APS College of Engineering,

(Affiliated to Visvesvaraya Technological University and Approved by AICTE, NAAC Accredited)

Somanahalli, Kanakapura Main Road, Bengaluru-560116

Department of Electronics and Communication Engineering

Subject Name: Technological Innovation Management and Entrepreneurship

Subject Name: 21EC61
Semester : 6th
Academic Year: EVEN 2023-2024
Module-3

Faculty Name: Dr. Naik D C

Assistant Professor,
 Module-3
Leadership-Meaning, Characteristics, Behavioural Approach
of Leadership; Coordination-Meaning, Types, Techniques of
Coordination; Controlling – Meaning, Need for Control
System, Benefits of Control, Essentials of Effective Control
System, Steps in Control Process ( Text 1).
Social Responsibilities of Business: Meaning of Social
Responsibility, Social Responsibilities of Business towards
Different Groups, Social Audit, Business Ethics and Corporate
Governance (Text 1).
• The success of every industrial enterprise is dependent upon the quality of its
leadership.

• In a business enterprise, several tasks, such as determining the objectives of the

enterprise, designing the methods to achieve them, directing and coordinating the
activities of various departments, etc. can be successfully performed only if there
is able leadership.

• According to Peter Drucker, "Leadership is the lifting of man's visions to higher

sights, the raising of man's performance to a higher standard, the building of
man's personality beyond its normal limitations.“

• According to Keith Davis, leadership is the ability to persuade others to seek

defined objectives enthusiastically.
DIFFERENCE BETWEEN A LEADER AND A MANAGER
1. A person emerges as a leader. The question whether he will or will not emerge
as leader always depends on a number of situational factors. A manager, on the
other hand, is always put into his position by appointment.
2. A leader always has some personal power (i e. ability to influence) that enables
him to lead. He may or may not have positional power (i.e. the right to
command). A manager, on the other hand, always has some positional power.
He may or may not have personal power.
3. A leader focuses on people and generally seeks those very objectives which are
the objectives of his followers. A manager, on the other hand, focuses on
systems and structures and seeks those objectives which his subordinates do not
regard as their own. Thus there is clash of objectives.
4. A leader generally looks at the horizon and not just the bottom line. He is
innovative, challenges the status quo and believes in doing right things. A
manager, on the other hand, is generally bureaucratic, accepts the status quo and
CHARACTERISTICS OF LEADERSHIP
1. Leadership implies the existence of followers We appraise the quality of a
person's leadership in practice by studying his followers.
• We ask: How many and what kind of followers does he have? How strong is their
commitment as a result of his leadership? How long will their commitment last?
By answering questions of this nature we get to know the quality of leadership.
• We must not, however, forget that leaders within organisations are also followers.
The supervisor works for a branch head, who works for a division manager, who
works for the vice-president of a department, and so on.
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.
If the leader strives for one purpose and his team of workers for some other
purpose, it is no leadership. In the words of G.R. Terry, "Leadership is the activity
of influencing people to strive willingly for mutual objectives."'
3. Leadership involves an unequal distribution of authority among leaders
and group members Leaders can direct some of the activities of group
members; that is the group members are compelled or are willing to obey most
of the leader's directions.
• The group members cannot similarly direct the leader's activities, though they
will obviously affect those activities in a number of ways.
4. Leadership implies that leaders can influence their followers or
subordinates in addition to being able to give their followers or
subordinates legitimate directions In other words, leaders not only tell their
subordinates what to do by way of command but also influence by their
behaviour and conduct.
• The use of command by leaders succeeds only in bringing about a temporary
behavioural change in the followers, Permanent attitudinal change in followers
comes through the use of influence only.
Traditional Approaches to Leadership
• Traits Approach
• Behavioural Approach
• Contingency Approach
• Fiedler’s Model
• Hersey and Blanchard Model
• Robert J House’s Model
Behavioural Approach
• Under behavioural approach researchers have studied leadership behaviour from
three points of view:
– motivation,
– authority and
– supervision.
Motivation:
• From the point of view of motivation leadership behaviour can be either positive
or negative.
• In positive behaviour the leader's emphasis is on rewards to motivate the
subordinates.
• In negative behaviour the leader's emphasis is on penalties and punishments. The
leader tries to frighten the subordinates into higher productivity.
• The result is that subordinates' enough time is lost in covering; i.e. protecting
themselves against management.
Authority:
• From the point of view of authority, leadership style can be
– autocratic,
– democratic or
– free-rein.
Autocratic leadership:
• In this type of leadership, the leader alone determines policies and makes plans.
• He tells others what to do and how to do it. He demands strict obedience and relies on
power.
• He may sometimes be benevolent also and use rewards for obtaining obedience from
his employees.
• Employees dislike both these forms because in one form they remain under constant
fear and in the other form they remain under constant gratitude.
Merits
1. This type of leadership, can increase efficiency, save time and get quick results,
especially in a crisis or an emergency situation.
2. The paternalistic form of this style of leadership works well with employees who
have a low tolerance for ambiguity, feel insecure with freedom and even minor
decision-making requirements and thrive under clear, detailed and achievable
directives.
3. Chain of command, and division of work (who is supposed to do what) are clear and
Demerits

1. It motivates people through fear and stifles their initiative and creativity
resulting in costly errors.

2. It throttles upward communication. The autocratic leader is alone in his

decision-making. He receives little, if any, information and ideas from his
people as inputs into his decision-making. This is generally dangerous in
today's environment of technological and organisational complexity.

