Vous êtes sur la page 1sur 173

AMF101 ORGANIZATION THEORY AND MANAGEMENT

PREFACE
With the rapidly changing socio-economic and political environment and
trend towards globalization of economies, management of human resources
in modern organisations has become a very challenging job. The people in
organisations differ in terms of their attitudes, beliefs, values, background,
knowledge etc and a thorough understanding of these concepts and
processes can be of great value to the modern managers. The present study
material synthesizes the study of the individual, the group and the
organisation system and elaborates the applied behavioral science concepts,
principles and techniques. It also provides an integrated view of modern
organisations, their environment and organizational designs for healthy
organisation and environment interface.
The subject matter has been presented in a simple and lucid manner, keeping
the unique requirements of students in mind. A critical and balanced
coverage is given to all the important topics in ORGANISATION AND
MANAGEMENT. At the end of each chapter, multiple choice questions are
given to enable the students to have self-appraisal of their understanding of
the concepts in the chapter.
I am grateful to all those who have directly or indirectly helped me in
preparing this course material. I sincerely believe that there is always scope
for improvement. Therefore; I invite suggestions for further enriching the
study material.

GEETA MISHRA

INDEX
Master of Finance & Control Copyright Amity university India

Page 1

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Chapter Topic
No.

Page No.

Overview of Management

Management in the Era of Change

46

Interpreting the Organizational Reality 68

The Organization

83

Human resource Management

123

Bibliography

166

Key to End Chapter Quizzes

167

CHAPTER I
OVERVIEW OF MANAGEMENT
Master of Finance & Control Copyright Amity university India

Page 2

AMF101 ORGANIZATION THEORY AND MANAGEMENT

CONTENTS
1.1
1.2
1.3
1.4
1.5
1.6
1.7

Classical approach
Neo Classical Approach
Systems Approach to Management
Contingency Approach
Management and Managerial Roles
Practice and Study of Management
Challenges of Management in the 21st century

Master of Finance & Control Copyright Amity university India

Page 3

AMF101 ORGANIZATION THEORY AND MANAGEMENT

SCHOOLS OF MANAGEMENT
Management has been practiced in some form or the other since the dawn of
civilization. Ever since human beings started living and working together in
groups, techniques of organisation and management were evolved. The
Pyramids of Egypt, the Chinese Wall, the Roman Catholic Church and other
such wonders could not be possible without the application of management
principles and techniques.
Despite ancient origins, very little conceptual and organized body of
knowledge could be developed until the end of 19 th century. A scientific and
systematic study and application of management began mainly after the
Industrial Revolution. Since then the development of management thought
has been quite rapid.
The main stages in this development can be classified as follows:

1.
2.
3.
4.

1.1

Classical approach
Neo-classical approach
Systems approach
Contingency approach

CLASSICAL APPROACH

The classical approach to management is also known as Functional


Approach, Empirical Approach or Management Process Approach. Its
salient features are as follows:
1. Management is viewed as a systematic network (process) of
interrelated functions. The nature and content of these functions, the
mechanics by which each function is performed and the
interrelationship between these functions is the core of the classical
approach.
Master of Finance & Control Copyright Amity university India

Page 4

AMF101 ORGANIZATION THEORY AND MANAGEMENT

2. On the basis of experiences of experiences of practicing managers,


principles are developed. These principles are used as guidelines for
the practicing executive and basis of management training.
3. Functions, principles and skills of management are considered
universal. They can be applied in different situations.
4. Formal training and education is emphasized for developing
managerial skills in would be managers. Case study method is often
used for this purpose.
5. Emphasis is placed on economic efficiency and the formal
organisation structure.
6. People are motivated by economic gains. Therefore, organisations
control economic incentives.

Uses and Limitations


The classical approach offers a convenient framework for the education and
training of managers. First, the observational method of case study is helpful
in drawing common principles out of past experiences with some relevance
for future application.
The second merit of this approach is that it focuses attention on what
managers actually do. Thirdly, this approach highlights the universal nature
of management. Fourthly it provides a scientific basis for management
practice. It also provides a starting point for researchers to verify the validity
and to improve the applicability of management knowledge. Such
knowledge about management is effectively presented. Classical approach
provides a foundation on which the science of management can be built.

The classical approach however suffers


shortcomings also which are as follows:

from

Master of Finance & Control Copyright Amity university India

several

Page 5

AMF101 ORGANIZATION THEORY AND MANAGEMENT

First, it offers a mechanistic framework that undermines the role of human


factor. Secondly, the environmental dynamics and their effect on
management have been discounted. Thirdly, there is a positive danger in
relying too much on past experiences because a principle or technique found
effective in the past may not fit a situation in the future. Fourthly the totality
of the real situation can seldom be incorporated in a case study. Lastly, the
classical approach is based on over-simplified assumptions. Its principles are
ambiguous and contradictory.
Classical approach is based on three main pillars-bureaucracy, scientific
management and administrative theory which are discussed below:

SCIENTIFIC MANAGEMENT (1856-1915)


Scientific management grew out of the need to increase productivity. At the
beginning of the 20th century skilled labour in the United States was in short
supply and it was necessary to improve the efficiency of workers. Frederick
Winslow Taylor (1856-1915) is regarded as the father of scientific
management .He was a brilliant engineer and management scientist in USA.
He was convinced that there was a science of doing things in physical work
at shop door level. In order to develop and scientific and systematic ways of
doing things and to optimize efficiency, Taylor conducted a series of
experiments. His objective was to provide a scientific basis for designing
and performing jobs. He advocated a detailed scientific study of each job to
determine the best way of doing it. He believed that management is a
science resting on well recognized and clearly defined principles. He
exhorted managers to adopt scientific and systematic approach to managerial
problems in place of rule of thumb or trial and error methods.

Principles of Scientific Management


The basic principles of scientific management are as follows:

Master of Finance & Control Copyright Amity university India

Page 6

AMF101 ORGANIZATION THEORY AND MANAGEMENT

1. Develop a true science for each element of a workers job to replace


rule of thumb method: Each element of a job and the motions
required to perform it should be scientifically analyzed to determine
and use the most efficient ways of doing it. Intuition, experience and
hit or miss methods are replaced by scientific methods.
2. Job specialization or division of labour should be part of each job.
Every worker should concentrate on the function so that he can
become a specialist in it. Taylor suggested an almost equal division of
the work and the responsibility between the management and the
workers. He asserted that management should assume exclusive
responsibility for planning and workers should assume doing, i.e.
performing work as per instructions of management. In this way
Taylor distinguished the roles and responsibilities of management
from those of workers.
3. Scientific Selection, training and development of workers: Proper
selection of employees best suited for the job would improve
productivity. Scientific training should be arranged to develop each
employee to his greatest efficiency and prosperity. First, the
qualifications required for each job be clearly specified. These should
be used as the basis for selection and training of employees. When a
worker works on a job for which he is both physically and mentally
fit, he can earn higher wages and mental satisfaction.
4. Close co-operation between management and workers to ensure that
work is being done in accordance with the principles of scientific
management. Harmonious relationship between management and
labour is necessary for complete harmony of interests. Taylor
advocated a complete mental revolution on the part of both managers
and workers. Managers should adopt an enlightened attitude and share
the gains of productivity with workers. Workers on their part should
work with discipline and loyalty.
5. Maximum output in place of restricted output. Conflict between
management and labour arises mainly on division of surplus. Taylor
suggested that the best way to resolve the problem is to increase the
size of surplus so that each side can have a larger share.
In other words, Taylor believed that management and labour have a
common interest in increasing productivity.
To sum up, Taylors principles:
Science, not rule of thumb
Master of Finance & Control Copyright Amity university India

Page 7

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Harmony, not discord


Maximum output, in place of restricted output.
Development of each man to his greatest efficiency
Maximum prosperity of employer, coupled with maximum prosperity of
each employee.
Co-operation not individualism.
According to F.W Taylor, Scientific management is the art of knowing
exactly what you want men to do and seeing that they do it in the best and
the cheapest way.

In order to implement the above principles, Taylor and his


associates developed the following techniques:
1. Time Study
a. It is a technique which enables the manager to ascertain
standard time taken for performing a specified job.
b. Every job or every part of it is studied in detail.
c. This technique is based on the study of an average worker
having reasonable skill and ability.
d. Average worker is selected and assigned the job and then with
the help of a stop watch, time is ascertained for performing that
particular job.
e. Taylor maintained that Fair days work should be determined
through observations, experiment and analysis by keeping in
view an average worker.
Standard Time Working Hours = Fair Days Work
2. Motion Study
a. In this study, movement of body and limbs required to perform
a job are closely observed.
Master of Finance & Control Copyright Amity university India

Page 8

AMF101 ORGANIZATION THEORY AND MANAGEMENT

b. In other words, it refers to the study of movement of an


operator on machine involved in a particular task.
c. The purpose of motion study is to eliminate useless motions
and determine the bet way of doing the job.
d. By undertaking motion study an attempt is made to know
whether some elements of a job can be eliminated combined or
their sequence can be changed to achieve necessary rhythm.
e. Motion study increases the efficiency and productivity of
workers by cutting down all wasteful motions.

3. Functional Foremanship

a. Taylor advocated functional foremanship for achieving ultimate


specification.
b. This technique was developed to improve the quality of work as
single supervisor may not be an expert in all the aspects of the
work.
c. Therefore workers are to be supervised by specialist foreman.
d. The scheme of functional foremanship is an extension of
principle pf specialization at the supervisory level.

Master of Finance & Control Copyright Amity university India

Page 9

AMF101 ORGANIZATION THEORY AND MANAGEMENT

e. Taylor advocated appointment of 8 foramen, 4 at the planning


level & other 4 at implementation level.
f. The names & function of these specialist foremen are:

Instruction card clerk concerned with tagging down of


instructions according to which workers are required to
perform their job

Time & cost clerk is concerned with setting a time table


for doing a job & specifying the material and labor cost
involved in it.

Route clerk determines the route through which raw


materials has to be passed.

Shop Disciplinarians are concerned with making rules


and regulations to ensure discipline in the organization.

Gang boss makes the arrangement of workers, machines,


tools, workers etc.

Speed boss concerned with maintaining the speed and to


remove delays in the production process.

Repair boss concerned with maintenance of machine,


tools and equipments.

Inspector is concerned with maintaining the quality of


product.

4. Standardization
a. It implies the physical attitude of products should be such that it
meets the requirements & needs of customers.
b. Taylor advocated that tools & equipments as well as working
conditions should be standardized to achieve standard output
from workers.
c. Standardization is a means of achieving economics of
production.
Master of Finance & Control Copyright Amity university India

Page 10

AMF101 ORGANIZATION THEORY AND MANAGEMENT

d. It seems to ensure

The line of product is restricted to predetermined type,


form, design, size, weight, quality. Etc

There is manufacture of identical parts and components.

Quality & standards have been maintained.

Standard of performance are established for workers at


all levels.

5. Differential Piece Wage Plan


a. This tech of wage payment is based on efficiency of worker.
b. The efficient workers are paid more wages than inefficient one.
c. On the other hand, those workers who produce less than
standard no. of pieces are paid wages at lower rate than
prevailing rate i.e. worker is penalized for his inefficiency.
d. This system is a source of incentive to workers who improving
their efficiency in order to get more wages.
e. It also encourages inefficient workers to improve their
performance and achieve their standards.
f. It leads to mass production which minimizes cost and
maximizes profits.
g.
6. Other Techniques
a. Various other techniques have been developed to create ordeal
relationship between management and workers and also to
create better understanding on part of works.
b. Those includes use of instruction cards, strict rules &
regulations, graphs, slides, charts etc, so as to increase
efficiency of workers.

Critical evaluation

Master of Finance & Control Copyright Amity university India

Page 11

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Although it is accepted that the scientific management enables the


management to put resources to its best possible use and manner, yet it has
not been spared of severe criticisms.
Workers Viewpoint:
1. Unemployment - Workers feel that management reduces employment
opportunities from them through replacement of men by machines and
by increasing human productivity less workers are needed to do work
leading to chucking out from their jobs.
2. Exploitation - Workers feel they are exploited as they are not given
due share in increasing profits which is due to their increased
productivity. Wages do not rise in proportion as rise in production.
Wage payment creates uncertainty & insecurity (beyond a standard
output, there is no increase in wage rate).
3. Monotony - Due to excessive specialization the workers are not able
to take initiative on their own. Their status is reduced to being mere
cogs in wheel. Jobs become dull. Workers loose interest in jobs and
derive little pleasure from work.
4. Weakening of Trade Union - To everything is fixed & predetermined
by management. So it leaves no room for trade unions to bargain as
everything is standardized, standard output, standard working
conditions, standard time etc. This further weakens trade unions,
creates a rift between efficient & in efficient workers according to
their wages.
5. Over speeding - the scientific management lays standard output, time
so they have to rush up and finish the work in time. These have
adverse effect on health of workers. The workers speed up to that
standard output, so scientific management drives the workers to rush
towards output and finish work in standard time.
Employer's Viewpoint:
1. Expensive - Scientific management is a costly system and a huge
investment is required in establishment of planning dept.,
standardization, work study, training of workers. It may be beyond

Master of Finance & Control Copyright Amity university India

Page 12

AMF101 ORGANIZATION THEORY AND MANAGEMENT

reach of small firms. Heavy food investment leads to increase in


overhead costs.
2. Time Consuming - Scientific management requires mental revision
and complete reorganizing of organization. A lot of time is required
for work, study, standardization & specialization. During this
overhauling of organization, the work suffers.
Some experts believe that Taylors contribution has been somewhat overemphasised .The originality of his ideas has been doubted. Business
managers have opposed the idea of replacing judgment with
prefabricated techniques. The term scientific management is not
acceptable to many persons, because it is nothing but a scientific
approach to management.
In the final analysis, Taylor made a lasting contribution to making jobs
and their management more efficient and productive. Scientific
management was developed by engineers and scientists and their concern
for efficiency led to better methods and tools. Many of the Taylors
contributions provide the essence of modern management practice.
According to Peter Drucker scientific management is one of the great
liberating and pioneering insights. Without it a real study of human
beings at work would be impossible. Taylor laid the foundation of
modern management as a science. He is therefore, rightly known as the
father of scientific management.

ADMINISTRATIVE THEORY (1841-1925)


One of the first and the foremost contributors to administrative management
theory was Henry Fayol, a French industrialist. Fayol started his career as
mining engineer and later became a chief executive. He published his
famous book Administration Industrielle et Generale in 1916.It was
published in English under the title General and Industrial Management in
1949
Fayol's legacy is his generic Principles of Management. Of Fayol's six
generic activities for industrial undertakings (technical, commercial,
Master of Finance & Control Copyright Amity university India

Page 13

AMF101 ORGANIZATION THEORY AND MANAGEMENT

financial, security, accounting, managerial), the most important were the five
functions of Management that focused on the key relationships between
personnel and its management.

The Five Functions are:


PLANNING
Planning is the most basic or primary function of management. It precedes
other functions because a manager plans before he acts. Planning involves
determining the objectives and selecting a course of action to achieve them.
It implies looking ahead and deciding in advance what is to be done, when
and where it is to be done and by whom it is to be done. Planning is a mental
process requiring the use of intellectual faculties, foresight, imagination and
sound judgment. It consists of forecasting, decision-making and problem
solving. A plan is a predetermined future course of action. Drawing up plans
of actions that combine unity, continuity, flexibility and precision given the
organisation's resources, type and significance of work and future trends.
Creating a plan of action is the most difficult of the five tasks and requires
the active participation of the entire organisation. Planning must be
coordinated on different levels and with different time horizons;
ORGANISING
Once plans are formulated, the next step is that of organizing. Organising is
the process of establishing harmonious authority-responsibility relationships
among the members of the enterprise. It is the function of creating a
structure of duties and responsibilities. The network of authorityresponsibility relationships is known as organization structure. Such a
structure serves as the framework within which people can work together
effectively for the accomplishment of common objectives.
Master of Finance & Control Copyright Amity university India

Page 14

AMF101 ORGANIZATION THEORY AND MANAGEMENT

According to Fayol, To organize a business is to provide it with everything


useful to its functioning-raw materials, tools, capital and personnel. A
sound organisation helps to avoid duplication of work and overlapping of
effort. Providing capital, personnel and raw materials for the day-to-day
running of the business, and building a structure to match the work.
Organisational structure depends entirely on the number of employees. An
increase in the number of functions expands the organisation horizontally
and promotes additional layers of supervision;
COMMANDING
Optimizing return from all employees in the interest of the entire enterprise.
Successful managers have personal integrity, communicate clearly and base
their judgments on regular audits. Their thorough knowledge of personnel
creates unity, energy, initiative and loyalty and eliminates incompetence;
COORDINATING
Unifying and harmonizing activities and efforts to maintain the balance
between the activities of the organisation as in sales to production and
procurement to production. Fayol recommended weekly conferences for
department heads to solve problems of common interest;
CONTROLLING
Identifying weaknesses and errors by controlling feedback, and conforming
activities with plans, policies and instructions. Fayol's management process
went further than Taylor's basic hierarchical model by allowing command
functions to operate efficiently and effectively through co-ordination and
control methods. For Fayol, the managing director overlooked a living
organism that requires liaison officers and joint committees.

Fayol gave the following general principles of management:


Division of Work. Specialization allows the individual to build
up experience, and to continuously improve his skills. Thereby he can
be more productive.
1.

Master of Finance & Control Copyright Amity university India

Page 15

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Authority. The right to issue commands, along with which


must go the balanced responsibility for its function.
3.
Discipline. Employees must obey, but this is two-sided:
employees will only obey orders if management play their part by
providing good leadership.
4.
Unity of Command. Each worker should have only one boss
with no other conflicting lines of command.
5.
Unity of Direction. People engaged in the same kind of
activities must have the same objectives in a single plan. This is
essential to ensure unity and coordination in the enterprise. Unity of
command does not exist without unity of direction but does not
necessarily flows from it.
6.
Subordination of individual interest (to the general interest).
Management must see that the goals of the firms are always
paramount.
7.
Remuneration. Payment is an important motivator although by
analyzing a number of possibilities, Fayol points out that there is no
such thing as a perfect system.
8.
Centralization (or Decentralization). This is a matter of degree
depending on the condition of the business and the quality of its
personnel.
9.
Scalar chain (Line of Authority). A hierarchy is necessary for
unity of direction. But lateral communication is also fundamental, as
long as superiors know that such communication is taking place.
Scalar chain refers to the number of levels in the hierarchy from the
ultimate authority to the lowest level in the organization. It should not
be over-stretched and consist of too-many levels.
10. Order. Both material order and social order are necessary. The
former minimizes lost time and useless handling of materials. The
latter is achieved through organization and selection.
2.

Master of Finance & Control Copyright Amity university India

Page 16

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Equity. In running a business a combination of kindliness and


justice is needed. Treating employees well is important to achieve
equity.
12. Stability of Tenure of Personnel. Employees work better if job
security and career progress are assured to them. An insecure tenure
and a high rate of employee turnover will affect the organization
adversely.
13. Initiative. Allowing all personnel to show their initiative in
some way is a source of strength for the organization. Even though it
may well involve a sacrifice of personal vanity on the part of many
managers.
14. Esprit de Corps. Management must foster the morale of its
employees. He further suggests that: real talent is needed to
coordinate effort, encourage keenness, use each persons abilities, and
reward each ones merit without arousing possible jealousies and
disturbing harmonious relations.
11.

BUREAUCRACY (1864-1920)
Max Weber, a German social scientist, analyzed the formation and
administration of public bureaucracies, which happen to be the oldest form
of organisation. Weber evolved an ideal type of bureaucracys a conceptual
model for analytical purposes. His model is characterized by the following
features:
1. Division of work. There is a high degree of specialization or division of
labor in a bureaucratic organisation. A task is divided into very specialized
jobs and each member performs his specialized function in a predictable
manner.
2. Rules and Regulations. Detailed and rigorous rules and regulations are
laid down to specify and govern the work behavior, rights and duties of job
holders. There is rigid adherence to prescribed rules designed to ensure
Master of Finance & Control Copyright Amity university India

Page 17

AMF101 ORGANIZATION THEORY AND MANAGEMENT

consistency and predictability in work performance. Behavior is subject to


discipline and control within the framework of rules. In addition, procedures
are laid down for orderly performance of tasks.
3. Hierarchy of Authority. A clearly-defined hierarchy is created by
downward delegation of authority. There is distribution of formal position
authority to give commands needed for discharging duties at various levels.
Each position in the hierarchy covers an area over which it has complete
jurisdiction in terms of competence and authority.
4. Technical competence. Selection and promotion of job-holders are based
on their on their technical competence. Qualifications are prescribed for each
job/ position. Special training is given to provide knowledge of rules and
administrative procedures.
5. Record Keeping. Every decision and action is recorded in a wide array of
written documents and preserved in its original and draft form.
6. Impersonal relations. Relations among the members of a bureaucratic
organisation are impersonal and formal. Superiors adopt an impersonal
attitude in dealing with their subordinates.
Weber visualized bureaucracy as an ideal pattern of organisation because it
embodies the advantage of precision, efficiency, competence, objectivity,
unity, conformity, discipline and order. According to Weber, Bureaucracy
provides an ideal way for harnessing the human and mechanical energy. Real
life organisations, both private and public, exhibit varying degrees of
bureaucracy. Generally the degree of bureaucracy is higher in governmental
and military organisations than in private business and voluntary
organisations. Weber sought to improve the performance of socially
important organisations.His model has contributed to organizational thinking
but it has been criticized due to its inflexibility and its focus in impersonal
efficiency rather than on human values and needs.

1.2 NEO-CLASSICAL APPROACH

Master of Finance & Control Copyright Amity university India

Page 18

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Classical approach led to more efficient forms of organisation and


management. But it failed to recognize the overwhelming role of people in
management. Jobs became narrow and workers began to resist the formal
and impersonal treatment over-looking their social and psychological needs.
This resistance and the need to secure willing cooperation of workers led to
the development of neo-classical approach.
Neo-classical approach may be analysed in three parts namely, Hawthorne
Experiments, Human Relations Movement and Behavioral Approach.

Hawthorne Experiments
The Hawthorne Studies (also knows as the Hawthorne Experiments) were
conducted from 1927 to 1932 at the Western Electric Hawthorne Works in
Cicero, Illinois (a suburb of Chicago). This is where Professor Elton Mayo
examined the impact of work conditions in employee productivity. Elton
Mayo started these experiments by examining the physical and
environmental influences of the workplace (e.g. brightness of lights,
humidity) and later, moved into the psychological aspects (e.g. breaks, group
pressure, working hours, managerial leadership) and their impact on
employee motivation as it applies to productivity.

The Hawthorne Effect


In essence, the Hawthorne Effect, as it applies to the workplace, can be
summarized as "Employees are more productive because the
employees know they are being studied." Elton Mayo's experiments showed
an increase in worker productivity was produced by the psychological
stimulus of being singled out, involved, and made to feel important.
Additionally, the act of measurement, itself, impacts the results of the
measurement. Just as dipping a thermometer into a vial of liquid can affect
the temperature of the liquid being measured, the act of collecting data,
where none was collected before creates a situation that didn't exist before,
thereby affecting the results.

Master of Finance & Control Copyright Amity university India

Page 19

AMF101 ORGANIZATION THEORY AND MANAGEMENT

The Hawthorne Experiments and Employee Motivation


Elton Mayo's studies grew out of preliminary experiments at the Hawthorne
plant from 1924 to 1927 on the effect of light on productivity. Those
experiments showed no clear connection between productivity and the
amount of illumination but researchers began to wonder what kind of
changes would influence output.
Variables Affecting Productivity
Specifically, Elton Mayo wanted to find out what effect fatigue and
monotony had on job productivity and how to control them through such
variables as rest breaks, work hours, temperature and humidity. In the
process, he stumbled upon a principle of human motivation that would help
to revolutionize the theory and practice of management.
Elton Mayo selected two women, and had those two select an additional four
from the assembly line, segregated them from the rest of the factory and put
them under the eye of a supervisor who was more a friendly observer than
disciplinarian. Mayo made frequent changes in their working conditions,
always discussing and explaining the changes in advance.
Relay Assembly
The group was employed in assembling telephone relays - a relay being a
small but intricate mechanism composed of about forty separate parts which
had to be assembled by the girls seated at a lone bench and dropped into a
chute when completed.
The relays were mechanically counted as they slipped down the chute. The
intent was to measure the basic rate of production before making any
environmental changes. Then, as changes were introduced, the impact to
effectiveness would be measured by increased or decreased production of
the relays.
Feedback mechanism
Throughout the series of experiments, an observer sat with the girls in the
workshop noting all that went on, keeping the girls informed about the
Master of Finance & Control Copyright Amity university India

Page 20

AMF101 ORGANIZATION THEORY AND MANAGEMENT

experiment, asking for advice or information, and listening to their


complaints.
The experiment began by introducing various changes, each of which was
continued for a test period of four to twelve weeks. The results of these
changes are as follows:
Work Conditions and Productivity Results
Under normal conditions with a forty-eight hour week, including Saturdays,
and no rest pauses. The girls produced 2,400 relays a week each.
1. They were then put on piecework for eight weeks.
o Output increased
2. They were given two five-minute breaks, one in the morning, and one
in the afternoon, for a period of five weeks.
o

Output increased, yet again

3. The breaks were each lengthened to ten minutes.


o

Output rose sharply

4. Six five-minute breaks were introduced.


o

The girls complained that their work rhythm was broken by the
frequent pauses

Output fell only slightly

5. The original two breaks were reinstated, this time, with a


complimentary hot meal provided during the morning break.
o

Output increased further still

6. The workday was shortened to end at 4.30 p.m. instead of 5.00 p.m.
o

Output increased

7. The workday was shortened to end at 4.00 p.m.


o

Output leveled off

Master of Finance & Control Copyright Amity university India

Page 21

AMF101 ORGANIZATION THEORY AND MANAGEMENT

8. Finally, all the improvements were taken away, and the original
conditions before the experiment were reinstated. They were
monitored in this state for 12 more weeks.
o

Output was the highest ever recorded - averaging 3000 relays a


week

Elton Mayo's Conclusions on Job Performance


Elton Mayo came to the following conclusions as a result of the study:

The aptitudes of individuals are imperfect predictors of job


performance. Although they give some indication of the physical and
mental potential of the individual, the amount produced is strongly
influenced by social factors.
Informal organization affects productivity. The researchers
discovered a group life among the workers. The studies also
showed that the relations that supervisors develop with workers tend
to influence the manner in which the workers carry out directives.

