Principle - Practices of Management - 5

Principles & Practices of Management 61
Unit - 5: Directing
Notes
Structure
5.0 Unit Objectives
5.1 Introduction
5.2 Motivation
5.3 Co-ordination,
5.4 Communication
5.5 Decision Making,
5.6 Management by Objectives (MBO)
5.7 Summary
5.8 Questions and exercises
5.9 Further readings
Objectives
This module will discuss in detail the following topics:
Motivation
Co-ordination
Communication
Decision Making
Management by Objectives
5.1 Introduction
After plans have been made and the organisation has been established and staffed,
the next step is to move towards its defined objectives. This function can be called by
various names: “leading”, “directing”, “motivating”, actuating”, and so on. But whatever
the name used to identify it, in carrying out this function the manager explains to his
people what they have to do and helps them do it to the best of their ability. Directing thus
involves three sub-functions - communication, leadership and motivation. Communication
is the process of passing information and understanding from one person to another.
Leadership is the process by which a manager guides and influences the work of
subordinates. Motivation means arousing desire in the minds of workers to give their
best to the enterprise. It is the act of stimulating or inspiring workers. If the workers of an
enterprise are properly motivated they will pull their weight effectively, given their loyalty
to the enterprise, and carry out their task effectively. Two broad categories of motivation
are: financial and non-financial. Financial motivation takes the form of salary, bonus, profit-
sharing etc. While non-financial motivation takes the form of job security, opportunity of
advancement, recognition, praise etc.
5.2 Motivation
Meaning of Motivation
One of the key variables which enable us to understand the conscious work behaviour
of individuals in organizations and the differences among them is ‘motivation’. The term
motivation is a broad-based concept used to explain the inner psychological forces and
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62 Principles & Practices of Management
processes in an individual which arouse in him the desire to act or not to act in particular
ways. It is the state of an individual’s willingness, desire or inclination to put in effort
Notes in a particular direction to meet his goals. It partially explains conscious goal-directed
action behaviour of an individual. Since it is an inner, psychological process, it cannot
be directly observed but can only be inferred from behaviour. An individual’s motivation
is one of the elements which make him to put in his energy and efforts, to apply his
knowledge and skills and to perform things in particular ways. He feels stimulated to do
so as to satisfy his motives with respect to his needs, and goals in an environment that
offers him certain opportunities, and threats. His motivation is also partly influenced by
his perceptions, learning, abilities and personality traits and qualities. Thus, motivation is
a complex behavioural phenomenon and can be understood in a systems perspective.
Motivation and Other Related Concepts.

In this Section, we may briefly explain how motivation is related or differs from ability,
morale and job satisfaction.
Motivation and ability: In a very simple sense, motivation may be regarded as the
will to work while ability which was discussed a little earlier may be referred to as the skill
to work. Ability is also a composite of several variables, physical strength, individuals’
attitude, knowledge and experiences. Effort and performance of individuals are product of
the will and skill (motivation x ability). Motivation is an inner psychological urge and drive.
Ability is a function of physical energy, intellectual knowledge and understanding, combined
with application skills. Motivation is a matter of attitude and is influenced by perceptions
values, needs, goals, beliefs and expectations. Ability is partly a matter of aptitude and
can be acquired by training, learning and practice. Motivation leads to effort while ability
partly leads to performance. More specifically, if an individual is well-motivated, he is
induced to put in the needed efforts whereas if an individual is able, he performs well.
Motivation can be induced by a network of positive and negative incentives, both monetary
and non-monetary. Ability can be induced or improved by proper supporting facilities and
atmosphere, training opportunities for self-expression and learning, co-operation from
the group and the supervisor and so on.
Motivation and ability reinforce each other. An individual needs motivation to acquire,
recognize and improve his abilities and to put them into use. Similarly, he needs ability to
back his motivation. Other things being equal, ability injects a sense to confidence and
adequacy in the individual and energizes him towards efforts. A person may be somewhat
deficient in his ability, but if he is highly motivated, he can get over the problem to some
extent. Conversely, a person may be very able, but he is poorly motivated, his efforts
and performance tend to be indifferent.
Sometimes, a high degree of ability by itself can motivate a person to perform well
even if often motivational factors are not present to the desired extent. Also, a highly
motivated individual with little ability may be able to get over his deficiency and drive
himself to perform well. His excellent motivational state helps him to acquire ability and
skill and thereby to put in the needed amount of effort.
Motivation and Morale

The concept ‘morale’ is defined as an overall state of a group’s emotional health,
arousal and enthusiasm. It is a network of social-emotional associations and attitudes,
which members of a group develop towards each other, towards its goals, roles and tasks.
The state of morale in a group or in an organization is a function of the total job situation
and the internal organizational climate, as perceived by the members.

The above definition suggests that morale is a phenomenon embedded in a group
of people. However, another version of the definition of morale suggest that it could also
be an individual phenomenon. One author has defined morale as the extent to which
Notes
an individual’s needs are fulfilled, and the extent to which the individual perceives that
satisfaction is stemming from his total job situation. In this sense, morale refers to an
individual’s state of psychological health, level of satisfaction and self-confidence which
he gets out of his job situation-the way he perceives his job, performs his tasks, fulfills
his needs and interacts with his superiors, colleagues and subordinates.
It appears to be more logical to view morale as more a group situation than an
individual may often derive their morale from the group of which they are members. It is
the totality of a group’s state of mind; the morale of a group is more than the sum total of
morale of its individual members.
Distinction between motivation and morale: Motivation and morale are conceptually
and otherwise different. They could be distinguished along the following lines:-
(a) Motivation is an individual’s state of disposition and decision to do or not to do things,
to behave or not to behave in a particular way, in response to stimuli, whether internal
or external. But morale, as explained above, is more a group situation.
(b) Motivation is only one of the factors that explains the ‘why’ of individual behaviour
and performance. An individual’s overall behaviour and performance is a function
not only of motivation but also several other factors. Morale represents the totality
of impact of several interacting forces in the atmosphere or a group.
(c) A well motivated individual tends to experience a high degree of morale also. As
against this, an individual or group characterized by a high state of morale may or
may not have a high degree of motivation to perform. The causation between morale
and motivation is not strong.
(d) It is possible to build up motivation in an individual or group by a combination of
rewards and penalties. But morale can be built up only by positive and favourable
means, i.e. carrots and not in combination with sticks.
(e) Organisations in general, devote more direct attention towards motivational aspects
of people’s behaviour than to aspects of morale. The field of motivation is more
extensively explored than morale by theorists and several theories of motivation were
discussed earlier. This is perhaps because motivation is more sharply related to effort
and performance than morale. The latter is almost taken for granted, if motivation is
taken care of.
Motivation and Job Satisfaction

Having defined morale, and distinguished it from motivation, we may turn our attention
to understand the concept of job satisfaction. It refers to a pleasurable or positive emotional
attitude of an individual towards his job arising out of the outcomes he gets from his job
and job climate. It is the psychological contentment which an individual experiences and
drives from the various factors associated with his job. It may also be described as the
extent to which an individual’s needs and expectations on the job are actually fulfilled
in terms of rewards and outcomes, extrinsic and intrinsic, monetary and non-monetary.
From a content angle, job satisfaction is also the extent to which an individual perceives
that his efforts, skills, experience and expertise are rewarded in the form of job outcomes-
such as salary, fringe benefits, recognition, achievement, career advancement and so on.
The relationship between motivation and job satisfaction is interesting. They are inner
psychological states. They cannot be observed but can be inferred from an individual’s
behaviour. The factors instrumental for motivation and job satisfaction are somewhat
common, although there could be several mutually exclusive factors. Motivation is aroused
by an individual’s expectations how his needs are likely to be met by the outcomes he
gets through his performance in his job. Job satisfaction is a measure of the individual’s
Notes assessment on how his expectations and needs are actually met on the job.
Further there is a circular relationship between motivation and job satisfaction. Job
satisfaction tends to arouse motivation for good performance in future. This means that
satisfaction causes performance. It is also true to some extent that motivation which
leads to performance also causes satisfaction. This means that performance leads to
satisfaction.
Theories of Motivaion
Human motivation in general, and the motivation of individuals working in
organizations in particular, has long been an important topic of research and theory
building by behavioural scientists. Several theories of motivation have been advanced
to serve as bases for description, explanation and prediction of work behaviour of people
in organizations. These are briefly discussed as follows:-
Needs hierarchy Theory: Abraham Maslow, an eminent U.S. Psychologist, was one
of the earliest theorists who provided a systematic conceptual model of human needs and
the associated behaviour. In a classic paper published in 1943, he advanced his ‘Need
Hierarchy Theory’ of human motivation to explain how needs influence human behaviour.
Maslow categorized human needs into five broad types and structured them into a five-tier
hierarchy. At the base of the hierarchy are the physiological needs which include basic
needs like food’ shelter, clothing, rest and recreation. The progression along the hierarchy
is from physiological needs to safety needs (freedom from pain and threat, assurance
of a protected and cosy atmosphere, economic and social security etc.), social affiliation
needs (which refer to needs for love, affection, friendship, and belongingness), ego or
esteem needs (such as needs for self-respect, respect and appreciation from others,
status and prestige in society) and self-actualisation needs (need for realisation of one’s
full potential of development, maturity and autonomy). The last category of needs is
placed at the apex of the hierarchy and hence are the highest level needs.
Maslow’s Hierarchy of Human Needs