3. Today, most people resent authoritarian rule which excludes them from
involvement and reduces them to machine-like cogs without human dignity or
importance. They express their resentment in the form of massive resistance,
low morale and low productivity.
Democratic leadership

• In this type of leadership the leader thinks "with" rather than "for" his people.

• The entire group is involved in and accepts responsibility for goal setting and
achievement.

• Subordinates have considerable freedom of action. The leader shows greater

concern for his people than for high production.

• A part of the leader's task is to encourage and reinforce constructive inter-

relationships among members and to reduce intra-group conflict and tensions.
Merits
1. It increases the acceptability of a decision. When people participate in and help
formulate a decision, they support it (instead of fighting or ignoring it) and
work hard to make it work, because it is their idea. In other words, the
participative leader has the critical factor of built-in-personal motivation
working for him.
2. It improves the quality of a decision. The leader consistently receives the
benefit of the best information, ideas, suggestions, and talent-and operating
experience-of his people.
3. It permits and encourages people to develop, grow and rise in the organisation
(both in terms of responsibility they can assume and service they can
contribute).
4. It makes full use of a wide range of motivations such as status, achievement,
challenge, etc.
Demerits
1. The participative style can take enormous amounts of time and, may degenerate
into a complete loss of leader's control. Subordinates may show greater
absenteeism and tardiness.
2. Some leaders may use this style as a way of avoiding responsibility.
Free Rein
• In this type of leadership, also called laissez faire leadership, the leader exercises
absolutely no control.
• He only provides information, materials and facilities to his men to enable them
to accomplish group objectives.
• This type can be a disaster if the leader does not know well the competence and
integrity of his people and their ability to handle this kind of freedom.
 Figure: Spectrum of
leadership styles

• Figure shows the spectrum of a wide variety of leadership styles moving from a
very authoritarian style at one end to a very democratic style at the other end, as
suggested by Robert Tannenbaum and Warren
• As the spectrum demonstrates, there are a number of alternative ways in which a
leader can relate himself to the group.
• At the extreme left of the spectrum, the emphasis is on the leader—on what he is
interested in, how he sees things, how he feels about them.
• As we move towards the employee-centred end of the spectrum, however, the
focus is increasingly on the subordinates— on what they are interested in, how
they look at things, how they feel about them.
• The centre of the spectrum finds a more equitable balance between the authority
exercised by the leader and the amount of participation the group can exercise.
Supervision
• From the point of view of supervision, leadership style can be either employee-
oriented or production-oriented.

• An employee-oriented leader is one who cares more for the welfare of his
subordinates than for production.

• Similarly, a production-oriented leader is one who cares more for production than
for the welfare of his subordinates.

• Two important studies under this category are the Ohio State University study
and Management Grid.

• These studies measure leader behaviour on two dimensions: employee

orientation and production orientation.
a. Ohio State University Model
High Consideration High Consideration
High
Low Initiating Structure High Initiating Structure
Consideration
Low Consideration Low Consideration
Low Low Initiating Structure High Initiating Structure

Low Initiating Structure High

• In Figure "initiating structure" refers to the leader's behaviour in structuring

the job of the follower and establishing well-defined patterns of organisation
and communication.
• "Consideration" is the leader's behaviour showing mutual trust, respect and
friendship.
• These two types of leader behaviours are independent.
• Some leaders follow structure but provide little consideration; others are
considerate, but provide little structure.
• Many leaders, however, do not fit into either of these two categories.
• They use a fairly even mix of structure and consideration. Still other leaders
spend very little time using either structure or consideration behaviours.
• They are relatively uninvolved with their subordinates. Thus, it is possible to
show four broad styles of leadership on the Ohio State model.
b. Managerial Grid
• Robert Blake and Jane Mouton (experimental psychologists at the University
of Texas) use a chart called Managerial Grid to describe five types of
managerial styles.
• They make use of the terms "concern for production" and "concern for
people". These two dimensions (concern for people and concern for
production) are plotted on a 9-point scale on two separate axes as shown in
Figure.
 Figure: Managerial Grid

