Management

Kreitner’s definition of management:

‘Management is a problem solving process of effectively achieving organizational objectives
through the efficient use of scarce resources in a changing environment.’

According to F.W. Taylor , ‘ Management is an art of knowing what to do, when to do and see
that it is done in the best and cheapest way ‘.

According to Harold Koontz, Management is an art of getting things done through and with the
people in formally organized groups. It is an art of creating an environment in which people can
perform and individuals and can co-operate towards attainment of group goals.

Functions of Management
Management in some form or another is an integral part of living and is essential wherever human
efforts are to be undertaken to achieve desired objectives. The basic ingredients of management are
always at play, whether we manage our lives or business. Management is a set of principles relating
to the functions of planning, organizing, directing, and controlling, and the applications of these
principles in harnessing physical, financial, human and informational resources efficiently and
effectively to achieve organizational goals.
Management is essential for an organized life and necessary to run all types of organizations.
Managing life means getting things done to achieve life’s objectives and managing an organization
means getting things done with and through other people to achieve its objectives.

There are basically five primary functions of management. These are:

1. Planning
2. Organizing
3. Staffing
4. Directing
5. Controlling
The controlling function comprises coordination, reporting, and budgeting, and hence the
controlling function can be broken into these three separate functions. Based upon these seven
functions, Luther Gulick coined the word POSDCORB, which generally represents the initials of
these seven functions i.e. P stands for Planning, O for Organizing, S for Staffing, D for Directing,
Co for Co-ordination, R for reporting & B for Budgeting.
But, Planning, Organizing, Staffing, Directing and Controlling are widely recognized functions
of management.

Planning
Planning is future-oriented and determines an organization’s direction. It is a rational and
systematic way of making decisions today that will affect the future of the company. It is a kind of
organized foresight as well as corrective hindsight. It involves the predicting of the future as well as
attempting to control the events. It involves the ability to foresee the effects of current actions in the
long run in the future.
Peter Drucker has defined planning as follows:
“Planning is the continuous process of making present entrepreneurial decisions systematically and
with best possible knowledge of their futurity, organizing systematically the efforts needed to carry
out these decisions and measuring the results of these decisions against the expectations through
organized and systematic feedback”.
An effective planning program incorporates the effect of both external as well as internal factors.
The external factors are shortages of resources; both capital and material, general economic trend as
far as interest rates and inflation are concerned, dynamic technological advancements, increased
governmental regulation regarding community interests, unstable international political
environments, etc.

The internal factors that affect planning are limited growth opportunities due to saturation requiring
diversification, changing patterns of the workforce, more complex organizational structures,
decentralization, etc

Organizing
Organizing requires a formal structure of authority and the direction and flow of such authority
through which work subdivisions are defined, arranged and coordinated so that each part
relates to the other part in a united and coherent manner so as to attain the prescribed objectives.
According to Henry Fayol, “To organize a business is to provide it with everything useful or its
functioning i.e. raw material, tools, capital and personnel’s”.

Thus the function of organizing involves the determination of activities that need to be done in
order to reach the company goals, assigning these activities to the proper personnel, and delegating
the necessary authority to carry out these activities in a coordinated and cohesive manner. It
follows, therefore, that the function of organizing is concerned with:
1. Identifying the tasks that must be performed and grouping them whenever necessary
2. Assigning these tasks to the personnel while defining their authority and responsibility.
3. Delegating this authority to these employees
4. Establishing a relationship between authority and responsibility
5. Coordinating these activities
Staffing
Staffing is the function of hiring and retaining a suitable work-force for the enterprise both at
managerial as well as non-managerial levels. It involves the process of recruiting, training,
developing, compensating and evaluating employees and maintaining this workforce with proper
incentives and motivations. Since the human element is the most vital factor in the process of
management, it is important to recruit the right personnel.

According to Kootz & O’Donnell, “Managerial function of staffing involves manning the
organization structure through the proper and effective selection, appraisal & development of
personnel to fill the roles designed in the structure”.
This function is even more critically important since people differ in their intelligence, knowledge,
skills, experience, physical condition, age and attitudes, and this complicates the function. Hence,
management must understand, in addition to the technical and operational competence, the
sociological and psychological structure of the workforce.
Directing

The directing function is concerned with leadership, communication, motivation, and supervision so
that the employees perform their activities in the most efficient manner possible, in order to achieve
the desired goals.