Self Actualisation
Needs
Esteem Needs (Challenging Job)
Social Needs (Job Title)
(Friends at
Work)
Safety Needs
Physiological Pension
Needs
Salary
The progression of needs and their fulfillment along the hierarchy, is sequential and
step-by-step and on the basis of their dominance. Maslow argued that human beings
generally strive to satisfy their basic needs or lower order needs first before looking for
gratification of non-basic or higher order needs. He also made the following propositions
as part of his theory:
i) Deprivation of a need dominates one’s behaviour.
ii) Lower order needs in the hierarchy claim prior attention over higher order needs. Notes
iii) Relative satisfaction of needs at a particular level in the hierarchy activates the
urge for fulfillment of the next higher level needs.
iv) A satisfied need ceases to be a motivator; only unfulfilled needs motivate human
behaviour.
Maslow’s Theory is attacked by theorist from several angles. It is pointed out that
the theory cannot be tested and validated in practice and lacks empirical support. It is a
simplistic theory which fails to capture the complexity of human needs and behaviour. The
structuring of human needs in the form of a hierarchy gives them a non-existent order,
sequence and progression. Humans are unlikely to behave in such a neat, step-by-step
manner while perceiving and gratifying their needs. Humans are motivated not only by
their needs but also by many other things which include their expectations, experiences
and exigencies of circumstances. It is doubtful whether deprivation of a needs dominates
behaviour and whether a satisfied need ceases to be a motivator.
Achievement Motivation Theory

David McClelland of Harvard University, in association with John Atkinson and others,
evolved the Achievement Motivation Theory the elements of which are needs for achievement,
power and affiliation. We may briefly explain the motivation aroused by these three needs as
follows:
Need for achievement: It is a need to excel in terms of internally set standards of

performance or in relation to external competitive situations. Achievement oriented
individuals seek satisfaction in doing things better and in assuming important personal
responsibility for problem solving. They undertake attainable goals of moderate difficulty.
They are highly devoted to their task assignment and have the necessary drive to push
through road-blocks. They desire frequent and clear feedback on their performance so as
to gain confidence and get over deficiencies, if any. They depend on their own capability
and not on luck. They are not much money-minded; they look upon money as a symbol
of their achievement. They look for freedom and control over their task environment.
Need for power: It is a desire to gain control and dominance over other people and
events, to influence and condition their attitudes and behaviour and to have one’s own
way, in spite of severe odds. It includes manipulative ability to get hold of certain resources
which are sources of power such as key information, knowledge, and access to centres
of power, wealth and so on. It is an all-consuming drive among some individuals to seek
positions of leadership, whether in politics, law enforcement, business, education, or arts.
Power is sought in some case for the sheer pleasure of possessing it and for fulfilling
other needs in some other cases. An individual who has a high need for cruelty may use
his power to harass, humiliate and hit other people, who happen to get in touch with him.
Power motivation manifests itself in different ways-both good and bad.
Need for affiliation: This need, which was described earlier in connection with Maslow’s
need hierarchy theory, was studied further by McClelland. Persons with a high need for
social affiliation are likely to be sensitive to the feelings and views of other, are keen
on warm inter-personal relations, look for social support and friendships. They derive
satisfaction from liking others and being liked by them
The utility of McClelland’s achievement motivation theory is that is provides an insight

into managerial behaviour in particular and human behaviour in general. It also provides

guidance on training individual to induce into them needs for achievement, affiliation and
Notes power.
Two Factor Theory of Motivation

This theory, also known as ‘motivation-hygiene’ theory, was proposed by Frederick
Herzberg, a US behavioural scientist, in 1959, based on some empirical research on
job attitudes of 200 accountants and engineers. Herzberg made the proposition that two
separate sets of factors are relevant in any motivational setting: The first set of factors,
called satisfiers or motivators include: the job itself, its importance and the opportunities
it provides for advancement, achievement, recognition and sense of responsibility. They
are job content factors and are intrinsic to the job. They are real motivators for higher
performance because they are capable of giving satisfaction to the job holder.
The second set of factors, called hygiene factors or maintenance factors or dissatisfiers
include: working conditions, job security, salary, and quality of supervision, fairness of
organizational policies and administration and warmth in interpersonal relations. They
are the job context factors, and are extrinsic to the job. Any perceived deficiency in these
factors can create dissatisfaction, demotivation and poor performance among the job
holders. Their presence or perceived adequacy tend to remove or reduce dissatisfaction.
But by themselves, these factors do not promote job satisfaction, motivation and good
performance. They are called hygiene factors because they play a role in creating a healthy
congenial climate in the work setting. They are necessary for motivation and satisfaction
but not sufficient by themselves, to inspire or motivate a person for higher performance.
It is clear from the above that if factors which cause job dissatisfaction are fulfilled
does not mean that there will be presence of job satisfaction. An organization may have
excellent working conditions, decent remuneration system, democratic supervision,
cordial interpersonal relations and so on but still may have a low motivational climate if
satisfying factors such as a meaningful and interesting job, opportunities for advancement,
achievement and recognition, are absent or deficient.
Herzberg argued that organisations should be able to introduce job enlargement and
job enrichment which involve incorporation of motivators into the range of jobs designed
in the organizations. Herzberg made out a case for job redesign along the above lines
to make jobs interesting, meaningful and challenging as the only way to ensure job
satisfaction and good job performance.
Though Herzberg’s two factor theory of motivation has gained wide-spread popularity
among business and other organizations and though the theory has been empirically
validated, it attracted considerable criticism in management literature. It is pointed out that
the original research base was very narrow and was not representative enough to make
valid generalizations. It is also difficult and unrealistic to neatly segregate job context
factors from job content factors. In many cases, job context factors have elements of
positive satisfaction of job holders. It is also possible that for some people job context
factors or motivators make no sense because their job-related aspirations are limited.
Further, there need not be any direct cause and effect relationship between satisfaction
and performance. Many job holders may be happy and satisfied in their job but they may
not always be high performers.
Essentials of a Sound Motivational System

A careful comparison and integration of the above theories of motivation suggest
the essentials of a sound motivational system. These essentials are described below:-

1. It should adopt a positive, purposeful and progressive view of man-that he is
capable of being moulded to offer constructive co-operation to task requirements.
Notes
2. It should recognize individual differences in perceptions, values, needs and
abilities, as also their dynamic nature.
3. It should relate the goals of the organization with the individual goals of
participants.
4. It should give due weightage to group dynamics. Motivation is not a mere individual
phenomenon but is very much influenced by inter-personal situations. Similarly,
other environmental influences are also to be taken to consideration in a sound
motivational system.
5. It should incorporate aspects of training and development of people, sound
leadership and supervision, wholesome working conditions, redesign of jobs to
make them more meaningful and participation of people in processes of decision-
making and implementation.
6. There should be an appropriate combination of monetary and non-monetary
incentives; also the structure of motivating factors should be equitably designed
at different levels of the organisation.
7. The system should rule out manipulatory devices to motivate people by such
superficial gimmicks of socialization, paternalism and patronizing attitudes and
so on towards people.
8. There should be adequate and efficient mechanism for feedback on performance.
People should be informed periodically on how they perform and how they can
further improve their performance.
9. Efforts should be made to monitor the attitudes and behaviour of people-both as
individuals and as members of groups.
10. The linkages between abilities and efforts, and performance efforts and rewards
need to be clarified in unmistakable terms.
11. There should be contingent provisions for penalty for persistently unacceptable
performance and behaviour on the part of some people.
5.3 Coordination
Meaning and Definition of Coordination
Coordination is a synchronization of group efforts to achieve a common objective.

According to E.F.L. Brech, “Coordination is balancing and keeping together the team by
ensuring suitable allocation of tasks to the various members and seeing that the tasks
are performed with due harmony among the members themselves.”
According to Mc Farland, “Coordination is the process whereby an executive develops

an orderly pattern of group efforts and secures unity of action in the pursuit of common
purpose.” This definition views coordination as the task of integrating the individual needs
with organizational goals through proper linking.
Coordination is the centre point of managerial tasks. For example, planning is

ineffective if departmental plans are not properly integrated and coordinated and it is
required in each managerial function.
Characterstics of Coordination
Following are the characteristics of coordination:

 Coordination is not a distinct function. It represents the core of management.