• There are thus 81 combinations of concerns represented on the grid. But the authors'
main emphasis is on the styles in the 4 corners and at the middle of the grid because
these are the ones we see most often. These are as under:
1. Task management
2. Country-club management
3. Impoverished management
4. Team management
1. Task management Here the management shows maximum concern for production
and least concern for people. Therefore, it is also called "authority-obedience"
approach.
2. Country-club management This is reverse of task management. Here the
management shows maximum concern for people and least concern for production.
3. Impoverished management Here the management shows least concern both for
production as well as people. The manager wants just enough being done to get by.
He also ignores human relationships.
4. Team management Here the management shows maximum concern both for
production as well as people. Maximum concern for production is based on
decisions arrived at with workers' participation and maximum concern for people is
based on the workers' task-related morale and not just good social relations.
5. Dampened pendulum or the middle-of-road style Here the management shows a
balanced concern for production and people. Neither too much production is
expected nor too much concern for people is ex-pressed. The manager follows the
middle position.
Coordination
• The management of a modem enterprise is based on the principle of
specialisation or division of labour.
• Jobs are broken down into single repetitive tasks and are entrusted to individuals
either working in the same department or in different departments of the
enterprise.
• With jobs specialised and divided among units, coordination becomes necessary.
• Coordination is the management of interdependence in work situations.
• It is the orderly synchronisation or fitting together of the interdependent efforts of
individuals, in order to attain a common goal.
• Similarly, in a modem enterprise, which consists of a number of departments,
such as production, purchase, sales, finance, personnel, etc. there is need for all of
them to properly time their interdependent activities and to efficiently reunite the
sub-divided work.
In a well-coordinated enterprise, the following facts are to be observed:

1. Each department works in harmony with the rest. Stores know what has to be
supplied and at what time; production knows its target: maintenance keeps
equipment's and tools in good order, and so on.

2. Each department, division and sub-division is precisely informed as to the

share it must take in the common task.

3. The working schedule of the various departments is constantly attuned to

circumstances.
DISTINCTION BETWEEN COORDINATION AND COOPERATION
• Within every group in a factory there are countless acts of cooperation without
which the system would break down.
• Cooperation in any organisation will usually be ineffective will not reach its goal,
whatever the intentions of the members-unless each one of them is informed of
the behaviours of the others, upon which he can base his own decisions. This
information-giving is coordination.
• For instance consider a group of men attempting to move a heavy object. They
are sufficient in number, willing and eager to cooperate with each other and
trying to do their best to move the object. They are fully aware of their common
purpose. However, in all likelihood their efforts will be of little avail until they
coordinate them. That is, they give proper directions to each other to apply the
right amount of effort at the right place, at the right time.
• Thus, coordination is superior in order of importance to cooperation.
DISTINCTION BETWEEN COORDINATION AND CONTROL

• Control is direct intervention in the operations of an enterprise to ensure

conformity with organisational goals.

• Coordination provides the appropriate linkage between different task units within

the organisation.

• It is associated with integrating activities dispersed across the enterprise and is

less direct, economical and has a longer time span than control.
Types of Coordination.
Coordination may be variously classified as internal or external, vertical or
horizontal and procedural or substantive.
• Coordination among the employees of the same department or section, among
workers and managers at different levels, among branch offices, plants,
departments and sections is called internal coordination.
• Coordination with customers, suppliers, government and outsiders with whom the
enterprise has business connections is called external coordination
• Vertical coordination is what exists within a department where the departmental
head is called upon to coordinate the activities of all those placed below him.
• On the other hand, horizontal coordination takes place sideways. It exists between
different departments such as production, sales, purchasing, finance, personnel,
etc.
• By procedural coordination is meant the specification of the organisation
itself-that is, the generalised description of the behaviours and relationships of
the members of the organisation.

• Procedural coordination establishes the lines of authority, and outlines the

sphere of activity and authority of each member of the organisation.

• Substantive coordination is concerned with the content of the organisation's

activities.