The leadership element involves issuing of instructions and guiding the subordinates about
procedures and methods.

The communication must be open both ways so that the information can be passed on to the
subordinates and the feedback received from them.

Motivation is very important since highly motivated people show excellent performance with less
direction from superiors.

Supervising subordinates would lead to continuous progress reports as well as assure the superiors
that the directions are being properly carried out.
Controlling
The function of control consists of those activities that are undertaken to ensure that the events do
not deviate from the pre-arranged plans. The activities consist of establishing standards for work
performance, measuring performance and comparing it to these set standards and taking corrective
actions as and when needed, to correct any deviations.
According to Koontz & O’Donnell, “Controlling is the measurement & correction of performance
activities of subordinates in order to make sure that the enterprise objectives and plans desired to
obtain them as being accomplished”.
The controlling function involves:
a. Establishment of standard performance.
b. Measurement of actual performance.
c. Measuring actual performance with the pre-determined standard and finding out the deviations.
d. Taking corrective action.
All these five functions of management are closely interrelated. However, these functions are highly
indistinguishable and virtually unrecognizable on the job. It is necessary, though, to put each
function separately into focus and deal with it.

Nature of Management
Universal Process: Wherever there is human activity, there is management. Without efficient
management, objectives of the company can not be achieved.

Factor of Production: Qualified and efficient managers are essential to utilization of labor and
capital.

Goal Oriented: The most important goal of all management activity is to accomplish the objectives
of an enterprise. The goals should be realistic and attainable.

Supreme in Thought and Action: Managers set realizable objectives and then mastermind action
on all fronts to accomplish them. For this, they require full support form middle and lower levels of
management.

Group activity: All human and physical resources should be efficiently coordinated to attain
maximum levels of combined productivity. Without coordination, no work would accomplish and
there would be chaos and retention.
Dynamic Function: Management should be equipped to face the changes in business environment
brought about by economic, social, political, technological or human factors. They must be
adequate training so that can enable them to perform well even in critical situations.

Social Science: All individuals that a manager deals with, have different levels of sensitivity,
understanding and dynamism.

Important Organ of Society: Society influences managerial action and managerial actions
influence society. Its managers responsibility that they should also contribute towards the society by
organizing charity functions, sports competition, donation to NGO’s etc.

System of Authority: Well-defined lines of command, delegation of suitable authority and

responsibility at all levels of decision-making. This is necessary so that each individual should what
is expected from him and to whom he need to report to.

Profession: Managers need to possess managerial knowledge and training, and have to conform to
a recognized code of conduct and remain conscious of their social and human obligations.

Process: The management process comprises a series of actions or operations conducted towards an
end.
Scope of Management
Although it is difficult to precisely define the scope of management, yet the following areas are
included in it:
1. Subject-Matter of Management: Planning, organizing, directing, coordinating and controlling are
the activities included in the subject matter of management.

2. Functional Areas of Management: These include:

Financial Management includes accounting, budgetary control, quality control, financial planning
and managing the overall finances of an organization.

Personnel Management includes recruitment, training, transfer promotion, demotion,

retirement, termination, labor-welfare and social security industrial relations.
Purchasing management includes inviting tenders for raw materials, placing orders,
entering into contracts and materials control.
Production Management includes production planning, production control techniques,
quality control and inspection and time and motion studies.
Maintenance Management involves proper care and maintenance of the buildings, plant
and machinery.
Transport Management includes packing, warehousing and transportation by rail, road and
air.
Distribution Management includes marketing, market research, price-determination,
taking market risk and advertising, publicity and sales promotion.
Office Management includes activities to properly manage the layout, staffing and
equipment of the office.
Development Management involves experimentation and research of production
techniques, markets, etc.