Notes  The purpose of coordination is to achieve the common objective.
 Coordination is a continuous and an on-going process.
 Coordination does not arise spontaneously or by force. It is the result of concerted

action.
Need for Coordination

Existence of disintegrating forces emphasizes the need for greater coordination
among various divisions of an enterprise. The disintegrating forces may act as barriers
to effective coordination. The factors that emphasize on the need for coordination are:
1 Increasing specialization: Coordination becomes essential when the principle

of specialization has been practiced in a work area. The activities of the unit
may be divided on the basis of product, function, region or some other form.
Every employee is mostly concerned about his/her unit’s performance. It results
in conflicting interests within the same organisation. A good coordination paves
the way for effective integration of efforts of all people for the accomplishment
of a common goal.
2 Empire building motive: Each employee is motivated by his performance in

the unit. As a result, this kind of attitude may fulfill his personal and professional
ego but isolate him from others. Organisational goals cannot be accomplished
with this kind of tendency. Coordination is essential to ease out this situation.
3 Personal conflicts between employees: Personal rivalries, jealousies and

politics among the employees in the work situation are bound to create problems
to the management. For example, conflicts between any two divisions or
departments of the organisation create problems in the smooth functioning of
an organization. Coordination helps in harmonizing group efforts within the
organisation.
4 Subordination of individual to that of organizational interest: Individual

interests are important for developing loyalty, integrity, hard work, initiation and
motivation. Organisational interests are much more important than individual
interests. For achieving organizational interest, subordination of individual needs
is a must as organizational goals are prior to individual goals. The purpose of
coordination is to attain the organizational interest.
The importance of coordination need not be over emphasized. The primary task
of management is to coordinate all the activities effectively. It is a creative force
through which employees are encouraged to continue to group goals voluntarily,
willingly and enthusiastically. Coordination allows personal and social satisfaction
among employees.
Type of Coordination
Depending upon the nature, coverage and flow, coordination may be divided into
(1) Internal and external coordination
(2) Vertical and horizontal coordination
(3) Procedural and substantive coordination

Internal and External Coordination:
Coordination between units of the same organisation is termed as internal Notes
coordination. It summaries the activities of different units so as to make the coordination
in the organisation more effective. Organisations are not free from the influence of external
environment. External environment includes technology, competition, market forces,
customers and Government policies. External co-ordination tries to coordinate all these
forces to the advantage of an organisation.
Vertical and Horizontal Coordination:

Coordination between different levels of hierarchy down the line is termed as vertical
coordination. It ensures that all levels of people, from top to the bottom, work in harmony.
It is greatly facilitated by a technique like delegation of authority to the lower levels
of hierarchy. Coordination between people of the same cadre and between different
departments at the same level is termed as horizontal coordination.
Procedural and Substantive Coordination:

Procedural coordination implies the generalized description of the behaviour
and relationship of the member of the organisation. On the other hand, substantive
coordination is concerned with the content of organizational activities.
5.4 Communication
Communication is critical to the success of any organization and all the more so to
a business organisation. It links not only the various components of the organisation
but also its internal world with the external world. It has a very significant impact on
the ultimate effectiveness of the whole organisation. Communication is derived from
the Latin word communis which means “to share”, that is sharing of ideas, concepts,
feelings and emotions. It is through communication that the information, ideas,
attitudes or emotions get to be conveyed from one person to another, from one
person to a group or vice versa, from one group to another, via the media or online.
Communication is also described as the “glue that holds an organization together” - the
very essence of an organisation. Communication is a means by which behaviour is
modified, change is effected, information is made productive and goals are achieved.”
Dalton Mcfarland defines communication as “The process of meaningful interaction
among human beings.” More specifically it is the process by which meanings are
perceived and understandings are reached among human beings.
Dimenson of Organizational Communication

Every organisation has a built-in hierarchical system that can be compared to a
pyramid. It can, therefore, be understood that communication normally flows from top
downwards. But is is not always so. Communication in an organisation is multidimensional
or multidirectional. Given below are the directions in which communications are sent:
(a) Downward
(b) Upward
(c) Horizontal or Lateral
(d) Diagonal or Crosswise
(a) Downward Communication: As has been stated above, communication in the
first place, flows downwards. That is why; traditionally this direction has been highlighted
or emphasized. It is based on the assumption that the people working at higher levels

have the authority to communicate to the people working at lower levels. This direction
Notes of communication strengthens the authoritarian structure of the organisation. This is also
called Down Stream Communication.
Limitations of Downward Communication
1. Distortion/Dilution Quite often the communication originating at the highest

level gets distorted or diluted on the way to the lower levels. Sometimes the
messages may get lost. It has to be ensured that the receiver fully understands
the purport/instructions/directions coming from above. This requires an efficient
feedback system.
2. Delay: Another drawback of downward communication is that often it becomes

time-consuming. The more the levels the greater the chances of delay. That is
why sometime mangers choose to send their messages directly to the person
concerned.
3. Filtering: Sometimes managers may withhold some valuable information from

the employees. In such a situation the employees become frustrated, confused
and powerless. This may spoil the employer-employee relationship.
4. Co-ordination: One of the major drawbacks of downward communication is

that it lacks coordination between superior & subordinate due to ego problem.
As a result communication process becomes complicated.
5. Resistance: People at lower level have high degree of fear towards such
communication as all companies’ rules and policies are conveyed through this
type of communication.
(b) Upward Communication: The function of upward communication is to send

information, suggestions, complaints and grievances of the lower level workers to the
managers above. It is therefore, more participative in nature. It was not encouraged
in the past, but modern managers encourage upward communication. This is a direct
result of increasing democratization. This is also called Up Stream Communication.
Limitations of upward communication
1. Psychological: Certain problems, primarily of psychological nature, may come

up in upward communication.
2. Hierarchical: Many managers do not like to be ‘told’ by their juniors. They may
not be patient enough to listen to them or may even suppress the message sent
to them from below. In such a situation the employees may feel let down. In
order to tide over such problems an Ombudsperson plays an important role.
The concept of Ombudsman or Ombudsperson was first used in Sweden to
go into the complaints of lower level employees against government officials
or agencies. Now a number of companies in many countries have established
positions for persons to investigate employee’s complaints and grievances. An
Ombudsperson, therefore, effectively mediates between the employers and the
employees and smoothens upward communication.
(c) Lateral or Horizontal Communication: Horizontal Communication is one of the best

method or coordination between equals. Katz and Kahn regard this communication
as critical for effective system functioning. This type of communication can be seen
taking place between persons operating at the same level or working under the same
executive. Functional managers operating at the same level, in different departments,
through their communication, present a good example or lateral communication. The

main use of this dimension of communication is to maintain coordination and review
activities assigned to various subordinates. Occasions for lateral communication Notes
arise during committee meetings or conferences in which all members of the group
mostly peers or equals, interact. The best example of lateral communication can be
seen in the interaction between production and marketing departments.
(d) Diagonal or Crosswise Communication: Diagonal or crosswise communication
takes place when people working at the same level interact with those working at a
higher or lower level of organizational hierarchy and across the boundaries of their
reporting relationships.
Advantages of Diagonal Communication
(1) Co-ordination: This crosswise communication serves the important purpose of

coordination through informal meetings, formal conferences, lunch hour meetings,
general notices etc.
(2) Practicable: This is important for operational efficiency and emergency

situations. As we know not all communication takes place strictly on the lines of
organizational hierarchy, i.e. downwards or upwards.
(3) Morale Boosting: By providing opportunities to lower level workers to

interact with managers in informal meetings it helps to boost their morale and
further commitment to the organisation. More and more organisation are now
encouraging crosswise communication and building up bonhomie.
Limitations
(1) Fear of Infringement: The superior may feel it an infringement that his
subordinate has been given undue importance and that he has been by passed.
(2) Resistance to compliance: The superior may not implement the suggestion
as he has not been consulted.
(3) Anarchy: The lack of accepted procedures may lead internal anarchy and
external animosity.
Forms of Communication
Broadly speaking, there can be three forms of communication: oral, written and non-verbal.
Oral Communication
In oral or verbal communication, information is given directly, either face to face or
through a telephone or intercom system. Generally, in meetings, lectures, interviews,
conferences, etc. the communication is oral. Some of the merits of oral communication
are: (a) It is a time and money saving device. (b) As there is element of personal
touch, it is comparatively more effective. (c) Doubts can be clarified on the spot and
the communication can be understood easily. (d) Important points may be emphasized
through body language. (e) The effects of communication can be easily measured. (f)
Provides for greater flexibility.
Oral communication, however, suffers from certain limitations. These are: (a) it is
not useful where the parties are very far from each other, even beyond telephone range.
(b) It is not suitable for lengthy communications. (c) There is no permanent record
of communication. (d) Sometimes, oral communication is not taken seriously by the
recipients. (e) If the communication is poor in vocal expression, oral communications are
likely to be misunderstood and misinterpreted.
Written Communication
Notes Written communication, which is always in black and white can take the form of a
report, statement, circular, note, manual, handbook, letter, memo, etc., some of the merits
of written communication are as follows: (a) It is suitable for lengthy communications. (b) If
the parties are far from each other, even beyond telephonic range, written communication
is the only way out. (c) It can be kept as a permanent record and at times be referred to as
evidence. (d) There are fewer chances of missing out a point. (e) Written communication
serves as a solid base for taking action against a subordinate who disobeys it.
Some of the disadvantages of written communication are as follows:(a) There is a

