UNIT1: INTRODUCTION TO MANAGEMENT

Definition: Management is an art of getting things done through and with the people in formally
organized groups. It is an art of creating an environment in which people can perform and individuals
and can co-operate towards attainment of group goals”. Management is the process of reaching
organizational goals by working with and through people and other organizational resources.

Nature of management

An analysis of the various definitions of management indicates that management has certain
characteristics. The following are the salient characteristics of management.

1. Management aims at reaping rich results in economic terms: Manager’s primary task is to
secure the productive performance through planning, direction and control. It is expected of the
management to bring into being the desired results. Rational utilisation of available resources to
maximise the profit is the economic function of a manager. Professional manager can prove his
administrative talent only by economising the resources and enhancing profit. According to Kimball,
“management is the art of applying the economic principles that underlie the control of men and
materials in the enterprise under consideration”

2. Management also implies skill and experience in getting things done through people:
Management involves doing the job through people. The economic function of earning profitable
return cannot be performed without enlisting co-operation and securing positive response from
“people”. Getting the suitable type of people to execute the operations is the significant aspect of
management. In the words of Koontz and O’Donnell, “Management is the art of getting things done
through people in formally organised groups”.

3. Management is a process: Management is a process, function or activity. This process

continues till the objectives set by administration are actually achieved. “Management is a social
process involving co-ordination of human and material resources through the functions of planning,
organising, staffing, leading and controlling in order to accomplish stated objectives”.

4. Management is a universal activity: Management is not applicable to business undertakings only.

It is applicable to political, social, religious and educational institutions also. Management is necessary
when group effort is required.

5. Management is a science as well as an art: Management is an art because there are definite
principles of management. It is also a science because by the application of these principles
predetermined objectives can be achieved.

6. Management is a profession: Management is gradually becoming a profession because there are

established principles of management which are being applied in practice, and it involves specialised
training and is governed by ethical code arising out of its social obligations.

7. Management is an endeavour to achieve pre-determined objectives: Management is concerned

with directing and controlling of the various activities of the organisation to attain the pre-determined
objectives. Every managerial activity has certain objectives. In fact, management deals particularly
with the actual directing of human efforts.

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8. Management is a group activity: Management comes into existence only when there is a group
activity towards a common objective. Management is always concerned with group efforts and not
individual efforts. To achieve the goals of an organisation management plans, organises, co-ordinates,
directs and controls the group effort.

9. Management is a system of authority: Authority means power to make others act in a

predetermined manner. Management formalises a standard set of rules and procedure to be followed
by the subordinates and ensures their compliance with the rules and regulations. Since management
is a process of directing men to perform a task, authority to extract the work from others is implied in
the very concept of management.

10. Management involves decision-making: Management implies making decisions regarding the
organisation and operation of business in its different dimensions. The success or failure of an
organisation can be judged by the quality of decisions taken by the managers. Therefore, decisions are
the key to the performance of a manager.

11. Management implies good leadership: A manager must have the ability to lead and get the
desired course of action from the subordinates. According to R. C. Davis, “management is the function
of executive leadership everywhere”. Management of the high order implies the capacity of managers
to influence the behaviour of their subordinates.

12. Management is dynamic and not static: The principles of management are dynamic and not
static. It has to adopt itself according to social changes.

13. Management draws ideas and concepts from various disciplines: Management is an
interdisciplinary study. It draws ideas and concepts from various disciplines like economics, statistics,
mathematics, psychology, sociology, anthropology etc.

14. Management is goal oriented: Management is a purposeful activity. It is concerned with Notes
the achievement of pre-determined objectives of an organisation.

15. Different levels of management: Management is needed at different levels of an organisation

namely top level, middle level and lower level.

16. Need of organisation: There is the need of an organisation for the success of management.
Management uses the organisation for achieving pre-determined objectives.

17. Management need not be owners: It is not necessary that managers are owners of the
enterprise. In joint stock companies, management and owners (capital) are different entities.

18. Management is intangible: It cannot be seen with the eyes. It is evidenced only by the quality of
the organisation and the results, i.e., profits, increased productivity etc.

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Role of Managers

Who is a Manager?

A Manager is the person responsible for planning and directing the work of a group of individuals,
monitoring their work, and taking corrective action when necessary.

Managers may direct workers directly or they may direct several supervisors who direct the workers.
They are the individuals charged with examining the workflow, coordinating efforts, meeting goals
and providing leadership. Thus a manager must be familiar with the work of all the groups he/she
supervises, but need not be the best in any or all of the areas. It is more important for a manager to
know how to manage the workers than to know how to do their work well.

Roles of a Manager

a) Interpersonal Roles

The ones that, like the name suggests, involve people and other ceremonial duties. It can be further
classified as follows

• Leader – Responsible for staffing, training, and associated duties.

• Figurehead – The symbolic head of the organization.

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• Liaison – Maintains the communication between all contacts and informers that compose the
organizational network.

b) Informational Roles

Related to collecting, receiving, and disseminating information.

• Monitor – Personally seek and receive information, to be able to understand the organization.

• Disseminator – Transmits all import information received from outsiders to the members of the
organization.

• Spokesperson – On the contrary to the above role, here the manager transmits the organization‘s
plans, policies and actions to outsiders.

c) Decisional Roles

Roles that revolve around making choices.

• Entrepreneur – Seeks opportunities. Basically they search for change, respond to it, and exploit
it.

• Negotiator – Represents the organization at major negotiations.

• Resource Allocator – Makes or approves all significant decisions related to the allocation of
resources.

• Disturbance Handler – Responsible for corrective action when the organization faces
disturbances.

Managerial Skills

An effective manager must possess certain skills in the areas of planning, organising, leading,
controlling and decision-making in order to process activities that are presented to him from time to
time. In order to be effective, a manager must possess and continuously develop several essential
skills. Robert L. Katz has identified three basic types of skills - technical, human and conceptual -
which he says are needed by all managers.

1. Technical skill: It is the ability to use the tools, procedures or techniques of a specialised field.
Technical skill is considered to be very crucial to the effectiveness of lower level managers because
they are in direct contact with employees performing work activities within the firm. For instance, the
success of a drilling supervisor of an oil rig depends a great deal on his technical knowledge of drilling.
However, as one moves to higher levels of management within the organisation, the importance of
technical skill diminishes because the manager has less direct contact with day-to-day problems and

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activities. Thus, the president of an oil company does not need to know much of the technical details
of drilling for oil or how to refine it.

2. Human skill: It is the ability to work with, understand and motivate other people. This skill is
essential at every level of management within the organisation, but it is particularly important at
lower levels of management where the supervisor has frequent contact with operating personnel.

3. Conceptual skill: It is the mental ability to coordinate and integrate the organisation’s interests
and activities. It refers to the ability to see the ‘big picture’, to understand how a change in any given
part can affect the whole organisation.

Level of Management

1. The Top Management

It consists of board of directors, chief executive or managing director. The top management is the
ultimate source of authority and it manages goals and policies for an enterprise. It devotes more time
on planning and coordinating functions.

The role of the top management can be summarized as follows –

a. Top management lays down the objectives and broad policies of the enterprise.

b. It issues necessary instructions for preparation of department budgets, procedures, schedules etc.

c. It prepares strategic plans & policies for the enterprise.

d. It appoints the executive for middle level i.e. departmental managers. e. It controls & coordinates
the activities of all the departments.

f. It is also responsible for maintaining a contact with the outside world. g. It provides guidance and
direction.

h. The top management is also responsible towards the shareholders for the performance of the
enterprise.

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2. Middle Level Management

The branch managers and departmental managers constitute middle level. They are responsible to the
top management for the functioning of their department. They devote more time to organizational
and directional functions. In small organization, there is only one layer of middle level of management
but in big enterprises, there may be senior and junior middle level management. Their role can be
emphasized as –

a. They execute the plans of the organization in accordance with the policies and directives of the top
management.

b. They make plans for the sub-units of the organization.

c. They participate in employment & training of lower level management.

d. They interpret and explain policies from top level management to lower level.

e. They are responsible for coordinating the activities within the division or department.

f. It also sends important reports and other important data to top level management.

g. They evaluate performance of junior managers.

h. They are also responsible for inspiring lower level managers towards better performance.

3. Lower Level Management

Lower level is also known as supervisory / operative level of management. It consists of supervisors,
foreman, section officers, superintendent etc. Their activities include

a. Assigning of jobs and tasks to various workers.

b. They guide and instruct workers for day to day activities.

c. They are responsible for the quality as well as quantity of production.

d. They are also entrusted with the responsibility of maintaining good relation in the organization.

e. They communicate workers problems, suggestions, and recommendatory appeals etc to the higher
level and higher level goals and objectives to the workers.

f. They help to solve the grievances of the workers. g. They supervise & guide the sub-ordinates.

h. They are responsible for providing training to the workers.

i. They arrange necessary materials, machines, tools etc for getting the things done.

j. They prepare periodical reports about the performance of the workers. k. They ensure discipline in
the enterprise.

l. They motivate workers.

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m. They are the image builders of the enterprise because they are in direct contact with the workers.

Managerial skill and levels of management

Basic Function of Management

Management has been described as a social process involving responsibility for economical and
effective planning & regulation of operation of an enterprise in the fulfilment of given purposes. It is a
dynamic process consisting of various elements and activities. These activities are different from
operative functions like marketing, finance, purchase etc. Rather these activities are common to each
and every manger irrespective of his level or status.

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1. Planning: It is the basic function of management. It deals with chalking out a future course of action
& deciding in advance the most appropriate course of actions for achievement of pre-determined
goals. According to KOONTZ, ―Planning is deciding in advance – what to do, when to do & how to do.
It bridges the gap from where we are & where we want to be‖. A plan is a future course of actions. It is
an exercise in problem solving & decision making. Planning is determination of courses of action to
achieve desired goals. Thus, planning is a systematic thinking about ways & means for
accomplishment of pre- determined goals. Planning is necessary to ensure proper utilization of human
& non- human resources. It is all pervasive, it is an intellectual activity and it also helps in avoiding
confusion, uncertainties, risks, wastages etc.

2. Organizing: It is the process of bringing together physical, financial and human resources and
developing productive relationship amongst them for achievement of organizational goals. According
to Henry Fayol, ―To organize a business is to provide it with everything useful or its functioning i.e.
raw material, tools, capital and personnel‘s‖. To organize a business involves determining & providing
human and non-human resources to the organizational structure. Organizing as a process involves:

• Identification of activities.

• Classification of grouping of activities.

• Assignment of duties.

• Delegation of authority and creation of responsibility.

• Coordinating authority and responsibility relationships.

3. Staffing: It is the function of manning the organization structure and keeping it manned. Staffing
has assumed greater importance in the recent years due to advancement of technology, increase in
size of business, complexity of human behavior etc. The main purpose o staffing is to put right man on
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right job i.e. square pegs in square holes and round pegs in round holes. According to Kootz &
O‘Donell, ―Managerial function of staffing involves manning the organization structure through
proper and effective selection, appraisal & development of personnel to fill the roles designed un the
structure‖. Staffing involves:

• Manpower Planning (estimating man power in terms of searching, choose the person and giving the
right place).

• Recruitment, selection & placement.

• Training & development.

• Remuneration.

• Performance appraisal.

• Promotions & transfer.

4. Directing: It is that part of managerial function which actuates the organizational methods to work
efficiently for achievement of organizational purposes. It is considered life-spark of the enterprise
which sets it in motion the action of people because planning, organizing and staffing are the mere
preparations for doing the work. Direction is that inert-personnel aspect of management which deals
directly with influencing, guiding, supervising, motivating sub-ordinate for the achievement of
organizational goals. Direction has following elements:

• Supervision

• Motivation

• Leadership

• Communication

(i) Supervision- implies overseeing the work of subordinates by their superiors. It is the act of
watching & directing work & workers.

(ii) Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work.
Positive, negative, monetary, non-monetary incentives may be used for this purpose.

(iii) Leadership- may be defined as a process by which manager guides and influences the work of
subordinates in desired direction.

(iv)Communications- is the process of passing information, experience, opinion etc from one person
to another. It is a bridge of understanding.

5. Controlling: It implies measurement of accomplishment against the standards and correction of

deviation if any to ensure achievement of organizational goals. The purpose of controlling is to ensure
that everything occurs in conformities with the standards. An efficient system of control helps to
predict deviations before they actually occur. According to Theo Haimann, ―Controlling is the process
of checking whether or not proper progress is being made towards the objectives and goals and acting
if necessary, to correct any deviation‖. According to Koontz & O‘Donell ―Controlling is the
measurement & correction of performance activities of subordinates in order to make sure that the
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enterprise objectives and plans desired to obtain them as being accomplished. Therefore controlling
has following steps:

(i) Establishment of standard performance. (ii) Measurement of actual performance.

(iii) Comparison of actual performance with the standards and finding out deviation if any.

(iv) Corrective action

Is Management a Science or an Art?

A question often arises whether management is a science or art. It is said that “management is the
oldest of arts and the youngest of sciences”. This explains the changing nature of management but
does not exactly answer what management is? To have an exact answer to the question it is necessary
to know the meanings of the terms “Science” and “Art”.

What is “Science”?

Science may be described, “as a systematic body of knowledge pertaining to an area of study and
contains some general truths explaining past events or phenomena”.

The above definition contains three important characteristics of science. They are:

1. It is a systematized body of knowledge and uses scientific methods for observation,

2. Its principles are evolved on the basis of continued observation and experiment, and

3. Its principles are exact and have universal applicability without any limitation.

Judging from the above characteristics of science, it may be observed that:

1. Management is a systematized body of knowledge and its principles have evolved on the basis of
observation.

2. The kind of experimentation (as in natural sciences) cannot be accompanied in the area of
management since management deals with the human element.

3. In management, it is not possible to define, analyse and measure phenomena by repeating the same
conditions over and over again to obtain a proof.

The above observation puts a limitation on management as a science. Management like other social
sciences can be called as “inexact science”.

What is “Art”?

‘Art’ refers to “the way of doing specific things; it indicates how an objective is to be achieved.”
Management like any other operational activity has to be an art. Most of the managerial acts have to
be cultivated as arts of attaining mastery to secure action and results.

The above definition contains three important characteristics of art. They are:

1. Art is the application of science. It is putting principle into practice.

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2. After knowing a particular art, practice is needed to reach the level of perfection.

3. It is undertaken for accomplishing an end through deliberate efforts.

Judging from the above characteristics of art, it may be observed that:

1. Management while performing the activities of getting things done by others is required to apply
the knowledge of certain underlying principles which are necessary for every art.

2. Management gets perfection in the art of managing only through continuous practice.

3. Management implies capacity to apply accurately the knowledge to solve the problems, to face the
situation and to realise the objectives fully and timely.

The above observation makes management an art and that to a fine art.

