
to design information feedback systems, to compare actual performance with these predetermined
standards, to determine whether there are any deviations and to measure their significance, and to
take any action required to assure that all organizational resources are being used in the most
effective and efficient way possible in achieving organizational objectives.
Controlling begins with the framework of expectations provided by the standards. From that point,
control consists of a series of steps intended to help ensure that actual performance conforms to
expected performance. Controlling is the management function in which managers set and
communicate performance standards for people, processes, and devices. A standard is any guideline
or benchmark established as the basis for the measurement of capacity, quantity, content, value,
cost, quality, or performance. Whether qualitative or quantitative, standards must be precise,
explicit, and formal statements of the expected result
7.2 Controlling Processes
One can notice that the forth definition given above divides the controlling function into four steps:
1) establishing performance standards, 2) measuring actual performance, 3) comparing actual
performance to established standards and 4) taking corrective action, if necessary. These steps of
controlling are discussed below:
1. Establishing Performance Standards: the controlling process begins with the
establishment of standards of performance to serve as a basis for determining whether
organizational objectives are being accomplished. The goals and objectives established during
the planning process should be stated in clear, measurable terms. Plans are the yardsticks which
managers devise controls. Standards are the criteria of performance. Precisely, worded and

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measurable objectives are easy to communicate and to translate into standards and methods that
can be used to measure performance.

2. Measuring Actual Performance: after standards are established, managers must

measure actual performance to determine variations from standards. The frequency of
measurements depends on the type of activity being measured. Measurement of performance
should be done on a forward looking basis so that deviations can be detected in advance of their
occurrence, and avoided by appropriate actions. Thus, feedback of performance measurements
makes it possible to compare actual with intended results.
3. Comparing Actual Performance with the Established Standards: It is
a matter of comparing measured results with established targets or standards previously set. It is
nothing but comparing the actual results with the planned targets. If performance matches the
standards, managers may assume that ‘everything is under control’. If deviations from the
standards exist, the evaluator must decide if they are significant-if they require corrective
actions. If so, the evaluator must determine what is causing the variance.
4. Taking Corrective Actions: When a controller/evaluator determines the cause or causes
of a significant deviation from a standard, he or she must take corrective action to avoid
repetition of the problem or defect. Policies and procedures may prescribe the actions. Such
guidelines help shorten the time needed to react to deviations. The corrective action could
involve a change in one or more activities of the organization’s operations. This is an exercise of
the principle of navigational change. Correction of deviations is the point at which control can
be seen as a part of the whole system of management. Managers may correct deviations by
redrawing their plans or by modifying their goals.

Thus, controlling is a dynamic process. Unless managers go through the control process to its end,
they are merely monitoring performance rather than exercising control. The emphasis should always
be on devising constructive ways to bring performance up to standard, rather than on merely
identifying past failures.

Take
Establish Does corrective
standards and Measure performanc No action and
methods for Performan e match re-evaluate
measuring ce the the
performance standards? standards
Yes

