Self Learning Material

Principles & Practices of

Management
(MBA-101)

Course: Master of Business Administration

Semester-I

Distance Education Programme

I.K. Gujral Punjab Technical University
Jalandhar
 Syllabus
I.K. Gujral Punjab Technical University
Scheme of (MBA) Batch 2012 Onwards
MBA101 Principles & Practices of Management
Max. Marks: 100
External Assessment: 60
Internal Assessment: 40

Objective: This course presents a thorough and systematic coverage of management theory
and practice. The course aims at providing fundamental knowledge and exposure of the
concepts, theories and practices in the field of management. It focuses on the basic roles,
skills and functions of management, with special attention to managerial responsibility for
effective and efficient achievement of goals.

Unit I
Introduction: Definition, nature, scope, importance, Functions of management and manager,
Managerial roles and skills, Managerial ethics: need, importance, classification and ethical
dilemma, Corporate social responsibility: concept, need, tools and strategies. Evolution of
management thought and Management thinkers. Scientific Management, General
administrative theories, Quantitative approach, Behavioral approach, Systems approach,
Contingency approach.

Unit II
Planning: Importance, types of plans, and process of planning, business forecasting.
Concept, importance, benefits, limitations and process of Managing by Objectives. Strategic
management : Nature, importance, purpose, types, process and major kinds of strategies.
Decision-Making: Importance, types, steps and approaches, Decision Making in various
conditions, decision tree.

Unit III
Organizing: Concept, types, structure and process of organization, Bases of departmentation,
Line & Staff concept; problems of use of staff & ways to avoid line-staff conflict. Authority
& power :-concept, responsibility and accountability. Delegation: concept, importance,
factors affecting delegation, Reasons for failure and ways to make delegation effective, Span
of Management. Decentralization vs centralization: concept, reasons types and advantage
vs disadvantages of decentralization. Coordination: Concept, importance, difficulties and
techniques to ensure effective coordination.
 Unit IV

Control: Concept, importance, characteristics, planning-control relationship, process of

control setting objectives, establishing standards, measuring performance, correcting
deviations, types, process and techniques of control, Comparative study: Comparative study
of main features of Japanese Management and Z-culture of American Companies, Chinese
Style Management, Modern management techniques: an overview of various latest
techniques: Business process Re engineering, business outsourcing, benchmarking,
knowledge management, total quality management process, McKinsey's 7-S Approach, E-
Business Management.

Note : Relevant Case Studies should be discussed in class.

Suggested Readings /Books:

Heinz Weihrich, Cannice & Koontz, Management (A Global Perspective), Tata McGraw Hill
Griffin, Management: Principle & Applications, Cengage Learning
Stephen Robbins & Coulter Mary,Management, Pearsons Education
V S P Rao & V H Krishna, Management, Excel Books
P.Subba Rao, Principles of Management, Himalaya Publishing
Dubrin, Management: Concepts & Cases, Cengage Learning
Daft, Principles of Management, Cengage Learning
Ferrell, Business: A Changing World, Tata McGraw Hill
Mukherjee, Principles of Management and Organisational behaviour, Tata McGraw Hill.
 Table of Contents
Chapter No. Title Written By Page No.
1 Nature and Scope of Management Ms. Priyanka Singh, PIM, 1
Kapurthala
2 Schools of Management Thought Ms. Priyanka Singh, PIM, 22
Kapurthala
3 Business Ethics & Corporate Social Ms. Priyanka Singh, PIM, 44
Responsibility Kapurthala
4 Planning Ms. Priyanka Singh, PIM, 63
Kapurthala
5 Strategic Management Ms. Priyanka Singh, PIM, 90
Kapurthala
6 Decision Making Ms. Priyanka Singh, PIM, 108
Kapurthala
7 Organizing Ms. Priyanka Kaushik, 121
PIM, Kapurthala
8 Delegation & Decentralisation Ms. Priyanka Kaushik, 142
PIM, Kapurthala
9 Coordination Ms. Priyanka Kaushik, 157
PIM, Kapurthala
10 Controlling Ms. Priyanka Kaushik, 168
PIM, Kapurthala
11 Styles of Management Ms. Priyanka Kaushik, 181
PIM, Kapurthala
12 Modern Management Techniques Ms. Priyanka Kaushik, 195
PIM, Kapurthala

Reviewed by:

Dr. Harpreet Singh Chahal

Department of Business Management, GNDU Regional Campus, Gurdaspur.

IK Gujral Punjab Technical University Jalandhar

All rights reserved with IK Gujral Punjab Technical University Jalandhar
 Chapter 1
Nature and Scope of Management

Structure
1.0 Objectives
1.1 Introduction
1.2 What is management?
1.3 Nature of management
1.4 Importance of Management
1.5 Process of Management
1.6 Functions of management
1.7 Traits of a successful manager
1.8 Managerial roles
1.9 Summary
1.10 Glossary
1.11 Answers to Check your Progress
1.12 Bibliography/ References/ Suggested Readings
1.13 Terminal and Model Questions

1.0 Objectives
After studying this chapter, you will be able to:
Explain the concepts of management.
Discuss the different approaches towards management.
Describe the nature of management and
Classify the functions of management and understand the significance of each function in
carrying out the managerial processes effectively.
Understand the technical, human and conceptual skills required by a manager and
appreciate the use of these skills in building up an effective organization.
Identify the role of managers in present business scenario in different context.

1.1 Introduction

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As we all know that an individual is the basic unit of a society. This is well-known fact that no
individual can fulfill all his desires himself. Therefore, he unites with his peer group and works
in an organized group in order to achieve his desired objectives that he could not accomplish
individually. We, as human beings, are surrounded by different organized groups vis--vis a
family, friends, peer group, school, business firm etc. Management is an indispensable part of
any group activity. It is a primary force within the group which tends to lead it towards the group
goal. Management is required to bring the material and human resources together and work for
the achievement of the organizational goals.
Management is a universal process in all organized social and economic activities. In our real life
also, every activity that we undertake involves an element that ensures coordination in the
activity, which motivates us to accomplish our goals. This element is none other than the
management.

1.2 What is management?

The term management can be described as manage + men + t which implies to manage men
tactfully. It is the act of getting the work done with the efforts of others. It is a diverse process
comprising of activities of planning, organizing, activating and controlling, performed in order to
define and achieve the definite goals with the use of human and material resources.
As a management student, you must be aware of the fact that the term Management is used
widely in various contexts. Sometimes it is used to describe group of managers in an
organization. At other times, it refers to the tasks that management does and includes planning,
organizing, leading and controlling. It is also referred to as a body of knowledge, a practice and a
discipline. There are some who describe it as a technique of leadership and decision making or a
means of coordinating. An understanding of the various concepts of management will help you
better understand what actually management is. So, we have the following conceptualizations for
management.
1. Management as a Noun: As a noun, management refers to all those persons who are
concerned with getting things done through others. Thus, management comprises of all
those personnel who have the responsibility over the others and includes the Chief
Executive Officers, supervisors, foremen and managers.

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2. Management as a Process: As a process, management is used to describe all the functions
that a manager performs. It is the management that sets the organizational objectives and
initiates the activities in order to achieve those objectives. The various elements of this
managerial process include planning, organizing, staffing, directing, coordinating and
controlling.
3. Management as an Activity: Since management is concerned with getting things done
through others, it is referred to as an activity. Like any other activity such as playing,
reading etc., management is also an activity in the sense that a manager accomplishes
various tasks through the efforts of other people. It includes the interpersonal activities,
decisional activities and informative activities.
4. Management as a Group: As we know that it is a group that operates in an organization,
so as a group, the term management refers to all those people who are engaged in
performing the various managerial activities. This group comprises of Chief Executive,
departmental managers, sectional officers, supervisors, foremen and so on. Thus, when
we talk of management, we are concerned with the personnel who are actually involved
in performing various managerial activities at all levels in an organization.
5. Management as a Discipline: Sometimes, management is referred to neither as an activity
nor as personnel who perform those activities, but as a body of knowledge, a practice and
a discipline. In this context, it refers to the various managerial principles and practices as
a subject of study.

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Check your progress I:
Q1. Management is an art as well as science.
A) True
B) False
Q2. Management refers to all those persons who are concerned with getting things done through
others. This makes management study in context of:
A) Noun
B) Activity
C) Group
D) Discipline

1.3 Nature of Management

The various definitions of management reveal the following characteristics of management:
1. Group Activity: Management is an essential element of a group activity. It is required
when an organized group is working towards the accomplishment of some common goal.
So it is the duty of management to make people realize the objectives of the group and
direct their efforts towards the achievement of these objectives.
2. Goal Oriented: All the activities of management are concerned with some goals that are
to be achieved. These goals are pre-determined and all the efforts of management are
directed towards their fulfillment. Thus, it is more inclined towards the establishment and
accomplishment of the organizational goals.
3. Universality: The principles of management have a universal applicability and can be
applied in every type of organization. Wherever there is human activity, management is
involved. Whether it is business, society, politics, education, management is required in
each and every stream. So, it is universal in character.
4. Social Process: Management involves working with people in an organization. The
efforts of human beings have to be directed and regulated by the management in order to
achieve the desired organizational objectives. So, it is regarded as a social process. It is

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 the social obligation of the business to make optimum utilization of available scarce
resources for the benefit of the society at large.
5. System of Authority: Since management is the process of directing the efforts of the other
people at work, the authority is implied in every line of action. Authority may be defined
as the power to get the work done from others and to induce them to work in a definite
manner.
6. Multidisciplinary: Management draws ideas and concepts from various fields like
psychology, sociology, anthropology (study of people, society and culture), economics,
ecology, statistics, operations research etc. thus, it is a multidisciplinary field and
includes a study of all these phenomenon.
7. Dynamic nature of Principles: Principles of management are flexible in nature and
change with the changes in the environment of an organization. There is nothing
permanent in the landslide of management. Moreover, the principles and practices of
management are relative and not absolute. An organization may differ in its functioning
form other organization. So, these principles are applied according to the needs of an
organization.
8. Science or Art: Management is both science as well as an art. It is a science because it
involves the certain principles that are universally applicable irrespective of the type of
organization. However, the results of the management depend upon the skills of the
managers who are to perform the tasks. In this way, management is an art. Thus,
management is both an art as well as a science. However, it may be noted that
management is not an exact science as is the physical science. Since it is still in an
evolutionary stage, it is termed as an inexact science or social science.
9. Profession: In modern times, management is regarded as a profession. It has a systematic
and specialized body of knowledge consisting of techniques and principles and has the
potential to be taught as a subject. In the present times, management is entrusted in the
hands of professional managers.
10. Intangible: Management is intangible, which implies that it cannot be seen. It can only be
felt. For instance, when the desired objectives are not achieved, it is said that it is the
result of the poor management of the organization.

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 11. Needed at all levels in an organization: It is one of the significant features of management
that it is required at all levels of an organization. The only difference that exists is in the
nature of activity and the extent of authority at various levels.

Check your progress II:

Q1. Management is a system of .

Q2.Management is needed at which level in an organization?
A) Top Level
B) Middle Level
C) Lower Level
D) All Levels

Q3. Which of the following is not a characteristic of management?

A) Universality
B) Group Activity
C) System of Authority
D) All are the characteristics of Management

1.4 Importance of Management

Management is the art of getting maximum prosperity with minimum of effort. Whenever there
is a group of people doing some work collectively, there arises a necessity to have adequate
managerial control. The following points highlight the importance of management:
a) Optimum Utilization of resources: Management ensures that the various factors of
production such as land, labor, capital and machinery are optimally utilized. It finds out
the best possible methods to make the best use of available physical resources and
motivates employees for achieving the organizational goals.
b) Achievement of Organizational Goals: One of the significant roles of management is to
set the goals for the organization and channelize the resources in an optimum manner to

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 achieve the set targets. It brings together the physical and human resources and mobilizes
them to strive towards the achievement of business goals.
c) Growth and Development of Business: Every business strives for growth and
development. Management facilitates in improving the efficiency and performance of
people in the organization. Thus, the available resources are channelized into productive
areas thereby enhancing the profitability of the business. This further helps in business
expansion and diversification. Thus, we can say that effective planning and control help a
business to grow and develop.
d) Improved Quality: Management helps in producing better quality products at a minimum
of cost. It implements various controls over the production processes and attempts to curb
wastages at various levels. It also creates quality consciousness among people concerned
with the production activity.
e) Development of Human Skills: Human resource development is one of the key concerns
in the modern times. A good management gives due importance to improvement of skills
and technical competence of its personnel as it develops a confidence and boosts their
morale. In the modern era, only those organizations can survive who equip their
manpower with the latest techniques and methods of work.
f) Risk Minimization: Risk is inherent in every business, but an effective management
always makes an effort to control or diversify it. The different policies and procedures
designed for the organization have to be evaluated and corrective measures need to be
taken, if required, so as to minimize the element of risk present in it.
g) Providing Innovation: In the dynamic business environment, there is a need to work for
continuous improvement in the methods or techniques of work so as to abreast with the
latest thinking. A sound management offers new ideas, phenomenon and visions to the
organization so that it can compete in the market.
h) Enhanced Profits: Profit maximization is the key objective for any organization to grow
and develop. In order to maximize the profits, the organization has to either increase its
sales revenue or reduce its cost. An efficient management helps in reducing the cost by
reducing wastages and thereby maximizing the profitability of the organization.
i) Social Welfare: Management plays a significant role of fulfilling its social responsibility
as well. It is beneficial not only to the business concern, but also serves the society. It

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 provides quality goods at reasonable prices. It generates employment opportunities and
hence helps in raising the standard of living of the people. It ensures optimum utilization
of available scarce resources and thus strives for the growth and development of
economy as a whole.
1.5 Process of Management
Management is concerned with getting the work done through the efforts of the others. It is not a
one-time activity but a continuous process directed towards the accomplishment of the
organizational objectives. It is an ongoing series of interrelated activities. The sum total of these
activities is called the process of management. A process may be defined as a systematic way of
doing the things. It is more inclined towards the transformation of inputs to outputs. It consists of
a set of interrelated operations in that are performed by the human resources in an organization in
order to achieve the set goals.
Management process is characterized by the following features:
a) Social Process: The entire management process is regarded as the social process since
cooperation of people is required for the success of an organization. Managers perform
the vital role of guiding, directing, influencing and controlling the actions of others to
achieve the stated goals. He also has the potential to influence the people outside the
organization.
b) Continuous Process: The process of management is an on-going and continuous.
Managers continuously take up one or the other activity in the organization, thereby
repeating the management cycle times and again. Each managerial function is viewed as
a sub process of total management process.
c) Universal: Management functions are universally applicable in the way that a manager
has to perform them irrespective of the size and nature of the organization. Each manager
performs the same functions regardless of his rank/position in the organization. Even in
the case of non-profit organizations, similar managerial functions are performed.
d) Iterative: Managerial functions are confined within each other. The performance of the
next function starts only at the completion of the previous function. Thus, various
functions are taken together. For instance, planning, organizing, directing and controlling
may occur within staffing function. Similarly, organizing may require planning, directing

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 and controlling. In other words, all functions can be thought of as sub functions of each
other.
e) Composite: All managerial functions are composite and integrated. There cannot be any
sequence which can be strictly followed for performing various functions. The sequential
concept may be true in a newly started business, where functions may follow a particular
sequence, but the same will not apply to a going concern. Any function may be taken up
first or many functions may be taken up at the same time.

1.6 Functions of Management

Management is the process that brings together the various human and material resources
together and encourages people for the realization of the desired goals of the organization. It is a
continuous process of performing interconnected tasks. The set of these activities is termed as
management process. It consists of various interrelated functions required to achieve the desired
organizational goals.
Henry Fayol, Father of management gave the six prime functions of management.

Planning

Controlling Organizing

Coordinating
Staffing

Directing

Let us discuss these functions in detail below:

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1. Planning: The basic managerial function is planning. It is the process of deciding in
advance what to do, when to do, how to do and who will do a particular task. Thus, it
involves thinking before doing. Its primary objective is to achieve better results and
involves selection of organizational objectives and developing policies, programmes,
procedures, budgets and strategies. Planning is a continuous process that takes place at all
levels of management.
The process of planning involves a numbers of steps:
a) Gathering information
b) Setting objectives
c) Developing planning premises
d) Examining alternative courses of action
e) Evaluation of action patterns
f) Reviewing limitations
g) Implementing the plans
2. Organizing: In order to achieve the organizational objectives, various factors of
production are employed. The organizing function deals with all the activities concerned
with arranging, guiding, coordinating, directing and controlling the activities of other
factors of production viz. men, material, money and machines. Thus, it provides a
framework within which people associate for the attainment of business objectives.
The process of organizing involves the following steps:
a) Identification of the work to be performed
b) Classification of work
c) Assignment of work to individuals
d) Delegation of authority and fixing responsibility
e) Coordination of authority-responsibility relationships of various activities
3. Staffing: This function is concerned with the human resources of an organization and
involves manning the positions created by organization process. Since this function deals
with human resources whose behavior and actions cannot be predicted, so it has become
a specialized branch of management.
The process of staffing comprises of the following:
a) Planning manpower requirements in terms of quantity and quality

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 b) Recruitment, selection and training
c) Development, promotion, transfer and appraisal
d) Determination of employee remuneration
4. Directing: This function initiates organized and planned action and ensures effective
performance by the subordinates towards the accomplishment of group activities. So it is
also termed as management in action. George R. Terry has well defined directing as
moving to action and supplying stimulative power to the group. Thus, it concerns the
aggregative manner in which a manager directs the efforts of the people in an
organization. It involves the following elements:
a) Leadership: In order to improve the performance of the subordinates, a manager has
to issue orders and instructions to them and also guide in order to assist them in
accomplishing the organizational objectives. Leadership is the ability to develop
confidence among the subordinates and influencing their work with the aim of
maximizing the satisfaction among the employees and the organization. In order to be
an effective leader, a manager must possess the qualities of foresightedness, initiative,
self-confidence, vision and personal integrity.
b) Communication: Communication is the life blood of any organization. It is a vital
function of management as nothing happens in management until communication
takes place. It can be defined as the exchange of ideas, feelings, facts, conditions or
opinions between two or more persons in order to create a common understanding of
the subject matter of communication. It is a two way process since it involves both
information and understanding. It is said to be formal when it follows the formal
channel of the organizational structure. It is informal when it does not follow the
formal channels. Similarly, it can flow in both upward and downward directions i.e.
from subordinate to superior and vice-versa. Communication is necessary at all levels
of management for effective decision making and planning. Proper communication
flow enhances coordination and ensures smooth working of an organization.
c) Motivation: The term motivation is derived from the word motive which means a
need or the urge that stimulates an individual into action. Motivation is a
psychological process of creating an urge among the subordinates to perform certain
actions or behave in the desired way. It is a vital function of management since the

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 performance of the employees in an organization depends upon their ability and
motivation. A manager has to continuously strive towards motivation of the
subordinates either through financial or non-financial incentives so that they can be
inspired, motivated or persuaded for contributing their best towards the achievement
of enterprise objectives. An effective motivational system must be productive,
competitive, comprehensive and flexible and must be in accordance to the varied
needs of the subordinates.
d) Supervision: It is another significant element of directing function of management.
Supervision aims at overseeing the tasks of the subordinates to ensure that the work is
carried out as planned. It is necessary to guarantee optimum utilization of available
resources, to get the required and directed work done and to correct the subordinates
whenever they go wrong. Supervision can be made more effective by sound
organizational setup, effective delegation, human approach, effective communication
and management by objectives.
5. Coordination: Coordination is another significant function of management required to
channelize the activities of various individuals in the organization for the common goal.
An organization is a sum total of various units called departments or segments. Every
department or segment is given a target to be achieved and it is the task of the
management to see that every department is able to fulfill its objectives and corrective
measures have to be taken in case of any deviations. Coordination creates team spirit and
promotes collective efforts in the organization. In other words, it can be said that it is an
orderly arrangement of group effort to provide unity of action in pursuit of common
objectives.
6. Controlling: Controlling is the most crucial function of management. It is the process of
determining what is being accomplished and involves evaluating the performance, and
applying corrective measures, if required so that the performance takes place in
accordance with the plans. In every organization, planning and controlling are required
for the effective achievement of desired goals. The planning of activities does not ensure
execution and implementation of policies. Control process enables the management to
ensure that the plans are duly implemented and if the performance is deviated from the
standards, the corrective measures are to be taken. Thus, if planning initiates the

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 management process, control may be said to be the final step. If planning is looking
ahead, controlling is looking back. In other words, control is not possible without
planning and planning without control is meaningless.
The process of controlling involves the following steps:
a) Establishing standards
b) Measuring actual performance
c) Comparing actual performance with the standards
d) Finding variances or deviations
e) Taking corrective measures
Check your progress III:
Q1. What is motivating, leading and any other actions involved in dealing with people called?
A) Planning
B) Organizing
C) Controlling
D) Leading
..
A2. Planning is setting goals, establishing strategies and developing plans to coordinate
activities.
A) True
B) False

Q3. Setting goals, establishing strategies and developing plans to coordinate activities is related
to which management function?
A) Planning
B) Organizing
C) Controlling
D) Leading
..
Q4. Monitoring activities to ensure that they are accomplished as planned is.?
A) Planning
B) Staffing

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C) Controlling
D) Organizing
..

1.7 Traits of a Successful Manager

In order to perform the various managerial functions, a manager needs to possess and exhibit
certain skills or qualities. These are popularly termed as traits of a manager. A brief description
of these managerial traits is given below:
1. Planning Traits: The planning function is concerned with defining the future state of your
organization. It is deciding in advance the future course of action to be undertaken by the
different personnel in the organization. Hence, the planning traits include the following:
Ability to think ahead
Ability to forecast environmental trends
Ability to define the objectives of the organization
Ability to select the most appropriate strategy
Ability to meet the set standards for monitoring the implementation of the
strategies.
2. Organizing Traits: Since planning determines the future course of direction of an
organization, organizing function follows it. While planning specifies what to achieve,
organizing function deals with who will achieve, what and how it will be achieved. These
traits can be indicated as:
Ability to analyze and describe various organizational jobs
Ability to select, train and induct people in jobs
Ability to define authority and responsibility links
Ability to adapt to the dynamic environment and change these links
3. Leadership Traits: A successful manager is a good leader and has the capability to
understand the differences among the values, perceptions, personality and attitudes of the
diverse work force in the organization. Thus leadership traits involve the following key
characteristics:
Self confidence

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 Ability to assess the situations and needed behavior
Ability to understand the varied perceptions of people and situations
Understanding of attitudes, personality and values of the personnel in the
organization
4. Controlling Traits: The controlling function is performed in order to ensure that the actual
results are in consonance with the desired results. Any deviation between the planned and
the actual outcome has to be corrected by the manager by taking appropriate action and
decisions. In performing this function, a manager uses his leadership and motivation traits
to control and regulate the performance, in accordance to the earlier planning.

Activity:
Suppose you are manager of ABC Ltd. What is the basis for organizing various departments in
your organization?
Can you identify in your organization, the various levels of management?

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5. Decision-making Skills: These skills are required in the planning process. A managers
effectiveness lies in making good and timely decisions. Whatever the situation is, a
manager has to take many decisions, be it of routine nature or complex ones. The success
of an organization depends upon a larger extent to these skills of a manager.
6. Managerial Skills at various levels: These skills refer to the personal ability put to use by
the manager in specific position that he/she holds in an organizational hierarchy. These
skills are categorized into three heads. These are:
Technical skills
Human skills
Conceptual skills
Check your progress IV:

Q1. The __________ level managers depend most on conceptual skills?

Q2. Managers at different levels in the organizational hierarchy require various sets of skills.
Finding rational and implementable solutions to the problems faced by the organization falls
under which of the following sets of skills?
A) Technical Skills
B) Human Skills
C) Conceptual Skills
D) Decision making Skills

Q3. An accountants ability to audit a companys records is an example of what type of skill?
A) Technical Skills
B) Human Skills
C) Conceptual Skills
D) Design Skills
..

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1.8 Managerial Roles
Managers are the individuals who achieve goals through other people. They make decisions,
allocate resources and direct the activities of other to attain the goals. A manager has to perform
a very crucial job in an organization. How successfully an organization achieves its objectives
and fulfills its social responsibilities as well, depends to a larger extent on the ability to its
managers. A manager plays many diverse roles in an organization. The key roles of a manager
are described as follows:
1. Interpersonal Relationships: A manager has to perform many roles while maintaining a
strong interpersonal relationship with the people in the organization he serves. These
roles are figured as follows:
a) As a figure head: A manager has to perform many representative functions at the
organizational level as a figure head. These functions include representing the
organization at various corporate events, fulfilling social norms, greet people, speak
at functions etc.
b) Leadership role: A manager has to get the work done through others and has to direct
the efforts of others towards the achievement of the desired goals. So, he has to act as
a leader in an organization. He is the one who is to take the front and set an example
of commitment and dedication for the subordinates to follow.
c) Relationship Officer: It is the responsibility of the manager to maintain a link
between the top and the lower level of management. He has to keep an eye on the
various internal and external forces that are going to influence the organizational
work culture. Thus, he has to maintain liaison by attending meetings, conferences and
other corporate events etc.
2. Information Processing: A manager obtains, examines and communicates the information
at all levels of management. In this perspective, he executes the following roles:
a) Monitoring Information: A manager always gathers information about the internal
and the external environment influencing his business. This information is collected
through reports, periodicals, personal contacts etc.
b) Disseminating Information: The information is disseminated to those people who
require it. The subordinates may be informed about the change in policies or other

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 manners governing the organization. He also meets the informational needs of other
people in the organization. This may be done through circulars, letters, phone calls or
personal meetings.
c) Organizations spokesperson: A manager plays the vital role of spokesperson of the
organization while dealing with the external parties. This may involve ample of
communication with the external parties and can be done through telephone calls,
letters or personal meetings.
3. Decision Making: Every plan of management involves a certain line of action. This
involves a series of decision making activities. The role of a manager as decision maker
is described as follows:
a) Entrepreneurial role: A manager has to take various strategic decisions for the
expansion or diversification of the organization. These decisions include procurement
of funds, resource allocation, marketing strategies etc. These decisions involve
consultation with other personnel in the organization and are taken through meetings,
telephone calls, suggestions etc.
b) Conflict Management role: A manager has to act as a conflict handler many a times in
an organization. There may be certain situations where there is a difference of opinion
among the employees and the management. So, it is the responsibility of the manager
to act as an arbitrator to resolve such organizational disputes or grievances. Such
conflict management is essential to maintain cordial relations in the organization.
c) Resource allocator: Every organization is segregated into different departments. It is
the manager who looks into the demands of various segments and takes necessary
actions. He makes the allocation of available resources in an optimum manner so that
there is neither over supply nor shortage of resources in any department.
d) Negotiating Role: A manager has to negotiate with the outsiders for taking certain
decisions. He has to negotiate prices with the suppliers, rates are to be fixed with the
customers and purchase of assets is to be negotiated with the manufacturers.
Moreover, he also has to negotiate with trade unions on various issues.

Check your progress V:

Q1. Match the following:

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1. __________ refers to the manager acting as a a) Interpersonal Roles

communication channel between departments and

senior management.

2. _________ refers to the tactical and strategic b) Informational Role

decisions made by managers. They have access to

the necessary information to make such decisions

and have authority to do so.

3. ___________are the formal parts of a managers c) Decision making Role

job. Leader role being in charge of employee-

related issues. Figurehead role being a

representative of the business. Liaison role being

a communicator for the business.

Q2. According to Henry Mintzbergs classification of managerial roles, a manager designing and
initiating change within the organization is said to be playing which of the following roles?
A) Figurehead
B) Leader
C) Disseminator
D) Entrepreneur

1.9 Summary
Management is the coordination of all resources through the process of planning, organizing,
directing and controlling in order to attain the stated objectives. The basic principles of
management have universal applicability and can be applied to every organization irrespective of
its type. Management is an art as well science, but not an exact science and has now been

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recognized as a profession. It has a systematic and specialized body of knowledge consisting of
principles, techniques and laws and can be taught as a separate discipline. It is a continuous
process that brings all the resources together and motivates people to work for the achievement
of organizational goals.
1.10 Glossary
a) Management: Art of getting things done through others.
b) Management Theory: Systematic grouping of inter-dependent concepts and principles,
which give a framework of knowledge.
c) Planning: Deciding in advance the future course of action.
d) Organizing: Process of identifying and grouping of work to be performed, defining and
delegating responsibility and authority for the achievement of the goals of the
organization.
e) Staffing: Process of manning the various positions in the organization.
f) Directing: Carrying out the desired action plans and includes leadership, communication,
motivation and supervision.
g) Controlling: Process of evaluating the action plan to ensure achievement of objectives.
h) Coordination: Channelizing the activities of individuals in the organization.
i) Vision: A viable view of the future that is embedded in but improves on the present.
j) Mission: A statement of organizations purpose, basic goals and philosophies.
1.11 Answers to Check your Progress
Check your Progress I: 1. A; 2. A
Check your Progress II: 1. Authority; 2. D; 3. D
Check your Progress III: 1. D; 2. A; 3. A; 4.C
Check your Progress IV: 1. Top; 2. D; 3. A
Check your Progress V: 1. B, C, A; 2. D
1.12 Bibliography/ References/ Suggested Readings
Koontz and Weihrich, Essentials of Management An International and Leadership
Perspective", Tata Mc Graw Hill Education Pvt. Ltd., ninth edition, 2012
Stephen P. Robbins, Mary Coulter and Neharika Vohra, Management, Pearson
Prentice Hall, Tenth edition, 2011

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 Karminder Ghuman and K. Aswathappa, Management Concept, Practice and
Cases, Tata Mc Graw Hill Education Pvt. Ltd., 2010
Rajeesh Viswanathan, Principles of Management Concept & Cases, Himalaya
Publishing House, 2010
1.13 Terminal and Model Questions
a) Discuss management as an art, science or profession.
b) Management is the art of getting things done through others. Discuss.
c) What is management? Describe the various functions undertaken by a manager.

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 Chapter 2
Schools of Management Thought
Structure
2.0 Objectives
2.1 Introduction to the Evolution of Management Thought
2.2 Scientific Management
2.3 Administrative Theories
2.4 Quantitative Approach
2.5 Behavioral Approach
2.6 Systems Approach
2.7 Contingency Approach
2.8 Summary
2.9 Glossary
2.10 Answers to Check your Progress
2.11 Bibliography/ References/ Suggested Readings
2.12 Test and Model Questions

2.0 Objectives
In this chapter, you will learn about:
The evolution of management thought and contributions of different management
pioneers.
The various approaches towards management, their contributions and limitations
The systems approach of management and how it has its applicability in different
situations and contingencies.

2.1 Introduction to the Evolution of Management Thought and Management Thinkers

As we know, the roots of management lie with the group of practitioners and writers who sought
to formulate rational principles that can facilitate in increasing the efficiency of the organization.
Since, they have set the theoretical foundations for the management discipline; their
contributions are classified as classical approach to management. This classical approach is
further divided into two sub categories: scientific management and general administrative

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theories. This chapter will help you understand the contemporary management theory and
practice and also demonstrate how the evolution of management concepts reflected the changing
needs of organizations and society as a whole.

2.2 Scientific Management

The theory of scientific management was propounded by Frederick W. Taylor. He is regarded as
the Father of Scientific Management. His management thought is the subject matter of two
books: Shop Management and Principles of Scientific Management which were published in
1903 and 1911 respectively. He laid emphasis on the following factors for enhancing the
productivity of the workers:
Science, not rule of thumb;
Harmony, not discord;
Co-operation, not individualism;
Maximum output, in place of restricted output;
The development of each man to his greatest efficiency and prosperity.

Meaning of Scientific Management: The concept of scientific management implies that one
should have a complete knowledge of what is to be done and how it is to be done. Thus, when
we go by this approach, we apply scientific techniques in the managerial activities such as
recruitment, selection and training of the employees as well as resolving the various industrial
issues.
In the words of F. W. Taylor, scientific management is knowing exactly what you want men to
do and seeing that they do it in the best and the cheapest way. Thus, the scientific
management implies the application of two-fold techniques:
The discovery of the best method of performing a particular work.
The best method for meeting a given situation.
Features of Scientific Management:
Let us discuss the characteristics of scientific management in brief:
It is a systematic, analytical and objective approach to tackle industrial problems;
It makes use of scientific techniques in methods of work, recruitment, selection and
training of employees;

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 It strives to discover the best method of doing a work at the minimal cost.
It replaces the traditional methods of the rule of thumb and hit or miss approaches with
scientific techniques.
It tends to bring a complete revolution in the thought process of the management as well
as employees.
It lays emphasis on all the factors of production, men, material and technology.
It attempts to develop every man to his greatest efficiency and prosperity.

Objectives of Scientific Management: The theory of scientific management has certain

objectives, which we shall discuss below:
1. To accelerate the rate of productivity by making use of standardized tools, equipment and
methods.
2. To improve the quality of the product by research, quality control and continuously
monitoring and inspection.
3. To reduce the cost of production of system planning and regulation and implementing
various cost control techniques.
4. To avoid the wastages in the use of resources, time and the techniques of production.
5. To adopt scientific selection and training procedure so as to place the right person on the
right job.
6. To set up a sound system for the payment of wages to the employees so as to ensure
maximum efficiency.
7. To ensure that the goods are provided to the consumers at reasonable prices throughout.

Components of Scientific Management: Taylor propounded the following main components of

scientific management:
Separation of Planning from Doing: He laid emphasis on the separation of planning
activity from doing. Thus, the task of planning should be given to specialists and must be
separated from actual performance.
Functional foremanship: The concept of functional foremanship as advocated by Taylor
is in contrast to the unity of command and is now implemented in the management of
various industries. He proposed that there should be eight persons involved in directing

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 the activities of the workers. Out of these eight persons, four persons are related with the
planning function. These include (i) route clerk; (ii) instruction card clerk; (iii) time and
cost clerk and (iv) disciplinarian. The other four persons are concerned with the operating
activity and include (i) speed boss; (ii) inspector; (iii) repair boss and (iv) gang boss.
Determining the Fair days work and one best way of doing it: Taylor was of the
opinion that there is always one best way of doing a particular job that requires least
movements, less time and minimal cost. The focus of this theory was on improving the
efficiency of the work force. So he had to take recourse to these studies in order to
determine a fair days work.
Differential Piecework system of wage payment: Taylor explained the phenomenon of
systematic soldiering, which implied that the workers were not producing as much as
they were cap able to produce. In order to overcome this problem, he proposed the
differential piece rate system of wage payment. What we do in this system is, we pay the
wages according to the individual performance and on the position which he occupies.
Moreover, this rate of wage payment is based on accurate knowledge and not on mere
estimates.
Bilateral Mental Revolution: According to Taylor, the essence of scientific
management is the mental revolution, which is to be brought upon the part of both
workers and management. It is the responsibility of the management to provide a healthy
environment to its employees for achieving their maximum efficiency. There should be a
congenial and cooperative work environment in the organization for the employees.
Moreover workers should also work with a sense of belongingness with the concern.
They should be disciplined, loyal and sincere in completing their work. They should
make every possible effort to reduce the wastages. So, we can say that there should be a
feeling of mutual trust in an organization among the management and the workers. Taylor
held that without this complete mental revolution on both sides, scientific management
does not exist. He explained the three facets of this mental revolution:
a) All out efforts for increased production;
b) Creation of the spirit of mutual trust and confidence;
c) Inculcating and developing the scientific attitude towards problems.