Management is both a Science as well as an Art

Management is both a science as well as an art. The science of management provides certain general
principles which can guide the managers in their professional effort. The art of management consists
in tackling every situation in an effective manner. As a matter of fact, neither science should be over-
emphasised nor should be the art discounted; the science and the art of management go together and
are both mutually interdependent and complimentary.

Management is thus a science as well as an art. It can be said that-”the art of management is as old as
human history, but the science of management is an event of the recent past.”

Management as a Profession:

Profession can be defined as an occupation backed by specialised knowledge and training, in which
entry is restricted. The main features of profession are:

1. Well defined Body of knowledge: In every profession there is practice of systematic body of
knowledge which helps the professionals to gain specialised knowledge of that profession. In case of
management also there is availability of systematic body of knowledge. There are large numbers of
books available on management studies. Scholars are studying various business situations and are
trying to develop new principles to tackle these situations. So presently this feature of profession is
present in management also.

2. Restricted Entry: The entry to a profession is restricted through an examination or degree. For
example a person can practice as Doctor only when he is having MBBS degree. Whereas there is no
legal restriction on appointment of a manager, anyone can become a manager irrespective of the
educational qualification. But now many companies prefer to appoint managers only with MBA
degree. So presently this feature of profession is not present in management but very soon it will be
included with statutory backing.

3. Presence of professional associations: For all the professions, special associations are
established and every professional has to get himself registered with his association before practising

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that profession. For example, doctors have to get themselves registered with Medical Council of India,
lawyers with Bar Council of India etc.

In case of management various management associations are set up at national and international
levels which have some membership rules and set of ethical codes, for example, AIMA in New Delhi,
National Institute of Personal Management at Calcutta etc., but legally it is not compulsory for
managers to become a part of these organisations by registration. So presently this feature of
profession is not present in management but very soon it will be included and get statutory backing
also.

4. Existence of ethical codes: For every profession there are set of ethical codes fixed by professional
organisations and are binding on all the professionals of that profession. In case of management there
is growing emphasis on ethical behaviour of managers. All India Management Association (AIMA) has
devised a code of conduct for Indian managers. But legally it is not compulsory for all the managers to
get registered with AIMA and abide by the ethical codes.

So presently this feature of profession is not present in management but very soon it will be included
with statutory backing.

5. Service Motive: The basic motive of every profession is to serve the clients with dedication.
Whereas basic purpose of management is achievement of management goal, for example for a
business organisation the goal can be profit maximisation.

But nowadays only profit maximisation cannot be the sole goal of an enterprise. To survive in market
for a long period of time, a businessman must give due importance to social objectives along with
economic objectives. So presently this feature of profession is not present but very soon it will be
included.

UNIT 2: EVOLUTION OF MANAGEMENT THEORY

# Scientific Management Approach

The impetus for the scientific management approach came from the first industrial revolution.
Because it brought about such an extraordinary mechanization of industry, this revolution
necessitated the development of new management principles and practices. The main contributors to
scientific management were Frederick W. Taylor, Henry L. Gantt, Frank Gilbreth, Lillian Gilbreth and
Harrington Emerson.

F.W. Taylor (1865-1915) was the first person who insisted on the introduction of scientific methods in
management. He launched a new movement during the last decade of 19th century which is known as
‘Scientific Management’. That is why, Taylor is regarded as the father of scientific management. Taylor
was an American engineer who responded to the challenges of management around the turn of the
century. During that period, productivity was very low, labour became extremely dissatisfied and
industries had to face frequent strikes and lockouts. Taylor’s contribution was a system based on
science whereby lower labour cost could be achieved simultaneously with higher wages. He suggested

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the change in the mental attitudes of the workers and the management to bring harmony in the
industry.

Scientific management means application of scientific methods to the problems of management.

Taylor advocated scientific task setting based on time and motion study, standardization of materials,
tools and working conditions, scientific selection and training of workers and so on. It is to be noted
that Taylor’s thinking was confined to management at the shop level. However, he demonstrated the
possibility and significance of the scientific analysis of the various aspects of management. To sum up,
he laid emphasis on the following principles:

1. Science, not rule of thumb.

2. Harmony in group action, rather than discord.

3. Maximum output in place of restricted output.

4. Scientific selection, training and placement of the workers.

5. Almost equal division of work and responsibility between workers and managers.

The basic idea behind the principles of scientific management is to change the mental attitudes of the
workers and the management towards each other. Taylor called it ‘Mental Revolution’ which has three
implications:

1. All out efforts for increase in production;

2. Creation of the spirit of mutual trust and confidence; and

3. Inculcating and developing the scientific attitude towards problems.

Taylor suggested that management should try to find the best methods of doing various jobs and
introduce standardized materials, tools and equipment so that wastages are reduced. The
management should select right types of people and give them adequate training so as to increase the
quantity and quality of production. It must create congenial working conditions for optimum
efficiency of the workers. It should perform the decision-making function and should always try to
give maximum cooperation to the workers to ensure that work is done according to the scientific
techniques.

The workers should also revise their attitude towards the management. They should not be work-
shirkers. They should be disciplined, loyal and sincere in fulfilling the tasks assigned to them. They
should not indulge in wastage of resources. Both the management and the workers should trust each
other and cooperate in achieving maximum production.

Thus, Taylor stood for creating a mental revolution on the part of management and workers. It is to be
noted that Taylor’s thinking was confined to management at the shop level. However, he
demonstrated the possibility and significance of the scientific analysis of the various aspects of
management. To put the philosophy of scientific management into practice, Taylor and his associates
suggested the following techniques:

1. Scientific task setting to determine a fair days; work.

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2. Work study to simplify work and increase efficiency. This involves methods study, time study and
motion study.

3. Standardization of materials, tools equipment, costing system, etc.

4. Scientific selection and training of workers.

5. Differential piece-wage plan to reward the highly efficient workers.

6. Specialization in planning and operations through ‘functional foremanship’. Foremen in the

planning department include: route clerk, instruction card clear, time and cost clerk and shop
disciplinarian and those in the operations department include: gang boss, speed boss, repair boss and
inspector.

7. Elimination of wastes and rationalization of system of control.

Criticism of Scientific Management

Taylor’s scientific management was criticized not only by the workers and managers but also by the
psychologists and the general public. The main grounds of criticism are given below:

1. The use of the word ‘Scientific’ before ‘Management’ was objected because what is actually meant
by scientific management is nothing but a scientific approach to management.

2. Taylor advocated the concept of functional foremanship to bring about specialization in the
organisation. But this is not feasible in practice as a worker can’t carry out instructions from eight
foremen.

3. Scientific management is production-centred as it concentrates too much on the technical aspects of

work and undermines the human factor in industry.

4. Scientific Management ignores social and psychological needs of workers as it treats them as
extension of machines devoid of any feelings and emotions.

5. Trade unionists regarded the principles of scientific management as the means to exploit labour
because the wages of the workers were not increased in direct proportion to productivity increases.

Many of the above objections were later remedied by the other contributors to scientific management
like Henri L. Gantt, Frank Gilbreth, Lillian Gilbreth and Harrington Emerson. Many of the
recommendations of Taylor are still being applied by the modern business undertakings. In short, it
can be said that Taylor was the pioneer in introducing scientific reasoning to the discipline of
management.

# Management Process or Administrative Management Approach

The advocates of this school perceive management as a process involving certain functions such as
planning, organising, directing and controlling. That is why, it is also called the ‘functional’ approach.
Henri Fayol is regarded as the father of this school. Henri Fayol defined management in terms of
certain functions and then laid down fourteen principles of management which according to him have
universal applicability.

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Concept of Management: Henry Fayol is considered the father of modern theory of general and
industrial management. He divided general and industrial management into six groups:

1. Technical activities: Production, manufacture, adaptation.

2. Commercial activities: Buying, selling and exchange.

3. Financial activities: Search for and optimum use of capital.

4. Security activities: Protection of property and persons.

5. Accounting activities: Stock-taking, balance sheet, cost, and statistics.

6. Managerial activities: Planning, organisation, command, co- ordination and control.

These six functions had to be performed to operate successfully any kind of business. He, however,
pointed out that the last function i.e., ability to manage, was the most important for upper levels of
managers.

The process of management as an on-going managerial cycle involving planning, organising, directing,
co-ordination, and controlling, is actually based on the analysis of general management by Fayol.
Hence, it is said that Fayol established the pattern of management thought and practice. Even today,
management process has general recognition.

Fayol’s Principles of Management: The principles of management are given below:

1. Division of work: Division of work or specialization alone can give maximum productivity and
efficiency. Both technical and managerial activities can be performed in the best manner only through
division of labour and specialization.

2. Authority and Responsibility: The right to give order is called authority. The obligation to
accomplish is called responsibility. Authority and Responsibility are the two sides of the management
coin. They exist together. They are complementary and mutually interdependent.

3. Discipline: The objectives, rules and regulations, the policies and procedures must be honoured by
each member of an organisation. There must be clear and fair agreement on the rules and objectives,
on the policies and procedures. There must be penalties (punishment) for non-obedience or
indiscipline. No organisation can work smoothly without discipline - preferably voluntary discipline.

4. Unity of Command: In order to avoid any possible confusion and conflict, each member of an
organisation must receive orders and instructions only from one superior (boss).

5. Unity of Direction: All members of an organisation must work together to accomplish common
objectives.

6. Emphasis on Subordination of Personal Interest to General or Common Interest: This is also

called principle of co-operation. Each shall work for all and all for each. General or common interest
must be supreme in any joint enterprise.

7. Remuneration: Fair pay with non-financial rewards can act as the best incentive or motivator for
good performance. Exploitation of employees in any manner must be eliminated. Sound scheme of
remuneration includes adequate financial and non-financial incentives.
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8. Centralization: There must be a good balance between centralization and decentralization of
authority and power. Extreme centralization and decentralization must be avoided.

9. Scalar Chain: The unity of command brings about a chain or hierarchy of command linking all
members of the organisation from the top to the bottom. Scalar denotes steps.

10. Order: Fayol suggested that there is a place for everything. Order or system alone can create a
sound organisation and efficient management.

11. Equity: An organisation consists of a group of people involved in joint effort. Hence, equity (i.e.,
justice) must be there. Without equity, we cannot have sustained and adequate joint collaboration.

12. Stability of Tenure: A person needs time to adjust himself with the new work and demonstrate
efficiency in due course. Hence, employees and managers must have job security. Security of income
and employment is a pre-requisite of sound organisation and management.

13. Esprit of Co-operation: Esprit de corps is the foundation of a sound organisation. Union is
strength. But unity demands co-operation. Pride, loyalty and sense of belonging are responsible for
good performance.

14. Initiative: Creative thinking and capacity to take initiative can give us sound managerial planning
and execution of predetermined plans.

Criticism of Process of Functional Approach

Though the proponents of management process approach have made significant contribution to the
development of thought, their work suffers from the following limitations:

1. There is no single classification of managerial functions acceptable to all the functional theorists.
There is also lack of unanimity about the various terms such as management and administration,
commanding and directing, etc.

2. The functionalists considered their principles to be universal in nature. But many of the principles
have failed to deliver the desired results in certain situations.

3. The functional theorists did not consider the external environment of business.

4. Fayol overemphasized the intellectual side of management. He felt that management should be
formally taught, but he did not elaborate the nature and contents of management education.

Comparison between Fayol’s Theory and Taylor’s Theory

BASIS FOR HENRY FAYOL F.W. TAYLOR

COMPARISON

Meaning Henry Fayol, is a father of modern F.W. Taylor, is a father of scientific

management who laid down management who introduced four
fourteen principles of principles of management, for
management, for improving increasing overall productivity.
overall administration.

Concept General theory of administration Scientific Management

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Emphasis Top level management Low level management

Applicability Universally applicable Applies to specialized

organizations only.

Basis of Personal Experience Observation and Experimentation

formation

Orientation Managerial function Production and Engineering

System of Wage Sharing of profit with managers. Differential Payment System

Payment

Approach Manager's approach Engineer's approach

# Behavioural Science Approach

Under behavioural science approach, the knowledge drawn from behavioural science, namely,
psychology, sociology and anthropology, is applied to explain and predict human behaviour. It focuses
on human behaviour in organisations and seeks to promote verifiable propositions for scientific
understanding of human behaviour in organisations. It lays emphasis on the study of motivation,
leadership, communication, group dynamics, participative management, etc.

The essential characteristics of behavioural science approach are as under:

1. Data must be objectively collected and analysed.

2. Findings must be presented so that the distinction between cause and effect, as opposed to chance
occurrences, is clear.

3. Facts must be systematically related to one another within a systematic framework. Data collection
alone does not constitute a science.

4. The findings of a study must always be open to further examination and question.

The distinguishing feature of the behavioural sciences approach is the methodology employed in
developing the research in the management discipline. The crux of the methodology lies in the
collection and analysis of the relevant data. It is in this sense that this approach differs from the
human relations approach. Further, the behavioural scientists made the following propositions:

1. An organisation is a socio-technical system.

2. Individuals differ with regard to attitudes, perceptions and value systems. As a result, they behave
differently to different stimuli under different conditions.

3. People working in the organisation have their needs and goals which may differ from the
organisational goals. Attempts should be made to achieve fusion between organisational goals and
human needs.

4. A wide range of factors influence inter-personal and group behaviour of people in organisations.

17
The behaviour school has drawn heavily on the work of Maslow. His development of need hierarchy to
explain human behaviour and the dynamics of motivation process is an important contribution.
Douglas McGregor built on Maslow’s work in explaining his ‘Theory X’ and ‘Theory Y’. Frederick
Herzberg developed a two-factor theory of motivation. He made a distinction between the factors
which either cause or prevent job dissatisfaction (hygienic factors), and those factors which actually
lead to motivation (motivational factors).

In the area of leadership, Robert Blak and Jane Mouton developed and popularized the ‘Managerial
Grid’. Rensis Likert has identified and extensively researched four Management Systems ranging from
System 1: Exploitive-Authoritative to System 4: Group Participative. Each system characterizes and
organisational climate by employing several key dimensions of effectiveness such as communication,
motivation, leadership and others.

To sum up, the behavioural sciences approach gives emphasis on increasing productivity through
motivation and leadership. The central core of this approach lies in the following aspects of human
behaviour: motivation, leadership, communication, participative management and group dynamics.
The behavioural sciences have provided managers with a systematic understanding of one of the most
critical factors in the process of management-the human element. Insights evolving from that
understanding have been used to design work situations that encourage increased productivity. It has
enabled organisations to formulate programmes to more efficiently train workers and managers, and
it has effects in numerous other areas of practical significance.

Appraisal of Behavioural Science Approach

1. The study of human behaviour is of great significance in management. Since an individual is a

product of social system, his behaviour is not determined by organisational forces alone, but many
forces like perception, attitudes, habits, and socio-cultural environment also shape his behaviour.
Therefore, in understanding human behaviour in the organisation, all these factors must be taken into
account.

2. The behavioural approach suggests how the knowledge of human behaviour can be used in making
people more effective in the organisation.