Work-group norms affect productivity. The Hawthorne researchers


were not the first to recognize that work groups tend to arrive at
norms of what is "a fair day's work." However, they provided the best
systematic description and interpretation of this phenomenon.

The workplace is a social system. The researchers came to view the


workplace as a social system made up of interdependent parts. The
worker is a person whose attitudes and effectiveness are conditioned
by social demands from both inside and outside the work plant.
Informal group within the work plant exercise strong social controls
over the work habits and attitudes of the individual worker.

The need for recognition, security and sense of belonging is more


important in determining workers' morale and productivity than the
physical conditions under which he works.

The major finding of the study was that almost regardless of the
experimental manipulation, worker production seemed to continually
improve. One reasonable conclusion is that the workers were happy to
receive attention from the researchers who expressed an interest in them.
Originally, the study was expected to last one year, but since the findings
Master of Finance & Control Copyright Amity university India

Page 22

AMF101 ORGANIZATION THEORY AND MANAGEMENT

were inexplicable when the researchers tried to relate the worker's efficiency
to manipulated physical conditions, the project was incrementally extended
to five years.

HUMAN RELATIONS MOVEMENT


Hawthorne Experiments laid the foundation for human relations movement
in management. Subsequent research contributed several concepts and
techniques of human relations. Human relations school is a socio
psychological approach to management. It suggests that a business
enterprise is asocial system in which group norms exercise significant
influence on the behavior and performance of individuals. Workers cannot
be motivated by economic rewards alone. They require social satisfaction at
the workplace. Therefore, managers should create such a climate in the
organisation that worker can feel happy. Employee counseling, participative
decision making, cordial super vision, job enrichment and other techniques
have been suggested for keeping workers happy and satisfied. According to
Keith Davis, human relations is an area of management precise which is
concerned with the integration of people into a work situation in a way that
motivates them to work together productively, cooperatively and with
satisfaction and achieve organizational goals.
The human relations school is based on the following ideas:
1. The Individual. According to the human relations school, each person is
unique. He brings certain attitudes, beliefs, values, skills etc. to the job
situation. Therefore an individual is motivated by not only economic factors
but by several social and psychological factors.
2. The Work Group. Work is a social experience and most workers find
satisfaction in social or informal groups. The norms of such groups
determine to a great extent the attitude and performance of workers.
Therefore, managers should maintain good interpersonal and inter group
relations to maximize productivity.
3. The leader. As the leader of a work group, a supervisor/manager should
provide a pleasant work climate wherein employees are allowed to have a
say in the decision making process. He can gain respect and obedience by
adjusting to various personalities and situations.
Master of Finance & Control Copyright Amity university India

Page 23

AMF101 ORGANIZATION THEORY AND MANAGEMENT

4. The work environment. A positive work environment enables employees


to satisfy their needs as well as to achieve organizational goals. Positive
work environment consists of clearly defined goals, performance linked
rewards, feedback on performance, participative decision making,
interesting and growth oriented work, open communications, etc.

BEHAVIORAL APPROACH
Human relations movement focused on interpersonal relations and
overlooked the wider subject of organizational behavior. Organisational
behavior involves the study of attitudes, behavior and performance of
individuals and groups in organizational setting. Behavioral approach
includes the issue of organizational behavior. It is also known as human
resource approach because it stresses development of human beings for the
benefit of both the individual and the organisation.
The main propositions of behavioral science approach are as follows:
1. An organisation is a sociotechnical system
2. Individuals differ in terms of their attitudes, perceptions and value
systems. Therefore they react differently to the same situation.
3. People working in an organisation have their needs and goals which may
differ from the organisations needs and goals. Management should achieve
fusion between organizational goals and human needs.
4. A wide range of factors influence relations among people.
5. Peoples behavior as individuals may be different from their behavior as
members of a group.
6. Persons working together in an organisation form their own informal
groups. Such groups have their own norms, culture and communication
systems.
7. Informal groups exercise a significant influence on the attitudes, behavior
and performance of employees.

Master of Finance & Control Copyright Amity university India

Page 24

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Thus behavioral approach is an extension and improvement of human


relations movement. It has made significant contribution towards the
development of management thought.

Master of Finance & Control Copyright Amity university India

Page 25

AMF101 ORGANIZATION THEORY AND MANAGEMENT

1.3Systems approach to management


Just as human body is formed of different interdependent systems so is also
an organization. A change in any one of these systems may affect all or some
other systems to varying degrees. This ripple effect influences the
effectiveness of the organization. To understand the interactions and the
consequences between the various systems of the organization the managers
should posses the ability to get a perspective view. Treating an organization
as formed of different systems is known as systems approach.
Systems theory was first applied in the fields of science and engineering. It
also has found wide acceptance in the practice of management. A system can
be defined as essentially a set or assemblage of things interconnected or
interdependent, so as to form a complex unity. Cars, computers, television
and radio sets are some examples of systems.
There are two major types of systems: closed and open. A closed system has
definite boundaries; it operates relatively independently and is not affected
by the environment outside the system. Stand by generator is an example of
a closed system. With its different systems working together in perfect
harmony the generator continues to supply power as long as it has sufficient
fuel supply without much regard to the external environment.
An open system as the name implies, is characterised by its interaction with
the external environment. Clearly, any business or other organization must
be described by an open-system model that includes interactions between the
enterprise and its external environment.

Feedback

Master of Finance & Control Copyright Amity university India

Page 26

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Fig: Organization on an open system model


The above shown figure is self explanatory. One important mechanism
which makes the system to adapt and adjust to the changing conditions of its
environment and to exercise control over its operations is feedback. As
explained thus far, systems approach of management provides an integral
approach to management. It views management in its totality. It helps in
seeing the problems of the organization in wider perspective. This approach
is more useful in managerial decision-making.
Based on the systems approach, Talcot Parsons has suggested three
meaningful levels in the hierarchy of complex organisations: Technical,
Organisational and Institutional.
The Technical Level is concerned with the actual production and distribution
of products and services. It also includes activities like research and
development, operation research and accounting.
The Organisational Level coordinates and integrates work performance at
the technical level. It is concerned with obtaining the continued flow of
inputs into the system and maintaining the markets for the outputs from the
system.
The Institutional Level is concerned with relating activities of the
organization to environmental system. It involves relating the organization to
the needs of the environment.

Master of Finance & Control Copyright Amity university India

Page 27

AMF101 ORGANIZATION THEORY AND MANAGEMENT

1.4 CONTINGENCY APPROACH


The contingency approach to management is based on the idea that there is
no one best way to manage and that to be effective, planning, organizing,
leading, and controlling must be tailored to the particular circumstances
faced by an organization. Managers have always asked questions such as
"What is the right thing to do? Should we have a mechanistic or an organic
structure? A functional or divisional structure? Wide or narrow spans of
management? Tall or flat organizational structures? Simple or complex
control and coordination mechanisms? Should we be centralized or
decentralized? Should we use task or people oriented leadership styles?
What motivational approaches and incentive programs should we use?" The
contingency approach to management (also called the situational approach)
assumes that there is no universal answer to such questions because
organizations, people, and situations vary and change over time. Thus, the
right thing to do depends on a complex variety of critical environmental and
internal contingencies.
Classical management theorists such as Henri Fayol and Frederick Taylor
identified and emphasized management principles that they believed would
make companies more successful. However, the classicists came under fire
in the 1950s and 1960s from management thinkers who believed that their
approach was inflexible and did not consider environmental contingencies.
Although the criticisms were largely invalid (both Fayol and Taylor, for
example, recognized that situational factors were relevant), they spawned
what has come to be called the contingency school of management.
Research conducted in the 1960s and 1970s focused on situational factors
that affected the appropriate structure of organizations and the appropriate
leadership styles for different situations. Although the contingency
perspective purports to apply to all aspects of management, and not just
organizing and leading, there has been little development of contingency
approaches outside organization theory and leadership theory. The following
sections provide brief overviews of the contingency perspective as relevant
to organization theory and leadership.

Master of Finance & Control Copyright Amity university India

Page 28

AMF101 ORGANIZATION THEORY AND MANAGEMENT

CONTINGENCY PERSPECTIVE AND ORGANIZATION


THEORY
Environmental change and uncertainty, work technology, and the size of a
company are all identified as environmental factors impacting the
effectiveness of different organizational forms. According to the contingency
perspective, stable environments suggest mechanistic structures that
emphasize centralization, formalization, standardization, and specialization
to achieve efficiency and consistency. Certainty and predictability permit the
use of policies, rules, and procedures to guide decision making for routine
tasks and problems. Unstable environments suggest organic structures which
emphasize decentralization to achieve flexibility and adaptability.
Uncertainty and unpredictability require general problem solving methods
for no routine tasks and problems. Paul Lawrence and Jay Lorsch suggest
that organizational units operating in differing environments develop
different internal unit characteristics, and that the greater the internal
differences, the greater the need for coordination between units.
Joan Woodward found that financially successful manufacturing
organizations with different types of work technologies (such as unit or
small batch; large-batch or mass-production; or continuous-process) differed
in the number of management levels, span of management, and the degree of
worker specialization. She linked differences in organization to firm
performance and suggested that certain organizational forms were
appropriate for certain types of work technologies.
Organizational size is another contingency variable thought to impact the
effectiveness of different organizational forms. Small organizations can
behave informally while larger organizations tend to become more
formalized. The owner of a small organization may directly control most
things, but large organizations require more complex and indirect control
mechanisms. Large organizations can have more specialized staff, units, and
jobs. Hence, a divisional structure is not appropriate for a small organization
but may be for a large organization.
In addition to the contingencies identified above, customer diversity and the
globalization of business may require product or service diversity, employee
diversity, and even the creation of special units or divisions. Organizations
operating within the United States may have to adapt to variations in local,
Master of Finance & Control Copyright Amity university India

Page 29

AMF101 ORGANIZATION THEORY AND MANAGEMENT

state, and federal laws and regulations. Organizations operating


internationally may have to adapt their organizational structures, managerial
practices, and products or services to differing cultural values, expectations,
and preferences. The availability of support institutions and the availability
and cost of financial resources may influence an organization's decision to
produce or purchase new products. Economic conditions can affect an
organization's hiring and layoff practices as well as wage, salary, and
incentive structures. Technological change can significantly affect an
organization. The use of robotics affects the level and types of skills needed
in employees. Modern information technology both permits and requires
changes in communication and interaction patterns within and between
organizations.

1.5 MANAGEMENT AND MANAGERIAL ROLES


DEFINITIONS OF MANAGEMENT
Production or Efficiency-oriented Definitions:
Those who have put forward the concept of management as a source of
efficiency in organization have viewed that management is concerned with
generating efficiency in organizational settings.
Taylor has defined management as follows:
Management is the art of knowing what you want to do and then
seeing that it is done in the best and cheapest way
In a similar way, John Mee has defined management in terms of securing
maximum results when he views that:

Management is the art of securing maximum results with minimum


effort so as to secure maximum prosperity and happiness for both
employer and employee and give the public the best possible service.
Decision oriented Definitions:

Master of Finance & Control Copyright Amity university India

Page 30

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Decision-oriented definitions of management have been provided by


decision theorists who have seen management process in terms of decision
making. A decision oriented definition of management has been provided
by Stanley Vance as follows:
Management is simply the process of decision making and control
over the action of human beings for the expressed purpose of
attaining pre-determined goals
The decision-oriented definition of management indicates that the basic
activity of a manager is to make decisions and enforce these decisions.
People-oriented Definitions:
Lawrence Appley has called management as personnel management and has
defined it as follows:
Management is the accomplishment of results through the efforts of
other people.
Koontz has defined management in similar way when he says that:
Management is the art of getting things done through and with people in
formally organized groups
Function-oriented Definitions:
These definitions put emphasis on the various functions performed by
managers in organizations. McFarland states that

Management is defined for conceptual, theoretical, and analytical


purposes as that process by which managers create, direct, maintain and
operate purposive organizations through systematic, coordinated,
cooperative human efforts.
Henry Fayol, an early management thinker, has elaborated these functions
more precisely when he defined management as follows:
Master of Finance & Control Copyright Amity university India

Page 31

AMF101 ORGANIZATION THEORY AND MANAGEMENT

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


control.
MANAGERIAL ROLES
Henry Mintzberg has studied the work roles of the chief executive and has
categorized these roles into three areas. These areas are interpersonal
relationships, information processing and disseminating and decision
making. Each of these areas are further sub divided into various roles. These
roles are:

(A) Interpersonal Relationships


1. Managers role as a figurehead:
Managers act as symbolic figurehead performing social or legal obligations.
These duties include greeting visitors, signing legal documents, taking
important customers to lunch etc.
2. Managers leadership role:
Since a manager is responsible for the activities of his subordinates he must
motivate them to perform better. He must be an exemplary leader so that his
subordinates follow his directions and guidelines with respect and
dedication.

3. Managers role as a liaison officer:


In addition to their constant contact with their own subordinates and peers
,the managers must maintain a network of outside contacts in order to
assess the external environment of competition, social changes or changes in
government rules and regulations.. An auto assembly plant supervisor may
telephone a tire supplier to determine the amount of inventory available for
next week; a prosecuting attorney may meet with the presiding judge and
defense attorney to discuss the use of motions and evidence in a libel trial; or
Master of Finance & Control Copyright Amity university India

Page 32

AMF101 ORGANIZATION THEORY AND MANAGEMENT

a college professor may meet with professors in a separate department on


campus to obtain information on a prospective doctoral student. Ultimately,
the liaison role enables a manager to develop a network for obtaining
external information which can be useful for completing current and future
work activities
(B)

Information Processing

1. Managers role as a monitor:


A manager assumes the monitor role by continually scanning the
environment for information or activities and events that may identify
opportunities or threats to the functioning of the work unit. Much of the
manager's gathering of information is achieved through the network of
contacts that has been established through the interpersonal roles. Hearing
small talk at a banquet about a competitor's planned marketing program,
learning through casual conversation at a ball game about the negative
medical evaluation of an unsigned ball player, or daily reading of a business
periodical are all examples of the kinds of information gathering involved in
the monitor role.
2. Managers role as a disseminator of information:
The information a manager gathers as a monitor must be evaluated and
transmitted as appropriate to members of the organization. The transmittal of
information by a manager activates the disseminator role. Privileged
information may be disseminated to subordinates, peers, or superiors in the
organization. The manager may inform the marketing vice-president about
the specific marketing strategy a competitor is planning to implement. A
baseball manager may inform the team owner that an impending trade
should be cancelled because of the unfavorable medical report on one of the
players. Or reading The Wall Street Journal may inform the manager that a
shipping strike is looming and thus enable her to inform subordinates that
temporary layoffs may occur next month.
3. Managers role as a spokesman:
Master of Finance & Control Copyright Amity university India

Page 33

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Occasionally, a manager assumes the role of a spokesperson by speaking on


behalf of the work unit to people inside or outside the organization. This
might involve lobbying for critical resources or appealing to individuals who
have influence on activities that affect the work unit. A top manager asking
the board of directors to keep the work unit together during a reorganization
period or a corporate president speaking to a college audience on the role the
company plays in education would both constitute engaging in the
spokesperson role.
(C)

Decision Making

1. Managers role as an entrepreneur:


The entrepreneur role comes into action when the manager seeks to improve
the work unit. This can be accomplished by adapting new techniques to fit a
particular situation or modifying old techniques to improve individual or
group activity. Managers usually learn of new or innovative methods
through information gathered in the monitor role. As a result, a supervisor
purchases a new kiln which will shorten the drying process for ceramic tiles;
a director of a youth club trains staff in the use of personal computers to
increase file access; or a president establishes a new pension plan to improve
employee morale.

2. Managers role as a conflict handler:


Whereas the entrepreneur role establishes the manager as the initiator of
change, the disturbance handler role establishes the manager as a responder
to change. Organizations, unfortunately, do not run so smoothly that
managers are never called upon to respond to unwelcome pressures. In these
cases, the manager is required to act quickly to bring stability back to the
organization. A law partner must settle a disagreement among associates in
the firm on who will present a case before a judge; a personnel director must
negotiate with striking employees dissatisfied with the procedures for laying
off employees; or a cannery first-line manager must respond to a sudden
Master of Finance & Control Copyright Amity university India

Page 34

AMF101 ORGANIZATION THEORY AND MANAGEMENT

shortage of cans used to package perishable fruit because the supplier has
reneged on a contract.
3. Managers role as resource allocator:
When a manager is placed in the position of having to decide to whom and
in what quantity resources will be dispensed, the resource allocator role is
assumed. Resources may include money, time, power, equipment, or people.
During periods of resource abundance, this role can be easily performed by a
manager. In most cases, however, organizations operate under conditions of
resource scarcity; thus, decisions on the allocation of resources can be
critical for the success of the work unit, division, or organization. As a
decision maker, the manager must strive not only to appropriately match
resources with subordinates but also to ensure that the distribution of
resources is coordinated to effectively complete the task to be performed. An
office manager must provide secretaries with appropriate equipment to
generate and duplicate documents. A manager of a fast-food restaurant must
coordinate work shifts to have the maximum number of employees working
during the lunch hour. Corporate presidents may provide their administrative
assistants with decision-making responsibility for day-to-day matters.

4. Managers role as negotiator:


In addition to decisions concerning organizational changes, disturbances,
and resources, the manager also enacts as a negotiator .The process of
negotiation is possible only when an individual has the authority to commit
organizational resources. Hence, as managers move up the managerial
hierarchy and obtain control over more resources, they become more
involved in the negotiator role. For example, the president of a record
company may be called in to discuss terms of a possible contract with a
major rock group; a production manager must negotiate with the personnel
department to obtain employees with specialized skills; or a college dean
Master of Finance & Control Copyright Amity university India

Page 35

AMF101 ORGANIZATION THEORY AND MANAGEMENT

must negotiate with department heads over course offerings and the number
of faculty to be hired.
The relative emphasis a manager places on these ten roles is highly
dependent on the manager's authority and status in the organization. Length
of time on the job, position in the management hierarchy, goals of the
subunit to be achieved, and skills the manager possesses all play a part in
determining which roles are more prominent than others at any given time.
For instance, a marketing manager is more likely to emphasize the
interpersonal roles because of the importance of personal contact in the
marketing process. A financial manager, charged with responsibility for the
economic efficiency of the organization, will probably focus on the
decisional roles. A staff manager, or a manager who performs in an advisory
capacity, is likely to be more heavily involved in the informational roles.
Regardless of the differences that may occur, however, all managers enact
interpersonal, informational, and decisional roles while performing their
tasks. Effectively managing an organization is a demanding task. Managers
not only must develop skills related to the functional areas of management
but also must learn how to integrate these activities.
What makes this process demanding is that events and activities external and
internal to an organization can radically change the techniques and methods
managers must use in order to arrive at successful outcomes.
Managers cannot afford to be limited in their view of management, nor can
they simply rely on how things were done in the past. Even the most
seasoned and successful managers are prone to mistakes. However, a more
complete knowledge of the managerial process can reduce the chances of
mistakes that will have dire consequences for an organization. Such
knowledge may help managers to better plan, organize and staff, direct, and
control organization activities within the context of their organization.

1.6 PRACTICE AND STUDY OF MANAGEMENT

Master of Finance & Control Copyright Amity university India

Page 36

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Management is needed in all types and sizes of organisations, at all


organizational levels and in all organizational work areas, and in all
organizations, no matter what country they are located in. This is known as
the universality of management. Managers in all these settings will plan,
organize, lead and control. However, this is not to say that management is
done the same way. The differences in what a supervisor in a software
applications testing facility at Microsoft does versus what the CEO of
Microsoft does are a matter of degree and emphasis, not of function.
Because both are managers, both will plan, organize, lead and control but
how they do so will differ.
Since management is universally needed in all organisations, we have a
vested interest in improving the way organisations are managed. We interact
with organisations every single day of our lives.
Organizations that are well managed develop a loyal customer base, grow
and prosper. Those that are poorly managed find themselves with a declining
customer base and reduced revenues. By studying management one will be
able to recognize poor management and work to get it corrected. In addition
one will be able to recognize good management and encourage it, whether
its in an organisation with which one is simply interacting or whether its in
an organisation in which one is employed.
The Reality of Work:
Another reason for studying management is the reality that for most of us,
once we graduate from college and begin our career, we will either manage
or be managed. For those who plan on management careers, an
understanding of the management process forms the foundation upon which
to build our management skills. For those of us who dont see ourselves in a
management position, we are still likely to have to work with managers.
Also, assuming that we will have to work for a living and recognizing that
we are likely to work in an organisation, well probably have some
managerial responsibilities even if one is not a manager. Our experience tells
us that one can gain a great deal of insight into the way one boss behaves
and the internal workings of organisations by studying management. Our
Master of Finance & Control Copyright Amity university India

Page 37

AMF101 ORGANIZATION THEORY AND MANAGEMENT

point is that we dont have to aspire to be a manager to gain something


valuable from a course in management.

Master of Finance & Control Copyright Amity university India

Page 38

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Rewards and Challenges of Being a Manager


The rewards and challenges of being a manager are as follows:
Rewards
Create a work environment in
which
organizational
members can work to the best
of their ability
Have opportunities to think
creatively
and
use
imagination.
Have opportunities to think
creatively
and
use
imagination.
Help others find meaning and
fulfillment
In work.

Challenges
Do hard work
Have to deal with a variety of
personalities.
Often have to make do with
limited resources.
Motivate workers in chaotic
and uncertain situations.
Successfully blend knowledge,
skills,
ambitions
and
experiences of a diverse work
group.
Success depends on others
work performance.

Support, coach, and nurture


others.
Work with a variety of people.
Receive recognition and status
in
organisation
and
community.
Play a role in influencing
organizational outcomes
Receive
appropriate
compensation in form of salaries,
bonuses and stock options.
Good managers are needed by
organisations.

Master of Finance & Control Copyright Amity university India

Page 39

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Being a manager in todays dynamic workplace provides many challenges. It


can be a tough and often thankless job. One may have to deal with a variety
of personalities and many times have to make do with limited resources. It
can be a challenge to motivate workers in the face of uncertainty and chaos.
And managers may find it difficult to effectively blend the knowledge,
skills, ambitions and experiences of a diverse group of employees.
Finally, as a manager, your success typically is dependent upon
others work performance.
Despite these challenges, being a manager can be very rewarding. One
is responsible for creating a work environment in which
organizational members can do their work to the best of their ability
and help the organisation achieve its goals. In addition as a manager
one often have the opportunity to think creatively and use ones
imagination. A manager helps others find meaning and fulfillment in
their work. As a manager one gets to support, coach and nurture others
and help them make good decisions. One gets to meet and work with a
variety of people-both inside and outside the organisation.
Other rewards of being a manger may include receiving recognition
and status in the organisation and community, playing a role in
influencing organizational outcomes, and receiving attractive
compensation in the form of salaries, bonuses, and stock options.
Finally, organisations need good managers. Nothing great ever
happens by itself. Its through the combined efforts of motivated and
passionate people that organisations accomplish their goals. As a
manager, one can get satisfaction from knowing that ones efforts,
skills and abilities are needed.