• In an automobiles factory, an organisation chart is an aspect of procedural

coordination, while blueprints for the engine block of the car being
manufactured are an aspect of substantive coordination.
TECHNIQUES OF COORDINATION (APPROACHES TO COORDINATION)
The following are some important techniques of coordination or approaches to
coordination:
1. Employing Only Basic Coordinating Techniques
2. Increasing Coordination Potential
3. Reducing Need for Coordination
1. Employing Only Basic Coordinating Techniques
This approach can serve the needs of organisations with relatively modest
coordination requirements.
a. Rules, Procedures and Policies
The specification of rules, procedures and policies is a very common device to
coordinate sub-units in the performance of their repetitive activities. Standard
policies, procedures and rules are laid down to cover all possible situations.
b. Planning:
• Planning ensures coordinated effort. Under planning, targets of each department
dovetail with the targets of all other departments.
• For example, by fixing the target of 10,000 units of additional production and
sales for the production and sales departments respectively, the head of the
organisation can be fairly sure that the work of the two departments would be
coordinated since their targets so demand.
• Strategic planning does the task of relating the organisation to the environment so
as to reduce uncertainty and the need for strict coordination.
c. Hierarchy
• The oldest as well as the simplest device for achieving coordination is hierarchy
or chain of command. By putting interdependent units under one boss, some
coordination among their activities is ensured.
• But the manager responsible for coordinating the various sub-units can become
overloaded with information and forced to make too many decisions.
2. Increasing Coordination Potential
Organisations whose coordination needs are not fulfilled by basic coordination
techniques need additional coordinating mechanisms such as the following.
a. Direct Contact: In order to prevent top executives from becoming overloaded
with problems, as many problems as possible are resolved by the affected
employees at lower levels by informal contacts. Strong cross-functional links at
multiple levels may be established for this purpose.
b. Task Force: This is a temporary group made up of representatives from those
departments which are facing a problem. It exists only as long as the problem lasts.
When a solution is reached each participant returns to his normal tasks.
c. Committees: As certain decisions consistently arise the task forces become
permanent. These groups are labelled committees. This device greatly eases the
rigidity of the hierarchical structure, promotes effective communication and
understanding of ideas, encourages the acceptance of the commitment to policies
and makes their implementation more effective.
d. Induction
• Inducting the new employee into the new social setting of his work is also a
coordinating mechanism.
• The device familiarises the new employee with the organisation's rules and
regulations, its dominant norms of behaviour, values and beliefs and integrates
his personal goals with the organisational goals.
e. Indoctrination
• Indoctrinating organisational members with the goals and mission of the
organisation—a device used commonly in religious and military organisations is
still another coordinating device.
• According to Selznick®, the major task of a leader is not only to make a policy
but "to build it into the organisation's social structure" —a situation where
everybody in the organisation spontaneously protects or advances its official aims
and methods.
f. Incentives:
• Providing interdependent units with an incentive to collaborate, such as a profit-
sharing plan, is another mechanism.
g. Liaison Departments
In some cases where there is a large volume of contact between two departments, a
liaison department evolves to handle the transactions. This typically occurs
between sales and production departments.
h. Workflow
A workflow is the sequence of steps by which the organisation acquires inputs and
transforms them into outputs and exports these to the environment. It is largely
shaped by technological, economic, and social considerations and helps in
coordination.
3. Reducing Need for Coordination

• This approach is meant for those organisations in which even expanded

coordinating mechanisms fail.

• Some new forms of organisation structures such as autonomous work teams and
matrix organisations reduce coordination needs.