3. Behaviourists have enriched management theory through their contributions in the areas of group
dynamics, motivation communication and leadership. However, they have failed in developing an
integrated theory of management. Although, study of human behaviour in organisations is extremely
important yet management cannot be confined only to this area.

4. There are other variable such as technology and environment which have an important bearing on
the effectiveness of an organisation.

5. The behavioural science, refined as they might be, has not achieved the precision of the physical
sciences.

6. Often the complexities of the human factor and the organisational setting make exact predictions
impossible. It is not uncommon for programmes based on sound behavioural principles to have
unexpected results.

7. It should also be noted that the finding of behavioural science research are tentative and require
further investigation. They should not be treated as applicable to all situations.

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8. Behavioural guidelines can be helpful and profitable, but are not complete, valid and applicable to
all situations.

Modern Theories of Management

Management is one or the other form has existed in every nook and corner of the world since the
dawn of civilization. Modern Management has grown with the growth of social-economics and
scientific institution. Modern view consists that a worker does not work for only money. They work
for their satisfaction and happiness with good living style. Here Non- financial award is most
important factor. Modern management theories started after 1950s. Modern management theory
focuses the development of each factor of workers and organization. Modern management theory
refers to emphasizing the use of systematic mathematical techniques in the system with analysing and
understanding the inter-relationship of management and workers in all aspect.

i) Systems Approach

In the 1960s, a new approach to management appeared which attempted to unify the earlier schools
of thought. This approach is commonly referred to as ‘Systems Approach’. Basically, it took up where
the functional process management school let off to try to unify management theory. “A system
viewpoint may provide the impetus to unify management theory. By definition, it could treat the
various approaches, such as the process, quantitative and behavioural ones, as subsystems in an
overall theory of management. Thus, the systems approach may succeed where the process approach
has failed to lead management out of the theory jungle”.

The systems approach is based on the generalization that an organisation is a system and its
components are inter-related and inter-dependent. “A system is composed of related and dependent
elements which, when in interactions, form a unitary whole. It is simply an assemblage or
combination of things or parts, forming a complex whole. Its important feature is that it is composed
of hierarchy of sub-systems. The world as a whole can be considered to be systems in which various
national economies are sub-system. In turn, each national economy is composed of its various
industries, each industry is composed of firms, and of course, a firm can be considered a system
composed of sub-systems such as production, marketing, finance, accounting and so on”. Thus, each
system may comprise several sub-systems and in turn, each sub-system be further composed of sub-
systems.

An organisation as a system has the following characteristics:

1. A system is goal-oriented.

2. A system consists of several sub-systems which are interdependent and inter-related.

3. A system is engaged in processing or transformation of inputs into outputs.

4. An organisation is an open and dynamic system. It has continuous interface with the external
environment as it gets inputs from the environment and also supplies its output to the environment. It
is sensitive to its environment such as government policies, competition in the market, technological
advancement, tastes of people, etc.

5. A system has a boundary which separates it from other systems.

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Features of Systems Approach

The systems approach is far more superior to classical and neo-classical approach because of the
following features:

1. Interdependent Sub-systems: An organisation is a system consisting of several sub-systems. For

example: in a business enterprise, production, sales and other departments and subsystems. All these
sub-systems are functionally interacting and interdependent. They are used together into an organic
whole through goals, authority flows, resource flows and so on.

2. Whole Organisation: The system approach provides a unified focus to organisational efforts. It
gives managers a way of looking at the organisation as a whole that is greater than the sum of its
parts. The stress is laid on integration of various sub-systems of the organisation to ensure overall
effectiveness of the system.

3. Synergy: The output of a system is always more than the combined output of its parts. This is called
the law if synergy. The parts of system become more productive when they interact with each other
than when they act in isolation.

4. Multi-disciplinary: Modern theory of management is enriched by contributions from various

disciplines like psychology, sociology, economics, anthropology, mathematics, operations research
and so on.

ii) Contingency or Situational Approach

The latest approach to management which integrates the various approaches to management is
known as ‘contingency’ or ‘situational’ approach. The contingency approach is not new. Pigors and
Myers propagated this approach in the area of personnel management as early as in 1950. However,
the work of Joan Woodward in the 1950s marked the beginning of the contingency approach to
organisation and management. Other contributors include Tom Burns, G.W. Stalker, Paul Lawrence,
Jay Lorsch, and James Thompson. They analysed the relationship between the structure of the
organisation and the environment. Thus, contingency approach incorporates external environment
and attempts to bridge the theory-practice gap. It does so in the systems framework. In other words
contingency approach as regards organisation as an open and dynamic system which has continuous
interaction with environment.

The contingency theory stresses that there is no one best style of leadership which will suit every
situation. The effectiveness of a particular leadership style will vary from situation to situation. For
instance, participative leadership may be more effective in an organisation employing professional
personnel in a high technology operation in an atmosphere of non-materialistic orientation and free
expression. On the other hand, authoritarian leadership would be more effective in an organisation
which employs unskilled personnel on routine tasks in social values oriented towards materialism
and obedience to authority.

Evaluation of Contingency Approach

Contingency approach guides the managers to be adaptive to environmental variables. In other words,
the managers should develop situational sensitivity and practical selectivity.

20
Contingency approach suggests the managers to condone environmental contingencies while
choosing their style and techniques.

Contingency approach is an improvement over systems approach. It not only examines the
relationships of sub-systems of the organisation, but also the relationship between the organisation
and its environment.

UNIT 3: PLANNING
The necessity for planning arises because of the fact that business organisations have to operate,
survive and progress in a highly dynamic economy where change is the rule, not the exception. The
change may be sudden and extensive, or it may be slow and almost imperceptible. Some of the
important forces of change may be: changes in technology, changes in population and income
distribution, changes in the tastes of consumers, changes in competition, changes in government
policies etc. These changes often give rise to innumerable problems and throw countless challenges.
Most of these changes are thrust on managers thus, managers are forced to adjust their activities in
order to take full advantage of favourable developments or to minimise the adverse effects of
unfavourable ones

Definition: According to Koontz O'Donnel - "Planning is an intellectual process, the conscious

determination of courses of action, the basing of decisions on purpose, acts and considered estimates".

Nature of Planning

1. Planning is goal-oriented: Every plan must contribute in some positive way towards the
accomplishment of group objectives. Planning has no meaning without being related to goals.

2. Primacy of Planning: Planning is the first of the managerial functions. It precedes all other
management functions.

3. Pervasiveness of Planning: Planning is found at all levels of management. Top management looks
after strategic planning. Middle management is in charge of administrative planning. Lower
management has to concentrate on operational planning.

4. Efficiency, Economy and Accuracy: Efficiency of plan is measured by its contribution to the
objectives as economically as possible. Planning also focuses on accurate forecasts.

5. Co-ordination: Planning co-ordinates the what, who, how, where and why of planning. Without co-
ordination of all activities, we cannot have united efforts.

6. Limiting Factors: A planner must recognize the limiting factors (money, manpower etc) and
formulate plans in the light of these critical factors.

7. Flexibility: The process of planning should be adaptable to changing environmental conditions.

8. Planning is an intellectual process: The quality of planning will vary according to the quality of
the mind of the manager.

Importance of Planning
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As a managerial function planning is important due to the following reasons:-

1. To manage by objectives: All the activities of an organization are designed to achieve certain
specified objectives. However, planning makes the objectives more concrete by focusing attention on
them.

2. To offset uncertainty and change: Future is always full of uncertainties and changes. Planning
foresees the future and makes the necessary provisions for it.

3. To secure economy in operation: Planning involves, the selection of most profitable course of
action that would lead to the best result at the minimum costs.

4. To help in co-ordination: Co-ordination is, indeed, the essence of management, the planning is the
base of it. Without planning it is not possible to co-ordinate the different activities of an organization.

5. To make control effective: The controlling function of management relates to the comparison of
the planned performance with the actual performance. In the absence of plans, a management will
have no standards for controlling other's performance.

6. To increase organizational effectiveness: Mere efficiency in the organization is not important; it

should also lead to productivity and effectiveness. Planning enables the manager to measure the
organizational effectiveness in the context of the stated objectives and take further actions in this
direction.

Types of Plans

1. Operational plans: The specific results expected from departments, work groups, and individuals
are the operational goals. These goals are precise and measurable. Thus an operational plan is one
that a manager uses to accomplish his or her job responsibilities. Supervisors, team leaders, and
facilitators develop operational plans to support tactical plans. Operational plans can be a single-use
plan or an on-going plan.

(a) Single-use plans: These plans apply to activities that do not recur or repeat. A onetime
occurrence, such as a special sales program, is a single-use plan because it deals with the who, what,
where, how, and how much of an activity.

Example: A budget: Because it predicts sources and amounts of income and how much they are used for
a specific project.

(b) Continuing or on-going plans: These are usually made once and retain their value over a period
of years while undergoing periodic revisions and updates.

Example: A policy: Because it provides a broad guideline for managers to follow when dealing with
important areas of decision making.

A procedure: Because it explains how activities or tasks are to be carried out.

A rule: Because it tells an employee what he or she can and cannot do.

2. Tactical plans: A tactical plan is concerned with what the lower level units within each division
must do, how they must do it, and who is in charge at each level. Tactics are the means needed to

22
activate a strategy and make it work. Tactical plans are concerned with shorter time frames and
narrower scopes than are strategic plans. These plans usually span one year or less because they are
considered short-term goals. Long-term goals, on the other hand, can take several years or more to
accomplish. Normally, it is the middle manager’s responsibility to take the broad strategic plan and
identify specific tactical actions.

3. Strategic plans: A strategic plan is an outline of steps designed with the goals of the entire
organisation as a whole in mind, rather than with the goals of specific divisions or departments.
Strategic planning begins with an organisation’s mission. Strategic plans look ahead over the next two,
three, five, or even more years to move the organisation from where it currently is to where it wants
to be. Requiring multilevel involvement, these plans demand harmony among all levels of
management within the organisation. Top-level management develops the directional objectives for
the entire organisation, while lower levels of management develop compatible objectives and plans to
achieve them. Top management’s strategic plan for the entire organisation becomes the framework
and sets dimensions for the lower level planning.

4. Contingency plans: Intelligent and successful management depends upon a constant pursuit Notes
of adaptation, flexibility, and mastery of changing conditions. Strong management requires a “keeping
all options open” approach at all times - that’s where contingency planning comes in.

Contingency planning involves identifying alternative courses of action that can be implemented if
and when the original plan proves inadequate because of changing circumstances.

Steps in the Planning Process

Planning is a vital managerial function. It is intellectually demanding. It requires a lot of time and
effort on the part of planners. They must adopt a systematic approach so as to avoid pitfalls, errors
and costly mistakes which may upset the whole business later on. Such a systematic approach may
consist of the following steps:

1. Establishing objectives: The first step in the planning process is to identify the goals of the
organisation. The internal as well as external conditions affecting the organisation must be thoroughly
examined before setting objectives. The objectives so derived must clearly indicate what is to be
achieved, where action should take place, who is to perform it, how it is to be undertaken and when is
it to be accomplished. In other words, managers must provide clear guidelines for organisational
efforts, so that activities can be kept on the right track.

2. Developing premises: After setting objectives, it is necessary to outline planning premises.

Premises are assumptions about the environment in which plans are made and implemented. Thus,
assumptions about the likely impact of important environmental factors such as market demand for
goods, cost of raw materials, technology to be used, population growth, government policy, etc. on the
future plans are made. The demand for fuel efficient vehicles in the late 1980s has compelled virtually
all automobile manufacturers in India to go in search of collaborative agreements with foreign
manufacturers from Japan, Germany, USA, etc. Plans should be formulated by the management,
keeping the constraints imposed by internal as well as external conditions in mind.

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3. Evaluating alternatives and selection: After establishing the objectives and planning premises,
the alternative courses of action have to be considered. Liberalisation of imports television sets,
electronic sets, electronic equipment videos, computers, fuel efficient vehicles, etc. Thus, changes in
government policy, technology, competition, etc. pose several alternatives before manufacturers, from
time to time, regarding the product they should manufacture. Such alternatives have to be carefully
evaluated against factors like costs, associated risks involved, benefits likely to arise, availability of
spare capacity, etc. The pros and cons as well as the consequences of each alternative course of action
must be examined thoroughly before a choice is made.

4. Formulating derivative plans: After selecting the best course of action, the management has to
formulate the secondary plans to support the basic plan. The plans derived for various departments,
units, activities, etc., in a detailed manner are known as ‘derivative plans’. For example, the basic
production plan requires a number of things such as availability of plant and machinery, training of
employees, provision of adequate finance, etc. To ensure the success of a basic plan, the derivative
plans must indicate the time schedule and sequence of performing various tasks.

5. Securing cooperation and participation: The successful implementation of a plan depends, to a large
extent, on the whole-hearted cooperation of the employees. In view of this, management should
involve operations people in the planning activities. Suggestions, complaints and criticisms from
operating personnel help management rectify the defects in plans and set things right in the beginning
itself. Involvement of subordinates in planning has the unique advantage of getting a practical view of
those closer to the scene of operations. According to Koontz, ‘plans have to be set in an atmosphere of
close participation and a high degree of concurrence’. Participation enables employees to give their
best to plans. They are also motivated to carry out the plan to the best of their ability.

6. Providing for follow-up: Plans have to be reviewed continually to ensure their relevance and
effectiveness. In the course of implementing plans, certain facts may come to light that were not even
thought of earlier. In the light of these changed conditions, plans have to be revised. Without such a
regular follow-up, plans may become out-of-date and useless. Moreover, such a step ensures the
implementation plans along right lines. Management can notice shortcomings in time and initiate
suitable remedial steps. A continuous evaluation of plans also helps to develop sound plans in future,
avoiding mistakes that have surfaced while implementing the previous plans.

Business Forecasting:

Forecasting is the process of estimation in unknown situations. Business forecasting is a systematic

attempt to probe into the future, so as to identify the threats and opportunities and achieve goals
successfully by making and implementing well designed plans of action. Business forecasting helps in
analysing the economic, political and market information to reduce the risks involved in making
business decisions and long-range plans. Forecasts make management think ahead and give
singularity of purpose to planning by concentrating attention on the future. Business forecasting
involves a 'look ahead' approach in business.

Business forecasting involves a wide range of tools, including simple electronic spread sheets,
Enterprise Resource Planning (ERP) and Electronic Data Interchange (EDI) networks, advanced
supply chain management systems, and other Web-enabled technologies.

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Essential Components in Business Forecasting

Redfield, in a famous article in Harvard Business Review, identified the following essential elements in
business forecasting:

1. Developing the groundwork: The known and available information regarding the growth of the
company, the industry in which the company is positioned, the growth of the product lines of the
company, etc., is put to investigation in the first stage. The basic purpose is to prepare a ground work
on which future predictions can be based.