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Principles of Scientific Management: Taylor advocated the following elements of scientific
management:
Work Study: According to International Labour Office work study is a term used to
embrace the techniques of method study and work measurements which are employed to
ensure the best possible use of human and material resources in carrying out specified
activity. In simple words, work study involves the process of analyzing the work to be
performed by eliminating the unnecessary operations and finding out the quicker way of
doing it. Work study eliminates wasteful and unnecessary operations, reduces efforts and
increases productivity.
Standardization of Tools and Equipment: One of the important elements of scientific
management is the standardization of tools and equipment. Taylor emphasized on the use
of the best way of doing the work. In order to increase the efficiency and speed of work,
we must have proper tools and equipment to supplement our work.
Scientific selection, placement and training: Selection of right persons on the right job
is one of the crucial aspects for ensuring the efficiency and quality of work. According to
Taylor, the selection of the workers should be made on the basis of their education,
experience and attitude towards work. We must select the employees on the basis of
merit rating which implies round pegs in round holes. We must provide training to the
employees to make them suitable for the new jobs. Orientation training must be imparted
to them so that they become ready to face the new challenges.
Development of functional foremanship: Taylor pleaded the concept of functional
foremanship. He was of the opinion that the task of planning and designing should be
separated from the workers and factory executives. The concept of functional
foremanship is the extension of the principle of specialization or the division of labor to
the sphere of management. Thus, we must separate the functions of planning and doing.
He proposed that there should be eight persons involved in directing the activities of the
workers. Out of these eight persons, four persons are related with the planning function.
These include (i) route clerk, to lay down the sequence of operations; (ii) instruction card
clerk lays down the exact method of doing the work; (iii) time and cost clerk, to keep the
records of the time spent by different workers on different jobs and prepare the cost
sheets and (iv) Disciplinarian, to deal with the cases involving breach of discipline and

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 absenteeism. The other four persons are concerned with the operating activity and include
(i) speed boss, to ensure that the machines are run at the optimum desired speed; (ii)
inspector to ensure that the workers perform their work as per the desired quality; (iii)
Repair boss to ensure that the machines are regularly cleaned, serviced and repaired;
and (iv) Gang boss to assemble and set up various tools and equipment.
Thus, Taylor wanted to streamline the working of the production department.
Introducing the costing system: Another significant element of scientific management
is the introduction of the efficient system of cost accounting. It is a technique used to
calculate the cost per unit and total cost of production. Thus, the system of cost
accounting serves the following purposes:
Mental revolution: Taylor strongly emphasized on the complete mental revolution on
the part of both the workers and the management. Simply stating, mental revolution is
concerned with the changing the psychological attitude of workers and management
towards each other. It is the responsibility of the management to provide a healthy
environment to its employees for achieving their maximum efficiency. There should be a
congenial and cooperative work environment in the organization for the employees.
Moreover workers should also work with a sense of belongingness with the concern.
They should be disciplined, loyal and sincere in completing their work. They should
make every possible effort to reduce the wastages. There should be a feeling of mutual
trust in an organization among the management and the workers. So, we can say that in
order to improve the working of an enterprise, it was essential to bring mental revolution
on the part of workers and management.

Check your progress I:

Q1. Taylors theories were also known as:
a) Organized management
b) Scientific system
c) Taylorite system
d) None of the above

1) Q2. Which of the following is NOT a principle of Scientific Management?

a) Each job should be analyzed to determine the best way of doing it.

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 b) Employees should be carefully trained at their jobs
c) Employees should be rewarded for productivity
d) Employees should be selected so as to get along with other members of their group

..

2.3 Administrative Theories

Henry Fayol and Max Weber were the two important individuals who helped in the development
of general administrative theory. Fayols attention was directed towards the activities of
managers i.e. he focused on what managers do. Fayol was a French mining engineer in his early
thirties, but after that he switched over to general management and was Managing Director from
1888 to 1918. He wrote his book General and Industrial Management in 1916 in French, which
was translated in English in 1949, only when American Management writers came to know
about his ideas.
Fayol is known as the father of management or the founder of the classical management. Not
because he was first to investigate managerial behaviour, but because he was the first to
systematize it. He was contemporary to Taylor. Taylor was basically concerned with
organizational functions, whereas Fayol was interested in the total organization. It may be noted
that Taylor is known as the father of scientific management, i.e. supervisory or lower
management, while Fayol is recognized as the father of management, i.e. the higher management
or the general management.
Max Weber was a German Sociologist. He developed a theory of organization structures and
described the various organizational activities on the basis of various authority relations. He
described an ideal type of organization called bureaucracy as a form of organization which is
characterized by division of labour, a clearly defined hierarchy, elaborated rules and regulations
and impersonal relationship. He used this principle of bureaucracy for theorizing about the work
and the way to do that work in larger organizations.

Some of our current management ideas and practices can be directly traced to
contribution of general administrative theories.

Companies like Samsung, General Electric and CISCO System etc. have developed their
managerial systems on the foundations of the administrative theories.

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The functional view of the managers job originated with Henry Fayol. Webers bureaucracy
formulated an ideal model for organization design. When we see organizations laying off
significant number of workers, restructuring the organization, shifting long term goals and the
like, the general administrative theorists principles are at work.
Contribution by Henry Fayol:
According to Fayol, business activities in any organization consist of six interdependent
operations as follows:
1. Technical - activities concerning production.
2. Commercial - activities concerning buying, selling and exchange.
3. Financial - activities concerning optimum use of capital.
4. Security - activities concerning protection of property.
5. Accounting - activities concerning final accounts, costs and statistics.
6. Managerial - activities concerning planning, organizing, commanding, coordinating and
controlling.
According to him, the first five activities were well known and as such to devoted his attention to
the description and explanation of the managerial activities. Also he analyzed the nature of such
activities and skill requirements, which were so far given little scattered attention by thinkers.
Fayol considered the process of management to be of universal application and distinguished
between five elements of the process. He regarded these elements of management as the function
of management, which were being performed by all managers universally and at all the levels of
organization. He divided management functions into five parts as follows:

Forecasting and planning

Organizing
Command
Coordination
Control
Thus, according to Fayol, management means to forecast and plan, to organize, to command, to
co-ordinate and to control. The management was defined as the process of performing these

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functions. It may be noted that the present pattern of management functions follows broadly the
lines set by Fayol. He emphasized that management involved the application of certain skills,
which could be acquired by persons on the basis of systematic instructions and training.

Principles of Management

Fayol made a distinction between "elements of management" and "general principles of

management". Besides a systematic analysis of the management process and management
functions, Fayol formulated a set of fourteen principles as guidelines for implementing the
process of management.
These principles may be listed as follows:

1. Division of Work
In any organized situation, work should be divided into compact jobs to be assigned to
individuals. This applies to managerial work and non-managerial work. Division of labour
facilities specialization and improves efficiency, if it is done within reasonable limits.

2. Authorities and Responsibility

The authority is the official right to a manager to manage people and things. Authority of a
manager goes hand in hand with the responsibility for effective results. In other words, there
should be parity or balance between authority and responsibility vested in a managerial
position.

3. Discipline
Discipline is defined as observance of diligence and respect for seniors and rules and
regulations. Managers as leaders of their work groups should enforce discipline throughout the
organization. Fayol declares that discipline requires good superiors at all levels. He emphasized
the need of discipline among the personnel for the smooth running of organization. He
advocated penalties to prevent in violation.

4. Unity of Command

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It means that a subordinate in an organization should be under direct supervision of a single
from whom he should get instructions and to whom be should be accountable. In other words,
every employee should have only one boss. If a subordinate has more than one boss, to that
case conflict and condition in authority and instructions of general bosses would result.

5. Unity of Direction
Fayol advocates one head, one plan for a group of activities having same objective. In other
words, a set of activities having the same objective should be under the direction of a single
manager. Similarly, there should be one plan of action for such a set of activities because the
objective is the same. This principle promotes smooth coordination of activities, efforts and
resources.

6. Subordination of Individual Interest to Group Interest

The collective good and common interest of the organization should prevail over the narrow,
sectional and self-interest of its members of an organization for the welfare of both the
organization and the members.

7. Remuneration of Personnel
Remuneration as well the methods of payment in an organization should be fair so as to afford
maximum satisfaction both to the organization and its employees.

8. Centralization
According to Fayol, everything which reduces the importance of subordinates role is
centralization and that which increases it, is decentralization. In his opinion, the question of
centralization and optimum degree in particular case. There should be a proper combination
and decentralization in an organization based on a consideration of several internal and external
factors.

9. Scalar Chain
Fayol defines the scalar chain as the chain of superiors ranging from the ultimate authority
(i.e. top authority) to the lowest ranks. It is also known as hierarchy of management. Every

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communication should follow the prescribed route, i.e. the proper channel. Authority
relationships are said to be scalar when subordinates report to their immediate superiors and
when their superiors, in turn, directly report as subordinates, to their superiors.

10. Order
Order relates to both persons and things. It means a systematic arrangement of materials and
systematic placement of people in the organization. In material order, everything should be in
its proper place and there should be a place for everthing. For social order there should be a
place assigned to each employee, and each employee should be in the place assigned. The right
man in the right place is the ideal here.

11. Equity
Equity means combination of fairness, kindliness and justice. Equity motivates the workers to
perform their duties. Besides, it promotes a friendly atmosphere between superiors and
subordinates.

12. Stability of Tenure of Personnel

Management should strive to minimize employee turnover (i.e. changes in staff). In other
words efforts should be made to achieve relative stability and continuity of tenure of the
personnel. This could be achieved by attractive remuneration and honorable treatment of
personnel. Stability and continuity of personnel promote teamwork, loyalty and economy.

13. Initiative
It refers to the freedom to propose a plan and execute it. Management should encourage
subordinates to take desirable initiative in thinking out plans and executing them. Extending
opportunities and freedom to contribute their best could do this.

14. Esprit de corps

Esprit de corps means the spirit of loyalty and devotion, which unites the members of a group
or society. It is a sense of respect and belongingness to one's organization. This principle
stresses the need for team spirit, cordial relations, and co-operations among the personnel.

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It is to be noted that Fayol made is clear that he had no intention to close the list of principles or
make them inflexible.

Critical Evaluation

Fayol's administrative or process or functional theory of management may be evaluated as

follows:

(A) Contribution of Fayol's Work

Fayol's major contribution was to identify management as a separate set of skill or functions
performed by managers in the organizations. The skills and abilities required for effective
management were stated to be dependent on the manager's positions at different levels of
organization. Fayol pointed out that administrative or managerial skills were more essential for
higher-level manager, whereas technical skills and abilities were required more of the lower
levels.

Fayol was the first thinker who emphasized, for the first time the necessity of formal education
and training in management. He was the person who provided a set of means (i.e. planning,
organizing, commanding, coordinating and controlling) for understanding the management
process. He also provided principles for implementing this process.
He provided conceptual framework for analyzing the management process and emphasized that
management was a separate, distinct activity.
Management as a body of knowledge gained immediately from Fayol's analysis of management
skills of universal relevance and the analysis of the principles of general management.

(B) Limitations or Weaknesses

Fayol's administrative theory of management is criticized on the following grounds.

1. It is too formal as Fayol divides "business activities" into six categories, and their
management into five functions and the implementation of these functions with the help of
fourteen principles.

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 2. Some critics call this theory as inconsistent, vague and inadequate.
3. It does not pay adequate attention to workers. It has pro-management bias.
4. Jernert Simon calls Fayol's principles as proverbs, comparable to folklore and folk wisdom.
Conclusion
Inspite of several criticisms of Fayol's work, his theory of managerial functions still exerts
considerable influence on the practice of management as well as the teaching of this subject
world over. It may be also noted that when combined together the scientific management
approach and the functional approach are called classical school or classical theory of
management or classical approach to management.

Check your progress II:

Q1. Match the following:
Henry Fayol a) Allowing workers to be creative and
innovative in their work
Division of Labor b) Formal, written instructions that specify
actions to be taken.
Initiative c) Father of Management
Rules d) Allowing workers to specialize tasks

Q2. State which of the following are true / False?

Stability of tenure was developed to fulfill the need to keep employees for a long time to take
advantage of their skills and knowledge
a) True
b) False
.
Contribution by Max Weber:
According to Max Weber, there are three types of power in an organization:
2. Traditional power
3. Charismatic power
4. Bureaucratic power or legal power
Features of Bureaucratic Organization

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The characteristics or features of Bureaucratic Organization are as follows:-
There is a high degree of Division of Labor and Specialization.
There is a well-defined hierarchy of authority.
It follows the principle of Rationality, Objectively and Consistency.
There are Formal and Impersonal relations among the member of the organization.
Interpersonal relations are based on positions and not on personalities.
There are well defined Rules and Regulations. There rules cover all the duties and rights
of the employees. These rules must be strictly followed.
There are well defined Methods for all types of work.
Selection and Promotion is based on Technical qualifications.
Only Bureaucratic or legal power is given importance.
Criticism of Bureaucratic Organization

Bureaucratic organisation is a very rigid type of organisation. It does not give importance to
human relations. It is suitable for government organisations. It is also suitable for organisations
where change is very slow. It is appropriate for static organisations.
Bureaucratic organisation is criticised because of the following reasons:-
Too much emphasis on rules and regulations. The rules and regulations are rigid and
inflexible.
No importance is given to informal groups. Nowadays, informal groups play an important
role in all business organizations.
Bureaucracy involves a lot of paper work. This results in lot of wastage of time, effort
and money.
There will be unnecessary delay in decision-making due to formalities and rules.
Bureaucratic model may be suitable for government organizations. But it is not suitable
for business organizations because business organizations believe in quick decision
making and flexibility in procedures.
Too much importance is given to the technical qualifications of the employees for
promotion and transfers. Dedication and commitment of the employee is not considered.
There is difficulty in coordination and communication.

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 There is limited scope for Human Resource (HR).

Check your progress III:

Q1. Explain the charismatic power.

...

Q2. Which of the following is the principle characteristic of bureaucratic organization?

a) Relativity
b) Objectivity
c) Consistency
d) All of the above

2.4 Quantitative Approach

This approach is evolved from the Decision Theory School. It provides a quantitative basis for
decision making and studies management as a system of mathematical models and processes. It
is also known as Operations Research or Management Science School. The main
feature of this school is the use of mixed teams of scientists from several disciplines. It uses
scientific techniques for providing quantitative base for managerial decisions. The exponents of
this school view management as a system of logical process. It can be expressed in terms of
mathematical symbols and relationships or models. We make use of different mathematical
techniques such as linear programming, simulation, queuing etc. for various managerial

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 decisions. This has contributed in developing orderly thinking amongst managers. It has added
exactness to the discipline of management. However, it can only be used as a tool in managerial
practice.
Limitations: This approach suffers from the following limitations:
It does not give any consideration to human element, which is a significant factor in
every organization.
In practical life, executives have to take the managerial decisions quickly. They do not
have much time to wait for the development of complex mathematical models.
This approach is based on the assumption that all the variables to decision making are
measurable and inter-dependent. This assumption is very much unrealistic.
The mathematical models facilitate the management in taking various managerial
decisions. However, this is not the only task that management has to perform. They
have various functions to perform other than decision making.
It is also possible that the information which we use for developing the mathematical
models for the purpose of decision making is not up to date. This may lead to wrong
decision making.
In this context, Harold Koontz has stated that, it is too hard to see mathematics as a separate
approach to management theory. Mathematics is a tool rather than a school.

2.5 Behavioral Approach

As we know that management is the art of getting things done through others. This explains why
we need to focus on the perspective of on organizations people. This field of study that
emphasizes on the actions of people at work is called Organizational Behavior. The behavioral
approach to management lays stress on increasing production through an understanding of
people. According to the proponents of this approach, if managers understand their people and
adapt their organizations success will usually flow.
The Hawthorne Studies
The most important contribution to the human resources approach to management came out of
the Hawthorne Studies undertaken at the Western Electric Companys Hawthorne Works in
Cicero, Illinois. The behavioral approach is usually described as beginning with a series of
studies conducted between 1924 and 1932, examined the effect of different illumination levels

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on worker productivity, which led to a new emphasis on the human factor in the functioning of
organizations and attainment of goals. Here, control and experimental groups were established
and a series of experiments were conducted during the span of 8 years. Let us discuss them one
by one:
The Relay Assembly Test Room Experiments: The relay assembly test room experiments
originally had a scientific management orientation. The experimenters believed that if they
studied productivity long enough under the different working conditions (including variations in
weather conditions, temperature, rest periods, work hours and humidity). The basic objective of
this experiment was to determine the relationship between intensity of light and worker
efficiency, as measured by worker output.
In one of the studies, experimenters chose two women as test subjects and asked them to choose
four other workers to join the test group. Together the women worked in a separate room over
the course of five years (19271932) assembling telephone relays.
Output was measured mechanically by counting how many finished relays each worker dropped
down a chute. This measuring began in secret two weeks before moving the women to an
experiment room and continued throughout the study. In the experiment room, they had a
supervisor who discussed changes with them and at times used their suggestions. Then the
researchers spent five years measuring how different variables affected the group's and
individuals' productivity. Some of the variables were:
giving two 5-minute breaks (after a discussion with them on the best length of time), and
then changing to two 10-minute breaks (not their preference). Productivity increased, but
when they received six 5-minute rests, they disliked it and reduced output.
providing food during the breaks
shortening the day by 30 minutes (output went up); shortening it more (output per hour went
up, but overall output decreased); returning to the first condition (where output peaked).
Changing a variable usually increased productivity, even if the variable was just a change back to
the original condition. However it is said that this is the natural process of the human being to
adapt to the environment without knowing the objective of the experiment occurring.
Researchers concluded that the workers worked harder because they thought that they were
being monitored individually.

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Researchers hypothesized that choosing one's own coworkers, working as a group, being treated
as special (as evidenced by working in a separate room), and having a sympathetic supervisor
were the real reasons for the productivity increase. One interpretation, mainly due to Elton Mayo
was that "the six individuals became a team and the team gave itself wholeheartedly and
spontaneously to cooperation in the experiment." (There was a second relay assembly test room
study whose results were not as significant as the first experiment.)
Bank wiring room experiment
The purpose of the next study was to find out how payment incentives would affect productivity.
The surprising result was that productivity actually decreased. Workers apparently had become
suspicious that their productivity may have been boosted to justify firing some of the workers
later on. The study was conducted by Elton Mayo and W. Lloyd Warner between 1931 and 1932
on a group of fourteen men who put together telephone switching equipment. The researchers
found that although the workers were paid according to individual productivity, productivity
decreased because the men were afraid that the company would lower the base rate. Detailed
observation of the men revealed the existence of informal groups or "cliques" within the formal
groups. These cliques developed informal rules of behavior as well as mechanisms to enforce
them. The cliques served to control group members and to manage bosses; when bosses asked
questions, clique members gave the same responses, even if they were untrue. These results
show that workers were more responsive to the social force of their peer groups than to the
control and incentives of management.

Recognizing the Human Variable: Taken together, the series of studies conducted at
Hawthorne plant gave management thinkers a new direction for research. Managers began to
realize that they needed to understand this influence so they could maximize its positive effects
and minimize its negative effects. Hawthorne study results helped managers to see that
understanding what motivates employees is a critical part of being a manager.

Check your progress IV:

Q1. What are the four phases of Hawthorne experiments? Name them.

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...

Q2. Each statement below about the Hawthorne Studies is true except
a. Secondary analyses of the studies' original data supported using monetary incentives to get
higher productivity
b. The Hawthorne Studies motivated further understanding of human behavior in organizations
c. Empathic management behavior leads to more productivity than directive management
behavior
d. The studies had strong research designs that allowed solid conclusions.

2.6 Systems Approach

Systems approach towards management is based on the general systems theory. A system is
defined as a set of interrelated and interdependent parts arranged in a manner that produces a
unified whole. There are two basic types of systems closed and open. Closed systems are not
influenced by and do not interact with their environment. In contrast, open systems are
influenced by and do interact with their environment. Today, when we describe organization as
a system, we mean by an open system. As you know, an organization takes inputs from the
environment and transforms them into outputs that are distributed into the environment. The
organization is open to and interacts with its environment.
The Systems approach and Management Practices: Researchers have concluded that an
organization is made up of interdependent factors, including individuals, groups, attitudes,
motives, formal structure, interactions, goals, status and authority. What this means is that as
managers coordinate work activities in the various parts of the organization, they ensure that all

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these parts are working together so that the organizations goals can be accomplished. For
instance, the systems approach affirms that no matter how efficient the production department
might be, the marketing department better anticipate the changes in customer tastes and work
with the product development department in creating products customers want or the
organizations overall performance will suffer.
In addition, this approach implies the decisions and actions in one organizational area will
affect other areas. For example, if purchasing department does not acquire the appropriate
quantity and quality of inputs, the production department will not be able to do its work.
Furthermore, it also recognizes that organizations are not self-contained. They rely on their
environment for essential inputs and as outlets to absorb their outputs. No organization can
survive for long if it ignores government regulations, supplier relations or the varied external
constituencies on which it depends.

2.7 Contingency Approach

The early management theorists came up with management principles that were generally
assumed to be universally applicable. Later on it was found that these principles have certain
limitations in context of real business situations. For instance, the principle of division of labor
is widely acceptable and valuable concept, but the jobs can become too specialized. Similarly,
the theory of bureaucracy is desirable in many situations, but in other circumstances, other
structural designs have to be implemented. Thus, management cannot be based on the
application of principles in all the situations. Managers have to follow different approaches and
techniques to be followed in different and changing situations. The contingency approach, also
called as situational approach implies that organizations are different, face different situations
and require different ways of managing.
A good way of describing contingency is if, then: If this is the way my situation is, then this
is the best way or me to manage in this situation. This approach is intuitively logical because
organizations and even units within the same organization differ in terms of size, goal, work
activities and the like. It is a concept in management stating that there is no one universally
applicable set of management principles (rules) by which to manage organizations.
Organizations are individually different, face different situations (contingency variables), and

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 require different ways of managing. Contingency approaches remain less common than change
management approaches.

Check your progress V:

Q1. Systems approach is based on _____________________ theory of management?

Q2. There are two basic types of systems: ______________ and __________?

Q3. Contingency Approach is also termed as ________________ approach?

2.8 Summary
Thus, we have discussed the contributions of great thinkers and practitioners to the
development of management thought. From the above description of the various schools of
management thought, we can conclude that management is no more a restricted domain of
managers and entrepreneurs. Many disciplines have contributed to its growth and resulted in
recognition of management as a separate discipline.

2.9 Glossary
a) Work Study: process of analyzing the work to be performed by eliminating the unnecessary
operations and finding out the quicker way of doing it
b) Mental revolution: Bringing change in the attitude of workers and management in an
organization.
c) Scientific management: Deciding what is to be done and see that it is being done in the best
possible manner.
d) Route clerk: to lay down the sequence of operations
e) Instruction card clerk: He lays down the exact method of doing the work
f) Time and cost clerk : to keep the records of the time spent by different workers on different
jobs and prepare the cost sheets

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g) Disciplinarian: to deal with the cases involving breach of discipline and absenteeism.
h) Speed boss: to ensure that the machines are run at the optimum desired speed
i) Inspector: to ensure that the workers perform their work as per the desired quality
j) Repair boss: to ensure that the machines are regularly cleaned, serviced and repaired and
k) Gang boss: Person appointed to assemble and set up various tools and equipment.
l) Scalar Chain: Chain of authority ranging from the top officials to the lower levels of
management.
m) Equity: It represents a sense of fairness, kindliness and justice for all in an organization.

2.10 Answers to Check your Progress

Check your progress I: 1. B; 2. D

Check your progress II: 1. C, d, a, b; 2. A

Check your progress III: 1. Base your answer on section 2.4; 2. D

Check your progress IV: 1. Base your answer on section 2.6; 2. A

Check your progress V: 1. General systems; 2. Open and closed; 3. situational

2.11 Bibliography/ References/ Suggested Readings

LM Prasad, Principles and Practices of Management, Sultan Chand & Sons.
Peter F Drucker, Tasks, Responsibilities and Practices, Heinemann.
James A. F. Stoner; R. Edward Freeman and Daniel R. Gilbert, Management, Pearson
Prentice Hall.
Fred Luthans, Introduction to Management, Tata McGraw Hill Publishing House.
2.12 Test and Model Questions
a) What is the contribution of Elton Mayo to the development of management thought?
b) Explain in detail the contribution of Henry Fayol to the management.
c) Discuss the Human Behavior approach to management. What are its contributions to the
theory of management?
d) Write an essay on the contribution of Taylor in the field of management.
e) What are the basic tenets of Webers bureaucracy theory of management? Compare it
with the ideas of Fayol.

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 Chapter 3
Business Ethics & Corporate Social Responsibility
Structure
3.0 Objectives
3.1 Introduction
3.2 Business Ethics: What does it really mean
3.3 Need of ethics in business
3.4 Implementing and Institutionalizing Ethics
3.5 Ethical Dilemma
3.6 Introduction to Corporate Social Responsibility
3.7 Pros and Cons of Social Responsibility of Business
3.8 Tools of Corporate Social Responsibility
3.9 Strategies for Implementing Corporate Social Responsibility
3.10 Summary
3.11 Glossary
3.12 Answers to check your progress
3.13 Test/Model questions
3.14 Suggested Readings

3.0 Objectives
After studying this chapter, you will get to know about:
The meaning of ethics and values in context of business.
Need for ethics and values in a business framework.
Ethical decision making and norms for ethical behavior.
Concept of corporate social responsibility and its significance.
Various arguments in favor of and against corporate social responsibility
The various tools and strategies for implementing social responsibility.

3.1 Introduction
All persons, whether in business, university or any other enterprise, are well versed with the term
ethics. Business, like any other social institution, develops certain belief system and values for

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which they stand. These beliefs and values that guide them through their journey of business is
what we call ethics. Business ethics relate to the behavior of a businessman in a business
situation. It is the driving force behind our decision making in an organization that guides us
about right and wrong in all the actions that we perform.

The time is always right to do what is right Martin Luther

King

3.2 Business Ethics: What does it really mean

When we talk of ethics, moral values and beliefs, we generally come across a philosophy that
deals with deciding what is good or what is bad for us. Ethics involve a discipline that examines
good or bad practices within the context of a moral duty. But when it comes to everyday
business, ethics mean adhering to law, competing with others in an honest manner and
performing daily tasks without any element of deceit. Thus, it includes the practices and
behaviors that are good or bad.

Source:
www.ethicsandvaluesnigeria.org

There are two components of business ethics. These are descriptive ethics and normative ethics.
Descriptive ethics involves describing, characterizing and studying morality. It basically
deals with the concept of What is?
Normative ethics involves supplying and justifying moral systems. Thus, this concept
basically answers the question of What should be?

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In simple words, it is the study of standards of conduct and moral judgment; and also the
standards of right conduct.
The following figure depicts some of the key issues that we all come across in a business
context. Consider the following aspects and answer the question in your understanding of the
ethical conduct.

Source: Wall Street Journal, 21 October 1999, pp. 8184. Ethics Officer Association, Belmont,
Mass.; Ethics Leadership Group, Wilmette, Ill.; surveys sampled a cross-section of workers at
large companies and nationwide.

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 How do we get what is our
What ought to from what is motivation for
What is?
be? to what ought acting
to be? ethically?

Ethics are an essential attribute of the human consciousness, which guide the increasing quest of
the common thread of goodness in the good human being, good society and the good life. We
can define ethics as the principles of a framework of philosophy of an individual on the basis of
which we decide what is good or bad, desirable or undesirable.
The value system that we acquire and develop shapes our attitudes, performances, goals and
aspirations. It sets the standards and guidelines that govern our behavior. In business also, we
come across certain situations, where as a manager, we have to take many decisions and these
decisions are governed by our moral values and beliefs. These beliefs guide us about right or
wrong, fair or unfair, good or bad. Thus, ethical beliefs define our conduct in an organization as
well and so we term it as ethical conduct in a business. It deals with behavior of managers in an
organization. The structure of an ethical environment is described as follows:
a) Code of conduct: A code of conduct may be defined as a formal statement that outlines
how the organization expects and requires its employees to resolve ethical questions.
b) Ethical Education: Codes of conduct cannot detail a solution for every ethical situation,
so there is a need for corporations to provide training in ethical reasoning.
c) Ethical Action: It involves helping employees recognize and reason through ethical
problems and turning them into ethical actions.
d) Ethical Leadership: It states that executives must demonstrate ethical behavior in their
actions.

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The ethical conduct involves the following values:
a) Continuous Improvement: The desire and ability of the company to develop and
incorporate ways to improve itself.
b) Customer Delight: The positive emotional response and joy that the customer feels from
interaction with the companys people, products and services.
c) Developing People: The desire and ability of the company to improve the employees
working in the organization.
d) Innovation: The desire and ability of the company to venture into new break through
areas of opportunity.
e) Optimum Utilization of Resources: The desire and ability of the company to improve its
performance by full utilization of its current resources.
f) Commitment to the Society: The commitment of the company to focus on the social
needs and aspirations of the society.
The following figure gives a detail about the various sources of ethical norms

Fellow Workers Fellow Workers Regions of Country

Family Profession
The Individual

Conscience
Friends Employer

The Law Religious Beliefs Society at Large

3.3 Need of ethics in business

Business in India is passing through tree-bullet times as there is lot of concern for business
survival and growth due to various factors such as global and domestic competition of MNCs,
environmental degradation, need for balancing multiple stakeholders expectations etc.

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Business is a part of society. Its functioning should contribute to the welfare of society as a
whole and not only to itself. Therefore, organizational decisions should be made in such a way
which not only provides benefit to the organization but also the society at large, so as to
maximize the welfare of society. Many management theorists stress that companies must operate
according to the values that guide the thinking and behavior of people in an organization.
In view of the above discussion, it is appropriate to discuss at this stage the ethical
conduct for a business as propounded by a renowned management thinker, Dr. M. B. Athreya.
He gave a seven factor model to do a business in an ethical manner. These are described as
follows:
a) Righteousness: It is important for the business to follow dharma in the creation and
sharing of wealth; maintaining the highest standards of ethics and integrity in every
action taken.
b) Public Good: Another significant value is that individuals and organizations should work
not just for private goal, but also for well-being of community as a whole.
c) Efficacy: It is critical that all businesses pursue efficiency, productivity, resource
optimization and conserve resources so as to internalize the value of efficacy in the best
interest of sustainable development of the economy as a whole.
d) Innovation: Business has to strive towards innovations and constantly moving ahead in
order to meet the growing social and economic expectations of its various stakeholders.
Thus, every business has to work for the effective solutions to the societal issues with its
innovation.
e) Learning: Business is the key instrument to solve the problems of growth, employment,
education, consumption, information and quality of life. The constant feedback helps a
business to improve and progress. The viability and health of nations and global society
will depend on the skills of learning and utilization of such learning by business.
f) Respect: Prof. Athreya adds another ethical aspect of respect for individuals and human
dignity in the business. It is said that respect begets respect. In business also, we are
dealing with human beings. Everyone wants respect for himself, be it any organization.
So, we should imbibe the feeling of respect and concern for the people.

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 g) Competitive: Business should be aggressive, competitive, with lot of initiative and
creativity. All its efforts should be directed to increase market share ethically so as to
work for the upliftment of society as a whole.
Check your progress I:
Q1. Is business ethics a necessity?







Q2.How would you recognize an ethical organization? What are its characteristics?

3.4 Implementing and Institutionalizing Ethics

In order to fully implement and therefore institutionalize ethical conduct in an organization, there
is a need to initiate the following steps:
a) Selection: The prime activity that we have to do is to make a selection of the values or
ethics that we need to implement in our organization. This is of key consideration
because unless we have a clear idea in our mind about the ethical behavioral aspects that
we want in our organization, it will be very difficult for us to develop a sound code of
conduct for the organization.
b) Commitment: In order to implement the designed ethical conduct, there arises a need to
work with full commitment. It is essential for all the people in the organization to be fully

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 committed towards their business objectives and strive for improving their performance
so as to ensure growth and development.
c) Standards: A set of standards for each activity in the company needs to be implemented
for each value.
d) Structure: The Company needs to have the right structure that defines job positions,
divisions, departments etc., to implement the values.
e) Jobs, Activities and Systems: The Company must have clear defined job positions,
activities and streamlined systems to facilitate the implementation of values. The values
need to be incorporated into every job position and activity to be performed in the
organization. Standard operating procedures and even individual position tasks need to be
linked to these values.
f) Employee Responsibility: The responsibility of every individual regarding the
implementation of each value must be clearly defined and understood. For instance, when
we prepare for job orientation, job description
Now, we have discussed the various pre conditions for successfully implementing the ethical
conduct in an organization. However, it is important here to note that there are certain on-the-job
ethical dilemmas that need to be addressed. For instance, there may be a situation in which a
business decision may be influenced for personal gain, or an employee discloses illegal, immoral
or unethical practices in the organization. There might be some positive aspects as well i.e. there
may be employees who are engaged in telling the truth and adhering to deeply felt ethical
principles in business decisions. Thus, people expect employees to be loyal and truthful, but
ethical conflicts may arise.
Check your progress II:
Q1. What are the steps required for implementing the business ethics in an organization?

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3.5 Ethical Dilemma

Ethics in business has to do with making the right choices. When we do not have one right way
and we must choose the best in the circumstances. Managers are sometimes faced with business
choices that create tensions between ethics and profits, or between their private gain and public
good. Any decision where moral considerations are relevant can potentially give rise to an
ethical dilemma, for instance;
A decision that requires a choice between rules;
A decision where there is no existing rule or example to follow;
A decision that morally requires two or more courses of action, which are in practice
incompatible with each other.
A decision that should be taken in your self-interest, but which appears to violate a moral
principle that you support.
Issues and dilemmas in the workplace can range from the simple disagreement to complex issues
that affect the bottom line in a negative manner. For every business, a proper understanding of
the various issues that can cause problems in the workplace will help identify and correct them
before the business suffers. Some of the common issues and dilemmas for ethical conduct in a
business organization are as follows:
Internal Conflict: There are various issues that can result in ethical dilemma. Some of the
common examples are; if an employee is passed over for a promotion or denied a pay
raise, misunderstandings resulting from a lack of open communication, feeling harassed
by other employees, managers and supervisors. When such internal conflicts start
influencing the productivity of the business and morale of the surrounding environment,
management must take the corrective measures to control the situation.

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 Ethical Issues: Ethical issues such as employee theft, providing discounts or price breaks
outside of the usual company policies and practices and other unfair practices are prime
examples of possible issues and dilemmas a small business may face.
Team Dynamics: Team dynamics can make or break a project or initiative for any
business. Team members may try to promote their own agenda or take credit for work
done by other team members. When working as a team, challenges related to differing
views and ideas may take center stage. This can lead to distractions and eventually,
difficulty reaching a workable solution. Setting forth a proper framework to work within
and identifying the roles each member can play during team exercises can help limit any
issues or difficulties stemming from team dynamics.
Other Issues: Several other issues and dilemmas spring to mind when thinking about a
small business workplace. Possible leadership problems may develop if leaders,
managers and supervisors refuse to play by the same rules as the rest of the employees.
This can have a negative effect on creating a positive workplace culture. Other workplace
issues can stem from the absence of a company handbook that spells out all company
policies and procedures. This can lead to a lack of continuity and a lack of control over
the direction of the workplace.

Causes of Ethical Dilemma

Pressure from management
Ambition and discrimination
Negotiating tactics

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The following figure represents the various factors that influence ethical behavior at work.