Do Nothing

. Basic steps in the control process

7.3 Types of Control

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1. Feed Forward Control: This is a preliminary control that takes place before
operations begin and includes the development of policies, procedures and rules that are
designed to ensure that planned activities will be carried out properly. It is a future directed
control method. Feed forward systems monitor inputs into a process to ascertain whether the
inputs are as planned. If not, the inputs are changed in order to obtain desired results. Locks
on doors and bars on windows, safety equipments and guidelines, employee selection
procedures, employee training programs, and budgets are all feed forward controls. McAfee
and Norton anti virus computer software are other examples of feed forward control.
2. Concurrent Control: Concurrent control is the heart of any operating control system.
Concurrent control takes place during the action phase of carrying out the plans and includes
direction, monitoring and adjusting the activities as they occur. Concurrent plan can assist in
achieving that the plan will be carried out at the specified time and under required
conditions. Consider word processing software, which allows a writer to change a document
before storing or printing. The soft ware provides concurrent control. A word processor’s
spelling checker also provides concurrent control. Some concurrent controls are designed to
provide readouts or audible warnings. Most photocopiers and computer printers, for
example, have display panels that alert their users to malfunctions during operations. Many
of the devices on the dashboard of an automobile are concurrent controls.
3. Feedback Control: feedback control measures outputs of a process and feed into the
system or inputs for corrective action to obtain desired outputs. Feedback system is similar
to that which operates in the usual household thermostat. Managers measure actual
performance, compare the measurement with actual standards, and identify and analyze
deviations. They develop a progress for corrective action and implement it to achieve the
desired performance. At the end of a year, for example, a manager should carefully review
the budget control report. Which accounts were overdrawn? Which accounts retained a
surplus? , etc.
7.4 Making Control Effective
Controls at every step focus on inputs, processes and outputs; but what characteristics make controls
effective? Effective controls are focused on critical points integrated into the organizational culture.
They are timely and accepted by those who use them or abide by them. In addition, controls are
economically feasible, accurate and comprehensive.
 Focus on critical points: critical control points are all the operations that directly
affect the survival of an organization and the success of its most essential activities. Critical
control points exist in many areas of business activity-production, sales, customer service, and
finance, for example. Controls should focus on those points at which failures can not be
tolerated and where time and money costs are greatest. The objective is to apply controls to
the essential aspects of a business, not the peripheral ones.

 Integration: controls exhibit integration when the organizational culture supports and
enforces them and when they work in harmony, not at cross purposes. When controls and the
need for them are congruent with the organization’s values, the control will be effective.
Coordinated controls do not impede work; they function harmoniously to give people what
they need to make informed judgments. When managers and employees trust each other and
workers at all levels believe that the controls are necessary, employees can be relied on to
implement the controls.
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 Acceptability: people must agree that controls are necessary, that the particular kinds of
controls in use are appropriate, and that the controls will not have negative impacts on
individuals or their efforts to achieve personal goals. Controls that seem to be arbitrary,
subjective or an invasion of privacy will not elicit the support of those they affect. Too many
controls, confusing controls, and too few controls create stress and resistance. Frustration,
fear, and loss of motivation and initiative can result.
 Timeliness: controls must ensure that information reaches those who need it when they
need it; only then can a meaningful response follow. One reason for setting deadlines is to
ensure that information flows promptly. If deadlines are treated causally or unrealistically,
people will son come to ignore them.
 Economic Feasibility: the costs of a control system must be weighted against its
benefits. If the resources expended on the controls do not return an equal or greater value, the
controls are better left unimplemented. Suppose a costly security system includes highly
trained personnel, sophisticated electronic surveillance equipment, and fingerprint scanning.
Such a system is suitable for capital equipment and facilities, but not the office supply cabinet.
 Accuracy: information is useful if it accurate. Accuracy relates to concurrent controls used
to diagnose deviations from standards. Controls that offer inaccurate assessments feed
decision makers the wrong input, which causes them to give inappropriate responses.
 Comprehensibility: the more complex a control system becomes, the more likely it is
to create confusion. The simpler the control, the easier it will be to communicate and apply.
Controls in the form of instructions are often complex because more than one person created,
implemented, or interpreted them. Complexity can also result when control users lose sight of
the purposes of the controls.
 Tailoring controls to plans and positions: All control techniques and systems
should reflect the plans they are designed to follow. Every plan and every kind and phase of
an organization has unique characteristics. Likewise controls should be tailored to positions.
A small business will need some controls that differ from those in a large business. The very
nature of control emphasizes the fact that the more controls are designed to deal with and
reflect the specific nature and structure of plans, the more effectively they will serve
managerial needs.
 Tailoring controls to individual managers: Control systems and information
systems are intended to help individual managers carry out their function of control. Adequate
authority should be given. Taking the proper corrective action necessitates sufficient authority
to accomplish this task.