3. Management is an Inter-Disciplinary Approach: For the correct implementation of the

management, it is important to have knowledge of commerce, economics, sociology, psychology
and mathematics.
4. Universal Application: The principles of management can be applied to all types of
organizations irrespective of the nature of tasks that they perform.
5. Essentials of Management: Three essentials of management are:
Scientific method
Human relations
 Quantitative technique
6. Modern Management is an Agent of Change: The management techniques can be modified by
proper research and development to improve the performance of an organization.

Evolution of Management Concept

The origin of Evolution management can be traced back to the days when man started living in
groups. History reveals that strong men organized the masses into groups according to their
intelligence, physical and mental capabilities. Evidence of the use of the well recognized principles
of management is to be found in the organization of public life in ancient Greece, the organization
of the Roman Catholic Church and the organization of military forces. Thus management in some
form or the other has been practiced in the various parts of the world since the dawn of civilization.
With the on set of Industrial Revolution, however, the position underwent a radical change. The
structure of industry became extremely complex. At this stage, the development of a formal theory
of management became absolutely necessary. It was against this background that the pioneers of
modern management thought laid the foundations of modern management theory and practice.

Explain the Evolution of Management Thought

Evolution of management thought may be divided into four stages
1. Pre-scientific management period.
2. Classical Theory
a. Scientific Management of Taylor
b. Administrative Management of Fayol
c. Bureaucratic Model of Max Weber
d. Neo-classical Theory or Behaviour Approach
3. Modern Theory or Systems Approach
4. Evolution of Management Thought
Pre-scientific Management Period
The advent of industrial revolution in the middle of the 18th century had its impact on management.
Industrial revolution brought about a complete change in the methods of production, tools and
equipments, organization of labour and methods of raising capital.

Employees went to their work instead of receiving it, and so, the factory system, as it is known
today, become a dominant feature of the economy. Under this system, land and buildings, hired
labour, and capital are made available to the entrepreneur, who strives to combine these factors in
the efficient achievement of a particular goal. All these changes, in turn, brought about changes in
the field of management. Traditional, conventional or customary ideas of management were slowly
given up and management came to be based on scientific principles. In the words of L. F. Urwick-
"Modern management has thrown open a new branch of human knowledge, a fresh universe of
discourse". During the period following the industrial revolution, certain pioneers tried to challenge
the traditional character of management by introducing new ideas and character of management by
introducing new ideas and approaches. The notable contributors of this period are:

Professor Charles Babbage (UK 1729 -1871): He was a Professor of Mathematics at Cambridge
University. Prof Babbage found that manufacturers made little use of science and mathematics, and
that they (manufacturers) relied upon opinions instead of investigations and accurate knowledge. He
felt that the methods of science and mathematics could be applied to the solution of methods in the
place of guess work for the solution of business problems. He advocated the use of accurate
observations, measurement and precise knowledge for taking business decisions. He urged the
management of an enterprise, on the basis of accurate data obtained through rigid investigation, the
desirability of finding out the number of times each operation is repeated each hour, the dividing of
work into mental and physical efforts, the determining of the precise cost for every process and the
paying of a bonus to the workers in proportion to his own efficiency and the success of enterprise.

James Watt Junior (UK 1796 - 1848) and Mathew Robinson Boulton(1770 - 1842): James Watt
Junior and Mathew Robinson Boulton contributed to the development of management thought by
following certain management techniques in their engineering factory at Soho in Birmingham. They
are:-

Robert Owens (UK 1771 - 1858): Robert Owens, the promoter of co-operative and trade union
movement in England, emphasized the recognition of human element in industry. He firmly
believed that workers' performance in industry was influenced by the working conditions and
treatment of workers. He introduced new ideas of human relations - shorter working hours, housing
facilities, training of workers in hygiene, education of their children, provision of canteen etc.
Robert Owen, managed a group of textile mills in Lanark, Scotland, where he used his ideas of
human relations. Though his approach was paternalistic, he came to be regarded as the father of
Personnel Management.

Henry Robinson Towne (USA 1844 -1924): H.R Towne was the president of the famous lock
manufacturing company "Yale and Town". He urged the combination of engineers and economists
as industrial managers. This combination of qualities, together with at least some skill as an
accountant, is essential to the successful management of industrial workers. He favoured organized
exchange of experience among managers and pleaded for an organized effort to pool the great fund
of accumulated knowledge in the art of workshop management.