Individual
factors

Ethical
Ethical policies organizational
and codes Behavior factors
at work

Top
Management

3.6 Introduction to Corporate Social Responsibility

As we all know that the concept of corporate social responsibility is not new. It got into limelight
when Howard R. Bowen, introduced his book Social Responsibility of Businessman. He
suggested that businesses should consider the social implications of their decisions. Corporate
social responsibility (CSR) is concerned with the business practices that follow ethical norms,
comply with the legal provisions and aim at the promotion of benefits to the individuals and
community at large. The most common forms of fulfilling CSR are making philanthropic
contributions to the community at large, actions for the environment preservation, making
investments in a socially desirable manner and working for the welfare of the various

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stakeholders. In simple words, corporate social responsibility refers to the obligations and duties
of the business towards the different sections of the society. Thus, it means the obligation of the
decision-makers to take actions which protect and improve the welfare of the society as a whole
along with their own interests.
In the words of K. K. Andrew, Social Responsibility may be taken to mean intelligent and
objective concern for the welfare of the society.
H. S. Singhania classifies the social responsibility of business into two categories:
The manner in which a business carries out its own business activity;
The welfare activity that it takes upon itself as an additional function.
We know that there exists a mutual inter-dependence between society and business. Now-a-days,
business is not a mere profit making occupation, rather it has assumed the role of a social
function, which involves certain duties and also requires the appropriate ethics to be followed in
performing the activities. The way an organization functions has a strong influence on the
shareholders, suppliers, customers, employees and society at large. So, it becomes essential for
every business concern to be socially responsive so as to maintain a balance between the
conflicting interests of these groups.

3.7 Pros and Cons of Social Responsibility of Business

There is a continuous debate going on whether a business should assume social responsibility or
not. This is because every business wants to earn more and more profits. It is generally viewed
that if a business assumes social responsibility, it will not be able to achieve its objective of
profit maximization. So let us have a view of should a business assume its social responsibility
or not, in context of the various arguments put in favor of and against the corporate social
responsibility.
Pros of Corporate Social Responsibility:
1. Public Requirements: The business has a strong inter-relationship with the society. A
business takes its inputs from the society and in return, its output is also consumed by the
society. So, for a business to grow and develop, must fulfill the needs of the society. Now
what has happened is the expectations of the public form the business have changed with
the passage of time. Therefore, every business that needs to survive in the changing times

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 has to adapt to those dynamic expectations of the public. Since, business is a part and
parcel of society, it must think for fulfilling its social responsibility.
2. Favorable for business: Performance of social obligation by business is not only
beneficial for the society, but also for the business itself. The business firm that is more
responsive towards the fulfillment of social responsibility and upliftment of the society
has a better community in which to conduct its business. Moreover, society may reject an
enterprise that does not bother about social welfare.
3. Moral Justification: Nowadays, modern industrial society faces a lot of social problem
due to large scale emergence of industries. It becomes the moral responsibility of the
business concern to work for the betterment of society and resolve the social issues.
Moreover, if we see on ethical grounds also, a business makes use of the different
resources from the society. So it becomes a moral requirement to devote some of these
resources for the overall development of the society as well.
4. Socio-cultural norms: In a country like India, where people value socio-cultural heritage,
it is much clear that if a business promotes social equalities, healthy employer-employee
relations and works for the upliftment of the society, it will enjoy better social position. A
business that works against the traditional values will definitely receive criticism from the
society.
5. Responsibility must correspond with power: Business enjoy great social power and affect
the economy, minorities and other social issues. So, in order to match their social power,
the business must perform equal amount of social responsibility as well. If they fail to do
so, it will reflect their irresponsible behavior, and will have a negative impact on their
social repute.
6. Public image: Every business wants to have a larger customer base, better employees,
increased profitability, more responsive money markets etc. so, a firm can enjoy better
public image if it meets its responsibility towards different sections of the society.
7. Government regulations: Every business has to regulate its operations in public interest.
If a business does not itself respond positively to the needs of the society, it will be
compelled by way of government laws and regulations.
8. Indebted to society: There exists inter-dependence between the business and society.
Business makes use of the various resources form the society. Thus, it is indebted to the

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 society for providing it the vast resources. So, we can say that business is in a position to
work for the social goals with the help of these resources.
Cons of Corporate Social Responsibility:
1. Deviation from the main objective: The primary objective of every business is to
maximize its profits. Thus, economic efficiency is the top priority and any deviation from
this may divert the business from its mission. The welfare of employees and owners will
also be served well by increasing the profitability of the business concern. Moreover, the
performance of social responsibility also requires the cash outflow and it adversely
affects the financial position of the concern. It is to be noted here that the nature of
business activities is economic and not social and the only criteria to measure the success
of the business should be the economical values and not the social service.
2. Increase in prices: We have already studies that the business will perform social
obligations by incurring certain costs. Now, the actual burden of this cost will be shifted
to the customers by way of increased prices of the goods and services. Thus, whatever
costs, a business occurs on the social welfare, the burden will ultimately shift to
customers, by way of a part of cost of production of the goods and services. So,
ultimately it is the consumer who bears the ultimate burden of the corporate social
obligation.
3. Excessive concentration of power: If we combine the social activities with the economic
activities of the business, it will imply giving the business excessive concentration of the
power. Business has already got enough social power. If we over power it would mean
letting them influence society in education, in home, in government and in the market.
Thus, the society will also start depending upon the business. And this dependence will
create many social, economic and political problems.
4. Lack of social skills: It is also possible that a businessman, who is good at managing
business, may not be good at solving social problems. We know that a businessman
devotes all his energies in running his business efficiently and smoothly. He might not
have the appropriate skills to resolve the complex social issues. However, in the present
times, this limitation has been overcome to a great extent by institutions like Xavier
Institute of Social Science and IRMA (Institute of Rural Management Anand), which
provide training to its students for the social welfare only.

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 5. Influence on social set-up: When business starts spending its resources for the welfare of
the society and resolving the social issues, it may try to influence the society for its own
good. This may hamper the growth and development of the society and may give rise to
many social, economic and political issues.
6. Lack of Accountability: Businessmen have no direct accountability to the people. So, it is
not advisable to make them responsibility for those areas for which they have no
accountability. We know that the management of a business is accountable only to its
owners for the profits of the concern, but not to the society for the fulfillment of its social
obligations.
7. Opposition from the society: This might also be the case that the various groups in the
society do not want the involvement of the business in the various social goals. There is a
great difference in opinion among the various social groups, businessmen, government
and other stakeholders. There might be one group that is in favor of the involvement of
business in the social activities, while there may be a few others also who do not wish to
have the involvement of business into the social goals.
8. Complex social Problems: There are many social issues which remain unresolved despite
the involvement of large business houses. Some of the prominent social problems include
AIDS, Deforestation, Sex discrimination etc. Similarly, when we talk of business, it has
to face many issues, for instance, how to maximize its profits, reducing the cost of
productions, ensuring timely supply of goods to its customers etc. Now when a business
itself is facing so much complexities, how can we expect it to fulfill its social
responsibility amidst its own huge complex problens.
3.8 Tools of Corporate Social Responsibility
3.9 Strategies of Implementing Corporate Social Responsibility
Identify Focus: The first step organizations undertake when implementing corporate
social responsibility is to identify the focus of the program. An organization with too
many causes will have a difficult time managing them appropriately. Scattered interests
also tend to backfire as the organization appears insincere. Narrowing the focus to one or
two major causes enables the organization to become identified with these cause and the
participants in the program receive more focused attention.

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 Determine costs: Corporate social responsibility involves financial considerations on a
number of levels. For example, an organization should determine whether it will provide
materials for a program, allow employees to participate in volunteer efforts during work
hours or donate money to a cause. Organizations often hire people to oversee their
corporate social responsibility efforts, and this adds to their cost. While the focus of
corporate social responsibility is to benefit others, organizations must consider their own
costs to ensure the program is fiscally feasible.
Engage Employees: Organizations that are successful in implementing corporate social
responsibility involve their employees. They encourage employees to use their skills to
help the cause. For example, marketing staff might be encouraged to help a nonprofit
with promotional efforts. The organization's information technology staff can have paid
time off to help set up a computer system for a school. Organizations also solicit input
and feedback from their employees about causes in which they have interests.
Communicate with stakeholders: An organization implements corporate social
responsibility to benefit the program's recipients, its employees and the organization as a
whole. Information about the corporate effort must be shared with stakeholders such as
customers, business partners and the community. Organizations that promote their social
efforts through news releases, social media sites, networking events and public relations
opportunities can be positively viewed by the community -- but only if they don't do it in
an obviously self-serving way.
Identify the CSR chain of accountability through the firm.
Allocate sufficient resources to ensure that CSR responsibilities can be effectively carried
out.
Incorporate CSR key performance indicators into the business plan.
Inspire and educate. By reaching people on a personal level, they are more likely to take
on the challenge of CSR.
Display CSR commitments on the firm's website. This is one of the quickest and easiest
sources of company information.
Celebrate CSR achievements, motivating the team and building enthusiasm and pride

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Activity
You are a member of the Board of Directors of a large manufacturing concern. The Chief
Engineer for the safety claims that a new model that is being proposed for the production carries
a potential risk if hit from the rear. It could be corrected for about Rs. 2000 per car. The car is not
up to the state of the art exemplified by cars of comparable size produced by other
manufacturers. The CEO of the company claims that the cost of making the safety measures for
the car will cost much more than the amount that the company has to pay in case it is being sued
by the families of those killed in accidents and thus, on these grounds, he has authorized the
production of the cars. The Chief Engineer has gone over the CEOs head and has brought the
issue to the Board for the vote. Now, you being a member of the Board have to support the CEO
and if you oppose the CEO, you will not be invited to serve another term on the Board.
What is your responsibility in this case? And what should you do?

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..

3.10 Summary
We can thus conclude that business ethics is a set of moral values and principles that govern
what human conduct ought to be. In simple words, they specify what is right/ wrong, fair/unfair
and good/bad. Corporate social responsibility (CSR) is concerned with the business practices that
follow ethical norms, comply with the legal provisions and aim at the promotion of benefits to
the individuals and community at large. In simple words, corporate social responsibility refers to
the obligations and duties of the business towards the different sections of the society. Thus, it
means the obligation of the decision-makers to take actions which protect and improve the
welfare of the society as a whole along with their own interests.
3.11 Glossary
a) Descriptive ethics It involves describing, characterizing and studying morality.
b) Normative ethics It involves supplying and justifying moral systems.
c) Ethics the study of standards of conduct and moral judgment; and also the standards
of right conduct.
d) Righteousness maintaining the highest standards of ethics and integrity in every
action taken.
e) Team Dynamics Setting forth a proper framework to work within and identifying
the roles each member
f) Ethical Dilemma business choices that create tensions between ethics and profits, or
between their private gain and public good.
g) Corporate Social Responsibility obligation of the decision-makers to take actions
which protect and improve the welfare of the society as a whole along with their own
interests.

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3.12 Answers to check your progress
Check your progress I: Base your answer on section 3.4
Check your progress II: Base your answer on section 3.5
Check your progress III: Base your answer on section 3.6
3.13 Bibliography/ References/ Suggested Readings
A. C. Fernando, Business Ethics An Indian Perspective, Pearson Prentice Hall, 2012
Richard T De George, Business Ethics, Pearson Education Ltd
Harold Koontz, Heinz Weihrich, Essentials of Management, An International and
Leadership Perspective, McGraw Hil
Stephen P Robbins, Mary Coutler and Neharika Vohra, Management, Pearson Prentice
Hall.
3.14Test and Model questions
a) What do you mean by business ethics? Discuss the need and importance of ethical
business conduct.
b) Should a Business be obliged to fulfill the social responsibility? Give your arguments.
What are the key considerations while implementing corporate social responsibility?

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 Chapter 4
Planning
Structure:
4.0 Objectives
4.1 Introduction
4.2 Meaning and Definition of planning
4.3 Nature of planning
4.4 Types of business plans
4.5 Planning Process
4.6 Meaning of MBO
4.7 Process of MBO
4.8 Benefits of MBO
4.9 Limitations of MBO
4.10 Summary
4.11 Glossary
4.12 Answers to check your progress
4.13 Bibliography/ References/ Suggested Readings
4.14 Test and Model Questions

4.0 Objectives

After going through this unit, you will understand:

What is managerial planning and why is it important
What are the different types of plans that we make use in the ordinary course of business
The logical steps involved in planning and see how these steps are significant in setting
the objectives and determining the means to achieve these goals.
The emerging concept of management by objectives.
The importance of MBO in the present business scenario.
The limitations of MBO and the ways to overcome them.

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 4.1 Introduction
Planning is one of the most important functions of management. It is the prime activity that
initiates the very essence of managerial tasks. It deals with the determination of the future course
of action. Thus, when we talk of planning, we find answers to the basic questions such as what to
do, when to do, how to do and who is to do? Thus, planning involves deciding in advance the
future activities to be performed. In simple words, it is thinking before doing.

4.2 Meaning and Definition of planning

Planning is one of the most important functions of management. It is the prime activity that
initiates the very essence of managerial tasks. It deals with the determination of the future course
of action. Thus, when we talk of planning, we find answers to the basic questions such as what to
do, when to do, how to do and who is to do? Thus, planning involves deciding in advance the
future activities to be performed. In simple words, it is thinking before doing.

In the words of George R. Terry, If you do not know where you are going, no road will lead you
there. Without the activities determined by planning, there would be nothing to organize, no one
to actuate and no need to control.

According to Alford and Beatty, Planning is the thinking process, the organized foresight, the
vision based on facts and experience that is required for intelligent action.

Theo Haimann defines planning as Deciding in advance what is to be done. When a manager
plans, he projects a course of action for the future, attempting to achieve a consistent,
coordinated structure of operations aimed at the desired results.

4.3 Nature of planning

Thus, from the above definitions, we are clear that planning is a process of deciding about the
goals which we want to achieve and thus, for achieving those goals we have to decide the best
course of action from amongst the alternatives available. So, we can describe the nature of
planning as follows:

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 Primary Function: In the previous chapters, we have broadly classified the functions of
management as planning, organizing, directing and controlling. So we can say that at all
managerial levels, planning is the foremost function that a manager has to perform. That
is why it is also sometimes referred to as essence of management.
Focuses on Objectives: Planning involves the various steps in determining the objectives
of the organization. It lays down the various means that we can use in order to achieve
those managerial objectives. Thus, we can say that every plan that we formulate helps in
achievement of our objectives.
Function of all Managers: It is a function that has to be performed by managers at all
levels. The top management however has to devote much more time to planning than the
middle or lower level of management. For instance, the Managing Director or the
President of a company devotes much more time in planning the activities than the
supervisor.
Intellectual Process: We call planning as thinking before doing. Thus planning is a mental
work and involves creative thinking and imagination. When we plan some activities, we
do all our actions as per the plan laid down and not by mere guess work. Thus planning
provides a concrete structure to our thoughts and thus determines the course of action to
be followed depending upon the available information.
Continuous Process: It is rightly said that planning has no end. We do planning in a
continuous manner. For instance, a manager makes new plans and also modifies the old
plans in the light of information received from the persons who are concerned with the
execution of plans. It is therefore, a never ending process.
Dynamic: Planning is a dynamic function of management. With the changes in the
business environment, the business plans and policies are also modified in context of the
diverse scenario. We know that the factors that affect the business are not within the
control of management, necessary changes are made as and when warranted by the
management.
Ensures Efficiency, Economy and Accuracy: One of the pre-requisites of planning is that
the objectives should be achieved but at minimal cost. It should ensure an optimum
utilization of resources by securing efficiency, economy and accuracy in the business
organization.

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 Forecasting: Planning is deciding in advance the future course of action. Thus when we
plan, we use different scientific techniques of forecasting so as to predict the future
trends. It is therefore a kind of future picture wherein immediate events are defined with
some distinctness while distant events appear gradually less distinct.
Planning and Linking Factors: Planning aims at deciding future course of action in
advance so as to achieve the desired objectives.
Check your progress I:
Q1. State whether it is true or false?
a) Planning is concerned with thinking before doing.
b) Planning follows all other functions of management.
c) Planning is a function of top management only.
d) Planning is static.
e) Planning is deciding in advance what to do, when to do, how to do and who is to do.

. .

4.4 Types of business plans

Plans can be classified as follows:
1. Mission: The Mission or purpose identifies the basic reason/ idea behind setting up an
organization. Every organization in order to be meaningful must have its mission or
purpose which it needs to fulfill. We all know very well about the going concern
concept which states that a business is assumed to go on for an indefinite period of
time. So, this going concern concept will be applicable only if business has a well
identified reason for which it is to survive. In other words, it represents the basic
objective behind setting up an organization and is to be achieved efficiently and

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 effectively. We are well aware of this fact that our business exists in a social system.
Now, in every social system, every enterprise has some task assigned to it by the
society. For example, a business is set up with the purpose of production and
distribution of goods and services. Similarly, the purpose of a university is to impart
education and providing related services to the community.
2. Objectives or Goals: We use the terms objectives or goals interchangeably. These are
the ends towards which the activity is aimed. They represent not only the end point of
planning, but also the end towards which the various functions of organizing, staffing,
leading and controlling are directed.
3. Strategies: For years, the term strategy has been used by militants and meant grand
plans made so as to outlay the enemy in the battlefield. Thus, in business, by strategy,
we mean a plan made in the light of plans by the competitors. As a business planner,
we must see the plans and policies of our competitors and then modify our plans so as
to prove the superiority of our products and services. McFarland defines a strategy as
An executive behavior whose purpose is to achieve success for the company or
personal goals in a competitive environment, based on the actual or profitable actions
of the others. Thus, we can also say that strategies denote a general programme of
action and an assignment of importance and resources towards the attainment of
comprehensive objectives.
4. Policies: Policies provide us a guide to action. When we set the objectives, we
determine the targets that we want to achieve. Now, in order to achieve those
objectives, we need to decide the activities to be performed. This decision is taken with
the help of policies. Policies guide us how to reach our goals and achieve our targets. It
is a general statement that guides our thinking, decision making and action in an
organization. Policies define an area within which a decision is to be made and ensure
that the decision will be consistent with and contribute to an objective. The policies
thus decide the limits within which management can take decisions. It is a statement
which guides an organization to deal with a particular situation in a particular manner.
For example, the recruitment policy of an organization may specify about the fresh
recruitments to be made through the employment exchange only. Similarly, we may
develop promotion policy also for our employees that lay down that the employees will

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 be promoted on the basis of merit or seniority. Policies therefore help us to resolve the
issues before they become problems make it unnecessary to analyze the same situation
every time it comes up and unify other plans, thus permitting managers to delegate
authority and still maintain control over what their subordinates do.
5. Procedures: Procedures are the plans that establish a required method of handling
future activities. They are chronological sequences of required actions. They are guides
to action, rather than to thinking and they deal the exact manner in which certain
activities must be accomplished. Procedures are also plans but they are more specific
and show the sequence of definite acts. In simple words, procedures specify the route
or path towards our objectives.
6. Programs: Program is a sequence of activities undertaken for implementing the policies
and achieving the objectives of a business concern. It comprises of various small plans
that together contribute in the accomplishment of overall objectives. Programs are a
complex of goals, policies, procedures, rules, steps to be taken, resources to be
employed and other elements necessary to carry out a given course of action. For
instance, there may be a program to increase the sales by 25%. In order to accomplish
this program, many small plans may be made to increase the sales, for example;
advertisement, salesmen, direct mailing etc.
7. Budgets: A budget is a plan in which estimated results are shown in a quantitative
monetary form i.e. revenue and costs. Thus, it is a statement of expected results
expressed in numerical terms. We generally call financial operating budget as a profit
plan. It is a tool of control in the sense that we take corrective action immediately if
any deviations are detected. A budget quantifies the plan and lays down the targets
towards which actual operations are directed.
8. Rules: A rule is a specific action to be taken or not to be taken with respect to situation.
Rules spell out either specific required action or no action, allowing no discretion.
For example: No Smoking is a rule which allows no discretion or deviation on the
part of anybody in the organization.
Check your progress II:
Q1. Take up an organization you know and identify its purpose or mission, even if it is not
formally stated by the enterprise.

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.
.
..
Q2. A phrase that announces where your company wants to go or a broad picture of what you
youre your company to become is ______________?
a) Vision statement
b) Income statement
c) Values statement
d) Mission statement

Q3. __________ lays out how you intend to carry out your business plan. It points out proposed
changes in management or organization.
a) Balance sheet
b) Mission statement
c) Vision statement
d) Action plan

Q4. A page in length; the whole plan summarized to point out key ideas covered:
a) Executive summary
b) Income statement
c) Balance sheet
d) Mission statement

4.5 Planning Process

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As we know that every business has its own philosophy for its functioning. So, we have to give
due consideration to the constraints for our business while chalking out the business plans. In
order to work for a systematic planning, we have to follow certain steps that assist in
accomplishing the goals in an effective manner. Lets discuss these steps in detail:
1. Being Aware of Opportunities: An awareness of the opportunities in both internal as well
as external environment is the real starting point for planning. All the managers should
take a preliminary look at the possible future opportunities and see them clearly and
completely, examine their own strengths and weaknesses, develop an understanding of
the issues to be resolved and the expected gains for the organization. Thus, the planning
process requires a realistic diagnosis of the opportunity situation.
2. Establishing Objectives: The next step in planning process is to set up objectives for the
organization as a whole and for each subordinate work unit. These objectives are to be set
for both long term and short term perspective. Objectives specify the expected results and
thereby indicate the end points of what is to be done, where the primary emphasis is to be
placed and what is to be accomplished with the help of strategies, policies, procedures,
rules, budgets and programmes.
The objectives of an organization give direction to the major plans. These by reflecting
these objectives, define the objective of every major department, which in turn control
the objectives of the subordinate department. In short, we set the objectives in a
hierarchy.
3. Developing Premises: The next logical step in planning is to establish, circulate and
obtain agreement to utilize critical planning premises such as forecasts, applicable basic
policies and existing company plans. These are basically the assumptions on which our
entire planning is based. The golden principle governing the planning premises is The
more thoroughly individuals charged with planning understand and agree to utilize
consistent planning premises, the more coordinated enterprise planning will be.
Forecasting is essential in planning as it gives answer to the following questions:
What kinds of markets will be there?
What volume of sales to be achieved?
What prices are to be charged?
What technical developments can take place?

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 What costs? What wage rates?
What tax rates and policies?
What policies with respect to dividends?
What political or social environment?
What could be the long term trends?
4. Determining Alternative Courses: The fourth step in planning is to search for and
examine the various alternative courses of action. For example, if we require additional
funds for our company, then we can explore the various sources from which we can raise
the funds such as issue of share capital, raising loans from banks, borrowing from
financial institutions, public deposits etc. All the available courses should be adequately
evaluated to discover the most useful course of action.
5. Evaluating the Alternative Courses: After seeking out alternative courses and examining
their pros and cons, the next important step is to evaluate those alternatives by weighing
them in light of their premises and goals. For instance, we may have one alternative that
may be the most profitable, but may require larger cash outflows and higher risk,
similarly there may be another alternative which may be less profitable but with less risk
as well; another may better suit the companys long range objectives.
There are so many alternative courses in most situations and so many variables and
limitations to be considered that make evaluation task a bit difficult for the managers. We
need to use appropriate methodology for evaluating these alternatives which involve
statistical tools and operations research. The major factors that are to be kept in mind
while evaluating the alternatives are risk, capital shortage, long range objectives etc.
6. Selecting a Course: Now this is the point where the plan is adopted the real point of
decision making. When the comparative results of different alternatives are tabulated, the
alternative that seems to be the best is selected. Occasionally, an analysis and evaluation
of alternative courses may reveal that two or more alternatives are advisable and thus a
manager may decide to follow several courses rather than the one best course.
7. Formulating Derivative Plans: When a plan is selected, the next step in the process is to
formulate derivate or subsidiary plans for the accomplishment of master plans. Now at
this stage, we have already decided a master course of action. The basic task which we
have to do now is to develop plans for the different departments in the organization. Each

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 departmental head prepares a plan for the departmental activities keeping in line the
primary objectives of the concern. For instance, if a company decides to develop a new
product, by installation of a certain new machine, then the various subsidiary objectives
that could be developed may include; hiring of new employees, procuring requisite funds,
new product advertising, purchase of raw materials etc.
8. Quantifying Plans by Budgeting: After decisions are made and plans are set, the final step
involved, as we indicated in the types of plans, is to quantify them into budgets. The
overall budgets in an organization include the aggregate of income and expenses, with
resultant profit or surplus and the budgets of major balance sheet items such as cash and
capital expenditures. Each department or program of a business can have its own budget
that tie together to form an overall budget. If we do well in setting up budgets, these can
become a means of adding the various plans and set important standards against which
planning process can be measured.
9. Coordination of Short and Long Range Plans: The common mistake that most of the
managers do is to formulate the short-range plans without reference to long-range plans.
A proper integration between the two is very critical element in planning process as there
is no benefit of going for a short-range plan until it contributes to the achievement of
long-range plans. Responsible managers should therefore, continually review and revise
immediate decisions to determine whether they actually contribute to long-range
programmes and subordinate managers should be regularly briefed on a long-range plans
so that they will make decisions consistent with the companys long-range goals.
10. Controlling the Plans: The last stage in planning is to watch the progress of a plan and
note down its shortcomings and weaknesses. These shortcomings should be corrected
without any delay and all future plans should be designed in light of these drawbacks. So,
we can say that a continuous review of plans helps us in keeping the plans up to date.

Check your progress III:

Q1. __________________ focuses people on the methods and processes used to attain
results, rather than on results themselves.
a) Management by Objectives (MBO)
b) Single-use plans

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c) Contingency plans
d) Management by means (MBM)

Q2. A blueprint specifying the resource allocations, schedules and other actions necessary for
attaining goals.
a) Planning
b) Plan
c) Goal
d) Mission

Q3. The management function concerned with defining goals for future performance and
how to attain them.
a) Plan
b) Goal
c) Planning
d) Vision

Q4. State whether the following are true or false.

a) Operational plans specify the action steps towards achieving operational goals and
supports tactical activities.
b) Mission statement is an organizations purpose or reason for existence.
c) Strategic goal represents broad statement of where an organization wants to be in the
future. Pertains to the organization as a whole rather than to specific divisions or
departments.
d) The golden principle governing the planning premises is The more thoroughly
individuals charged with planning understand and agree to utilize consistent planning
premises, the more coordinated enterprise planning will be.

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4.6 Meaning of MBO

Management by objectives works if you know the objectives Ninety percent of the time you
dont.
-Peter F. Drucker
The idea that led to MBO were contributed by Donaldson Brown and Alfred Sloan in 1920s and
Edward Hagenin in 1930s. Peter Drucker, a renowned management writer introduced the term
MBO in1954 in his book Practice of Management. He introduced a chapter objectives of a
Business in which he set the objectives of performance and result.
DEFINITIONS

A Dynamic system which seeks to integrate the companys need to clarify and achieve profits
and growth goal with managers need to contribute and develop himself
-Humble
MBO is result centred, non specialist, operational managerial process for effective utilisation of
material, physical and human resources for the organization and organization with the
environment.
- Chakravarty

MBO What it is all about?

MBO which is also called as Management by Results focuses on the objectives that we set in
management process and lay greater emphasis on the performance improvement in the
organization. MBO thus is basically concerned with the joint participation of subordinates and
superior in the establishment of clear and specific objectives for each individual and unit.

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In other words, MBO is a complex managerial activity that integrates the various key managerial
activities in a systematic manner and the entire process is directed towards the achievement of
organizational as well as individual objectives in an effective and efficient manner.

We may use the following different terms to Denote MBO:

- Accountability management
- Action plan of objectives
- Goals Management
- Improving Business Results
- Improving Management Performance
- Management by objectives and result
- Management by result
- PRIDE :-Performance Results and Individual Development Evolution

Features / Characteristics of MBO: Following are the chief characteristics of MBO:

1. Participation and Interaction: - In MBO, both the superior and subordinates are
required to recognize that they both have to jointly formulate the objectives. They have to
get together, jointly agree and write out the duties and areas of responsibilities in their
respective jobs.
2. Jointly setting Goals:- In MBO, we have to keep this thing in mind that there is a joint
effort on the part of both the superior and the subordinate. The subordinate has to set his
targets and objectives after adequately discussing the activities with the superior. It is to
be noted that here the superior also has to be available to the subordinates for the
execution of the objectives in an effective and efficient manner.
3. Mutually Devise Methodology:- Both Superior and subordinate discuss about the
methodology to be followed in the achievement of objectives and also ascertain if any
sort of training is further needed to improve the skills and knowledge of the employees.
4. Review of the Progress:- In order to exercise complete control over the achievement of
the objectives, it is necessary to review the progress of the personnel at regular time
interval. Thus, what we have to do is to make sure that superior and the subordinates

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 meet; evaluate and review the performance results in terms of predetermined goals at a
regular interval.
5. Support from Top Management:- We always acknowledge this fact that superiors
helping hand remains always extended to the subordinate in his achievement of his goal.
The superior act as a coach and makes available his valuable advice and Guidance to
subordinates.
6. Result oriented MBO: - The process of MBO focuses exclusively on the Results and
not the means that we make use of for achieving these results. This is the most significant
aspect of MBO that here a Superior does not pass any judgment on the performance of
his subordinate although he guides the subordinate in attaining his goals.
7. System of Information: - Another important characteristic feature of MBO is that
system of Information must be provided to ensure implementation.

Check your Progress IV:

Q1. Strengths, weaknesses, opportunities and threats

a) Policies
b) SWOT Analysis
c) Rules
d) Strategy

Q2. Business strategies are concerned with the activities of different functional area of the
business.
a) True
b) False

Q3. The philosophy based on converting organizational goals into personal ones.
a) Management by Objectives
b) Planning
c) Management by means
d) strategic management

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Q4. Which of the following is the chief characteristic of management by objectives?
a) Participation and Interaction
b) Mutually Devise Methodology
c) Review of the Progress
d) System of Information
e) All of the above
.

4.7 Process of MBO

Let us now discuss the steps involved in management by objectives. The following diagram
clearly illustrates the steps to be followed for implementing management by objectives.
PROCESS OF MBO

Preliminary objective setting

Identification of key Result

Determination of Subordinates Objectives

Revision of job Description

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 Matching Goals and Resource Allocation

Recycling Objectives

Establishing Check Points

Review and appraisal of performance

Counseling

MBO as a system aims to enhance the commitment and participation of employees in

objective achievement. The various steps involved in it are as follows:

1. Preliminary objective setting: - The very initial task in implementing MBO is the setting
up of objectives. It is because the top management should be very clear in itself about the
purpose, the goals and objectives which its enterprise has to achieve in a given period. There
has to be a hierarchy of objectivities in an organization. The top management is responsible
for pointing out which objectives are primary and secondary and keeping the people aware of
changes which occur from time to time. Certain goals should be scheduled for
accomplishment in a shorter period and other for a much longer period. As one goes down the
line in an organization, the length of time set for accomplishing goals tends to get shorter.
The objectives set should be specific and realistic. These objectives are preliminary and
tentative subject to modifications as the entire chain of verifiable objectives is worked out by

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the organization. In the setting of objectives, the manager also establishes measures which
will indicate goal accomplishment. While operational objectives must be measurable, many of
the best strategic goals are not reduced to measurement, but to verbal statements of conditions
which would exist if the goal were attainable.
2. Identification of key Result:- The objectives of the enterprise provide a base for
identification of key result areas. The key result areas are the priorities of the enterprise. The
key result areas for an enterprise can be profitability, market share, innovation, development
of the enterprise, labour relations etc. These priorities get changed over time according to
changed circumstances.
3. Determination of Subordinates Objectives: This is a well-known fact that the
accomplishment of the organizational goal is much dependent on the individuals working in
it. Hence, they must be informed regarding objectives, strategies and key result areas. Then,
the mutual consultant on between superior and subordinates leads to formulation of objectives
for subordinates on the following levels.
(a) On departmental level, objectives are set for various departments with reference to
overall objectives.
(b) On individual level, targets for various individual manager working in enterprise are set
according to the targets of the concerned department
4. Revision of job Description:- Under MBO resetting of the individual goals will call for a
revision of the job description of various positions which in turn, will call for the revision of
the whole organizational structure. The organizational chart and manuals will be amended to
depict the changes brought in by the MBO. The job description of various jobs will now
define their objectives, responsibilities and authority. The relationship of one job in the
organization should also be clearly established.
5. Matching Goals and Resource Allocation:- Setting of objectives does not mean anything
in itself unless resources and means to achieve there objectives are also provided. Thus, the
subordinates must be provided necessary tools and materials by the managements, so that they
can achieve their goals effectively and efficiently. The resource allocation should also be
made in consultation with the subordinates. If goals are precisely set, resource requirement
can be precisely measured which will make the resource allocation very easy.

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6. Recycling Objectives:- Goal setting is not only a joint process but also an interaction
which requires recycling because in the goal setting the contribution of subordinates comes
into the picture. Goals are neither move from top to bottom nor from bottom to top. In fact,
there is a degree of recycling. What we do in recycling is, we involve the subordinates at
every level of goal setting and they influence it considerably. Thus people set goals for
themselves which create the feeling of commitment which is necessary for attaining goals.
Odiorne has indicated that the power of commitment is what makes M.B.O. works, and the
absence of such commitment can cause it to fail.
7. Establishing Check Points:- MBO ensures that periodic meetings between the manager
and his subordinates are organized so as to discuss the progress toward the accomplishment of
the target of the subordinates. For this the manager must establish check points or standards of
performance for evaluating the progress of the subordinates. The standards should be
specified quantitatively as far as possible and the subordinate must understand them fully.
This practice should be followed by each manager with his subordinate and it should lead to
key result analysis as target or goals are represented in terms of results. The key result
analysis should be reduced to writing. It generally contains the following information:
(i) The overall objectives of the job of the subordinate.
(ii) The key results, he must achieve to fulfil his objectives.
(iii) The long term and short term priorities of tastes he must adhere to.
(iv) The scope and extent of assistance he expects from his superior and related
departmental managers and the assistance he must extend to other departments.
(v) The nature of information and report he will receive to carry out self-evaluation.
(vi) The standards by which his performance will be evaluated.
8. Review and appraisal of performance:- This is the last stage in the process of MBO.
There should be periodic reviews of progress between manager and the subordinates. These
reviews would determine whether the individual is making satisfactory progress. It will also
disclose about the development of any unanticipated problems. It also facilitates the
subordinate to understand the process of MBO in a better manner. It also improves the morale
of subordinates since the manager is showing active interest in the subordinates work and
progress. However, the performance appraisal at these intermediate reviews should be
conducted, based upon fair and measurable standards. These reviews will also assist the

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manager and the subordinates to modify either the objectives or the methods, if necessary.
This increases the chances of success in meeting the goals and makes sure that there are no
surpluses at the final appraisal.
9. Counseling:- The performance review is conducted at periodic intervals in the
organization. It helps the subordinates in improving their performance in the future. The
subordinates will come to know about their deficiencies and the superiors can assist the
subordinates in overcoming these deficiencies and work with improved efficiency and
productivity.

Thus, we can conclude from the foregoing discussion that MBO is by nature a future oriented
process and motivates employees to think about the future in terms of where they are going.
.
Check your progress V:
Q1. Define recycling.

.
...

.
Q2. What is the role of performance appraisal in implementing management by objectives?