2. Estimating future business: Against the backdrop of the information collected, an estimate of
future prospects of business is made by management. The trends are projected by management after a
step-by-step procedure where the information is put to close scrutiny and analysis. These probable
trends should not be taken as absolute guides to executive action, they can be taken as intelligent
guesses at this stage.

3. Comparing the actual with estimated results: To ward off dangers arising from wrong
anticipation, a periodic comparison of actuals with estimated results is made at this stage. The
forecast provides the measurement apparatus and helps in tracking down reasons for major
differences resulting in unanticipated gains/losses.

4. Refining the forecast process: The above three-step process helps executives in gaining
proficiency in constructing dependable forecasts. As time progresses they are able to refine, sharpen
and adjust the forecasting techniques to meet the changing needs of business.

MANAGEMENT BY OBJECTIVES (MBO)

MBO was first popularized by Peter Drucker in 1954 in his book 'The practice of Management‘. It is a
process of agreeing within an organization so that management and employees buy into the objectives
and understand what they are. It has a precise and written description objectives ahead, timelines for
their motoring and achievement. The employees and manager agree to what the employee will
attempt to achieve in a period ahead and the employee will accept and buy into the objectives.

Definition: MBO is a process whereby the superior and the mangers of an organization jointly identify
its common goals, define each individual‘s major area of responsibility in terms of results expected of
him, and use these measures as guides for operating the unit and assessing the contribution of each of
its members.

Features of MBO

1. MBO is concerned with goal setting and planning for individual managers and their units.

2. The essence of MBO is a process of joint goal setting between a supervisor and a subordinate.

3. Managers work with their subordinates to establish the performance goals that are consistent with
their higher organizational objectives.

4. MBO focuses attention on appropriate goals and plans.

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5. MBO facilitates control through the periodic development and subsequent evaluation of individual
goals and plans.

The typical MBO process consists of:

1) Establishing a clear and precisely defined statement of objectives for the employee

2) Developing an action plan indicating how these objectives are to be achieved

3) Reviewing the performance of the employees

4) Appraising performance based on objective achievement

1) Setting objectives: For Management by Objectives (MBO) to be effective, individual managers

must understand the specific objectives of their job and how those objectives fit in with the overall
company objectives set by the board of directors.

The managers of the various units or sub-units, or sections of an organization should know not only
the objectives of their unit but should also actively participate in setting these objectives and make
responsibility for them. Management by Objective (MBO) systems, objectives are written down for
each level of the organization, and individuals are given specific aims and targets.

Managers need to identify and set objectives both for themselves, their units, and their organizations.

2) Developing action plans: Actions plans specify the actions needed to address each of the top
organizational issues and to reach each of the associated goals, who will complete each action and
according to what timeline. An overall, top-level action plan that depicts how each strategic goal will
be reached is developed by the top level management. The format of the action plan depends on the
objective of the organization.

3) Reviewing Progress: Performance is measured in terms of results. Job performance is the net
effect of an employee's effort as modified by abilities, role perceptions and results produced. Effort
refers to the amount of energy an employee uses in performing a job. Abilities are personal
characteristics used in performing a job and usually do not fluctuate widely over short periods of time.
Role perception refers to the direction in which employees believe they should channel their efforts
on their jobs, and they are defined by the activities and behaviors they believe are necessary.

4) Performance appraisal: Performance appraisals communicate to employees how they are

performing their jobs, and they establish a plan for improvement. Performance appraisals are
extremely important to both employee and employer, as they are often used to provide predictive
information related to possible promotion. Appraisals can also provide input for determining both
individual and organizational training and development needs. Performance appraisals encourage
performance improvement. Feedback on behavior, attitude, skill or knowledge clarifies for employees
the job expectations their managers hold for them. In order to be effective, performance appraisals
must be supported by documentation and management commitment.

Advantages

26
• Motivation – Involving employees in the whole process of goal setting and increasing employee
empowerment. This increases employee job satisfaction and commitment.

• Better communication and Coordination – Frequent reviews and interactions between superiors and
subordinates help to maintain harmonious relationships within the organization and also to solve
many problems.

• Clarity of goals

• Subordinates have a higher commitment to objectives they set themselves than those imposed on
them by another person.

• Managers can ensure that objectives of the subordinates are linked to the organization's objectives.

Limitations

There are several limitations to the assumptive base underlying the impact of managing by objectives,
including:

• It over-emphasizes the setting of goals over the working of a plan as a driver of outcomes.

• It underemphasizes the importance of the environment or context in which the goals are set.

That context includes everything from the availability and quality of resources, to relative buy-in by
leadership and stake-holders.

• Companies evaluated their employees by comparing them with the "ideal" employee. Trait appraisal
only looks at what employees should be, not at what they should do.

When this approach is not properly set, agreed and managed by organizations, self-centered
employees might be prone to distort results, falsely representing achievement of targets that were set
in a short-term, narrow fashion. In this case, managing by objectives would be counterproductive.

ORGANISING
Introduction:

Organising as a function of management involves division of work among people whose efforts must
be co-ordinated to achieve specific objectives and to implement pre-determined strategies.
Organisation is the foundation upon which the whole structure of management is built. It is the
backbone of management. After the objectives of an enterprise are determined and the plan is
prepared, the next step in the management process is to organise the activities of the enterprise to
execute the plan and to attain the objectives of the enterprise.

Definition:

"Organization involves the grouping of activities necessary to accomplish goals and plans, the
assignment of these activities to appropriate departments and the provision of authority, delegation and
co-ordination." Organization involves division of work among people whose efforts must be co-ordinated
to achieve specific objectives and to implement pre-determined strategies.
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Formal and Informal Organisation

The formal organisation refers to the structure of jobs and positions with clearly defined functions
and relationships as prescribed by the top management. This type of organisation is built by the
management to realise objectives of an enterprise and is bound by rules, systems and procedures.
Everybody is assigned a certain responsibility for the performance of the given task and given the
required amount of authority for carrying it out. Informal organisation, which does not appear on the
organisation chart, supplements the formal organisation in achieving organisational goals effectively
and efficiently. The working of informal groups and leaders is not as simple as it may appear to be.
Therefore, it is obligatory for every manager to study thoroughly the working pattern of informal
relationships in the organisation and to use them for achieving organisational objectives.

1. Formal Organisation: Formal organisation can defined as -"a system of consciously coordinated
activities or forces of two or more persons. It refers to the structure of well-defined jobs, each bearing a
definite measure of authority, responsibility and accountability." The essence of formal organisation is
conscious common purpose and comes into being when persons:

(a) Are able to communicate with each other

(b) Are willing to act, and

(c) Share a purpose

The formal organisation is built around four key pillars. They are:

(a) Division of labour

(b) Scalar and functional processes

(c) Structure, and

(d) Span of control

Thus, a formal organisation is one resulting from planning where the pattern of structure has already
been determined by the top management.

Characteristic of Formal Organisation

(a) Formal organisation structure is laid down by the top management to achieve organisational goals.

(b) Formal organisation prescribes the relationships amongst the people working in the organisation.

(c) The organisation structures is consciously designed to enable the people of the organisation to
work together for accomplishing the common objectives of the enterprise.

(d) Organisation structure concentrates on the jobs to be performed and not the individuals who are
to perform jobs.

(e) In a formal organisation, individuals are fitted into jobs and positions and work as per the
managerial decisions. Thus, the formal relations in the organisation arise from the pattern of
responsibilities that are created by the management.

28
(f) A formal organisation is bound by rules, regulations and procedures.

(g) In a formal organisation, the position, authority, responsibility and accountability of each level are
clearly defined.

(h) Organisation structure is based on division of labour and specialisation to achieve efficiency in
operations.

(i) A formal organisation is deliberately impersonal. The organisation does not take into consideration
the sentiments of organisational members.

(j) The authority and responsibility relationships created by the organisation structure are to be
honoured by everyone.

(k) In a formal organisation, coordination proceeds according to the prescribed pattern.

Advantages of Formal Organisation

(a) The formal organisation structure concentrates on the jobs to be performed. It, therefore, makes
everybody responsible for a given task.

(b) A formal organisation is bound by rules, regulations and procedures. It thus ensures law and order
in the organisation.

(c) The organisation structure enables the people of the organisation to work together for
accomplishing the common objectives of the enterprise.

Disadvantages or Criticisms of Formal Organisation

(a) The formal organisation does not take into consideration the sentiments of organisational
members.

(b) The formal organisation does not consider the goals of the individuals. It is designed to achieve the
goals of the organisation only.

(c) The formal organisation is bound by rigid rules, regulations and procedures. This makes the
achievement of goals difficult.

2. Informal Organisation: Informal organisation refers to the relationship between people in the
organisation based on personal attitudes, emotions, prejudices, likes, dislikes etc. an informal
organisation is an organisation which is not established by any formal authority, but arises from the
personal and social relations of the people. These relations are not developed according to procedures
and regulations laid down in the formal organisation structure; generally large formal groups give rise
to small informal or social groups. These groups may be based on same taste, language, culture or
some other factor. These groups are not pre-planned, but they develop automatically within the
organisation according to its environment.

Characteristics of Informal Organisation

(a) Informal organisation is not established by any formal authority. It is unplanned and arises
spontaneously.

29
(b) Informal organisations reflect human relationships. It arises from the personal and social relations
amongst the people working in the organisation.

(c) Formation of informal organisations is a natural process. It is not based on rules, regulations and
procedures.

(d) The inter-relations amongst the people in an informal organisation cannot be shown in an
organisation chart.

(e) In the case of informal organisation, the people cut across formal channels of communications and
communicate amongst themselves.

(f) The membership of informal organisations is voluntary. It arises spontaneously and not by
deliberate or conscious efforts.

(g) Membership of informal groups can be overlapping as a person may be member of a number of
informal groups.

(h) Informal organisations are based on common taste, problem, language, religion, culture, etc. It is
influenced by the personal attitudes, emotions, whims, likes and dislikes etc. of the people in the
organisation.

Benefits of Informal Organisation

(a) It blends with the formal organisation to make it more effective.

(b) Many things which cannot be achieved through formal organisation can be achieved through
informal organisation.

(c) The presence of informal organisation in an enterprise makes the managers plan and act more
carefully.

(d) Informal organisation acts as a means by which the workers achieve a sense of security and
belonging. It provides social satisfaction to group members.

(e) An informal organisation has a powerful influence on productivity and job satisfaction.

(f) The informal leader lightens the burden of the formal manager and tries to fill in the gaps in the
manager's ability.

(g) Informal organisation helps the group members to attain specific personal objectives.

(h) Informal organisation is the best means of employee communication. It is very fast.

(i) Informal organisation gives psychological satisfaction to the members. It acts as a safety valve for
the emotional problems and frustrations of the workers of the organisation because they get a
platform to express their feelings.

(j) It serves as an agency for social control of human behaviour.

DIFFERENCES BETWEEN FORMAL AND INFORMAL ORGANIZATION

Formal Organization Informal Organization

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 1. Formal organization is established with 1. Informal organization springs on its own. Its
the explicit aim of achieving well-defined goals are ill defined and intangible.
goals.

2. Formal organization is bound together by 2. Informal organization is characterized by a

authority relationships among members. A generalized sort of power relationships. Power
hierarchical structure is created, in informal organization has bases other than
constituting top management, middle rational legal right
management and supervisory management.

3. Formal organization recognizes certain 3. Informal organization does not have any
tasks which are to be carried out to achieve well-defined tasks.
its goals.

4. The roles and relationships of people in 4. In informal organization the relationships

formal organization are impersonally among people are interpersonal.
defined

5. In formal organization, much emphasis is 5. Informal organization is characterized by

placed on efficiency, discipline, conformity, relative freedom, spontaneity, by relative
consistency and control. freedom, spontaneity, homeliness and
warmth.
6. In formal organization, the social and 6. In informal organization the socio
psychological needs and interests of psychological needs, interests and aspirations
members of the organization get little of members get priority
attention.

7. The communication system in formal 7. In informal organization, the

organization follows certain pre-determined communication pattern is haphazard, intricate
patterns and paths. and natural.

8. Formal organization is relatively slow to 8. Informal organization is dynamic and very

respond and adapt to changing situations vigilant. It is sensitive to its surroundings.
and realities.

Organisation Structure

An organisation structure shows the authority and responsibility relationships between the various
positions in the organisation by showing who reports to whom. Organisation involves establishing an
appropriate structure for the goal seeking activities. It is an established pattern of relationship among
the components of the organisation. March and Simon have stated that- "Organisation structure
consists simply of those aspects of pattern of behaviour in the organisation that are relatively
stable and change only slowly." The structure of an organisation is generally shown on an
organisation chart. It shows the authority and responsibility relationships between various positions

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in the organisation while designing the organisation structure, due attention should be given to the
principles of sound organisation.

Functional Organisation

As the name implies, the whole task of management and direction of subordinates should be divided
according to the type of work involved. As far as the workman was concerned, instead of coming in
contact with the management at one point only, he was to receive his daily orders and help directly
from eight different bosses; four of these were located in the planning room and four in the shop. The
four specialists or bosses in the planning room are:

1. Route Clerk: To lay down the sequence of operations and instruct the workers concerned about it.

2. Instruction Card Clerk: To prepare detailed instructions regarding different aspects of work.

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3. Time and Cost Clerk: To send all information relating to their pay to the workers and to secure
proper returns of work from them.

4. Shop Disciplinarian: To deal with cases of breach of discipline and absenteeism.

The four specialists or bosses at the shop level are:

1. Gang Boss: To assemble and set up tools and machines and to teach the workers to make all their
personal motions in the quickest and best way.

2. Speed Boss: To ensure that machines are run at their best speeds and proper tools are used by the
workers.

3. Repair Boss: To ensure that each worker keeps his machine in good order and maintains
cleanliness around him and his machines.

4. Inspector: To show to the worker how to do the work.

Features of Functional Organisation

The features of functional organisation are as follows:

1. The work of the enterprise is divided into different functional departments and the different
functional departments are placed under different specialists.

2. The functional specialist has the authority or right to give orders regarding his function
whosesoever that function is performed in the enterprise.

3. Under this system, the workers have to receive instructions from different specialists.

4. If anybody in the enterprise has to take any decision relating to a particular function, it has to be in
consultation with the functional specialist.

5. Under this system, the workers have to perform a limited number of functions.

Advantages of Functional Organisation

1. Functional organisation is based on expert knowledge. Every functionary in charge is an expert in

his area and can help the subordinates in better performance in his area.

2. Division of labour is planned not incidental.

3. As there is not scope for one-man control in this form of organisation, this system ensures
co-operation and teamwork among the workers.

4. This system ensures the separation of mental functions from manual functions.

5. It helps mass production by standardization and specialization.

6. This system ensures maximum use of principle of specialisation at every work point.

7. As there is joint supervision in the organisation, functional organisation reduces the burden on the
top executives.

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8. Functional organisation offers a greater scope for expansion as compared to line organisation. It
does not face the problem of limited capabilities of a few line managers.