Seebohm Rowntree (UK 1871- 1954): Rowntree created a public opinion on the need of labour
welfare scheme and improvement in industrial relations. The Industrial Welfare Society, The
Management Research Groups and the Oxford Lecture Conferences in the U.K owed their origin
and progress to the interest and zeal of Rowntree.
Classical Theory
Prof. Charles Babbage, James Watt Junior and Mathew Robinson Boulton, Robert Owen, Henry
Robinson Towne and Rowntree were, no doubt, pioneers of management thought. But, the impact
of their contributions on the industry as a whole was meagre. The real beginning of the science of
management did not occur until the last decade of the 19thcentury. During this period, stalwarts like
F.W. Taylor, H.L. Gantt, Emerson, Frank and Lillian Gilberth etc., laid the foundation of
management, which in due course, came to be known as scientific management. This epoch in the
history of management will be remembered as an era in which traditional ways of managing were
challenged, past management experience was scientifically systematized and principles of
management were distilled and propagated. The contributions of the pioneers of this age have had a
profound impact in furthering the management know-how and enriching the store of management
principles.

F.W. Taylor and Henry Fayol are generally regarded as the founders of scientific management and
administrative management and both provided the bases for science and art of management.

Features of Management in the Classical Period:

It was closely associated with the industrial revolution and the rise of large-scale enterprise.
Classical organization and management theory is based on contributions from a number of sources.
They are scientific management, Administrative management theory, bureaucratic model, and
micro-economics and public administration.

Management thought focussed on job content division of labour, standardization, simplification and
specialization and scientific approach towards organization.

Taylor's Scientific Management: Started as an apprentice machinist in Philadelphia, USA. He

rose to be the chief engineer at the Midvale Engineering Works and later on served with the
Bethlehem Works where he experimented with his ideas and made the contribution to the
management theory for which he is so well known. Frederick Winslow Taylor well-known as the
founder of scientific management was the first to recognize and emphasis the need for adopting a
scientific approach to the task of managing an enterprise. He tried to diagnose the causes of low
efficiency in industry and came to the conclusion that much of waste and inefficiency is due to the
lack of order and system in the methods of management. He found that the management was
usually ignorant of the amount of work that could be done by a worker in a day as also the best
method of doing the job. As a result, it remained largely at the mercy of the workers who
deliberately shirked work.

He therefore, suggested that those responsible for management should adopt a scientific approach in
their work, and make use of "scientific method" for achieving higher efficiency. The scientific
method consists essentially of
1. Observation
2. Measurement
3. Experimentation and
4. Inference.

He advocated a thorough planning of the job by the management and emphasized the necessity of
perfect understanding and co-operation between the management and the workers both for the
enlargement of profits and the use of scientific investigation and knowledge in industrial work. He
summed up his approach in these words:
1. Science, not rule of thumb
2. Harmony, not discord
3. Co-operation, not individualism
4. Maximum output, in place of restricted output
5. The development of each man to his greatest efficiency and prosperity.

Elements of Scientific Management: The techniques which Taylor regarded as its essential
elements or features may be classified as under:
1. Scientific Task and Rate-setting, work improvement, etc.
2. Planning the Task.
3. Vocational Selection and Training
4. Standardization (of working conditions, material equipment etc.)
5. Specialization
6. Mental Revolution.

Scientific Task and Rate-Setting (work study): Work study may be defined as the systematic,
objective and critical examination of all the factors governing the operational efficiency of any
specified activity in order to effect improvement. Work study includes.
Methods Study: The management should try to ensure that the plant is laid out in the best manner
and is equipped with the best tools and machinery. The possibilities of eliminating or combining
certain operations may be studied.

Motion Study: It is a study of the movement, of an operator (or even of a machine) in performing
an operation with the purpose of eliminating useless motions.

Time Study (work measurement): The basic purpose of time study is to determine the proper time
for performing the operation. Such study may be conducted after the motion study. Both time study
and motion study help in determining the best method of doing a job and the standard time allowed
for it.