1.7Challenges of Management in the 21st century


Master of Finance & Control Copyright Amity university India

Page 40

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Management has been around since the dawn of civilization. In primitive


societies almost everyone had to do physical labor. To escape this burden,
about the only choices were going into politics (kings) or religion (priests).
Civilized urban societies led to more specialization, created new vocational
alternatives to manual labor, and saw a tendency of those who did not work
with their hands to look down on those who did. This particular attitude was
fostered by scribes, who used their knowledge of writing to produce
literature that mocked the illiterate laboring classes.
When we read that the Pharaoh build the PYRAMIDS, we know that in fact
that actual work was done by other people. As these laborers cut, moved,
and placed the stones, the first managers were there to tell them what to do,
to see that they did it, and to chastise those whose performance was
unsatisfactory.
Basically, these were the functions of managers until the twentieth century.
The apogee of this form of management was perhaps reached in late
nineteenth in the factory system. One can still visit the Boott Cotton Mills
Museum of in Lowell, Massachusetts to see how work and management
were organized then.
The Lowell mills were famous because instead of relying on immigrants,
they also recruited, hired, and provided dormitories for middle class young
women, selling the idea that employment and the money it brought were
socially acceptable and increased their marital prospects. Today one can still
read the work rules that these women had to follow. One stated that only
short sleeve dresses were permitted. This was because when the mill
managers saw employees talking instead of working, they would strike them
in the arm with a rattan. Long-sleeved dresses impeded the effectiveness of
this form of disciplinary action.
The "hit them with a whip" school of management suffered a decline and fall
in the 20th century, though remnants still exist in various places in the world
and the wish for such methods still is expressed now and then even by
Master of Finance & Control Copyright Amity university India

Page 41

AMF101 ORGANIZATION THEORY AND MANAGEMENT

contemporary managers. Other methods of managing workers received


classical expression in Frederick Taylors Scientific Management in 1911.
Taylorism led to new management tools involving such techniques as
measurement and statistics.
What might be called the "efficiency expert" school of management was for
the most part supplanted around the 1960s by a more "humanistic" approach,
whose classical exponent was the psychologist Abraham Maslow. The
changes in management thinking in this decade reflected the more educated
workforce and greater respect for democracy that grew out of World War II.
In the 1970s Robert Greenleaf invented Servant Leadership, and in the
1990s Peter Block carried this concept forward to Stewardship. These ideas
revolutionized the mental model for managers by suggesting that they
replace thinking about how to get people to do things with thinking about to
help people do things.
Best practice management concepts in the late 20th century also included
excellence and total quality management, reengineering, systems thinking,
cross functional teams, empowerment and flat organization charts, learning
organization, dialogue, reinventing work, and diversity. As knowledge in
general increased with "Internet speed," management thought, already
heavily influenced by psychological sciences, and received infusions from
numerous disciplines. Moreover, cross-fertilization between academia and
the business community created a vast increase in management related
research activity.
Some of these trends such as TQM and reengineering - seemed by 2000 to
have run their course. The permanent value of the new thinking underlying
them, however, should not be denied; and 21st century versions of these
movements should actually be welcomed.
Others trends such as learning and diversity progressed to the point
where "second generation" (learning organization) or "new" (diversity)
Master of Finance & Control Copyright Amity university India

Page 42

AMF101 ORGANIZATION THEORY AND MANAGEMENT

versions appeared. In the early 21st century, it was even easy to see the
development of a "third wave" in these well-established concepts.
Just as the 21st century has seen new types of organizations and new ways
of doing business arise, so, too, will there be new management trends, ideas,
and techniques. While running after every trendy idea is hardly a
recommendable strategy, the wise manager will learn, study, and apply the
best current thinking.
At the start of the 21st century, the following rate to be the most important
ideas regarding management:
Management is for everyone. As educational levels rise and information
technology accelerates, the distinction between "managers" and "workers"
will fade away and management knowledge will be everyone's
responsibility.
Management is for learners. As information becomes the chief product of
every business and as knowledge continues to explode, everyone will be a
learner and the manager's foremost task will to promote learning.
Management is based on communicating. As techniques for planning,
strategizing, decision-making, and problem solving become the common
province of everyone in the organization, the need for improving
communication will be paramount and managers will be increasingly using
dialogue and other communication tools.
Management is about change. As technology and information reshape all
our lives, change management will be "business as usual" and managers will
be change agents who guide everyone to find and embrace the best new
practices.
Management is broad based. As boundaries disappear within
organizations and in the world at large, the scope of management will grow
and managers will be organizational development experts, diversity experts,
facilitation experts, consultation experts and much else.
Master of Finance & Control Copyright Amity university India

Page 43

AMF101 ORGANIZATION THEORY AND MANAGEMENT

END CHAPTER QUIZZES

CHAPTER I QUIZZES
Master of Finance & Control Copyright Amity university India

Page 44

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Q1.Which one of the following theories ignored the concept of leadership,


motivation, power and informal relations?
(a) Classical
(b) Behavioral
(c) Modern
Q2.Which theory states that there is no best way to manage all situations?
(a)Systems Theory
(b)Contingency theory
(c)Administrative Theory
Q3. The general conclusion of the Relay Assembly Test Room Experiments
was that employees would work better if the management was concerned
about their welfare and superiors paid special attention to them. This
phenomenon was subsequently labeled as the..
(a)Relay effect
(b)Hawthorne effect
(c)Human effect

Q4. Unlike Classical theorists who viewed organizations from a production


point of view, behavior theorists viewed it from the point of view.
(a)Human (b)Technical

(c)Administrative

Q5. Weber coined the term .to identify large organisations that operated
on a rational basis.
(a)Autocracy
(b)Diplomacy
(c)Bureaucracy
Master of Finance & Control Copyright Amity university India

Page 45

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Q6. Management is:


(a) An Art
(b) A Science
(c) Both
Q7.Which of the following Fayols principles of management aims at
avoiding the possibility of conflicting orders?
(a)Well-defined hierarchy of authority
(b)Unity of Command
(c)Unity of Direction
Q8. Espirit de corps means
(a) Unity is strength
(b) Buyer Beware
(c) Service is our motto

Q9. Time Study is a technique which enables the manager to ascertain


standard
taken for performing a specified job.
(a)Time
(b)Units (c)Quantity
Q10.Who identified the three types of managerial roles, namely
interpersonal, informational and decision roles?
(a)Peter Drucker
(b)Henry Mintzberg
Master of Finance & Control Copyright Amity university India

Page 46

AMF101 ORGANIZATION THEORY AND MANAGEMENT

(c)Max Weber

Master of Finance & Control Copyright Amity university India

Page 47

AMF101 ORGANIZATION THEORY AND MANAGEMENT

CHAPTER II
MANAGEMENT IN THE ERA OF CHANGE

CONTENTS
2.1 Multiple stakeholder Relationship
2.2 Ethics
2.3 Social Responsibility: - The modern challenges
2.4 Values
2.5 Values & Corporate Culture

2.1 Multiple Stakeholder Relationship


Organisation exist because of their ability to create value and acceptable
outcome for various groups of stakeholders, people who have an interest,
claim, or stake in organisation, in what is does, and in how well performs. In
general, stakeholders are motivated to participate in an organisation if they
receive inducements exceed the value of the contributions they are required
to make. Inducements rewards such as money, power, and organisational
status. Contributions are the knowledge, and expertise that organisations
require of their members during the performance.
There are two main groups of organisational stakeholders: inside
stakeholders and outside stakeholders. The inducements and contributions of
each group are summarized in table given below.

Inside Stakeholders
Master of Finance & Control Copyright Amity university India

Page 48

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Inside stakeholders are people who are closest to an organisation and have
the strongest or most direct claim on organisational resources: shareholders,
managers, and the work force.
SHAREHOLDERS. Shareholders are the owners of the organisation, and,
as such, their claim on organisational resources is often considered superior
to the claims of other inside stakeholders. The shareholders contribution to
the organisation is to invest money in it by buying the organisations stock.
The shareholders inducement to invest is the prospective money they can
earn on their investment in the form of dividends and increase the price of
stock. Investments in stock are risky, however, because there is no guarantee
of a return. Shareholders who do not believe that the inducement (the
possible return on their investment) is enough to warrant their contribution
(the money they have invested) sell their shares and withdraw support from
the organisation.

Master of Finance & Control Copyright Amity university India

Page 49

AMF101 ORGANIZATION THEORY AND MANAGEMENT

TABLE
INDUCEMENTS AND CONTRIBUTIONS OF ORGANISATIONAL
STALEHOLDERS
Stakeholder

Contribution
Organisation

to

INSIDE
Shareholders

Money and capital

Managers

Skills and expertise

Workforce

Skills and expertise

OUTSIDE
Customers
Suppliers
Government
Unions
Community
General public

the Inducement
Contribute

to

Dividends
and
appreciation
Salaries, bonuses, status
and power
Wages, bonuses, stable
employment,
and
promotion

Revenue from purchase Quality and price of


of goods and services
goods and services
High- quality inputs
Revenue from purchase
of inputs
Rules governing good Fair
and
free
business practice
competition
Free and fair collective Equitable
share
of
bargaining
inducements
Social and economic Revenue, taxes, and
infrastructure
employment
Customer loyalty and National pride
reputation

Master of Finance & Control Copyright Amity university India

Page 50

AMF101 ORGANIZATION THEORY AND MANAGEMENT

MANAGERS. Managers are the employees who are responsible for


coordinating organisational resources and ensuring that an organisations
goals are successfully met. Top managers are responsible for investing
shareholder money in resources in order to maximize the future output of
goods and services. Managers are, in effect, the agents or employees of
shareholders and are appointed indirectly by shareholders through an
organisations board of directors to manage the organisations business.
Managers contributions are the skills they use to direct the organisations
response to pressures from within and outside the organisation. For example,
a managers skills at opening up global markets, identifying new product
markets, or solving transaction-cost and technological problems can greatly
facilitate the achievement of the organisations goals.

Various types of rewards induce managers to perform their activities well:


monetary compensation (in the form of salaries, bonuses, and stock options)
and the psychological satisfaction they get from controlling the corporation,
exercising power, or taking risk with others peoples money. Managers who
do not believe that the inducements meet or exceed their contributions are
likely to withdraw their support by leaving the organisation.

THE WORK FORCE. An organisations work force consists of all non


managerial employees. Members of the work force have responsibilities and
duties (usually outlined in a job description) that they are responsible for
performing. An employees contribution to the organisation is the
performance of his or her duties and responsibilities. How well an employee
performs is, in some measure, within the employees control. An employees
motivation to perform well relates to the rewards and punishments that the
organisation uses to influence job performance. Employees who do not feel
that the inducements meet or exceed their contributions are likely to
withdraw their support for the organisation by reducing the level of their
performance or by leaving the organisation.
Master of Finance & Control Copyright Amity university India

Page 51

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Outside stakeholders
Outside stakeholders are people who do not own the organisation, are not
employed by it, but do have some interest in it. Customers, suppliers, the
government, trade unions, local communities, and the general public are all
outside stakeholders.
CUSTOMERS. Customers are usually an organisations largest outside
stakeholders group. Customers are induced to select a product (and thus an
organisation) from alternative products by their estimation of what they are
getting relative to what they have to pay. The money they pay for the
product is their contribution to the organisation and reflects the value they
feel they receive from the organisation. As long as the organisation produces
a product whose price is equal to or less than the value customers feel they
are getting, they will continue to buy the product and support the
organisation. If customers refuse to pay the price the organisation is asking,
they withdraw their support, and the organisation loses a vital stakeholder.
Southwest Airlines attention to its customers has resulted in their loyal
support.
SUPPLIERS. Suppliers, another important stakeholder group, contribute to
the organisation by providing reliable raw materials and component parts
that allow the organisation to reduce uncertainty in its technical or
production operations and thus reduce production costs. Suppliers have a
direct effect on the organisations efficiency and an indirect effect on its
ability to attract customers. An organisation that has high- quality inputs can
make high-quality products and attract customers. In turn, as demand for its
products increases, the organisation demands greater quantities of highquality inputs from its suppliers.
One of the reasons why Japanese cars remain so popular with U.S.
consumers is that they still require fewer repairs than the average U.S. made
vehicle. This reliability is a result of the use of component parts that meet
incredibly stringent quantity control standards. In addition, Japanese parts
suppliers are constantly improve their performance. The close relationship
between the large Japanese automakers and their suppliers is a stakeholder
Master of Finance & Control Copyright Amity university India

Page 52

AMF101 ORGANIZATION THEORY AND MANAGEMENT

relationship that pays long-term dividends for both parties. Realizing this, in
the last decade U.S. car manufacturers have also moved to establish strong
relationships with their suppliers to increase quality, and the reliability of
their vehicles has increased as result.
THE GOVERNMENT. The government has several claims on an
organisation. It wants companies to compete in a fair manner and obey the
rules of free competition. It also wants companies to obey agreed-upon rules
and laws concerning the payment and treatment of employees, workers
health and laws concerning the payment and treatment of employees,
workers health and workplace safety, nondiscriminatory hiring practices,
and other social economic issues about which Congress has enacted
legislation. The government makes a contribution to the organisation by
standardizing regulation so that they apply to all companies and no company
can obtain an unfair competitive advantage. The government controls the
rules of good business practice and has the power to punish any company
that breaks these rules by taking legal action against it. Thus its contribution
is to leave a company alone. Sometimes, however, it may leave companies
too alone.
TRADE UNIONS. The relationship between a trade union and an
organisation can be one of conflict or cooperation. The nature of the
relationship has a direct effect on the productivity and effectiveness of the
organisation and the union. Cooperation between managers and the union
can lead to positive long-term outcomes if both parties agree on an equitable
division of the gains from an important in a companys fortunes. Managers
and the union might agree, for example, to share the gains from cost saving
due to productivity improvements that resulted from a flexible work
schedule. Traditionally, however, the managements-union relationship has
been antagonistic because unions demands for increased benefits conflict
directly with shareholders demands for greater company profits and thus
greater returns on their investments.
LOCAL COMMUNITIES. Local communities have a stake in the
performance of organisations because employment, housing, and the general
Master of Finance & Control Copyright Amity university India

Page 53

AMF101 ORGANIZATION THEORY AND MANAGEMENT

economic well-being of a community are strongly affected by the success or


failure of local businesses.
THE GENERAL PUBLIC. The public is happy when organisations do
well against foreign competitors. This is hardly surprising, given that the
present and future wealth of a nation is closely related to the success of its
businesses and its economic institutions. The French and Italians, for
example, are notorious for preferring domestically produced cars and other
products, even when foreign products are clearly superior. To some degree,
they are induced by pride in their country to contribute to their countrys
organisations by buying their products. Typically, U.S. consumers do not
support their companies in the same way. They prefer competition to loyalty
as the means to ensure the future health of American businesses.
A nations public also wants its corporations to act in a socially responsible
way, which means that corporations refrain from taking any actions that may
injure or impose costs on other stakeholders.

2.2 ETHICS
The Advantages of Ethical Behavior
Ethics- the moral values, beliefs, and rules that govern the way
organisational stakeholders should act toward one another- from an
important part of organisations cultural values. In an age when many
different stakeholders scrutinize an organisations action, and competition is
fierce, organisations cannot afford to engage in actions that will be hurt their
reputation. Neither can they allow employees to take advantage of their
position to commit unethical acts. Thus creating an ethical organisational
culture is one of top managements major priorities. Managers create an
ethical culture by making a personal commitment to uphold ethical values
and transmit them to subordinates. All organisations are expected to develop
and follow ethical values because of the advantages that ethical behavior
confers on an organisation and on society.
Master of Finance & Control Copyright Amity university India

Page 54

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Ethical values and rules control self-interested behavior that might threaten
societys collective interests. Ethical values establish desired end states for
example equitable or good business practices and the modes of behavior
needed to achieve those end states, such as being honest or being fair. Free
and fair competition between organisations is possible only when values and
norms constrain people action in certain situation. It is ethical for a business
person to compete with rival and drive that rival out of business if the basis
for competition is legal. Competition based on price and quality is legal and
ethical. It is not ethical to compete by shooting a rival, blowing up a rivals
factory, spreading false rumors about competition products, or stealing
information from a rivals organisation. Quality and price competition
creates value for an organisations stakeholders and the general public
competition by underhanded means hurts stakeholders and goes against the
public interest. Note that ethical practices do not ensure that nobody gets
hurt the rival forced out of business does get hurt but the harm done rival
has to be weighed against the gain to consumers.
Ethical values in an organisations culture reduce the costs people incur in
deciding what the right is or appropriate. By reflexively following an ethical
rule, people spend less time and effort trying to weigh, measure, or balance,
and decide what the right thing to do is.
When an organisations behavior follows accepted ethical rules, the
organisation gains a positive reputation effect. Over time, people will most
likely view with suspicion and hostility an organisation that is known for
engaging in illegal acts. However an organisation that always follows the rules
and is known for its ethical business practices over and above strict legal
requirements will have a good reputation valuable asset that makes people
want to deal with it. Although unethical organisations might reap short
term benefits, they are penalized in the long run because eventually people
will refuse to deal with them.
Why Does Unethical Behavior Occur?
If there are good reasons for individuals and organisations to behave
ethically, why do we see so many instances of unethical behavior?
Master of Finance & Control Copyright Amity university India

Page 55

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Lapses in Individual Ethics


In the theory, individuals learn ethical principles and codes of morality as
they mature. Ethics are learned from family, friends, religious institutions,
schools, professional associations, and other organisations. From their
experiences, people learn to differentiate right from wrong. However,
imagine that your father is a mobster, your other is a political terrorist, or
your family belongs to a warring ethnic or religious group. Brought up in
such a context, you may believe that it is ethical to do anything and to
perform any act - including murder to benefit your family, friends, or
group. In a similar way, individuals within an organisation may come to
believe that any action that promotes or protects the organisation is
acceptable, even if it does harm to others. That sort of thinking prompted the
Beech Nut management team to approve the sale of sugar water labeled as
apple juice.
Ruthless Pursuit of Self- Interest
We normally confront ethical issues when we weigh our personal interests
against the effects that our actions will have on others. Suppose you will be
promoted to vice president of your company if you can secure a $100
million contract, but that to get the contact, you must bribe the contractor
with $1 million. Your career and future will probably be assured if you
perform this act. What harm will it do? you ask yourself. Bribery is
common, and if you dont pay the million dollars, you are certain that
somebody else will. So what do you do? Research suggests that people who
believe they have the most at stake are the ones most likely to act
unethically. Similarly, it has been shown that organisations that are doing
badly economically and are struggling to survive are the ones most likely to
commit unethical and illegal acts such as price fixing or bribery, although
many other organisations will do so if they are given the opportunity.
Outside Pressure
Many studies have found that the likelihood of unethical or criminal
behavior increases when people feel outside pressure to perform. If company
Master of Finance & Control Copyright Amity university India

Page 56

AMF101 ORGANIZATION THEORY AND MANAGEMENT

performance is deteriorating, for example, top managers may feel pressures


from shareholders to boost performance, and fearful of losing their jobs, they
may engage in unethical behavior to increase the value of corporate stock. If
outside pressures work in the same direction, it is easy to understand why
unethical organisational cultures develop. Managers at all levels buy into
unethical acts and the view that the end justifies the means comes to
permeate the organisation. As organisational members pull together to
disguise their unethical action and to protect another from prosecution, the
organisation becomes increasingly defensive.
The temptation for organisations to collectively engage in unethical and
illegal behavior is very great. Industry competitors can clearly see the
advantages of acting together to raise prices because of the extra profits
they will earn. The harm they inflict as a result of their collusion is difficult
to see because their customers may number in the millions. Unethical
companies may rationalize by saving that individual customers are affected
so slightly that they are hardly hurt at all. However if every company in
every industry behaved unethically, and if all companies tried to extract
money from their customers, customers would have much less to spend and
the nations economy as a whole would suffer. Moreover, price fixing results
in a misallocation of societys resources. Companies spend less and less on
improving their products because they have no incentive to improve them.
Simply by increasing prices they can make all the money they want with the
products they already have.
The social costs of unethical behavior are hard to measure but can easily be
seen in the long run. They take the form of mismanaged organisations that
become less innovative and spend less and less on research and development
and more and more on advertising or managerial salaries. When new
competitors arrive who refuse play the game, the mismanaged organisation
starts to crumble.
In sum, if an organisations ethics violate societys ethics are embodied in
law; the organisation is acting illegally and will be subject to sanction. If
organisational ethics violate generally accepted business and social customs
Master of Finance & Control Copyright Amity university India

Page 57

AMF101 ORGANIZATION THEORY AND MANAGEMENT

and practices, organisations may lose their reputations. Beyond these two
limits on ethical behavior, an organisations ethics are a function of the
moral values of its stakeholders and of the power of the different stakeholder
groups to impose these values on the organisation.
Creating an Ethical Organisation
An organisation is ethical if the people inside the organisation are ethical.
How can people judge if they are making ethical decisions and thus acting
ethically? One way is as follows: If a person (a) makes a decision (or takes
an action) that falls within the accepted values or standards that typically
apply in the organisations environment; (b) is willing to see the decision
communicated to all the parties affected by it for example, having it
reported in newspapers or on television; and (c) believes that other people
with whom the person has a significant personal relationship, such as family
members, friends, or even managers in other organisations, would approve
the decision, then the decision is probably acceptable on ethical grounds. By
contrast, an unethical decision would be one that a manager would wish to
disguise or hide from other people because the decision harms other
stakeholders in ways that are not acceptable based on the standards or values
in the environment, or benefits him or her personally.
Beyond personal considerations, an organisation can encourage people to act
ethically by putting in place incentives for ethical behavior and disincentives
to punish those who behave unethically. Because top managers have the
ultimate responsibility for setting policy, they establish the ethical culture of
the organisation. There are many ways in which they can influence
organisational ethics. A manager outlining a companys position on business
ethics acts as a figurehead and personifies the organisations ethical position.
As a leader, a manager can promote moral values that result in the specific
ethical rules and norms that people use to make decisions. Out side the
organisation, as a liaison or spokesperson, a manager can inform prospective
customers and other stakeholders about the organisations ethical values and
demonstrate those values through his or her behavior toward stakeholders
such as by being honest and acknowledging errors. A manager also sets
Master of Finance & Control Copyright Amity university India

Page 58

AMF101 ORGANIZATION THEORY AND MANAGEMENT

employees incentives behave ethically and can develop rules and norms that
state the organisations ethical position. Finally, a manager can make
decisions to allocate organisational resources and pursue policies based on
the organisations ethical position.
2.3 Social Responsibility The Modern Challenges
According to Keith Davis, Social responsibilities refer to the businessmans
decisions and actions taken to reasons at least partially beyond the firms
direct economic or technical interest. To quote Andrews, by social
responsibility, we mean intelligent and objective concern for the welfare of
society that restrains individual and corporate behaviour from ultimately
destructive activities, no matter how immediately profitable and leads in the
direction of positive contribution to human betterment variously as the latter
may be defined.
The concept of social responsibility is not new. Although the idea was
already considered in the early part of the 20th century, the modern
discussion of social responsibility got a major impetus with the book Social
Responsibilities of the Businessman by Howard R.Bowen suggests that
business managers are bound to pursue those policies, to make those
decisions or to follow those lines of action which are desirable in terms of
the objectives and values of our society. In other words businesses should
consider the social implications of their decisions. AS one may expect, there
is no complete agreement on the definition of social responsibility. A survey
conducted on the matter revealed Corporate social responsibility is
seriously considering the impact of the companys actions on society. In a
broad sense, business owes a lot to the various groups such as customers,
employees, shareholders, government and the community at large in which it
exists. As one argues for business involvement in social activities, there are
also arguments against it, as follows:
Arguments for social involvement of business
1
2

1. Public needs have changed, leading to changed expectations.


Business, it is suggested, received its charter from society and
consequently had to respond to the needs of society.
2. Improvement of the social environment benefits both society and
business. Society gains through better neighborhoods and
employment opportunities; business benefits from a better

Master of Finance & Control Copyright Amity university India

Page 59

AMF101 ORGANIZATION THEORY AND MANAGEMENT

community, since the community is the source of its work force and
the consumer of it products and services.
3 3. Social involvement discourages additional government regulation
and intervention. The result is greater freedom and more flexibility
in decision making for business.
4 4. Business has a great deal of power which, it is reasoned, should be
accompanied by an equal amount of responsibility.
5 5. Modern society is an interdependent system and the internal
activities of the enterprise have an impact on the external
environment.
6 6. Social involvement may be in the interest of stockholders.
7 7. Problems can become profits. Items that may once have been
considered waste (for example, empty soft drink cans) can be
profitably used again.
8 8. Social involvement creates a favorable public image. Thus, a firm
may attract customers, employees and investors.
9 9. Business should try to solve the problems which other institutions
have not been able to solve. After all business has a history of
coming up with novel ideas.
10 10. Business has the resources. Specifically, business should use its
talented managers and specialists, as well as its capital resources to
solve some of societys problems.
11 11. It is better to prevent social problems through business
involvement than to cure them. It may be easier to help the hard-core
unemployed than to cope with social unrest.
Arguments against social involvement of business
1
2

1.. The primary task of business is to maximize profit buy focusing


strictly on economic activities. Social involvement could reduce
economic efficiency.
2. In the final analysis, society must pay for the social involvement
of business through higher prices. Social involvement would create
excessive costs for business, which cannot commit its resources to
social action.
3. Social involvement can weaken the international balance of
payments. The cost of social programs, the reasoning goes, would
have to be added to the price of the product. Thus American
companies selling in international markets would be at a

Master of Finance & Control Copyright Amity university India

Page 60

AMF101 ORGANIZATION THEORY AND MANAGEMENT

4
5
6
7

disadvantage when competing with companies in other countries


which do not have these social costs to bear.
4. Business has enough power and additional social involvement
would further increase its power and influence.
5. Business people lack the social skill to deal with the problems of
society. Their training and experience is with economic matters and
their skills may not be pertinent to social problems.
6. There is a lack of accountability of business to society. Unless
accountability can be established, business should not get involved.
7. There is not complete support for involvement in social actions.
Consequently, disagreements among groups with different
viewpoints will cause friction.

Not withstanding the above arguments many organisations have taken


up the social causes. Though profit is essential to the business
the social involvement and its extent of involvement of the
organisation should be carefully considered. A right balance
has to be struck between the organisations goal and the social
obligations.
2.4 Values
Milton Rokeach, a noted psychologist, has defined values as global beliefs
that guide actions and judgments across a variety of situations. He further
said, Values represent basic convictions that a specific ode of conduct (or
end-state of existence) is personally or socially preferable to an opposite
mode of conduct (or end-state of existence). They contain a judgmental
element, i.e., they carry an individuals ideas as to what is right, good, or
desirable. Values have both content and intensity attributes. The content
attribute emphasizes that a mode of conduct or end-state of existence is
important. The intensity attribute specifies how important it is. When we
rank an individuals values in term of their intensity, we obtain the value
system of that person. All of us have a hierarchy of values that forms our
value system. This system is identified by the relative importance we assign
Master of Finance & Control Copyright Amity university India

Page 61

AMF101 ORGANIZATION THEORY AND MANAGEMENT

to such values as freedom, self-respect, honesty, obedience, equality, and so


on.
Values are so embedded that they can be inferred from peoples behavior and
their perception, personality and motivation. They generally influence their
behavior. Values are relatively stable and enduring. This is because of the
way in which they are originally learnt.
The values learnt can be divided into two broad categories: (i) terminal
values, and (ii) instrumental values Terminal values lead to ends to be
achieved, e.g., comfortable life, family security, self respect and sense of
accomplishment. Instrumental value; relate to means for achieving desired
ends, e.g., ambition, courage, honesty and imagination. Terminal values
reflect what person is ultimately striving to achieve, whereas instrumental
values reflect how the person gets there
Exhibit: Terminal and Instrumental Values
Terminal Values (ends)

Instrumental
(means)

Comfortable life

Ambition

Sense of accomplishment

Courage

Family security

Honesty

Mature love

Helpfulness

Self- respect

Independence

wisdom

Imagination

Values

Types of Values

Master of Finance & Control Copyright Amity university India

Page 62

AMF101 ORGANIZATION THEORY AND MANAGEMENT

All port and his associates have categorized values into six types as follows:

1.
2.
3.
4.
5.
6.

Theoretical. Interest in the discovery of truth through reasoning and


systematic thinking.
Economic. Interest in usefulness and practicality, including the
accumulation of wealth.
Aesthetic. Interest in beauty, form and artistic harmony.
Social. Interest in people and human relationships.
Political. Interest in gaining power and influencing other people.
Religious. Interest in unity and understanding the cosmos as a whole.

Different people place different importance to the above six value types.
In other words, every individual has a system of values ranking from first to
sixth. This is very important from the point of view of understanding the
behavior of people. The fact that people in different occupations have
different value systems has led the progressive organisations to improve the
values- job fit in order to increase employee performance and satisfaction.
Sources of Values
Parents, friends, teachers and external reference group can influence
individual values. Indeed, a persons values develop as a product of learning
and experience in the cultural setting in which he lives. As learning and
experiences vary from one person to another, value differences are the
inevitable result. Not only the values but also their ranking in terms of
importance differs from person to person.
A person learns and develops values because of the following factors:
(i)

Familial factors. A significant factor influencing the process of


socialization of an individual is role of the family. The child
rearing practices that parents use shape the individuals personality.
The learning of social behavior, values and norms come through
these practices. For example, through reward and punishment,
parents show love and affection to children, indicating the typical
ways in which a child should behave in difficult conditions.