9. The expert knowledge of the functional mangers facilitates better control and supervision in the
organisation.

Disadvantages or Demerits of Functional Organisation

1. It is unstable because it weakens the disciplinary controls, by making the workers work under
several different bosses. Thus, functional organisation violates the principle of unity of command.

2. Under this type of organisation, there are many foremen of equal rank. This may lead to conflicts
among them.

3. The co-ordinating influence needed to ensure a smoothly functioning organisation may involve
heavy overhead expenses.

4. The inability to locate and fix responsibility may seriously affect the discipline and morale of the
workers through apparent or actual contradiction of the orders.

5. This system is very costly as a large number of specialists are required to be appointed.

6. A functional manager tends to create boundaries around him and think only in term of his own
department rather than of the whole enterprise. This results in loss of overall perspective in dealing
with business problems.

7. It is difficult for the management to fix responsibility for unsatisfactory results.

Product Organizational Structure

This is another commonly used structure, where organizations are organized by a specific product
type. Each product category is considered a separate unit and falls within the reporting structure of an
executive who oversees everything related to that particular product line. For example, in a retail
business the structure would be grouped according to product lines.

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Organization structured by product category facilitates autonomy by creating completely separate
processes from other product lines within the organization. It promotes depth of understanding
within a particular product area and also promotes innovation. It enables clear focus with
accountability for program results.

As with every model, this model also has a few downsides like requirement of strong skills
specializing in the particular product. It could lead to functional duplication and potential loss of
control; each product group becomes a heterogeneous unit in itself.

Matrix Organizational Structure

A matrix structure is organized to manage multiple dimensions. It provides for reporting levels both
horizontally as well as vertically and uses cross-functional teams to contribute to functional expertise.
As such employees may belong to a particular functional group but may contribute to a team that
supports another program.

This type of structure brings together employees and managers across departments to work toward
accomplishing common organizational objectives. It leads to efficient information exchange and flow
as departments work closely together and communicate with each other frequently to solve issues.

This structure promotes motivation among employees and encourages a democratic management
style where inputs from team members are sought before managers make decisions.

However, the matrix structure often increases the internal complexity in organizations. As reporting is
not limited to a single supervisor, employees tend to get confused as to who their direct supervisor is
and whose direction to follow. Such dual authority and communication leads to communication gaps,
and division among employees and managers.

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Advantages

• Efficiently manage large, complex tasks

• Effectively carry out large, complex tasks

Disadvantages

• Requires high levels of coordination

• Conflict between bosses

• Requires high levels of management skills

SPAN OF CONTROL OR MANAGEMENT

Span of Control means the number of subordinates that can be managed efficiently and effectively by a
superior in an organization. It suggests how the relations are designed between a superior and a
subordinate in an organization.

Factors Affecting Span of control:

a) Capacity of Superior: Different ability and capacity of leadership, communication affect

management of subordinates.

b) Capacity of Subordinates: Efficient and trained subordinates affect the degree of span of
management.

c) Nature of Work: Different types of work require different patterns of management.

d) Degree of Centralization or Decentralization: Degree of centralization or decentralization

affects the span of management by affecting the degree of involvement of the superior in decision
making.

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e) Degree of Planning: Plans which can provide rules, procedures in doing the work higher would be
the degree of span of management.

f) Communication Techniques: Pattern of communication, its means, and media affect the time
requirement in managing subordinates and consequently span of management.

g) Use of Staff Assistance: Use of Staff assistance in reducing the work load of managers enables
them to manage more number of subordinates.

h) Supervision of others: If subordinate receives supervision form several other personnel besides
his direct supervisor. In such a case, the work load of direct superior is reduced and he can supervise
more number of persons.

Span of control is of two types:

1. Narrow span of control: Narrow Span of control means a single manager or supervisor oversees
few subordinates. This gives rise to a tall organizational structure.

Advantages:

• Close supervision

• Close control of subordinates

• Fast communication

Disadvantages:

• Too much control

• Many levels of management

• High costs

• Excessive distance between lowest level and highest level

2. Wide span of control: Wide span of control means a single manager or supervisor oversees a large
number of subordinates. This gives rise to a flat organizational structure.

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Advantages:

• More Delegation of Authority

• Development of Managers

• Clear policies

Disadvantages:

• Overloaded

• Danger of superior loss of control

• Requirement of highly trained managerial personnel

• Block in decision making

DELEGATION OF AUTHORITY

A manager alone cannot perform all the tasks assigned to him. In order to meet the targets, the
manager should delegate authority. Delegation of Authority means division of authority and powers
downwards to the subordinate. Delegation is about entrusting someone else to do parts of your job.
Delegation of authority can be defined as subdivision and sub- allocation of powers to the
subordinates in order to achieve effective results.

Elements of Delegation

1. Authority - in context of a business organization, authority can be defined as the power and right of
a person to use and allocate the resources efficiently, to take decisions and to give orders so as to
achieve the organizational objectives. Authority must be well- defined. All people who have the
authority should know what is the scope of their authority is and they shouldn‘t misutilize it.
Authority is the right to give commands, orders and get the things done. The top level management
has greatest authority. Authority always flows from top to bottom. It explains how a superior gets
work done from his subordinate by clearly explaining what is expected of him and how he should go
about it. Authority should be accompanied with an equal amount of responsibility. Delegating the
authority to someone else doesn‘t imply escaping from accountability. Accountability still rest with
the person having the utmost authority.

2. Responsibility - is the duty of the person to complete the task assigned to him. A person who is
given the responsibility should ensure that he accomplishes the tasks assigned to him. If the tasks for
which he was held responsible are not completed, then he should not give explanations or excuses.
Responsibility without adequate authority leads to discontent and dissatisfaction among the person.
Responsibility flows from bottom to top. The middle level and lower level management holds more
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responsibility. The person held responsible for a job is answerable for it. If he performs the tasks
assigned as expected, he is bound for praises. While if he doesn‘t accomplish tasks assigned as
expected, then also he is answerable for that.

3. Accountability - means giving explanations for any variance in the actual performance from the
expectations set. Accountability cannot be delegated. For example, if ‘A‘ is given a task with sufficient
authority, and ‘A‘ delegates this task to B and asks him to ensure that task is done well, responsibility
rest with ‘B‘, but accountability still rest with ‘A‘. The top level management is most accountable.
Being accountable means being innovative as the person will think beyond his scope of job.
Accountability, in short, means being answerable for the end result. Accountability can‘t be escaped. It
arises from responsibility.

DELEGATION PROCESS

The steps involved in delegation are given below:

1. Allocation of duties – The delegator first tries to define the task and duties to the subordinate. He
also has to define the result expected from the subordinates. Clarity of duty as well as result expected
has to be the first step in delegation.

2. Granting of authority – Subdivision of authority takes place when a superior divides and shares
his authority with the subordinate. It is for this reason; every subordinate should be given enough
independence to carry the task given to him by his superiors. The managers at all levels delegate
authority and power which is attached to their job positions. The subdivision of powers is very
important to get effective results.

3. Assigning of Responsibility and Accountability – The delegation process does not end once
powers are granted to the subordinates. They at the same time have to be obligatory towards the
duties assigned to them. Responsibility is said to be the factor or obligation of an individual to carry
out his duties in best of his ability as per the directions of superior. Therefore, it is that which gives
effectiveness to authority. At the same time, responsibility is absolute and cannot be shifted.

4. Creation of accountability – Accountability, on the others hand, is the obligation of the individual
to carry out his duties as per the standards of performance. Therefore, it is said that authority is
delegated, responsibility is created and accountability is imposed. Accountability arises out of
39
responsibility and responsibility arises out of authority. Therefore, it becomes important that with
every authority position an equal and opposite responsibility should be attached.

UNIT: STAFFING
Staffing is the managerial function of recruitment, selection, training, developing, promotion and
compensation of personnel. Staffing may be defined as the process of hiring and developing the
required personnel to fill in the various positions in the organization. It involves estimating the
number and type of personnel required. It involves estimating the number and type of personnel
required, recruiting and developing them, maintaining and improving their competence and
performance. Staffing is the process of identifying, assessing, placing, developing and evaluating
individuals at work.

Definition:

Staffing is defined as, “Filling and keeping filled, positions in the organizational structure. This is
done by identifying work-force requirements , inventorying the people available, recruiting,
selecting, placing, promotion, appraising, planning the careers, compensating, training,
developing existing staff or new recruits, so that they can accomplish their tasks effectively and
efficiently.

Importance of Staffing

1. Staffing helps in discovering and obtaining competent and personnel for various jobs.

2. It helps to improve the quantity and quality of the output by putting the right person on the right
job.

3. It helps to improve job satisfaction of employees.

4. It facilitates higher productive performance by appointing right man for right job.

5. It reduces the cost of personnel by avoiding wastage of human resources.

6. It facilitates growth and diversification of business.

7. It provides continuous survival and growth of the business through development of employees.

Recruitment

Recruitment may be defined as the process of searching for prospective employees and
stimulating them to apply for jobs in the organisation. The information generated in the process of
writing the job description and the candidate profile may be used for developing the ‘situations
vacant’ advertisement. The advertisement may be displayed on the factory/ office gate or else it may
be got published in print media or flashed in electronic media. This step involves locating the potential
candidate or determining the sources of potential candidates. The essential objective is to create a
pool of the prospective job candidates.

Sources of Recruitment

The object of recruitment is to attract potential employees with the necessary characteristics or
qualification, in the adequate number for the jobs available. It locates available people for the job and
40
invites them to apply for the job in the organisation. The process of recruitment precedes the process
of selection of a right candidate for the given positions in the organisation. Recruitment seeks to
attract suitable applicants to apply for available jobs. The various activities involved with the process
of recruitment includes (a) identification of the different sources of labour supply, (b) assessment of
their validity, (c) choosing the most suitable source or sources, and (d) inviting applications from the
prospective candidates, for the vacancies. The requisite positions may be filled up from within the
organisation or from outside. Thus, there are two sources of recruitment – Internal and External.

Internal Sources

There are two important sources of internal recruitment, namely, transfers and promotions, which
are discussed below:

(i) Transfers: It involves shifting of an employee from one job to another, one department to another
or from one shift to another, without a substantive change in the responsibilities and status of the
employee. It may lead to changes in duties and responsibilities, working condition etc., but not
necessarily salary. Transfer is a good source of filling the vacancies with employees from overstaffed
departments. It is practically a horizontal movement of employees. Shortage of suitable personnel in
one branch may be filled through transfer from other branch or department. Job transfers are also
helpful in avoiding termination and in removing individual problems and grievances. At the time of
transfer, it should be ensured that the employee to be transferred to another job is capable of
performing it. Transfers can also be used for training of employees for learning different jobs.

(ii) Promotions: Business enterprises generally follow the practice of filling higher jobs by promoting
employees from lower jobs. Promotion leads to shifting an employee to a higher position, carrying
higher responsibilities, facilities, status and pay. Promotion is a vertical shifting of employees. This
practice helps to improve the motivation, loyalty and satisfaction level of employees. It has a great
psychological impact over the employees because a promotion at the higher level may lead toa chain
of promotions at lower levels in the organisation.

Merits of Internal Sources

Filling vacancies in higher jobs from within the organisation or through internal transfers has the
following merits:

(i) Employees are motivated to improve their performance. A promotion at a higher level may lead to
a chain of promotion at lower levels in the organisation. This motivates the employees to improve
their performance through learning and practice. Employees work with commitment and loyalty and
remain satisfied with their jobs. Also peace prevails in the enterprise because of promotional avenues;

(ii) Internal recruitment also simplifies the process of selection and placement. The candidates that
are already working in the enterprise can be evaluated more accurately and economically. This is a
more reliable way of recruitment since the candidates are already known to the organisation;

(iii) Transfer is a tool of training the employees to prepare them for higher jobs. Also people recruited
from within the organisation do not need induction training;

(iv)Transfer has the benefit of shifting workforce from the surplus departments to those where there
is shortage of staff.

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(v) Filling of jobs internally is cheaper as compared to getting candidates from external sources.

Limitations of Internal Sources

The limitations of using internal sources of recruitment are as follows:

(i) When vacancies are filled through internal promotions, the scope for induction of fresh talent is
reduced. Hence, complete reliance on internal recruitment involves danger of ‘inbreeding’ by stopping
‘infusion of new blood’ into the organisation;

(ii) The employees may become lethargic if they are sure of time bound promotions;

(iii) A new enterprise cannot use internal sources of recruitment. No organisation can fill all its
vacancies from internal sources;

(iv)The spirit of competition among the employees may be hampered; and

(v) Frequent transfers of employees may often reduce the productivity of the organisation.

External Sources

An enterprise has to tap external sources for various positions because all the vacancies cannot be
filled through internal recruitment. The existing staff may be insufficient or they may not fulfil the
eligibility criteria of the jobs to be filled.

External recruitment provides wide choice and brings new blood in the organisation. The commonly
used external sources of recruitment are discussed below:

(i) Direct Recruitment: Under the direct recruitment, a notice is placed on the notice-board of the
enterprise specifying the details of the jobs available. Jobseekers assemble outside the premises of the
organisation on the specified date and selection is done on the spot. The practice of direct recruitment
is followed usually for casual vacancies of unskilled or semi-skilled jobs. Such workers are known as
casual or ‘badli’ workers and they are paid remuneration on daily wage basis. This method of
recruitment is very inexpensive as it does not involve any cost of advertising the vacancies. It is
suitable for filling casual vacancies when there is a rush of work or when some permanent workers
are absent.

(ii) Casual Callers: Many reputed business organisations keep a database of unsolicited applicants in
their offices. Such job-seekers can be a valuable source of manpower. A list of such job-seekers can be
prepared and can be screened to fill the vacancies as they arise. The major merit of this source of
recruitment is that it reduces the cost of recruiting workforce in comparison to other sources.

(iii) Advertisement: Advertisement in newspapers or trade and professional journals is generally

used when a wider choice is required. Most of the senior positions of industry as well as commerce
are filled by this method. The advantage of advertising vacancies is that more information about the
organisation and job can be given in the advertisement. Advertisement gives the management a wider
42
range of candidates from which to choose. Advertisements may be placed in leading newspapers. Its
disadvantage is that it may bring in a flood of response, and many times, from quite unsuitable
candidates.

(iv)Employment Exchange: Employment exchanges run by the Government are regarded as a good
source of recruitment for unskilled and skilled operative jobs. In some cases, compulsory notification
of vacancies to employment exchange is required by law. Thus, employment exchanges help to match
personnel demand and supply by serving as link between job-seekers and employers. Unfortunately,
the records of employment exchange are often not up-to-date and many of the candidates referred by
them may not be found suitable.