Fatigue Study: If, a standard task is set without providing for measures to eliminate fatigue, it may
either be beyond the workers or the workers may over strain themselves to attain it. It is necessary,
therefore, to regulate the working hours and provide for rest pauses at scientifically determined
intervals.

Rate-setting: Taylor recommended the differential piece wage system, under which workers
performing the standard task within prescribed time are paid a much higher rate per unit than
inefficient workers who are not able to come up to the standard set.

Planning the Task: Having set the task which an average worker must strive toperform to get
wages at the higher piece-rate, necessary steps have to be taken top lan the production thoroughly
so that there is no bottlenecks and the work goes on systematically.

Selection and Training: Scientific Management requires a radical change in the methods and
procedures of selecting workers. It is therefore necessary to entrust the task of selection to a central
personnel department. The procedure of selection will also have to be systematised. Proper attention
has also to be devoted to the training of the workers in the correct methods of work.

Standardization: Standardization may be introduced in respect of the following.

Tools and equipment: By standardization is meant the process of bringing about uniformity. The
management must select and store standard tools and implements which will be nearly the best or
the best of their kind.
Speed: There is usually an optimum speed for every machine. If it is exceeded, it is likely to result
in damage to machinery.

Conditions of Work: To attain standard performance, the maintenance of standard conditions of

ventilation, heating, cooling, humidity, floor space, safety etc., is very essential.

Materials: The efficiency of a worker depends on the quality of materials and the method of
handling materials.

Specialization: Scientific management will not be complete without the introduction of

specialization. Under this plan, the two functions of 'planning' and 'doing' are separated in the
organization of the plant. The `functional foremen' are specialists who join their heads to give
thought to the planning of the performance of operations in the workshop. Taylor suggested eight
functional foremen under his scheme of functional foremanship.

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

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

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

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

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

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

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

strong>The Inspector: To show to the worker how to do the work.

Mental Revolution: At present, industry is divided into two groups – management and labour. The
major problem between these two groups is the division of surplus. The management wants the
maximum possible share of the surplus as profit; the workers want, as large share in the form of
wages. Taylor has in mind the enormous gain that arises from higher productivity. Such gains can
be shared both by the management and workers in the form of increased profits and increased
wages.

Benefits of Scientific Management: Taylor's ideas, research and recommendations brought into
focus technological, human and organizational issues in industrial management. Benefits of Taylor's
scientific management included wider scope for specialization, accurate planning, timely delivery,
standardized methods, better quality, lesser costs, minimum wastage of materials, time and energy
and cordial relations between management and workers. According to Gilbreths, the main benefits
of scientificmanagement are "conservation and savings, making an adequate use of every
one'senergy of any type that is expended". The benefits of scientific management are:-
1. Replacement of traditional rule of thumb method by scientific techniques.
2. Proper selection and training of workers.
3. Incentive wages to the workers for higher production.
4. Elimination of wastes and rationalization of system of control.
5. Standardization of tools, equipment, materials and work methods.
6. Detailed instructions and constant guidance of the workers.
7. Establishment of harmonious relationship between the workers.
8. Better utilization of various resources.
Satisfaction of the needs of the customers by providing higher quality products at lower prices.
Criticism

Worker's Criticism:

Speeding up of workers: Scientific Management is only a device to speed up the workers without
much regard for their health and well-being.

Loss of individual worker's initiative: Scientific Management reduces workers to automatic

machine by taking away from them the function of thinking.

Problem of monotony: By separating the function of planning and thinking from that of doing,
Scientific Management reduces work to mere routine.
Reduction of Employment: Scientific Management creates unemployment and hits the workers
hard.

Weakening of Trade Unions: Under Scientific Management, the important issues of wages and
working conditions are decided by the management through scientific investigation and the trade
unions may have little say in the matter.

Exploitation of workers: Scientific Management improves productivity through the agency of

workers and yet they are given a very small share of the benefit of such improvement.

Employer's Criticism:
Heavy Investment: It requires too heavy an investment. The employer has to meet the extra cost of
the planning department though the foreman in this department do not work in the workshop and
directly contribute towards higher production.