• Organisations using mass production technique vertically integrate with the

suppliers of raw materials and those using a "mediating technology" —that is, a
technology that connects different users of the product or the service such as an
employment agency or a telephone network, diversify the market they serve so
that they do not become too dependent on any one supplier or market,
respectively.
Managerial Control
• Control is one of the important functions of management. In the words of E.F.L.
Brech,' "Control is checking current performance against predetermined standards
contained in the plans, with a view to ensuring adequate progress and satisfactory
performance.
• " According to George R. Terry,? "Controlling is determining what is being
accomplished, that is, evaluating the performance and if necessary, applying
corrective measures so that the performance takes place according to plans.“
NEED FOR CONTROL SYSTEM
A control system is needed for four purposes:
1. measuring progress;
2. uncovering deviations;
3. indicating corrective action; and
4. transmitting corrective action to the operation.
1. Measuring Progress
• There is a close link between planning and controlling the organisation's
operations.
• The control process continually measures progress towards goals. As Fayol' so
clearly recognised decades ago, "In an undertaking, control consists in verifying
whether everything occurs in conformity with the plan adopted, the instructions
issued and principles established.“
2. Uncovering Deviations
Once a business organisation is set into motion towards its specific objectives,
events occur that tend to pull it "of target".
a. Change
b. Complexity
c. Mistakes
d. Delegation.
a. Change
• Change is an integral part of almost any organisation's environment. Markets
shift, new products emerge, new materials are discovered and new regulations are
passed.
• The control function enables managers to detect changes that are affecting their
organisation's products or services.
b. Complexity
• Today's vast and complex organisations, with geographically separated plants and
decentral-ised operations make control a necessity.
• Diversified product lines need to be watched closely to ensure that quality and
profitability are being maintained; sales in different retail outlets need to be
recorded accurately and analysed; the organisation's various markets-foreign and
domestic-require close monitoring.
c. Mistakes
• Managers and their subordinates very often commit mistakes. For example,
wrong parts are ordered, wrong pricing decisions are made, problems are
diagnosed incorrectly, and so on.
• A control system enables managers to catch these mistakes before they become
serious.
d. Delegation
• The only way managers can determine if their subordinates are accomplishing the
tasks that have been delegated to them is by implementing a system of control.
• Without such a system, managers will not be able to check on their subordinates'
progress, and so not be able to take corrective action until after a failure has
occurred.
3. Indicating Corrective Action
Controls are needed to indicate corrective actions. They may reveal, for example,
that plans need to be redrawn or goals need to be modified or there is need for
reassignment or clarification of duties or for additional staffing or for conforming
to the way the work should be done.
4. Transmitting Corrective Action to the Operation
• Controls are needed to transmit corrective action to the operation while it is
progressing so that the transformation subsystem modifies its inputs or its
production plan to reduce any discrepancy or error and keeps the output "on
course".
• Control-related information flows in most of our modern organisations also
follow the above-mentioned thermostat operating principle.
• Human intervention is involved to adjust the system periodically, according to a
subjective impression of the environment.
ESSENTIALS OF EFFECTIVE CONTROL SYSTEM
The essentials of an effective control system are as follows.
a. Suitable
• The control system should be appropriate to the nature and needs of the activity.
• Controls used in the sales department will be different from those used in finance
and personnel.
• Similarly, a machine-based method of production requires a control system which
is different from the system that is used in labour intensive methods of
production.
• Hence, every concern should evolve such a control system as would serve its
specific needs.
• It must also take into account the traditions of the company, the ways controls are
administered the degree of delegation and similar other factors.
b. Timely and Forward Looking
• Although an ideal control system, as in certain electric controls, should be able to
detect deviations before they occur, the same is not possible in personnel and
marketing controls which always include a time lag between the deviation and
corrective action.
• In any case, the feedback system should be as short and quick as possible and the
information should reach the superior before it is too late to head off failures.
c. Objective and Comprehensible
• The control system should be both objective and understandable.
• Objective controls specify the expected results in clear and definite terms and
leave little room for argument by the employees.
• The meaning of the central data should be clear to the manager who should use it.
d. Flexible
• The control system should be flexible so that it can be adjusted to suit the needs
of any change in the basic nature of the inputs and/or the sizes, varieties or types
of the same product or service.
• One way of introducing flexibility into a control system is to make the
adjustments automatic.
e. Economical
• Economy is another requirement of every control system.
• The benefit derived from a control system should be more than the cost involved
in implementing it.
f. Prescriptive and Operational
• A control system in order to be effective and adequate must not only detect
deviations from the standards but should also provide for solutions to the
problems that cause deviations.
g. Acceptable to Organisation Members
• The system should be acceptable to organisation members. When standards are
set unilaterally by upper level managers, there is a danger that employees will
regard those standards as unreasonable or unrealistic.