(v) Placement Agencies and Management Consultants: In technical and professional areas, private
agencies and professional bodies appear to be doing substantive work. Placement agencies provide a
nationwide service in matching personnel demand and supply. These agencies compile bio-data of a
large number of candidates and recommend suitable names to their clients. Such agencies charge fee
for their services and they are useful where extensive screening is required. These professional
recruiters can entice the needed top executives from other companies by making the right offers.

Management consultancy firms help the organisations to recruit technical, professional and
managerial personnel. They specialise in middle level and top level executive placements. They
maintain data bank of persons with different qualifications and skills and even advertise the jobs on
behalf of their clients to recruit right type of personnel.

(vi) Campus Recruitment: Colleges and institutes of management and technology have become a
popular source of recruitment for technical, professional and managerial jobs. Many big organisations
maintain a close liaison with the universities, vocational schools and management institutes to recruit
qualified personnel for various jobs. Recruitment from educational institutions is a well-established
practice of businesses. This is referred to as campus recruitment.

(vii) Recommendations of Employees: Applicants introduced by present employees, or their friends

and relatives may prove to be a good source of recruitment. Such applicants are likely to be good
employees because their background is sufficiently known. A type of preliminary screening takes
place because the present employees know both the company and the candidates and they would try
to satisfy both.

(viii) Labour Contractors: Labour contractors maintain close contacts with labourers and they can
provide the required number of unskilled workers at short notice. Workers are recruited through
labour contractors who are themselves employees of the organisation. The disadvantages of this
system are that if the contractor himself decides to leave the organisation, all the workers employed
through him will follow suit.

(ix) Advertising on Television: The practice of telecasting of vacant posts over Television is gaining
importance these days. The detailed requirements of the job and the qualities required to do it are
publicised along with the profile of the organisation where vacancy exists.

(x) Web Publishing: Internet is becoming a common source of recruitment these days. There are
certain websites specifically designed and dedicated for the purpose of providing information about
both job seekers and job opening. In fact, websites such as www.naukri.com, www. jobstreet.com etc.,

43
are very commonly visited both by the prospective employees and the organisations searching for
suitable people.

Merits of External Sources

The advantages of using external sources of recruitment are as follows:

(i) Qualified Personnel: By using external sources of recruitment, the management can attract
qualified and trained people to apply for vacant jobs in the organisation.

(ii) Wider Choice: When vacancies are advertised widely, a large number of applicants from outside
the organisation apply. The management has a wider choice while selecting the people for
employment.

(iii) Fresh Talent: The present employees may be insufficient or they may not fulfil them
specifications of the jobs to be filled. External recruitment provides wider choice and brings new
blood in the organisation. However, it is expensive and time consuming.

(iv) Competitive Spirit: If a company taps external sources, the existing staff will have to compete
with the outsiders. They will work harder to show better performance.

Limitations of External Sources

1. Dissatisfaction among existing staff: External recruitment may lead to dissatisfaction and
frustration among existing employees. They may feel that their chances of promotion are reduced.

2. Lengthy process: Recruitment from external sources takes a long time. The business has to notify
the vacancies and wait for applications to initiate the selection process.

3. Costly process: It is very costly to recruit staff from external sources. A lot of money has to be
spent on advertisement and processing of applications.

Selection

Selection is the process of identifying and choosing the best person out of a number of prospective
candidates for a job. Towards this purpose, the candidates are required to take a series of
employment tests and interviews. At every stage many are eliminated and a few move on to the next
stage until the right type is found. The process may start right from the screening of the applications.
It may continue even after the offer of employment, acceptance and joining of the candidate. It is so
because the process of selection, like any other managerial decision, involves judgment about the
performance potential of the candidate. The effectiveness of the selection process would ultimately be
tested in terms of on the- job of the chosen person.

Process of Selection

The important steps in the process of selection are as follows:

(i) Preliminary Screening: Preliminary screening helps the manager eliminate unqualified or unfit
job seekers based on the information supplied in the application forms. Preliminary interviews help
reject misfits for reasons, which did not appear in the application forms.

44
(ii) Selection Tests: An employment test is a mechanism (either a paper and pencil test or an
exercise) that attempts to measure certain characteristics of individuals. These characteristics range
from aptitudes, such as manual dexterity, to intelligence to personality. Important Tests Used for
Selection of Employees:

(a) Intelligence Tests: This is one of the important psychological tests used to measure the level of
intelligence quotient of an individual. It is an indicator of a person’s learning ability or the ability to
make decisions and judgments.

(b) Aptitude Test: It is a measure of individual’s potential for learning new skills. It indicates the
person’s capacity to develop. Such tests are good indices of a person’s future success score.

(c) Personality Tests: Personality tests provide clues to a person’s emotions, her reactions, maturity
and value system etc. These tests probe the overall personality. Hence, these are difficult to design and
implement.

(d) Trade Test: These tests measure the existing skills of the individual. They measure the level of
knowledge and proficiency in the area of professions or technical training. The difference between
aptitude test and trade test is that the former measures the potential to acquire skills and the later the
actual skills possessed.

(e) Interest Tests: Every individual has fascination for some job than the other. Interest tests are
used to know the pattern of interests or involvement of a person.

(iii) Employment Interview: Interview is a formal, in-depth conversation conducted to evaluate the
applicant’s suitability for the job. The role of the interviewer is to seek information and that of the
interviewee is to provide the same. Though, in present times, the interviewee also seeks information
from interviewer.

(iv) Reference and Background Checks: Many employers request names, addresses, and telephone
numbers of references for the purpose of verifying information and, gaining additional information on
an applicant. Previous employers, known persons, teachers and university professors can act as
references.

(v) Selection Decision: The final decision has to be made from among the candidates who pass the
tests, interviews and reference checks. The views of the concerned manager will be generally
considered in the final selection because it is he/she who is responsible for the performance of the
new employee.

(vi) Medical Examination: After the selection decision and before the job offer is made, the candidate
is required to undergo a medical fitness test. The job offer is given to the candidate being declared fit
after the medical examination.

(vii) Job Offer: The next step in the selection process is job offer to those applicants who have passed
all the previous hurdles. Job offer is made through a letter of appointment/confirm his acceptance.
Such a letter generally contains a date by which the appointee must report on duty. The appointee
must be given reasonable time for reporting.

(viii)Contract of Employment: After the job offer has been made and candidate accepts the offer,
certain documents need to be executed by the employer and the candidate. One such document is the
45
attestation form. This form contains certain vital details about the candidate, which are authenticated
and attested by him or her. Attestation form will be a valid record for future reference. There is also a
need for preparing a contract of employment. Basic information that should be included in a written
contract of employment will vary according to the level of the job, but the following checklists sets out
the typical headings: Job Title, Duties, Responsibilities, Date when continuous employment starts and
the basis for calculating service, rates of pay, allowances, hours of work, leave rules, sickness,
grievance procedure, disciplinary procedure, work rules, termination of employment.

Job Design: The Job Design means outlining the task, duties, responsibilities, qualifications, methods
and relationships required to perform the given set of a job. In other words, job design encompasses
the components of the task and the interaction pattern among the employees, with the intent to
satisfy both the organizational needs and the social needs of the jobholder.

UNIT 5: MOTIVATING AND LEADING

Definition:

Some of the widely quoted definitions are given below:

According to Gray Starke, "Motivation is the result of processes, internal or external to the individual
that arouses enthusiasm and persistence to pursue a certain course of action."

According to Stephen P Robbins, "We define motivation as the willingness to exert high levels of effort
toward organisational goals, conditioned by the effort's ability to satisfy some individual needs."

According to S. Zedeck and M. Blood, " Motivation is a predisposition to act in a specific goal directed
way."

According to Atkinson J.W, "(Motivation is) the immediate influences on the direction, vigour and
persistence of action."

According to S.W Gellerman, "(Motivation is) steering one's actions toward certain goals and
committing a certain part of one's energies to reach them."

According to M.R. Jones, "(Motivation is) how behaviour gets started, is energized, is sustained, is
directed, is stopped and what kind of subjective reaction is present in the organism while all these are
going on."

Motivation has certain underlying properties:

1. It is an individual phenomenon – Each individual is unique, and this fact must be recognized in
motivation research.

2. Motivation is intentional – When an employee does something, it is because he or she has chosen
to do it.

3. Motivation has many facets – Researchers have analysed various aspects of motivation, including
how it is aroused, how it is directed, what influences its persistence, and how it is stopped.

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4. The purpose of motivation theories is to predict behaviour – The distinction must be made
between motivation, behaviour and performance. Motivation is what causes behaviour; if the
behaviour is effective, high performance will result.

Types of motivation

1) Motivation may be positive or negative: - Positive motivation is the process which influences the
employee through rewards. E.g. Bonus, promotion, permanent settlement, increase in working
condition, etc. Negative motivation is based on fear. i.e. fine, discharge, lay-off etc.

2) Motivation may be financial or non-financial: - Financial motivations are those which are
associated with money. It includes wages, salaries, bonus and retirement benefit. Non-financial
motivations are not associated with monetary rewards. It includes ego satisfaction, participation in
the process of decision making, providing good working conditions and providing more responsibility
to them.

3) Primary & secondary motivation: - Primary motivation relates to satisfying basic human needs &
secondary motivation relates to social needs & self-acquisition.

Theories of Motivation:

1. Maslow’s Need of Hierarchy Theory: Abraham Maslow was a psychologist who proposed a theory
of human motivation for understanding behaviour based primarily upon a hierarchy of five need
categories. He recognized that there were factors other than one's needs (for example, culture) that
were determinants of behaviour. However, he focused his theoretical attention on specifying people's
internal needs. Maslow labelled the five hierarchical categories as physiological needs, safety and
security needs, love (social) needs, esteem needs and the need for self-actualization.

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 Maslow's Hierarchy of Needs

1. Physiological needs are those required to sustain life, such as air, water, food and sleep. According
to this theory, if these fundamental needs are not satisfied then one will surely be motivated to satisfy
them. Higher needs such as social needs and esteem are not recognized until one satisfies the needs
basic to existence.

2. Once physiological needs are met, one's attention turns to safety and security in order to be free
from the threat of physical and emotional harm. Such needs might be fulfilled by living in a safe area,
medical insurance, job security etc.

3. Person has met the lower level physiological and safety needs, higher level motivators awaken. The
first levels of higher level needs are social needs. Social needs are those related to interaction with
others and may include friendship, belonging to a group, giving and receiving love etc.

4. After a person feels that they "belong", the urge to attain a degree of importance emerges. Esteem
needs can be categorized as external motivators and internal motivators. Internally motivating
esteem needs are those such as self-esteem, accomplishment, and self-respect. External esteem needs
are those such as reputation and recognition.

5. Self-actualization is the summit of Maslow's motivation theory. It is about the quest of reaching
one's full potential as a person. Unlike lower level needs, this need is never fully satisfied; as one
48
grows psychologically there are always new opportunities to continue to grow. Self-actualized people
tend to have motivators such as truth, justice, wisdom and meaning.

2. Fredrick Herzberg’s Motivation-hygiene or two factor theory: Maslow Hierarchy of need point
out about the behaviour of the people. Using this as a base, Herzberg & his associates interviewed 200
engineers & accountants. The engineer & accountant describe the factors about the feelings. He asked
them what are the good times & the bad times on their jobs. Engineer & accountants brought up the
things. Unfair co policies, poor relationship with boss, low payment etc. They did not mention about
good job experience. They talked about the opportunities they got for personal growth &
development. Then they took interview with the workers with different industries. The results were
same. So he developed 2 factors theory. As per him a man has two sets of needs:

1. Lower level needs: It denotes hygiene, maintenance or environmental factors which do not
motivate satisfaction, but their absence causes dissatisfaction.

2. Higher level needs: these needs are termed as motivators because they are the real cause of job
satisfaction and they lead to better performance.

HYGIENE / MAINTENANCE FACTORS MOTIVATIONAL FACTORS

 Company policies and administration  Achievement of a challenging task
 Relationship with supervisors  Recognition for accomplishment
 Working conditions  Challenging work
 Relationship with peers  Increased responsibility
 Money, wages and salaries  Opportunity for growth and development
 Status  Enriched challenging job
 Security
 Personal life
 Supervision
 Relationship with subordinates

Natural Motivators High state of motivation

Maintenance factors Motivational factors
Maintenance Seeker Motive seeker

Herzberg explains his theory with maintenance seeker & motivation seeker. Maintenance seekers are
explained in natural state of motivation. These are important for the growth of the organization. It
mainly satisfies security, psychological, social & esteems needs. In absence of maintenance factor
worker may feel dissatisfied so absenteeism & labour turn over will increase but if they are present it
will act as natural motivating factor.
Motivation seekers are explained by him in 6 points in high state of motivation & job satisfaction.
However if these factors are not present, they do not lead to strong dis-satisfaction. Maintenance
seekers are more important in every organization.

Merits: -
1) According to Herzberg one important way to increase job satisfaction is to enhance job enrichment,
job enrichment means more challenging work.
2) Introducing new & more difficult task not handle earlier.
3) Eliminating a layer of supervision.

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4) Increased worker’s autonomy & authority.
5) Workers may be given a complete natural unit of work. A natural unit of work helps to increase
identity.

Demerits: -
1) Limited samples: - A theory is based on a sample of 200 accountants & engineers. The critical
question is that these samples are limited & they are from different occupation.

3. Theory X and Theory Y: One important organisational implication of the hierarchy of needs
concerns the philosophies and techniques that have a bearing on how to manage people at work.
Douglas McGregor, taking a cue on motivation from Maslow's need-based theory, grouped the
physiological and safety needs as "lower-order" needs and the social, esteem and self-actualization
needs as "upper order" needs. McGregor proposed two alternative sets of assumptions about people
at work, based upon which set of needs were the active motivators. He labelled these sets of
assumptions – one basically negative as – Theory X and the other basically positive – as Theory
Y. After viewing the way in which managers dealt with employees, McGregor concluded that a
manager's view of the nature of human beings is based on a certain grouping of assumptions and that
he or she tends to mould his or her behaviour toward subordinates according to these assumptions.

According to McGregor, people should be treated differently according to whether they are motivated
by lower-order or higher order needs. Specifically, McGregor believed that Theory X assumptions are
appropriate for employees motivated by lower-order needs. Theory Y assumptions, in contrast, are
appropriate for employees motivated by higher-order needs, and Theory X assumptions are then
inappropriate. In addition, McGregor believed that in the 1950s when he was writing, the majority of
American workers had satisfied their lower-order needs and were therefore motivated by higher-
order needs. Therefore, he proposed such ideas as participative decision-making, responsible and
challenging jobs, and good group relations as approaches that would maximize employee's job
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motivation. Unfortunately, no evidence confirms that either set of assumptions is valid or that
accepting Theory Y assumptions and altering one's actions accordingly will lead to more motivated
workers.