greater chance of the communication being misunderstood. (b) It is very time consuming.
(c) There is no scope for face to face discussion. (d) It is difficult to maintain secrecy about
the matter communicated. (e) It suffers from a lack of flexibility. (f) Poorly written messages
followed by numerous clarifications both written and oral, may lead to a lot of confusion.
Non-verbal Communication
All of us constantly send clues about our feelings-not by what we say, but by what
we do. This is called non-verbal communication. Much non-verbal communication is
expressed through the body - the facial expression, posture, gestures, etc.
The Communication Process

Whether formal or informal, the basic communication process is still the same. It
involves six steps; ideation, encoding, transmission, receiving, decoding and acting.
Communication starts in the mind of the sender (ideation). The sender has an idea
that he wants to communicate to the receiver. The sender then develops a message to
convey the idea (encoding). Language skills are important at this point. Some people
seem to know just how to phrase things to get their ideas across, while others have a great
deal of difficulty in expressing themselves. Once developed, the message is transmitted
(transmission). It may be spoken or written. Or, it may be communicated non-verbally by
a smile, a nod or shrug of the shoulder. Once transmitted, the message is received and
the receiver attaches meaning to it (decoding). There are problems in attaching meaning
to the message. Words often mean different things to different people, and the same
words may have many different meanings. Further, we interpret (or decode) a message
on the basis of past experience, making certain assumption about its meaning. The final
step in the communication process is action. The receiver acts or responds in some way.
This is feedback. Without feedback, the sender cannot be certain if the message was
received and the proper meaning attached to it. With feedback, any distortion in meaning
can be corrected by another communication.
Barriers to Communication
There is no such thing as perfect communication. There are continuous forces at
work-called barriers which tend to distort communication and promote disorganization.
We may summaries these barriers as under:
1. Badly expressed message: People may talk too fast. They may lack coherence.
They may organize their ideas poorly or may omit certain essential details. They
may structure their sentences awkwardly or may make errors in their selection
of words. All of these may distort a message.
2. Faulty organization: In a large-scale enterprise where the chain of command

is too long or the span of control too big, communication will be poor. This

is because successive transmissions of the same message are decreasingly
accurate. According to Koontz and O’Donnel, in oral communication, something
in the order of 30 per cent of the information is lost in each transmission.
Notes
3. Distrust of Communicator: Some executive are noted for their habits of
countermanding or modifying their original communications. Such executive
invariably lose the trust and confidence of their subordinates. Subordinates do
not take their communications seriously.
4. Restricting Communication: In downward communication. a superior may
withhold a part of the information form his subordinates under the belief that
they do not need it. Similarly, in upward communication, the subordinate may
omit unfavorable parts of the information which he thinks will not be liked by his
superiors. This is called filtering. Most people do not want to be the bearer of
bad news or reveal their mistakes to their boss.
5. Poor retention: Studies show that employees retain only 50 per cent of
communication information.
6. Different backgrounds: One reason for distortion of meaning is that different
individuals often interpret the same communication differently; each individual
uses his own frame of reference. This frame of reference is based on particular
experience and knowledge. Thus, when people with different knowledge and
experiences try to communicate, they often have trouble getting their meanings
across. In-group language often, occupational or social groups develop their
own terminology or in-group language. This special language though provides
a means for precise and quick communication within the group, creates severe
communication breakdown when outsiders or other groups are involved.
7. Inattention: Another common barrier is that many receivers simply do not pay
attention to the message. One reason people do not pay attention is selective
listening. Selective listening results from a common tendency to block out
information that conflicts with what we believe. When we listen to a speech or
read a newspaper, we generally pay attention only to those things that confirm
out beliefs. Sometimes people do not pay attention to communication because
they are victims of communication overload or because the information is
unsolicited. The source of communication, and the way in which it is presented
also determine for its recipient how much attention he gives it. Major barriers to
horizontal communication are inter-departmental rivalries, incorrect grouping of
activities, inter-personal conflicts and indifference toward organizational goals.
8. Physical barriers: These are environmental factors which prevent or reduce the
sending or receiving of communication. They include physical distance, distracting
noises, and similar interferences.
9. Poor understanding: In downward communication a superior may not have full
understanding of the information to be able to interpret it to the workers. Just
a photograph can be no clearer than the negative from which it is printed the
superior cannot transmit more clearly than he understands
5.5 Decision - Making

Introduction
In our everyday life, we make several decisions - major and minor - to make our
life possible, tolerable and comfortable. Some decisions are conscious and deliberate
while others are subconscious and habitual. We make decisions, solve problems, tackle
situations and resolve crises. We take initiatives and react to events in the form of decisions

and action. In some situations and in certain stages of our life, we allow others to decide
for us and we even plead with others to make decisions on our behalf. Normally, we
Notes would try to make decisions ourselves so as to have more control on our existence. Let
us take the recent example of the Lok Sabha Speaker taking a decision not to resign from
the post . Should he go by the Party orders or he should uphold the constitution. Thus
we see that decision making is of paramount importance in our day today life.
Meaning and Nature of Decision Making

In the context of organisation and management, we may define decision-making as a
managerial process and function of choosing a particular course of action out of several
alternative courses for the purpose of achieving the given goals. It involves committing
the organisation to specific courses of action and entails commitment of resources in
specified ways. In a sense, decision-making is an important step towards reducing the
gap between the existing situation and the desired situation, through solving problems
and crises and making use of opportunities.
Decision-making embraces much of managerial activity in organisations; decisions

may be major or minor, strategic or operational. It is through making decisions and
getting them implemented that managers strive to achieve organisational goals. The
one most important task of management is to make decisions as may be called for.
In all organisations, several problems or situations arise continuously or otherwise. In
the context of business enterprises, the situations which call for managerial decision-
making are numerous. They include formulation or organisational goals (selection of
lines of business, range of products, future direction of growth diversification, profitability,
desired market share and so on), and the ways and means of achieving them (strategies
and policies). Decisions are to be made on policies in several areas - marketing,
production, finance, personnel, accounting and so on. Managers have to further decide
on organisational design, change in design as demanded by circumstances, internal
communication, incentive and control systems, balance between the present and the
future, social obligations, and the like.
Most of the managerial decisions are directed towards making the organisation
survive, succeed, grow and prosper. These decisions are means to ensure good
performance of the organisation. Sometimes managers have to make painful
decisions for example, reduction of staff through retrenchment, reduction of scale of
operations, removal of an employee or officer, withdrawal of products from the market,
closing down certain units and even winding up the organisation. Some decisions
are inevitable and inescapable while for others some freedom and elbow room to
make choices exists. Also, several decisions have to be made within a limited time
and managers are hard pressed to make the choice without perhaps considering all
the needed aspects. They may not even be able to wait for collection and analyses
of information. These are crisis decisions.
Decision making, in respect of a large number of major or critical decisions is a

stressful exercise. Managers tend to experience tremendous strain and pressure in the
activity of such decision making. Some problems prove to be hard nuts to crack. Their
origin and dimensions could be unscrutable and even mysterious. Gaining a grip over
them could be elusive and frustrating. So is the case with the range of alternatives. It is
not always easy to envisage the likely outcomes of selected moves and decisions. An
initially good decision may turn out to be a total fiasco eventually, which would mean a
big loss of face and resources. Some managers may even lose their jobs for making
bad decisions.