Loss due to re-organization: The introduction of Scientific Management requires a virtual

reorganization of the whole set-up of the industrial unit. Work may have to be suspended to
complete such re-organization.

Unsuitable for small scale firms: various measures like the establishment of a separate personnel
department and the conducting of time and motion studies are too expensive for a small or modest
size industrial unit.

Contributions of Scientific Management: Chief among these are:

1. Emphasis on rational thinking on the part of management.
2. Focus on the need for better methods of industrial work through systematic study and
research.
3. Emphasis on planning and control of production.
4. Development of Cost Accounting.
5. Development of incentive plans of wage payment based on systematic study of work.
6. Focus on need for a separate Personnel Department.
7. Focus on the problem of fatigue and rest in industrial work.
Taylor was the pioneer in introducing scientific reasoning to the discipline of management.
Many of the objections raised were later remedied by the other contributors to scientific
management like Henry L Gantt, Frank and Lillian Gilbreth and Harrington Emerson.

Frank (USA, 1867 - 1924) and Lillian (U.S.A, 1878 - 1912): The ideas of Taylorwere also
strongly supported and developed by the famous husband and wife team of Frank and Lillian
Gilbreth. They became interested in wasted motions in work. After meeting Taylor, they combined
their ideas with Taylor's to put scientific management into effect. They made pioneering effort in
the field of motion study and laid the entire foundation of our modern applications of job
simplification, meaningful work standards and incentive wage plans. Mrs. Gilbreth had a unique
background in psychology and management and the couple could embark on a quest for better work
methods. Frank Gilbreth is regarded as the father of motion study. He is responsible for inculcating
in the minds of managers the questioning frame of mind and the search for a better way of doing
things.

Gilbreth's contributions to management thought are quite considerable. His main contributions are:
The one best way of doing a job is the way which involves the fewest motions performed in an
accessible area and in the most comfortable position. The best way can be found out by the
elimination of inefficient and wasteful motions involved in the work.

He emphasized that training should be given to workers from the very beginning so that they may
achieve competence as early as possible.

He suggested that each worker should be considered to occupy three positions - (i) the job he held
before promotion to his present position, (ii) his present position, and the next higher position. The
part of a worker's time should be spent in teaching the man below him and learning from the man
above him. This would help him qualify for promotion and help to provide a successor to his
current job.

Frank and Lillian Gilberth also gave a thought to the welfare of the individuals who work for the
organization.

Gilbreth also devised methods for avoiding wasteful and unproductive movements. He laid down
how workers should stand, how his hands should move and so on.
Henry Lawrence Gantt (USA, 1861 - 1819): H.L Gantt was born in 1861. He graduated from
John Hopkins College. For some time, he worked as a draftsman in an iron foundry.

In 1884, he qualified as a mechanical engineer at Stevens Institute. In 1887, he joined the Midvale
Steel Company. Soon, he became an assistant to F.W Taylor. He worked with Taylor from 1887 -
1919 at Midvale Steel Company. He did much consulting work on scientific selection of workers
and the development of incentive bonus systems. He emphasized the need for developing a
mutuality of interest between management and labour. Gantt made four important contributions to
the concepts of management:
1. Gantt chart to compare actual to planned performance. Gantt chart was a daily chart which
graphically presented the process of work by showing machine operations, man hour
performance, deliveries, effected and the work in arrears. This chart was intended to
facilitate day-to-day production planning.
2. Task-and-bonus plan for remunerating workers indicating a more humanitarian approach.
This plan was aimed at providing extra wages for extra work besides guarantee of minimum
wages. Under this system of wage payment, if a worker completes the work laid out for him,
he is paid a definite bonus in addition to his daily minimum wages. On the other hand, if a
worker does not complete his work, he is paid only his daily minimum wages. There was a
provision for giving bonus to supervisors, if workers under him were able to earn such
bonus by extra work.
3. Psychology of employee relations indicating management responsibility to teach and train
workers. In his paper "Training Workmen in Habits of Industry and Cooperation", Gantt
pleaded for a policy of preaching and teaching workmen to do their work in the process
evolved through pre-thinking of management.
4. Gantt laid great emphasis on leadership. He considered management as leadership function.
He laid stress on the importance of acceptable leadership as the primaryelement in the
success of any business. Gantt's contributions were more in the nature of refinements rather
than fundamental concepts. They made scientific management more humanized and
meaningful to devotees of Taylor.