7.5 Techniques of Control

Managers use a series of control methods and systems to deal with the different problems and
elements of their organizations. The methods and systems can take many forms and can be intended
for various forms: budgetary methods, non budgetary control devices and modern methods.
a) Budgetary Methods: budgets are formal quantitative statements of the resources
set aside for carrying out planned activities over given periods of time.
 Operating Budgets: The most common types of operating budgets are the expense, revenue and
profit budgets.

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- Expense Budgets: are of two types: engineered cost budgets and discretionary cost budgets.
Engineering cost budgets usually describe the material and labor costs involved in each
production item as well as the estimated overhead costs. Discretionary cost budgets are
typically used for expense centers- administrative, legal, accounting, research etc.
- Revenue Budgets: are meant to measure marketing and sales effectiveness. It is the most
critical part of a profit budget. They consist of the expected quantity of sales multiplied by the
expected unit selling price of each product.
- Profit Budgets: combine cost and revenue budgets in one statement. They are also called
master budget, which consists of a set of projected financial statements and schedules for the
coming year. They serve as annual profit plans.
 Variable Budget: Variable budgets are cost schedules that show how each cost should vary as the
level of output varies. Variable budgets are used where operations are repetitive, where there are
a large number of different expenses and where these expenses can be accurately estimated.
Three types of costs are considered when developing variable budgets: Fixed, Variable, and
semi-variable costs.
- Fixed costs: are those that are unaffected by the amount of work being done Example:
monthly salaries, insurance payments, rent etc.
- Variable costs: are expenses that vary directly with the quantity of work being performed ex:
raw material.
- Semi variable costs: are those that vary with the volume of work performed but not in a
directly proportional way ex: short term labor costs.
 Zero Base Budgeting: The enterprise’s programs are divided into packages composed of goals
and activities and then costs are calculated from the base. By starting the budget of each package
from base zero, costs are calculated afresh for each budget period, without referring the changes
from the previous period.
b)Non Budgetary Control Methods:
 Statistical Data: Statistical analysis with wider application of tools and techniques, and the
clear presentation of statistical data, whether of a historical or a forecast nature, are important to
control. It is easy when data are presented in a graphical or chart form to highlight the trends and
relationships.
 Special Reports and Analysis: For control purposes, special reports and analyses help in
particular problem areas. Although routine accounting and statistical reports furnish a good share
of information, there are areas in which they are inadequate. Reports should be reviewed
periodically to be sure that they are useful.
 Auditing: Auditing validates the honesty and fairness of financial statements to provide a
critical basis for management decisions. It is a process of appraisal. External audit is largely a
verification process involving the independent appraisal of the organization’s financial accounts
and statements. The audit is conducted by accounting personnel employed by an outside firm or
by chartered accountants. Internal audit or operational auditing is carried out by members of the
organization. Its objectives are to provide reasonable assurance that the assets of the organization
are being properly safeguarded and that financial reports are kept reliably and accurately enough
for the preparation of financial statements. Internal audits also assist managers in evaluating the
organization’s operational efficiency and the performance of its control system.

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 Personal Observation: Managers have the risk of seeing that enterprise’s objectives are
accomplished by people and go to the area of activities and taking notice of what is being done.
This is nothing but “Management by Walking Around”.
c) Modern Methods of Control
 Program Evaluation and Review Technique (PERT): PERT is a refinement of the original Gantt
charts, which were designed to show in bar chart form, the various things that must be done, and
when in order to accomplish a program, using the sequence of events and the times required for
each program, one can determine the critical path.
 Management Information system (MIS): MIS is a formal system of gathering, integrating,
comparing, analyzing and dispersing information internal and external to the enterprise in an
effective and efficient manner.
 Computers: computers are extensively used and their impact on managers at various
organizational levels differs. Computer networks link work stations with each other.

Review Questions
1. Define controlling
2. How is planning related to controlling? In what ways will controlling be part of the other management functions?
3. Can organizations function without control? Why or why not?
4. To be effective, what characteristics should feed forward, concurrent and feedback controls have?
5. Why must controls be integrated into a coherent system to work most effectively?
6. What happens first in the control process? How are its step 1 and 3 related? What will happen in the process if no
deviations from established standards are discovered?

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