Classification of decisions
Managers make a variety of decisions in their day-to-day working life without really Notes
bothering much about what types of decisions these are. For a better understanding about
the nature of decisions, it would be desirable to conceptualise them into a few categories
as under:
Programmed and non-programmed decisions: One categorisation adopted by

Herbert Simon is programmed decisions. Programmed decisions refer to decisions made
on problems and situations by reference to a pre-determined set of precedents, procedures,
techniques and rules. These are well-structured in advance and are time-tested for their
validity. As a problem or issue for decision-making emerges, the relevant pre-decided
rule or procedure is applied to arrive at the decision. For example, in many organisations,
there is a set procedure for receipt of materials, payment of bills, employment of clerical
personnel, release of budgeted funds, and so on.
Programmed decisions are made with respect to familiar, routine, recurring problems
which are amenable for structured solution by application of known and well-defined
operating procedures and processes. Not much judgment and discretion is needed in
finding solutions to such problems. It is a matter of identifying the problem and applying
the rule. Decision making is thus simplified.
Organisations evolve a repertory of procedures, rules, processes and techniques

for handling routine and recurring situations and problem, on which managers have
previous experience and familiarity. One characteristic of programmed decisions is that
they tend to be consistent over situations and time. Also managers do not have to lose
much sleep in brooding over them. However, programmed decisions do not always mean
solutions to simple problems. Decision-making could be programmed even to complex
problems - such as resource allocation problems for example - by means of sophisticated
mathematical/ statistical techniques.
Non-programmed decisions are those which are made on situations and problems
which are novel and non-repetitive and about which not much knowledge and information
are available. They are non-programmed in the sense that they are made not by reference
to any pre-determined guidelines, standard operating procedures, precedents and rules
by application of managerial intelligence, experience, judgment and vision to tackling
problems and situations which arise infrequently and about which not much is known.
There is no simple or single best way of making decisions on unstructured problems,
which change their character & form time to time, which are surrounded by uncertainty
and enigma and which defy quick understanding. Solutions and decisions on them tend
to be unique or unusual - For example, problems such as a sudden major change in
Government policy badly affecting a particular industry, the departure of a top level key
executive, drastic decline in demand for a particular high profile product, competitive
rivalry from a previously little known manufacturer etc. do not have ready-made solutions.
It is true that several decisions are neither completely programmed nor completely
non-programmed but share the features of both.
Strategic and tactical decision: These notions could also be applied to decisions
for dividing them into strategic and tactical decisions. Strategic decisions are made at
the top level of organisation to handle problems critical to the survival and success of the
organisation. They have a vital impact on the direction and functioning of the organisation
-as for example, decisions on plant location, introduction of new products, making major
new fund-raising and investment operations, adoption of new technology, acquisition of
outside enterprises and so on. Much analysis and judgement go into making strategic
decisions.
In a way, strategic decisions are comparable to non-programmed decisions and they

share some of their characteristics. Strategic decisions are made under conditions of
Notes partial knowledge or ignorance.
On the other hand, tactical decisions (which are also called operations decisions)
are made to implement strategic decisions. A single strategic decision calls for a series
of tactical decisions which are of a relatively structured nature. Tactical decisions are
relatively short, step-like spot solutions to break-down strategic decisions into implement
able packages. The other features of tactical decisions are : they are more specific and
functional; they are made in a relatively closed setting; information for tactical decisions
is more easily available and digestible; they are less surrounded by uncertainty and
complexity; decision variables can be forecast and quantified without much difficulty and
their impact is relatively localised and short-range. Tactical decisions are made with a
strategic focus.
The distinction between strategic and operational decisions could be high-lighted by

means of an example. Decisions on mobilisation of military resources and efforts and on
overall deployment of troops to win a war are strategic decisions. Decisions on winning
a battle are tactical decisions.
As in the case of programmed and non-programmed decisions, the dividing line

between strategic and tactical decisions is thin. For example, product pricing is a tactical
decision in relation to the strategic decision of design and introduction of a new product
in the market. But product pricing appears to be a strategic decision to down-line tactical
decisions on dealer discounts.
Individual and group decisions: Many decisions, even critical ones, in organisations
are made by individual managers, who assume full responsibility for the consequences
of such decisions. In fact, individual managers are vested with enough authority to make
a large number of decisions’ they are paid for the job. The individual managers at their
respective levels-right from the chief executive down to first line supervisor - are called
upon to decide many things. They may get information, factual analytical reports, pros
and cons of alternatives and suggested courses of action from their subordinates or from
specially established committees. But the responsibility and authority or the onus of
making the final decision rests with the concerned manager himself. He cannot delegate
or abdicate this authority.
Group decisions are those which are made by more than one manager joining together
for the purpose. In an organisation, two or more mangers at the same or different levels
put their heads together, jointly deliberate on the problem, information and alternatives
and hammer out a decision for which they assume collective responsibility. Decisions
which have inter-departmental effects - for example, a product related decision affecting
manufacturing, purchasing and marketing departments, are sometimes made by forming
a committee composed of responsible executives of the three departments.
Group decision-making is not new in organisations. The Board of Directors is a

decision-making unit. As a group, the board members make several vital corporate
decisions. It is a plural executive body. At lower levels, there may be important committees
such as management committee, planning committee, and operations committee,
comprising of senior managers entrusted with key decision-making and coordinating
functions. Thus, in organisations, individual managers as a group make decisions. Apart
from the above mentioned formal groups, managers at any level may informally involve
their subordinates or colleagues in decision-making processes on matters of common
concern. For example, the marketing manager may call his area sales managers of a
region and pose an important marketing problem to them for collective deliberation and

decision-making. He enlists their co-operation and contribution in finding a solution for the
problem. This is an exercise in managerial participative decision-making. There may also
be cases where a first line supervisor invites his group of rank and file subordinates for a
Notes
small meeting and converts the group into a decision making unit on a matter affecting the
members’ interests. He himself keenly participates in the decision-making deliberations
but he leaves the final decision to the collective judgment of his group of subordinates.
Sometimes, group involvement in decision-making processes may be confined to a few
stages like problem identification, collection of information, development of alternative
courses of action and their evaluation. The final act of choosing from the alternatives may
be reserved by the manager concerned. To this extent, group decision-making is different
from group participation in decision making.
Several virtues are claimed on behalf of group decision-making as against individual

decision-making. The decision-making function and process get enriched by the pooling
of diverse expertise, knowledge, authority and perspectives represented by the group.
Elaborate group deliberation and consideration of alternative courses from several angles
tend to ensure that decisions of high quality are made. To the extent that authority for
making decisions in entrusted to the group, it gets diffused among the members. It is
more desirable to vest a high degree of decision-making authority in a group than in an
individual. The latter may not be able to use it properly and fully. In the case of some
problems of an inter-departmental nature the groups of managers representing the
concerned departments are more competent to make appropriate collective decisions,
than an individual manager as such. Also, in cases where a manger involves his group
of subordinates in decision making, the decisions so reached tend to enjoy a high degree
of acceptance and pragmatism. Their implementation becomes easy.
The disadvantages of group decision-making are delays in decision-making, lack of

rationality and responsibility among group members, dilution of the quality of decisions
by compromise and conformity among members of the group and so on.
Steps in the process of decision making

Theoretically, decision making is viewed as a rational, systematic process. There are
several stages in the decision-making process, which are explained as follows:
Problem / Promising Situation
Collection of Relevant
Information
Search for Alternative

Courses of Action
Evaluation of Alternatives and

Making final choice
Implement Decision

(Step-I) Perception or identification of decision problem: The decision making

process begins with the uncovering of or discovering a problem situation which is basically
Notes either an unsatisfactory or a promising situation calling for a conscious intervention. In
the course of his job, a manager confronts several such situations in the internal and
external environment of the organisation. Problem situations may relate to any area of
management: planning, organising, direction and control - in a broad sense. The manager
has to discover or locate unsatisfactory or promising problem situations in his environment
through his perceptual and inquisitive skills. Problems may be major or minor, strategic
or operational, novel or routine. Whatever is their nature, such situations deserve to be
perceived and discovered.
(a) Diagnosis and definition of the decision problem: Once a problem surfaces
and perceived or discovered, the next task of the manger is to analyse what exactly is the
problem. He has to define it in clear terms so as to identify its scope and ramifications.
It is a clinical process of critically looking into the problem and piercing through it to find
out the origin and its degree of gravity or importance. In this step, the manager should go
past the peripheral symptoms and reach the core of the problem so as to know its nature.
Several managerial problems are entangled with one another’ an attempt has to be made
to disentangle them to the extent possible so that the specific problem gets isolated for
purposes of being tackled by the manager. Also, in the case of a very complex problem,
it may be expedient to break it down into sub-problems. It is often asserted that problem
definition is half the job in decision making’ once the manager gains a clear conception
of the problem, the ways and means of arriving at the decision tend to become smooth.
(b) Specific of objectives: In this step, the manager has to set the objectives which
he would like to achieve by solving the problem. He has to be clear in his mind what
the decisions is about and what the decisions is for. Objectives may be qualitative and
quantitative; they may also be multiple, flexible, attainable and realistic. Objectives are
the end points towards which the manager directs his decision making. They serve as
yardsticks for measuring and evaluating the outcomes of alternative courses of action,
for implementing the decision and for sizing up its effectiveness.
(Step-II) Collection of relevant information: Information is an important resource