Ouchi’s Theory Z: Theory Z stresses the need to help workers become generalists, rather than
specialists. It views job rotations and continual training as a means of increasing employees’
knowledge of the company and its processes while building a variety of skills and abilities. Since
workers are given much more time to receive training, rotate through jobs, and master the intricacies
of the company’s operations, promotions tend to be slower. The rationale for the drawn-out time
frame is that it helps develop a more dedicated, loyal, and permanent workforce, which benefits the
company; the employees, meanwhile, have the opportunity to fully develop their careers at one
company. When employees rise to a higher level of management, it is expected that they will use
Theory Z to “bring up,” train, and develop other employees in a similar fashion.

Ouchi’s Theory Z makes certain assumptions about workers. One assumption is that they seek to build
cooperative and intimate working relationships with their co-workers. In other words, employees
have a strong desire for affiliation. Another assumption is that workers expect reciprocity and support
from the company. According to Theory Z, people want to maintain a work-life balance, and they value
a working environment in which things like family, culture, and traditions are considered to be just as
important as the work itself. Under Theory Z management, not only do workers have a sense of
cohesion with their fellow workers, they also develop a sense of order, discipline, and a moral
obligation to work hard. Finally, Theory Z assumes that given the right management support, workers
can be trusted to do their jobs to their utmost ability and look after for their own and others’ well-
being.

Theory Z also makes assumptions about company culture. If a company wants to realize the benefits
described above, it need to have the following:

 A strong company philosophy and culture: The company philosophy and culture need to be
understood and embodied by all employees, and employees need to believe in the work they’re
doing.
 Long-term staff development and employment: The organization and management team
need to have measures and programs in place to develop employees. Employment is usually
long-term, and promotion is steady and measured. This leads to loyalty from team members.
 Consensus in decisions: Employees are encouraged and expected to take part in
organizational decisions.
 Generalist employees: Because employees have a greater responsibility in making decisions
and understand all aspects of the organization, they ought to be generalists. However,
employees are still expected to have specialized career responsibilities.
 Concern for the happiness and well-being of workers: The organization shows sincere
concern for the health and happiness of its employees and their families. It takes measures and
creates programs to help foster this happiness and well-being.

 Informal control with formalized measures: Employees are empowered to perform tasks
the way they see fit, and management is quite hands-off. However, there should be formalized
measures in place to assess work quality and performance.
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  Individual responsibility: The organization recognizes the individual contributions but
always within the context of the team as a whole.

LEADERSHIP
Definitions and Meaning of Leadership: Leadership is a psychological process of influencing
followers (subordinates) and providing guidance, directing and leading the people in an organisation
towards attainment of the objectives of the enterprise.

According to Chester I Barnard, "it (leadership) refers to the quality of the behaviour of the individual
whereby they guide people on their activities in organised efforts".

According to Koontz and O'Donnell, Managerial leadership is "the ability to exert inter-personal
influence by means of communication, towards the achievement of a goal. Since managers get things
done through people, their success depends, to a considerable extent upon their ability to provide
leadership".

Characteristic of Leadership:

1. Leadership implies the existence of followers: We appraise the qualities of a leader by studying
his followers. In an organisation, leaders are also followers, e.g., a supervisor works under a branch
head.

2. Leadership involves a community of interest between the leader and his followers: In other
words, the objectives of both the leader and his men are one and the same.

3. Leadership involves an unequal distribution of authority among leaders and group

members: Leaders can direct some of the activities of group members, i.e., the group members are
compelled or are willing to obey most of the leader's directions.

4. Leadership is a process of influence: Leadership implies that leaders can influence their
followers or subordinates in addition to being able to give their followers or subordinates legitimate
directions.

5. Leadership is the function of stimulation: Leadership is the function of motivating people to

strive willingly to attain organisational objectives.

6. A leader must be exemplary: In the words of George Terry – "A leader shows the way by his own
example. He is not a pusher, he pulls rather than pushes".

7. A leader ensures absolute justice: A leader must be objective and impartial. He should not follow
unfair practices like favouritism and nepotism. He must display fair play and absolute justice in all his
decisions and actions.

Importance of Leadership:

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The importance of leadership in an organisation cannot be denied. People working in an organisation
need individuals (leaders) who could be instrumental in guiding the efforts of groups of workers to
achieve goals and objectives of both the individuals and the organisation.

The leader guides the action of others in accomplishing these tasks. A good leader motivates his,
subordinates, creates confidence and increases the morale of the workers. In the words of Peter F
Drucker – "Good leadership is a must for the success of a business but the business leaders are the
scarcest resources of any enterprise". The following points highlight the importance of leadership:

1. Leadership is the process of influencing the activities of an individual or a group towards the
achievement of a goal.

2. An effective leader motivates subordinates for turning in a higher level of performance.

3. Leadership promotes team-spirit and team-work which is essential for the success of any
organisation.

4. Leadership is an aid to authority. Dynamic and enlightened leadership helps in the effective use of
formal authority.

5. Leadership creates confidence in subordinates by giving them proper guidance and advice.

Leadership Skill

The leader is expected to play many roles and therefore, must be qualified to guide others to
organisational achievement. Although no set of absolute traits or skills may be identified, individuals
who would be leaders must possess abilities to lead others. They must have certain attributes to help
them in performing their leadership role. Broadly speaking, the skills that are necessary for an
industrial leader may be summarized under four heads:

1. Human skill

2. Conceptual skill

3. Technical skill, and

4. Personal skill.

1. Human Skill: A good leader is considerate towards his followers because his success largely
depends on the co-operation of his followers. He approaches various problems in terms of people
involved more than in terms of technical aspects involved. A leader should have an understanding of
human behaviour. He should know people; understand their needs, sentiments, emotions, as also their
actions and reactions to particular decisions, their motivations, etc. Thus, a successful leader
possesses the human relations attitude.

He always tries to develop social understanding with other people. The human skill Notes involves the
following:

(a) Empathy: A leader should be able to look at things as objectively as possible. He should respect
the rights, beliefs and sentiments of others.

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(b) Objectivity: A good leader is fair and objective in dealing with subordinates. He must be free from
bias and prejudice while becoming emotionally involved with his followers.

(c) Communication Skills: A leader should have the ability to persuade, to inform, stimulate, direct
and convince his subordinates.

(d) Teaching Skill: A leader should have the ability to demonstrate how to accomplish a particular
task.

(e) Social Skill: A leader should understand his followers. He should be helpful, sympathetic and
friendly.

2. Conceptual Skill: In the words of Chester Barnard, "the essential aspect of the executive process is
the sensing of the organisation as a whole and the total situation relevant to it".

Conceptual Skill includes:

(a) An understanding of the organisational behaviour,

(b) Understanding the competitors of the firm, and

(c) Knowing the financial status of the firm.

A leader should have the ability to look at the enterprise as a whole, to recognize that the various
functions of an organisation depend upon one another and are inter-related, that changes in one affect
all others. The leader should have the skill to run the firm in such a way that overall performance of
the firm in the long run will be sound.

3. Technical Skill: A leader should have a thorough knowledge of, and competence in, the principles,
procedures and operations of a job. Technical skill involves specialized knowledge, analytical skill and
a facility in the use of the tools and techniques of a specific discipline. Technical competence is an
essential quality of leadership.

4. Personal Skill: The most important task of the leader is to get the best from others. This is possible
only if he possesses certain qualities. These personal skills include:

(a) Intelligence: Intellectual capacity is an essential quality of leadership. Leaders generally have
somewhat higher level of intelligence than the average of their followers.

(b) Emotional Maturity: A leader should act with self-confidence, avoid anger, take decisions on a
rational basis and think clearly and maturely. A leader should also have high frustration tolerance.
According to Koontz and O'Donnell, "Leaders cannot afford to become panicky, unsure of themselves
in the face of conflicting forces, doubtful of their principles when challenged, or amenable to
influence".

(c) Personal Motivation: This involves the creation of enthusiasm within the leader himself to get a
job done. It is only through enthusiasm that one can achieve what one wants. Leaders have relatively
intense achievement type motivational drive. He should work hard more for the satisfaction of inner
drives than for extrinsic material rewards.

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(d) Integrity: In the words of F.W. Taylor, "integrity is the straightforward honesty of purpose which
makes a man truthful, not only to others but to himself; which makes a man high-minded, and gives
him high aspirations and high ideals".

(e) Flexibility of Mind: A leader must be prepared to accommodate others' viewpoints and modify
his decisions, if need be. A leader should have a flexible mind, so that he may change in obedience to
the change in circumstances.

In sum, a leader must have a dynamic personality, intellectual attainment, amiable disposition,
unassuming temperament and knowledge of how to deal with his followers.

Leadership Styles: Leadership style refers to the behaviour pattern adopted by a leader to influence
the behaviour of his subordinates for attaining the organisational goals. As different leadership styles
have their own merits and demerits, it is difficult to prefer one leadership style over another. The
selection of a leadership style will depend on the consideration of a number of factors. Tannenbaum
and Schmidt have pointed out the important factors that affect the choice of a style of leadership. They
are:

1. Forces in the manager, i.e., the manager's personality, experience and value system.

2. Forces in the subordinates, i.e., the subordinates' readiness for taking decisions, and their Notes

knowledge, interest, need for independence, etc.

3. Forces in the situation, i.e., complexity of the problem, pressure of time etc.

Types of Leadership Styles

The different types of leadership styles are:

1. Autocratic or Task Management Leadership

2. Participative or Democratic Leadership

3. Laissez-faire or Free-rein Leadership and

4. Paternalistic Leadership.

1. Autocratic or Task Management Leadership: The autocratic leader gives orders which he insists
shall be obeyed. He determines policies for the group without consulting them, and does not give
detailed information about future plans, but simply tells the group what immediate steps they must
take. In other words, an autocratic leader is one who centralizes the authority in himself and does not
delegate authority to his subordinates.

An autocratic leader operates on the following assumptions:

(a) An average human being has inherent dislike for work and will avoid it if he can.

(b) If his subordinates were intelligent enough, they would not be in subordinate positions.

(c) He assumes that unintelligent subordinates are immature, unreliable and irresponsible persons.
Therefore, they should be constantly watched in the course of their work.

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(d) As he has no regard for his subordinates, he gets the work done by his subordinates through
negative motivation, that is, through threats of penalty and punishment.

Types of Autocratic Leadership

(a) Strictly autocratic leaders: A strictly autocratic leader relies on negative influence and gives orders
which the subordinates must accept. He may also use his power to dispense rewards to his group.

(b) Benevolent Autocrat: The benevolently autocratic leader is effective in getting high productivity in
many situations and he can develop effective human relationships.

His motivational style is usually positive.

(c) Manipulative Autocrat: A manipulative autocratic leader is one who makes subordinates feel that
they are participating in decision making process even though he has already taken the decision.

2. Participative or Democratic Leadership: A democratic leader is one who consults and invites his
subordinates to participate in the decision making process. He gives orders only after consulting the
group, sees to it that policies are worked out in group decisions and with the acceptance of group.

A participative leader operates on the following assumptions:

(a) Subordinates are capable of doing work independently and assuming the responsibility for proper
execution if they are given opportunities and incentives.

(b) Subordinates are supervised, guided and aided rather than threatened and commanded to work.

(c) Mistakes are not viewed seriously. The assumption is that disciplinary action breeds

discontent and frustration among employees and creates an unhealthy work

environment.

3. Laissez-faire or Free-rein Leadership: A free-rein leader does not lead, but leaves the group
entirely to itself. The leader avoids using power and entrusts the decision-making authority to his
subordinates. He does not direct his subordinates, thereby giving them complete freedom of
operation. Groups of members work independently and provide their own motivation. The manager
exists as a facilitator and buffer contact man between the team and outsiders, while bringing for his
group the information and resources it needs to accomplish its job. A free-rein leader operates in the
following manner:

(a) He follows the rule of minimum exposure to accountability.

(b) He relieves himself of responsibilities and is ready to blame his subordinates if something goes
wrong.

(c) He has no clear idea of the goals to be attained.

(d) He is more security conscious than status conscious.

This mode of direction can produce good and quick results, if the subordinates are highly educated
and brilliant people who have a sincere need to go ahead and discharge their responsibility.

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4. Paternalistic Leadership: Under this type of leadership, the leader assumes that his function is
fatherly. His attitude is that of treating the relationship between the leader and his groups as that of
family, with the leader as the head of the family. The leader works to help, guide, protect and keep his
followers happily working together as members of a family. He provides them with good working
conditions, fringe benefits and employee services. It is said that employees under such leadership will
work harder, out of sheer gratitude as well as emotional bondage.

UNIT 6: CONTROLLING
Introduction

Controlling consists of verifying whether everything occurs in conformities with the plans adopted,
instructions issued and principles established. Controlling ensures that there is effective and efficient
utilization of organizational resources so as to achieve the planned goals. Controlling measures the
deviation of actual performance from the standard performance, discovers the causes of such
deviations and helps in taking corrective actions.

Definition

In the words of Koontz and O'Donnell, "Managerial control implies measurement of accomplishment
against the standard and the correction of deviations to assure attainment of objectives according to
plans."

In the words of Henry Fayol, "Control consists in verifying whether everything occurs in conformity
with the plan adopted, the instructions issued and the principles established. Its object is to find out the
weakness and errors in order to rectify them and prevent recurrence. It operates on everything, i.e.,
things, people and actions".

From the above definitions it is clear that the managerial function of control consists in a comparison
of the actual performance with the planned performance with the object of discovering whether all is
going on well according to plans and if not why. Remedial action arising from a study of deviations of
the actual performance with the standard or planned performance will serve to correct the plans and
make suitable changes. Controlling is the nature of follow-up to the other three fundamental functions
of management. There can, in fact, be not controlling without previous planning, organising and
directing. Controlling cannot take place in a vacuum.

Nature & Purpose of Control

• Control is an essential function of management

• Control is an on-going process

• Control is forward – working because pas cannot be controlled

• Control involves measurement

• The essence of control is action

• Control is an integrated system

Steps in control process

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1. Establishment of standards: The first step in control process is the setting up of standards of
measurement. Standards represent criteria for performance. A standard acts as a reference line or a
basis of comparison of actual performance. Standards should be set precisely and preferable in
quantitative terms. Different standards of performance are set up for various operations at the
planning stage. Establishment of standards in terms of quantity, quality and time is necessary for
effective control because it is essential to determine how the performance is going to be appraised.

2. Measurement of performance: The second step is to measure actual performance of various

individuals, groups or units. Management should measure the performance and compare it with the
standards. The quantitative measurement should be done in cases where standards have been set in
numerical terms. This will make evaluation easy and simple. On other cases the performance should
be measured in terms of qualitative factors e.g. performance of industrial relations manager. His
performance can be measured in terms of attitude of workers, frequency of strikes and morale of
workers.

3. Comparing performance with standards: Comparison is easy where standards have been set
quantitatively as in production and marketing. In other cases, where results are intangible and cannot
be measured quantitatively, direct personal observation, inspection and reports are a few methods
used for evaluation. The evaluation will reveal some deviations from the set standards. The evaluator
should point out the defects or deficiencies in performance and investigate the causes responsible for
these.