4.8 Benefits of MBO

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MBO has been one of the most widely practiced managerial approaches due to its various
benefits that we are going discuss as under:
1. Improved Performance:- MBO helps in managing various resources and activities of an
enterprise. This is because when we implement MBO in our organization, the objectives
and expected roles of employees are clarified with their own active participation.
Performance of employees is regularly watched by the superiors on the basis of set
objectives. All this leads to improvement in performance of employees.
2. Clarification of Organizational Action:- The organizational objectives are set and then
we decide with the formulation of departmental objectives. Not only objectives, but
specific key result areas are also identified. Changes in external and internal environment
are properly watched to review the objectives accordingly. Thus, organizational action
becomes more clarified and can be executed in a simplified manner.
3. Team Spirit:- Organizational, departmental and individual goals are set with active
participation of employees of the enterprise. The efforts, interests and actions are
properly integrated. A team spirit is fostered to remove the differences between superior
and subordinates. Hence, actions of all individuals are coordinated through team spirit.
4. Maximum Utilization of Human Resources:- Since the goals are set in consultation
with the subordinates, these are easy to be targeted. This is because when goals are set by
the superior himself, then there might be issues with respect to the accomplishment of
these objectives by the subordinates in terms of the skills and efficiency required. In
addition, since these goals are fixed according to the particular abilities of the
subordinates it obtains maximum contribution from them, and thus it leads to maximum
utilization of human resources.
5. Better Decision:- We know that the system of MBO involves active interaction,
discussion and participation of superior and subordinates. In this healthy environment,
better decisions are taken by them after considering the various resources available with
the organization.
6. Basis for Organizational Change:- Through MBO, the execution of change process
becomes easier. Since all individuals are well informed about goals and environmental
changes, they become more innovative and dynamic and show less resistance to change.

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7. Effective Controls and Appraisal:- M.B.O. not only ensures effective planning but also
aids in developing effective controls. M.B.O besides providing clarity as what one is
expected to achieve, also provides the measurement criteria to judge where one stands.
More organizations are moving toward appraisal of objectives and results rather that
traits.
8. Improved Communication:- In MBO, there is improved communication between the
management and the subordinates. This continuous two way communication helps in
clarifying any ambiguities, refining and modifying any processes or any aspect of
objectives.
9. No Role Ambiguity:- As we have already discussed earlier that we set our targets and
objectives jointly, so there is no role ambiguity or confusion in the organization. All the
employees have a clear picture of what goals are set for the organization, for the division
for the department and for the individual members. Both the managers and the
subordinates know what they have to do and what is expected of them.
10. Motivation:- M.B.O provides an opportunity to individuals in the organization to
participate in goal determination. This surely encourages them to achieve those goals
also. Moreover, people are recognized and rewarded who have shown better
performance. This type of climate motivates the individuals to show their skill or
potential to achieve targets.
11. Career Development of the Employees:- MBO provides a realistic means of analyzing
training needs and opportunities for growth of the employees. The management takes
keen interest in the development of skills and abilities of subordinates and provides an
opportunity for strengthening those areas which need further refinement, thus, leading to
career development of employees.
12. Result Based Performance Evaluation:- The system of periodic performance
evaluation lets the subordinates know how well they are doing. In MBO strong emphasis
is put on measurable and quantifiable objectives. As s result, the appraisal tends to be
more objectives, specific and equitable. As these appraisal methods are based on result
and not on some intangible characteristics.These are considered to be superior to the trait
evaluation methods of appraisal

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 4.9 Limitations of MBO
M.B.O is not free from limitation or weaknesses. Some problems are inherent in the system
while others arise due to wrong implementation. The common problems are:
1. Lack of Support of Top Management:- In traditional organization, we experience that
the authority is vested in the top management and it flows from top to bottom. In MBO
subordinates are given an equal opportunity of participation, which is resented by the top
management. The full support of top management is one of the basic requirements for the
successful implementation of this system.
2. Resentful Attitude of subordinates:- The subordinates can also be annoyed by the
system of MBO. Sometimes, while setting the goals, they may be under the pressure to
get along with the management and the objectives which are set may be unrealistically
high or far too rigid. The subordinates generally feel suspicious of the management and
believe that MBO is another false play of the management to make them work harder and
become more dedicated and involved.
3. Failure to teach the philosophy of M.B.O:- Many managers fail to understand this new
philosophy of managing the organization. They have many doubts in their mind such as
what MBO is, how it works, why it is adopted, how it can improve performance, what
benefits it can provide, etc. So, it becomes essential for the management to guide the
employees about the concept of MBO and then implement the entire system so as to
ensure its successful implementation.
4. Difficulties in Quantifying the Goals and Objectives:- The MBO will be successful
only if the goals can be set in quantifiable terms. But if the areas are difficult to quantify
and difficult to evaluate, it will not be possible to judge the performance of the
employees. Moreover, MBO does not have any subjectivity in performance appraisal. It
rewards only productivity without giving any consideration to the creativity of the
employees.
5. Emphasis on Short run objectives:- Another limitation of MBO is that it takes into
account both long term as well as short term objectives. What the problem that we have
to face while its implementation is that sometimes in the organization more emphasis is
laid on short term objectives at the cost of long term objectives. This may lead to
incompatibility between long term and short run objectives.

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6. Time consuming techniques:- We have studied that MBO is a system and has to be
implemented in different stages, which makes it a time consuming process. Before
implementation of M.B.O Concept, a lot of time is spent on teaching the basic
philosophy, its application and its benefits etc. to the employees. Moreover, time is also
consumed in setting the objectives at various levels of management and the performance
appraisal of various departments. Hence it is a very time consuming technique.
7. Pressure on the employees:- Although the employees are given chance to fix the
objectives but in reality, they may not be in a position to express their views freely. Many
a times, they have to give their consent regarding objectives under pressure in the group
meeting. Moreover, they are under pressure to achieve goals within a specified time. This
may result in resentment on the part of employees.
8. Lack of adequate Skills and Training: - It has to be kept in mind that for implementing
MBO, one must be adequately trained and skilled in this context. Most of the managers
lack adequate skills, knowledge and training required in interpersonal interaction which is
required in the MBO. Many managers tend to sit down with the subordinate, formulate
the goals and targets with no input permitted from the subordinates and then demand that
the goals be achieved in a specified time. Thus, they oversee the fact the goals should be
realistic and must be such that are in line with the organizational objectives and be easily
achieved. In this type of environment, two way communication does not take place and
objectives are imposed on the subordinates. This destroys their morale, initiative and
performance.
9. Poor Integration:- Generally, the integration of the MBO with the other system such as
forecasting and budgeting is very poor. This lack of integration makes the overall
functioning of the system very poor.
10. Inflexibility:- In the present dynamic world, condition change frequently; therefore a
particular objective may not be valid forever. But it is not possible to change the
objectives frequently and it is also useless to follow the old objective, which has lost its
relevance in the changed circumstances.
11. Not a substitute for Success: - Many people refer it as a sure short for success. But it is
no substitute for success. This approach in itself will not serve the purpose until its
essence is not understood and will executed.

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 12. Limited Application: - MBO is useful largely for the managerial and professional
employees. It is not appropriate for all levels and for everyone because of the heavy
demands made by it. It can be made applicable only when both the subordinates and
managers feel comfortable with it and are willing to participate in it.
13. Long Gestation Period:- It takes a lot of time, sometimes 3-5 years to implement the
MBO programme properly and fully and some research studies have shown that these
programmers can lose their impact and potency as a motivating force over a long period
of time.
14. Lack of Follow Up: Under the system of MBO, the superior must get in touch with the
subordinate at the appropriate time and at that time, the subordinate will inform the boss
exactly what has been accomplished and how. If the superior delays the meeting, it will
create hurdles in the successful implementation of MBO as the subordinate will also start
taking the programme casually.
The above given problems can be overcome by implementing the MBO system properly.

4.10 How to Improve Effectiveness of MBO

1. Support of top management:- It is pertinent to get top management support and
commitment. Without this commitment, MBO can never really succeed. The top managers
and their subordinates should all consider themselves as players of the same team. This
means that the supervisors must be willing to relinquish and share the necessary authority
with their sbordinates.
2. Objectives should be realistic and achievable: - The objectives should be crystal clear,
realistic and achievable. For example, it is not realistic for the R&D department of an
enterprise to set a goal of, say 30 inventions per year. Moreover, these goals should be set
with the active participation of the subordinates. These must be properly communicated,
clearly understood and accepted by all.
3. Participative goal setting: - The objectives and goals should be set with the active
participation of the subordinates. There should be effective two way communication between
the superior and the subordinate for setting the goals and for discussing the subordinates
problems. These objectives must be properly communicated and clearly understood and
accepted by all. MBO works best when the goals are willingly accepted.

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4. Overall Philosophy of Management: - For the successful implementation of MBO in an
organization, it is essential that it should be treated as the overall philosophy of the
management. It should not be simply performance appraisal technique or a divisional
process. It should change and replace all the old systems rather than just being added to them.
5. Decentralization of Authority: - MBO will not be effective if the manager is not willing to
delegate sufficient authority to the subordinates. The subordinates who have been given
challenging assignments through discussion with the superior must be given adequate
authority to accomplish their goals, otherwise they will not be willing to accept new
assignments and they will resist the setting of clearly defined goals.
6. Revision and Modification Goals: - We know that change is the law of nature. So, keeping
in view the dynamic work environment, the goals and objectives of the organization should
be duly revised. The review technique should be such that all deviations are caught early and
corrected.
7. Orientation and training of Executives:- As the philosophy of MBO is to be implemented
by the executives, they must be given formal training in understanding the basis as will as the
contents of the programme. They must be adequately oriented about the value of MBO. They
should be trained in how to set the goals, the methods and tools to achieve these goals,
methods of reviews and evaluation of performance and provision to include and feed back
that may be given.
8. Integration of MBO Programme: - MBO cannot be implemented in isolation. It should be
accepted as a style of managing and should be synthesized with the organizational climate.
All personnel involved should have a clear understanding of their role, authority and their
expectations. The system should be absorbed wholly by all departments and members of the
organization.

4.11 Summary
Thus, we have learnt that planning is one of the most important functions of management. It
is the prime activity that initiates the very essence of managerial tasks. It deals with the
determination of the future course of action. It involves deciding in advance the future
activities to be performed. In simple words, it is thinking before doing. MBO which is also
called as Management by Results focuses on the objectives that we set in management

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 process and lay greater emphasis on the performance improvement in the organization. MBO
thus is basically concerned with the joint participation of subordinates and superior in the
establishment of clear and specific objectives for each individual and unit.
4.12 Glossary
a) Planning: Deciding in advance the future course of action.
b) Mission: the basic function or task of an enterprise.
c) Objectives: the ends towards which the activities are aimed at.
d) Strategy: plan that sets the basic long term objective and the adoption of the courses of
action for its accomplishment
e) Policies: general statements that guide the thinking process in decision making by
defining the area within which the decision is to be made
f) Procedures: Plans that establish a required method of handling the future course of action.
g) Budget: A statement of expected outcomes expressed in quantitative terms
h) MBO: Management by Objectives; it is a managerial system that integrates key
managerial activities in a systematic manner and is directed towards the achievement of
organizational goals in an effective and efficient manner.
4.13 Answers to check your progress
Check your progress I: 1. A) True; b) False; c) False; d) False; e) True
Check your progress II: 1. Base your answer on section 4.5; 2 d; 3 d; 4 a
Check your progress III: 1 a; 2 b; 3c; 4 a) True; b) False; c) True; d) True
Check your progress IV: 1 b; 2 b; 3 a; 4 e
Check your progress V: Base your answer on section 4.8
4.14 Bibliography/ References/ Suggested Readings
Essentials of Management by Harold Koontz and Heinz Weihrich, Tata McGraw Hill
Stephen P. Robbins, Mary Coulter and Neharika Vohra, Management, Pearson Prentice
Hall, Tenth edition, 2011
Koontz and Weihrich, Essentials of Management An International and Leadership
Perspective", Tata Mc Graw Hill Education Pvt. Ltd., ninth edition, 2012
4.15 Test and Model Questions
a) Planning is looking ahead and control is looking back. Comment
b) Describe briefly the various steps involved in planning process.

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c) Define planning. What are the different types of plans?
d) What is Management by Objectives? Discuss the various steps involved in management
by objectives.
e) Discuss the advantages and disadvantages of management by objectives. Can the
disadvantages be eliminated or reduced? If yes, how?

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 Chapter 5
Strategic Management
Structure:

5.0 Objectives
5.1 Introduction
5.2 What is a strategy
5.3 Concept of Strategic Management
5.4 Nature of Strategic Management
5.5 Objectives of Strategic Management
5.6 Process of Strategic Management
5.7 Kinds of Strategies
5.8 Summary
5.9 Glossary
5.10 Answers to Check your progress
5.11 Bibliography/ References/ Suggested Readings
5.12 Test and Model Questions

5.0 Objectives
After going through this chapter, you will be able to:
Understand the concept of strategic management
Describe the nature of strategic management
Identify the objectives of formulating strategies
Explain the process of strategic management
Understand the different kinds of strategies

5.1 Introduction
With the Liberalization, Privatization and globalization policy in 1991, the concept of
strategic management has emerged in the Indian corporate sector. The various other terms
that we make use of for this concept are: Business Policy, Corporate Strategy and Corporate
Planning. Managers at all companies face three central questions in thinking strategically
about their companys present circumstances and prospects: Where are we now? concerns
the ins and outs of the companys present situation its market standing, how appealing its

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 products or services are to customers, the competitive pressures it confronts, its strengths
and weaknesses, and its current performance Where do we want to go? deals with the
direction in which management believes the company should be headed in terms of growing
the business and strengthening the companys market standing and financial performance in
the years ahead How will we get there? Concerns crafting and executing a strategy to
get the company from where it is to where it wants to go.

5.2 What is a strategy

The word strategy is used popularly in armed forces in order to formulate a plan of action so
as to defeat the possible moves, actions and reactions of the enemy. In case of business, the
strategy is formulated by the business concerns for meeting the offensive moves of the rival
concerns. We often see pepsi and Coca-Cola companies resorting to different strategies in the
light of the strategic actions of each other. The following definitions will make the concept of
strategy more clear.
A strategy is a unified, comprehensive and integrated plan relating the strategic advantages
of the firm to the challenges of the environment. It is designed to ensure that the basic
objectives of the business are achieved. - Glueck W.F.
Thus, strategy is important because it makes possible the implementation of policies and long
range plans for attaining company goals, creation of effective business strategy requires a
basic knowledge of economic theory, management principles, accounting, statistics, finance
and administrative practice.
In 1988, Henry MIntzberg described the many different definitions and perspectives on
strategy reflected in both academic research and in practice. He examined the strategic
process and concluded it was much more fluid and unpredictable than people had thought.
Because of this, he could not point to one process that could be called strategic planning.
Instead Mintzberg concludes that there are five types of strategies:
Strategy as plan a directed course of action to achieve an intended set of goals; similar
to the strategic planning concept;
Strategy as pattern a consistent pattern of past behavior, with a strategy realized over
time rather than planned or intended. Where the realized pattern was different from the
intent, he referred to the strategy as emergent;
Strategy as position locating brands, products, or companies within the market, based
on the conceptual framework of consumers or other stakeholders; a strategy determined
primarily by factors outside the firm;

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 Strategy as play a specific maneuver intended to outwit a competitor; and
Strategy as perspective executing strategy based on a "theory of the business" or natural
extension of the mindset or ideological perspective of the organization.

5.3 Concept of Strategic Management

Strategic management refers to all those steps or measures that are undertaken by the
business houses so as to survive in the competitive environment. A strategy is needed only
for competitors. The concept of corporate strategy thus implies attempt to alter companies
policies in relation to that of its competitors.
Thus, in the present business scenario that is full of many complexities and challenges, the
success of its operations depends upon the various strategies it adopts. The growth and
development of the business in todays world depends upon the effective implementation of
strategic management.
Strategic management is the formulation and implementation of plan and carrying out of
activities relating to the matters which are of vital, persuasive or continuing importance to the
total organization. -Arthur Sharplin
Strategic management is a set of decisions and actions which lead to the development of an
effective strategy or strategies to help achieve corporate objectives. - Glueck W.F.
Check your Progress I:
Q1. Strategy as a _______________ refers to a directed course of action to achieve an
intended set of goals; similar to the strategic planning concept
a) Plan
b) Position
c) Pattern
d) Play

Q2. Strategic management refers to all those steps or measures that are undertaken by the
business houses so as to survive in the ___________ environment.
a) Competitive
b) Political
c) Social
d) Economic

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Q3. The five types of strategies are proposed by which of the following management
practitioner?
a) FW Taylor
b) Henry Mintzberg
c) Pattern
d) Play

5.4 Nature of Strategic Management

More and more organizations are using strategic management because of the following key
components of the nature of strategic management:
Increasing rate of changes: The environment in which business operates is changing
rapidly. In order to survive in the dynamic business environment, a business has to
keep its policies and strategies up to date. Thus, a. effective strategy helps in
maximizing the profitability of the concern.
Higher Motivation of Employees: The foundation of the process of strategic
management is the formulation part i.e. we have to plan our activities. Thus, we
assign the clear cut duties to our work force with respect to what is to be done, how it
is to be done and who is to do. When we follow strategic management in our
organization, we can see that our employees become loyal, sincere and goal oriented
and their efficiency is also increased.
Strategic decision making: Under strategic planning, the first and the foremost step is
to set up the objectives of the concern. Strategic decisions taken under strategic
management are helpful in smooth and efficient working of the organization.
Optimization of profits: An effective strategy should develop from policies of a
concern, and takes into due consideration the actions of the competitors. It considers
future operations in respect of market area and opportunity, executive competence,
available resources and limitations imposed by the government. An effective strategy
should optimize profits over the long run.
5.5 Objectives of Strategic Management

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More and more organizations are concentrating on strategic management because of the
following reasons
1. Increasing rate of changes -: The environment in which the business operates is fast
changing. A business concern which does not keep its policies up to date, cannot
survive for a long time in the market. In turn, the effective strategy optimizes profits
for a long time.
2. Higher motivation of employees-: The employees are assigned clear cut duties by the
top management viz. what is to be done, who is to do it, how to do it and when to do
it. When strategic management is followed in any organization, employees become
loyal, sincere and goal oriented and their efficiency is also increased. They also get
rewards and promotions resulting in higher motivation for the employees. A strategy
must respect human values and duly consider the aspirations of individual members.
3. Strategic decision-making-: Under strategic planning, the first step is to set the goals
or objectives of a business concern. Strategic decisions taken under strategic
management help the smooth sailing of an enterprise. Strategic planning is the overall
planning of operations for effective implementation of policies.
4. Optimization of profits -: An effective strategy should develop from policies of a
concern. It takes into account actions of competitors. It considers future operations in
respect of market area and opportunity, executive competence, available resources
and limitations imposed by the government. An effective strategy should optimize
profits over the long run.
5. Miscellaneous -: Mr. H.N. Broom in his book on business policy and strategic
action has mentioned that a strategy has a primary concern with the following :
a) Marketing opportunity: products, prices, sales potential and sales promotion.
b) Available distribution channel and costs.
c) The scale of company operations.
d) The manufacturing process required to implement their scale of operations
(with an optimal production cost).
e) The research and innovation programme.
f) The type of organization.
g) The amounts and proportions of equity and credit capital available to the firm
and their combined adequacy.
h) The planned rate of growth.
Check your Progress II:

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Q1. Why should a company implement the system of strategic management

5.6 Process of Strategic Management

The strategic management covers the following four steps:
1. Identification of Business objectives and purposes.
2. Formulation of strategies.
3. Implementation of strategies.
4. Evaluation of strategies.

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 identification of
business Process of Strategic Management
objectives and
purposes

formulationn of
strategies

implementation
of strategies

evaluation of
strategies

IDENTIFICATION OF BUSINESS OBJECTIVES AND PURPOSES:

The corporate objectives signify the final end result which is to be attained over a
period of time. A strategy is a means to achieve the objectives. Generally, the words purpose
and mission are used interchangeably. However these terms have different meanings in
management. Corporate purpose gives a clear picture of what the company is about and what
it wants to achieve in future. It is a statement of the principal line of business which it wants
to pursue. Corporate missions explain the scope of business in terms of product and market.
Objectives on the other hand define the direction to achieve the mission.
The mission of Fertilizer Company may be mentioned as to fight world hunger and
the objective may be mentioned as to increase the agricultural productivity through
development, efficient production of improved fertilizer, generate profits to finance R&D and
to ensure satisfactory returns on investment.

FORMULATION OF STRATEGIES:
In strategy formulation, a firm must be aware of its strength, weaknesses,
opportunities and threats. SWAT Analysis focus attention on these four variables viz.
strength, weaknesses, opportunities and threats. The first two are internal whereas the last two
are external to an organization.
a. Strength: - The strong points of an organization are referred to as its strength. Trained
and efficient personnel, quality products, reasonable price, strong financial position,

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 efficient marketing networks, well organized R&D department etc. are its strength.
An organization should try to mass up its strength.
b. Weaknesses: - Every organization suffers from certain points such as obsolete or old
machinery, inefficient management, weak financial position, large span of control,
poor quality of products etc. An effort must be made quickly by the management to
overcome or minimize the weaknesses.
c. Opportunities: - Opportunities are entirely external in the business environment.
Opportunities do not come every time and the management must exploit them to
make profit without delay. Opportunities arise from government policies relating to
tax, exports, duty drawbacks, import substitution etc. An organization should
immediately try to take advantage of such opportunities by diversifying its activities.
It is a alertness of the top management to judge the available opportunities and take
advantage of them without delay. Economic liberalization in India has opened up
many new opportunities in many areas of business operations.
d. Threats: - These are also external to an organization like opportunities. It is right to
say that liberalization in India has opened up many new areas but it has also brought
with it many threats to existing business units. A number of companies have made an
exit from the business world in India. An efficient top management can forsee such
threats well in advance and devise strategies and tactics to meet them. The various
threats to an existing business include competition from other companies, changes in
demand, changes in government policies, strikes etc.
If the product of a company has become obsolete on account of arrival of new
product, it must come out with an alternative product otherwise its survival in the
business will be difficult.

Check your Progress III:

Suppose you are Managing Director of ABC Ltd. As you are planning to implement the
strategic management in your organization, you are required to do a SWOT analysis so as to
find out the key considerations before its implementation. Outline the findings of SWOT
analysis.

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 .

IMPLEMENTATION OF STRATEGIES:
This involves a number of administrative and operational decisions. The following are the
three important components of the strategy:
1. Resource Implementation
2. Organizational Implementation
3. Functional policy Implementation

1. RESOURCE IMPLEMENTATION: - In order to effectively implement a strategy, all

available resources viz. human, financial, material, technological etc. must be made
available. There must be right men at the top and responsible positions. Such human
resources must possess required qualities, skills, talents. The top management must act

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 objectively i.e. without bias or prejudices in making the resources available at the right time.
The job of strategic management is mainly confined to three operational areas viz. physical,
financial and human resources. Unless the resources required are made available, no
business strategic plans can be put into action.

DIFFICULTIES IN RESOURCE ALLOCATION

The following problems are generally faced by the top management:
A. Scarcity of Resources: - All resources may not be always available. Even if available, the
resources may be very costly.
B. Important Restriction: - In order to procure machinery and plant from foreign country,
there may be restrictions relating to either foreign exchange or any other reason best
known to the government.
C. Human Resources: - The working of an organization depends not nearly on the quantity of
human resources but their quality. If human resources have professional skill and
experience, they can give much more return then the cost incurred in procuring such
resources.

2. ORGANISATIONAL IMPLEMENTATION: - A suitable organization in necessary for

effective implementation of a strategy. According to Mc Kinsey, Neither strategy nor
structure can be determined independently of the other..strategy can rarely succeed
without an appropriate structure. In almost every kind of large scale enterprise, examples
can be found where well-conceived strategic plans were thwarted by an organization
structure that delayed the execution of the plans or gave priority to the wrong set of
considerations. Good structure is inseparably linked to the strategy.
In order to implement a strategy, the organization structure may have to be changed.
In India, a number of companies have changed their organizational structure.

3. FUNCTIONAL POLICY IMPLEMENTATION: - Formulation of policies is essential for

effective implementation of strategy. A policy is considered to be a guideline for action. It
channelizes organizational efforts in a pre-determined direction and leads to the achievement
of goals.
According to Glueck, The critical element, the major analytical exercise involved in
policy making, is the ability to factor the grand strategy into policies that are compatible,
workable. It is not enough for managers to decide to change the strategy. What comes next is

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 at least as important. How do we get there, whom and hoe efficiently? This is a manager does
by preparing policies to implement the grand strategy.

The various policies in a business can be classified as follows:

1. Corporate Policies
2. Divisional Policies
3. Departmental Policies
The Business policy affects the success of the business to a great extent. The senior
managers who are primarily concerned with long term decisions usually carry the
designations such as chief executive, president, general manager or executive director.
Policies make clear what and how everybody is expected to do his work and promote
delegation of decision-making to the managerial level.
4. VALUATION OF STRATEGIES: - The last phase of strategic management is valuation and
control. In business, conditions often change resulting in the need of evaluation of existing
strategies and planning the new ones to take advantage of changing conditions. According to
Arthur Sharplin, The purpose of strategic management evaluation is to monitor and
evaluate progress towards organizations objectives and to guide or correct the process or
change the strategic plan to better accord with current conditions and purposes.

Thus the evaluation of strategies is undertaken to measure the success of strategies

employed to realize the main objective of an enterprise. The need for evaluation of strategies
arises on account of following reason:

a. It is necessary to keep proper control on performance.

b. It provides a feedback of strategic policy followed earlier.
c. Such an evaluation is necessary for motivation of employees. The promotion or
demotion or rewards are based on the evaluation of policies.
d. Whether the decisions taken by the managers at various levels are in tune with the
strategic management can only be known by strategic evaluation.
e. Management gets valuable information as a result of such evaluation.

The evaluation process consists of the following:

i. Fixing Standards

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 ii. Measuring performance
iii. Analyzing variations
iv. Taking corrective actions

i. FIXING STANDARDS: any basis used for comparisons in evaluation is known as

standard. According to Arthur Sharplin in essence, the strategy evaluation process is
simply a matter of comparing an existing strategy with the best alternative and
deciding whether and to what degree the strategy should be changed.

Standards may be fixed on the basis of:

a) QUANTITATIVE CRITERIA i.e. the performance of a business enterprise
may be compared with its past performance or with the industry or
competitors etc. and standards fixed accordingly.
b) Qualitative criteria i.e. the subjective evaluation in the different areas such as
ability of managers, risk taking capacity or clarity of strategies etc. may be
taken as a standard.
ii. MEASURING PERFORMANCE: The measurement of performance evaluation
becomes very easy when standards are fixed in advance and adequate techniques of
measurement are evolved. Timing and period of evaluation is very important for
measuring performance. In case the evaluation is delayed, the purpose of evaluation is
forfeited.
iii. ANALYSING VARIANCES: Variance refers to the difference between the actual
performances of that unit. If the performance is better as compared to the planned one,
the variance is positive and every management will welcome it. However if the actual
performance is below the expected performance, the ,management should find out the
reasons and analyse them for negative variance
iv. TAKING CORRECTIVE ACTION: This is the last step in the evaluation. The
standards already set may be checked and required by management. Certain corrective
steps may be taken to reformulate strategic plans and objectives.

5.7 Kinds of Strategies

As we have studied in the process of strategic management, we need to set up strategies for
all the levels of management. The management team has to develop and evaluate the
alternative strategies and then select the one that is compatible at all levels. The strategy must

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be such as to allow the organization to best capitalize on its resources and the available
opportunities. According to the applicability in the current business scenario, we have four
Grand strategies for an organization. Let us discuss them in detail.
1. Growth Strategy: The management with the belief that bigger is better, it chooses this
strategy. A growth strategy is one in which an organization attempts to increase the
level of the organizations operations. Growth can take the form of increased sales,
higher sales revenues, large workforce or a large market share. Many growth
organizations achieve this objective through direct expansion, new product
development, improvement in the quality or by diversifying or merging with or
acquiring other firms. The prominent examples include NIIT which use franchising
opportunities to promote their growth strategies.
2. Stability Strategy: A stability strategy is best known for what it is not i.e. it is
characterized by an absence of significant changes. With the help of this strategy, an
organization continues to serve its same market and its customers while maintaining
its market share. Now the question that comes to your mind is when this strategy is
most appropriate? The answer to this question is dependent upon the existence of
several conditions; a stable and unchanging environment, satisfactory organizational
performance, a presence of valuable strengths and absence of critical weaknesses and
non-significant opportunities and threats. We can see that some organizations have
successfully employed a stability strategy, while the others have not. The reason
behind this is that no change means no news. Another might be the company itself
wants to keep a low profile; stakeholders may consider status quo to be inappropriate,
or the strategy may be an indication of rigidity of the planning process. Nonetheless,
company such as BATA India uses this strategy very well. We have seen that BATA
has not moved far from its footwear emphasis. The company has not demonstrated a
desire to diversify into other apparels as have some of its competitors.
3. Retrenchment Strategy: With the technological advancements, global competition and
other environmental changes, the mergers and acquisitions based upon growth and
stability strategies are no longer viable for some companies. Instead, organizations
such as SEARS, AT&T, General Motors, Apple computer in US as well as TISCO,
SAIL, Bajaj Auto and Mahindra & Mahindra in India have had to pursue a
retrenchment strategy. This strategy is characteristic of an organization that reduces
its size or sells off less profitable product lines

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 4. Combination Strategy: Combination Strategy is the simultaneous pursuit of two or
more of the strategies that we have described above; i.e. one part of the organization
may be pursuing a growth strategy while another is retrenching. When L&T sold off
its cement division to Kumar Managalam, Birlas Grasim Industries, it had followed a
combination strategy. By selling its division, L&T concentrated on its growth strategy
of its core engineering business.

Check your Progress IV:

Q. Which of the following statement best relates with the following key issues:
1.
How well does the strategy fit the company's situation?
Is the strategy helping the company achieve a sustainable competitive advantage?
Is the strategy resulting in better company performance?

a) The best indicators of a companys strategies

b) Companies already in a strong industry position are more prone to strategies
c) Additional criteria for judging the merits of a particular strategy
c) 3 questions that can be sued to distinguish a winning strategy from a so-so or flawed
strategy

2.
How management intends to grow the business
How it will build a loyal clientele and outcompete rivals
How each functional piece of the business will be operated
How performance will be boosted
a) A company's strategy is all about how:
b) A company's strategy is shaped partly by
c) A company's business model explains:
d) A strategy focused enterprise is more:

3. Risk-averse companies often prefer: likely to be a strong bottom-line performer than a

company whose management team does not take its strategy making responsibilities
seriously.

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a) True
b) False

4. The best indicators of a company's strategy are: "conservative strategies"

a) True
b) False

What Makes a Strategy a Winner?

1. Three questions can be used to test the merits of one strategy versus another and
distinguish a winning strategy from a losing or mediocre strategy:
a. How well does the strategy fit the companys situation?
i. To qualify as a winner, a strategy has to be well matched to industry and
competitive conditions, a companys best market opportunities, and other
aspects of the enterprises external environment. Unless a strategy exhibits a
tight ft with both the external and internal aspects of a companys overall
situation, it is likely to produce less than the best possible business results.
b. Is the strategy helping the company achieve a sustainable competitive advantage?
i. The bigger and more durable the competitive edge that a strategy helps build,
the more powerful and appealing it is.
c. Is the strategy resulting in better company performance?
i. Two kinds of performance improvements tell the most about the caliber of a
companys strategy: (1) gains in profitability and financial strength and (2)
gains in the companys competitive strength and market standing.
2. Strategies that come up short on one or more of the above questions are plainly less
appealing than strategies passing all three test questions with flying colors.
CORE CONCEPT: A winning strategy must fit the enterprises external and
internal situation, build sustainable competitive advantage, and improve
company performance.

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 3. Other criteria for judging the merits of a particular strategy include internal
consistency and unity among all the pieces of strategy, the degree of risk the strategy
poses as compared to alternative strategies, and the degree to which it is flexible and
adaptable to changing circumstances.
Why are Crafting and Executing Strategy Important?
1. Crafting and executing strategy are top priority managerial tasks for two very big
reasons:
a. There is a compelling need for managers to proactively shape or craft how the
companys business will be conducted.
b. A strategy-focused organization is more likely to be a strong bottom-line
performer.
A. Good Strategy + Good Strategy Execution = Good Management
1. Crafting and executing strategy are core management functions.
2. Among all the things managers do, nothing affects a companys ultimate success
or failure more fundamentally than how well its management team charts the
companys direction, develops competitively effective strategic moves and
business approaches, and pursues what needs to be done internally to produce
good day-to-day strategy execution and operating excellence.
3. Good strategy and good strategy execution are the most trustworthy signs of good
management.
4. The better conceived a companys strategy and the more competently it is
executed, the more likely it is that the company will be a standout performer in the
marketplace.

5.8 Summary
Thus, we have studied in detail about the emerging concept of strategic management.
Strategy is important because it makes possible the implementation of policies and long range
plans for attaining company goals, creation of effective business strategy requires a basic
knowledge of economic theory, management principles, accounting, statistics, finance and
administrative practice. Thus, in the present business scenario that is full of many
complexities and challenges, the success of its operations depends upon the various strategies
it adopts. The growth and development of the business in todays world depends upon the
effective implementation of strategic management.

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5.9 Glossary
a) Strategy: An Action plan formulated to defend the possible moves of the competitors.
b) Strategic Management: It refers to all those steps or measures that are undertaken by
the business houses so as to survive in the competitive environment.
c) Mission: It is a statement of the principal line of business which it wants to pursue.
d) Objective: It defines the direction to achieve the mission.
e) SWOT: It is the analysis of Strength, Weakness, Opportunity and Threats of an
organization.
f) Standards: It is the basis used for comparison and evaluation of strategies.

5.10 Answers to check your progress

Check your progress I: 1 a; 2 a; 3 b
Check your progress II: Base your answer on section 5.6
Check your progress III: Base your answer on section 5.7
Check your progress IV: 1 c;2 a; 3 b; 4 b
5.11 Bibliography/ References/ Suggested Readings
Fundamentals of Management Essential Concepts and Applications by Robbins,
DeCenzo, Bhattacharya and Aggarwal, Pearson Education
The Strategy-Focused Organziation: How Balanced Scorecard Companies Thrive in
the New Business Environment by Robert S. Kaplan, Harvard Business Review Press
Strategic Management by John A Pearce II, Tata McGraw Hill
Strategic Management: Concepts (12th Edition) by Fred R David, Prentice Hall
5.12 Test and Model Questions
a) Define strategic management. What are its features? Why is it essential to study strategic
management?
b) Describe the strategic management process in detail.
c) What is a strategy? Explain the different types of strategies. How can you select the most
competitive strategy?

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Page 107 of 210
 Chapter 6
Decision Making
Structure:
6.0 Objectives
6.1 Introduction
6.2 Types of decisions
6.3 Steps in decision making
6.4 Approaches towards decision making
6.5 Decision making in various conditions
6.6 Decision tree analysis
6.7 Summary
6.8 Glossary
6.9 Answers to check your progress
6.10 Bibliography/ References/ Suggested Readings
6.11 Test and Model Questions

6.0 Objectives:
After going through this unit, you will be able to:
Explain the concept of decision making
Understand the various types of decisions that are taken in the ordinary course of
business.
Describe the process of managerial decision making
Identify the decision making strategies in different situations
Understand the various approaches that we make use while taking decisions
6.2 Introduction:
The decision making is an important job of a manager. Every day he has to decide about
doing or not doing a particular thing. A decision is the selection from among alternatives.
It is a solution selected after examining several alternatives chosen because the decider
foresees that the course of action he selects will be more than the others to further is goals
and will be accompanied by the fewest possible objectionable consequences. It is the
selection of one course of the action from two or more alternative course of action.
Definition:

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A decision is an act of choice wherein an executive forms a conclusion about what must be
done in a given situation. A decision represents a course of behavior chosen from a number
of possible alternatives. - Mac Farland

Decision making is the selection based on some criteria from two or more possible
alternatives. - George Terry

Characteristics: Following are the chief characteristics of decision making process.