• level managers, there is a danger that employees will regard those standards as
unreasonable or unrealistic.
• Some control systems, specially those based on mathematical formulas, complex
breakeven charts and computer printouts, are not understandable to the managers
who must use them.
• Status differences between individuals also have to be recognised.
• Individuals who have to report deviations to someone they perceive as a lower
level staff member may stop taking the control system seriously.
h. Reveal Exceptions at Strategic Points
• A control system should be such as to reveal exceptions at strategic points. Small
exceptions in certain areas have greater significance than larger deviations in
other areas.
• The purpose of these strategic points is principally to direct attention rather than
to evaluate. It should be remembered that strategic point control is not the same
as the exception principle.
i. Motivate People to High Performance
• A control system is most effective when it motivates people to high performance.
• Since most people respond to a challenge, successfully meeting a tough standard
may well provide a greater sense of accomplishment than meeting an easy
standard.
j. Should Not Lead to Less Attention to Other Aspects
• Control over one aspect of operations should not lead to less attention to other
aspects.
• For example, if controls put pressure on employees to increase output, the quality
of work, care of equipment, and prevention of waste should not be neglected.
• Similarly, overemphasis on controlling tangible results should not lead to the
neglect of intangible results such as cooperation with other department or
employee development.
k. Should be Periodically Reviewed and Evaluated
• Every control system should be periodically reviewed and evaluated in relation to
its objectives to see how effective and efficient the design proved to be or why it
failed.
Steps in a Control Process
There are three basic steps in a control process:
1. Establishing standards
2. Measuring and comparing actual results against standards
3. Taking corrective action
1. Establishing standards
• The first step in the control process is to establish standards against which results
can be measured.
• Since entire operations cannot be observed, each organisation must develop its
own list of key result areas for which standards need to be established.
• Some key areas in all business organisations are: profitability, market position,
productivity, personnel development, employee attitudes and public
responsibility.
• An executive who wishes to control a particular key area often finds that the work
in question has several characteristics.
• He must, therefore, determine the level of performance or "par" for each
characteristic all pars should later on part of the standard for that key area
• Guidelines for Setting Pars/Standards
a. They must be specifically determined in quantitative terms.
• Pars or standards expressed in vague or general terms such as, "costs should be
reduced" or "orders should be executed quickly" are not as specific as "overheads
must be reduced by 12 per cent" or "all orders must be executed within three
working days.“
• Even pars or standards in areas such as public relations, while hard to express in
quantitative terms, can be defined more accurately by adding more specific
details, about the number and type of customer complaints.
b. They should be accepted by the individuals involved. They must fit their
expectations and group habits.
c. They need to be flexible in order to adapt to changing conditions. For instance, a
new salesman Who proves to be an above-average performer should have his sales
standard adjusted accordingly.
d. They should emphasise the achievement of results more than the conformity to
rules and methods. If they do not do so, then people will start giving more
importance to rules and methods than to the final results. "Doing the right things"
will give place to "doing things right".
2. Measuring and Comparing Actual Results against Standards
• The second step in the control process is to measure the result and compare it
with the predetermined pars.
• One important point to be considered here is whether measurement and
comparison are to be done at various stages in the throughput process or at the
end.
• A fault to be avoided, however, is to allow too long a period of time to pass between
performance measurements.
• Frequency of measurements depends on the nature of the task being controlled.
• Thus, quality control of items coming off an assembly line often requires hourly
monitoring because significant changes can take place any time in any run of items.
3. Taking Corrective Action
• After comparing the actual performance with prescribed standards and finding the
deviations, the next step that should be taken by the manager is to correct these
deviations.
• Corrective action should be taken without wasting time so that the normal position can
be restored.
• The manager should also determine the correct causes for deviation. The causes for
deviation may be of different types, such as inadequate and poor equipment and
machinery, inadequate communication system, lack of motivation of subordinates,
defective system of training and selection of personnel, defective system of
remuneration, etc.
Levels of Control System
• An organisation can establish control systems at three levels: Corporate,
Business and Operational.
• These systems vary in scope in terms of 'what is being controlled'.
• Each of these levels almost corresponds to the levels (Strategic, Tactical and
Operational level) at which the plans are initially made.
A Corporate level control system operates at the corporate/strategic/top level
within an organisation.
• Its coverage is broad and covers the entire organisation.
• It aims to develop control measures for checking the extent of attainment of long-
term goals of the entire organisation in the context of the external environment it
faces.
• In cases where the organisation is faced with stable external environment it is
acceptable to keep such controls centralised at the corporate level for all the
• A Business level control system implements the strategic control at the
business/division level. Its scope is narrow than the corporate level control. It
establishes control measures for comparatively shorter time spans (say one year)
than corporate level control system.