input for decision making. It provides the knowledge base for unraveling the complexity
and uncertainty associated with the problem and the alternative courses of action. The
manager has to design or rely on the information system so that he gets the relevant
and required information bearing on the decision environment. Information may be
quantitative or qualitative, internal or external, historical or projected. Considerations
of availability, adequacy, reliability, timeliness and cost are important in this connection.
Collection of information is especially critical for the subsequent step of generating and
evaluating alternative course of action.
(Step-III) Search for alternative courses of action: In this stage, the manager tries
to discover and develop alternative courses of action, which are in the nature of potential
and possible solutions or strategies to the decision problem. Some alternative courses
may be quickly developed by the manager by reference to his experience or expertise.
New alternatives or options have to be generated through creative thinking and other
processes. The availability of alternative courses of action provides an opportunity for
the manager to make a choice. In a large organisation staff experts may be of some
help in generating alternative courses. The search for alternative courses is an exciting
venture and tends to be productive.
(Step-IV) Evaluation of alternative courses of action: Alternatives have value
to be extent that their outcomes are likely to meet the goals of the manager. Hence,
evaluation of alternatives by reference to some objective criteria is essential. The expected
outcomes or values of alternative courses have to be estimated through forecasting and
other devices. The computation of quantitative value of alternatives may sometimes
be so complex that managers may resort to computerization or similar data processing
Notes
mechanism. In evaluating the alternative courses, both qualitative and quantitative factors
have to be taken into account.
(Step-V) Making the final choice: The choosing process involves the narrowing
down of the range of alternative courses by a progressive elimination process by reference
to the predetermined objective criteria. A large number of alternatives normally get
eliminated in the initial screening process. Those which survive the screening are further
subjected to critical evaluation. The manager has to apply his judgmental skills in making
the final choice, which is governed by several factors, such as its congruence with the
objectives and values of the manger, the feasibility and acceptability of the decision,
relative simplicity of the likely outcomes and so on. The final choice is also a matter of
trade-off between risks and returns, costs and benefits, both quantitative and qualitative.
The tendency in this step is to optimise the manger’s ‘utility’ function in the context of
his responsibility as a manager. While making the final choice, the manger tends to be
guided by the organisational policies, strategies, previous decisions, committed resources,
inter-personal and human factors, and so on.
(Step-VI) Implementation of the decision: It is the manger’s responsibility to
operationalise the decision and make it implement able. He has to make the necessary
structural, administrative and logistic arrangements for translating the decision into
effective action initiatives and outcomes. Authority and responsibility for implementing
the decision have to be specifically assigned, necessary financial and other resources
have to be allocated and committed, the individuals who have to implement the decision
or likely to be affected by it have to be taken into confidence and adequate controls have
to be established to ensure that what is decided upon is implemented in a faithful but
flexible manner.
5.6 Management by Objectives (MBO)

Introduction
Managing an organization effectively requires the formulation of clear objectives.
Objectives serve as guidelines or roadmaps for managerial effort and action. Well
thought out objectives steer an organization to success. An objective is a goal or an
end that an organization or an individual aims at or strives to attain. A supervisor or a
team sets the objectives and decides the processes by which these objectives can be
achieved. Objectives provide a direction for the organization and specify the quantity and
quality of work to be accomplished within a given period of time. Objectives determine
what individuals, groups and organizations are expected to accomplish. They provide
a fundamental basis for decision-making and a criterion against which outcomes are
measured. Thus, objectives are the foundation of good planning.
In this chapter, we will first discuss the nature and characteristics of objectives and
later the various aspects of ‘Management By Objectives’ (MBO).
Nature of objectives
Objectives state the end results to be achieved by the organization. They form the
basis of all good planning processes. The overall objectives of an organization need to
be supported by its sub-objectives. Objectives form a network as well as a hierarchy.
Hierarchy of Objectives
Objectives form a hierarchy, ranging from the overall aim of the organization to
specific individual objectives. At the top of the hierarchy is the socio-economic purpose,
which requires an organization to contribute to the welfare of society by providing goods
Notes and services at a reasonable cost. At the second level is the underlying purpose of the
business or mission. Mission or purpose states what the firm plans to achieve. As there
is only a fine distinction between the two terms, many management writers use these
terms interchangeably. The third level of hierarchy contains more specific objectives for
those areas in which the success of the enterprise depends on its performance. These
areas are called key result areas. There is no consensus among management scholars
about what should be the key result areas of a business. Peter F. Drucker suggests the
following the key result areas in business: productivity, physical and financial resources,
profitability, market standing, innovation, managerial performance and development,
worker performance and attitude, profitability and social responsibility. Of late, two other
key areas are gaining strategic importance. These are service and quality issues.
The Process of Formulating Objectives and the Organizational Hierarchy

Managers at different levels in the organization are concerned with formulating
different kinds of objectives. The purpose, the mission, the overall objectives of the firm,
and the objectives in the key result areas are evolved by the board of directors and top
managers. Middle-level managers are involved in formulating divisional and departmental
objectives. The lower-level managers are concerned with deciding objectives for their
departments and units as well as for their subordinates. Individual objectives such as
performance and development goals are placed at the bottom of the hierarchy. This
does not mean that these objectives are meant only for managers at the lower-levels or
that they are less important. Managers at the top levels also should set objectives for
improving their own performance and development. In fact, their objectives should be
much more challenging than those of their subordinates.
The organization can use either the top-down approach or the bottom-up approach
for setting objectives. There is often conflict among management theorists as to which
is the better method. In the top-down approach, top-level managers determine the
objectives for subordinates themselves attempt to formulate objectives and present them
to their superior for approval. The supporters of the top-down approach argue that the
organization needs clarity in direction by way of corporate objectives set by the CEO
and the board of directors. On the other hand, proponents of the bottom-up approach
argue that top management should ascertain information from lower levels in the form
of objectives. It has been observed that either approach alone is insufficient. There is
no hard and fast rule as to where and when one should use a particular approach. Both
approaches are equally important and can be used according to the situation and can
be modified depending on factors such as the size of the organization, the organization
culture and the urgency of the plan.
A Network of Objectives
Objectives and planning programs are co-existential and correlational. They support
one another to form a network of expected outcomes and results. If the objectives are
not linked with each other and if they do not support one another, it is impossible that
individuals may carry out their plans, keeping in mind only their individual or departmental
goals. This may be harmful for the organization.
Goals and plans are very rarely linear, instead they form an interlocking network.
Each program within such a network can be again subdivided into another interlocking
network. For instance, a new product design program may comprise of a network of
programs such as development of preliminary schematic design, and other elements.
Each of these can in turn be subdivided into a series of interlocked programs.

Multiplicity of Objectives
Organization usually has numerous aims and objectives. Similarly, there are likely to Notes
be numerous goals at every level in the hierarchy of objectives. It is usually assumed that
a manager can effectively pursue only a few objectives. Pursuing too many objectives may
result in dilution of the drive needed to accomplish them. It may also result in unnecessarily
highlighting minor objectives.
There is no definite number of objectives for an organization. If there are too many
objectives none of them may receive adequate attention, thereby making planning
ineffective. Nevertheless, the number for objectives also depends on how much the
managers will do themselves and how much they will delegate to their subordinates.
Steps in the MBO Process

Developing overall organization goals
In the first step of the MBO process, managers must determine the mission and the
strategic goals of the enterprise. The goals set by top-level managers are based on an
analysis of what can and should be accomplished by the organization within a specific
period of time. Organizational goal-setting requires managers to take into account the
company’s strengths and weaknesses in the light of available opportunities and potential
threats. Goals must be set for all the key result areas and should be flexible. While
setting goals, the managers should also establish the method by which the goals are to
be achieved.
The functions of these managers can be centralized by appointing a project manager who
can monitor and control the activities of the various departments. If this cannot be done or is not
desirable, each manager’s contribution to the organizational goal should be clearly spelt out.
Establish specific goals for various departments, subunits and individuals

At this stage, goals are set for various organizational levels so that each goal
contributes to the achievement of the overall goals set for the organization. Upper-level
managers develop specific objectives for their departments in collaboration with their
subordinates, i.e. the managers at the next lower level. Every manager in an organization
is both a superior as well as a subordinate except for the top level and the lowest level
managers. This process is repeated for all the hierarchical levels in the organization.
After determining the pertinent general objectives, strategies, and planning premises,
the superiors work with subordinates in setting their objectives. The superior must
determine (i) which objectives are reasonably attainable, (ii) which goals would stretch the
ability of the subordinates, (iii) which objective would be in accordance with upper-level
objectives, (iv) which goals are consistent with the goals of other managers in the other
functional areas, and (v) which objectives are consistent with the long-term objectives
and interests of the department and the organization. The superior must approve the
subordinate’s objectives only after considering these factors.
Formulating action plans