1. Decision making is based on rational thinking. The manager tries to foresee various
possible effects of decision before deciding a particular one.
2. It is a process of selecting the best from among alternatives available.
3. It involves the evaluation of various alternatives available .the selection of best
alternative will be made only when pros and cons of all of them are discussed and
evaluated.
4. Decision making is the end result because it is preceded by discussions and
deliberations.
5. Decision making is aimed to achieve organizational goals.
6. It also involves certain commitment. Management is committed to every decision it
takes.

Strategic
Owners / Board of Directors
Decisions

Tactical Managers
Decisions

Operational Most Employees

Decisions

6.3 Types of Decision Making:

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1. Programmed Decisions- The programmed decisions are of routine nature. These are
for solving day to day and routine problems and are repetitive in nature. The rules and
procedure are described for taking these decisions. These decisions remain consistent
for a relatively longer period of time and over many situations. These decisions are
made for solving both simple and complex problems. The decisions are of routine
nature requiring no judgment.

2. Non -Programmed Decisions Non-programmed decisions are related to problems

which are unique and no repetitive. These are for solving non repetitive or unique
problems. Every decision will have to be taken separately by analyzing and evaluating
each problem and every decision is different and there is no consistency such
decisions are for solving complex problem and these decisions are judgment in each
case.

3. Strategic decisions- strategic decisions relate to policy matter and need the
development analysis of alternatives. Strategic decisions are taken at top management.
These decisions are important and have long term implications. These decisions are
related to the growth development and profitability of the organization. More
judgment and skills are required for taking these decisions.

4. Tactical decisions-tactical decisions are taken at lower level of managers. These

decisions have short term implications. These decisions are concerned with simple,
routine and repetitive problems. These decisions are taken with reference to
predetermined rules and procedure and require less judgment.

5. Individual decisions- a decisions taken by one person is known as individual

decisions.in a small concern normally the owner take most of the decisions, in a big
concern the routine or simple decisions may be left to particular managers. Such
decisions are generally taken as pre-determined rules and procedure and require
judgmental thinking. All managers, whether at top level or at lower level take
decisions for carrying out their activities?

6. Group decisions-when decisions are taken by two or more persons, these are known
as group decisions. Generally the strategic or others important decisions taken by

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 group instead of individual because of risk involved. The decisions of board of
directors or committees come under this category. A decision regarding introducing a
new product etc. may be taken by a group than by individual. These are time
consuming but well discussed decisions are more beneficial for an organization since
they ensure their conformance with the objectives of the concern.
Check your progress I:
Q1. Factors those are relevant in a decision
a) Decision implementation
b) Heuristics
c) Satisfice
d) Decision criteria

.
..
Q2. Identify two decision problems and recommend programmed and non-programmed
decisions.

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6.4 Steps involved in decisions making
A decision cannot be taken in isolation. We have to undergo a proper process to reach at a
conclusive decision. So let us discuss this in detail. It involves following steps:

1. Defining the problem- The first step is to defining the problem.it is not easy to define
the problem.it should be seen that what is causing the trouble and what will be the
solutions. Before defining the problem the manager has to identify critical or strategic
factor of the problem. Chester Bernard has pointed out that the theory of the strategic
factor is necessary for the appreciation of the decision making process of decision
making. He emphasizes that in decision making the analysis required is actually a
search for the strategic factors.
2. Analysis of problem-after defining the problem, the manager should analyze it. He
should collect all possible information about the problem and decide whether it will
be sufficient to take decision or not. Sometimes it may be costly to get additional
information or further information may not be pssible.in the words of peter drucker,
to make a sound decisions, it is not necessary to have all facts; but it is not necessary
to know what is information lacking in order to judge how much of risk the decisions
involves, as well as the degree of precision and rigidity that the proposed course of
action can afford. So whatever the information is available should be used to analyze
the problem.
3. Alternative courses of actions-every problem has No. of solutions. If there is only one
solution then there is no need for decision making. A manager must try to find out
various alternatives in order to get satisfactory results of a decision. It should be kept
in mind that alternative solutions are no guarantee of wisdom or the right decisions.
But at least they prevent one making Wong decision.
4. Evaluation of alternative-after developing various alternatives, the next step is to
evaluate them and select the right one. The desirable and undesirable consequences of
adopting each alternative should be tested. This exercise will enable the manager to
see the risk involved in each course of action. The alternatives should be evaluated in
relation to time and money involved in them. Only that alternative which gives
maximum economy should be selected.
5. Experience-the often repeated proverbs like history repeats itself or experience is
the best teacher provide help in decision making. The past experience acts as a guide.

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 The difficulties faced can be well judged in advance. Hence the decision should not
be the same. While relying on experience the condition prevailing in the past, at
present and possible effects in future should be properly considered before making
decisions. The experience is an asset with a manager but it should not be blindly
relied upon.
6. Experimentation-experimentation is used in enquiry. The alternatives are put to actual
practice and one giving better result is selected. Experimentation however is not
possible for the management.it will be costly to put every alternative to practice.
However it may be used in limited way. For example-when a new product is put in
market it can be marked in a limited area to see the reaction of consumers. If the
management want to install a new organizational set up then it may be first apply in a
branch before being used in whole business.it will always be better to take a decision
on the basis of facts, study, analysis of results etc.
7. Taking decisions and follow up-when various alternatives are properly evaluated than
final decision is taken. The decision is communicated to the concern persons for
action.it is not enough to take decision.it should also be seen, whether is properly
implemented or notify it is not then the decision should be reviewed and necessary
changes may be made if required.
The following figure depicts the steps involved in decision making.

Identify Choose
Identify the from Review
the Alternativ Alternativ the
decision es es Decision

Gather Weigh the Take

Informatio Evidence Action
n

Check your progress II:

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Q. State whether the following are true or false?
a) Decision making is a process
b) The process of putting a decision into action is called decision implementation
c) Decision making starts with evaluation of implemented solutions and ends with
identification of problem.
d) Rational decision making is when the decisions are taken within the limits of a managers
ability to process information.

6.5 Approaches towards Decision Making

A manager has to make decisions under different conditions. While taking a decisions how
does a manager perceive the things, how does he react and how does he try to resolve, all this
is human behavior. So let us study the different approaches that we make use of while taking
the decisions. Basically, we have two approaches that explain this phenomenon-:

1. Rational or economic man model - The classical approach to decision making in

economies has used the economic man model under condition of uncertainty. The economic
man is completely rational. It states how a manager should behave in the process of decision
making. This approach does not fully apply to practical situations, and has features like-
* Approach is logical and full of reasoning.
* The manager knows the various alternatives available and will be in position to
evaluate them rationally.
*Manager should try to reach goal with positive attitude.
*A manager must have clear understanding of the actions that he is going to perform.
2. Behavior model: Administrative man. Rationality approach may not always be
applicable in practical situations. Management experts have developed behavioral approach
which is realistic as per the demand of the situation. This approach is pragmatic and holds the
view that the manager is a human being and cannot be fully rational because he is confronted

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on many constraints, problems, limitations. Taking into consideration various factors of real
life decision making, the managers rationality is bounded by the following major limitations:
* A manager may not have access to all type of required information.
* There may be a situation where multiple and conflicting objectives may be involved.
* Decisions are made to be implemented on future and the future environment is full of
complexities.
*The problem requiring a solution may be complex and unstructured.

6.6 Decision Making Under Various Conditions

There is a certain risk involved in decision making and the conditions vary from certainty to
complete uncertainty. The strategy of taking decisions under different conditions can vary.
The condition under which decisions are taken as follows-:

1. Certainty
Under the condition of certainty, people are reasonably sure about what will happen when
they take a decision. The required information is available and it is resalable and the cause
and relationship are known. The manager makes decisions under such situation at different
times with the same results. Under such situation is a deterministic model is used, in which
all factors are assumed to be exact with the chance playing on role.
2. Risk
Most of the business decisions are taken under risk conditions. The available information
does not answer overall questions about the outcome of decisions. A manager has to develop
the estimates of the likelihood of the various states of events occurring. The estimates may be
on past experience, other available information.in order to improve decision making under
these conditions, one may estimate the objective probabilities of an outcome by using the
various statistical tools, for.eg. Mathematical models. On the other hand based on judgment
and experience may be used. There is the number of tools which helps the manager in taking
decisions under such conditions.
3. Uncertainty
The decision making under uncertainty is difficult preposition. In an uncertain situation,
people have only a meager database and they do not know whether the data they have is
reliable or not. They cannot evaluate the interactions of the different variables. For example:
If a company wants to enter a foreign market. If may not be sure about the consumer
preferences for the product, economic situation, above all the political conditions. The

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 conditions in new market may so fluctuate that proper decision taking become a problem.
The use of various modern techniques may improve the quality of decisions under
uncertainty conditions. The use of risk analysis, decision tree analysis and preference theory
can help in taking proper decision under those situations.

6.7 Decision Tree Analysis

When we talk about decision tree, we analyze a structural format in which the
decisions take place. The decision tree analysis refers to that technique of analysis in
which we take the decisions collectively. In other words, the decision is taken by
number of persons. So, we also term it as group decision analysis. So in order to avoid
the risk in taking important decisions, a number of persons are assigned the work of
making decisions. One person may not be able to able to analyze various aspects of
decisions; instead more persons bring their experience and knowledge together and
suggest a decision.

Outcome 1

Outcome 2
A

C
1 Outcome 3

Outcome 4

Outcome 5
2
Outcome 6
B

Outcome 7

- Decision - Uncertainty (external event)

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Advantages to tree analysis
1. A group of persons have more ideas and information for making decisions than one
person. They can analyze and evaluate the alternative in better manner by considering
various aspects.
2. A decision taken by a group has more acceptability and commitment on the part of
people who take it as their own decision.
3. Interaction among more persons leads to more creativity since they are specialized in
their field.
4. Group decision making also serve as communication function since various aspects of
problems are discussed.
5. Those who are involved in decision making are more satisfied with the decision and
are more likely to support it.

Disadvantages of Tree Analysis

1. Groups are known for wasting more time and energy in coming together.
2. Some members may dominate the discussion and force others to agree to their view
points.
3. It becomes very costly since several persons are participating.
4. In case of disagreement there may be conflicts among members.
5. Delay in making decisions may inhibit management to take decisions when necessary.

Check your progress III:

Q1. How do situations affect the individuals when they make a decision?

.
..

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Q2. Assume that you are a manager in ABC Ltd. You are faced with the problem of high
labor turnover. How would you resolve this problem and describe the analysis of the situation
in the form of a decision tree.

6.8 Summary
Decision making is the process of selection of a course of action from the different
alternatives available. It is the core of planning. Managers must take the decisions keeping in
mind the different constraints they have to face. We all know that there are many alternatives
available for a course of action. So, as a manager, we have to narrow down them to a few that
are in line with our objectives and hence are evaluated on quantitative and qualitative
grounds.
6.9 Glossary
a) Decision: A decision is the selection from among alternatives.
b) Decision Making: It is the selection based on some criteria from two or more possible
alternatives.
c) Programmed Decisions: Decisions taken for handling routine problems and are
repetitive in nature
d) Non-programmed decisions: These are for solving non repetitive or unique problems

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 e) Strategic Decisions: strategic decisions relate to policy matter and need the
development analysis of alternatives
f) Tactical Decisions: These decisions are concerned with simple, routine and repetitive
problems.
g) Economic Man Model: It states how a manager should behave in the process of
decision making.
h) Certainty: people are reasonably sure about what will happen when they take a
decision. The required information is available and it is resalable and the cause and
relationship are known.
i) Risk: The available information does not answer overall questions about the outcome
of decisions. A manager has to develop the estimates of the likelihood of the various
states of events occurring.
j) Uncertainty: In this situation, people have only a meager database and they do not
know whether the data they have is reliable or not.
k) Decision Tree Analysis: The decision tree analysis refers to that technique of analysis
in which we take the decisions collectively.

6.10 Answers to check your progress

Check your progress I: 1 a; 2 Base your answer on section 1.3
Check your progress II: Base your answer on section 5.6
Check your progress III: Base your answer on section 5.7
Check your progress IV: 1 True; 2 True; 3 False; 4 False
Check your progress V: Base your answer on section 6.7
6.11 Bibliography/ References/ Suggested Readings
LM Prasad, Principles and Practices of Management, Sultan Chand & Sons.
Peter F Drucker, Tasks, Responsibilities and Practices, Heinemann.
Fred Luthans, Introduction to Management, Tata McGraw Hill Publishing House.
Stephens P. Robbins, David A. DeCenzo, Sanghamitra Bhattacharyya and
Madhushree Nanda Agarwal, Fundamentals of Management, Pearson Education
James A. F. Stoner; R. Edward Freeman and Daniel R. Gilbert, Management,
Pearson Prentice Hall.
6.12 Test and Model Questions

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a) Decision making is the primary task of a manager. Critically analyze the statement and
explain the process of decision making.
b) Identify the different types of problems that a manager has to face and describe the types
of decisions to solve them.
c) What do you mean by decision making? What are its characteristics? Discuss in detail the
steps involved in managerial decision making.
d) Critically analyze the distinguishing features of decision-making in modern business
management.
6.12

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 Chapter 7

ORGANIZING

Structure

7.1 Objectives
7.2 Introduction
7.3 Concept, Definition & Nature of Organizing
7.4 Types of Organization
7.5 Process of Organization
7.6 Organization Structure
7.7 Types of Organizational Structure
7.8 Basis of Departmentation
7.9 Concept of line and staff organisation
7.10 Problems of use of staff
7.11 Ways to avoid line-staff conflict
7.12 Authority
7.13 Responsibility & Accounting
7.14 Summary
7.15 Glossary
7.16 Answers to check your progress
7.17 References
7.18 Suggested Readings
7.19 Terminal and Model Questions

___________________________________________________________________
7.1 Objectives
___________________________________________________________________

After studying this chapter, you will be able to:

Explain the concepts of organization.

Describe the nature of organization.
Classify the types of organization.
Explain the importance of organizing as a function of management.
Learn about the role of authority and power.

___________________________________________________________________
7.2 Introduction
___________________________________________________________________

Once managers are done planning, then what? In previous unit we discussed
planning function. Now it is the time when managers need to begin to "work the

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plan". In other words, how the objectives determined under planning can be
successfully achieved. The simple solution to achieve the objectives is proper
organization of all the activities and sub-activities and determines the relationship
between those people who are to perform those activities and functions. For
example, in an enterprise under planning it has planned to produce laptops. Now in
order to achieve this objective the main activity (production of laptops) will be sub-
divided into various activities among the sales department, production department,
marketing department, finance department, etc. As we see, in every department
there are different people who look after the various jobs to achieve the goal. Now it
is decided that who will be the superior or who will be the subordinate and what will
be their responsibility and authority. This is the effort which is made to achieve the
objectives of the enterprise by dividing the main work into sub-work. Moreover
relationship is also decided between the persons engaged in these activities. All this
process of doing things is organization.

___________________________________________________________________
7.3 Concept, Definition & Nature of Organizing

The word organization is derived from the word organism which means that a
unit with many parts and each part of it, even though working independently, has
a definite relationship with the main unit. In simple words, when a group of
organized people working for a particular purpose. The need for an organization
arises only when the number of employees working in an enterprise is more than
one. If there is only one person, he is expected to perform all the tasks alone and
there will be no need to divide the work. Organization is meaningless in the
absence of division of work.
Different scholars have defined organization in different ways:
According to Haimann, Organization is the process of defining and grouping the
activities of the enterprise and establishing the authority relationship among
them.
According to McFarland, An identifiable group of people contributing their efforts
towards the attainment of goals is called organization.
On the basis of analysis of definitions, different experts will get the information
about the characteristics or nature of the organization:

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1. Division of work: Division of work is the basis of an organization. Work is
divided among different people in an order to achieve the organizational goal.
Proper division of work is essential in an organization. For this the entire work of
business is divided into different departments. The work of every department is
further sub-divided into different sub-works. Under organization an effort is made
to achieve the objectives successfully by way of division of work.
2. Coordination: Different persons in the organization are assigned with different
works but the aim of all these persons is same i.e. attainment of the
organizational objective. So to achieve the enterprise goal proper coordination is
required from each and every person as the work of all persons depends on each
other's work. The work of one person starts when other person finished his task.
3. Plurality of Persons: Organization cannot be run by a single individual. Group
of many persons is required who assemble to fulfill a common purpose.
4. Common Objectives: There are different departments in the organization but
all are working to achieve a common goal.
5. Well defined Authority & Responsibility: In an organization, there is a chain
of workers having different posts from top to bottom. Each and every person in an
organization is assigned with different authority for efficient work performance
and it is simultaneously decided as to which will be the responsibility of that
individual in case of unsatisfactory performance.
6. Superior Subordinate Relationship: Relationship between persons
employed in the organization is decided. It is decided that who will be the
superior and who will be the subordinate. Except top level position and the lowest
level position everybody is somebodys superior and somebodys subordinate.
For example: in a college, head of the department is superior to assistant
professor and assistant professor is subordinate to head of the department.
7. Organization is Dynamic : As time changes the knowledge and experience of
the people undergo a change. The impact of all the changes affects an
organization and its various functions like determining of activities, division of
authority and responsibility, mutual relations etc. thus, organization is not a
process which is decided for all times to come but it changes according to the
need of the hour.

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Check your progress I:

Q1. An organisation chart shows

i) Structure of Relationships ii) Span of Control

iii) Leadership styles

Q2. State true or false:

i) Span of control means one boss for one subordinate. (.....................)
ii) Organisation chart is visual representation of organisations activities, people
who are performing these activities and relationships amongst them.(...............)

___________________________________________________________________
7.4 Types of Organization
___________________________________________________________________

There are two types of organization. First is formal organization and there is informal
organization. In simple words, two kind of relationship can be established among the
employees. Firstly the relationship which is definite and defined before hand and
secondly those relations which are not clearly defined and definite beforehand.

i) Formal Organization

Formal organization is that organization where authority, responsibility and mutual

relationships among the employees are clearly defined. In this type of structure,
division of activities is deliberately done so that the objectives of an organization can
be easily achieved by a human group. Under the formal organization each individual
has inter-relationship with others as a superior or a subordinate. This organisation is
bound by rules, regulations and procedures. It means everything is done according
to the pre-determined rules and regulations.

Principles of Formal Organization:

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A formal organization is based on for main principles. These are :

1) Principle of Division of work: This principle states that whole work is divided into
many departments and each activity is performed by different person. This principle
provides the benefit of specialisation.

2) Principle of span of Control: Principle of span of control means the number of

subordinates working under a superior. According to this principle, one superior
should not have more than five or six subordinates.

3) Principle of Unity of Command: According to this principle, each subordinate

should get orders from a single superior.

4) Scalar Principle: Under this principle allthe people working in an organization

should be bound with one another from top to bottom in a vertical chain. For example
: Board of directors General Manager Departmental Manager Supervisor
Foreman Workers.

ii) Informal Organization

An informal organization arises because of common interests, tastes and religious

and communal relations. In this organization an individual has friendly relationship
and cooperative nature with other individuals. For example: if an individual has an
headache and he wants medicine he can consult anybody in the organization he
knows. As in formal organization, if an individual has any departmental issue he hast
to consult his department manager. Thus, it is clear that in an informal organization
rules and procedures are to be followed but it is completely based on mutual
goodwill.

Difference between Formal Organization and Informal Organization

Basis of Formal Oganization Informal organization

Difference

Formation It is formed to achieve the This organization arises because

predetermined organizational of inter relationships of different
goal. It is crated deliberately. people.

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Rules & It is based on strict rules and It has its own group norms which
Procedures procedures. If someone tries are not written and clear. Violation
to violate rules it may lead to of group norms leads to social
penalties. disapproval.

Stability It is stable. It is instable.

Size It has a big size. Its size is small because the

whole organization is divided into
many small groups.

Communication Formal communication is Based on informal

done. Communication.

Flow of Flows from top to bottom. From top to bottom or horizontally.

Authority

Purpose Its purpose is to achieve Its purpose is to fulfil individual

organisational objective in needs.
common.

Check your progress II:

Q1. Groups formed on the basis of interaction amongst people of different

departments at different levels are

i) Formal Groups ii) Informal Groups

Q.2 Informal relationships can be

1) Horizontal 2) Flexible

3) Random 4) All of these

___________________________________________________________________
7.5 Process of Organization

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In order to complete the organizing function of management following steps are
taken:

1. Fixing the Objectives: first step of the organization is to fix the objective so that
all the individuals in an organization put their effort to achieve that goal. But to
achieve that goal next step has to be followed. For example: objective of the
organization is to manufacture a bicycle.

2. Identifying activities required for achieving the objectives: second step is to

identify the activities which help the organization to achieve that objective. For
example: to manufacture a bicycle activities like purchase of spare parts, raw
material, production, advertisement, sales, arrangement of finance, research,
keeping of stock of material, recruitment of employees etc.

Steps in organizing process

Step 1
Fixing the objectives

Step 2
Identifying activities required for acieving the objectives.

Step 3
Grouping the similar activities.

Step 4
Defining responsibilities of each employee.

Step 5
Delegating authority to employees.

Step 6
Defining authority relationship between superiors and subordinates.

Step 7
Providing employees all requirements for achieving the objectives.

Step 8
Coordinating efforts of all for achievig the objectives.

3. Grouping of Activities: in order to achieve the objectives of the organisation,

grouping of activities has to be done. All the similar type of activities are given to a
one particular department. For example: activities like promotion, branding ,
advertising etc. of bicycle is given to a marketing department.

4. Defining responsibility of each employee: after dividing the activities to

different departments or groups responsibility of each individual is fixed. In other
words, what an individual has to do for the attainment of the objective. For example :
the purchase manager will be given the the responsibility for purchases; finance
manager will be given the responsibility of managing finance etc.

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5. Delegation of authority: A person who has some responsibility must be giving
some authority too. Authority means to take decision with freedom, guiding the
subordinates and the freedom of supervising and controlling. For example: the
marketing manager has given the responsibility of advertising the product globally
but has not been given the authority to make investments in advertising agencies
then global advertising is not possible.

6. Defining inter- relationship between employees: Inter-relationship should be

defined clearly in an organization when two or more than two persons are working
for the attainment of common objective. Everybody should know who is superior and
who is subordinate.

7. Providing employees all requirements for achieving the objectives: It means

to achieve the organisational objective right environment should be provided to all
the employees so that they can work effectively. For example: the location of the
organization should be at proper place so that work performance of the employees
cannot be affected. There should be proper arrangement of all the facilities which are
required to enhance the productivity of the enterprise or which helps the organization
to achieve the common goal.

8. Coordinating all the efforts to achieve the objective: At last, all the steps of the
organizing process should be coordinated with each other. Because without
improper coordination any organization can fall down. Coordination is required at
each level whether it may be coordination between employees or coordination
between departments or may be coordination between top management and lower
level management.

___________________________________________________________________
7.6 Organizational Structure

The organisational structure seeks to establish relationship among all the persons
working in the organisation. Under the organisational structure different posts are
created to perform different activities for the attainment of the organizational
objective. Relationships among different persons working in the different posts are
determined. It is clearly defined who is superior and who is subordinate. This
establishment of relations among different persons working in the enterprise is called
organizational structure.

Elements of Organization structure:

Organisation structure has the following elements:

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1. Objectives & Plans: Organization structure is designed to meet plans and
objectives of the organization. It gives formal shape to organisation activities that
help to achieve its objectives.

2. Specialisation of activities: All organisational activities are broken into sub-units

and grouped on the basis of similarity of characteristics. This results in formation of
different departments.

3. Standardisation: Standardisation means uniformity and consistency. To enable

the members of different departments to work in a co-ordinated member,
management lays down the policies, procedures and programmes which helps in
carrying out the decision making processes.

4. Co-ordination : With specialisation of activities, workers develop a tendency to

deviate from organisational goals and promote their individual goals. There is thus,
need to integrate the tasks of different units to make them work towards a common
goal in co-ordinated manner.

5. Centralisation and decentralisation: Organisation structure where decision

making power vests with top managers is a centralised structure and a structure
where decisions are made by middle and lower level managers is a decentralised
structure.

6. Environment: No organisation structure can be the best structure. It is subject to

change depending upon changes in the environmental factors-economic, social,
technological, political etc. Organisation structure is, thus, situational in nature.

7. Staffing: Organisation structure is designed to achieve goals which are

accomplished by human beings. The jobs and departments are therefore, staffed
with people and authority-responsibility relationships are established.

Factors affecting Organization Structure:

Organization structure is designed keeping in view the following factors:

1. Strategy: Strategy determines a course of action to direct various organisational

activities. It makes plans to co-ordinate human and physical resources to works
towards a common objective. Strategy is a pre-requisite to organisation structure and
also follows it. The relationship between strategy and organisation structure is
depicted as follows:
Overall
Organisational
Strategy Planning Organisation Goals
Structure

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2. Technology: The technology for manufacturing goods and services also affects
the organisation structure. In one study it is analysed that there are three types of
technology:

a) Mass production technology: This technology is used for producing same

products of a mass scale, for e.g., manufacturing vehicles.

b) Continuous production technology: This technology is used where inputs are

transformed into outputs in a continuous process, for e.g., production of
pharmaceuticals or paper. Most of these processes are automated and therefore,
require very few workers.

c) Unit or small scale production technology: this type of technology is used to

manufacture goods which meet the constantly changing consumer preferences, for
e.g. garments. Goods are produced in small quantities with individual production
runs. Customer orders, where separate production runs are required to meet their
demands utilise small batch or unit technology.

3. People: Organisation structure defines work, group into departments and appoints
people to run those departments. People at different jobs must possess the skill,
knowledge and efficiency to accomplish the related tasks.

4. Tasks: Activities performed by people which transform organisational plans into

reality are known as tasks. Various task characteristics are:

i) Skill Variety: It is the extent to which creativity and variety of skills and talents are
required to do a task. People with high degree of task varieties (for example, a dress
designer) perform tasks that increase their intellectual ability and give them high job
satisfaction.

ii) Task identity: Whether to produce a product in whole or in parts determine its
task identity. When a product is produced as a whole, it has greater task identity.
People perform tasks with high identity (for example: a computer programmer)
perform various job functions related to that task from beginning to the end, derive
job satisfaction out of their work and feel motivated to repeat those tasks.

iii) Task significance: The importance of task affecting the well being or lives of
people working inside and outside the organisation determines significance of the
task. People performing tasks with high task significance i.e., tasks which positively
affect the well being and safety of others (for example, a traffic police inspector), feel
satisfied with their job performance and perform work of high quality and esteem.

iv) Autonomy: Whether or not individual plans the task on his own determines
autonomy of the task. It determines the extent to which a person enjoys the freedom
of performing various job activities and determines the steps or procedures to carry
them out.

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v) Feedback: It is the information that people receive about successful completion of
their task.

5) Decisions: Questions like who makes decisions-top managers or lower levels

managers, how information flows in the organisation so that decision-making is
facilitated, affect the organisation structure.

6) Informal Organisation: Informal organisations are an outgrowth of formal

organisation. Social and cultural values, religious beliefs and personal likes and
dislikes of members which form informal groups cannot be overlooked by
management.

7) Environment: Organisation structure cannot ignore the effects of environment.

Organisations must adapt to the environment, respond to environmental
opportunities and satisfy various external parties such as customers, suppliers,
labour unions etc.

___________________________________________________________________
7.7 Types of Organization Structure

There are four types of organizational structure:

1. Functional Organizational

2. Divisional Organizational

3. Line Organization

4. Line and Staff Organization

a.) Functional Organization

Dividing the whole enterprise according to the major functions performed by it, is
known as functional organisation structure. This is the very simple and prevalent
form of organisation structure. Under this all the functions of the similar nature are
divided in different units which are called departments. For example, marketing
department, finance department, human resource department, production
department etc. this structure is suitable when the size of business unit is large,
where the specialisation is required, where decentralisation of authority is needed.
Functional authority is the right to give orders in a department other than ones
own.

Board of
Directors

Managing
Directors

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General Manager General Manager General Manager General Manager
Production Marketing Finance Personnel

Manager Consumer Manager Manager Producer

Goods Intermediate goods Goods

Assistant Manager

Supervisor

Worker

b) Divisional Structure :

These types of organizations divide the functional areas of the organization to

divisions. Each division is equipped with its own resources in order to function
independently. There can be many bases to define divisions. Divisions can be
defined based on the geographical basis, products/services basis, or any other
measurement. This structure is suitable where the number of main products are
more than one. Where the size of the concern is large enough. And where the
different manufacturing technologies and marketing methods are required.

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c) Line Organization:

Line organization is the most oldest and simplest method of administrative

organization. According to this type of organization, the authority flows from top to
bottom in a concern. The line of command is carried out from top to bottom. This
organization is also known as scalar organization which means scalar chain of
command is a part of this type of administrative organization. In this type of
organization, the line of command flows on an even basis without any gaps in
communication. Proper co- ordination takes place in this type of organization.

Board of directors

Managing director

Production Manager Finance Manager Sales Manager

Purchase Accounts
Manager Manager

Assistant Supervisor Worker

Manager
d) Line and staff Organization

Line and staff organization is a modification of line organization and it is more

complex than line organization. According to this organization, specialized and
supportive activities are attached to the line of command by appointing staff

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supervisors and staff specialists who are attached to the line authority. The power of
command always remains with the line executives and staff supervisors guide,
advice and council the line executives. Personal Secretary to the Managing Director
is a staff official.

Chief executive Officer

Economist Legal Advisor

.

Marketing Manager Production Manager Finance Manager

Foreman Foreman Foreman

Workers Workers Workers

Check your progress III

QState whether the following statement is true or false :

1) Staff services are advisory in nature. (...........................)

2) Line and staff always maintain cordial relationships amongst themselves.
(...............)

___________________________________________________________________
7.8 Basis of Departmentation
___________________________________________________________________

Departmentation is the process of classifying and grouping all the activities of an

enterprise into different units and sub-units. The aim is to facilitate the carrying out of
the activities efficiently for achieving overall results. The management of the
enterprise is made more effective by Departmentation.

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According to Pearce and Robinson, Departmentalisation is the grouping of jobs,
processes and resources into logical units to perform some organisational task.

There are various forms or types of Departmentation. The first step in the division of
work is the determination of the primary responsibilities of the enterprise, which is
the main purpose of the enterprise. The important methods of grouping activities are:
functions, product, location, customers, process, equipment and time.

The creation of a series of smaller departments enables the executives to get

themselves specialised within a narrower range of activity. This helps the
organisation to assign the work only to those who are best suited. With this type of
assignment, the executives can focus their experience and interest only on that work
assigned to them departmentally rather than concentrating on overall company
interests and policies.

Importance of Departmentation: The following points highlight the importance of

Departmentation.
1. Organisation Structure: Division of work into units and sub-units creates
departments. Supervisors and managers are appointed to manage these
departments. The departmental heads ensure efficient functioning of their
departments within the broad principles of organisation (scalar chain, unity of
command, unity of direction etc.). Thus, organisation structure is facilitated through
Departmentation.
2. Flexibility: In large organisations, one person cannot look after all the managerial
functions for all the departments. He cannot adjust his organisation to its internal and
external environment. Such an organisation would become an inflexible organisation.
Creating departments and departmental heads makes an organisation flexible and
adaptive to the environment.
3. Specialisation: Division of works into departments leads to specialisation as
people of one department perform activities related to the department only.
4. Sharing of resources: If there are no departments, the organisational resources,
physical and human, will be commonly shared by different work units.
Departmentation helps in sharing resources by different departments according to
their need.
5. Co-ordination: Creating departments with focus on departmental activities
facilitates co-ordination.
6. Control: Managers cannot control organisational activities if all the activities have
to be collectively supervised. Departmentation facilitates control by each
departmental manger over the activities of his department only.
7. Efficiency: Flow of work from one level to another and for every department i.e.
vertical and horizontal flow of work in the organisation increases organizational
efficiency.
8. Scope for growth and diversification: In the absence of departmentation,
managers can supervise a limited number of activities, depending upon their skills
and abilities. Departmentation enables them to expand their area of operation into

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new product lines and geographical divisions. Departmentation provides scope for
organisations growth and expansion.
9. Responsibility: Since similar activities are grouped in one department headed by
departmental mangers, it becomes easy for top managers to fix responsibility of
respective mangers for achieving the desired results.
10. Development of managers: Departmentation enables departmental heads to use
creativity in making decisions with respect to their departmental activities. This
develops their potential to be promoted to higher managerial positions in the
organisation. It also facilitates recruitment and selection of top managers from within
the organisation rather than depending on outside sources.

___________________________________________________________________
7.9 Conflict between Line and Staff Organisation
___________________________________________________________________

If we study the various organisational problems of different companies, we shall

come to know about instances of friction and conflict between line and staff. A
genuine human conflict arises mainly due to the difference in view points and
perception of the two parties. Each party has its own view point and when it fails to
see the view point of the other, a friction is bound to arise. To resolve any conflict,
one has to understand the view point of both the parties and try to identify areas of
agreement as also the bridges which will reconcile both the view points. When a
conflict between line and staff organization arises, both the parties try to explain the
causes of conflict in terms of the behaviour of the other.

Complaints of line managers and staff managers against each other

Sr. No Line managers complaints Staff managers complaints

1 They feel that the staff manager The staff generally advises and the
interferes in their work and tries to lines decides and acts, the staff
tell them how to do their work. manager often complaints that he
lacks authority to have his ideas
executed.
2 Line mangers think also feel that Staff employees may be disliked for
staff specialists are academicians their specialised knowledge and
and they give their theories rather expertise.
than practical and can never give
sound practical advice.
3 There is a conflict about the degree Staff has generally easier access to
of importance between the line and top management, which is resented
staff as far as the contribution by the line management.
towards the growth of the company
is concerned.
4 Since staff men are not directly Staff feel that the line managers do
accountable for any result, they are not make a proper use of staff. The
generally overzealous and advice and help of staff is sought
recommend a course of action only as last resort.
which is not practicable.

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___________________________________________________________________
7.10 Ways to avoid line-staff conflict

So, it is very essential for an organisation to operate and progress, it is essential that
line and staff work harmoniously. In order to achieve cordial relations between line
and staff people, these steps should be taken.

1) The limits of line and staff authority should be laid down clearly.
2) A line department must give serious consideration to advice given by the staff.
3) The staff manager must operate within the policies and objectives of the company
and recognise the fact that all new ideas are bound to be resisted in the initial
stages.
4) Line and staff people should try to understand the orientation of each other.
___________________________________________________________________
7.11 Delegation of Authority
___________________________________________________________________

Delegation is an important part of organisational process. It is needed when a

manger is not in a position to perform his functions himself because of excessive
work load. In this situation he divides his work among the subordinates with the
authority of taking decisions. Thus, dividing the work in this way and giving the
necessary authority for work performance is known as delegation and delegation of
authority. For example: if head of the department of management is going to abroad
for attending the conference for ten days, then he/she will divide his/her work among
his subordinates and also delegates the authority to take decisions regarding
academics and other departmental activities.

However, the power of taking decision in order to guide the activities of others is
called authority. Authority has three basic elements which are:

1) To use one's wisdom and take decisions;

2) To get the decisions implemented and
3) To influence the conduct of subordinates.

___________________________________________________________________
7.12 Responsibility and Accounting
___________________________________________________________________

RESPONSIBILITY: When an officer because of his authority assigns some work to

his subordinate, it becomes his responsibility to complete it and he is accountable for
the work. In simple words, it becomes the responsibility of the subordinate to carry
out the assigned task given by superior. Thus it can be said that responsibility means
doing one's duty. Responsibility has the following three elements:

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 1) It is always applicable to individuals who are called subordinates;
2) Its essence is to perform one's duty and
3) To influence the conduct of subordinates.