Master of Finance & Control Copyright Amity university India

Page 63

AMF101 ORGANIZATION THEORY AND MANAGEMENT

(ii)

(iii)

Social Factors. Of the societal factors, school has a major role to


play in the development of values. Through discipline in school, a
child learns desirable behaviors important in the school setting.
Interactions with teachers, classmates and other staff members in
the educational institutions make the child inculcate values
important to the teaching-learning process. Other institutions that
may influence the values are religious, economic and political
institutions in the society.
Personal Factors. Personal attributes such as intelligence, ability,
appearance and educational level of the person determine his
development of values. For example, ones higher level of
intelligence may result in faster understanding of values.

2.5 Values and Corporate Culture


Corporate culture is the term used to describe a system of shared values
(what is important) and beliefs (how things work) that create behavioral
norms (the way we do things) to guide the activities of organisational
members. It is believed that strong corporate culture facilitates higher
performance. Thomas J. Peters and Robert H. Waterman, Jr., authors of In
search of Excellence state, for example: Every excellent company we
studied is clear on what stands for, and takes the process of value shaping
seriously.
As a system of shared values, the corporate culture reflects a climate
within which people value the same things and apply these values to
benefit the corporation as a whole. One example is the dominate value of
customer service. This value shall help to keep everyone from top
management down to persons on the factory floor pulling in the same
direction. Corporate values may be put in the form of slogans such as
The family Feeling by an Airline or Quality at a good price by a
Pharmaceutical giant. The strength of such slogans in communicating
values lies in the basic premise that values can influence behavior. To the
extent employees understand and share corporate values, their behavior
should be more uniform and consistent. The performance of individuals,
group and the organisation as a whole will increase and benefit all. The
Master of Finance & Control Copyright Amity university India

Page 64

AMF101 ORGANIZATION THEORY AND MANAGEMENT

managers who sense compatibility between their personal values and


those of the organisation experience feelings of success in their lives,
show high regard for organisational objectives and significant
stakeholders, and have healthy assessment of the values and ethics of
their colleagues, subordinates, and bosses.
Big organisations develop different cultures which have different
performance implications. Organisations with strong cultures that fit the
needs and challenges of the situations survive and grow while
organisations with weak cultures are phased out. That is why, the study of
corporate culture is important in the field of organisational behavior. It
may be noted that corporate culture and its companion notion of shared
values are not static concepts. They could be changed or modified to
meet the need of changing environment.

Master of Finance & Control Copyright Amity university India

Page 65

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Master of Finance & Control Copyright Amity university India

Page 66

AMF101 ORGANIZATION THEORY AND MANAGEMENT

END CHAPTER QUIZZES

CHAPTER II QUIZZES
Q1. Which of the following determines a persons ethical or unethical
behavior?
(a)Values
(b) Procedures
(c) Rules
Q2. In which of the following situations does an intensity of an ethical issue
increase?
(a)Everyone agrees that the action is right
(b)Many people will be harmed by the action
(c)When the action has no serious impact on people.
Q3.Which of the following is not an ethical guideline that would help
managers ensure that their decisions and actions are ethical?
(a)Obeying the law
(b)Hiding the truth
(c)Upholding human dignity

Master of Finance & Control Copyright Amity university India

Page 67

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Q4.Which of the following refers to efforts made within a firm to evaluate


its own social responsiveness?
(a)Social Audit
(b)Management Audit
(c) Organization Audit
Q5.Which of the following managerial ethics strives to follow ethical
principles and doctrines?
(a)Moral
(b)Amoral
(c)Immoral
Q6.An ..audit involves the systematic assessment of conformance to
organizational ethical policies, an understanding of those policies and the
Identification of serious deviations in conduct that require remedial action.
(a)Social
(b)Ethics
(c)Organisation
Q7.An organisations responsibility is towards its:
(a)Shareholders
(b)Stakeholders
(c)Employees

Q8.Which of the following refers to the ability of a corporation to relate its


operations and policies to the social environment in ways that are mutually
beneficial to the company and to the society.
Master of Finance & Control Copyright Amity university India

Page 68

AMF101 ORGANIZATION THEORY AND MANAGEMENT

(a)Social Responsibility
(b)Social Responsiveness
(c)Social Obligation
Q9.An organizations stakeholder refers to:
(a)Anyone who has an interest in the organization
(b)To the employees of the organization
(c)To the customers of the organization
Q10.Organisations should assumefor their actions.
(a)Social Responsibility
(b)Social Obligation
(c)Ethical obligation.

Master of Finance & Control Copyright Amity university India

Page 69

AMF101 ORGANIZATION THEORY AND MANAGEMENT

CHAPTER III
INTERPRETING THE ORGANIZATIONAL REALITY
CONTENTS
3.1 Organizational power
3.2 Organizational Politics
3.3 Organization Decision Making

Master of Finance & Control Copyright Amity university India

Page

AMF101 ORGANIZATION THEORY AND MANAGEMENT

3.1 Organisational Power


Power refers to a capacity that A has to influence the behaviour of B so that
B does something her or she would not otherwise do. This definition implies
(1) a potential that need not be actualized to be effective, (2) a dependence
relationship, and (3) that B has some discretion over his or her own
behaviour. Lets look at each of these points more closely.
Power may exist but not be used. It is, therefore, a capacity or potential. On
can have power but not impose it.
Probably the most important aspect of power is that it is a function of
dependence. The greater Bs dependence on A, the greater is As power in
the relationship. Dependence, in turn, is based on alternatives that B
perceives and the importance that B places on the alternatives that A
controls. A person can have power over you only if he or she controls
something you desire. If you want a college degree, have to pass a certain
course to get that degree, and you current instructor is the only faculty
member in the college who teaches that course, he or she has power over
you. Your alternatives are definitely limited, and you place a high degree of
importance on obtaining a passing grade. Similarly, if youre attending
college on funds provided entirely by your parents, you probably recognize
the power they hold over you. You are dependent on them for financial
support. But once youre out of school, have a job, and are making a solid
income, your parents power is reduced significantly. Who among us,
though, has not known or heard of the rich relative who is able to control a
large number of family members merely through the implicit or explicit
threat of writing them out of the will.
For A to get B to do something he or she would otherwise not do means B
must have the discretion to make choices. At the extreme, if Bs behaviour is
so programmed that he is allowed no room to make choices, he obviously is
constrained in his ability to do something other than what he is doing. For
instance, job descriptions, group norms, organizational rules and regulations,
as well as community laws and standards constrain peoples choices. As a
nurse, you may be dependent on your supervisor for continued employment.
Master of Finance & Control Copyright Amity university India

Page 71

AMF101 ORGANIZATION THEORY AND MANAGEMENT

But, in spite of this dependence, youre unlikely to comply with her request
to perform heart surgery on a patient or steal several thousand dollars from
petty cash. Your job description and laws against stealing constrain your
ability to make choices.
Bases of power
The bases of power can be classified as follows:
Coercive power
The coercive power base is defined by French and Raven as being
dependent on fear. One reacts to this power out of fear of the negative results
that might occur if one had failed to comply. It rests on the application, or
the threat of application, of physical sanctions such as the infliction of pain,
the generation of frustration through restriction of movement, or the
controlling by force of basic physiological or safety needs.
In the 1930s, when John Dillinger went into a bank, held a gun to a tellers
head, and asked for money, he was incredibly successful at getting
compliance with his request. His power base was coercive. A loaded gun
gives its holder power because others are fearful that they will lose
something that they hold dear their lives.
At the organizational level, A has coercive power over B if A can dismiss,
suspend, or demote B, assuming that B values his or her job. Similarly, if A
can assign B work activities that B finds unpleasant or treat B in a manner
that B finds embarrassing, A possesses coercive power over B.
Reward power
The opposite of coercive power is reward power. People comply with the
wishes or directives of another because doing so produces positive benefits;
therefore, one who can distribute rewards that others view as valuable will
have power over them. These rewards can be anything that another person
values. In an organizational context, we think of money, favourable
performance appraisals, promotions, interesting work assignments, friendly
Master of Finance & Control Copyright Amity university India

Page 72

AMF101 ORGANIZATION THEORY AND MANAGEMENT

colleagues, important information, and preferred work shifts or sales


territories.
Coercive and reward power are actually counterparts. If you can remove
something of positive value from another or inflict something of negative
value upon him or her, you have coercive power over that person. If you can
give someone something of positive value or remove something of negative
value, you have reward power over that person. As with coercive power, you
dont need to be a manager to be able to exert influence through rewards.
Rewards such as friendliness, acceptance, and praise are available to
everyone in an organization. To the degree that an individual seeks such
rewards, your ability to give or withhold them gives you power over that
individual.

Legitimate power
In formal groups and organizations, probably the most frequent access to
one or more of the power bases is ones structural position. This is called
legitimate power. It represents the power a person receives as a result of his
or her position in the formal hierarchy of an organization.
Positions of authority include coercive and reward powers. Legitimate
power, however, is broader than the power to coerce and reward.
Specifically it includes acceptance by members of an organization of the
authority of a position. When school principals, bank presidents, or army
captains speak (assuming that their directives are viewed to be within the
authority of their positions), teachers, tellers and first lieutenants listen and
usually comply.

Expert power
Expert power is influence wielded as a result of expertise, special skill, or
knowledge. Expertise has become one of the most powerful sources of
influence as the work has become more technologically oriented. As jobs
Master of Finance & Control Copyright Amity university India

Page 73

AMF101 ORGANIZATION THEORY AND MANAGEMENT

become more specialized, we become increasingly dependent on experts


to achieve goals. So, just as physicians have expertise and hence expert
power most of us follow the advice our doctor gives us so too do
computer specialists, tax accountants, solar engineers, industrial
psychologists, and other specialists.

Referent power
The last category of influence that French and Raven identified was referent
power. Its base is identification with a person who has desirable resources or
personal traits. If I admire and identify with you, you can exercise power
over me because I want to please you.
Referent power develops out of admiration of another and a desire to be like
that person. In a sense, then, it is a lot like charisma. If you admire someone
to the point of modelling your behaviour and attitudes after him or her, that
person possesses referent power over you. Referent power explains why
celebrities are paid millions of dollars to endorse products in commercials.
Marketing research shows that people like Bill Cosby, Elizabeth Taylor, and
Michael Jordan have the power to influence your choice of photo processors,
perfume and athletic shoes. With a little practice, you or I could probably
deliver as smooth a sales pitch as these celebrities, but the buying public
doesnt identify with you and me. In organizations, if you are articulate,
domineering, physically imposing, or charismatic, you hold personal
characteristics that may be used to get others to do what you want.

3.2 ORGANIZATIONAL POLITICS


According to Tushman , Politics refers to the structure and process of the
use of authority and power to affect definition of goals, direction and the
other major parameters of the organization. Decisions are not made in a
rational way but rather through compromise, accommodation and
bargaining.
Master of Finance & Control Copyright Amity university India

Page 74

AMF101 ORGANIZATION THEORY AND MANAGEMENT

In the words of Farrell and Peterson, Politics in an organization refers to


those activities that are not required as part of ones formal role in the
organization, but that influence or attempt to influence the distribution of
advantages and disadvantages with in the organization.
Two key points emerge from above definitions: (i) Political behavior is
outside ones specified job requirements, and (ii) it generates efforts to
influence the goals, criteria, or processes used for decision-making that will
result in the distribution of advantages and disadvantages with in the
organization. Thus political behavior includes such activities as withholding
key information from decision-makers, whistle blowing, spreading rumors,
leaking confidential information about organizational activities, entering into
coalitions, exchanging favors for mutual benefit, lobbying on behalf of or
against a particular individual or decision, horse treading, ingenious
compromises, trade-offs and so on.
Farrell and Petersen talk of the legitimate-illegitimate dimension of political
behavior though a vast majority of political behavior is of legitimate variety.
Legitimate political behavior refers to normal everyday politicscomplaining to the supervisor, bypassing the chain of command, forming
coalitions, obstructing organizational policies or decisions through inaction
or excessive adherence to rules, and developing contacts outside the
organization through ones professional activities. On the other hand,
illegitimate political behavior is of extreme type that violates the implied
rules of the game. Those who pursue such activities are often described as
individuals who play hard-ball. Illegitimate activities include sabotage,
whistle blowing, a group of employees simultaneously calling in sick, etc.
Causes of Political Behavior
Politics has been a classic human activity since the beginning of
civilization, so it is not unique to modern organizations. In fact, modern
organizations are a fertile place for politics to thrive. Individuals resort to
politics in organizations because of the following reasons:

Master of Finance & Control Copyright Amity university India

Page 75

AMF101 ORGANIZATION THEORY AND MANAGEMENT

1. Lust for Power. People play politics within the organization to


gain power for control and decision making. They aim at
increasing the area of their influence. Conflict between line and
staff elements is a typical example in this regard. Nobody wants to
lose power in the power struggle because power can be used in the
way liked by the holders of power. If a person is able to gain more
power, his area of influence over other organizational members
would increase.
2. Competition or Command over Resources. Organizations are
composed of coalitions. A coalition is a group of persons formed to
achieve some common interest. Coalitions are formed when
individuals feel that they cant gain more power if they operate
individually. The formation of different coalitions gives rise to
political struggle in the organization. These coalitions compete
with one another for command over organizational resources. A
strong coalition is able to manoeuvre the things in its favor and
acquire more power than others.
3. Protection of self-interests. Various coalitions seek to protect their
interests and positions of influence by moderating environment
pressures and their effects. They will not like that any other
coalition takes away the privileges they are enjoying.
4. Discretionary Authority. There are some positions in the
organization which have discretionary powers to be used in case of
emergency. The use of power depends upon the sole judgment of
the position-holder. That is why; people indulge in politics to grab
such positions or to be very close to such a position holder.
5. Unequal Distribution of Authority. Sometimes, there is unequal
distribution of authority at a particular level in the organization or
there is a big difference between the authorities of two levels. This
may have dehumanizing effects and lead to start of political
activities in the organization.
6. Saturation in career. Promotion in ones career is based on
competence. But when a person cannot rise above a certain level
because of lack of competence for the higher job, he may resort to
political behavior to move up in the organization hierarchy. In
Master of Finance & Control Copyright Amity university India

Page 76

AMF101 ORGANIZATION THEORY AND MANAGEMENT

other words, each employee tries to achieve and remain at his level
of incompetence. This is what the peter principle states. This type
of behavior is a universal phenomenon in modern organization.
7. Need for Inter-Department Coordination. Relationships
between major organization groups typically are not well defined.
When joint issues arise, managers have to meet and work out
solutions on an ad hoc basis. These on-going coordination
activities are often political in nature. The ability of one group to
achieve is goal often involves the cooperation of other
departments. Interdepartmental coordination tacks rules and
precedents to guide it. Uncertainty and conflict are common,
especially when the issue is departmental territory and
responsibility. Political activities are resorted to by different
departments to meet such challengers.
Dysfunctional aspects of Politics
Politics provides a ground for determining the distribution, allocation
and maintenance of power, privilege, and patronage. It is essentially
concerned with who gets what, when and how. Organizational politics
has certain negative effects also on the working of the organization
which are described below:
1. Political behavior is generally guided by self-interest. If
self-interest obstructs the achievement of organizational
goals, then politics is said to be dysfunctional. For instance,
a manager seeks the appointment of his son, who is not
fully competent, in the company. If he succeeds in
manipulating the selection process, the impact on the
organization will be dysfunctional. In some cases, political
behavior may be functional also. For instance, to promote
self-interest, a member behaves in a way that is compatible
with the interest of the organization, such behavior is
functional.
2. Power politics may weaken morale, demotivate the
employees, victims and victors may be created, and energy
and time may be frittered away on planning attacks and
Master of Finance & Control Copyright Amity university India

Page 77

AMF101 ORGANIZATION THEORY AND MANAGEMENT

counter-attacks instead of concentrating on task


accomplishment.
3. There is empirical evidence to suggest that those managers
who engage in more political activity are relatively more
successful in terms of promotions but also relatively less
effective in terms of subordinate satisfaction and
commitment and the performance of their unit.
4. Organizational politics may generate organizational
conflicts due to which organizational time, efforts and
energy may be wasted. This will affect the organizational
effectiveness adversely.
5. Because of organizational politics, some individuals may be
able to acquire a major portion of organizational power.
This power may be used to promote self-interest, exploit
other people and displace organizational goals.
Handling Organizational Politics
Organizational politics has several unintended consequences such as
self-servicing behavior, goal displacement, conflicts and demotivation
of organizational members, etc. In order to check undesirable
behaviors, following steps may be followed:
1. Clearly Defined Jobs. The top management should
clearly define duties to recognize individual
contributions. This will enable employees to know what
they are expected to accomplish and provide a criterion
for evaluation. Consequently, they will be less prone to
use politics as a means to gain recognition. For another
thing, jobs should be designed to stimulate excitement
and enthusiasm. If employees are busy and concentrate
efforts on getting work completed, they are less apt to
have spare time for engaging in politics.
2. Proper Managerial Behavior. The managers should
demonstrate proper behaviors because subordinates are
often perceptive and follow their example. They should
not support directly or indirectly any political behavior of
Master of Finance & Control Copyright Amity university India

Page 78

AMF101 ORGANIZATION THEORY AND MANAGEMENT

the subordinates. Unintentionally, managers may


encourage undesirable political behaviors. If managers
are perceived to be insecure, incapable, or irresponsible,
its an invitation to political maneuvering by
subordinates. Insecurity conveys the impression that a
leader can be persuaded easily or is afraid to rebuff
requests. If viewed as incapable, the possibility increases
for employees to attempt getting their own way, even
though its not in the best-interest of the manager or
organization. Under irresponsible leadership, politically
motivated behavior becomes the dominant course of
action. To avoid manipulation, managers should portray
themselves as being knowledgeable, equitable and
confident.
3. Effective Communication. There should be two-way
communication throughout the organization. The top
management must know the perceptions of the
subordinates on various issues. If management is
responsive to the needs and aspirations of the employees,
undesirable political behavior will be reduced to a great
extent. The management should not condone or promote
gossips which usually lead to spreading rumors and
inaccurate information.
4. Fair Evaluation System. There should be an objective
system of performance appraisal of subordinates. The
scope for bias in appraisal should be reduced to the
minimum. Moreover, performance should be the only
basis of rewards such as increments, promotion, etc. This
will check political activity on the part of subordinates to
gain more and more awards. They will be compelled to
concentrate on their jobs.
5. Judicial Distribution of Resources. Within an
organization, various factions compete for financial and
human resources. A systematic approach for allocating
resources according to justifiable criteria is advantageous
Master of Finance & Control Copyright Amity university India

Page 79

AMF101 ORGANIZATION THEORY AND MANAGEMENT

and has the potential of reducing excessive political


behavior. Firmly established policies are mandatory and
top management must be careful to apply them
consistently. Otherwise, politics can evolve as a primary
competitive approach in which empire building
predominates. If this occurs, it would be difficult to
develop teamwork and cooperation among various units
of the organization

3.3 Organisational Decision making

Master of Finance & Control Copyright Amity university India

Page 80

AMF101 ORGANIZATION THEORY AND MANAGEMENT

An overview of organizational decision making


Guidelines for managers to make effective decision making in todays fast
moving world:
Know when its time to call it quits. When its evident that a decision
isnt working, manager should not be afraid to pull the plug. Many
decision makers block or distort negative information because they
dont want to believe that their decision was bad. They become so
attached to the decision that they refuse to recognise when its time to
move on .In todays dynamic environment this type of thinking
doesnt work.
Practice the 5 whys. When the environment is highly uncertain, one
way to encourage good decision making is to get people to think more
broadly and deeply about the issues. Because of the intense time
pressure that managers face, it may be tempting to do just a superficial
analysis. The five whys approach suggests that employees learn to
ask why not just once, but five times. Asking the first time, why this
is happening usually results in a superficial explanation for the
Master of Finance & Control Copyright Amity university India

Page 81

AMF101 ORGANIZATION THEORY AND MANAGEMENT

problem; subsequent whys force decision makers to probe more


deeply into the causes of the problem and possible solutions.
Be an effective decision maker. An effective decision-making process
has these six characteristics (1) It focuses on whats important;(2) Its
logical and consistent;(3) It acknowledges both subjective and
objective thinking and blends analytical with intuitive thinking;(4) It
requires only as much information and analysis as is necessary to
resolve a particular dilemma;(5) It encourages and guides the
gathering of relevant information and informed opinion; and (6) Its
straightforward, reliable, easy to use, and flexible

END CHAPTER QUIZZES


Master of Finance & Control Copyright Amity university India

Page 82

AMF101 ORGANIZATION THEORY AND MANAGEMENT

CHAPTER III QUIZZES


Q1.gives managers access to more information and knowledge.
(a)Individual decision making
(b)Group decision making
(c)Operational decision making
Q2.In which of the following steps of the decision making process
Is the brain storming technique used?
(a)Generating alternative solutions
(b)Evaluating alternatives
(c)Selecting an alternative
Q3..is the first step in the decision making process.
(a)Identifying resources and constraints
(b)Determining the problem
(c)Selecting an alternative
Q4..power is based on the influencers ability to punish the influence
for not meeting the requirements.
(a)Referent (b)Coercive (c) Expert
Q5refers to the desire of the influencee to identify with
or imitate the influencer.
(a)Expert Power
(b)Referent Power
(c)Legitimate Power
Master of Finance & Control Copyright Amity university India

Page 83

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Q6.Which of the following powers stems from a positions


Place in a managerial hierarchy and the authority vested in the position.
(a)Legitimate Power
(b)Reward Power
(c)Expert Power
Q7.A superior officer evaluates the performance of his subordinates
in order to decide who should be promoted. What type of power can
the superior be said to have in this case?
(a)Reward Power
(b)Coercive Power
(c)Expert Power
Q8.refers to the ability of individuals or groups to influence
The beliefs or actions of other individuals or groups
(a)Discipline
(b)Power
(c)Responsibility
Q9..describes the process by which a course of action is
Selected to deal with a specific problem
(a)Decision making
(b)Strategic Planning
(c)Goal setting
Q10.An employee of ABC Company went on leave for a month
Master of Finance & Control Copyright Amity university India

Page 84

AMF101 ORGANIZATION THEORY AND MANAGEMENT

without informing his superiors. When he came back he was fired from
his job by his superior. Which type of power did the superior
use in sacking the employee.
(a)Coercive
(b)Reward
(c)Expert

CHAPTER IV
THE ORGANIZATION
CONTENTS
4.1Motivation
4.2Motivational Theories
4.3Concept of Organisation structure
4.4Components of Organisation Structure
4.5Types of Organisation Structure
4.6Dimensions of Organisation Structure
Master of Finance & Control Copyright Amity university India

Page 85

AMF101 ORGANIZATION THEORY AND MANAGEMENT

4.7Organisational Design
4.8Organisational Culture Concept & Dimensions
4.9Level of organizational Culture
4.10 Organisation Culture at NIIT

Master of Finance & Control Copyright Amity university India

Page 86

AMF101 ORGANIZATION THEORY AND MANAGEMENT

4.1 Motivation
Motivation is a process that starts with a physiological or psychological need
that activates a behavior or a drive that is aimed at a goal.
Every employee is expected to show increased and qualitative productivity
by the manager. To achieve this behavior of the employee is very important.
The behavior of the employees is influenced by the environment in which
they find themselves. Finally, an employee's behavior will be a function of
that employee's innate drives or felt needs and the opportunities he or she
has to satisfy those drives or needs in the workplace
If employees are never given opportunities to utilize all of their skills, then
the employer may never have the benefit of their total performance. Work
performance is also contingent upon employee abilities. If employees lack
the learned skills or innate talents to do a particular job, then performance
will be less than optimal. A third dimension of performance is motivation.
Motivation is the act of stimulating someone or oneself to get desired
course of action, to push right button to get desired reactions.
The following are the features of motivation:
1
2
3
4
5
6
7
8
9

Motivation is an act of managers


Motivation is a continuous process
Motivation can be positive or negative
Motivation is goal oriented
Motivation is complex in nature
Motivation is an art
Motivation is system-oriented
Motivation is different from job satisfaction

MOTIVATIONAL FACTORS
There are several factors that motivate a person to work. The motivational
factors can be broadly divided into two groups:

Master of Finance & Control Copyright Amity university India

Page 87

AMF101 ORGANIZATION THEORY AND MANAGEMENT

1 I. MONETARY FACTORS:
0 Salaries or wages:
Salaries or wages is one of the most important motivational factors.
Reasonable salaries must be paid on time. While fixing salaries the
organization must consider such as :
1 Cost of living
2 Company ability to pay
3 Capability of company to pay etc,
4
1 Bonus:
It refers to extra payment to employee over and above salary
given as an incentive. The employees must be given adequate
rate of bonus.
1 Incentives:
2 The organization may also provide additional incentives such as
medical allowance, educational allowance, hra ,allowance, etc.
3
1 Special individual incentives:
The company may provide special individual incentives. Such
incentives are to be given to deserving employees for giving
valuable suggestions.
1 II. NON MONETARY FACTORS:
0
1 Status or job title:
By providing a higher status or designations the employee must
be motivated. Employees prefer and proud of higher
designations.

Master of Finance & Control Copyright Amity university India

Page 88

AMF101 ORGANIZATION THEORY AND MANAGEMENT

1 Appreciation and recognition:


Employees must be appreciated for their services. The praise
should not come from immediate superior but also from higher
authorities.
1 Delegation of authority:
Delegation of authority motivates a subordinate to perform the
tasks with dedication and commitment. When authority is
delegated, the subordinate knows that his superior has placed
faith and trust in him.
1 Working conditions :
Provision for better working conditions such as air-conditioned
rooms, proper plant layout, proper sanitation, equipment,
machines etc, motivates the employees.
1 Job security:
Guarantee of job security or lack of fear dismissal, etc can also
be a good way to motivate the employees. Employees who are
kept temporarily for a long time may be frustrated and may
leave the organization.
1 Job enrichment:
Job enrichment involves more challenging tasks and
responsibilities. For instance an executive who is involved in
preparing and presenting reports of performance, May also
asked to frame plans.