Harrington Emerson (USA, 1853 - 1931): Emerson was an American Engineer. He devoted his
attention to efficiency in industry. He was the first to use the term 'efficiency engineering' to
describe his brand of consulting. He called his philosophy "The Gospel of Efficiency". According to
him, "efficiency means that the right thing is done in the right manner, by the right man, at the right
place, in the right time".

Emerson laid down the following principles of efficiency to be observed by management:-

1. Ideals
2. Common Sense
3. Competent Counsel
4. Discipline
5. Fair Deal
6. Proper Records
7. Dispatching
8. Standards and Schedules
9. Standard Conditions
10. Standardized Operations
11. Standard practice instructions and
12. Efficiency Reward.

Administrative Management Theory: Henry Fayol was the most important exponent of this
theory. The pyramidal form, scalar principle, unity of command, exception principle, span of
control and departmentalisation are some of the important concepts set forth by Fayol and his
followers like Mooney and Reiley, Simon, Urwick, Gullick etc.

Henry Fayol (France, 1841 - 1925): Henry Fayol was born in 1941 at Constantinople in France.
He graduated as a mining engineer in 1860 from the National School of Mining. After his
graduation, he joined a French Coal Mining Company as an Engineer. After a couple of years, he
was promoted as manager. He was appointed as General Manager of his company in 1888. At that
time, the company suffered heavy losses and was nearly bankrupt. Henry Fayol succeeded in
converting his company from near bankruptcy to a strong financial position and a record of profits
and dividends over a long period.

Concept of Management: Henry Fayol is considered the father of modern theory of general and
industrial management. He divided general and industrial management into six groups:
Technical activities - Production, manufacture, adaptation.
Commercial activities - buying, selling and exchange.
Financial activities - search for and optimum use of capital.
Security activities - protection of property and persons.
Accounting activities - stock-taking, balance sheet, cost, and statistics.
Managerial activities - planning, organization, command, co- ordination and control.
These six functions had to be performed to operate successfully any kind of business. He, however,
pointed out that the last function i.e., ability to manage, was the most important for upper levels of
managers. The process of management as an ongoing managerial cycle involving planning,
organizing, directing, co-ordination, and controlling, is actually based on the analysis of general
management by Fayol. Hence, it is said that Fayol established the pattern of management thought
and practice. Even today, management process has general recognition.

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

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

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

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

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

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

Emphasis on Subordination of Personal Interest to General or CommonInterest: This is also

called principle of co-operation. Each shall work for all and all for each. General or common
interest must be supreme in any joint enterprise.
Remuneration: Fair pay with non-financial rewards can act as the best incentive or motivator for
good performance. Exploitation of employees in any manner must be eliminated. Sound scheme of
remuneration includes adequate financial and nonfinancial incentives.

Centralization: There must be a good balance between centralization and decentralization of

authority and power. Extreme centralization and decentralization must be avoided.

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

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

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

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

Esprit of Co-operation: Esprit de corps is the foundation of a sound organization. Union is

strength. But unity demands co-operation. Pride, loyalty and sense of belonging are responsible for
good performance.

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

Bureaucratic Model: Max Weber, a German Sociologist developed the bureaucratic model. His
model of bureaucracy include
 Hierarchy of authority.
 Division of labour based upon functional specialization.
 A system of rules.
 Impersonality of interpersonal relationships.
 A system of work procedures.
 Placement of employees based upon technical competence.
  Legal authority and power.

Bureaucracy provides a rigid model of an organization. It does not account for important human
elements. The features of Bureaucracy are:-

1. Rigidity, impersonality and higher cost of controls.

2. Anxiety due to pressure of conformity to rules and procedure.
3. Dependence on superior.
4. Tendency to forget ultimate goals of the organization.

Bureaucratic Model is preferred where change is not anticipated or where rate of change can be
predicated. It is followed in government departments and in large business organizations.