ACCOUNTABILITY: When a superior assigns some work to a subordinate, he is

answerable to his superior for its success or failure. So, accountability means
answering the success or failure (performance) of one's work before one's superior.
Accountability has following three elements:

1) Accountability is to a person delegating authority,

2) Accountability is related to the superior-subordinate relations, and
3) Accountability comes into existence because of delegation of authority.

___________________________________________________________________
7.13 Importance of Organization as a Management Function
___________________________________________________________________

Organising is important because of following reasons:

1. Facilitates administration: If all the activities are performed by the top managers,
they will be overburdened to concentrate on strategic matters. It is essential that part
of the workload is shared by the middle and lower level managers. Top executives
will be relieved of managing routine affairs and can concentrate on companys
effective administration.

2. Growth and Diversification: A well organised institution is adaptive to change and

responsive to growth and diversification. It can multiply its operations.

3. Creates synergies: Division of work provides the benefits of synergies. Synergy

means the total task achieved by a group of people is more than the sum total of
their individual achievements.

4. Establishes accountability: Unless each person know his boss and subordinates ,
the organisation cannot function efficiently. Establishing limitations in the area of
operations defines each persons accountability to his immediate boss which gears
the organisation towards its overall goals.

5. Optimum use of technology: It is the age of technological developments.

Therefore, organisation depends upon how well-developed technology will not be
able to compete in the market. Well organised structures enable the organisations to
optimally use and update their technology to remain competitive in the market.

6. Facilitates Communication: Communication is the essence of organisation.

Efficiency of organisation depends upon how well the organisational members
communicate with each other.

7. Facilitates creativity: Creativity means creating something new. It is developing

new ways of doing existing things. A sound organisation enables the top

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management to improve the ways of doing things by delegating routine affairs to
people down the scalar chain.

8. Facilitates Teamwork: though all individuals are responsible for specific tasks
assigned to them, they work collectively as a team and optimise the use of scarce
organisational resources to achieve the organisational goals. Thus, it facilitates
teamwork.

9. Facilitates control: Organisation provides sound direction to peoples activities

and ensures that they work according to the plans. This facilitates control and
achievement of organisational goals.

10. Increase in output: Sound organisation divides activities into various

departments . these departments specialise in their tasks and increase the
organisational output.

___________________________________________________________________
7.14 Summary
__________________________________________________________________

Organization is an art of defining and classifying activities for individuals working in

an enterprise/organization for the attainment of a common goal as well as it is an art
of creating sweet relationships between the people working together in an
organization.

___________________________________________________________________
7.15 Glossary

Organization: an organized group of people with a particular purpose, such as a

business or government department

Delegation: the action or process of delegating or being delegated.

Responsibility: the state or fact of being accountable or to blame for something.

Accountability: the fact or condition of being accountable; responsibility.

___________________________________________________________________
7.16 Answers to Check your Progress

Answer to Progress I:
1. Structure of relationships
2. i) False ii) True

Answer to Progress II:

1. Informal Groups
2. All of these

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Answer to Progress III:
1. True
2. False

References:

1. Koontz H. and Weihrich, H., Essentials of Management, McGraw Hill, New York.
2.Drucker, Peter F. Management: Tasks, Respponsibilities and Practices, William
Heinemann Ltd., London

Suggested Readings

1. Taxmanns, Principles of Management with Case studies, by Dr. Neeru Vashishth.

2. McGraw Hill, Essentials of Management, An International and Leadership
Perspective, by Harold Koontz, Heinz Weihrich.
3. Pearson, Management, by Stephen P. Robbins, Mary Coulter & Neharika Vohra.
4. Pearson, Management, by James A.F. Stoner, R. Edward Freeman & Daniel R.
Gilbert, Jr.
5. McGraw Hill, Management, concept, Practice & Cases, by Karminder Ghuman &
K Aswathappa.
6. Himalaya Publishing House, Management, Theory & Practice (Text and Cases),
by P. Subba Rao

___________________________________________________________________
7.16 Terminal and Model Questions:

1. Write short notes on:

a) Span of control
b) Formal organization
c) Delegation
d) Departmentation

2. Multiple Choice Question:

Relationship between superior and his immediate subordinate is
i) Direct relationship ii) Cross relationship
iii) Group relationship

3. Explain the principles of good organisation.

4. Distinguish between formal and informal organisation. Do the informal
organisations necessarily emerge out of formal organisations?
5. What is line and staff authority? What are the causes of line and staff conflict?
6. Explain the need and importance of Departmentation.

Page 140 of 210

___________________________________________________________________

Page 141 of 210

 Chapter-8

Delegation and Decentralisation

Structure

8.0 Objectives
8.1 Introduction
8.2 Features of Delegation
8.3 What should be delegated
8.4 Process of delegation
8.5 Forms of delegation
8.6 Importance of Delegation
8.7 Principles of Delegation
8.8 Elements of Delegation
8.9 Reasons for failure of Delegation
8.10 How to make delegation effective
8.11 Decentralisation
8.12 Limitations of Decentralisation
8.13 Factors Affecting Decentralisation
8.14 Difference between Delegation and decentralisation
8.15 Summary
8.16 Glossary
8.17 Answer to Check Your Progress
8.18 References
8.19 Suggested Readings
8.20 Terminal and Model Questions

___________________________________________________________________________
8.0 Objectives
________________________________________________________________________

After studying this chapter, you will be able to:

Explain the concept of delegation.

Describe the process of decentralisation.
Classify the degree of decentralization.
Distinguish between delegation and decentralisation.
Learn about the role of authority and power.
___________________________________________________________________________
8.1 Introduction : Delegation

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Delegation helps in co-ordinating organisational activities at various organisational levels. It
is an important way of increasing efficiency of the organisation. It helps managers
concentrate on important organisational matters and pass the routine matters to subordinates.
According to Pearce and Robinson,
Delegation is the process by which a manager assigns tasks and authority to subordinates
who accept responsibility for those jobs.
Delegation is the assignment of authority and responsibility to another person (normally from
a manager to a subordinate) to carry out specific activities. It is one of the core concepts
of management leadership. However, the person who delegated the work remains
accountable for the outcome of the delegated work. Delegation empowers a subordinate to
make decisions, i.e. it is a shift of decision-making authority from one organizational level to
a lower one. Delegation, if properly done, is not abdication. The opposite of effective
delegation is micromanagement, where a manager provides too much input, direction, and
review of delegated work. In general, delegation is good and can save money and time, help
in building skills, and motivate people. Poor delegation, on the other hand, might cause
frustration and confusion to all the involved parties. Some agents however do not favour a
delegation and consider the power of making a decision rather burdensome. Delegation of
authority is one of the most significant concepts in management practice which affects
managerial functions. Management is the art of getting things done through others and
delegation means to get the results through subordinates. Now a days businesses are
expanded or diversified which makes it impracticable to handle all the business by a single
manager. Therefore, the concept of delegation of some managerial authority to subordinates
comes into practice in present day business organizations. Here, the manager delegates some
of his authority to his subordinates. This helps in developing a feeling of dedication to the
work among the subordinates. The top level management plays only the role of a supervisor
and visits them to provide guidance, suggestions and instructions. It minimizes the work load
on the top manager and also develops the overall working efficiency of the organization.
Therefore, delegation of authority is assigning work to others and giving them the required
authority to perform the assigned task effectively.
Delegation in IT network is also an evolving field.
___________________________________________________________________________
8.2 Features of Delegation

Delegation has the following features:

1. Delegation is a process: Managers delegate tasks to subordinates in a synchronized
manner.
2. On-going process: It is a continuous process where managers continue to delegate tasks to
their subordinates and get them delegated by their superiors to achieve the organisational
goals.
3. It is an art, not science: Delegating tasks to subordinates does not necessarily mean that
subordinates will perform those tasks well. There is no cause and effect relationship between

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the task assigned to subordinates and their actual performance. Delegation is thus, not a
science. It is the art of how well and what the manager delegates to his subordinates.
4. Delegation of authority and not accountability: Managers can only delegate work and
authority to perform that work to subordinates. Delegation does not mean that managers are
not accountable to their superiors for the part of the task assigned to subordinates. They
remain accountable for the tasks assigned to subordinates and are answerable to their
superiors for its performance.
5. Necessary Organisational Activities: Managers cannot avoid delegation. They cannot
perform all the tasks themselves. They have to learn the art of delegation that is, how to
delegate and what to delegate. Companies performance is judged by how good their
managers are in getting the work done through others by the process of delegation.

6. It has different forms: Delegation can take different forms. It can be downward, upward or
lateral.

___________________________________________________________________________
8.3 What should be delegated

The important managerial functions of planning, organising, staffing, directing and

controlling are looked by managers themselves and routine activities with respect to each
functional area of production, finance, personnel and marketing should be delegated to
subordinates, i.e., responsibility assigned to lower level managers should be handling the
routine jobs in the specific functional area. For example, in finance department, the sources
of raising funds, designing the capital structure, determining the optimum debt-equity ratio,
apportioning funds between fixed and current assets are determined by top managers. Once
responsibilities to be delegated are determined, authority to carry out those responsibilities
must also be delegated.

___________________________________________________________________________
8.4 Process of Delegation
The process of delegation involves the following steps:
1. Determining the goals: The manager establishes the goal or objective of the position/post
so that the person concerned knows what is expected of him. If delegation is to be initiated in
the sales department, the objective should be made clear, say sales promotion or sales
retention.
2. Define Responsibility: After determining the expected results or objectives the
management assigns or gives task, duties and assignments to the lower levels or sub-
ordinates.
3. Define authority: In this steps top level management grants or transfer required power and
authority to the sub-ordinates to perform or execute the assign task or job.
4. Motivation of sub-ordinates: the duty of manager does not end by delegating the authority
and responsibilities to subordinates. He makes sure that subordinates willingly contribute to
the job assigned so that organisational goals are optimally achieved. Managers motivate the

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subordinates to do their work with zeal and enthusiasm. They use financial and non-financial
incentives to motivate the subordinates. The need for acceptance and recognition are
important motivators that boost employees morale to perform the delegated tasks.
5. Holding accountability: Whatever is the nature and extent of delegation, manager
constantly observes the activities of subordinates to review their progress and provides
guidance, whenever necessary. He holds them accountable for the work assigned but remains
ultimately accountable or responsible to his superiors for completion of each task and its co-
ordination with the overall organisational work.
6. Training of Subordinates: Despite giving the authority commensurate with responsibility,
subordinates may not be able to effectively carry out the delegated tasks. Managers,
therefore, organise training programmes to enhance their knowledge on the subject.
7. Establishing control: Specific standards of performance are framed and communicated to
subordinates to enable them to assess their performance against standards, self-control their
activities and co-ordinate them with overall goals of the organisation.

Check your Progress I:

State true or false:

1. Delegation helps in achieving vertical coordination.

(.........................)

2. Managers can delegate any kind of job to their subordinates.

(..........................)

___________________________________________________________________________
8.5 Forms of Delegation

Delegation can take three forms:

1. Top to Bottom Delegation: the process of delegation where superiors delegate part of their
workload to subordinates is top to bottom delegation.
2. Bottom to top delegation: this form of delegation recognises the importance of informal
groups in the formal organisation structures. The force of attraction of group members is so
strong that if it comes to obeying the superior or group members.
3. Lateral delegation: When managers delegate duties to subordinates in the hierarchy,
subordinates further delegate the tasks informally to people at the same level in other units.
For example: if general manager of sales department asks sales manager to compile the
figures of sales and sales personnel for the month of January, the sales manager will seek the
assistance of finance managers and personnel manager.

___________________________________________________________________________
8.6 Importance of Delegation

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Delegation is unavoidable. Managers have to be skilled in the art of delegation. It is because
of the following advantages of delegation:

1. Relief to top managers: Delegation relieves top managers of the burden to carry out every
activity on their own. By delegating routine activities to lower levels, top managers
concentrate on important policy matters and increase efficiency of the organisation.

2. Development of managers: The more the managers delegate authority and responsibility to
subordinates, more are the tasks and responsibilities they accept from their superiors. By
delegating routine jobs down the hierarchy, they can take more challenging projects and
expand their skills and knowledge as competent managers.

3. Development of sub-ordinates: When routine and innovative tasks are delegated to

subordinates, their skill in handling the delegated tasks increases. Training facilities can also
be provided to develop them as potential managers.
4. Better decision making: Through Departmentation, decisions relating to routine matters are
taken by those who are closest to the decision-making situation. This increases the quality of
decisions.

5. Faster decisions: Not only are the decision effective, they are also taken quickly as
subordinates have the authority to do the jobs assigned to them without going to the superiors
every time they face a problem. They have the authority to solve the problems on their own.

6. Specialisation: Division of work into sub-units and delegation of responsibilities according

to skill, knowledge and competence of subordinates enhances specialistion on the job and
results in greater and better output.

7. Job-Satisfaction: Delegation provides job satisfaction to subordinates and motivates them

to perform better when they achieve the delegated standards of performance.

8. Promotes inter-personal relationships: Delegation increases interaction of mangers with

their subordinates and promotes healthy relationships amongst them.

The advantages of delegation rightly enable a manager to multiply himself.

___________________________________________________________________________
8.7 Principles of Delegation

The following principles make the process of delegation effective:

1. Authority, responsibility and accountability: these are the elements of delegation that make
it an effective process.
2. Parity of authority and responsibility: though authority exactly equal to responsibility
cannot be delegated. It must be correspond with the responsibility so that delegates can give

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instructions to their subordinates for getting the work done. Authority without responsibility
and responsibility without authority has no meaning.
3. Scalar chain: Every member should know his position in the scalar chain to know his
superiors who have the power to delegate duties to him and his subordinates to whom he can
delegate the duties. The responsibility can be assigned if every person knows his position in
the hierarchy.
4. Completeness of the delegation: No part of the total work should be left out from being
delegated. If so done, gaps would arise in respect of the work not so assigned and the work
will not be completely properly.
5. Unity of Command: Every individual should have one boss to whom he should report. If
people have more than one boss, they develop the tendency of shifting the blame of their non-
achievements to their bosses.
6. Absoluteness of responsibility: Though the task and authority to carry out that task is
delegated to subordinates, the delegator continues to remain responsible for the acts of his
subordinates to his superiors. If the district manager cannot achieve the sales target of say
1000 units of product A in one month, the branch manager remains responsible to the General
Manager of sales department.
7. Delegation by results: Managers should first determine the objective of delegation, that is,
what they want their subordinates to do and then delegate the tasks along with authority to
them. If the production manager wants to increase production of northern branch by 1000
units per month he should delegate the task to his branch manager, northern region. The
branch manager will carry out the tasks when things are clear to him.
8. Delegate within defined limits: Managers cannot delegate what they are themselves not
authorised to do. If a manager, for example, does not have authority to raise funds from
financial market without sanction of top managers, he cannot delegate this task to his
subordinates.

___________________________________________________________________________
8.8 Elements of Delegation
Delegation has three important elements:
1. Responsibility: Responsibility is the activity or task ensured by the manager to
subordinates. Though delegated, the ultimate responsibility for completion of the task rests
with the manager.
2. Authority: To carry out the responsibility assigned, there is need for authority to hire and
fire people, spend resources, command people, issue directions and make decisions. The
authority must, therefore, be delegated to subordinates to enable them to carry out the
responsibility assigned.
3. Accountability: When managers delegate a part of their work-load to subordinates, they
remain accountable for accomplishment of that task. The responsibility and authority, thus
cannot be delegated but accountability cannot.

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___________________________________________________________________________
8.9 Reasons for failure of delegation
There are various reasons for failure of delegation. The reasons may be related to superiors,
subordinates and to organisation.
Reasons related to Superiors:
1. Wanting to do things personally: Some managers do not delegate because they feel they
can do the work better than others. Since ultimate responsibility is that of the delegator, they
prefer doing the work themselves rather than getting it done through others.
2. Insecurity: If managers feel that subordinates perform better than them, they avoid
delegation. The exposure of their inabilities to take decisions creates a feeling of insecurity
and therefore, they fear to delegate.
3. Retention of Power: Some managers like to take added responsibility, make their
importance felt by everyone in the organisation and want the subordinates to come to them to
get their problems solved. Their desire to retain power and dominate is a hindrance to the
effective delegation process.
4. Lack of confidence in subordinates: The reward for risk is return. Unless managers assume
the risk of subordinates not performing well, they cannot contribute to the development of
skilled managers in future. A manager who does not take risk in his subordinates and lacks
confidence in them will not be able to delegate effectively.
5. Unwillingness to set standards of control: Having delegated the duties, managers remain
accountable for overall performance of the work. They supervise the activities of
subordinates to ensure that actual performance is according to planned performance. A
manager who fails to establish standards of control will not be able to effectively delegate
duties to subordinates.
Reasons related to subordinates:
1. Lack of Confidence: Some subordinates do not want to take responsibility for the fear of
not being able to perform well. They lack confidence and do not want to take any risk. They
prefer to depend on their bosses to make decisions.
2. Fear of making mistakes: Some subordinates fear that if they make mistakes in carrying
out the delegated responsibilities, their superiors will criticise and insult them in front of
others. This fear discourages them from taking added responsibility.
3. Lack of incentives: motivation through financial and non-financial incentives makes
delegation effective. Subordinates are reluctant to accept delegation in the absence of
incentives.
4. Absence of access to various resources: If subordinates do not have access to resources to
carry out their work, the will not accept delegation of responsibilities. This happens when
there is delegation of responsibility without commensurate authority.

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5. Convenience: sometimes, subordinates prefer the work is done by superiors rather than
assuming responsibility for the same, for the sake of convenience. They simply want their
bosses to make decisions.
Reasons related to organization:
1. Size of the organization: A small sized organisation will not have too many jobs to
delegate to subordinates.
2. Degree of centralisation or decentralisation: Efficient delegation is affected by the degree
to which organisation distributes the decision-making power to various organisational units.
A highly centralised organisation is obstructive to the process of delegation.
___________________________________________________________________________
8.10 How to make delegation effective
Delegation can be made effective by adopting the following measures:
1. Accept the need for delegation: When superiors are reluctant to delegate because they want
to do everything themselves rather than allowing subordinates to do, they should realise the
need for delegation. Infact, more the delegation, more successful will be an organisation.
2. Develop confidence in subordinates: Rather than feeling that subordinates are not capable
of accepting responsibilities so that delegator does not take the risk of delegation, the
delegator should understand that a man learns through mistakes and if he commits mistakes,
he shall try to find out solutions to the problem also, if subordinates makes mistakes,
superiors should guide them rather than not delegating at all.
3. Communication: Where delegation becomes ineffective because subordinates do not have
the information for making decisions, an effective system of communication should be
developed so that information flows freely from superiors to subordinates.
4. Motivation: Subordinates should be motivated to accept the responsibilities by providing
financial and non-financial rewards like recognition, status etc.
5. Develop an effective system of control: the delegator must ensure that subordinates
perform well by setting reasonable standards of performance against which actual
performance should be measured. Delegator should keep check on the activities of delegatees
rather than not delegate at all.
6. Choose the right person for the right job: lack of confidence in subordinates should be
overcome by dividing the workload into sub-units and assigning each sub unit to persons
most suitable for performing them..
7. Freedom to sub-ordinates: When managers accept the need for delegation to subordinates
they must also give freedom to make decisions with respect to the delegated tasks.
8. Clarity of tasks: the responsibilities or the tasks delegates to subordinates must be clearly
defined in terms of results expected out of those tasks. Knowing what is exactly expected of
them will enable the subordinates perform the delegated tasks better.

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9. Matching the job with the abilities of the subordinates: Manager should assign the job to
subordinates which match with the ability of the subordinates.
10. Open communication: though delegatees are given the authority to solve problems related
to the assigned tasks, yet they should be freely discuss the problems with their delegators.
11. Monitoring the critical deviations: Subordinates may make mistakes, however efficient
they are at work. The superiors should overlook minor deviations with respect to the
delegated tasks and pinpoint only major deviations in the tasks assigned. This promotes better
response and a sense of responsibility amongst the employees.
12. Develop trust and confidence in subordinates: Delegation should be a continuous process.
Managers should appreciate the work of subordinates when they perform well. They should
delegate them more tasks and express trust and confidence in them. This will boost their
morale to perform better in future.
Check your Progress II:

1. State true or false:

Delegation can be vertical or horizontal.

.............

2. Delegation and decentralisation are

i) same ii) different

___________________________________________________________________________
8.11 Decentralisation

Decentralisation is passing of authority to make decisions to the lowest possible level in the
organisation hierarchy. Decentralisation is delegation of authority to the maximum possible
extent.

According to Allen, Decentralisation refers to the systematic effort to delegate to the lowest
levels all authority except that which can only be exercised at central points.

Importance of Decentralisation: Decentralisation is important because of the following

reasons:

1. Reduction in the burden of top managers: Managers who look after both strategic and
routine matters often becomes so involved in handling routine problems that they do not have
time to look after strategic issues of the organisation. The time they should spend on strategic
planning is often not spent. Through decentralisation, routine decisions can be delegated
down the scalar chain and important decision can be retained at the top.

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2. Development of the subordinates: Everybody learns through mistakes. If top executives do
not delegate authority to subordinates for the fear that subordinates will make mistakes, they
will not be able to develop potential managers. The subordinates should be allowed to make
mistakes and also rectify them so that they learn not to repeat them in future. This is possible
only in a decentralised organisation.

3. Faster Decisions: In a decentralised organisation, people do not have to approach the

higher authorities every time they face a problem. As they closer to the problem area, they
can make decisions related to that problem. The decisions are thus, faster and better.

4. Promotes diversification: If top managers retain authority to make every decision, they will
be able to look after limited lines of products only. Decentralisation enables them to search
new markets. They can diversify into new markets and add new products to the existing line
of products.

5. Promotes Motivation: Allowing subordinates to make decisions in their respective areas of

specialisation serves as a better motivational force. Thus, decentralisation motivates
managers to promote the efficiency of workers resulting in higher production and sales.

6. Flexibility: A decentralised organisation is more flexible as managers at different levels

can change their policies according to the changes in environment.

7. Better Communication: A decentralised organisation has fewer levels in the scalar chain.
Communication amongst people at different levels is faster nad efficient. Chances of
information distortions are reduced.

8. Control: Managers at different levels lay standards of performance for their respective
units and exercise control on those activities. This facilitates the process of control.

___________________________________________________________________________
8.12 Limitations of Decentralisation

Decentralisation suffers from the following limitations:

1. Co-ordination: Managers find it difficult to co-ordinate the organisational activities when

there is high degree of decentralisation.

2. Control: Difficulty in co-ordination also makes it difficult for top managers to control the
organisational activities.

3. Costly: Though useful, it is expensive since each department manages activities in its own
way. There is duplication of efforts and physical facilities in the organisation.

4. Adaptability: In the fast changing environment, unless strategic decisions are centralised,
different units will react to changes differently and working of the organisation will become
difficult.

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5. Lack of Uniformity: A highly decentralised organisation lacks the advantage of uniform
policies followed by all the organisational units. Each unit formulates its own policies. The
policies are more uniformly followed in a centralised organisation.

6. Ability of lower level managers: In a decentralised organisation, decisions are taken by

managers of different units at their respective levels. If lower level managers are not
competent and skilled to make decisions, efficiency of a decentralised organisation will get
reduced.

___________________________________________________________________________
8.13 Factors affecting Decentralisation

The factors affecting decentralisation can be classified into two categories:

External Factors affecting Decentralization:

1. Environment: If firms are operating in an environment where customers and suppliers are
dispersed, competition is not intense, markets provide wide area for company to penetrate
into, there is need for the organisation to decentralise.

2. Regulation of the Government: If the government lays strict policies and procedures for
the business firms, managers cannot take the risk of delegating the decision-making powers
to people at lower levels. They have the fear of being penalised for not observing the rules.
The tendency to decentralise in such cases is low.

3. Market features: If firms operate in a market where homogenous products are produced by
all the firms, the power to make decisions can be decentralised to lower level managers.

4. Bargaining with trade unions: If trade unions agree to bargain with lower level managers
for their rights, decision making power can be decentralised but if trade unions bargain only
with top management, the organisation tends to be more centralised.

Internal factors affecting Decentralisation:

The factors internal to the organization which affect decentralisation are as follows:

1. Size of the company: As size of the company increases, it becomes difficult for managers
to take decisions single handedly. Decision making will be time consuming. Therefore, with
increase in size of the firms, the decision making power is delegated to functional managers
and lower level managers. This increases efficiency of the organisation since top executives
can concentrate on strategic matters and routine matters can be managed at the lower levels.

2. Cost Control: Decisions which require huge amount of funds, for example, the decision to
buy a plant or machine, are normally taken by top executives and decisions where financial
outlay is not too large can be taken at lower levels. Thus, where firms want to maintain strict
cost control over activities of the organisation, the degree of decentralisation is less.

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3. Philosophy of Management: Management philosophy refers to managements desire to
centralise or decentralise. Some managers prefer to retain power and authority to make
decisions and therefore, believe in centralisation of authority. Others, who want the decisions
to be taken at lower levels, decentralise the decision making authority.

4. History of the enterprise: Enterprises which have always worked as centralised

organisations continue to do so in future also. Past precedents are followed in future and are
not easily changed unless a strong desire or outside influence is created within or outside the
organisation.

5. Functional area: Some degree of centralisation or decentralisation is essential in every

functional area. However, some areas like finance and personnel tend to be more centralised
while others such as production and sales tend to be more decentralised.

6. Ability of Subordinates: If lower level mangers are inspiring and innovative, decision
making power can be given to them. There is greater tendency for decentralisation in such
enterprises.

7. Growth Rate of enterprise: Top managers of a growing enterprise in terms of financial and
physical parameters spend more time on important and strategic organisational matters. Thus,
there is a greater tendency for decentralisation.

8. Communication system: An effective communication system helps to coordinate diverse

organisational activities. An organisation whose communication system is based on modern
management information systems can decentralise its operations.

9. Control System: An effective system of control where regular appraisal of actual

performance against planned performance is done facilitates decentralisation.

Process of Decentralisation:

The following steps make the decentralisation process:

1. Centralisation: Initially the organisation starts as a centralised structure. The power and
authority to make decisions vests with the top management. As it grows, the need for
delegating the opening authority arises while important decisions related to planning,
organising, motivating etc. continue to be exercised by top management. This ensures
uniformity in the working of the organisation.

Following are the strategic areas where decision-making should remain centralised:

1) Centralisation of Planning: To ensure consistency and uniformity in the operations of the

organisation, the framework of planning consisting of policies, procedures, programmes,
schedules etc. is developed by top managers, whatever the degree of decentralisation in the
enterprise. It is within the overall planning that various units make sub-plans to synthesize
with the broader plans.

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2) Centralisation of Organising: The organisation structure is adopted by creating
departments, defining authority-responsibility relationships amongst members, the levels to
be created (span of control) are decided by top management and the task of actually working
within that structure is delegated to lower levels by dividing the overall work into sub-units
and assigning each task to different individuals.

3) Centralisation of Co-ordination: more the degree of decentralisation, more the problem of

co-ordinating the activities. The chief executive should retain with him the power to
coordinate the activities of all divisions and departments. This avoids duplication of efforts
exercised by different divisions.

4) Centralisation of Motivation: individuals are motivated by different factors. There are

some financial rewards or some non-financial rewards.

5) Centralisation of control: When authority for making the overall plans is reserved with top
management the task of ensuring the plans is adhered to is also the responsibility of top
managers.

2. Development of managers: Once the basic framework of organisation is structured, various

plans and standards for measuring performance are made, techniques of co-ordination and
motivation are laid, top managers decentralise the enterprise by delegating operating
authority to lower level managers. These managers frame policies for the units.

3. Communication and co-ordination: though co-ordination of different activities is the task

of top management, departmental managers must also ensure coordination of different work
units. This is possible through open system of communication where information flows
freely.

4. Control: The measures of control are set by top management through techniques like
budgets, PERT and CPM to evaluate overall performance of the organisation.

5. Dispersion: Dispersion refers to geographic separation of central head office from the
operating units. This is done so that interference of top executives in the working of operating
units is minimised.

___________________________________________________________________________

8.14 Difference between Delegation and Decentralisation

The following table highlights major points of difference between delegation and
decentralisation:

Delegation
1. Delegation is complete when there is
transfer of authority from one person to
another.
2. The delegator continues to exercise control
over the activities of subordinates.
Decentralisation
It is complete when authority is delegated to
the fullest possible extent. It is the end result
of delegation.
The top management exercises control only
over strategic issues. Control overroutine

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 matters is exercised by lower level managers.
3. Delegation is possible without Decentralisation is not possible without
decentralisation. delegation. Infact, delegation is a pre
requisite to delegation.
4. Lower level managers of each unit carry Managers of each unit frame their own plans.
out the plans framed by their superiors.
5. Power to control the delegated tasks Power to control is delegated to lower level
remains with the delegator. managers.

8.15 Summary

In short, delegation helps in coordinating organisational activities at various organisational

levels. It is an important way of increasing efficiency of the organisation. It helps managers
concentrate on important organisational matters and pass the routine matters to subordinates.

8.16 Glossary

1. Delegation - Delegation is the assignment of authority and responsibility to another person

2. Decentralisation: the spread of power away from the center to local branches

3. Authority: To carry out the responsibility assigned

4. Responsibility: Responsibility is the activity or task ensured by the subordinates

5. Accountability: When managers delegate a part of their work-load to subordinates

8.17 Answers to check your Progress

Answer to Progress I:
1. True
2. False

Answer to Progress II:

1. True
2. Different

8.18 References

1. Koontz H. and Weihrich, H., Essentials of Management, McGraw Hill, New York.

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2. Drucker, Peter F. Management: Tasks, Respponsibilities and Practices, William
Heinemann Ltd., London

8.19 Suggested Readings

1. Taxmanns, Principles of Management with Case studies, by Dr. Neeru Vashishth.

2. McGraw Hill, Essentials of Management, An International and Leadership Perspective, by
Harold Koontz, Heinz Weihrich.
3. Pearson, Management, by Stephen P. Robbins, Mary Coulter & Neharika Vohra.
4. Pearson, Management, by James A.F. Stoner, R. Edward Freeman & Daniel R. Gilbert, Jr.
5. McGraw Hill, Management, concept, Practice & Cases, by Karminder Ghuman & K
Aswathappa.
6. Himalaya Publishing House, Management, Theory & Practice (Text and Cases), by P.
Subba Rao

8.20 Model ad Terminal Questions

1. What do you understand by Decentralisation? What are those factors which determine the
degree of decentralisation? Explain.
2. Distinguish between decentralisation and delegation.
3. What is delegation of authority? How can you make delegation effective?
4. Authority and responsibility should be equal. Discuss.
5. What are the major obstacles to the delegation of authority? How will you overcome these
obstacles?

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 Chapter 9

Coordination

Structure:

9.0 Objectives
9.1 Introduction to Coordination
9.2 Objectives of Co-ordination
9.3 Principles of Coordination
9.4 Types of Co-ordination
9.5 Limitations in achieving coordination
9.6 Techniques for effective coordination
9.7 Co-operation and Co-ordination
9.8 Co-ordination Essence of Management
9.9 Summary
9.10 Glossary
9.11 Answers to check your progress
9.12 References
9.13 Suggested Readings
9.14s Terminal and Model Questions

9.0 Objectives

After studying this chapter you will be able to know:

Know the concept of co-ordination.

Explain the techniques to achieve co-ordination.
Discuss the principles of co-ordination.
Know the difficulties in coordination.

___________________________________________________________________________
9.1 Introduction

Coordination is the act of organizing, making different people or things work together for a
goal or effect to fulfill desired goals in an organization. Coordination is a managerial function
in which different activities of the business are properly adjusted and interlinked. Co-
ordination is concerned with unifying the actions of a group of people for some common
purpose. It is the job of harmonizing the activities of different people or groups as also of
reconciling conflicting interests or approaches.

According to Fayol, to co-ordinate is to harmonise all the activities of a concern so as to

facilitate its working and its success.

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According to Spriegel, co-ordination is defined as a process of so arranging group activities
in relation to time, place and effort that each item will take care of itself according to the need
of the situation.

In simple words, co-ordination is to unite all the activities of that business. Coordination is
the integration and synchronization of all the activities or group efforts in an organization
towards the accomplishment of common objectives. Co-ordination creates a team spirit and
helps in achieving goals through collective efforts.

Features of Co-ordination

1. Dynamic & Continuous process: Through co-ordinated group efforts, co-ordination helps
in achieving organizational objectives. Organizational objectives are constantly changing
according to the changing business environment, competitors, organizational budgets and
priorities. Budgets are made annually and priorities keep getting changed to keep pace with
the environmental forces.

2. Applies to group efforts: It is necessary for organization to ensure proper co-ordination.

So, it is necessary to integrate group activities with the organizational objectives.
Organizations integrate individual as well as group activities through vertical and horizontal
co-ordination.

3. Integrates and harmonizes diversified efforts: To achieve organizational goals and

objectives, an organization divides the activities into different parts. Each part of an activity
is taken care by individuals working in a group. Each group by performing their tasks leads to
achievement of common goals. Thus, through effective co-ordination individual efforts need
to be harmonized and integrated in order to accomplish organizational goals.

4. Basic responsibility of Managers: Irrespective of their functional specialization and

hierarchical level, managers need to co-ordinate to achieve the goals and objectives of an
organization. Hence, co-ordination is the responsibility of all managers.

5. Essence of management: it is called as essence of management because it is an all-

pervasive function of management which directly interlinked with planning, organizing,
staffing, directing and controlling.

6. Maintenance of system: An organization is a system of group efforts. Only co-ordination

is the main function which helps the organization in recognizing the diversity and importance
of synthesizing individual and group efforts with organizational system.

7. Conscious Action: Co-ordination can only be achieved from the conscious and concerted
action of management.

8. Avoids Interruptions in Operations: Co-ordination helps in avoiding the interruptions

and in timely accomplishment of organizational goals.

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9. Eliminates Overlapping or Duplication of Work: Co-ordination can eliminate the
problems of overlapping and duplication and ensures optimal utilization of the resources of
an organization.

Elements of Co-ordination

1) It is an orderly pattern of group efforts.

2) It is a continuous process.

3) Its brings unity of action.

4) It has a common purpose.

5) It is a managerial responsibility.

___________________________________________________________________________
9.2 Objectives of Co-ordination
__________________________________________________________________________

The important objectives of co-ordination are:

1) Harmony of Goals: There is always a danger of conflicts of goals in the minds of the
managers and workers because the perceptions vary from man to man. Thus, the most
important objective of co-ordination is to create harmony of objectives in the minds of the
employees.
2) Total Accomplishment: The other objective is to achieve total accomplishment rather
than individual effort. As one quotation well define this objective, that is, individual play
game but team wins championships. So in order to achieve this objective all the employees
of the organization should join their hands.
3) Economy and Efficiency: The co-ordination among the various resources of input results
in economy and efficiency in the organization.
4) Good Social Relations: integration of individual interests and organizational goals is the
primary objective of the co-ordination. It provides job satisfaction and boosts morale of the
employees and also establishes good human relations in the enterprise.

___________________________________________________________________________
9.3 Principles of Co-ordination

There are some principles which were given by Mary Parker Follet (Parker 1984) focusing on
the following aspects:

1) Direct Control: Direct personal contact helps to co-ordinate activities of individuals. It

helps in bringing about agreement on different managerial actions and decisions which helps
in clarifying possible misunderstandings among employees.

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2) Early Start: In the early stages of planning and policy framing co-ordination is more
effective. Through co-ordination, employees got involved in these two processes. Employee
participation enhances their sense of commitment to the organization.