Master of Finance & Control Copyright Amity university India

Page 89

AMF101 ORGANIZATION THEORY AND MANAGEMENT

1 Workers participation:
Inviting the employee to be a member of quality circle, or a
committee, or some other form of employee participation can
also motivate the work-force.
1 Cordial relations: Good and healthy relations must exist
throughout the organization. This would definitely motivate
the employees.
1 Good superiors: Subordinates want their superiors to be
intelligent, experienced, matured, and having a good
personality. In fact, the superior needs to have superior
knowledge and skills than that of his subordinates. The very
presence of superiors can motivate the subordinates.
2
3 Other factors:
There are several other factors of motivating the employees:
1
2
3
4
5
6

Providing training to the employees.


Proper job placements.
Proper promotions and transfers.
Proper performance feed back.
Proper welfare facilities.
Flexible working hours.

Need and importance of motivation


Motivation offers several advantages to the organization and to the
employees:
1
2
3
4
5
6
7
8

Higher efficiency
Reduce absenteeism.
Reduces employee turnover.
Improves a corporate image.
Good relations.
Improved morale.
Reduced wastages and breakages.
Reduced accidents.

Master of Finance & Control Copyright Amity university India

Page 90

AMF101 ORGANIZATION THEORY AND MANAGEMENT

9 Facilitates initiative and innovation.


Money as a motivator
It is normally believed that money acts as a motivator. In general the role of
money as a motivator depends upon certain factors:
1 Money fails to motivate people, when there is no direct relationship
between reward and effort.
2
3 Economic conditions of people influence the Importance of money.
For poor person, the value of certain amount of money is quite high as
compared to rich.
1 Money is a significant motivator at lower level of employees level
however money may not be a significant factor for senior executives
who have already fulfilled their lower level needs.
2
3 Employees are concerned not only with the amount of money paid
to them, but it should be fair and equitable as paid to that of other
employees of same level or status.
1 Social attitudes towards money and wealth also decide the
motivation to earn more and more.

4.2 Motivational Theories:


Maslows-Hierarchy of Needs Theory:
This theory was proposed by Abraham Maslow and is based on the
assumption that people are motivated by a series of five universal
needs. These needs are ranked, according to the order in which
they influence human behavior, in hierarchical fashion
1 Physiological needs are deemed to be the lowest- level needs. These
needs include the needs such as food & water.

Master of Finance & Control Copyright Amity university India

Page 91

AMF101 ORGANIZATION THEORY AND MANAGEMENT

1 So long as physiological needs are unsatisfied, they exist as a


driving or motivating force in a person's life. A hungry person
has a felt need. This felt need sets up both psychological and
physical tensions that manifest themselves in overt behaviors
directed at reducing those tensions (getting something to eat).
Once the hunger is sated, the tension is reduced, and the need
for food ceases to motivate. At this point (assuming that other
physiological requirements are also satisfied) the next higher
order need becomes the motivating need.
Safety needs include a desire for security, stability, dependency,
protection, freedom from fear and anxiety, and a need for structure,
order, and law.. In the workplace this needs translates into a need for
at least a minimal degree of employment security; the knowledge that
we cannot be fired on a whim and that appropriate levels of effort and
productivity will ensure continued employment. Thus, safety needs -the needs for shelter and security -- become the motivators of human
behavior.
Social needs include the need for belongingness and love.
2 Generally, as gregarious creatures, human have a need to
belong. In the workplace, this need may be satisfied by an
ability to interact with one's coworkers and perhaps to be able
to work collaboratively with these colleagues.
2 After social needs have been satisfied, ego and esteem needs become
the motivating needs.
Esteem needs include the desire for self-respect, self-esteem, and the
esteem of others. When focused externally, these needs also include
the desire for reputation, prestige, status, fame, glory, dominance,
recognition, attention, importance, and appreciation.
Self-actualization need is the need for self-realization, continuous
self-development, and the process of becoming all that a person is
capable of becoming.

Master of Finance & Control Copyright Amity university India

Page 92

AMF101 ORGANIZATION THEORY AND MANAGEMENT

4
Alderfer's Hierarchy of Motivational Needs: ERG Theory
Clayton Alderfer reworked Maslow's Need Hierarchy to align it more
closely with empirical research. Alderfer's theory is called the ERG theory -Existence, Relatedness, and Growth.
1 Existence refers to our concern with basic material existence
requirements; what Maslow called physiological and safety needs.
2 Relatedness refers to the desire we have for maintaining
interpersonal relationships; similar to Maslow's social/love need, and
the external component of his esteem need.
3 Growth refers to an intrinsic desire for personal development; the
intrinsic component of Maslow's esteem need, and self-actualization

Alderfer's ERG theory differs from Maslow's Need Hierarchy insofar as


ERG theory demonstrates that more than one need may be operative at the
Master of Finance & Control Copyright Amity university India

Page 93

AMF101 ORGANIZATION THEORY AND MANAGEMENT

same time. ERG theory does not assume a rigid hierarchy where a lower
need must be substantially satisfied before one can move on.
Alderfer also deals with frustration-regression. That is, if a higher-order need
is frustrated, an individual then seeks to increase the satisfaction of a lowerorder need.
According to Maslow an individual would stay at a certain need level until
that need was satisfied. ERG theory counters by noting that when a higherorder need level is frustrated the individuals desire to increase a lower- level
need takes place. Inability to satisfy a need for social interaction, for
instance, might increase the desire for more money or better working
conditions. So frustration can lead to a regression to a lower need.
In summary, ERG theory argues, like Maslow, that satisfied lower- order
needs lead to the desire to satisfy higher-order needs; but multiple needs can
be operating as motivators at the same time, and frustration in attempting to
satisfy a higher- level need can result in regression to a lower- level need.
Alderfer's Hierarchy of Motivational Needs

Herzberg's Two Factor Theory


Master of Finance & Control Copyright Amity university India

Page 94

AMF101 ORGANIZATION THEORY AND MANAGEMENT

It is also known as the Motivation-Hygiene Theory, was derived from a


study designed to test the concept that people have two sets of needs:
1. Their needs as animals to avoid pain
2. Their needs as humans to grow psychologically
Herzberg's study consisted of a series of interviews that sought to elicit
responses to the questions:
(1) Recall a time when you felt exceptionally good about your job. Why did
you feel that way about the job? Did this feeling affect your job performance
in any way? Did this feeling have an impact on your personal relationships
or your well- being?
(2) Recall a time on the job that resulted in negative feelings? Describe the
sequence of events that resulted in these negative feelings.
Research Results : it appeared from the research, that the things making
people happy on the job and those making them unhappy had two separate
themes.
1) SATISFACTION (MOTIVATION): Five factors stood out as strong
determiners of job satisfaction:
1 achievement
2 recognition
3 work itself
4 responsibility
5 advancement
The last three factors were found to be most important for bringing about
lasting changes of attitude. It should be noted, that recognition refers to
recognition for achievement as opposed to recognition in the human
relations sense.
2) DISSATISFACTION (HYGIENE):
dissatisfaction were found to be:

The

determinants

Master of Finance & Control Copyright Amity university India

of

job

Page 95

AMF101 ORGANIZATION THEORY AND MANAGEMENT

1 company policy
2 administrative policies
3 supervision
4 salary
5 interpersonal relations
6 working conditions
From the results Herzberg concluded that the replies people gave
when they felt good about their jobs were significantly different from
the replies given when they felt bad. Certain characteristics tend to be
consistently related to job satisfaction and others to job dissatisfaction.
Intrinsic factors, such as work itself, responsibility and achievement
seem to be related to job satisfaction. Respondents who felt good
about their work tended to attribute these factors to themselves. On
the other dissatisfied respondents tended to cite extrinsic factors such
as supervision, pay, company policies and working condition.
Herzberg proposed that his findings indicated the existence of a dual
continuum: the opposite of satisfaction is No satisfaction and the
opposite of Dissatisfaction is No Dissatisfaction.
According to Herzberg, the factors leading to Job satisfaction are
separate and distinct form those that lead to job dissatisfaction.
Therefore, managers who seek to eliminate factors that can create job
dissatisfaction may bring about peace but not necessarily motivation.
They will be placating their workforce rather than motivating them.
As a result, conditions surrounding the job such as quality of
supervision, pay , company policies, physical working conditions
relations with others and job security were characterized by Herzberg
as hygiene factors, when theyre adequate, people will not be
dissatisfied ; neither will they be satisfied. If we want to motivate
people on their jobs, Herzberg suggested emphasizing factors
associated with the work itself or to outcomes directly derived form it,
such as promotional opportunities, opportunities for personal growth,

Master of Finance & Control Copyright Amity university India

Page 96

AMF101 ORGANIZATION THEORY AND MANAGEMENT

recognition, responsibility and achievement. These


characteristics that people find intrinsically rewarding.

are

the

Douglas McGregors Theory X and Theory Y:


McGregor Douglas observed two diametrically opposing view points of
managers about their employees, one is negative called Theory of X and
one is positive called Theory of Y
1 a) Theory of X: Following are the assumptions of managers who
believe in the Theory of X in regard to their employees.
0 Employees dislike work; if possible avoid the same
1 Employees must be coerced, controlled or threatened to do the
work
2 Employees avoid responsibilities and seek formal direction
3 Most employees consider security of job, most important of
all other factors in the job and have very little ambition
2 b) Theory of Y: Following are the assumptions of managers who
believe in the Theory of Y in regard to their employees.

Master of Finance & Control Copyright Amity university India

Page 97

AMF101 ORGANIZATION THEORY AND MANAGEMENT

1 Employees love work as play or rest


2 Employees are self directed and self controlled and committed
to the organizational objectives
3
4 Employees accept and seek responsibilities
5 Innovative spirit is not confined to managers alone, some
employees also possess it.
Theory X assumes Maslows lower level needs dominate
employees. Whereas Theory Y, assumes Maslows higher level
needs dominate employees at workplace.

4.3 ORGANISATION STRUCTURE


CONCEPT
Organisation structure may be defined as the established pattern of
relationships among the components of the organisation. Organisation
structure in this sense refers to the network of relationships among
individuals and positions in an organisation. Jennifer and Gareth have
defined organisation structure as the formal system of task and reporting
relationships that controls, coordinates and motivates employees so that they
cooperate and work together to achieve an organisations goals. In fact
organisation structure describes the organisation framework. Just as human
beings have skeletons that define their parameters, organisations
have structures that define-theirs. It is like the architectural plan of a
building. Just as the architect
considers various factors like cost, space, special features needed etc. while
designing a good structure, the managers too must look into factors like
benefits of specialisation, communication problems, problems in creating
authority levels etc., before designing the organisation structure.
Master of Finance & Control Copyright Amity university India

Page 98

AMF101 ORGANIZATION THEORY AND MANAGEMENT

The manager determines the work activities to get the job done, writes job
descriptions, and organises people into groups and assigns them to superiors.
He fixes goals and deadlines and establishes standards of performance.
Operations are controlled through a reporting system. The whole structure
takes the shape of a pyramid. The structural organisation implies the
following things:
The formal relationships with well-defined duties and
responsibilities;
The hierarchical relationships between
subordinates within the organisation;

superior

and

The tasks or activities assigned to different persons and the


departments;
Coordination of the various tasks and activities;
A set of policies, procedures, standards and methods of
evaluation of performance which are formulated to guide the
people and their activities.
The arrangement which is deliberately planned is the formal structure of
organisation. But the actual operations and behaviour of people are not
always governed by the formal structure of relations. Thus, the formal
arrangement is often modified by social and psychological forces and the
operating structure provides the basis of the organisation.
Significance of Organisation Structure
The organisation structure contributes to the efficient functioning of
organisation in the following ways.
Clear-cut Authority Relationships: Organisation structure allocates
authority and responsibility. It specifies who is to direct whom and who is
accountable for what results. The structure helps an organisation member to
know what is his role and how does it relate to other roles.
Master of Finance & Control Copyright Amity university India

Page 99

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Pattern of Communication: Organisation structure provides the patterns of


communication and Coordination. By grouping activities and people,
structure facilitates communication between people centered on their job
activities. People who have joint problems to solve often need to share
information.
Location of Decision Centers: Organisation structure determines the
location of centers of decision making in the organisation. A departmental
store, for instance may follow a structure that leaves pricing, sales
promotion and other matters largely up to individual departments to ensure
that various departmental conditions are considered.
Proper Balancing: Organisation structure creates the proper balance and
emphasizes on coordination of group activities. Those more critical aspects
for the success of the enterprise may be given higher priority in the
organisation. Research in a pharmaceutical company, for instance, might be
singled out for reporting to the general manager or the managing director of
the company. Activities of comparable importance might be given, roughly
equal levels in the structure to give them equal emphasis.
Stimulating Creativity: Sound organisation structure stimulates creative
thinking and initiative among organisational members by providing well
defined patterns of authority. Everybody knows the area where he specialises
and where his efforts will be appreciated.
Encouraging Growth: An organisation structure provides the framework
within which an enterprise functions. If it is flexible, it will help in meeting
challenges and creating opportunities for growth. A sound organisation
structure facilitates growth of the enterprise by increasing its capacity to
handle increased level of activity.
Making use of Technological Improvements: A sound organisation
structure which is adaptable to change can make the best possible use of
latest technology. It will modify the existing pattern of authority
responsibility relationships in the wake of technological improvements. In
short, existence of good organisation structure is essential for better
Master of Finance & Control Copyright Amity university India

Page 100

AMF101 ORGANIZATION THEORY AND MANAGEMENT

management. Properly designed organisation can help in improving team


work and productivity by providing a framework within which the people
can work together most effectively. Therefore, an organisation structure
should be developed according to the needs of the people in the organisation.

COMPONENTS OF ORGANISATION STRUCTURE


Organisation structures influence the division of the tasks, grouping of
activities, coordinating the activities and the overall accomplishment of the
tasks. Since organisation structure relates to relatively stable relationship and
process of the organisation, all influencing factors must be analysed for
designing the organisation structure.
According to Robbins organisation structure stipulates how tasks are to be
allocated, who reports to whom, and the formal coordinating mechanisms
and interaction patterns that will be followed. John Ivancevich and Michael
Matteson have also expressed the same view and advocated that manager are
required to take following four decisions for designing organisational
structure :

Divisions of overall task into smaller jobs.


Distribution of authority among the jobs.
Bases by which the individual jobs are to be grouped together;
and
The appropriate size of group reporting to each superior.
Let us discuss each of them in detail.
Division of Labour
Adam Smith emphasized on the division of labour in his celebrated work,
Wealth of Nation. In the early twentieth century, Henry Ford used assembly
Master of Finance & Control Copyright Amity university India

Page 101

AMF101 ORGANIZATION THEORY AND MANAGEMENT

line operations for manufacturing automobiles. He assigned a specific


repetitive task to each worker. The whole tasks were broken into number of
smaller steps or activities. Each step was required to be completed by
separate individual. Thus, the individual attained specialisation in
performing that particular activity. The manufacturing sector has been using
the work specialisation extensively all over the world. The division of labour
which results in work specialization provide following benefits to the
organisation.
The performance of specialised job enhances the work
efficiency. Hence, the employees skills can be used in the most
efficient way.
Since the work cycles of the job are very short, the workers can
attain perfection on that job quickly.
It enhances productivity in the organisation.
The workers can be trained easily to perform the repetitive
work.
The training costs are reduced.
It is easier to match workers with the specific job skills.
Despite these benefits, the division of labour has been criticized on the
following ground.
It can not be used for all types of jobs.
It may lead to monotony and boredom.
It focuses on physical performance of the job and
underestimates the behavioral aspects of the workers. The
positive features of division of labour over show the negative
features. Hence, the work specialization has been widely used

Master of Finance & Control Copyright Amity university India

Page 102

AMF101 ORGANIZATION THEORY AND MANAGEMENT

as an important means for enhancing productivity in the


organisation.
Delegation of Authority
Delegation is the process that a manager follows in dividing the work
assigned to him so that he performs that part, which because of his position
he can perform effectively. Delegation is legitimate authorization to a
manager or employee to act in specified ways. It enables him to function
independently without reference to the supervisor but within the limits set by
the supervisor and the normal framework of organizational objectives,
policies, rules and procedures. Thus, delegation involves: a) entrustment of
work to another for performance, b) grant of power, right or authority to be
exercised to perform the work, c) creation of an obligation on the part of the
person accepting delegation. Delegation of authority is one of the most
important elements in the process of organisation. Organisations are
characterised by a network of activities and roles. Delegation is the process
through which the interrelationships are created among individuals in their
different roles in the organisation. Delegation is necessary because it is
physically impossible for a single man to look after the affairs of a large
organisation. The success of a manager lies in his ability to multiply himself
through other people. The organisations of today are not only large but also
complex in character. No manager can claim to have all the skills and
expertise to perform all the diverse kinds of jobs. Again, large scale business
activities are not confined to one place. It may have several branches and
units at several places. Delegation becomes a necessity for running these
branches. An organisation is continuity. Managers may go and come but the
organisation continues. Delegation provides continuity of operations in the
organisation. The process of delegation helps managerial development in an
organisation.Thus, delegation is important for any organisation because it
reduces the burden of the managers and leaves him free to look after
important matters of the organisation. It is a method by which subordinates
can be developed and trained to take up higher responsibilities. It provides
continuity to the organisation and creates a healthy organisational climate by
creating better understanding among the employees.
Master of Finance & Control Copyright Amity university India

Page 103

AMF101 ORGANIZATION THEORY AND MANAGEMENT

The major benefits of delegation are:


Delegation leads to professionalism.
Managerial decisions may involve creativeness and
innovativeness.
The competitive environment may be created in the
organisation.
The mangers may take quick decisions.

The limitations of delegation of authority are:


The managers may resist delegating authority.
The managers may require training for taking decisions
and the costs of training may be higher.
Every person may not be able to take high level of
decision in the effective way.
The administrative costs may also increase.
Despite these limitations, delegation of authority enhances efficiency in the
organisation.
Departmentation
The division of labour divides the jobs into smaller activities. In order to
coordinate these activities, they are grouped together. The basis by which
these activities are grouped together are known as departmentalization. It
may be defined as the process of forming departments or grouping activities
of an organisation into a number of separate units for the purpose of efficient
functioning. This term vary a great deal between different organisations. For
example, in business undertaking, terms are division, department and
Master of Finance & Control Copyright Amity university India

Page 104

AMF101 ORGANIZATION THEORY AND MANAGEMENT

section; in Government these are called branch, department and section; in


military, regiment, battalion groups and company.
The impact of departmentation is a delineation of executive responsibilities
and a grouping of operating activities. Every level in the hierarchy below the
apex is departmentalized and each succeeding lower level involves further
departmental differentiation.
The major benefits of departmentalization are:
Specialisation: Departmentation leads to the benefits of specialisation as
various organisational activities are grouped according to their relation with
the specific functions or objectives. Every departmental manager specialises
in the tasks assigned to him.
Administrative control: Departmentation helps in effective managerial
control because the standards of performance for each and every department
can be laid down precisely. Every department has a specific objective. This
also facilitates keeping expenditure within limits.
Fixation of responsibility: Since organisation work is divided into
manageable units, and authority and responsibility are precisely defined, it is
easier to fix the accountability of different managers for the performance of
various tasks.
Freedom or autonomy: The departments created through departmentation
are semi-autonomous units. Their heads are given a sufficient degree of
authority to run their departments. This increases the efficiency of the
departments.
Development of managers: Departmentation helps in the development of
managerial personnel by providing them opportunities to take independent
decisions and initiative. The executives can develop themselves for
promotion to higher jobs.
Span of Control

Master of Finance & Control Copyright Amity university India

Page 105

AMF101 ORGANIZATION THEORY AND MANAGEMENT

The departmentation reflects the types of jobs which are grouped together.
Different persons are involved in performing these jobs. They are required to
be supervised closely.
Span of control refers to the number of individuals a manager can effectively
supervise. Thus, it is expected that the span of control, that is, the number of
subordinates directly reporting to a superior should be limited so as to make
supervision and control effective. This is because executives have limited
time and ability. It is sometimes suggested that the span of control should
neither be too wide nor too narrow. In other words, the number of
subordinates should not be too large or too small. The number of
subordinates cannot be easily determined because the nature of jobs and
capacity of individuals vary from one organisation to another. Moreover, the
actual span of supervision affects the organisation in different ways. A wide
span results in fewer levels of supervision and facilitates communication. It
permits only general supervision due
to the limited availability of time. Narrow span, on the other hand, requires
multiple levels of supervision and hence longer time for communication. It
is more expensive and complicates the process of communication. A narrow
span however enables managers to exercise close supervision and control.
Although there are certain limits to the span of control, the tendency in
recent years has been to avoid specifying absolute number because it has
been recognized that the ideal span depends on a number of factors. Some of
the important factors are discussed below:
Nature of the Work: If the work is simple and repetitive, the span of
control can be wider. However, if the work requires close supervision the
span of control must be narrow.
Ability of the Manager: Some managers are more capable of supervising
large number of people than others. Thus for a manager who possesses
qualities of leadership, decision-making ability and communication skill in
greater degree the span of control may be wider.

Master of Finance & Control Copyright Amity university India

Page 106

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Efficiency of the Organisation: Organisations with efficient working


systems and competent personnel can have larger span of control.
Staff Assistants: When staff assistants are employed contact between
supervisors and subordinates can be reduced and the span broadened.
Time Available for Supervision: The span of control should be narrowed at
the higher levels because top managers have less time available for
supervision. They have to devote the major part of their work time in
planning, organizing, directing and controlling.
Ability of the Subordinates: Fresh entrants to jobs take more of a
supervisors time than trained persons who have acquired experience in the
job. Subordinates who have good judgment, initiative, and a sense of
obligation seek less guidance form the supervisor.
Degree of Decentralization: An executive who personally takes many
decisions is able to supervise fewer people than an executive who merely
provides encouragement and occasional direction. It should be clear that the
size of the span of control is related to numerous variables, and no single
limit is likely to apply in all cases. A variety of factors can influence the
resulting number of employees comprising the optimum span of control in
any particular organisation. The spans of control also influence the creation
of tall and flat structure. Let us learn the concept of tall and flat structure.
Tall and Flat Structure
A tall organisational structure would have many hierarchical levels. There is
a long distance between the top most manager and the bottom most manager.
There are large number of job titles and a career path to the employee. Fewer
number of subordinates, a particular manager is required to guide, the
organizational structure would be taller. Contrarily, a flat structure would
have wide span of management. The number of hierarchy would be less.
Larger the number of subordinates a particular manager is required to guide
the organisational structure would be flatter. Choosing an appropriate span
of management is important for two reasons. First, it affects efficiency. Too
wide a span may mean that managers are over extended and subordinates are
Master of Finance & Control Copyright Amity university India

Page 107

AMF101 ORGANIZATION THEORY AND MANAGEMENT

receiving too little guidance or control. When this happens, managers may
be pressured to ignore or condone serious errors. In contrast, too narrow a
span may mean that managers are underutilized. Thus, the extent of division
of work, the nature of delegation of authority, the process of departmentation
and the requirement of effective supervision i.e., span of control influence
the designing of organisation structure.

4.5 TYPES OF ORGANISATION STRUCTURE


Different types of Organisation structure can be created on the basis of
arrangement of activities.
Accordingly, three broad types of structural forms are:
Functional Structure
Divisional Structure, and Adaptive Structure
Functional Structure
When units and sub-units of activities are created in organisation on the
basis of functions, it is known as functional structure. Thus, in any industrial
organisation, specialised functions like manufacturing, marketing, finance
and personnel constitute as separate units of the organisation. All activities
connected with each such function are placed in the same unit. As the
volume of activity increases, sub-units are created at lower levels in each
unit and the number of persons under each manager at various levels gets
added. This results in the interrelated positions taking the shape of a
pyramid.
The main advantage of the functional structure of organisation is that there is
functional specialisation in each unit, which leads to operational efficiency
of people engaged, and the organisation as a whole derives the benefit of
specialised operations. The heads of the functional units are in direct touch
with the chief executive who can sort out inter-functional problems, if any,
and also coordinate the interrelated functions.
Master of Finance & Control Copyright Amity university India

Page 108

AMF101 ORGANIZATION THEORY AND MANAGEMENT

The chief executive is also able to be in direct touch with lower level
subordinates and thereby have full knowledge of the state of affairs in the
organisation.
However, while the functional arrangement may be well suited to small and
medium size organisations, it is incapable of handling the problems of an
organisation as it grows in size and complexity. Problems of subunits at
lower levels do not receive adequate attention of higher level managers
while some of the activities tend to be over-emphasized.
Functional units become unwisely and difficult to manage when there are
diverse kinds of activities performed in large number of sub-units. Personal
contact between superiors and subordinates become rare, and flow of
communication is slow leading to problems of coordination and control.