Once the goals of various departments, subunits and individuals have been set, action
plans must be developed. Action plans state what is to be done and how, when, where
and by whom in order to achieve a goals. These plans should focus on the method or
activities necessary for achieving particular goals.
Action plans identify problem areas and increase the feasibility of achieving goals.
They point out areas in which resources and assistance will be required, thus making
the achievement of objectives more efficient. Action plans are usually developed by
subordinates in conjunction with their superiors. The superiors must ensure that the
Notes different action plans complement one another and do not work at cross-purposes.
Implementing and maintaining self-control

Once the objectives have been set and action plans determined, the subordinates
should be given considerable freedom to carry out their activities and implement their
plans. MBO is expected to help subordinates gain a clear idea of what they should
achieve. The MBO process not only gives subordinates as sense of direction, it also
allows them to evaluate their own progress. As a result, supervisors need not get involved
in the day-to-day activities of subordinates. However, they need to be kept informed
about the progress and about any unforeseen difficulties. If the subordinates encounter
any problems while implementing plans, their supervisor should provide them adequate
training and organizational support.
Periodic review
As plans are implemented, the monitoring of performance becomes important. Periodic
reviews have to be done to ensure that plans are being implemented properly and that
objectives are being achieved. Such reviews allow managers to measure results, identify
and remove obstacles, solve problems, and make changes to the action plans that are
not achieving the expected results. They also help the managers determine whether the
plans and goals are appropriate for the organization or need to be changed. Changes
can be made to the existing goals or new ones can be added. Reviews are usually done
on a quarterly basis, but they can be done more frequently if the business environment
is undergoing rapid change. Periodic reviews give the managers an excellent opportunity
to provide timely feedback to their subordinates.
Performance Appraisal
At the end of an MBO cycle, typically one year after the original goals were set, the
final performance is matched with the previously agree-upon objectives. The managers
evaluate each subordinate’s performance over the preceding year. The performance
appraisal focuses on the extent to which goals have been achieved, extent of shortfall in
the achievement of goals, reasons for the shortfall and preventive action that it necessary
to avoid such difficulties in the future. The appraisal session also recognizes the areas
in which subordinates have performed effectively. It also includes identification of areas
in which individuals could improve by acquiring some specialized skills. The goals and
plans for the nest MBO cycle can also be discussed at this stage.
Though performance appraisal is the last step of the MBO process, the feedback
provided during this stage is used as input for developing new objectives.
Benefits of MBO
MBO can be practiced in various organizational activities like performance appraisal,
organization development, long-range planning, integration of individual and organizational
objectives, and so on. When used as an approach to management, MBO yields a wide
range of benefits. These benefits are discussed below.
Better Managing: MBO helps managers allocate organizational resources and plan
activities effectively. As a part of the MBO process, managers have to chart out a method
for accomplishing results and decide what resources and assistance they will require for

achieving objectives. Thus managers are forced to focus on the results when planning
activities. Moreover, MBO not only aids planning it also facilitates evaluation and control.
Notes
Thus, MBO facilitates better management.
Clarity in Organizational Action: MBO identifies the key result areas where
organizational efforts are needed. A clear definition of the objectives in the key result
areas helps relate the organization with its environment. Organizational objectives are
always influenced by the external environment in which the organization functions.
Thus, if there is any change in the external environment, it must be taken into account
at the objective-setting stage itself to help the organization develop effective short-term
as well as long-term plans.
Encouragement of Personal Commitment: The biggest advantage of MBO is that

it encourages personal commitment to goals by employees. The MBO program gives
employees the responsibility of setting their own objectives, gives them the opportunity
of having their ideas included in the planning program, provides them a clear picture
of their area of discretion or authority, and facilitates assistance from superiors for
accomplishing their goals. Thus an MBO program makes a subordinate feel more involved
and strengthens his commitment to the organizational goals. It increases the enthusiasm
of subordinates by putting them in charge of achieving goals.
Personnel Satisfaction: MBO brings about personnel satisfaction by allowing

employees to participate in setting their objectives and by appraising their performance in
a rational manner. Individuals derive a great deal of professional satisfaction from setting
and achieving goals. And as MBO ensures rational performance appraisal, employees
are assured that they will be judged impartially and that their appraisal will not be affected
by managerial prejudices, biases and other personal factors. This, in turn, leads to better
performance among employees.
Basis for Organizational Change: Every organization has to be flexible and adaptable
to change in order to keep up with changes in the external and internal environments.
However, bringing about organizational change is not an easy task and requires a great
deal of effort on the part of managers. The MBO process stimulates organizational change,
provides the framework and guidelines for planned change, and helps managers overcome
resistance to change (by employees). Thus, the MBO process helps top management
initiate, plan, direct and control the direction and speed of change.
Development of Effective Controls: Since MBO forces management to clearly state

objectives, it leads to the development of effective controls. Management control involves
the measurement of results and taking corrective action to check deviations from plans.
A clear set of verifiable goals helps managers determine what should be measured and
what action should be taken to correct deviations.
Other advantages of MBO

i. It helps managers coordinate goals and plans
ii. It helps managers clarify priorities and expectations
iii. It coordinates the efforts of various departments of an organization
iv. It allows greater consistency in decision-making
v. It helps an enterprise focus on areas where effective management is crucial
for the organization
vi. It improves communication between superiors and their subordinates and
increases understanding between them
Limitation of MBO
Notes MBO is not without its problems and weaknesses. Some of the problems are inherent
in the MBO process itself while others are due to shortcomings in the implementation of
MBO concepts. Some of the limitations of MBO are discussed below:
Failure to teach MBO philosophy: MBO is an innovative philosophy for managing

organizations. Not only should managers understand and appreciate this approach,
they should also make their subordinates understand how the process will benefit them
and what part it will play in appraising their performance. The MBO philosophy is built
on the concepts of self-direction and self-control. These concepts are aimed at making
managers become more professional in their approach. Failure to understand and make
others understand the philosophy of MBO leads to the failure of the MBO process itself.
Failure to give guidelines to goal setters: Like any other kind of planning, MBO
requires that adequate guidelines be provided to those who are expected to set goals. In
other words, managers must understand what the corporate goals are and how their own
activities will contribute toward achieving these goals. If the corporate goals are vague,
unreal or inconsistent, it may not be possible for managers to tune their activities to match
the goals. Managers should also be aware of the planning premises and the major policies
of the company. They should have a good understanding of how organizational policies
affect their areas of operation. This will help them to effectively plan their activities to
ensure that their departmental goals match that of the organization.
Difficulty in goal-setting: MBO requires verifiable goals against which performance

can be measured. However, it may be quite difficult to set such goals. Also, excessive
emphasis on economic results puts undue pressure on individuals and may even lead
to unethical behaviors. In order to reduce the chance of the use of unethical means
for achieving goals, top management must set reasonable objectives and clearly state
behavioral expectations. It should also give a high priority to ethical behaviors and ensure
that unethical behaviors are punished.
Emphasis on short-term goals: In order to achieve quick results, managers generally

emphasize short-term goals. As a result, there is always the danger of emphasizing short-
terms goals at the expense of long-term goals. Therefore, top-level manages should
ensure that short-term goals contribute to the achievement of the long-term goals of the
organization.
Inflexibility: When there are revisions in organizational objectives, premises and

policies, managers must make corresponding changes in their own objectives. If they
do not, their goals become obsolete. However, managers are often unwilling to change
their goals. Striving for goals that have become obsolete nullifies the efficacy of revising
organizational objectives, and modifying its policies.
Other Dangers: The implementation of MBO gives rise to some problems. For
instance, in their desire to make goals verifiable, manages may make excessive use of
quantitative goals, or may set quantitative goals in areas where they are not applicable.
In the process, they may downgrade important goals that are difficult to state in terms
of end results. Often, in spite of having the participation and assistance from superiors,
managers may fail to use objectives to bring about constructive change in the organization.
There is also the fear of managers getting excessively involved in the MBO process and
forgetting that managing involves more than goal-setting. Difficulties may also arise in
applying goal-oriented planning in a dynamic and complex environment. Some other
weaknesses of MBO are listed below:

1. It takes too much time and effort and involves too much paperwork
Notes
2. It necessitates training of managers
3. It tends to falter without strong, continual commitment from top management
4. Its emphasis on measurable objectives can be used as a threat by overzealous

managers
5. It can lead to considerable frustration if one manager’s efforts to achieve goals

are dependent on the achievement of goals of others within the organization.
Group goal-setting and flexibility are required to solve this type of problem.
Making MBO Effective