• An Operational level control system implements the control system at the

activity level in each functional area of the business.

• Obviously, of all the three levels of control systems, its scope is quite restricted
and the time span is very short.

• The control measures are applied on a daily or weekly basis. The activity being
controlled usually is a productive activity but could also include any other
activity
Social Responsibilities of Business
• Social responsibility is a nebulous idea and hence is defined in various ways.
Adolph Berle' has defined social responsibility as the manager's responsiveness to
public consensus.
• This means that there cannot be the same set of social responsibilities applicable
to all countries in all times.
• These would be determined in each case by the customs, religions, traditions,
level of industrialisation and a host of other norms and standards about which
there is a public consensus at any given time in a given society.
• According to Keith Davis,' the term "social responsibility" refers to two types of
business obligations, viz.,(a) the socio-economic obligation, and (b) the socio-
human obligation.
• The socio-economic obligation of every business is to see that the economic
consequences of its actions do not adversely affect public welfare. This includes
obligations to promote employment opportunities, to maintain competition, to
curb inflation, etc.
• The socio-human obligation of every business is to nurture and develop human
values (such as morale, cooperation, motivation and self-realisation in work).
• Businessman should operate his business as a trustee for the benefit of his
employees, investors, consumers, the government and the general public.
Origin and Growth of the Concept
• Although the subject "social responsibilities of business" in its present form and
content has gained pop attention in recent years only, its origin can be traced back
to the evolution of the concept of a welfare state.
• As the pace of industrialisation quickened, employers became more and more
concerned with the of productive efficiency due to avoidable sickness or accident
or to stoppages of work due to bad personal relationships.
• The framework of a welfare state and with it the concept of social responsibility
have thus come to stay in many countries of the world.
• The changing image of business in recent years has lent further support to the
idea of social responsibility.
Different Views on Social Responsibility
There are four different views on the social responsibility of business. These are as
under:
a. Communist View
• This view advocates the imposition of social responsibilities on business through
the instrumentality of the State.
• Communists hold that free industrial civilisation is not good because its values
are of the wrong order.
• Business has been concerned only with material gain. Economic expediency is
taken to be the sole criterion of decision.
b. Capitalist View
• This view holds that economic expediency alone is a just standard for business
decisions and that business has an unbridled and an uncontrolled right to make
money free from all sorts of social responsibilities.
• It is argued that by maximising its profit objectives, business gratifies its
personal desires and at the same time satisfies the needs of society.
• Therefore, business should not have any responsibility beyond obeying certain
legal codes in achieving its goals.
• Milton Friedman, * who won a Nobel Prize in 1976, holds the view that business
should go on with the business of producing goods and services efficiently and
leave the solution of social problems to government agencies and concerned
individuals.
• In short, managers should focus on what they know best: how to make a profit.
c. Pragmatic View
• This view acknowledges the importance of profits but simultaneously stresses the
need for social responsibility.
• It holds that a company cannot make a social contribution if it is not profitable.
Profits are the test of the efficient functioning of a business enterprise.
• Hence a businessman's first responsibility is to keep his business solvent. But he
must also voluntarily assume social responsibilities beyond the legal minimum.
• This can be done at three levels.
• At the first level, the manager goes beyond the legal minimum and caters also to
public expectations-moving the winds of public opinion blow.
• At the second level, he anticipates public expectations and acts accordingly.
• At the third and highest level, he creates new public expectations voluntarily
setting and following the loftiest standards of moral and social responsibility.
d. Trusteeship View
This view advocates the retention for personal use of so much as is necessary for an
honourable livelihood, no better than that enjoyed by million others; and the
utilisation of the rest for the welfare of the community.
Social Responsibilities of business towards different groups .
Every business is at the centre of a network of relationships which consist of those
between him at one end and his workers, employees, consumers, shareholders, other
business, community and the government on the other.
e. Towards the Consumer and the Community
1. Production of cheap and better quality goods and services by developing new
skills, innovations and techniques, by locating factories and markets at proper
places and by rationalising the use of capital and labour.
2. Levelling out seasonal variations in employment and production through
accurate forecasts, production scheduling and product diversification.
3. Deciding priorities of production in the country's interest and conserving
natural resources.
4. Honouring contracts and following honest trade practices.
5. Making real consumer needs as the criterion for selecting messages to be given
by product advertisements. Nearly all current advertising seeks to create wants.
6. Preventing the creation of monopolies. Monopolies are bad in that they make
the community face high prices, short supply and inferior quality of goods.
7. Providing for after-sale servicing.
8. Ensuring hygienic disposal of smoke and waste and voluntarily assisting in
making the town environment aesthetically satisfying.
9. Achieving better public relations (that is, creating a more favourable attitude
towards the enterprise) by giving to the community, true, adequate and easily
intelligible information about its working.
10. Supporting education, slum clearance and similar other programmes.
b. Towards Employees and Workers
1. A fair wage to the workers (and not merely one determined by market forces of
supply and demand) which is possible only when the businessman is willing to
accept a voluntary ceiling on his own profits.
2. Just selection, training and promotion (without any discrimination on grounds
of sex, race, religion and physical appearance).
3. Social security measures and good quality of work life.
4. Good human relations (i.e, maintaining industrial peace, creating conditions for
collective bargaining, educating workers to produce their own leadership and
participative management).
5. Increase in productivity and efficiency by recognition of merit, by providing
opportunities for creative talent and incentives.
6. Freedom, self-respect and self-realisation. A businessman should devote his
knowledge and ability not only to making his worker's life more affluent, but
c. Towards Shareholders and Other Businesses
1. Promoting good governance through internal accountability and transparency.
2. Fairness in relations with competitors. Competition with rival businessmen should
always be fair and healthy, based on rules of ethics and fair play rather than on rules of
warfare.
d. Towards the State
1. Shunning active participation in and direct identification with any political party
2. Observing all the laws of land which may have the following objectives:
– To provide direction to the economic and business life of the community.
– To bring about harmony between the limited enterprise interest and the wider social
interest of the country
– To provide safeguard against errant business practices
– To compel business to play fair to all participants in the economy— employees,
shareholders, minority shareholders, etc.
– To implement rural uplift and secure balanced development of the country
SOCIAL AUDIT
A social audit is a systematic study and evaluation of the organisation's social
performance as distinguished from its economic performance. The term "social
performance" refers to any organisational activity that effects the general welfare of
society.
Benefits
1. It supplies data for comparison with the organisation's social policies and standards.
The management can determine how well it is living up to its social objectives.
2. It develops a sense of social awareness among all employees. In the process of
preparing reports and responding to evaluations, employees become more aware of
the social implications of their actions.
3. It provides data for comparing the effectiveness of different types of programmes.
4. It provides data about the cost of social programmes, so that the management can
relate this data to budgets, available resources, company objectives, etc.
5. It provides information for effective response to external groups which make
demands on the organisation
Limitations
• A social audit is a process audit rather than an audit of results.
• This means that a social audit determines only what an organisation is doing in social
areas and not the amount of social good that results from these activities.
• An audit of social results is not made because:
– They are difficult to measure.
– Most of them occur outside the organisation, making it difficult for the organisation
to secure data from these outside sources.
– Their classification under “good” or “bad ” is not universally accepted.
• Even though social results cannot be proved, an audit of what is being done is still
considered desirable, because it shows the amount of effort that a business is making in
area deemed beneficial to society.
• Social audits can be made either by internal experts, outside consultants, or a combination
of the two.
• The internal auditor has the advantage of familiarity with the business, but his judgements
may be influenced by company loyalties.
Business Ethics
• Business ethics is the application of moral principles to business problems. It
knows the difference between what you have a right to do and what is right to do.
• It, thus, extends beyond the question of legality and involves the goodness or
badness of an act.
• Therefore, an action may be legally right but ethically wrong. For example, a
small village community located twenty miles from the closest urban shopping
area has a single grocer's shop. The owner of the shop can charge any exorbitant
price for his product though legally but not ethically.
• Discrimination against women in pay and promotion opportunities is also
unethical, which continues to exist despite there being the Equal Remuneration
Act, 1976.
• One of the most commonly cited reasons for the lack of promotions of women is
the glass ceiling effect—a term used for artificial barriers based on attitudinal or
organisational bias that prevent qualified women from progressing in the
• How does a manager decide what is ethical or unethical? There are four
important factors which affect his decision.