4. Taking corrective actions: The final step in the control process is taking corrective actions so that
deviations may not occur again and the objectives of the organization are achieved. This will involve
taking certain decisions by the management, re planning or redrawing of GOALS or STANDARDS,
reassignment of classification of duties.

Thus, control function may require change in all other managerial functions. If the standards are
found to be defective, they will be set up again by observations. The final test of a control system is
to take corrective action at the correct time.

Types of Control

a) Feed forward controls: They are preventive controls that try to anticipate problems and take
corrective action before they occur. Example – a team leader checks the quality, completeness and
reliability of their tools prior to going to the site.

b) Concurrent controls: They (sometimes called screening controls) occur while an activity is taking
place. Example – the team leader checks the quality or performance of his members while performing.

c) Feedback controls: They measure activities that have already been completed. Thus corrections
can take place after performance is over. Example – feedback from facilities engineers regarding the
completed job.

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Control Techniques

Traditional techniques:

a. Budgetary control

Definition: Budgetary Control is defined as "the establishment of budgets, relating the

responsibilities of executives to the requirements of a policy, and the continuous comparison of actual
with budgeted results either to secure by individual action the objective of that policy or to provide a
base for its revision.

Salient features:

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  Objectives: Determining the objectives to be achieved, over the budget period, and the policy
that might be adopted for the achievement of these ends.
 Activities: Determining the variety of activities that should be undertaken for achievement of
the objectives.
 Plans: Drawing up a plan or a scheme of operation in respect of each class of activity, in
physical a well as monetary terms for the full budget period and its parts.
 Performance Evaluation: Laying out a system of comparison of actual performance by each
person section or department with the relevant budget and determination of causes for the
discrepancies, if any. Control
 Action: Ensuring that when the plans are not achieved, corrective actions are taken; and when
corrective actions are not possible, ensuring that the plans are revised and objective achieved.

Budgetary control techniques

The various types of budgets are as follows

i) Revenue and Expense Budgets: The most common budgets spell out plans for revenues and
operating expenses in rupee terms. The most basic of revenue budget is the sales budget which is a
formal and detailed expression of the sales forecast. The revenue from sales of products or services
furnishes the principal income to pay operating expenses and yield profits. Expense budgets may deal
with individual items of expense, such as travel, data processing, entertainment, advertising,
telephone, and insurance.

ii) Time, Space, Material, and Product Budgets: Many budgets are better expressed in quantities
rather than in monetary terms. e.g. direct-labor-hours, machine-hours, units of materials, square feet
allocated, and units produced. The Rupee cost would not accurately measure the resources used or
the results intended.

iii) Capital Expenditure Budgets: Capital expenditure budgets outline specifically capital
expenditures for plant, machinery, equipment, inventories, and other items. These budgets require
care because they give definite form to plans for spending the funds of an enterprise. Since a business
takes a long time to recover its investment in plant and equipment, (Payback period or gestation
period) capital expenditure budgets should usually be tied in with fairly long-range planning.

iv) Cash Budgets: The cash budget is simply a forecast of cash receipts and disbursements against
which actual cash "experience" is measured. The availability of cash to meet obligations as they fall
due is the first requirement of existence, and handsome business profits do little good when tied up in
inventory, machinery, or other noncash assets.

v) Variable Budget: The variable budget is based on an analysis of expense items to determine how
individual costs should vary with volume of output.

Some costs do not vary with volume, particularly in so short a period as 1 month, 6 months, or a year.
Among these are depreciation, property taxes and insurance, maintenance of plant and equipment,
and costs of keeping a minimum staff of supervisory and other key personnel. Costs that vary with
volume of output range from those that are completely variable to those that are only slightly variable.

The task of variable budgeting involves selecting some unit of measure that reflects volume;
inspecting the various categories of costs (usually by reference to the chart of accounts); and, by
60
statistical studies, methods of engineering analyses, and other means, determining how these costs
should vary with volume of output.

vi) Zero Based Budget: The idea behind this technique is to divide enterprise programs into
"packages" composed of goals, activities, and needed resources and then to calculate costs for each
package from the ground up. By starting the budget of each package from base zero, budgeters
calculate costs afresh for each budget period; thus they avoid the common tendency in budgeting of
looking only at changes from a previous period.

b.) Non-Budgetary Control Techniques There are, of course, many traditional control devices not
connected with budgets, although some may be related to, and used with, budgetary controls. Among
the most important of these are statistical data, special reports and analysis, analysis of break- even
points, the operational audit, and the personal observation.

1. Personal observation: This is the most effective means of control. Deviations are discovered much
earlier and promptly corrected. It enhances motivation and morale of the employee of the
organization.

2. Statistical data: Data presented in the form of charts, graphs and diagrams provide a quick
understanding of the problem. This technique is applied specifically in the field of quality control.

3. Special reports: Special reports prepared by experts through special investigations, are useful in
specific cases. Sometimes statistical and accounting reports are not satisfactory to control.

4. Ratio analysis: The control of total functioning in an organization becomes possible by an analysis
of the profitability, liquidity and solvency ratios. E.g. the “financial statement analysis” facilitates
diagnosing the suitability of a business venture

5. Break even analysis: The break-even analysis is an analysis of the inter-relationship between cost,
volume and profit. It is also called as cost volume profit analysis. A break even chart is prepared for
this analysis. This chart presents graphically the relationship between sales and expenses under
different conditions. In other words, it examines the interrelationship of changes in cost volume and
profits. The break even chart shows the break even points, the point of zero profits and zero losses. It
can be expressed in terms of units produced. It serves as a control aid in a number of ways, as it
predicts the profit at different levels of sales or production volumes.

6. Operational Audit: Internal Audit or operational audit is carried out by the special stall of the
operations and accounts of an enterprise, in order to provide overall review of performance. It is used
to check and balance on daily operations.

7. Standard Costing: This technique is often used for cost reduction and cost control. Under standard
costing standards for materials, labour, overheads and other components of total cost are fixed and
actual costs are compared with these standard costs and variances are analysed to find out their
causes. Standard costing is also used as the basis for budgeting and incentive plans.

Modern techniques:

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1. ABC Analysis: ABC analysis is a method of material control according to value. The basic principle
is that high value items are more closely controlled then the low value items. The materials are
grouped according to the value and frequency of replenishment during a period.

‘A’ Class items : Small percentage of the total items, but having higher values.

‘B’ Class items : More percentage of the total items, but having medium values.

‘C’ Class items : High Percentage of the total items, but having low values.

ABC analysis is popularly known as “Always Better Control”. It is also known as “Control by
Importance and Exception”. It is based on the concept of Selective Inventory Management. In foreign
countries, Bin Cards and Stores Ledger Cards are not maintained for ‘C’ class items. These are issued
directly to the production foreman concerned and controlled through norms of consumption based on
production targets. By doing this, 70% of the effort s required for maintaining the Bin Cards and
Stores Ledger Cards are eliminated. With 30% of the effort, an organization will be able to exercise
control on the 90% of the inventory values. This reduces the clerical costs and ensures the closer
control on costly items in which large amount of capital is invested.

The general procedure for classifying A, B or C items is as under:

1. Ascertain the cost and consumption of each material over a given period of time.

2. Multiply unit cost by estimated usage to obtain net value.

3. List out all the items with quantity and value.

4. Arrange them in descending order in value i.e. ranking according to value.

5. Ascertain the monetary limits for A, B or C classification.

6. Accumulate value and add up number of items of A items. Calculate percentage

on total inventory in value and in number.

7. Similar action for B and C class items.

Principles & Practice of Management-II / 66

2. Management Audit: Management Audit is implied as an attempt to evaluate the performance of

various management functions and processes with a view to improve its efficiency and productivity
on the basis of certain pre-determined acceptable norms or standards. It is an audit, “to examine,
review the various policies and actions of the management on the basis of certain objective
standards”.

According to American Institute of Management: “Management Audit is a diagnostic appraisal

process for analysing goals, plans, policies and activities in every phase of operation to turnover
unsuspected weaknesses and to develop ideas for improvement in areas that has escaped management
attention”.

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3. Responsibility Accounting: It is a system of accounting where each departmental head is held
responsible for the performance of his department. Each department is considered as a responsibility
centre and its manager is held responsible for the target fixed for his unit.

Responsibility centres are of three types.

A. The cost centres

B. Profit centres
C. Investment centres

Each centre is charged with those costs that are within its control.

4. PERT & CPM: Programme Evaluation and Review Technique (PERT) and Critical Path Method
(CPM) follow the same principle. This method was firstly introduced in American Navy in 1958. This
method has been utilized to produce equipment in Navy. This is mainly concern with to reduce
process time to produce a particular product. Every work undergoes many processes till completion
stage. Every process requires certain time. According to this technique time required is being set. It
also shows time required for each event. A map is prepared to show the time required to complete
each process.

6. Human resource accounting: Most of the control techniques calculate financial performance in
terms of costs, profits, revenues and other factors. However the most important factor is human
resource that is overlooked. The human resource accounting by Liker helps in the calculation of
human resources. It involves:

1. Accounting for people as an organizational resource

2. Involving measurement of the cost incurred in the acquisition and development of human asset.

3. The measurement of economic value of employees to an organization.

The value of any individual or employee is defined in terms of its worth of the various services he is
supposed to provide to the organization. This value is known as “Individual’s Expected Realizable
Value.”

7. Management Information System (MIS) For the purpose of efficient control it is necessary to
have adequate, reliable accurate and timely information or feedback or operations. It is the quality of
data that determines the quality of managerial decision. But data need to be processed to make it
information. Electronic Data processing (EDP) devices. Like computer permits economical and quick
storage and processing of huge data. The use of electronic devices has led to the development of
integrated information systems which provide regular flow of information required for decision
making and control. It is known as MIS. Thus MIS is a system that provides relevant information in the
right form and at the right time to different managers for the purpose of planning and control. MIS is
useful is reducing time, cost and energy required for collection, processing and supply of information
to various organizational units. By improving the quality and quantity and timeliness of information,
MIS makes planning and control more effective and efficient.

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Effective Control System: 8 Major Characteristics

1. Integration with Planning: First, to be effective, control systems should be integrated with
planning. Fig. 17.10 shows one way in which this can be done.

The first step in planning is establishing goals and developing strategy. This leads to the second step
in planning (developing action plans and functional strategies). The standards set for control
purposes also play a role in determining action plans and functional strategies.

The action plans and functional strategy assume significance in performance and measure-ment.
Existing action plans, functional strategies, measured performance and comparisons of performance
with standards then affect the updating and modification of future plans.

Finally, decisions about whether to maintain or change goals and strategy are affected by previous
modifications and updates, by comparisons between standards and performance, and by evaluations
and actions taken within the control system.

At the start of the process, planning plays a major role in shaping the control system. By the end of the
process, however, the later stages of control exert a primary influence of planning. And, as P.F.
Drucker has pointed out a careful integration of planning and control can improve the effectiveness of
both sets of activities.

2. Flexibility: Another characteristic of an effective control system is flexibility. This means that the
control system itself must be flexible enough to accommodate change.

3. Acceptance by Members of the Organisation: The effectiveness and efficiency of controls largely
depend on the acceptance by the members of the organisation. Doing the right thing and doing things
right both require people; controls are unlikely to work unless people want them. If controls are to be
accepted, it is important that people clearly understand the purpose of the system and feel that they
have an important stake in it, more so when new systems are established.

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People resent controls, especially those considered excessive. Excessive controls create the
impression that people are not treated to act on their own.

Both too many and too few controls can lead to frustration and lack of motivation. Controls that
appear to be arbitrary or unnecessary can have demoralising (damaging) effect on the employees.
Moreover, at times the standards set by management may be perceived as being unreasonable or
unfair.

4. Focus on Critical Activities: The proper activities should be controlled. When people recognise
that certain specific areas will be monitored and compared to some standard, their behaviour is likely
to be channelled toward the standards set. Critical control areas (points) include all the areas of an
organisation’s operations that directly affect the success of its key operations such as sales, revenue,
expenses, inventory levels, personnel turnover, safety for people and other assets, etc.

Furthermore, each manager will have his (her) own critical areas to control. The focus should be on
those areas where failures cannot be tolerated and the costs in time and money are excessive.

It may also be noted that management has to frequently balance control systems to assure that
controlling one activity does not cause another to get out of control. For example, to meet production
standard a supervisor may overtax machinery and equipment.
Likewise, a sales manager may cut prices drastically to reach the sales quota for his own division;
unless he is working under a profit standard (constraint), reaching the sales standard, in itself, is not
necessarily good. Thus it is essential for managers to ensure that there is proper balance of activities
in the system.

5. Timeliness: Another characteristic of an effective control system is that it provides perform-ance

information in a timely way. Timeliness does not necessarily mean maintaining a time schedule for
exercising control. It simply means exercise of control mechanisms (or tech-nique) as and when
required.

For control to be effective it must report deviations in time to allow management to take corrective
action. Timely information, like accurate information, must be provided to those in charge so as to
make controls effective. Giving managers excessive or irrelevant informa-tion is as serious a problem
as is inadequate information.

The purpose of MIS is to gather, assemble, and interpret data, processing it into timely and accurate
information that gets to those who need it. For instance, budget printouts are helpful only when the
appropriate manager receives them in time.

6. Economic Feasibility: Control benefits should outweigh costs. In other words, control should be
cost-effective. Thus the costs of the control system have to be weighed against the benefits it can
return.

Costs of control include the following factors:

(1) Monitoring and processing systems — such as computers and cash registers;

(2) Personnel to operate the system—such as inventory controllers, inspectors and accountants—as
well as supervisors and line personnel and furnishing detailed information to them — such as cost,

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scrap, production, and personnel reports. The resources that will have to be spent may not return an
equal or larger amount so as to justify control in some cases.

7. Accuracy: Information must be accurate if it is to be useful. This point is directly related to our
discussion of feed forward controls, used in diagnosing a deviation. Since control systems are
important indicators of progress and are the basis for corrective reactions, care has to be taken to
ensure that control measurements are accurate.

Yet measurements are often imprecise, and errors are often made in interpreting and reporting
control results. Controls that offer inaccurate assessments feed decision-makers the wrong input,
which will cause them to produce, incorrect responses (lack of action or inappropriate action and the
waste of resources that go with both).

8. Ease of Understanding: The control process should be simple so that it can be easily understood
and applied. Complexity often means lack of understanding. Controls often become complex because
various persons are responsible for creating, implementing and interpreting them.

Overlapping authority is likely to cause confusion and unnecessary duplication or multiplication of

effort. Complexity can also result when control users focus on the mechanics and techniques of
control to the complete neglect of the purposes of controls. This usually happens when one control
leads to another.

Moreover, refinements in reporting procedures often lead to additional controls and more control
procedures. The result is huge accumulation of data, which may obscure the purposes behind the
controls and to side-track control efforts.

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