3) Reciprocity: Reciprocal relationships must be established among the managers of

different departments namely production, sales and finance etc. The activities of one
department affect the activities of other departments. Co-ordination becomes eaier when
reciprocal relationships are kept in mind, while taking the decisions.

4) Continuity: Co-ordination is a continuous process. It never ends. This is because the

ultimate aim of co-ordination is to achieve organizational goals and every organization
operates in a dynamic environment.

5) Flexibility: The process of co-ordination should be flexible. It must be such that it changes
with the changing business environment.

6) Span of Management: It refers to the number of subordinates that a manager can manage
effectively. It is important to place only as many subordinates under direction of one manager
effectively. It is important to place only as many subordinates under the direction of one
manager as can be effectively managed by him. It affects the managers ability to co-ordinate
the activities of subordinates working under him.

7) Unity of Command: Unity of command means one boss for one subordinate. It will be
difficult to achieve co-ordination if one individual has to report to more than one boss. Thus,
unity of command helps in co-ordinating the activities of individuals and departments.

___________________________________________________________________________
9.4 Types of Co-ordination

There are four types of co-ordination: vertical co-ordination, horizontal co-ordination,

internal co-ordination and external co-ordination.

1) Vertical Co-ordination: Vertical co-ordination is between different levels of an

organization to ensure that all levels are in harmony and in line with the organizational
policies and programmes. This is achieved with the help of delegation of authority by
directing and controlling. For example : if vice chancellor of an university gives authority to
the director of the department of management to take decision regarding admission procedure
than this is called vertical co-ordination. It is so because authority is flowing from top to
bottom.

2) Horizontal Co-ordination: Horizontal co-ordination is between departments on the same

level of managerial hierarchy. Co-ordination between department of management and
department of placement activities in the college at the same level of organizational hierarchy
is an example of horizontal co-ordination.

3) Internal Co-ordination: When vertical and horizontal co-ordination are accomplished

within an organization, it is called internal co-ordination. It can be achieved through the
following techniques:
a) Coordination through effective supervision.

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b) Coordination through organizational processes.
c) Coordination through personal contact.
d) Coordination through effective communication.
e) Coordination through group meetings.
f) Coordination through liaison officers.

4) External Co-ordination: The success or failure of an organization depends on a number

of external forces. External co-ordination facilitates such processes by integrating the
organization with dynamic external forces. Some external forces may be the changing
expectations of stakeholders, advancement of technology, changing government policies and
regulations etc. To facilitate external co-ordination, a number of techniques are adopted by an
organization.

Check your Progress I:

1. Which of the following is an element of co-ordination?

a) Continuous process
b) Unity of Action
c) Common Purpose
d) Managerial Responsibility
e) All of the above

2. State true or false:

Co-ordination among the various resources of input results in economy and efficiency in
organisation.
------------------

___________________________________________________________________________
9.5 Limitations in Achieving Coordination

There are some limitations in achieving co-ordination. Some of these are discussed below:

1. Increased Specialisation: Though specialisation helps to increase the productivity of

organization, it also creates the problem of co-ordination. Higher the degree of specialisation,
therefore more difficult it is to co-ordinate the activities.

2. High interdependence amongst various departments: when there is high degree of

dependence of one unit on other, there is a greater need of co-ordination and it is more
difficult to co-ordinate.

3. Different approach towards the same problem: If different departments of the

organization look at the same problem in different ways, there will be problem of co-
ordinating their activities.

4. Uncertainty about future: There are some environmental factors whether it may be
external factors or internal factors. Internal uncertainties are like strikes and lockouts also
make co-ordination difficult.

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5. Lack of Skill: Even in certain situations, where work flows smoothly, co-ordination
becomes a problem if managers do not have the knowledge, skill and competence to co-
ordinate.

6. Informal Groups: Informal groups which are strongly bonded by forces of culture, social
values and ethics can affect the ability of highly skilled managers to co-ordinate
organisational activities.

___________________________________________________________________________
9.6 Techniques of Co-ordination

The following techniques help to achieve co-ordination:

1. Scalar Chain: is the formal structure where line of authority which moves from highest to
lowest rank in the straight line. It also identifies the authority and responsibility attached to
each position in the scalar chain. When one knows clearly his position, the position of his
boss and subordinates, it facilitaes co-ordination.

2. Rules & Procedures: Rules and procedures provide established standards of performance.
Members of an organisation perform according to rules without going to top managers every
time they face a problem. Thus, rules and procedures provide an effective way of achieving
co-ordination.

3. Plans and goals: Well defined plans and goals help to achieve co-ordination by ensuring
that efforts of all individuals and departments are directed towards organisational goals.

4. Information System: People of different departments at all levels need information for
making various decisions. Effective information system like computers, networking and
internet facilitate free flow of information, thus facilitate co-ordination throughout the
organisation.

5. Lateral Relationships: Lateral relations refer to relations between peer groups of different
departments. People of different departments constantly interact with each other through
formal and informal communication systems. These relations refer to coordination of efforts
through communicating and problem solving with peers in other departments or units. Thus,
effective system of communication facilitates co-ordination by developing strong
relationships amongst people of different departments.

6. Slack Resources: It means keeping a backup of resources. If an organisation expects

demand for its product to be 10,000 units every month, it should be produce 11,000 units to
be meet sudden unexpected increase in demand. In case it does not do so, it will have to wait
to produce to meet the increased demand. Competitors can take advantage of this and divert
the firms customers to increase their customers. Maintaining stack resources, thus, facilitates
coordination amongst different departments and units.

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7. Co-operation: Co-operation is a way of achieving co-ordination. Co-operation refers to
voluntary actions of members to work collectively as a group. If all the members co-operate
with each other, it will result in co-ordination amongst their activities.

8. Independent Units: If organisation is structured in a manner that different units carry out
all functional activities with respect to their units independently, the need for co-ordination
gets reduced. Though this will be financially costly, it will reduce top managers burden to
co-ordinate the activities of these units.

9. Committees: Committees are usually formal organised groups with a designated

membership and chairperson and regularly scheduled meetings. Committees are formed to
solve specific organisational problems like leave committee. This committee looks into cases
of absenteeism and transfer of workers and achieves co-ordination by keeping the
organisational work forces satisfied at their jobs.

10. Managerial Integrators: Managerial integrators are specially appointed managers who
continuously co-ordinate the products, project or brand managers who co-ordinate the
activities of work groups carrying out different projects or different products.

___________________________________________________________________________
9.7 Coordination and Cooperation

Though the terms coordination and cooperation are used interchangeably, they are
conceptually different. Cooperation is a voluntary action of members to work collectively as
a group, co-ordination is a deliberate attempt of managers to unify the actions of
organisational members. Co-ordination can be achieved if all the members co-operate with
each other and with top managers. Even when members co-operate with each other, there is
need for managers to co-ordinate their efforts to achieve the organisational goals. For
example, the head of MBA department of the college wants to organize a placement activity
in her department. All the members of her department cooperate with her in organising it.
Despite their co-operation, the department head has to co-ordinate their activities by dividing
the work amongst them and giving them the authority

Difference between Co-ordination and Co-operation:

Nature of Co-operation Co-ordination

Difference
1.Attempt It is a voluntary attempt of It is a deliberate attempt of managers.
members.
2. Scope It is narrow in scope. It is wider in scope.
3. Relationship Relationship amongst Relationship amongst members is formal.
members is informal.
4. Nature It is an important technique of It is not a technique to achieve co-
co-ordination. operation.
5. Concept It is a collective effort of It is an attempted effort of managers to
group members that arises out unify the actions of all the organisational
of their need to work together members.

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 to attain a common goal.

Check your Progress II:

1. ..........................................is the formal structure where line of authority which moves from
highest to lowest rank in the straight line.

2. Co-operation refers to ------------------------------------------ of members to work collectively as

a group.

___________________________________________________________________________
9.8 Co-ordination The Essence of Management

When the organisational structure is created and departments are made, managers co-ordinate
the activities of these departments to achieve organisational goals. Top managers
communicate the organisational goals to departmental managers and help them carry out the
functions of planning, organising, staffing, directing and controlling for their respective
departments. They integrate objectives of the organisation with the objectives and activities
of departments through co-ordination, in order to harmonise departmental goals .

1. Planning and Co-ordination:

According to Harold Koontz and Cyril O Donnell, Planning is deciding in advance ehato
do, how to do it, when to do it and what is to do it. There are so many departmental plans in
a business. These include purchase plan, sales plan, production plan, finance plan, marketing
plan etc. all these plans must be co-ordinated and one master plan must be made for the full
business. Therefore, planning is affected by coordination.

2. Organising and Co-ordination

There are many steps in organising. All these steps must be co-ordinated , for achieving the
objectives of the business. The top level managers must co-ordinate the efforts of the middle
level managers. Similarly, the middle level managers must co-ordinate the efforts of the
lower level managers. Furthermore, the lower level managers must also co-ordinate the
efforts of the workers. Therefore, organisation is affected by co-ordination.

3. Staffing and Co-ordination

Staffing involves recruitment and selection, training, placement, promotion transfer etc. All
these steps must be properly coordinated. Similarly, the efforts of all the individuals, groups
and departments must be co-ordinated for achieving the objectives of business. Therefore,
staffing is affected by co-ordination.

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4. Directing and Co-ordination

Directing means giving necessary information, proper instructions and guidance to sub-
ordinates. The results in co-ordination. Therefore, direction is affected by co-ordination.

5. Communication and co-ordination

Many types of communication methods are used in a business. These methods include formal
communication, informal communication, upward communication, downward
communication, oral communication, written communication, etc. It is important to note that,
all these types of communication must be properly coordinated. Lack of proper co-ordination
will hinder the smooth functioning of the communication process. Furthermore, it will also
restrict the important information flow and cause many economic problems to the business.
Thus, communication is affected by coordination.

6. Leading and coordination

Every manager must be a good leader. He must co-ordinate the efforts of his subordinatesfor
achieving the objectives. That is, he must coordinate the human resource. He must also
coordinate the material and financial resources of the organisation. So, leadership cannot be
performed without coordination.

7. Motivating and Co-ordination

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There are many types of motivation. These are positive motivation, negative motivation,
financial motivation, and non-financial motivation. All these types of motivation must be
properly co-ordinated. Therefore, motivation is affected by coordination.

8. Controlling and Coordination

In controlling the standards are first fixed. Then, the performances are measured.
Performances are compared with the standards, and the deviations are found out. Then, the
deviations are corrected. So, controlling involves many steps. All these steps must be
properly co-ordinated. If co-ordination is not proper. Control will surely fail. Therefore,
control is also affected by coordination.

9.9 Summary

Now we can conclude that all the functions of management are affected by coordination.
Hence co-ordination is essential for achieving the objectives of the organisation. It is also
required for the survival, growth and profitability of the organisation. Co-ordination
encourages team spirit, gives right direction, motivates employees, and makes proper
utilisation of resources. Therefore, coordination is rightly called essence of management.

9.10 Glossary

1. Co-ordination - the organization of the different elements of a complex body or activity so

as to enable them to work together effectively.
2. Delegation - the action or process of delegating or being delegated.
3. Decentralisation - the spread of power away from the center to local branches or
governments
4. Cooperation - Cooperation is a voluntary action of members to work collectively as a
group

9.11 Answers to check your Progress:

Answers to Progress I :

1. All of the above

2. True

Answer to Progress II:

1. Scalar Chain
2. Voluntary Action

9.12 References
1. Koontz H. and Weihrich, H., Essentials of Management, McGraw Hill, New York.

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2. Drucker, Peter F. Management: Tasks, Respponsibilities and Practices, William
Heinemann Ltd., London

9.13 Suggested Readings

1. Taxmanns, Principles of Management with Case studies, by Dr. Neeru Vashishth.
2. McGraw Hill, Essentials of Management, An International and Leadership Perspective, by
Harold Koontz, Heinz Weihrich.
3. Pearson, Management, by Stephen P. Robbins, Mary Coulter & Neharika Vohra.
4. Pearson, Management, by James A.F. Stoner, R. Edward Freeman & Daniel R. Gilbert, Jr.
5. McGraw Hill, Management, Concept, Practice & Cases, by Karminder Ghuman & K
Aswathappa.
6. Himalaya Publishing House, Management, Theory & Practice (Text and Cases), by P.
Subba Rao

9.14 Terminal and Model Questions

1. Define Co-ordination. What are the main objectives of co-ordination?

2. Coordination is the Essence of Management. Comment.

3. Discuss the various limitations to achieve coordination.s

4. Which are the different techniques which help to achieve co-ordination? Discuss.

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 Chapter 10

Controlling

Structure

10.0 Objectives
10.1 Introduction
10.2 Meaning of Control
10.3 Planning Control Relationship
10.4 Process of Control
10.5 Types of Control
10.6 Importance of Control
10.7 Summary
10.8 Glossary
10.9 Answers to check your progress
10.10 References
10.11 Suggested Readings
10.12 Terminal and Model Questions

10.0 Objectives
___________________________________________________________________

After studying this chapter, you will be able to:

Explain the concept of control.

Describe the process of control.
Classify the types of control.
Describe the importance of control.

10. 1 Introduction

As we all know that business operations are continuing activity. Successful handling of
business affairs requires effective planning, organizing, staffing and directing. The
performance of the business must be assessed after every appropriate interval, so that
weaknesses, if any may be detected at an early stage and necessary corrective measures
applied.So, proper controlling is required at every stage in an organization. In other words,
proper controlling can locate deviations and offer suggestions.

10.2 Meaning of Control

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 In management, control means that in order to achieve the desired objectives efficiently,
economically and successfully the real progress of the work should be assessed from time to
time so that the actual progress of the work is in accordance with the expected progress.

Under controlling, deviations are sought to be noticed in the actual progress and the
standards already determined, the causes of deviations are found out and corrective actions is
taken so that in future the mistakes are not repeated. In short, the chief function of controlling
is to ensure actual progress with relevance to the objectives. As such, it is an important
function of management and consists in all managerial functions.

Control provides the basis for future action. It reduces the chances of mistakes being repeated
in future by employing and suggesting preventive steps. It facilitates decision making and
goes hand in hand with planning.

Control is the process of checking actual performance against the agreed standards or plans
with a view to ensuring adequate progress or satisfactory performance. In other words,
controlling consists of those activities which are necessary to ensure that the performance
takes place in accordance with the targets laid down by management. It also involves taking
corrective actions in case the performance is not satisfactory.

Definition of control

In the words of Henry Fayol, Control consists in verifying, whether everything occurs in
conformity with the plans adopted, the instructions issued and principles established. It has
for its object to point out weaknesses and errors in order to rectify them and prevent
recurrence.

In the words of Philip Kotler, Control is the process of taking steps to bring actual results
and desired results closing together.

In the words of Koontz and ODonnel, The managerial function of control is the
measurement and correction of the performance of subordinates in order to make sure that
enterprise objectives and the plan devised to attain them are accomplished.

In the words of Dale Henning, Control is the process of bringing about conformity of
performance with planned action.

Control is a basic managerial function which implies measurement and correction of

performance of subordinates to ensure that the pre-determined objectives are accomplished.

10.3 Features of control

(i) Pervasive Function- control is pervasive function of management. In fact, it is a

follow-up action to the other functions of management. This function is performed
by all the managers in the organization to control the activities assigned to them.

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 (ii) Dynamic Process- Control is a dynamic process. It involves continuous review of
standards of performance and results in corrective action which may lead to
changes in planning, organizing, staffing, etc.
(iii) Continuous process- Control is forward looking. It is related to future as past
cannot be controlled. It is usually preventive as the presence of control systems
leads to minimize wastages, losses and deviations from standards. It should be
noted that control does not curtail the rights of the individuals. It simply keeps a
check on the performance of individuals.
(iv) Action Oriented- action or taking corrective steps is the essence of control. The
purpose of control is achieved only when corrective action is taken on the basis of
feedback information. It is only action which adjusts performance to
predetermined standards whenever derivations occur. A good system of control
facilitates timely action so that there is minimum waste of time and energy.

10.4 Planning-Control Relationship

Planning is required at the very outset of management whereas control is required at the
last stages. If planning is looking ahead, control is looking back.

Control and planning are interrelated so closely that they cannot be separated from each
other. Without control all the planning is fruitless because control consists of the steps taken
to ensure that the performance of the organization conforms to the plans.

Planning and Controlling are inter-related within any organization. Planning sets the goals for
the organization and controlling ensures its accomplishment. Planning decides the control
process and controlling provides sound basis for planning. In simple words, planning and
controlling are basically dependent on each other. The relationship between them is explained
as under:

1. Planning Originates Controlling: In planning process, the objectives or targets are to be set,
and to achieve those goals, control process is required. So we can say that Planning precedes
control.

2. Control sustains planning: Controlling directs the course of planning. Controlling spots the
areas where planning is required.

3. Controlling provides information for planning: In controlling, the performance is compared

with standards and deviations, if any, are to be recorded. The information collected during
any type of control, is used for planning also.

4. Planning and control are inter-related: Planning is the initial step and controlling is in the
process and required at every step. For the same both are dependent upon each other and
inter-related.

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5. Both are forward looking: Planning is always for the future and control is forward looking.
No one has the control on past, it is only the future, which can be controlled.

Planning and Controlling are concerned with the achievement of business goals. Their
combined efforts are to achieve maximum output with minimum cost effect. Both, systematic
planning and organized controlling are essential to achieve the organizational goals.

Check your Progress I

a) Controls are ineffective when:

1) There is an emphasis on accuracy and timeliness.

2) There is an emphasis on strategic placement.
3) They use multiple measures of performance.
4) There is an emphasis on the exception.
5) Following rules is emphasized at the expense of service to clients.

b) Direct Supervision is the most common form of feedback control.

1) True 2) False

10.5 Process of control

The control process involves carefully collecting information about a system, process, person,
or group of people in order to make necessary decisions about each. Managers set up control
systems that consist of five key steps:

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 1. Establish standards to measure performance. The first step of controlling is to set
performance standard. Standards are those criteria on the basis of which the actual
performance is measured. Only standards tell individuals and departments about their
destination. A manager evaluates the actual performance on the basis of these
standards and finds out the deviations.

Types of Standards

Standards are of following types:

(i) Quantitative Standards- They are the standards which are shown with the help
offigures, e.g., production of 10 units comes to 100 rupees, etc.
(ii) Quantitative Standards- They are the standards which cannot be shown in the
form of figures, e.g., increasing the morale of the employees. Measuring the
morale of the employees is a standard of qualitative nature. It cannot be measured
directly.

2. Measure actual performance. The second step in the process of controlling is the
measurement of actual performance. The measurement of actual performance is done
on the basis of pre-determined standards. The measurement of actual performance
tells the manager whether the work has been done according to the plan or not.

This step involves measuring of actual performance of various individuals, groups

or units and then comparing it with the standards which have already been set up
at the planning stage. The quantitative measurement should be done in case

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 where standards have been set in quantitative terms. In other cases, performance
should be measured in terms of qualitative factors as in case of performance of
industrial relations managers. Comparison of performance with standards is
comparatively easier when the standards are expressed in quantitative terms.

Most organizations prepare formal reports of performance measurements that

managers review regularly. These measurements should be related to the standards
set in the first step of the control process. For example, if sales growth is a target, the
organization should have a means of gathering and reporting sales data.

3. Comparison of Actual performance with the standards. This step compares actual
activities to performance standards. When managers read computer reports or walk
through their plants, they identify whether actual performance meets, exceeds, or falls
short of standards. Typically, performance reports simplify such comparison by
placing the performance standards for the reporting period alongside the actual
performance for the same period and by computing the variancethat is, the
difference between each actual amount and the associated standard.

4. Take corrective actions. When performance deviates from standards, managers must
determine what changes, if any, are necessary and how to apply them. In the
productivity and qualitycentered environment, workers and managers are often
empowered to evaluate their own work. After the evaluator determines the cause or
causes of deviation, he or she can take the fourth stepcorrective action. The most
effective course may be prescribed by policies or may be best left up to employees'
judgment and initiative.
5. Follow Up : After taking corrective actions manager take follow up of the actions
performed by the employees in the organization.

These steps must be repeated periodically until the organizational goal is achieved.

10.5 Types of control

As it is clear from the above discussion that management can implement controls before an
activity starts, while the activity is going on or after the completion of the activity. So, the
first type of control is called feedforward control, the second is concurrent control and the last
is feedback control.

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1. Feedforward Controls

This is the most desirable type of control. It prevents anticipated problems because it
takes place in advance of the actual activity. Its future directed. Whenever a process
is performed, two factors are very critical namely the inputs and the outputs. Here we
take into account the various deficiencies of a process well in advancse, so that these
can be cured or controlled at the initial stages. The shape of the feedback controls is
taken by almost all the controls. It is advised by the various experts to have the both
feed forward and the feed backward controls on the process. It Helps in the
establishment of a right direction and control right from the beginning. For example,
few years back McDonalds opened its first restaurant in India, it started working
with local Indian companies to develop products that would meet its rigorous quality
standards. It even shared its advanced agricultural and drip irrigation technologies
with lettuce farmers in Ooty, Pune, Delhi and other regions to help them to grow high
quality lettuce all the year around. Why? Because McDonalds strongly emphasizes
product quality no matter what the geographical location. It wants a cheeseburger in
New Delhi to taste like one in Hartford, Connecticut.

The feed forward control is used to anticipate problems before they arise so that
problems do not occur later during the conversion process. That is giving stringent
product specifications to suppliers in advance.

2. Concurrent Controls

Concurrent control as it name implies, takes place while an activity is in progress. It

involves the regulation of ongoing activities that are part of transformation process to
ensure that they conform to organizational standards. Concurrent control is designed to
ensure that employee work activities produce the correct results. It requires a thorough
understanding of the specific tasks involved and their relationship to the desired and
product. it often involves checkpoints at which determinations are made about whether to
continue progress, take corrective action, or stop work altogether on products or services.

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 For example, you may have experienced concurrent control when using a computer
program such as word processing that alerts you to a misspelled word or incorrect
grammatical usage. In addition, many organizational quality programs rely on concurrent
controls to inform workers about whether their work output is of sufficient quality to meet
standards.

1. Give managers immediate feedback on how efficiently inputs are being transformed
into outputs.
2. Allows managers to correct problems as they arise.

3. Feedback Controls

This type of control focuses on the outputs of the organization after transformation is
complete. It often is used when feed forward and concurrent controls are not feasible
or are too costly. Feedback provides managers with meaningful information on how
effective its planning effort was. For example, financial statements are an example of
feedback controls. If feedback indicates little variance between standard and actual
performance, this is evidence that planning was generally on target. If the deviation is
great, a manager can use this information when formulating new plans to make them
more effective.

a. Here the controls are put at the output end as the deviations that occur are not
known to us till the moment of the output.
b. Very heavy cost is involved.
c. Results into the customer dissatisfaction.

Used to provide information at the output stage about customers reactions to

goods and services so that corrective action can be taken if necessary.

Check your Progress II

1) Control that occurs while an activity is in progress is most accurately referred to as:

a) Bureaucratic Control
b) Feed forward Control
c) Concurrent control
d) Feedback Control

2) Properly controlled computer monitoring is an effective and legal managerial control tool.

a) True b) False

10.7 The Importance of Control

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Planning can be done, an organizational structure can be created to efficiently facilitate the
achievement of objectives; and employees can be directed and motivated. Still, an
organization has no assurance that activities are going as planned and that the goals, are,
infact, being attained. Control is the final link in the functional chain of management. The
Importance of Control in management are as follows:

(1) Reduces Risk:

Control eliminates the risk of non-conformity of actual performance with the main goals of
the organisation. Control is the function which regulates the operation to ensure the
attainment of the set objectives.

Regular measurement of work in progress with proper adjustments in operations puts the
performance on the right track and helps in the achievement of goals.

(2) Basis for future action:

Control provides the information and facts to the management for planning and organising
when the work is completed and the result is evaluated. In fact, evaluation of results helps the
management replant for non-repetitive operations and rewarding, punishing and discipline the
workers.

It would be better to say that future long term planning is not possible unless and until control
information is available in time to the managers for the operation of work.

(3) Size of the business:

In large scale business in the modem times it is quite impossible to work without proper
policies, procedures and quality of different varieties of goods. That is why in a large scale
organisation there is always the need of a scientific system of control to solve the day to day
problems.

(4) Indicator for managerial weakness:

In the organisation there will be certain unforeseen and unknown problems which cannot be
traced out by mere planning, organising and staffing efforts. It is the control process that can
trace these out. That is why it is known as an indicator of the managerial weakness. Control
not only finds out the weakness of managers but also provides solutions and remedial action
to solve the problems.

(5) Facility of coordination:

Management and coordination of the business activities and workers is a very important role.
It binds all the workers and their activities and motivates them to move towards the common
objectives through coordination.

Control will play the role of a middleman between the workers and management to provide
the required information in time to the workers.

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(6) Simplifies supervision:

A systematic system of control helps in finding out the deviation existing in the organisation
which also simplifies the task of the supervisor in managing his subordinates. So through
control it becomes simpler for the supervisor to supervise and guide the workers to follow the
right track and fulfil the required goals.

(7) Extension of decentralisation:

Control system helps the top management to extend the frontiers of decentralisation without
the loss of control. When proper procedures, policies, targets, etc, are clearly communicated
to the subordinates, they develop self-confidence and need not always refer to their
supervisors with the problems.

10. 8 Summary

Control is a management function that focuses on the process of monitoring activities to

ensure that they are being accomplished as planned. Control also includes correcting any
significant deviations that may exist between goals and actual results.

10.9 Glossary

1. Control The process of monitoring performance, comparing it with goals, and correcting
any significant deviations.

2. Feedback Control- control that takes place after an action

3. Feedforward control- control that prevents anticipated problem

4. Concurrent control- control that takes place when an activity is in progress.

10. 10 Answers to check your Progress

Answers to Progress I

a) there is an emphasis on strategic planning.

b) False

Answers to Check your Progress II:

1)Concurrent Control
2) True

10.11 References:

1. Koontz H. and Weihrich, H., Essentials of Management, McGraw Hill, New York.

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2.Drucker, Peter F. Management: Tasks, Respponsibilities and Practices, William Heinemann
Ltd., London
http://dailyojo.com/articles/relationship-between-planning-and-control-explained.html

http://rgrahulguptavijay1.blogspot.in/2008/06/relationship-between-planning-and.html

http://www.preservearticles.com/2012051932632/what-is-the-importance-of-control-in-
management.html

10.12 Suggested Readings

1. Taxmanns, Principles of Management with Case studies, by Dr. Neeru Vashishth.

2. McGraw Hill, Essentials of Management, An International and Leadership Perspective, by
Harold Koontz, Heinz Weihrich.
3. Pearson, Management, by Stephen P. Robbins, Mary Coulter & Neharika Vohra.
4. Pearson, Management, by James A.F. Stoner, R. Edward Freeman & Daniel R. Gilbert, Jr.
5. McGraw Hill, Management, concept, Practice & Cases, by Karminder Ghuman & K
Aswathappa.
6. Himalaya Publishing House, Management, Theory & Practice (Text and Cases), by P.
Subba Rao

10.13 Model & Terminal Questions

1. What is the role of control in management?

2. what are the benefits of feedforward control?
3. How are planning and control linked? Is the control function linked to organizing and
leading functions of management? Explain.
4. Why do you believe feedback control is the most popular type of control? Justify.
5. Explain the process of controlling function of management?

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Page 179 of 210
Page 180 of 210
 Chapter 11

Styles of Management

Structure

11.0 Objectives
11.1 Introduction
11.2 Japanese Management
11.3 Z-Culture of American Companies
11.4 Japanese Management vs. Z-Culture of Management
11.5 Chinese Style Management
11.6 Summary
11.7 Glossary
11.8 Answers to check your progress
11.9 References
11.10 Suggested Readings
11.11 Terminal and Model Questions

11.0 Objectives

After studying this chapter you will be able to learn:

The styles of management.

Types of styles of management.
Japanese management .
Chinese management.

11.1 Introduction

As we all know that the art of getting employees together on a common platform and
extracting the best out of them refers to effective organization management.

Management plays an important role in strengthening the bond amongst the employees and
making them work together as a single unit. It is the managements responsibility to ensure
that employees are satisfied with their job responsibilities and eventually deliver their level
best.

The management must understand its employees well and strive hard to fulfill their
expectations for a stress free ambience at the workplace. Management involves control and
organization to get something done. In the course of business, managers use many different
skills. They:

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 plan and organise people and resources.
set and monitor budgets.
control operations or services in order to meet customers' needs. The ability to
manage is essential at all levels in the organisation.

However, for a business to excel, leadership is vital. A leader is somebody who sets the
direction and inspires other people. A leader is able to influence others in meetings or when
making decisions. This helps to achieve the goals of the organization. Enterprise has leaders
at all levels of its business, not just senior management. Some people are natural leaders. For
example, the captain of a school football team will probably have the ability to influence
others. Leaders can also develop through training and education.

Managers have to perform many roles in an organization and how they handle various
situations will depend on their style of management. A management style is an overall
method of leadership used by a manager. The way in which managers go about their work
and interact with people.

What is Management Style

Every leader has a unique style of handling the employees (Juniors/Team). The various ways
of dealing with the subordinates at the workplace is called as management style.

The superiors must decide on the future course of action as per the existing culture and
conditions at the workplace. The nature of employees and their mindsets also affect the
management style of working.

Management styles are characteristic ways of making decisions and relating to subordinates.
This idea was developed by Robert Tannenbaum and Warren H. Schmidt (1958, 1973), who
argued that the style of leadership is dependent upon the prevailing circumstance; therefore
leaders should exercise a range of management styles and should deploy them as appropriate.

A management style most often describes the way a manager tends to made decisions.
Management Styles and Skill will provide a solid foundation in the skills and behaviours
required to be an excellent manager. These days managing processes and workloads is just
not enough. Todays managers need to be able to manage change, motivate, deal with
difficult people, manage performance, they need to be able to coach and develop their staff
and much more beside.

Different Management Styles

1. Autocratic style

An autocratic management style is one where the manager makes decisions unilaterally, and
without much regard for subordinates. As a result, decisions will reflect the opinions and
personality of the manager, which in turn can project an image of a confident, well managed

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business. On the other hand, strong and competent subordinates may chafe because of limits
on decision-making freedom, the organization will get limited initiatives from those "on the
front lines", and turnover among the best subordinates will be higher.

There are two types of autocratic leaders:

A directive autocrat makes decisions unilaterally and closely supervises subordinates.

A permissive autocrat makes decisions unilaterally, but gives subordinates latitude in
carrying out their work.

Application: It is used in times of crisis where the time for discussion is unavailable and
the managers are responsible to give orders only. These orders need to be obeyed
immediately by the staff so that further problems are not caused. This style is also used in
the military and police forces where instruction are given and need to be taken seriously
without hesitation or questions.

2. Consultative Style

Consultative management is a type of management in which employees at all levels are

encouraged to contribute ideas towards identifying and setting organizational-goals, problem
solving and other decisions that may directly affect them. However, decisions do take into
account the best interests of the employees as well as the business. Communication is again
generally downward, but feedback to the management is encouraged to maintain morale. This
style can be highly advantageous when it engenders loyalty from the employees, leading to a
lower labor turnover, thanks to the emphasis on social needs. On the other hand for an
autocratic management style the lack of worker motivation can be typical if no loyal
connection is established between the manager and the people who are managed. It shares
disadvantages with an autocratic style, such as employees becoming dependent on the leader.

Consultative is characterized by:

In Consultative style of working, the leaders decide what is best for the employees as
well as the organization.
Policies are devised to benefit the employees and the organization.
The suggestions and feedback of the subordinates are taken into consideration before
deciding something.
In such a style of working, employees feel attached and loyal towards their
organization.
Employees stay motivated and enjoy their work rather than treating it as a burden.

3. Persuasive style

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A persuasive management style involves the manager sharing some characteristics with that
of an autocratic manager. The most important aspect of a persuasive manager is that they
maintain control over the entire decision making process. The most prominent difference here
is that the persuasive manager will spend more time working with their subordinates in order
to try to convince them of the benefits of the decision that have been made. A persuasive
manager is more aware of their employees, but it would be incorrect to say that the
persuasive style of management is more inclusive of employees.

Just as there are occasions where the use of an autocratic management style would be
appropriate, there are also instances where a company will benefit from a persuasive
management style. For example, if a task that needs to be completed but it is slightly
complicated it may be necessary to rely upon input from an expert. In such a situation, the
expert may take time to explain to others why events are happening in the order in which they
will occur, but ultimately the way in which things are done will be that person's
responsibility. In those circumstances, they are highly unlikely to delegate any part of the
decision making process to those who are lower down in the hierarchy.

Disadvantages to a persuasive style of management

1. There may not be enough or even an entire lack of support from employees for
management. Seeing as how the employees will have no input into the decision making
process, they also may not trust the decisions that are made.

2. A system that has no input from employees minimises access to one of the most valuable
resources that a business has; the ideas of the people who are working on the "front line". As
a result, employees will show no initiative, which can reduce productivity.

3. One-way communication models are unlikely to be effective when compared to two-way

communication.

Democratic style

In a democratic style, the manager allows the employees to take part in decision-making:
therefore everything is agreed upon by the majority. The communication is extensive in both
directions (from employees to leaders and vice-versa). This style can be particularly useful
when complex decisions need to be made that require a range of specialist skills: for example,
when a new ICT system needs to be put in place, and the upper management of the business
is computer-illiterate. From the overall business's point of view, job satisfaction and quality
of work will improve, and participatory contributions from subordinates will be much higher.
However, the decision-making process could be severely slowed down unless decision
processes are streamlined. The need for consensus may avoid taking the 'best' decision for the
business unless it is managed or limited. As with the autocratic leaders, democratic leaders
are also two types i.e. permissive and directive.

Characteristics of Democratic are:-

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 In such a style of working, superiors welcome the feedback of the subordinates.
Employees are invited on an open forum to discuss the pros and cons of plans and
ideas.
Democratic style of working ensures effective and healthy communication between
the management and the employees.
The superiors listen to what the employees have to say before finalizing on
something.

Chaotic Style

A very modern style of management, chaotic management gives the employees total control
over the decision making process. Some modern companies have adopted this style of
management and in return have become some of the most influential and innovative
companies.

Chaotic Management was described as a leader who trusted the people that reported to him.
He knew that his team knew the intent of the exercise, and he then trusted them to get on with
the job.

Google is the poster child for chaotic management. Its employees are given great creativity
not only in meeting goals, but in setting them in the first place. This creativity can birth a
tremendously vital company and give it a huge advantage over competitors, but chaotic
management also requires the ability and willingness to fail (which is a stake your business
may not be willing to cede).

However, by encouraging creativity and harnessing it with firm leadership, modern

companies may still be able to harness the driving force of chaotic management without
succumbing to its dangers.

Laissez-Faire

Laissez-faire leadership, also known as delegative leadership, is a type of leadership style in

which leaders are hands-off and allow group members to make the decisions. Researchers
have found that this is generally the leadership style that leads to the lowest productivity
among group members.

Employees in a local branch have a sense of ownership for many of their activities. At the
same time, they have the support and career structure of a large multinational company.

Derived from the French meaning 'leave alone', this is a loose leadership style. It allows
employees to carry out activities freely within broad limits. It differs from the democratic
style in that individuals are able to behave independently and make their own decisions,
rather than coming together on an agreed course of action.

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Small entrepreneurial teams manage and lead local Enterprise offices. These teams are
decentralised and make many decisions on their own. This shows a type of laissez-faire
structure.

However, this management style has drawbacks. Some employees might not be able to
motivate themselves or make the right decisions alone. Therefore individuals within
Enterprise teams work to corporate guidelines for dealing with customers. Staff also receive
regular training and feedback.