Divisional Structure
The divisional organisation structure is more suited to every large enterprise
particularly those which deal in multiple products to serve more than one
distinctive markets. The organisation is then divided into smaller business
units which are entrusted with the business related to different products or
different market territories. In other words, independent divisions (product
divisions or market division), are created under the overall control of the
head office. Each divisional manager is given autonomy to run all functions
relating to the product or market segment or regional market. Thus, each
division may have a number of supporting functions to undertake. A
divisional structure may consist of two or more product divisions or market
or territorial divisions.
In a divisional structure each division contributes planned profits to the
organisation, but otherwise operates as an independent business. The
functional units are headed by managers while the final authority vests in the
divisional manager, who coordinates and controls the activities of the
various functional units in the division. The top management of the
Master of Finance & Control Copyright Amity university India

Page 109

AMF101 ORGANIZATION THEORY AND MANAGEMENT

organisation, besides providing funds, determines the organisation goals and


formulates policies.
The divisional structure is characterised by decentralization of authority.
Thus, it enables managers to take decisions promptly and resolve problems
appropriate to the respective divisions. It also provides opportunity to the
divisional managers to take initiative in matters within their jurisdiction. But
such a structure involves heavy financial costs due to the duplication of
supporting functional units for the divisions. Moreover, it requires adequate
number of capable managers to take charge of the respective divisions and
their functional units.
Adaptive Structure
Organisation structure is often designed to cope with the unique nature of
undertaking and the situation.
This type of structure is known as adaptive structure. There are two types of
structures in it:
i) Project Organisation, and
ii) Matrix Organisation
i) Project Organisation: When an enterprise undertakes any specialised,
time-bound work involving one-time operations for a fairly long period, the
project organisation is found most suitable. In this situation the existing
organisation creates a special unit so as to engage in a project work without
disturbing its regular business. This becomes necessary where it is not
possible to cope with the special task or project. Within the existing system,
the project may consist of developing a new project, installing a plant,
building an office complex, etc. A project organisation is headed by a project
manager in charge, who holds a middle management rank and reports
directly to the chief executive. Other managers and personnel in the project
organisation are drawn from the functional departments of the parent
organisation. On completion of the project they return to their parent
departments.
Master of Finance & Control Copyright Amity university India

Page 110

AMF101 ORGANIZATION THEORY AND MANAGEMENT

The main advantage of such a structural arrangement is that it leaves regular


business undisturbed. It is exclusively concerned with the task of completing
the project work on time and in conformity with the standards of
performance relevant to its goal. There is better management and control
over the project activities as the project manager enjoys necessary authority
and is alone responsible for the results. But project organisation may create
problems as well. Functional managers often resent the exercise of authority
by the project manager in the functional areas and hence conflict arises. The
stability of the functional departments is disturbed by transfer of personnel
to project work from time to time. Shifting of personnel from project to
project disrupts their developments in the specialised fields.
ii) Matrix Organisation: This is another type of adaptive structure which
aims at combining the advantages of autonomous project organisation and
functional specialisation. In the matrix organisation structure, there are
functional departments with specialised personnel who are deputed to work
full time in different projects sometimes in more than one project under the
overall guidance and direction of project managers. When a project work is
completed, the individuals attached to it go back to their respective
functional department to be assigned again to some other project. This
arrangement is found suitable where the organisation is engaged in
contractual project activities and there are many project managers, as in a
large construction company or engineering firm. Matrix organisation
provides a flexible structure ideally suited to the requirements of changing
conditions. It facilitates pooling of specialised and technical personnel from
different functional departments, who can be deputed to a number of
projects. They acquire valuable experience of handling varied and complex
problems in project work. There is speedy exchange of information and
decision making as they work under the coordinating authority of project
managers. The major drawback of matrix organisation is that the personnel
drawn from specialised functional departments are subjected to dual
authority, that of the functional heads and the project managers. The
principle of unity of command is thereby sacrificed. This generates stresses

Master of Finance & Control Copyright Amity university India

Page 111

AMF101 ORGANIZATION THEORY AND MANAGEMENT

and strains in project management, because there is simultaneous


engagement of the same individual in a number of projects.

4.6 DIMENSIONS OF ORGANISATION STRUCTURE


Robins has identified three dimensions of organisation structure, i.e.,
formalization, centralization and complexity.
Formalization: It refers to the extent to which the activities, rules,
procedures, instructions, etc. are specified and written. This primarily means
that the degree to which the activities of the organisation are standardized.
High division of labour i.e., specialisation, high level of delegation of
authority, high degree of departmentation and wide span of control lead to
high degree of formalization. The major benefits of formalization are as
follow:
Standardized
organisation.

activities

reduce

the

variability

in

the

It promotes coordination. All activities are defined and


specified which facilitate the process of coordination.
There is least scope of discretion. The decision is taken on the
basis of standard rules and procedures; hence the scope of
personal discretion is reduced.
Operating costs are reduced.
The standard activities reduce the conflict and ambiguity.
Formalization is criticized on the following grounds:
Master of Finance & Control Copyright Amity university India

Page 112

AMF101 ORGANIZATION THEORY AND MANAGEMENT

It prevents creativity and flexibility in the organisation.


It may be difficult for the organisation to change the rules.
The formulation and implementation of new rules may face
great resistance by the employees. Despite these limitations
formalization has been widely used in the organisation. The
formalized structure helps in smooth functioning of the
organisation. Well defined jobs and relationships enhance the
efficiency of the organisation.
Centralization: There are some organisations, where top management
makes all the decisions and middle and lower level managers merely
implement the decisions taken by the top management. At the other extreme,
there are some organisations in which decisions are made at all levels of
management. The first case fits into the centralized structure where as the
second one is highly decentralized. One of the fourteen principles of Henry
Fayol happens to be centralization. According to him, decreasing the role of
subordinates in decision-making is centralization; increasing their role is
decentralization. Fayol believed that managers should retain final
responsibility but at the same time give their subordinates enough authority
to do their jobs properly. The problem is to find the proper degree of
centralization in each case. Thus, centralization refers to the degree to which
decision making is centralized in the organisation. In centralization little
delegation of authority is the rule; power and discretion are concentrated in a
few executives. Control and decision-making reside at the top levels of
management. However, absolute centralization is untenable because it would
mean that subordinates have no duties, power or authority. Centralization
may be essential in small organisation to survive in a highly competitive
world. But as the organisation becomes more complex in terms of increasing
size, interdependence of work-flow, complexity of tasks and spatial physical
barriers within and among groups, a function requisite for efficiency is to
move decision-making centers to the operating level. Thus, the larger the
size of an organisation, the more urgent is the need for decentralization. This
does not mean that decentralization is good and centralization is bad. On the
Master of Finance & Control Copyright Amity university India

Page 113

AMF101 ORGANIZATION THEORY AND MANAGEMENT

other hand, decentralization is the systematic effort to delegate to the lowest


levels all authority except that which can be exercised at central points. It is
the pushing down of authority and power of decision-making to the lower
levels of organisation. The centers of decision-making are dispersed
throughout the organisation. The essence of decentralization is the
transference of authority from a higher level to a lower level. It is a
fundamental principles of democratic management where each individual is
respected for his inherent worth and constitution. As you know,
decentralization is a correlate of delegation; to the extent that authority is not
delegated, it is centralized. Absolute centralization decreases the role of
subordinate managers which in turn encourages decentralization. Absolute
decentralization is also not possible because managers cannot delegate all
their authority.
Complexity: It refers to the differences among the jobs and units. It reflects
the degree of differentiation existing within the organisation. A variety of
jobs and units create more complex organisation structure. The management
of complex structure may be difficult. Based on the complexity of activities,
there may be horizontal differentiation, vertical differentiation and spatial
differentiation. Let us learn them briefly. Horizontal differentiation refers to
the number of different units at the same level. This means if the number of
activities which require more specialised skills, the organisation will tend to
be more complex. Specialisation and departmentation are good examples of
such differentiation. Another differentiation i.e. vertical differentiation refers
to the number of levels in the organisation. It reflects the depth of the
hierarchy in the organisation. This means that increase in hierarchical level
enhances complexity in the organisation. In such organisation, coordination
and communication become difficult. The process of interaction is
influenced by span of control which determines the number of persons
effectively supervised by a manager. In the wide span, the managers have
more persons to be supervised and in the narrow span they have fewer
people to be supervised. The supervision depends on number of other factors
as well. The third types of differentiation i.e., spatial differentiation refers to
the degree to which location of units and the personnel are dispersed. As you
Master of Finance & Control Copyright Amity university India

Page 114

AMF101 ORGANIZATION THEORY AND MANAGEMENT

must be aware that these days activities of the organisation are located in
different areas. The multiple location increases the complexity of the
organisation. Coordination and interaction also become difficult in such
organisation. An increase in above types of differentiation may lead to
increase in complexity in the organisation. Thus, the complexity of the
organisation determines the amount of coordination, communication and
control. John Invancevich and Michael Matteson have analysed that the high
formalization reflects high specialisation, delegated authority, functional
departments and wide span of control. The high centralization reflects the
high specialisation, centralized authority, functional departments and wide
span of control. The high complexity reflects high specialisation, delegated
authority, territorial, customer and product departments and narrow spans of
control. The low formalization, centralization and complexity reflect the
opposite characteristics.

4.7 ORGANISATIONAL DESIGN


Organisational design refers to the process of coordinating the structural
elements of organisations in the most appropriate manner. There are three
distinct schools; the classical, the neoclassical and the contemporary. The
classical school represented by Max Weber, F.W.Taylor and Henry Fayol;
the proponents of formal hierarchy, clear set of rules and specialisation of
labour. The neo-classical represented by organisational scholar such as
McGregor, Argyris and Likert. They emphasize on employee satisfaction
along with economic effectiveness and call for the designing of flat
hierarchical structure with a high degree of decentralization. The proponents
of contemporary design emphasize on the environmental factors in which
the organisations are operating.

Classical Form of Organisations

Master of Finance & Control Copyright Amity university India

Page 115

AMF101 ORGANIZATION THEORY AND MANAGEMENT

The Simple Structure: A simple structure has low departmentalization,


wide span of control, concentration of authority in a single person, and little
or no formalization. Simple structure is normally flat type of organisation
having two or three vertical levels, a loose body of employees and one
individual in whom the decision-making authority is centralized. Usually,
practiced in small organisations having owner manager or family owned
businesses. The advantage of simple structure is in its simplicity. It is fast,
flexible, inexpensive to maintain and accountability is absolutely clear.
However, it is very difficult to maintain especially when the organisations
grow larger.
The Bureaucracy: The most common form of organisation is the classical
bureaucratic structure. The structure is inflexible, impersonal and highly
standardized. You may observe some of the organisations we come across
very frequently. The banks, where we deposit our money and withdraw cash
as and when we need them. The stores from where we buy large number of
items of daily use. The income tax office, we need to file our income tax
returns every year. If you observe these organisations closely, we may find
that they are all having highly routinised work system carried out through
specialisation, formally written rules and regulations, centralized authority,
narrow span of control and all decision have to follow the chain of
command. Max Weber (1947), considered it as an ideal form of organisation.
The bureaucracy, though not very ideal form of organisation in modern times
but still holds ground. The strength of bureaucracy lies in its ability to
perform standardized functions highly efficiently. However, obsessive
observance of rules and regulations is said to be its major weakness.
The Matrix Structure: Mathematically, matrix is an array of horizontal
rows and vertical columns. In order to understand the Matrix Structure, we
first need to understand the Functional Organisation, a form of
departmentalisation in which every member of the organisation engaged in a
functional area i.e., employee engaged in marketing or production is grouped
into one unit. The matrix organisation is defined as type of organisation in
which each employee has two bosses or (under dual authority). They have to
report to both functional and divisional manager and also to a project or
Master of Finance & Control Copyright Amity university India

Page 116

AMF101 ORGANIZATION THEORY AND MANAGEMENT

group manager. This type of structure is most popular in the advertising


agencies, hospitals, Research and Development laboratory and universities.
The matrix structure allows for flexible use of organisations human
resources, pooling and sharing of specialized resources but the major
problem is with regard to coordination of task and stress caused by two
bosses.
Alternate Design
Robins has classified the structural designs into three broad types; the team
structure, the virtual organisation, and the boundary less organisation.
The Team Structure: The team structure uses the team as the central device
to coordinate work activities. Robins defines work team as a group whose
individual efforts result in a performance greater than the sum of the
individual inputs. The primary characteristics of the team structure are that it
breaks down departmental barriers and decentralizes decision making to the
level of the work team. One of the prerequisites of the team structure is that
the employees have to be both generalists as well as specialists. In India
some of the well known multinationals like Xerox, Motorola and the IT
giant H.P uses cross functional teams.
The Virtual Organisation: In the age of specialisation no organisation can
survive without outsourcing. The core activity remains with the main
organisation whereas parts are performed by others. The virtual organisation
(also known as network or modular organisation) goes a step ahead by
outsourcing major business function. In structural terms the virtual
organisation is highly centralized, with little or no departmentation. When
large organisations use virtual structure, they frequently use it to outsource
manufacturing activities. This is the reason why do some of the very large
organisations do business of cores of rupees without having manufacturing
activities.
The Boundary less Organization: The credit for coining the term boundary
less organisation goes to Mr. Jack Welch of General Electrics (GE). He
wanted GE to become boundary less organisation. The type of organisation,
Master of Finance & Control Copyright Amity university India

Page 117

AMF101 ORGANIZATION THEORY AND MANAGEMENT

which seeks to eliminate the chain of command, have limitless span of


control and replace departments with empowered teams.
By removing vertical boundaries, management flattens the hierarchy, status,
and ranks are minimized. G.E. has been using cross-hierarchical teams,
participative decision making practices and 360-degree performance
appraisal system to break vertical boundaries. It is the networked computers
(with the help of internet and intra-net), which makes the boundary less
organisation possible by allowing people to communicate across interorganisational and intra-organisational boundaries. Electronic Mail for
example permits hundreds of employee to share information simultaneously
and allows ranks and file workers to communicate directly with senior
executives.
Organizational and Mechanistic Designs
There are two extreme models of organisational design i.e., mechanistic
model and organic model. Robins has identified following characteristics of
mechanistic and organic model of
Organisational Design:
Mechanistic Model: The major features of mechanistic model are as follow:
Extensive departmentalization
High formalization
A limited information network; and
Centralization
The activities are grouped together based on the strategies of the
departmentation like functional, division, adaptive; etc. There are
standardized policies, procedures, rules and decision making styles. The
flow of information is very limited. The decision making style is highly
centralized. Thus, the mechanistic model endeavors to achieve efficiency
because of its structural characteristics.
Master of Finance & Control Copyright Amity university India

Page 118

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Organic Model: The major features of organic model are as follow:


Cross hierarchical and cross functional teams
Low formalization
Comprehensive information network
High participation in decision making
In the organic model teams emerge from different hierarchy and in the
organic model teams emerge from different hierarchy and functional areas.
The tasks, rules, procedures and decision making are in a fluid situation and
changeable. The information flow across the organisation. There exists
decentralization of decision making where participation is sought from the
larger group. This model focuses on flexibility and adaptability. It
encourages greater utilization of human resources.

4.8 Organisational Culture


A system of shared meaning within an organization that determines, in large
degree, how employees act.

Dimensions of Organisational Culture

Master of Finance & Control Copyright Amity university India

Page 119

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Attention to detail: degree to which employees are expected to exhibit


precision, analysis & attention to detail
Outcome Orientation: degree to which managers focus on results or
outcomes rather than on how these outcomes are achievement
People Orientation: Degree to which management decisions take into
account the effects on people in the organization
Team Orientation: degree to which work is organized around teams rather
than individuals
Aggressiveness: degree to which employees are aggressive & competitive
rather than cooperative
Stability: degree to which organizational decisions & actions emphasize
maintaining the status quo
Innovation & risk taking: degree to which employees are encouraged to
be innovative & to take risks.

4.9 LEVELS OF ORGANISATIONAL CULTURE


One comes across a number of elements in the organisation which depict
its culture. Organisational culture can be viewed at three levels based on
manifestations of the culture in tangible and intangible forms. Fig. below
identifies these levels.

Master of Finance & Control Copyright Amity university India

Page 120

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Levels of organisational culture


1

1. At Level one the organisational culture can be observed in the form


of physical objects, technology and other visible forms of behaviour
like ceremonies and rituals. Though the culture would be visible in
various forms, it would be only at the superficial level. For example,
people may interact with one another but what the underlying feelings
are or whether there is understanding among them would require
probing.
2
2. At Level two there is greater awareness and internalisation of
cultural values. People in the organisation try solutions of a problem
in ways which have been tried and tested earlier. If the group is
successful there will be shared perception of that success, leading to
cognitive changes turning perception into values and beliefs.
3
3. Level three represents a process of conversion. When the group
repeatedly observes that the method that was tried earlier works most of the
time, it becomes the preferred solution and gets converted into underlying
assumptions or dominant value orientation. The conversion process has both
advantages. The advantages are that the dominant value orientation guides
behaviour, however at the same time it may influence objective and rational
thinking.
Master of Finance & Control Copyright Amity university India

Page 121

AMF101 ORGANIZATION THEORY AND MANAGEMENT

4.10 Types of Organizational Culture


Organisational culture can vary in a number of ways. It is these variances
that differentiate one organisation from the others. Some of the bases of the
differentiation are presented below:
1 1. Strong vs. weak culture: Organisational culture can be labeled as
strong or weak based on sharedness of the core values among
organisational members and the degree of commitment the members have
to these core values. The higher the sharedness and commitment, the
stronger the culture increases the possibility of behaviour consistency
amongst its members, while a weak culture opens avenues for each one
of the members showing concerns unique to themselves.
2
3 2. Soft vs. hard culture: Soft work culture can emerge in an organisation
where the organisation pursues multiple and conflicting goals. In a soft
culture the employees choose to pursue a few objectives which serve
personal or sectional interests. A typical example of soft culture can be
found in a number of public sector organisations in India where the
management feels constrained to take action against employees to
maintain high productivity. The culture is welfare oriented; people are
held accountable for their mistakes but are not rewarded for good
performance. Consequently, the employees consider work to be less
important than personal and social obligations. Sinha (1990) has
presented a case study of a public sector fertilizer company which was
established in an industrially backward rural area to promote employment
generation and industrial activity. Under pressure from local communities
and the government, the company succumbed to overstaffing, converting
mechanized operations into manual operations, payment of overtime, and
poor discipline. This resulted in huge financial losses (up to 60 percent of
the capital) to the company.
4 3. Formal vs. informal culture: The work culture of an organisation, to
a large extent, is influenced by the formal components of organisational
culture. Roles, responsibilities, accountability, rules and regulations are
components of formal culture. They set the expectations that the
organisation has from every member and indicates the consequences if
these expectations are not fulfilled. Informal culture on the other hand
Master of Finance & Control Copyright Amity university India

Page 122

AMF101 ORGANIZATION THEORY AND MANAGEMENT

has tangible and intangible, specific and non specific manifestations of


shared values, beliefs, and assumptions. This part of organisational
culture comprising of artifacts, symbols, ceremonies, rites, and stories is
highlighted in almost all the definitions of organisational culture. An
example of organisational culture at NIIT is presented below:
5

4.11Organisational Culture at NIIT


NIIT was founded in 1981 by two IIT, Delhi graduates, Rajendra S Pawar
and Vijay K Thadani with a vision of meeting basic requirements for IT
talent in a world moving into information based economy. They had
anticipations about the unpreparednessof Indian society to cope with the
forthcoming information age and adopted the mission bringing people and
computers together, successfully. Initially, NIIT delivered IT training to a
broad spectrum of people from students seeking a career in computers to
IT professionals requiring advanced skills; from managers giving their
careers an edge, to school children using computers as a learning too. NIITs
innovative offerings demonstrated the companys ability to constantly renew
itself to anticipate future technology trends. From a computer training
institute, NIIT has emerged as a global IT solutions corporation offering
knowledge solutions along with developing software solutions along with
developing software solutions. Headquartered in New Delhi, India,
NIIT operated through 100% subsidiaries in the US, Asia Pacific, Europe,
and Japan and has operations in about 40 countries.
Its mission keeps pace with the developments in the field of IT is evolved
through organisation-wide discussions which helps develop commitment
among employees. The organisation operates with the help of task teams
designed for specific customer requirements for a specific period to carry out
the work. Team culture and openness are emphasised a great deal. NIITs
corporate culture focuses on values such as quality, creativity, and customer
satisfaction. The quality culture of NIIT has been the result of the sustained
efforts of its management perpetuated through induction, socialisation,
reinforcement, innovation, and concern for internal and external customers.
The quality culture is ingrained at NIIT in such a way that the priority is to
Master of Finance & Control Copyright Amity university India

Page 123

AMF101 ORGANIZATION THEORY AND MANAGEMENT

prevent mistakes rather than rectify them. Also, quality efforts are backed by
results, which are rewarded.
Employees are treated as intellectual capital and are looked after well. The
happy and committed employees ensure customer satisfaction and this has
got them wide acceptance across the globe. It has got well designed
mechanisms for monitoring the quality for its products, services and or
software processes. Most of NIITs businesses have ISO 9000 certification.
The work culture at NIIT has gone through all the stages of culture
development like symbols, behaviour, organisational values, attitudes, and
shared assumptions, and probably this is the reason it has been able to
sustain it.

END CHAPTER QUIZZES

CHAPTER IV QUIZZES
Q1. Who proposed that human needs develop in a hierarchical manner?
Master of Finance & Control Copyright Amity university India

Page 124

AMF101 ORGANIZATION THEORY AND MANAGEMENT

(a) Abraham Maslow


(b) Elton Mayo
(c) Chris Argyris
Q2. The ..of an organization provides guidelines for its policies and
practices.
(a)Corporate Culture
(b)Corporate rules
(c)Corporate program
Q3.Which of the following structures is a type o departmentalization that
superimposes a horizontal set of divisional reporting relationships on a
hierarchical structure?
(a)Matrix
(b)Hybrid
(c)Divisional

Q4.is a type of departmentation in which positions are grouped


according to their main functional areas.
(a)Matrix
(b)Divisional (c)Functional
Q5organization structure has a wide span of control and only a few
hierarchical levels
(a)Tall
(b)Narrow
(c) Flat
Master of Finance & Control Copyright Amity university India

Page 125

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Q6.Organisation Culture is an aspect of the .environment of the


organization.
(a)General
(b)Internal
(c)Task
Q7.The force that energizes behavior, gives direction to behavior and
underlies the tendency to persist is known as
(a)Motivation
(b)Morale
(c) Drive
Q8.In the ERG theory..need pertain to the desire to be creative,make
useful and productive contributions and have opportunities for personal
development.
(a)Growth (b) Power (c)Existence
Q9.
.,
proposed
by
Douglas
McGregor,has
positive,dynamic,flexible and optimistic view of employees.

(a) Theory X
(b) Theory Y
(c) Theory Z
Q10. In Maslows hierarchy of needs,..refer to the desire to become
what one is capable of becoming.
(a)Esteem needs
(b)Self actualization needs
(c)Social needs

Master of Finance & Control Copyright Amity university India

Page 126

AMF101 ORGANIZATION THEORY AND MANAGEMENT

CHAPTER v

HUMAN RESOURCE MANAGEMENT


CONTENTS
5.1 Concept of Human resource management
5.2 Functions of Human resource management
5.3 Significance of Human Resource Management
5.4 Cone Values of HRM
5.5 Strategic Role of Human Resource Manager
5.6 Human Resource planning
5.7 Recruitment
5.8 Selection
5.9 Training
5.10 Performance Appraisal
5.11 Evaluating Human Resources
Master of Finance & Control Copyright Amity university India

Page 127

AMF101 ORGANIZATION THEORY AND MANAGEMENT

5.1 Concept of human resource Management (HRM)


During and after 1970s, several changes took place in many countries which
led to the use of the term Human Resource Management in the place of the
traditional term Personnel Management. These changes include
technological changes, declining importance of trade unionism, shift from
industrial employment to service sector employment, growing competition,
deregulation and globalization of economies, etc. As a result, three important
roles of human resources have emerged have emerged as stated below:
(i)

Human resource policies can be integrated with strategic business


planning and used to reinforce appropriate (or change an
inappropriate) culture.
(ii) Human resources are valuable and a source of competitive
advantage.
(iii) Human resources can be tapped most effectively by mutually
consistent policies which promote commitment and foster a
willingness in employees to act flexibly in the interests of the
adaptive organizations pursuit of excellence.
According to Dessler, Human resource management is the process of
acquiring, training, and compensating employees, and attending to their
labors relations, health, safety and fairness concerns. Milkovich and
Boudreau have defined human resource management as a series of
integrated decisions that form the employment relationship; their quality
contributing to the ability of the organization and the employees to achieve
their objectives. Human resource management is basically concerned with
creating good relationships in the organization and development of people
for contributing to the organizational objectives.
Human resource management is that part of management process which
develops and manages the human element of the enterprise considering their
resourcefulness in term of total knowledge, skills, creative abilities, talents,
aptitudes and potentialities for effectively contributing to the organizational
objectives.

Master of Finance & Control Copyright Amity university India

Page 128

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Every individual working in an organization is a part of its human resources.


Hence, human resource management strategies should be designed keeping
in view of the delicate nature of the human element.

5.2 Functions Of Huaman Resource Management


Human Resource or Personnel Department is established in most of the
organizations, under the charge of an executive known as Human
Resource/Personnel Manager. This department plays an important role in the
efficient management of human resources. The personnel department gives
assistance and provides service to all other departments on personnel
matters. Though personal or human resource manager is a staff officer in
relation to other department of the enterprise, he has a line authority to get
orders executed within is department.
There are three categories of functions which the personnel manager is
expected to perform. These include: (i) managerial, (ii) operative, and (iii)
advisory functions.
Managerial Functions
The Human Resource Manager is a part of the organizational management.
So he must perform the basic managerial functions of planning, organizing,
directing and controlling in relation to his department. These functions are
briefly discussed below:
1. Planning. To get things done the subordinates, a manager must
plan ahead. Planning is necessary to determine the goals of the
organization and lay down policies and procedures to reach the
goals. For a human resource manager, planning means the
determination of personnel programs that will contribute to the
goals of the enterprise, i.e., anticipating vacancies, planning job
requirements, job descriptions and determination of the sources of
recruitment. The process of personnel planning involves three
essential steps. Firstly, a supply and demand forecast for each job
category is made. This step requires knowledge of both labour
market conditions and the strategic posture and goals of the
organization. Secondly, net shortage and excess of personnel by
Master of Finance & Control Copyright Amity university India

Page 129

AMF101 ORGANIZATION THEORY AND MANAGEMENT

job category are projected for a specific time horizon. Finally,


plans are developed to eliminate the forecast shortages and excess
of particular categories of human resources.
2. Organizing. Once the human resource manager has established
objectives and developed plans and programmes to reach them, he
must design and develop organization structure to carry out the
various operations. The organization structure basically includes
the following:
(i)
Grouping of personnel activity logically into functions or
position;
(ii) Assignment of different functions to different
individuals;
(iii) Delegation of authority according to the tasks assigned
and responsibilities involved;
(iv) Co-ordination of activities of different individuals.
3. Directing. The plans are to be put into effect by people. But how
smoothly the plans are implemented depends on the motivation of
people. The direction function of the personnel manager involves
encouraging people to work willingly and effectively for the goals
of the enterprise. In other words, the direction function is meant to
guide and motivate the people to accomplish the personnel
programmes. The personnel manager can motivate the employees
in an organization through career panning, salary administration,
ensuring employee morale, developing cordial relationships and
provision of safety requirements and welfare of employees
The motivational function poses a great challenge for any
manager. The personnel manager must have the ability to identify
the needs of employees and the means and methods to satisfy
those needs. Motivation is a continuous process a new needs and
expectations emerge among employees when old ones are
satisfied.
4. Controlling. Controlling is concerned with the regulation of
activities in accordance with the plans, which in turn have been
formulated on the basis of the objectives of the organization. Thus,
controlling completes the cycle and leads back to planning. It
involves the observation and comparison of results with the
Master of Finance & Control Copyright Amity university India

Page 130

AMF101 ORGANIZATION THEORY AND MANAGEMENT

standards and correction of deviations that may occur. Controlling


helps the personnel manager to evaluate and control the
performance of the personnel department in terms of various
operative functions. It involves performance appraisal, critical
examination of personnel records and statistics and personnel
audit.
OPERATIVE FUNCTIONS
The operative functions are those tasks or duties which are specifically
entrusted to the human resource or personnel department. These are
concerned with employment, development, compensation, integration and
maintenance of personnel of the organization.
The operative functions of human resource or personnel department are
discussed below:
1. Employment. The first operative function of the human resource
or personnel department is the employment of proper kind
number of persons necessary to achieve the objectives of the
organization. This involves recruitment, selection, placement, etc.
of the personnel. Before these processes are performed, it is
better to determine the manpower requirements both in terms of
numbers and quality of the personal. Recruitment and selection
cover the sources of supply of labour and the devices designed to
select the right type of people for various jobs. Induction and
placement of personnel for their better performance also come
under the employment or procurement function.
2. Development. Training and development of personnel is a follow
up of the employment function. It is duty of management to train
each employee properly to develop technical skills for the job for
which he has been employed and also to develop him for the
higher jobs in the organization. Proper development of personnel
is necessary to increase their skills in doing their jobs and in
satisfying their growth need. For this purpose, the personnel
departments will device appropriate training programmes. There
are several on-the-job and off-the-job methods available for
Master of Finance & Control Copyright Amity university India

Page 131

AMF101 ORGANIZATION THEORY AND MANAGEMENT

training purposes. A good training programme should include a


mixture of both types of methods. It is important to point out that
personnel department arranges for training not only of new
employees but also of old employees to update their knowledge
in the use of latest techniques.