• Government legislation.

• Business codes. (But being voluntary in nature these codes, though pointed to
with pride, are usually ignored in practice.)

• Pressure groups. (For example, in recent years Indian carpet industry has been
facing consumer boycott from the west for employing child labour.)

• Personal values of the manager himself.

Ethics and Corruption in International Business
• With the arrival of the global economy, ethics and corruption have become a
major concern in international management.

• On an international scale, it is difficult to clearly define what constitutes corrupt

business practices.

• The primary difficulty involved is differing cultural understandings related to

these issues and the coinciding laws and norms under which various societies
operate.

• However, four forms of corruption which are considered typical to international

business are smuggling, money laundering, piracy and counterfeiting, and
bribery.
Corporate Governance
• The term "corporate governance" is used to denote the extent to which companies run in an
open and honest manner in the best interest of all stake-holders.
• The key elements of good corporate governance are transparency and accountability
projected through a code which incorporates a system of checks and balances between all key
players, viz., board of directors, auditors and stake-holders.
• In Britain, following corporate scandals in the early 1990s, a committee was appointed in
1991 under the chairmanship of Sir Adrian Cadbury to prepare a code for best corporate
governance.
• Major recommendations of this committee are as under:
• Non-executive directors whose most important role is to bring an independent judgement to
bear on issues of strategy, performance, resources, etc. should be picked through a formal
selection process on merits.
• Companies should have remuneration committees consisting wholly or mainly of non-
executive directors which should recommend to the board executive directors' emoluments.
• Companies should have audit committees consisting of minimum 3 non-executive directors
to report on any matter relating to financial management.
Benefits of Good Corporate Governance

1. It creates overall market confidence and long-term trust in the company.

2. It leads to an increase in company's share prices.

3. It ensures the integrity of company's financial reports.

4. It maximises corporate security by acting as a whistle blower.

5. It limits the liability of top management by carefully articulating the decision-

making process.

6. It improves strategic thinking at the top by inducting independent directors who

bring a wealth of experience and a host of new ideas.
Corporate Governance in India
1. The Securities and Exchange Board of India (SEBI) monitors corporate governance of
listed companies in India through clause 49 which is incorporated in the listing
agreement of stock exchanges with companies. All listed companies have to comply
with the provisions of this clause which inter alia stipulates as under:*
• 50% of the board should consist of independent directors if the company has an executive
chairman. In case of non-executive chairman, one-third of the board should consist of
independent directors. (As the name suggests an independent director is a director who is
not aligned with either the management or the promoters and is capable of exercising
independent judgement).
• Following persons are not qualified to act as independent directors: (a) a shareholder with
more than 2% shareholding in the company, (b) a former executive who left the company
less than 3 years ago, (c) a partner of current legal, audit, and consulting firm, (d) a
relative of a promoter, or an executive director, or a senior executive one level below an
executive director.
• The CEO and CFO should certify the financial statements affirming that elaborate risk
management and internal control mechanisms have been established in corporate
2. The Companies (Amendment) Act, 2000, has introduced several provisions
relating to corporate governance such as setting up of audit committees,
additional grounds of disqualification of directors and directors' responsibility
statement in the directors' report.
3. The World Council for Corporate Governance has instituted in 2001 the Golden
Peacock Award to foster competition among companies to improve their quality
of corporate governance. The criteria include an overview of the governance
structure, leadership, role, term and liability of directors, remuneration of non-
executive directors, and so on.
4. India has several bodies that rate companies for their credit-worthiness.
Important among them are: Credit Rating and Information Services of India
Ltd. (CRISIL), Investment Information and Credit Rating Agency of India Ltd.
(ICRA), Credit Analysis and Research (CARE) and Duff and Phelps Credit
Rating (DCR), India.
Need for a Corporate Whistle Blower Protection Act
• A corporate whistle blower is an honest and conscientious individual who
discloses in public interest, and as an ethical duty, information relating to
gross corruption, mismanagement, abuse of authority or grave injustice
prevailing in a company.
• The origin of whistle-blowing can be traced back to the coal-miners' old
practice of carrying canaries into the mines with them.
• When the canaries stopped singing, coal-miners knew they were in trouble,
and they had better get out fast.
• Whistle blowers in large companies are, in a way, our canaries. When they
are free to "sing", the institutions are healthy. When they are silenced,
people are in trouble.