MBO is certainly not a simple process that can be quickly and easily implemented. Its
implementation requires a change in the very culture and environment of organizations.
Many organizations failed to apply this process successfully as they were hesitant to
accept change. Others could not create the proper environment required for the adoption
of MBO. Some of the prerequisites for implementing the MBO program and making it
effective are discussed below.
Top Management Support: The degree to which an MBO program in an organization

is likely to succeed depends on the extent of top management support it receives. In order
to keep the MBO program alive and fully functional, the top management must provide
continual support to the subordinates. Top-level commitment for the MBO program is also
essential for its acceptance by employees. Middle-level managers and managers at the
supervisor level may revert back to the traditional and authorization methods of managing
if they find it difficult to set and review objectives. Top managers must be aware of these
tendencies. They should therefore provide continuous support to make the MBO program
an important part of the organization’s operating procedures.
Training for MBO: Systematic training is required to help employees understand the
concepts and philosophy underlying MBO. Managers should receive adequate training
regarding the implementation of MBO process and the benefits that MBO brings to them
and the organization. If the manages are not properly trained, they may resist the MBO
program, thus making it unsuccessful.
Formulating Clear Objectives: The success of an MBO program depends on the

nature of the objectives set. Managers and subordinates should decide on objectives
that give a real indication of performance. The objectives must be realistic and easy to
understand. At times, manages may have to be trained in setting useful and measurable
goals and communicating the same to their subordinates effectively.
Effective Feedback: In addition to setting realistic goals, manages must carry out
regular performance reviews and provide feedback to subordinates. The success of
an MBO program essentially depends on the participants knowing where they stand in
relation to their objectives.
Managers should provide feedback through written reports and counseling sessions.
Individuals should receive periodic reports on their overall performance and they should
be called for periodic counseling and appraisal interviews, during which the superior help
subordinates, evaluate their progress and identify problems. During these counseling and
interview sessions, the superior can also offer planning suggestions to subordinates to
improve their performance.

Encouraging Participation: To be successful, MBO programs should ensure

Notes commitment and participation in the MBO process at all levels of the organization.
Participation by subordinates in goal-setting may require some reallocation of power.
Manages must encourage subordinates to take a more active role in defining and achieving
their own objectives. This may make some managers feel uncomfortable as they may
perceive it as a loss of power, but an MBO program can be effective only if the managers
relinquish some control.
Though the above prerequisites can help make an MBO program effective, the key to
the success of MBO programs lies in the beliefs, assumptions and attitudes of subordinates
and managers. MBO techniques work well when manages hold Theory Y assumption
and the actions and attitudes of subordinates are consistent with these assumptions. In
other words, Theory Y managers and subordinates are an ideal combination for MBO.
If managers follow the assumptions made by Theory X, and subordinates fit these
assumptions, successful implementation of MBO is highly unlikely. Although managers
may use these techniques, inwardly they may believe that this approach will not work. In
addition, the subordinates may also feel uncomfortable trying to put a new management
approach. The manager’s belief that this concept will not work would therefore be
supported by the subordinates’ discomfort with the new procedures.
Unlike the earlier two combinations, the outcome of the MBO process may also depend
on who changes -the manager or the subordinate. The manager’s positive view of his
subordinates and MBO procedures may change subordinates who believe in Theory X
and develop them to the point where they fit Theory Y assumptions. In such a case, an
MBO program would have a good chance of succeeding. If the situation turns out to be
as described, success can result if the manager applies MBO techniques carefully and
earnestly, even though he or she doubts its efficacy. Managers may reevaluate some
basic assumptions based on the positive reactions of subordinates.
Check your progress

Tick mark the most appropriate answer
1. Which of the following factor emphasize the need of Coordination:-

a) Increasing specialization c) Personal conflict between employees
b) Empire Building motive d) All of the above.
2. Which is an Esteem Needs?

a) Basic pay c) Prestigious office location
b) Safety Regulations d) Training.
3. The limitations associated with Decentralization are:-

a) Loss of control c) Communication problem
b) Imbalance d) All of the above.
4. Which of the following is not a motivational technique?

a) Participation c) Job enrichment
b) Quality of work life d) Job description.
5. Which of the following refers to the flow of information among people on the same or
similar organizational levels?
a) Diagonal c) Horizontal
Notes
b) Upward d) Downward.
5.7 Summary
One of the basic functions of Management is direction. Direction means the use
of leadership and motivation to guide the performance of subordinates towards the
achievement of the organization’s goals. Important requirements for effective direction
are: Harmony of objectives, unity of command, direct supervision, efficient communication
and follow up.
Objectives are the important ends towards which organizational and individual
activities are directed. Clear and verifiable objectives facilitate the effective and efficient
management of organizations. Management by objectives (MBO) is an effective planning
tool that helps supervisors set objectives. MBO has come a long way since it was first
suggested by Peter Drucker as a way of promoting managerial self-control. It has been
used to appraise performance, to motivate individuals, and recently, for strategic planning.
MBO aims at achieving organizational objectives and enhancing employee
commitment and participation. MBO is a cyclical process. It involves developing overall
organizational goals, clarifying organizational roles, establishing specific goals for various
departments and individuals, formulating action plans for various departments and
individuals, implementing and maintaining self-control, carrying out periodic reviews, and
conducting performance appraisal of employees.
MBO offers benefits. It leads to better management of resources, clarity in

organizational action and more satisfied personnel. It encourages personal commitment,
provides a basis for organizational change and leads to the development of effective
controls. However, MBO has its drawbacks. It takes up too much time and money and can
be inflexible. Moreover, failure to teach the MBO philosophy and lack of proper guidance
to goal-setters may lead to its unsuccessful implementation. In order to overcome these
limitations and make MBO effective, the support of the top-level managers is essential.
They must formulate clear objectives, encourage participation at all levels, and provide
training to people who would be implementing the MBO program.
5.8 Questions and exercises-

1. Explain the concept motivation, morale and Job Satisfaction.
2. Discuss two factor theory of motivation.
3. Discuss various types of coordination.
4. Outline the barriers to communication.
5. Explain the steps in Decision making.
6. List out the steps in the MBO Process.
5.9 Further readings:

1. Robins, Stephen P., Organisational Behavior, tenth edition,Pearson
Education,Singapore,2005
2. Likert, Rensis, Motivation: The core of Mangement(N.Y:AMA,1953)
3. Fulmer, Robert M., the New Mangement, Mcmillan, 1983

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Principles & Practices of Management 61

5.5 Decision Making,

5.6 Management by Objectives (MBO)

5.8 Questions and exercises

5.9 Further readings

Motivation and Other Related Concepts.

Motivation and Morale

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Motivation and Job Satisfaction

Maslow’s Hierarchy of Human Needs

Esteem Needs (Challenging Job)

Social Needs (Job Title)

Achievement Motivation Theory

Need for achievement: It is a need to excel in terms of internally set standards of

The utility of McClelland’s achievement motivation theory is that is provides an insight

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Two Factor Theory of Motivation

Essentials of a Sound Motivational System

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Coordination is a synchronization of group efforts to achieve a common objective.

According to Mc Farland, “Coordination is the process whereby an executive develops

Coordination is the centre point of managerial tasks. For example, planning is

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 Coordination is not a distinct function. It represents the core of management.

 Coordination is a continuous and an on-going process.

 Coordination does not arise spontaneously or by force. It is the result of concerted

Need for Coordination

1 Increasing specialization: Coordination becomes essential when the principle

2 Empire building motive: Each employee is motivated by his performance in

3 Personal conflicts between employees: Personal rivalries, jealousies and

4 Subordination of individual to that of organizational interest: Individual

(1) Internal and external coordination

(2) Vertical and horizontal coordination

(3) Procedural and substantive coordination

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Vertical and Horizontal Coordination:

Procedural and Substantive Coordination:

Dimenson of Organizational Communication

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Limitations of Downward Communication

1. Distortion/Dilution Quite often the communication originating at the highest

2. Delay: Another drawback of downward communication is that often it becomes

3. Filtering: Sometimes managers may withhold some valuable information from

4. Co-ordination: One of the major drawbacks of downward communication is

(b) Upward Communication: The function of upward communication is to send

1. Psychological: Certain problems, primarily of psychological nature, may come

(c) Lateral or Horizontal Communication: Horizontal Communication is one of the best

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(1) Co-ordination: This crosswise communication serves the important purpose of

(2) Practicable: This is important for operational efficiency and emergency

(3) Morale Boosting: By providing opportunities to lower level workers to

Some of the disadvantages of written communication are as follows:(a) There is a

The Communication Process

2. Faulty organization: In a large-scale enterprise where the chain of command

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5.5 Decision - Making

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Meaning and Nature of Decision Making

Decision-making embraces much of managerial activity in organisations; decisions

Decision making, in respect of a large number of major or critical decisions is a

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Programmed and non-programmed decisions: One categorisation adopted by