3. Compensation. This function is concerned with the


determination of adequate and equitable remuneration of the
employees in the organization for their contribution to the
organizational goals. The personnel can be compensated both in
terms of monetary as well as non-monetary rewards. Factors
which must be borne in mind while fixing the remuneration of
personnel are their basic needs, requirements of jobs, legal
provisions regarding minimum wages, capacity of the
organization to pay, wage level afforded by competitors etc. for
fixing the wage levels, the personnel department can make use of
certain techniques like job evaluation and performance appraisal.
4. Maintenance (Working Conditions and Welfare). Merely
appointment and training of people is not sufficient; they must be
provided with good working conditions so that they may like
their work and work-place and maintain their efficiency. Working
conditions certainly influence the motivation and morale of the
employees. These include measures taken for health, safety, and
comfort of the work-force. The personnel department also
provides for various welfare services which relate to the physical
and social well-being of the employees. These may include
provision of cafeteria, rest rooms, counseling, group insurance,
education for children of employees, recreational facilities, etc.
5. Motivation. Employees work in the organization for the
satisfaction of their needs. In many of the cases, it is found that
they do not contribute towards the organizational goals as much
as they can. This happens because employees are not adequately
motivated. The human resource manager helps the various
departmental managers to design a system of financial and nonfinancial rewards to motivate the employees.
Master of Finance & Control Copyright Amity university India

Page 132

AMF101 ORGANIZATION THEORY AND MANAGEMENT

6. Personnel Records. The human resource or personnel


department maintains the records of the employees working in
the enterprise. It keeps full records of their training,
achievements, transfer, promotion, etc. it also preserves many
other records relating to the behavior of personnel like
absenteeism and labour turnover and the personnel programmes
and policies of the organization.
7. Industrial relations. These days, the responsibility of
maintaining good industrial relations is mainly discharged by the
human resource manage. The human resource manager can help
in collective bargaining, joint consultation and settlement of
disputes, if the need arises. This is because of the fact that he is in
possession of full information relating to personnel and has the
working knowledge of various labour enactments. The human
resource manager can do a great deal in maintaining industrial
peace in the organization as he is deeply associated with various
committees on discipline, labour welfare, safety, grievance, etc.
he helps in laying down the grievance procedure to redress the
grievances of the employees. He is also gives authentic
information to the trade union leaders and conveys their views on
various labour problems to the top management.
8. Separation. Since the first function of human resource
management is to procure the employees, it is logical that the last
should be the separation and return of that person to society.
Most people do not die on the job. The organization is
responsible for meeting certain requirements of due process in
separation, as well as assuring that the returned person is in as
good shape as possible. The personnel manager has to ensure the
release of retirement benefits to the retiring personnel in time.
ADVISORY FUNCTION
Human resource manager has specialized education and training in
managing human resources. He is an expert in his area and so can
give advice on matters relating to human resources of the
organization. He offers his advice to:
Master of Finance & Control Copyright Amity university India

Page 133

AMF101 ORGANIZATION THEORY AND MANAGEMENT

1. Top Management. Personnel manager advises the top


management in formulation and evaluation of personnel
programmes, policies and procedures. He also gives advice for
achieving and maintaining good human relations and high
employee morale.
2. Departmental Heads. Personnel manager offers advice to the
heads of various departments on matters such as manpower
planning, job analysis and design, recruitment and selection,
placement, training, performance appraisal, etc.

5.3 Significance of Human Resource Management


HRM is very important to us for the following reasons:
1. Development and Growth of the organisation:
HRM paves way for development and growth in the organisation. By
improving the individual capabilities, acquiring necessary cooperation and
developing teamwork HRM makes sure that the organization develops and
grows well. Goals of thee organization are met by HRM by effective
motivation and excellent utilization of employees.

2. Creation of healthy culture in the Organization:


HRM creates and maintains excellent culture in the organization and it
makes people develop and grow.
3. Maintenance of Human Resources:
The development, care of Human Resources is done by the HRM.
4. The concept of Human beings is a very crucial and vital factor of
production; HRM is gaining more and more importance day by day. It also
has important implication in societal development also. IT IS THE HEART
AND SOUL OF MODERN MANAGEMENT.
Master of Finance & Control Copyright Amity university India

Page 134

AMF101 ORGANIZATION THEORY AND MANAGEMENT

5.4 Core Values of HRM:


The core values of HRM states that
1. Human beings are the crucial aspects of every organization. The greater is
the commitment of the human resources the more successful is the
organization.
2. An individual is a whole person. He brings all aspects of his personality,
attitudes, traits and behavior to the work place.
3. All people represent the organization. The building, equipment and other
resources are productive only because they are being handled by the hyper
energic force of humans.
4. People are different from each other. They vary in abilities, nature,
personality; religion etc. people are also influenced by social economic and
environmental factors.
Human resources have to be acquired, developed and motivated to give
higher performances and also must be retained.
5.

6. The success of an organization depends upon the satisfaction of


organizational needs and employees needs. There are various levels of
hierarchical levels in an organisation. The people who manage (i.e., the
managers), and people who are at work (subordinates). The effective
coordination and commitment between managers and subordinates is
essential for organizational success. Apart from that healthy relation ships
are to be maintained with consumers, shareholders, entrepreneurs,
governments and suppliers.
7. Human relations enable people to work effectively in an organization
with other people in organization.

5.5 Srategic Role Of Human Resource Manager


What are the emerging challenges of HRM? The world order is changing
dramatically and is in the process of complete transformation. The
Master of Finance & Control Copyright Amity university India

Page 135

AMF101 ORGANIZATION THEORY AND MANAGEMENT

impossible things of yesterdays have become possible today and the


impossible things of today will become possible tomorrow. That is why it is
said that change is the only permanent aspect of nature. The concept of selfsufficient nations is losing importance and the concept of Global Village is
emerging. Management of economics and organizations is bound to cope up
with the radical transformation by developing new techniques and practices
in the global perspective after carefully analyzing the real challenges being
faced by the professional managers.
Modern organizations are faced with the following environmental
challenges:
(a) Changing technology leading to obsolescence of present skills and
techniques;
(b) Economic and industrial policy changes leading to tough competition
from multinational corporations;
(c) Changing international environment insisting on free flow of goods and
services throughout the world;
(d) Changing profile of workers, e.g., increased educational level, rising
share of women in the work force, increased emphasis on fulfillment of
psychological needs;
(e) Changing needs and expectations of customers rending the existing
processes and products obsolete.
The above trends will have a tremendous impact on the tasks of future HR
professionals who will have to act change agents or change facilitators.
They will have to make judicious use of HRD mechanisms such as
performance appraisal, training, etc. to effectively meet the challenges of
environment. They will have to build up learning organization having the
capacity and capability to learn from experimentation, past experiences and
the experiences of other and transfer the learning to all human resources for
greater organizational effectiveness. The introduction of Total Quality
Management in the organization is one such experience which can bring far
reaching improvements in the organization and contribute to the
development of human resources on a continuous basis.

Master of Finance & Control Copyright Amity university India

Page 136

AMF101 ORGANIZATION THEORY AND MANAGEMENT

What is the Strategic role of HRM? The prominent areas where the human
resources manager can play strategic role are discussed below:
1. Providing Purposeful Direction
The human resource manager must be able to lead people and the
organization towards the desired direction involving people right from
the beginning. One of the most important tasks of a professional
manager is to ensure that the mission of an organization has been
internalized by each individual working in the organization. Mission
of an organization states the very purpose and justification of its
existence.
The human resource manager will have to ensure that the mission of
an organization becomes the mission of each person working in the
organization and the objectives are set to fulfill the same. Objectives
are specific aims which must be in line with the mission of the
organization and all the actions of each person must be consistent with
the objective defined.

2. Building Core Competency


The human resource manager has a great role to play in developing core
competency by the firms. A core competence is a unique strength of an
organization which may not be shared by others. This may be in the form
of human resources, marketing capability, or technological capability. If
the business is organized on the basis of core competency, it is likely to
generate competitive advantage. Because of this reason, many
organizations have restructured their businesses by divesting those
businesses which do not match core competence or acquiring those
businesses which fit core competency such as Ambuja acquiring cement
companies and Reliance Industries acquiring yarn companies.
Organization of business around core competence implies leveraging the
limited resources of a firm. It needs creative, courageous and dynamic
leadership having faith in the organizations human resources.
Master of Finance & Control Copyright Amity university India

Page 137

AMF101 ORGANIZATION THEORY AND MANAGEMENT

3. Creating Competitive Advantage


In todays globalised market place, maintaining a competitive advantage is
the foremost goal of any business organization. There are two important
ways a business can achieve a competitive advantage. The first is cost
leadership which means the firm aims to become the low-cost leader in the
industry. The second competitive strategy is differentiation under which the
firms seek to be unique in the industry in terms of dimensions that are
widely valued by the customers. Putting these strategies into effect carries a
heavy premium on having a highly committed and competent workforce.
Such a workforce would enable the organization to compete on the basis of
market responsiveness, product and service quality, differentiated products
and technological innovation.
4. Facilitation

of Change

The HR managers will be required to act as change agents through greater


involvement in environmental scanning and development planning. The HR
function will become more creative and less mechanistic. It will be more
concerned with substance rather than form, accomplishments rather than
activities, and practice rather than theory. The personal function will be
responsible for furthering the organization not just maintaining it. HR
managers will have to devote more time to promote changes than to
maintain the status quo.
5. Managing Work Diversity
In modern organizations, management of diverse workforce is a great
challenge. Workforce diversity can be observed in terms of male and female
workers, young and old workers, educated and uneducated workers,
unskilled, skilled and professional employees, etc. Moreover, many
organizations also have people of different castes, religion and nationalities.
The work-force in future will comprise more of educated and self-conscious
workers. They will ask for higher degree of participation and avenues for
self-fulfillment. Moreover, the proportions of professional and technical
employees will increase in relation to blue-collar workers. The ratio of
Master of Finance & Control Copyright Amity university India

Page 138

AMF101 ORGANIZATION THEORY AND MANAGEMENT

female employees in the total workforce will also rise. Integration of women
within managerial ranks will itself be a problem. Money will no longer be
the sole motivating force for majority of the workers. Non-financial
incentives will also play an important role in motivating the workforce. In
short, human resources will be treated as assets which will appear in Balance
Sheets of business organizations in future.
Two important trends among the employees which need mention briefly
discussed below:
(a) Increasing Aspirations of employees. Considerable changes have
been noted in the worker of today in comparison to his counterpart of
1980s. The workers are becoming more aware of their higher level
needs and this awareness would intensify further in the future
workers. The managers would be required to evolve appropriate
techniques to satisfy the higher level needs of workers and thus
motivate them.
(b) Increasing Mobility of Personnel. Organization will expand the use
of boundary agents whose primary function will be achieving
coordination with the environment. One interesting fact will be an
increase in the mobility of various managerial and professional
personnel between organizations. As individuals develop greater
technical and professional expertise, their services will be in greater
demand by other organizations in the environment. Professional
mobility may be one of the primary forces helping to increase
effective interface between organizations.
6. Development of Work Ethics and Culture
The future personnel or HR managers will have to mobilize a new work
ethic so as to assist the line managers in setting up and enforcing good
quality standards. Greater focus will be on project and team forms of
organization. Greater efforts will be needed to achieve group cohesiveness
because workers will have transient commitment to groups. As changing
work ethic requires increasing emphasis on individual, jobs will have to be
redesigned to provide challenge. Flexible starting and quitting times for
Master of Finance & Control Copyright Amity university India

Page 139

AMF101 ORGANIZATION THEORY AND MANAGEMENT

employees [flexi time] may be necessary. Focus will shift from extrinsic to
intrinsic motivation.
In future, change will have to be initiated and managed to improve
organizational effectiveness. A vibrant work culture will have to be
developed in the organizations to create an atmosphere of trust among
people and to encourage creative ideas by the people. Far reaching changes
with the help of technical knowledge will be required for this purpose. Top
management will become more actively involved in the development of
human resources.

7. Empowerment of Human Resources


Empowerment means authorizing every members of a society or
organization to take control of his/her own destiny and realizing his/her
potential to the full. It involves giving more power to those who, at present,
have little control over what they do and little ability to influence the
decisions being made around them.
Human behavior is greatly influenced by power is the result of the interplay
between individual consciousness and the forces and pressures of the
external world. Power resides in every aspect of the web of forces, values
and beliefs which determine human behavior. The process of empowering
can be defined as the reorientation of all these forces, values and beliefs so
that they support and liberate the individual, rather than diminish their range
of thought and action. The basic goals of empowerment are that all people
should:
(i)
(ii)
(iii)

Understand and feel good about themselves;


Relate to each other with empathy and respect;
Give voluntary agreement to the rules and structures that govern
their lives; and

Master of Finance & Control Copyright Amity university India

Page 140

AMF101 ORGANIZATION THEORY AND MANAGEMENT

(iv)

8. Total

Have sufficient resources (of knowledge, training, authority,


time, tools, support, money, etc.) to be able to contribute all the
value they can to their chosen roles.

Quality Management (TQM)

TQM is a dynamic process involving all levels in an organization to


promote never ending improvement in the efficiency and effectiveness of
all elements of a business. Quality was earlier considered to be the
domain of shop-floor and nowadays has spread all over the organization
encompassing every conceivable activity in the organization, with the
customer at the center of all thoughts, processes and decisions. The goal
of TQM is to mobilize the entire workforce in pursuits of specific
company goals with the primary aim of achieving customer satisfaction
with regard to quality, price, and delivery and after sale service.
Ever since the beginning of factory system, the concern for quality and
quality control has been in practice. But TQM has brought a qualitative
change in both the concept and practice. Quality was a responsibility of
the management and an instruction to be followed by the workers. But
now TQM is a philosophy of the entire organization. It embodies
development of a company wide culture for quality. TQM typically
involves an increase of awareness through training and motivation. It
requires every member of an organization accepts quality as his
responsibility. TQM is nothing but an understanding and performance of
role by each and every individual in the pursuit of quality improvement.
A positive attitude towards customer and constant enhancement of
quality must be ingrained in the minds of employees.

5.6 Human Resource Planning


Human Resource Planning is the process of anticipating and carrying out
the movement of people into, within, and out of the organization. Human
resources planning is done to achieve the optimum use of human
resources and to have the correct number and types of employees needed
to meet organizational goals.
Master of Finance & Control Copyright Amity university India

Page 141

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Thus, it is a double-edged weapon. If used properly, it leads not only to


proper utilization, but also reduces excessive labor turnover and high
absenteeism, and improves productivity.
It can also be defined as the task of assessing and anticipating the skill,
knowledge and labor time requirements of the organization, and initiating
action to fulfill or source those requirements. Thus, if the organization
as a whole or one of its subsystem is not performing to the benchmark, in
other words, it is declining, it may need to plan a reduction or redeploys
its existing labor force. If you go look back in history, you will come
across example of such activities (the dot com burst!! And how
Hindustan motors had to redeploy its workforce from uttarpada in
Calcutta to pithampur in M.P. to avail the strategic advantage and save
itself from closing down).
On the other hand, if it is growing or diversifying, it might need to find
and tap into a source of suitably skilled labor (for example: GE, the
pioneers in BPO industry went for a large scale recruitment while setting
up office here in India.).
That is why; we need to plan in advance even for procuring human
resources, which in contrast to a general myth are not abundant!! Thus, in
the same line, we propose that organization can achieve its goals effective
through effective contingencies of all the HR functions; for example, the
structure of an organization and the design of the job within it affect an
organizations ability to achieve only through the efforts of people. It is
essential therefore, those jobs within the organization be staffed with the
personnel who are qualified to perform them. Meeting these staffing
needs requires effective planning for human resources
Definitions of HRP as given by different experts are as follows:
Vetter opines that it is the process by which management determines how
the organization should move from its manpower position to its desired
manpower position to carry out integrated plan of the organization.
According to Geisler, Manpower planning is the process including
forecasting, developing and controlling by which a firm ensures that it
has1 The right number of people,
Master of Finance & Control Copyright Amity university India

Page 142

AMF101 ORGANIZATION THEORY AND MANAGEMENT

2 The right kind of people,


3 At the right places,
4 At the right time, doing work for which they are economically
most useful.
Wickstrom very beautifully summarizes the features of HRP, viz.,
1
Forecasting future manpower requirements, where we use
mathematical projections you might have studied in business economics
and quantitative techniques paper, to project trends in the economic
environment and development of the industry.
1
Making an inventory of present manpower resources and assessing
the extent to which these resources are employed optimally. Procuring
competent personnel requires positive recruitment efforts and the
development of a variety of recruitment sources. These sources must
consider not only the nature and conditions of the external labor market, but
also the presence of qualified personnel who are available to fill vacancies
through internal promotions or transfers.
1
Anticipating manpower problems by projecting present resources
into the future and comparing them with the forecast of requirements to
determine their adequacy, both quantitatively and qualitatively; and
2
Planning the necessary programmes of requirement, selection,
training, development, utilization, transfer, promotion, motivation and
compensation to ensure that future manpower requirements are properly
met.
Thus, we can summarize that: HRP is a kind of risk management. It
involves realistically appraising the present and anticipating the future (as
far as possible) in order to get the right people into right jobs at the right
time. (Reiterating the view of Geisler).
Significance of Human Resource Planning:
Human Resource Planning is a highly important and useful activity .If
used properly; it offers a number of benefits:
1. Reservoir of Talent. The organisation can have a reservoir of talent
at any point of time. People with requisite skills are readily
available to carry out the assigned tasks.
2. Prepare People for Future. People can be trained, motivated and
developed in advance and this helps meeting future needs for highMaster of Finance & Control Copyright Amity university India

Page 143

AMF101 ORGANIZATION THEORY AND MANAGEMENT

quality employees quite easily. Likewise, manpower shortages can


also be met comfortably through proper human resource planning.
3. Expand or Contract. If the organisation wants to expand its scale of
operations, it can go ahead easily. Advance planning ensures a
continuous supply of people with requisite skills who can handle
challenging jobs easily.
4. Cut Costs. Planning facilitates the preparation of an appropriate
manpower budget for each department or division. This in turn
helps
in controlling manpower
costs
by avoiding
shortages/excesses in manpower supply. The physical facilities
such as canteen, quarters, school, medical help etc, can also be
planned in advance.
5. Succession Planning. Human Resource Planning as pointed out

previously prepares people for future challenges. The stars can be


picked up and kept ready for further promotions whenever they
arise. All multinational companies for example, have this policy of
having a hot list of promising candidates prepared in advance.
Such candidates are rolled over various jobs and assessed and
assisted continuously. When the time comes, such people switch
hats quickly and replace their respective losses without any
problem.

5.7 Recruitment
According to Edwin B.Flippo, Recruitment is the process of searching the
candidates for employment and stimulating them to apply for jobs in the
organisation. It is a linking activity that brings together those offering jobs
and those seeking jobs.
Dale S.Beach observed, Recruitment is the development and maintenance
of adequate manpower resources. It involves the creation of a pool of
available labour upon whom the organisation can draw when it needs
additional employees.
There are two broad methods of Recruitment which are as follows:
1. External Recruitment
Master of Finance & Control Copyright Amity university India

Page 144

AMF101 ORGANIZATION THEORY AND MANAGEMENT

2. Internal Recruitment
External Recruitment
Every enterprise has to tap external sources for various positions. Running
enterprises have to recruit employees from outside for filling the positions
whose specifications cannot be met by the present employees, and for
meeting the additional requirements of manpower.

The following are the most commonly used external sources of


recruitment:
PRESS
ADVERTISEMENTS
Advertisements of the vacancy in newspapers and journals are a widely used
source of recruitment. The main advantage of this method is that it has a
wide
reach.
EDUCATIONAL
INSTITUTES
various management institutes, engineering colleges, medical Colleges etc.
are a good source of recruiting well qualified executives, engineers, medical
staff etc. They provide facilities for campus interviews and placements. This
source
is
known
as
Campus
Recruitment.
PLACEMENT
AGENCIES
Several private consultancy firms perform recruitment functions on behalf of
client companies by charging a fee. These agencies are particularly suitable
for recruitment of executives and specialists. It is also known as RPO
(Recruitment Process Outsourcing)
EMPLOYMENT
EXCHANGES
Government establishes public employment exchanges throughout the
country. These exchanges provide job information to job seekers and help
employers in identifying suitable candidates
LABOUR
CONTRACTORS
Manual workers can be recruited through contractors who maintain close
contacts with the sources of such workers. This source is used to recruit
labour for construction jobs.
Master of Finance & Control Copyright Amity university India

Page 145

AMF101 ORGANIZATION THEORY AND MANAGEMENT

UNSOLICITED
APPLICANTS
Many job seekers visit the office of well-known companies on their own.
Such callers are considered nuisance to the daily work routine of the
enterprise. But can help in creating the talent pool or the database of the
probable candidates for the organisation
EMPLOYEE
REFERRALS
/
RECOMMENDATIONS
Many organisations have structured system where the current employees of
the organisation can refer their friends and relatives for some position in
their organisation. Also, the office bearers of trade unions are often aware of
the suitability of candidates. Management can inquire these leaders for
suitable jobs. In some organizations these are formal agreements to give
priority in recruitment to the candidates recommended by the trade union.
RECRUITMENT AT FACTORY
GATE
Unskilled workers may be recruited at the factory gate these may be
employed whenever a permanent worker is absent. More efficient among
these may be recruited to fill permanent vacancies.
Merits of external sources of recruitment
Qualified Personnel. By using external sources of recruitment, the
management can make qualified and trained people to apply for vacant jobs
in the organisation.
Wider Choice. When vacancies are advertised widely, a large number of
applicants from outside the organisation apply. The management has a wider
choice for selecting the people for employment.
Fresh Talent. The insiders may have limited talents. External sources
facilitate infusion of fresh blood with new ideas into the enterprise.
Competitive Spirit. If a company can tap external sources, the existing staff
will have to compete with the outsiders. They will work harder to show
better performance.

Master of Finance & Control Copyright Amity university India

Page 146

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Demerits of External Sources


Dissatisfaction amongst existing staff. External recruitment may lead to
dissatisfaction and frustration amongst existing employees. They may feel
that their chances of promotion are reduced.
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.
Uncertain Response. The candidates from outside may not be suitable for
the enterprise. There is no guarantee that the enterprise will be able to attract
right kinds of people from external sources.
INTERNAL RECRUITMENT
Internal recruiting is the search for in-house employees who have the
abilities and the attitudes to fulfill the requirements needed and to help the
organization achieve its objectives.
Although internal recruiting is often neglected, and the Internet hardly offers
any useful discussions for this recruiting strategy, it is crucial not to overlook
this strategy. The discussion of internal recruiting provides the advantages
and disadvantages of this recruiting technique in comparison to the external
method.
Advantages of internal recruiting:

Recruiting costs: Since the recruiting machinery is focused on an


already existing pool of employees to fill a vacant position, and
therefore selection and socializing processes are less time and dollar
consuming, internal recruiting tends to be less expensive than external
recruiting.

Motivation: The prospect of potential promotion or transfers


provides a clear sign to the current work force that the organization
offers room for advancement. This addresses the employee's need for
self-achievement.

Master of Finance & Control Copyright Amity university India

Page 147

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Familiarity: The familiarity of the employee has a two-side


effect: On the one hand the employee is familiar with the
organization's policies, procedures, and customs. At the same time, the
organization has established an employment history showing the
workers formal and informal skills and abilities.

Master of Finance & Control Copyright Amity university India

Page 148

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Disadvantages of internal recruiting

Inbreeding: One drawback of extensive internal recruiting is the


reduced likelihood of innovation and new perspectives. A lack of new
employees from the outsides leads to a lack of new ideas and
approaches.

EEO Criteria: A use of the internal pool for the consideration of


vacant positions can lead to conflicts with the Equal Employment
Opportunity Commission. The organization has to ensure and
continuously check its balance of a diverse workforce. This has to
relate to the organizations legal, political and geographical
environment.

More training: Internal recruiting demands a higher degree of


employee training. In order to develop the skills needed to train the
current workforce in new processes and technologies, the organization
has to provide a more expensive training program.