Laissez-faire leadership is characterized by:

Very little guidance from leaders

Complete freedom for followers to make decisions
Leaders provide the tools and resources needed
Group members are expected to solve problems on their own.

Check your Progress I

a) Which type of leader believes workers should be involved in decision making?

Bureaucratic
Democratic
Laissez Faire
Authoritarian

2. Which of these is a disadvantage of democratic management?

Staff are motivated through involvement
Employees get closers to customers
Employees are more loyal to the business
decision making likely to be slower

11.2 Japanese Management

Japanese Society is based on the principle of harmony and balance for the ultimate benefit of
the people, the family, the business and the country. Everyone has a distinct place in the
hierarchy with great respect shown for age and status. Most employees achieve status in the
workplace by working their way up from the bottom to the top levels of businesses. Japanese
businesses hire employees for life and seniority in a company is achieved through their
experience and longevity with the company. The Japanese prefer to do business on the basis
of personal relationships, thus most business associations are achieved through introductions
and recommendations by those who already have a good relationship with a Japanese
company. The Japanese know their employees and their clients intimately. Business decisions
are based on established ability and credibility in personal and business affairs. The value of a

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business enterprise is reflected in clients testimonials of a companys quality service or
product. The Japanese prefer long-term relationships with their business associates.

11.3 American Management

American management style can be described as individualistic in approach, in so far as

managers are accountable for the decisions made within their areas of responsibility.
American managers are more likely to disregard the opinions of subordinates than managers
in other, more consensus or compromise- oriented cultures. This can obviously lead to
frustrations, which can sometimes seem to boil over in meeting situations

11.4 Japanese Management vs. Z-Culture of American Companies

Characteristic U.S.A Japan

Speed vs. Generally U.S. Companys decisionJapanese companys decision
Consistency making is quick. Superiors give making is in stages along their
some great leeway to subordinatescorporate hierarchy. Their
so that they can decide and make decisions are very cautious and
decisions quickly. Unfortunately conservative and sometimes slower
there are some errors that can come
than U.S. companies. These stages
because of that. are backed by plenty of meetings
and documentation. This minimizes
error and brings consistency at all
levels
Roles & The U.S companys roles are very Japanese companies require
Responsibilities individualized. Contribution of individual contribution to the
for Individual individual is very important as whole group but recognize that the
whole group must succeed
vs. Group linked to company goals.
otherwise the individuals
contribution has no meaning.

ROI of Revenue US companies focus on return on Japanese also focus on ROI,

vs. ROI of investment or the end result. They however, they emphasize the
Relationships dont concern themselves on how it process on how to get there. For
is achieved. US companies spend example, they evaluate how to
less time establishing their process.
create the process for the project so
that they regard the cost including
the value of establishing the
process in total.
Risk Takers vs. If we ask something to achieve for If the Japanese feel that its
Risk Adverse them, theyll say We can do it 50- possible to achieve most likely

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Cultures 70% probabilities. After they 100%, they dont say Yes. Their
accepted, they try to achieve as agreement is careful because they
close to 100%. want to be accurate. They make
sure it is exactly 100%What the
Japanese say is important. If they
are not right it will reflect bad on
them.
Heterogenous Since U.S. is multicultural, the Basically a Japanese company is
vs. Homogenous company is consisted of a plenty of organized by Japanese. Almost
cultures nationalities, which means there are everyone has same background to
realize the situation so some of the
so many different way to think.
understanding is in unspoken
Almost the all situations, they dont words. This is one of the important
progress without say anything. communication skills in Japan.

Time Spent US companies aim to do meetings Meetings are very common in large
collaborating vs. efficiently as much as they can. The companies. They value the process
Collaborating meetings are fewer and less time. If to agree with everyone who is
time spent meetings are too plenty the people related to their project, so they
seem to resist them. have many meetings and spend a
lot of time in meetings.
Remote vs. Contacting clients by email or on They respect meeting each other
Face-to-Face the phone seems to be more natural face to face. It is important to them
Communications in conducting business for conducting business
relationships. relationships.
Loose vs Basically the working style is Most Japanese companies work
Structured almost the same as Japan. It is very regular office hours and they dont
Working Styles flexible, where working from home permit working at home. The work
is very normal. They have a environment is set like a school
cubicles for each employee which class where the head of the
focuses on a persons independence- department is at the top of a row of
high walls, isolation, and desks. There are group oriented- no
spaciousness. walls, no cubicles and closeness.
Self-Sponsored The 401k is entirely sponsored by Japanese are encouraged to stay in
vs. Company- employee salary with the exception one company by the monetary
Sponsored of matching funding by companies. rewards. These are company
Retirement This system is one of the things that sponsored payments independent
Rewards does not encourage people to stay of the persons salary. The longer
with companies. One exception is they stay the higher the company
the pension systems in the US. sponsored payout is to them.
Personal Life vs. Family and personal time is the In Japan, priority is on the work
Professional priority in the US. Work-Life life. It is given work is the center of
Life balance is a must. There is some life. There are many traditions that
socializing outside of work but not re-enforce this. A newcomer to the

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 as a group. company, hold the place for
Hanami to enjoy the cherry
blossom in Spring for drinking
with co-workers. Also a common
after-work event is Nomikai
(drinking party) and is used as a
very important opportunity to
communicate with each other for
work.

11.5 Chinese Style Management

According to Confucian philosophy, all relationships are deemed to be unequal. Ethical

behavior Ethical behavior demands that these inequalities are respected. Thus, the older
person should automatically receive respect from the younger, the senior from the
subordinate. This Confucian approach should be seen as the cornerstone of all management
thinking and issues such as empowerment and open access to all information are viewed by
the Chinese.

Thus, in China, management style tends towards the directive, with the senior manager giving
instructions to their direct reports who in turn pass on the instructions down the line. It is not
expected that subordinates will question the decisions of superiors that would be to show
disrespect and be the direct cause of loss of face for all concerned.

The manager should be seen as a type of father figure who expects and receives loyalty and
obedience from colleagues. In return, the manger is expected to take a holistic interest in the
well being of those colleagues. It is a mutually beneficial two-way relationship.

It is often said that China has a lack of good-quality, experienced managers this is typical of
a rapidly growing and modernizing economy and that good managers who are available are
very expensive. There is enormous emphasis on any companys recruitment and retention
policies you have to be able to recruit the best and keep them.

The Guanxi

The Chinese are more committed than in the West at the so-called guanxi relationships.
Indeed, this principle of recommendation from one person to another because of their good
guanxi is very common, or even the fact of rendering a service to a person who is the friend
of the friend of the good guanxi. The danger is that in doing business in China is conducted
mainly at two levels.

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You can meet the case of the supplier who will recommend one another because both have
good relations with each other or that one is indebted to another, but that does not attest to the
quality of all new suppliers, so act prudently. Another scenario that could pose more of a
problem, if one of your employees that builds and maintains good relations with suppliers
personally, and may be corrupted very quickly, either by being offered gifts, watered, and
even monetary commissions on purchases evenings! So vigilance is recommended wherever
there are guanxi a priori unsuspected.

People with a good network will be more influential than others. This can be an asset to have
such people in your business.

Individualism and collectivism

Finally, the Chinese agree in their representation of the business and professional
environment certain behaviors that could be described as inconsistent in our Western
perspective. However, individually, these behaviors are obvious.

The difficulty therefore lies in our acceptance of their ability to think white and black at the
same time, and their even more to make a combination of the white and the black that is as
incomprehensible to our impeccable ability eyes.

How to design the fact that the Chinese are so individualistic but do yet still part of a group,
or unit of work? How to design them seem to support the group and yet they practice very
common denunciation? How to understand that there are still rewards systems for group work
when they have a rare concept of team spirit in the effort?

In general, the Chinese see only his personal interest in the positive that a particular action to
be taken would bring consequences. If a colleague has made a difference, he denounced if he
has nothing to lose but as long to win back recognition of loyalty from his manager, saying it
contributes to save the group. Similarly, a Chinese will not help his colleague at the task if it
allows him to profit for himself, but by no means simply cooperate or improve a certain
profitability of the group work or the business.

Check your Progress II

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 1. What management style means that all decisions are made centrally ?
Authoritarian
Laissez Fire
Democratic
Bureaucratic
2. A possible advantage of sing authoritarian management is :
Allows for new ideas or suggestions
Change can be implemented quickly
Highly inflexible
Staff motivation is low

11.6 Summary

A management style most often describes the way a manager tends to made decisions.
Management Styles and Skill will provide a solid foundation in the skills and behaviours
required to be an excellent manager. American management style is an individualistic in
approach, in so far as managers are accountable for the decisions made within their areas of
responsibility. Japanese Society is based on the principle of harmony and balance for the
ultimate benefit of the people, the family, the business and the country American managers
are more likely to disregard the opinions of subordinates than managers in other, more
consensus or compromise- oriented cultures.

11.7 Glossary

1. Management Style: Characteristic ways of making decisions and relating to subordinates.

2. Autocratic: Where leader makes all decisions unilaterally.

3. Democratic: Where the manager allows the employees to take part in decision-making

4. Laissez Faire: is a type of leadership style in which leaders are hands-off and allow group
members to make the decisions.

5. Persuasive : Where manager has to maintain control over the entire decision making
process.

11.9 Answers to Check your Progress

Answers to Progress I

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1 Democratic

2 Decision making likely to be slower

Answer to Progress II

1 Authoritarian

2 Change can be implemented quickly

11.10 References

http://www.tutor2u.net/business/quiz/leadership/quiz.html

http://businesscasestudies.co.uk/enterprise-rent-a-car/using-a-range-of-management-styles-to-
lead-a-business/leadership-and-management.html#axzz30d5ma64e

http://www.tutorialspoint.com/management_concepts/management_styles.htm

http://managementstudyguide.com/management-style.htm

http://wheniwork.com/understanding-your-unique-management-style/

http://blog.btrax.com/en/2010/12/15/10-cultural-contrasts-between-us-and-japanese-
companies-a-personal-view/

http://bizshifts-trends.com/2011/01/10/management-styles-u-s-europe-japan-china-india-
brazil-russia/

http://www.insidebusiness360.com/index.php/differences-between-american-and-japanese-
management-systems-4722/

11.11 Suggested Readings

Understanding and Changing Your Management Style (Jossey-Bass

Business/Management Series) by Robert C. Benfari
The Big 3 Management Styles by Paul B. Thornton

11.12 Model & Terminal Questions

1. Define style of management.

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2. What are the different types of styles in management ? Which is the best style in the
situation of crisis when time is unavailable for discussion ?

3. List some characteristics of democratic style?

4. Define laissez faire style of management?

5. Distinguish between cultural contrasts of Japanese and American Firms.

6. Describe in brief about Chinese culture of management.

7. What is Guanxi in the Chinese context ?

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Page 194 of 210
 Chapter 12

Modern Management Techniques

Structure
12.0 Introduction
12.1 Business process reengineering
12.2 Business outsourcing
12.3 Benchmarking
12.4 Knowledge Management
12.5 E-Business Management
12.6 Total Quality Management
12.7 Process of TQM
12.8 McKinseys 7-S Approach
12.9 Summary
12.10 Glossary
12.11 Answers to Check your Progress
12.12 References
12.13 Suggested Readings
12.14 Model & Terminal Questions

12.0Objectives

After studying this chapter you will be able to

Learn new techniques related to management.

Learn benchmarking.
Know the process of TQM.
Explain McKinseys 7-S Approach.

12.1 Introduction

There are some latest techniques in the area of management which helps the organisation to
maintain and control quality.

12.2 Business Process Reengineering

Business process re-engineering is a business management strategy originally pioneered in

the early 1990s focusing on the analysis and design of workflows and business

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processes within an organization. BPR aimed to help organizations fundamentally rethink
how they do their work in order to dramatically improve customer service cut operational
costs and become world-class competitors.
Business process reengineering seeks to help companies radically restructure their
organizations by focusing on the ground-up design of their business processes. Re-
engineering emphasized a holistic focus on business objectives and how processes related to
them, encouraging full-scale recreation of processes rather than iterative optimization of sub
processes.
Business process re-engineering is also known as business process redesign, business
transformation, or business process change management. Business Process Reengineering
(BPR) is the practice of rethinking and redesigning the way work is done to better support an
organization's mission and reduce costs. Reengineering starts with a high-level assessment of
the organization's mission, strategic goals, and customer needs. Within the framework of this
basic assessment of mission and goals, re-engineering focuses on the organization's business
processesthe steps and procedures that govern how resources are used to
create products and services that meet the needs of particular customers or markets. As a
structured ordering of work steps across time and place, a business process can be
decomposed into specific activities, measured, modelled, and improved. It can also be
completely redesigned or eliminated altogether. Re-engineering identifies, analyzes, and re-
designs an organization's core business processes with the aim of achieving dramatic
improvements in critical performance measures, such as cost, quality, service, and speed.
Re-engineering recognizes that an organization's business processes are usually fragmented
into sub processes and tasks that are carried out by several specialized functional areas within
the organization. Often, no one is responsible for the overall performance of the entire
process. Re-engineering maintains that optimizing the performance of sub processes can
result in some benefits, but cannot yield dramatic improvements if the process itself is
fundamentally inefficient and outmoded. For that reason, re-engineering focuses on re-
designing the process as a whole in order to achieve the greatest possible benefits to the
organization and their customers. This drive for realizing dramatic improvements by
fundamentally re-thinking how the organization's work should be done distinguishes re-
engineering from process improvement efforts that focus on functional or incremental
improvement.
Business process reengineering (BPR) is the analysis and redesign of workflow within and
between enterprises.

Hammer and Champy felt that the design of workflow in most large corporations was based
on assumptions about technology, people, and organizational goals that were no longer valid.
They suggested seven principles of reengineering to streamline the work process and thereby
achieve significant levels of improvement in quality, time management, and cost:

1. Organize around outcomes, not tasks.

2. Identify all the processes in an organization and prioritize them in order of redesign

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urgency.
3. Integrate information processing work into the real work that produces the information.
4. Treat geographically dispersed resources as though they were centralized.
5. Link parallel activities in the workflow instead of just integrating their results.
6. Put the decision point where the work is performed, and build control into the process.
7. Capture information once and at the source.

By the mid-1990's, BPR gained the reputation of being a nice way of saying downsizing.
According to Hammer, lack of sustained management commitment and leadership, unrealistic
scope and expectations and resistance to change prompted management to abandon the
concept of BPR and embrace the next new methodology, enterprise resource planning.

Features of BPR

The following are some features of re-engineered processes:

Several jobs in an organisation are combined into one.

Workers make real decisions and work is performed where it makes most sense.
Checks and controls in an organisation are reduced.
Reconciliation processes are reduced.
A case manager provides a point of contact.

Advantages and Disadvantages of BPR

BPR revolves around customer needs and helps to give an appropriate focus to the
business.
BPR provides cost advantages that assist the organisation's competitive position.
BPR encourages a long-term strategic view of operational processes by asking radical
questions about how things are done and how processes could be improved.
BPR helps overcome the short-sighted approaches that sometimes emerge from
excessive concentration on functional boundaries. By focusing on entire processes the
exercise can streamline activities throughout the organisation.
BPR can help to reduce organisational complexity by eliminating unnecessary
activities.

Criticisms of BPR

BPR was sometimes seen as a means of making small improvements in existing

practices. In reality, it should be a more radical approach that questions whether
existing practices make any sense in their present form.
BPR was often perceived as a single, once-for-all cost-cutting exercise. In reality, it is
not primarily concerned with cost cutting and should be regarded as on-going rather
than once-for-all. This misconception often creates hostility in the minds of staff who
see the exercise as a threat to their security.

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 BPR requires a far-reaching and long-term commitment by management and staff.
Securing this is not an easy task, and many organisations have rejected the whole idea
as not worth the effort.
In many cases business processes were not redesigned but merely automated.
In some cases the efficiency of one department was improved at the expense of the
overall process. To make BPR work requires a focus on integrated processes (as
discussed above) that often involves obliterating existing processes and creating new
ones.
Some companies became so focused on improving internal processes that they failed
to keep up with competitors' activities in the market.

Most companies are now more likely to talk about 'business process redesign' instead.

The influence of BPR on systems development

BPR results in more automation and greater use of IT/IS to integrate processes. Some of the
key technologies that allow fundamental shifts in business operations to occur are:

There are shared database access from any location

Expert systems (a database system providing expert knowledge and advice) to
devolve expertise
Powerful communication networks for remote offices
Wireless communication for on-the-spot decision making
Tracking technology for warehouses and delivery systems
Internet services to re-engineer channels of distribution.

12.3 Business Outsourcing

Business process outsourcing (BPO) is a subset of outsourcing that involves the

contracting of the operations and responsibilities of specific business functions (or processes)
to a third-party service provider. Originally, this was associated with manufacturing firms,
such as Coca Cola that outsourced large segments of its supply chain.
BPO is typically categorized into back office outsourcing, which includes internal business
functions such as human resources or finance and accounting, and front office outsourcing,
which includes customer-related services such as contact center services.
BPO that is contracted outside a company's country is called offshore outsourcing. BPO that
is contracted to a company's neighbouring (or nearby) country is called nearshore
outsourcing.
Outsourcing can be divided into two broad categories. They are:

1. Business Process Outsourcing:

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In business Process Outsourcing a particular process task is outsourced. An example would
be payroll. BPO work could be either back office related or front office work. By front office
functions we mean customer oriented work life marketing, answering calls, technical support
and so on, whereas internal work like billing and purchase come in the office category.
Multimedia/animation, book keeping, business consultancy, CAD/CAM, Call Center, DTP,
data entry, proof reading and editing, typesetting, handwriting services, marketing, medical
billing and transcription, web design and development etc. are all services that could be put
under the BPO category.

2. Knowledge Process Outsourcing

Knowledge process outsourcing describes the outsourcing of core information-related

business activities which are competitively important or form an integral part of a companys
value chain. KPO requires advanced analytical and technical skills as well as a high degree of
specialist expertise, additional value creation the potential for cost reductions, and a shortage
of skilled labour. Regions which are particularly prominent in Knowledge Process
Outsourcing include India and Eastern Europe.
KPO (Knowledge Process Outsourcing) services include all kinds of research and
information gathering, e.g. intellectual property research for patent applications; equity
research, business and market research, legal and medical services; training, consultancy,
and research and development in fields such as pharmaceuticals and biotechnology; and
animation and design, etc.

12.4 Benchmarking
Benchmarking is the method of comparing the cost, cycle time, productivity, or quality of a
particular process or method to another that is extensively considered to be an industry
standard or best function. The result is often a business case for making changes in categorize
to make improvements. The term benchmarking was first used by cobblers to measure ones
feet for shoes. They would place the foot on a bench and mark to make the pattern for the
shoes. Benchmarking is most used to measure performance using a specific indicator (cost
per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or
defects per unit of measure) resulting in a metric of performance that is then compared to
others.
Thus, benchmarking is a systematic tool that allows a company to determine whether its
performance of organizational processes and activities represent the best practices. A
benchmark is a point of reference for a measurement. The term benchmark presumably
originates from the practice of making dimensional height measurements of an object on a
workbench using a gradual scale or similar tool, and using the workbench as the origin for the
measurements. It is also referred to as best practice benchmarking or process
benchmarking, it is a practice which used in management and generally strategic
management, in which organizations evaluate various aspects of their processes in relation to
best follows, usually with in a peer group defined for the purposes of comparison.

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 Benchmarking is defined as the continuous process of measuring products, services and
practices against the toughest competitors or those companies recognized as industry leaders
(best in class).

The essential elements of benchmarking are that :

1. Continuous: Benchmarking should not be treated as one-off exercise. It should be
incorporated into the regular planning cycle of the organization and management of key
processes.
2. Systematic: It is important to ensure that a consistent methodology is adopted by the
organization and that it is actually followed. It is equally important that processes are in place
to ensure that good practice is shared across the organization.
3. Implementation: Benchmarking helps to identify the gaps that exist between current
performance and Best Practice and also how Best Practice performance has been achieved
but in order for improvement to occur, a set of actions must be implemented.
4. Best Practice: It is not necessary to identify the absolute Best Practice in the world in
order for benchmarking to be successful. Good or Superior practice is probably a more
accurate phrase.

Check your Progress I

1. Benchmarking is a ................................ process of measuring products, services and

practices against the toughest competitors.

2. Business process reengineering has no start or end it is an evolutionary process.

a) True
b) False

3) Name two types of outsourcing.

12.5 Knowledge Management

Knowledge management (KM) is the process of capturing, developing, sharing, and

effectively using organisational knowledge. It refers to a multi-disciplined approach to
achieving organisational objectives by making the best use of knowledge.
Many large companies, public institutions and non-profit organisations have resources
dedicated to internal KM efforts, often as a part of their business strategy, information
technology, or human resource management departments. Several consulting companies
provide strategy and advice regarding KM to these organisations.
Knowledge management efforts typically focus on organisational objectives such as
improved performance, competitive advantage, innovation, the sharing of lessons learned,
integration and continuous improvement of the organisation. Knowledge management efforts
overlap with organisational learning and may be distinguished from that by a greater focus on

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the management of knowledge as a strategic asset and a focus on encouraging the sharing of
knowledge.

12.6 E-Business Management

E-business management is managing the electronic business transactions. e-business, is the

application of information and communication technologies in support of all the activities
of business. Commerce constitutes the exchange of products and services between businesses,
groups and individuals and can be seen as one of the essential activities of any business.
Electronic commerce focuses on the use of ICT to enable the external activities and
relationships of the business with individuals, groups and other businesses.

There are some potential concerns which are related to e-business management.
Electronic commerce may be responsible for consolidation and the decline of mom-and-
pop, brick and mortar businesses resulting in increases in income inequality.
Security
E-Business systems naturally have greater security risks than traditional business systems,
therefore it is important for e-business systems to be fully protected against these risks. A far
greater number of people have access to e-businesses through the internet than would have
access to a traditional business. Customers, suppliers, employees, and numerous other people
use any particular e-business system daily and expect their confidential information to stay
secure. Hackers are one of the great threats to the security of e-businesses. Some common
security concerns for e-Businesses include keeping business and customer information
private and confidential, authenticity of data, and data integrity. Some of the methods of
protecting e-business security and keeping information secure include physical security
measures as well as data storage, data transmission, anti-virus software, firewalls, and
encryption to list a few.
Privacy and confidentiality
Confidentiality is the extent to which businesses makes personal information available to
other businesses and individuals. With any business, confidential information must remain
secure and only be accessible to the intended recipient. However, this becomes even more
difficult when dealing with e-businesses specifically. To keep such information secure means
protecting any electronic records and files from unauthorized access, as well as ensuring safe
transmission and data storage of such information. Tools such as encryption and firewalls
manage this specific concern within e-business.
Authenticity
E-business transactions pose greater challenges for establishing authenticity due to the ease
with which electronic information may be altered and copied. Both parties in an e-business
transaction want to have the assurance that the other party is who they claim to be, especially

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when a customer places an order and then submits a payment electronically. One common
way to ensure this is to limit access to a network or trusted parties by using a virtual private
network (VPN) technology. The establishment of authenticity is even greater when a
combination of techniques are used, and such techniques involve checking "something you
know" (i.e. password or PIN), "something you need (i.e. credit card), or "something you are"
(i.e. digital signatures or voice recognition methods). Many times in e-business, however,
"something you are" is pretty strongly verified by checking the purchaser's "something you
have" (i.e. credit card) and "something you know" (i.e. card number).
Data integrity
Data integrity answers the question "Can the information be changed or corrupted in any
way?" This leads to the assurance that the message received is identical to the message sent.
A business needs to be confident that data is not changed in transit, whether deliberately or
by accident. To help with data integrity, firewalls protect stored data against unauthorized
access, while simply backing up data allows recovery should the data or equipment be
damaged.
Non-repudiation
This concern deals with the existence of proof in a transaction. A business must have
assurance that the receiving party or purchaser cannot deny that a transaction has occurred,
and this means having sufficient evidence to prove the transaction. One way to address non-
repudiation is using digital signatures. A digital signature not only ensures that a message or
document has been electronically signed by the person, but since a digital signature can only
be created by one person, it also ensures that this person cannot later deny that they provided
their signature.
Access control
When certain electronic resources and information is limited to only a few authorized
individuals, a business and its customers must have the assurance that no one else can access
the systems or information. Fortunately, there are a variety of techniques to address this
concern including firewalls, access privileges, user identification and authentication
techniques (such as passwords and digital certificates), Virtual Private Networks (VPN), and
much more.
Availability
This concern is specifically pertinent to a business' customers as certain information must be
available when customers need it. Messages must be delivered in a reliable and timely
fashion, and information must be stored and retrieved as required. Because availability of
service is important for all e-business websites, steps must be taken to prevent disruption of
service by events such as power outages and damage to physical infrastructure. Examples to
address this include data backup, fire-suppression systems, Uninterrupted Power Supply
(UPS) systems, virus protection, as well as making sure that there is sufficient capacity to
handle the demands posed by heavy network traffic.

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12.7 Total Quality Management

Total quality management is a management system for a customer-focused organization that

involves all employees in continual improvement. It uses strategy, data and effective
communications to integrate the quality discipline into the culture and activities of the
organisation.

1. Customer focused: The customer ultimately determines the level of quality. No matter
what an organization does to foster quality improvement training employees, integrating
quality into the design process, upgrading computers or software, or buying new measuring
tools the customer determines whether the efforts were worthwhile.

2. Total employee involvement: All employees participate in working toward common

goals. Total employee commitment can only be obtained after fear has been driven from the
workplace, when empowerment has occurred, and management has provided the proper
environment. High performance work systems integrate continuous improvement efforts with
normal business operations. Self managed work teams are one forms of empowerment.

3. Process centred: A fundamental part of total quality management is a focus on process

thinking. A process is a series of steps that take inputs from suppliers and transforms them
into outputs that are delivered to customers. The steps required to carry out the process are
defined and performance measures are continuously monitored in order to detect unexpected
variation.

4. Integrated system: As we know that organization may consist of many different

functional specialities often organized into vertically structured departments. It is the
horizontal process interconnecting these functions that are the focus of TQM. Micro-
processes add up to larger processes, and all processes aggregate into the business processes
required for defining and implementing strategy. Everyone must understand the vision,
mission, and guiding principles as well as the quality policies, objectives and critical
processes of the organization. Business performance must be monitored and communicated
continuously. Thus, an integrated system connects business improvement elements in an
attempt to continually improve and exceed the expectations of customers, employees and
other stakeholders.

5. Strategic and systematic approach: A critical part of the management of quality is the
strategic and systematic approach to achieving an organizations vision, mission and goals.
This process, called strategic planning or strategic management, includes the formulation of a
strategic plan that integrates quality as a core component.

6. Continual improvement: A major thrust of TQM is continual process improvement.

Continual improvement drives an organization to be both analytical and creative in finding
ways to become more competitive and more effective at meeting stakeholder expectations.

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7. Fact-based decision making: In order to know how well an organization is performing, data
on performance measures are necessary. TQM requires that an organization continually
collect and analyze data in order to improve decision making accuracy, achieve consensus,
and allow prediction based on past history.

8. Communications: During times of organizational change, as well as part of day-to-day

operation, effective communications plays a large part in maintaining morale and in
motivating employees at all levels. Communications involve strategies, method and
timeliness.

These elements are considered so essential to TQM that many organizations define them, in
some format, as a set of core values and principles on which the organization is to operate.

12.8 Process of TQM

TQM requires a new process thinking mindset. We must realize that everything we do is part
of a process. Our focus shifts from managing outcomes to managing and improving
processes; from what to do to how to do the processes better. Quality performance expands to
include how well each part of the process works and the relationship of each part to the
process. Also, process improvement focuses on continuously achieving the greatest potential
benefit for our customers.

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No two organizations have the same TQM implementation. There is no recipe for
organization success; however, there are a number of great TQM models that organizations
can use. These include the Deming Application Prize, the Malcolm Baldrige Criteria for
Performance Excellence, the European Foundation for Quality Management, and the ISO
quality management standards. Any organization that wants to improve its performance
would be well served by selecting one of these models and conducting a self-assessment.

1. The simplest model of TQM is shown in this above TQM diagram. The model begins with
understanding customer needs. TQM organizations have processes that continuously collect,
analyze, and act on customer information. Activities are often extended to understanding
competitor's customers. Developing an intimate understanding of customer needs allows
TQM organizations to predict future customer behaviour.

2. TQM organizations integrate customer knowledge with other information and use the
planning process to orchestrate action throughout the organization to manage day to day
activities and achieve future goals. Plans are reviewed at periodic intervals and adjusted as
necessary. The planning process is the glue that holds together all TQM activity.

3. TQM organizations understand that customers will only be satisfied when they consistently
receive products and services that meet their needs, are delivered when expected, and are
priced for value. TQM organizations use the techniques of process management to develop
cost-controlled processes that are stable and capable of meeting customer expectations.

4. TQM organizations also understand that exceptional performance today may be

unacceptable performance in the future so they use the concepts of process improvement to
achieve both breakthrough gains and incremental continuous improvement. Process
improvement is even applied to the TQM system itself!

5. The final element of the TQM model is total participation. TQM organizations understand
that all work is performed through people. This begins with leadership. In TQM
organizations, top management takes personal responsibility for implementing, nurturing, and
refining all TQM activities. They make sure people are properly trained, capable, and actively
participate in achieving organizational success. Management and employees work together to
create an empowered environment where people are valued.

All of the TQM model's elements work together to achieve results.

12.9 McKinseys 7-S Approach

McKinsey 7s model is a tool that analyzes firms organizational design by looking at 7 key
internal elements: strategy, structure, systems, shared values, style, staff and skills, in order to
identify if they are effectively aligned and allow organization to achieve its objectives.

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Understanding the tool
McKinsey 7s model was developed in 1980s by McKinsey consultants Tom Peters, Robert
Waterman and Julien Philips with a help from Richard Pascale and Anthony G. Athos. Since
the introduction, the model has been widely used by academics and practitioners and remains
one of the most popular strategic planning tools. It sought to present an emphasis on human
resources (Soft S), rather than the traditional mass production tangibles of capital,
infrastructure and equipment, as a key to higher organizational performance. The goal of the
model was to show how 7 elements of the company: Structure, Strategy, Skills, Staff, Style,
Systems, and Shared values, can be aligned together to achieve effectiveness in a company.
The key point of the model is that all the seven areas are interconnected and a change in one
area requires change in the rest of a firm for it to function effectively.
Below you can find the McKinsey model, which represents the connections between seven
areas and divides them into Soft Ss and Hard Ss. The shape of the model emphasizes
interconnectedness of the elements.

The model can be applied to many situations and is a valuable tool when organizational
design is at question. The most common uses of the framework are:

To facilitate organizational change.

To help implement new strategy.
To identify how each area may change in a future.

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 To facilitate the merger of organizations.
7s factors
In McKinsey model, the seven areas of organization are divided into the soft and
hard areas. Strategy, structure and systems are hard elements that are much easier to
identify and manage when compared to soft elements. On the other hand, soft areas,
although harder to manage, are the foundation of the organization and are more likely
to create the sustained competitive advantage.

Hard Ss Soft Ss
Strategy Style
Structure Staff
Systems Skills
Shared Values

Strategy is a plan developed by a firm to achieve sustained competitive advantage

and successfully compete in the market. What does a well-aligned strategy mean in 7s
McKinsey model? In general, a sound strategy is the one thats clearly articulated, is
long-term, helps to achieve competitive advantage and is reinforced by strong vision,
mission and values. But its hard to tell if such strategy is well-aligned with other
elements when analyzed alone. So the key in 7s model is not to look at your company
to find the great strategy, structure, systems and etc. but to look if its aligned with
other elements. For example, short-term strategy is usually a poor choice for a
company but if its aligned with other 6 elements, then it may provide strong results.
Structure represents the way business divisions and units are organized and includes
the information of who is accountable to whom. In other words, structure is the
organizational chart of the firm. It is also one of the most visible and easy to change
elements of the framework.
Systems are the processes and procedures of the company, which reveal business
daily activities and how decisions are made. Systems are the area of the firm that
determines how business is done and it should be the main focus for managers during
organizational change.
Skills are the abilities that firms employees perform very well. They also include
capabilities and competences. During organizational change, the question often arises
of what skills the company will really need to reinforce its new strategy or new
structure.
Staff element is concerned with what type and how many employees an organization
will need and how they will be recruited, trained, motivated and rewarded.

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 Style represents the way the company is managed by top-level managers, how they
interact, what actions do they take and their symbolic value. In other words, it is the
management style of companys leaders.
Shared Values are at the core of McKinsey 7s model. They are the norms and
standards that guide employee behavior and company actions and thus, are the
foundation of every organization.

Check your Progress II:

1. A successful TQM program incorporates all of the following except

a. continuous improvement
b. employment involvement
c. benchmarking
d. centralized decision making authority

2. Who developed 7 S model?

a) McKinsey & Company
b) Chester Bernard
c) Michael Porter
d) F.W. Taylor

12.10 Summary

Thus, business managers have realized that the customer is supreme or there is need to render
personalized services. Keeping in view the needs of the customer, now-a-days companies are
adopting some modern management techniques which focus on the quality of the product and
services so that customer should be satisfied. They are using some strategic planning tools
which lead to positive organizational changes and facilitate the merger of organizations.

12.11 Glossary

1 Shared Values: norms and standards that guide employee behavior and company actions

2 Skill : Abilities that firms employees perform very well.

3 Systems: Process and procedures of the company

4 Structure: organizational chart of the firm

5 Strategy: plan developed by firm to achieve sustained competitive advantage

6 Quality: conformance to requirements

7 Knowledge management: it is a process of capturing, developing, sharing and effectively

using organisational knowledge

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8 Benchmarking: method of comparing the cost, cycle time, productivity, or quality of a
particular process

9 Business process outsourcing: method of comparing the cost, cycle time, productivity, or
quality of a particular process

10 Business process re-engineering: is the practice of rethinking and redesigning the way
work is done to better support an organization's mission and reduce costs.

12.12 Answers to Check your Progress

Check your Progress I:

1. Continuous
2. True
3. Business Process Outsourcing & Knowledge Process Outsourcing

Check your Progress II:

a) Centralized decision making authority
b) McKinsey & Company

12.13 References

1. Encyclopaedia of Modern Management Techniques by A.K. Chaudary

2. A Handbook of Management Techniques : The best selling guide to modern management
methods
3. https://www.google.co.in/search?q=total+quality+management+process&biw
4. http://asq.org/learn-about-quality/total-quality-management/overview/overview.html

5.http://highered.mcgrawhill.com/sites/0072853182/student_view0/chapter31/multiple_choice_qu
iz.html
6. http://www.fpsc.gov.pk/icms/admin/webpages/docs/Business%20Administration-10.pdf
7.www.mbaskool.com 7-S Framework McKinsey | Definition and Concept | HR | MBA Skool-
Study.Learn.Share.

8. Read more:http://www.knowledge-management-tools.net/km-books.html#ixzz33BFXyE5b

12.14 Suggested Readings

1. Coping with Continuous Change in the Business Environment: Knowledge Management

and Knowledge Management Technology by Derrick Kourie, Retha Snyman, and Antonie
Botha (2008)

2. Knowledge Management by Gamble & Blackwell (2001)

3. Total Quality Management by Poornima M Charantimath ; Pearson.

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12.15 Model & Terminal Questions

1. Discuss total quality management.

2. What is 7-S Model? Comment on Hard S and Soft S.
3. What is business process re-engineering? What are its advantages and disadvantages.
4. Write short notes on:
a) Knowledge Management
b) Business Process Outsourcing Examples
c) Knowledge process outsourcing

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