5.8 Selection
Nature and Purpose of Selection
Selection involves a series by which the candidates are screened for
choosing the most suitable persons for vacant posts. The process of
selection leads to employment of persons who possess the ability and
qualifications to perform the jobs which have fallen vacant in an
organization. It divides the candidates for employment into two
categories, namely, those who will be offered employment and those
who will not be. This process should be called rejection since more
candidates may be turned away than employed. That is why, selection is
frequently described as a negative process in contrast with the positive
nature of recruitment.
The most basic purpose of the selection process is to choose right type of
candidates to man various positions in the organization. In order to
achieve this purpose, a well-organized selection procedure involves many
Master of Finance & Control Copyright Amity university India

Page 149

AMF101 ORGANIZATION THEORY AND MANAGEMENT

steps and at each step, unsuitable candidates are rejected. In other words,
the aim of selection process is to reject the unsuitable candidates. But
recruitment, on the other hand, is a positive process. Its aim is to attract
applicants for vacant jobs in the organization. Various sources of
recruitment are used for this purpose.
Thus, recruitment is a positive process because it aims at attracting
applicants for various jobs. But selection is a negative process because it
aims at rejecting applicants who are unsuitable and offering jobs to those
who are found fully suitable.
Significance of Selection
Selection is a critical process these days because it requires a heavy
investment of money to get right types of people. Induction and training
costs are also high. If the right types of person are not chosen, it will lead
to huge loss of the employer in terms of time, effort and money.
Therefore, it is essential to devise a suitable selection procedure. Each
step in the selection procedure should help in getting more and more
information about the applicants to facilitate decision-making in the area
of selection.
Absenteeism and employee turnover are the important problems which
are often faced by many organization. The intensity of these problems
can be reduced if in the future all selections are made care fully so that
there are round pegs in the round holes. Whenever unsuitable
employees are appointed, the efficiency of the organization will go down.
Such employees will shirk work and absent themselves from the work
more often. They may also be compelled to leave their jobs. If this
happens, all the expenses incurred on the selection and training of such
employees will go waste.
Scientific selection and placement of personnel will go a long way
towards building up a stable work-force. It will keep the rates
absenteeism and labor turnover low and will increase the morale of the
employees. If the employees are suitable according to the requirements of
Master of Finance & Control Copyright Amity university India

Page 150

AMF101 ORGANIZATION THEORY AND MANAGEMENT

the jobs, they will show higher efficiency and productivity. This will also
enable the organization to achieve its objectives effectively.
The benefits of selecting right kinds of people for various jobs are as
follows:
(i)

Proper selection and placement of personnel go a long way towards


building up a stable workforce. It will keep the rates of absenteeism
and labor turnover low,
(ii) Competent employees will show higher efficiency and enable the
organization to achieve its objective effectively.
(iii) The rate of industrial accidents will be considerably low if suitable
employees are placed on various jobs.
(iv) When people get jobs of their taste and choice, they get higher job
satisfaction. This will build up a contended workforce for the
organization.
The moral of the employees who are satisfied with their jobs is often high
Recruitment Vs Selection
Both recruitment and selection are the two phases of the employment
process. The differences between the two are:
1. Recruitment is the process of searching the candidates for
employment and stimulating them to apply for jobs in the
organisation WHEREAS selection involves the series of steps by
which the candidates are screened for choosing the most suitable
persons for vacant posts.
2. The basic purpose of recruitments is to create a talent pool of
candidates to enable the selection of best candidates for the
organisation, by attracting more and more employees to apply in
the organisation WHEREAS the basic purpose of selection process
is to choose the right candidate to fill the various positions in the
organisation.
3. Recruitment is a positive process i.e. encouraging more and more
employees to apply WHEREAS selection is a negative process as
Master of Finance & Control Copyright Amity university India

Page 151

AMF101 ORGANIZATION THEORY AND MANAGEMENT

it

involves

rejection

of

the

unsuitable

candidates.

4. Recruitment is concerned with tapping the sources of human


resources WHEREAS selection is concerned with selecting the
most suitable candidate through various interviews and tests.
5. There is no contract of recruitment established in recruitment
WHEREAS selection results in a contract of service between the
employer and the selected employee

5.9 Training
Training is a process of learning a sequence of programmed behavior. It is
the application of knowledge & gives people an awareness of rules &
procedures to guide their behavior. It helps in bringing about positive change
in the knowledge, skills & attitudes of employees.
Thus, training is a process that tries to improve skills or add to the existing
level of knowledge so that the employee is better equipped to do his present
job or to mould him to be fit for a higher job involving higher
responsibilities. It bridges the gap between what the employee has & what
the job demands.
Since training involves time, effort & money by an organization, so an
organization should to be very careful while designing a training program.
The objectives & need for training should be clearly identified & the method
or type of training should be chosen according to the needs & objectives
established. Once this is done accurately, an organization should take a
feedback on the training program from the trainees in the form of a
structured questionnaire so as to know whether the amount & time invested
on training has turned into an investment or it was a total expenditure for an
organization.
Training is a continuous or never ending process. Even the existing
employees need to be trained to refresh them & enable them to keep up with
the new methods & techniques of work. This type of training is known as
Refresher Training & the training given to new employees is known as
Induction Training. This is basically given to new employees to help them
Master of Finance & Control Copyright Amity university India

Page 152

AMF101 ORGANIZATION THEORY AND MANAGEMENT

get acquainted with the work environment & fellow colleagues. It is a very
short informative training just after recruitment to introduce or orient the
employee with the organization's rules, procedures & policies.
Training plays a significant role in human resource development. Human
resources are the lifeblood of any organization. Only through trained &
efficient employees, can an organization achieve its objectives.
TRAINING NEED ANALYSIS
An analysis of training need is an essential requirement to the design of
effective training. The purpose of training need analysis is to determine
whether there is a gap between what is required for effective performance
and present level of performance.
Training need analysis is conducted to determine whether resources required
are available or not. It helps to plan the budget of the company, areas where
training is required, and also highlights the occasions where training might
not be appropriate but requires alternate action.
Training Need arises at three levels:
Organizational Level Training need analysis at organizational level
focuses on strategic planning, business need, and goals. It starts with the
assessment of internal environment of the organization such as, procedures,
structures, policies, strengths, and weaknesses and external environment
such as opportunities and threats.

After doing the SWOT analysis, weaknesses can be dealt with the training
interventions, while strengths can further be strengthened with continued
training. Threats can be reduced by identifying the areas where training is
required. And, opportunities can be exploited by balancing it against costs.
For this approach to be successful, the HR department of the company
Master of Finance & Control Copyright Amity university India

Page 153

AMF101 ORGANIZATION THEORY AND MANAGEMENT

requires to be involved in strategic planning. In this planning, HR develops


strategies to be sure that the employees in the organization have the required
Knowledge, Skills, and Attributes (KSAs) based on the future KSAs
requirements at each level.
Individual Level Training need analysis at individual level focuses
on each and every individual in the organization. At this level, the
organization checks whether an employee is performing at desired
level or the performance is below expectation. If the difference
between the expected performance and actual performance comes out
to be positive, then certainly there is a need of training.
However, individual competence can also be linked to individual
need.
Operational Level Training Need analysis at operational level
focuses on the work that is being assigned to the employees. The job
analyst gathers the information on whether the job is clearly
understood by an employee or not. He gathers this information
through technical interview, observation, psychological test;
questionnaires asking the closed ended as well as open ended
questions, etc. Today, jobs are dynamic and keep changing over the
time. Employees need to prepare for these changes. The job analyst
also gathers information on the tasks needs to be done plus the tasks
that will be required in the future. Based on this information training
need analysis is done.

Significance of training
To impart to the new entrants the basic knowledge & skills they
need for an intelligent performance of definite tasks.
To prepare employees for more responsible positions.
To bring about change in attitudes of employees in all directions.
Master of Finance & Control Copyright Amity university India

Page 154

AMF101 ORGANIZATION THEORY AND MANAGEMENT

To reduce supervision time, reduce wastage & produce quality


products. To reduce defects & minimize accident rate.
To absorb new skills & technology. Helpful for the growth &
improvement of employee's skills & knowledge.
METHODS OF TRAINING:
The most widely used methods of training used by organizations are
classified into two categories: On-the-Job Training & Off-the-Job Training.
ON-THE-JOB TRAINING is given at the work place by superior in
relatively short period of time. This type of training is cheaper & less timeconsuming. This training can be imparted by basically four methods: Coaching is learning by doing. In this, the superior guides his sub-ordinates
& gives him/her job instructions. The superior points out the mistakes &
gives
suggestions
for
improvement.
Job Rotation: - In this method, the trainees move from one job to another,
so that he/she should be able to perform all types of jobs. E.g. In banking
industry, employees are trained for both back-end & front-end jobs. In case
of emergency, (absenteeism or resignation), any employee would be able to
perform
any
type
of
job.
OFF THE JOB TRAINING: - is given outside the actual work place.
Lectures/Conferences:- This approach is well adapted to convey specific
information, rules, procedures or methods. This method is useful, where the
information is to be shared among a large number of trainees. The cost per
trainee
is
low
in
this
method.
Films: - can provide information & explicitly demonstrate skills that are not
easily presented by other techniques. Motion pictures are often used in
conjunction with Conference, discussions to clarify & amplify those points
that
the
film
emphasized.
Simulation Exercise: - Any training activity that explicitly places the
trainee in an artificial environment that closely mirrors actual working
Master of Finance & Control Copyright Amity university India

Page 155

AMF101 ORGANIZATION THEORY AND MANAGEMENT

conditions can be considered a Simulation. Simulation activities include case


experiences, experiential exercises, vestibule training, management games &
role-play.
Cases: - present an in depth description of a particular problem an employee
might encounter on the job. The employee attempts to find and analyze the
problem, evaluate alternative courses of action & decide what course of
action would be most satisfactory.
Experiential Exercises: - are usually short, structured learning experiences
where individuals learn by doing. For instance, rather than talking about
inter-personal conflicts & how to deal with them, an experiential exercise
could be used to create a conflict situation where employees have to
experience a conflict personally & work out its solutions.
Vestibule Training: - Employees learn their jobs on the equipment they will
be using, but the training is conducted away from the actual work floor.
While expensive, Vestibule training allows employees to get a full feel for
doing task without real world pressures. Additionally, it minimizes the
problem
of
transferring
learning
to
the
job.
Role Play: - Its just like acting out a given role as in a stage play. In this
method of training, the trainees are required to enact defined roles on the
basis of oral or written description of a particular situation.
Management Games: - The game is devised on a model of a business
situation. The trainees are divided into groups who represent the
management of competing companies. They make decisions just like these
are made in real-life situations. Decisions made by the groups are evaluated
& the likely implications of the decisions are fed back to the groups. The
game goes on in several rounds to take the time dimension into account.
In-Basket Exercise: - Also known as In-tray method of training. The trainee
is presented with a pack of papers & files in a tray containing administrative
problems & is asked to take decisions on these problems & is asked to take
decisions on these within a stipulated time. The decisions taken by the
trainees are compared with one another. The trainees are provided feedback
on their performance.

Master of Finance & Control Copyright Amity university India

Page 156

AMF101 ORGANIZATION THEORY AND MANAGEMENT

5.10 PERFORMANCE APPRAISAL

Master of Finance & Control Copyright Amity university India

Page 157

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Performance mechanism is a method of assessing the contribution of


employees at different levels of the organisation during a particular period of
time. This is necessary to evaluate the contribution of the employees during
the past year and to provide feedback for improvement. Performance
appraisal is also vital to deciding the appropriate compensation decisions. It
also helps decide on promotions and helps the superior determine the
appropriate compensation decisions. It also helps decide on promotions and
helps the superior determine the appropriate training that may be necessary
to enhance the employees performance.
Master of Finance & Control Copyright Amity university India

Page 158

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Performance evaluation also helps build confidence as the employee has an


opportunity to voice his opinions and his grievances to his superior.
There are a number of methods of performance appraisal. No single method
can be considered ideal in all circumstances. The methods of performance
appraisal can be broadly classified into two categories: traditional and
modern methods.
Traditional methods are the relatively older methods of performance
appraisal.These methods are based ob studying the personal qualities of the
employees.
The traditional methods are as follows:
1. ESSAY APPRAISAL METHOD
This traditional form of appraisal, also known as Free Form method
involves a description of the performance of an employee by his
superior. The description is an evaluation of the performance of any
individual based on the facts and often includes examples and
evidences to support the information. A major drawback of the
method is the inseparability of the bias of the evaluator.
2.

STRAIGHT
RANKING
METHOD
This is one of the oldest and simplest techniques of performance
appraisal. In this method, the appraiser ranks the employees from the
best to the poorest on the basis of their overall performance. It is quite
useful for a comparative evaluation.

3.

PAIRED
COMPARISON
A better technique of comparison than the straight ranking method,
this method compares each employee with all others in the group, one
at a time. After all the comparisons on the basis of the overall
comparisons, the employees are given the final rankings.

4.

CRITICAL INCIDENTS
METHODS
In this method of performance appraisal, the evaluator rates the
employee on the basis of critical events and how the employee
behaved during those incidents. It includes both negative and positive
points. The drawback of this method is that the supervisor has to note

Master of Finance & Control Copyright Amity university India

Page 159

AMF101 ORGANIZATION THEORY AND MANAGEMENT

down the critical incidents and the employee behaviour as and when
they occur.
5.

FIELD
REVIEW
In this method, a senior member of the HR department or a training
officer discusses and interviews the supervisors to evaluate and rate
their respective subordinates. A major drawback of this method is that
it is a very time consuming method. But this method helps to reduce
the superiors personal bias.

6.

CHECKLIST
METHOD
The rater is given a checklist of the descriptions of the behaviour of
the employees on job. The checklist contains a list of statements on
the basis of which the rater describes the on the job performance of
the employees.

7.

GRAPHIC RATING
SCALE
In this method, an employees quality and quantity of work is assessed
in a graphic scale indicating different degrees of a particular trait. The
factors taken into consideration include both the personal
characteristics and characteristics related to the on-the-job
performance of the employees. For example a trait like Job
Knowledge may be judged on the range of average, above average,
outstanding or unsatisfactory.

8.

FORCED
DISTRIBUTION
To eliminate the element of bias from the raters ratings, the evaluator
is asked to distribute the employees in some fixed categories of
ratings like on a normal distribution curve. The rater chooses the
appropriate fit for the categories on his own discretion.

Modern Methods:
Modern Methods were devised to improve upon the traditional methods.
Modern methods attempt to remove the short comings of the old methods
such as subjectivity, bias etc. Some of the modern methods are:
1.Behaviorally

Anchored

Rating

Scales

Behaviorally Anchored Rating Scales (BARS) is a relatively new technique


Master of Finance & Control Copyright Amity university India

Page 160

AMF101 ORGANIZATION THEORY AND MANAGEMENT

which combines the graphic rating scale and critical incidents method. It
consists of predetermined critical areas of job performance or sets of
behavioral statements describing important job performance qualities as
good or bad (for e.g. the qualities like inter-personal relationships,
adaptability and reliability, job knowledge etc). These statements are
developed
from
critical
incidents.
In this method, an employees actual job behaviour is judged against the
desired behaviour by recording and comparing the behaviour with BARS.
Developing and practicing BARS requires expert knowledge.
2. Management By Objectives(MBO)
The concept of Management by Objectives (MBO) was first given by Peter
Drucker in 1954. It can be defined as a process whereby the
employees and the superiors come together to identify common
goals, the employees set their goals to be achieved, the standards to
be taken as the criteria for measurement of their performance and
contribution and deciding the course of action to be followed.
The essence of MBO is participative goal setting, choosing course of
actions and decision making. An important part of the MBO is the
measurement and the comparison of the employees actual
performance with the standards set. Ideally, when employees
themselves have been involved with the goal setting and the
choosing the course of action to be followed by them, they are more
likely to fulfill their responsibilities.

THE MBO PROCESS

Master of Finance & Control Copyright Amity university India

Page 161

AMF101 ORGANIZATION THEORY AND MANAGEMENT

UNIQUE FEATURES AND ADVANTAGES OF MBO


The principle behind Management by Objectives (MBO) is to create
empowered employees who have clarity of the roles and responsibilities
expected from them, understand their objectives to be achieved and thus
help in the achievement of organizational as well as personal goals.
Some of the important features and advantages of MBO are:

Clarity of goals With MBO, came the concept of SMART goals i.e.
goals that are:
Specific

Measurable

Achievable

Master of Finance & Control Copyright Amity university India

Page 162

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Realistic

Time bound

The goals thus set are clear, motivating and there is a linkage between
organizational goals and performance targets of the employees.

The focus is on future rather than on past. Goals and standards are set
for the performance for the future with periodic reviews and feedback.

Motivation Involving employees in the whole process of goal setting


and increasing employee empowerment increases employee job
satisfaction and commitment.

Better communication and Coordination Frequent reviews and


interactions between superiors and subordinates helps to maintain
harmonious relationships within the enterprise and also solve many
problems faced during the period. 360 degree performance appraisal

360 degree feedback, also known as 'multi-rater feedback', is the most


comprehensive appraisal where the feedback about the employees
performance comes from all the sources that come in contact with the
employee
on
his
job.
360 degree respondents for an employee can be his/her peers,
managers (i.e. superior), subordinates, team members, customers,
suppliers/ vendors - anyone who comes into contact with the
employee and can provide valuable insights and information or
feedback regarding the on-the-job performance of the employee.

360
1.
2.
3.
4.

degree

appraisal

has

four

integral

components:

Self
Superiors
Subordinates
Peer

appraisal
appraisal
appraisal
appraisal.

Self appraisal gives a chance to the employee to look at his/her strengths and
weaknesses, his achievements, and judge his own performance. Superiors
appraisal forms the traditional part of the 360 degree appraisal where the
Master of Finance & Control Copyright Amity university India

Page 163

AMF101 ORGANIZATION THEORY AND MANAGEMENT

employees responsibilities and actual performance is rated by the


superior.
Subordinates appraisal gives a chance to judge the employee on the
parameters like communication and motivating abilities, superiors ability to
delegate the work, leadership qualities etc. Also known as internal
customers, the correct feedback given by peers can help to find employees
abilities to work in a team, co-operation and sensitivity towards others.

Master of Finance & Control Copyright Amity university India

Page 164

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Self assessment is an indispensable part of 360 degree appraisals and


therefore 360 degree performance appraisal have high employee
involvement and also have the strongest impact on behavior and
performance. It provides a "360-degree review" of the employees
performance and is considered to be one of the most credible
performance
appraisal
methods.
360 degree appraisal is also a powerful developmental tool because
when conducted at regular intervals (say yearly) it helps to keep a
track of the changes others perceptions about the employees. A 360
degree appraisal is generally found more suitable for the managers as
it helps to assess their leadership and managing styles. This
technique is being effectively used across the globe for performance
appraisals. Some of the organizations following it are Wipro,
Infosys, and Reliance Industries etc.
4. ASSESSMENT
CENTRES
An assessment centre typically involves the use of methods like
social/informal events, tests and exercises, assignments being given to a
group of employees to assess their competencies to take higher
responsibilities in the future. Generally, employees are given an assignment
similar to the job they would be expected to perform if promoted. The
trained evaluators observe and evaluate employees as they perform the
assigned jobs and are evaluated on job related characteristics.
The major competencies that are judged in assessment centers are
interpersonal skills, intellectual capability, planning and organizing
capabilities, motivation, career orientation etc. assessment centers are also
an effective way to determine the training and development needs of the
targeted employees.
5.HUMAN

RESOURCE

ACCOUNTING

METHOD

Human resources are valuable assets for every organization. Human


resource accounting method tries to find the relative worth of these assets in
the terms of money. In this method the performance appraisalof the
Master of Finance & Control Copyright Amity university India

Page 165

AMF101 ORGANIZATION THEORY AND MANAGEMENT

employees is judged in terms of cost and contribution of the employees. The


cost of employees include all the expenses incurred on them like their
compensation, recruitment and selection costs, induction and training costs
etc whereas their contribution includes the total value added (in monetary
terms). The difference between the cost and the contribution will be the
performance of the employees. Ideally, the contribution of the employees
should be greater than the cost incurred on them.

5.11 Evaluating Human Resources


The Four Cs Model for Evaluating Human Resources
To evaluate the effectiveness of the HRM process, within an organization,
Harvard researchers have proposed a four Cs model: competence,
commitment, congruence, and cost effectiveness. Examples of questions
related to each of the four Cs, and some methods for measuring them
follow:
1. Competence:
How competent are employees in their work? Do they need additional
training? Performance evaluations by managers can help a company
determine what talent it has available. To what extent do HRM policies
attract, keep, and develop employees with skills and knowledge needed now
and in the future?
2. Commitment:
How committed are employees to their work and organization?
Surveys can be conducted through interviews and questionnaires to find
answers to this question. Additional information can be gained from
personnel records about voluntary separation, absenteeism, and grievances.
TO what extent do HRM policies enhance the commitment of employees to
their work and organization?
3. Congruence:
Master of Finance & Control Copyright Amity university India

Page 166

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Is there congruence, or agreement, between the basic philosophy and goals


of the company and its employees?
Is there trust and common purpose between managers and employees?
Incongruence can be detected in the frequency of strikes, conflicts between
managers and subordinates, and grievances. A low level of congruence
results in low levels of trust and common purpose; tension and trust between
employees and managers may increase.
What levels of congruence between management and employees do HRM
policies and practices enhance or retain?
4. Cost effectiveness:
Are HRM policies cost-effective in terms of wages, benefits, turnover,
absenteeism, strikes, and similar factors?
By shaping HRM policies to enhance commitment, competence,
congruence, and cost effectiveness, an organization increases its capacity to
adapt to changes in its environment.
High commitment means:
1. Better communication between employees and managers.
2. Enhanced mutual trust.
3. All stakeholders responsive to one anothers needs and concerns whenever
changes in environmental demands occur.
High competence means:
1. Employees are versatile in their skills and can take on new roles and jobs
as needed.
2. Employees are better able to respond to changes in environmental
demands.

Master of Finance & Control Copyright Amity university India

Page 167

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Cost effectiveness means:


That human resource costs, such as wages, benefits, and strikes, are kept
equal to or less than those of competitors.
Higher congruence means:
That all stakeholders share a common purpose and collaborate in solving
problems brought about by changes in environmental demands. This
capacity to collaborate is crucial in an ever changing environment.
Managers need the participation of a broad range of stakeholders (including
management, unions, and governmental agencies) to obtain the data needed
to evaluate the impact of HRM practices and policies.
High competence means:
1. Employees are versatile in their skills and can take on new roles and jobs
as needed.
2. Employees are better able to respond to changes in environmental
demands.
Cost effectiveness means:
That human resource costs, such as wages, benefits, and strikes, are kept
equal to or less than those of competitors.
Higher congruence means:
That all stakeholders share a common purpose and collaborate in solving
problems brought about by changes in environmental demands. This
capacity to collaborate is crucial in an ever changing environment.

Master of Finance & Control Copyright Amity university India

Page 168

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Managers need the participation of a broad range of stakeholders (including


management, unions, and governmental agencies) to obtain the data needed
to evaluate the impact of HRM practices and policies.

END CHAPTER QUIZZES

CHAPTER V QUIZZES
Q1is the organization function of planning for human resource needs,
recruiting and training candidates and evaluating their performance.
(a)Resource Management
(b)Human Resource Management
(c) Manpower Management
Q2.Which of the following involves estimating the size and makeup of the
future workforce and helping the organization acquire the right number and
right kind of people when they are needed.
(a)Human Resource Planning
(b) Human Requirements Planning
(c)Work Force Planning
Q3. ..consists of a set of activities aimed at attracting and
selecting individuals for positions in a way that will facilitate the
achievement of organizational goals
Master of Finance & Control Copyright Amity university India

Page 169

AMF101 ORGANIZATION THEORY AND MANAGEMENT

(a)Recruitment
(b) Selection (c)Staffing
Q4.As compared to selection, recruitment is a process
(a)Positive
(b)Negative
(c)None of the above
Q5..involves choosing the candidates who
qualifications and have the greatest aptitude for job.

best

meet

the

(a)Staffing
(b)Recruitment
(c)Selection
Q6.Job rotation is an.training process.
(a)On the Job
(b)Off the Job
(c)None of the above
Q7..is also known as a multirater feedback approach of performance
appraisal.
(a)360-Degree
(b)MBO
(C)180-Degree

Master of Finance & Control Copyright Amity university India

Page 170

AMF101 ORGANIZATION THEORY AND MANAGEMENT

Q8.MBO was first suggested by:


(a)Peter Drucker (b)Henry Fayol (c)F.W Taylor
Q9.Advertisement is asource of recruitment
(a)External
(b)Internal
(c)Both the above
Q10. Comparing an individuals job performance against standards or
objectives developed for the individuals position is known as..
(a) Job appraisal
(b) Evaluation
(c) Performance appraisal

Master of Finance & Control Copyright Amity university India

Page 171

AMF101 ORGANIZATION THEORY AND MANAGEMENT

BIBLIOGRAPHY
1. Singh B.P.,Chhabra T.N,2004,Organisation Theory and Behavior,
Dhanpat Rai & Co. (Pvt.) Ltd.
2. Robbins S., Coulter M,2005 ,Management ,Prentice Hall of India Pvt.
Ltd.
3. Chhabra T.N,2005,Human Resource Management ,Concepts and Issues
Dhanpat Rai &Co.(P)Ltd.
4. Rao VSP,2000,Human Resource Management Text and Cases,
Excel Books
5.Shukla M,2006,Understanding Organisations:Organisational Theory
And Practices in India.PHI
6. Aggarwal Tanuja,2007,Strategic Human Resource Management.
Oxford University Press.
7. Barat, N.1998, Emerging Issues in Management, Excel Books ,India

Master of Finance & Control Copyright Amity university India

Page 172

AMF101 ORGANIZATION THEORY AND MANAGEMENT

KEY TO END CHAPTER QUIZZES.


CHAPTER 1
Q1.(a) Q2.(b) Q3.(b)Q4.(a)Q5.(c)Q6(c) Q7.(a) Q8(a)Q9.(b)Q10.(b)
CHAPTER 2
Q1.(a)Q2(b) Q3(b)Q4.(a)Q5(a)Q6.(b)Q7.(b)Q8(b)Q9(a)Q10(a)
CHAPTER 3
Q1.(b)Q2.(a)Q3.(b)Q4(b)Q5(b)Q6(a)Q7(a)Q8(b)Q9(a)Q10(a)
CHAPTER4
Q1.(a) Q2(a) Q3(a) Q4(c) Q5(c)Q6(b)Q7(a)Q8(b)Q9(b)Q10(b)
CHAPTER5
Q1.(b)Q2(a)Q3(c)Q4(a)Q5(c)Q6(a)Q7(a)Q8(a)Q9(a)Q10(c)

Master of Finance & Control Copyright Amity university India

Page 173