Neoclassical Theory:Neo-classical Theory is built on the base of classical theory. It modified,

improved and extended the classical theory. Classical theory concentrated on job content and
management of physical resources whereas, neoclassical theory gave greater emphasis to individual
and group relationship in the workplace. The neo- classical theory pointed out the role of
psychology and sociology in the understanding of individual and group behaviour in an
organization.

George Elton Mayo (Australia, 1880 - 1949): Elton Mayo was born in Australia. He was educated
in Logic and Philosophy at St. Peter's College, Adelaide. He led a team of researchers from Harvard
University, which carried out investigation in human problems at the Hawthorne Plant of Western
Electrical Company at Chicago. They conducted some experiments (known as Hawthorne
Experiments) and investigated informal groupings, informal relationships, patterns of
communication, patterns of informal leadership etc. Elton Mayo is generally recognized as the
father of Human Relations School. Other prominent contributors to this school include
Roethlisberger, Dickson, Dewey, Lewinetc.

Hawthorne Experiment: In 1927, a group of researchers led by Elton Mayo and Fritz
Roethlisberger of the Harvard Business School were invited to join in the studies at the Hawthorne
Works of Western Electric Company, Chicago. The experiment lasted up to 1932. The Hawthorne
Experiments brought out that the productivity of the employees is not the function of only physical
conditions of work and money wages paid to them. Productivity of employees depends heavily
upon the satisfaction of the employees in their work situation. Mayo's idea was that logical factors
were far less important than emotional factors in determining productivity efficiency. Furthermore,
of all the human factors influencing employee behaviour, the most powerful were those emanating
from the worker's participation in social groups. Thus, Mayo concluded that work arrangements in
addition to meeting the objective requirements of production must at the same time satisfy the
employee's subjective requirement of social satisfaction at his work place.
The Hawthorne experiment consists of four parts. These parts are briefly described below:-
1. Illumination Experiment.
2. Relay Assembly Test Room Experiment.
3. Interviewing Programme.
4. Bank Wiring Test Room Experiment.

Illumination Experiment: This experiment was conducted to establish relationship between output
and illumination. When the intensity of light was increased, the output also increased. The output
showed an upward trend even when the illumination was gradually brought down to the normal
level. Therefore, it was concluded that there is no consistent relationship between output of workers
and illumination in the factory. There must be some other factor which affected productivity.

Relay Assembly Test Room Experiment: This phase aimed at knowing not only the impact of
illumination on production but also other factors like length of the working day, rest hours, and
other physical conditions. In this experiment, a small homogeneous work-group of six girls was
constituted. These girls were friendly to each other and were asked to work in a very informal
atmosphere under the supervision of a researcher. Productivity and morale increased considerably
during the period of the experiment. Productivity went on increasing and stabilized at a high level
even when all the improvements were taken away and the pre-test conditions were reintroduced.
The researchers concluded that socio-psychological factors such as feeling of being important,
recognition, attention, participation,cohesive work-group, and non-directive supervision held the
key for higherproductivity.

Mass Interview Programme: The objective of this programme was to make a systematic study of
the employees' attitudes which would reveal the meaning which their "working situation" has for
them. The researchers interviewed a large number of workers with regard to their opinions on work,
working conditions and supervision. Initially, a direct approach was used whereby interviews asked
questions considered important by managers and researchers. The researchers observed that the
replies of the workmen were guarded. Therefore, this approach was replaced by an indirect
technique, where the interviewer simply listened to what the workmen had to say. The findings
confirmed the importance of social factors at work in the total work environment.

Bank Wiring Test Room Experiment: This experiment was conducted by Roethlisberger and
Dickson with a view to develope a new method of observation and obtaining more exact
information about social groups within a company and also finding out the causes which restrict
output. The experiment was conducted to study a group of workers under conditions which were as
close as possible to normal. This group comprised of 14 workers. After the experiment, the
production records of this group were compared with their earlier production records. It was
observed that the group evolved its own production norms for each individual worker, which was
made lower than those set by the management. Because of this, workers would produce only that
much, thereby defeating the incentive system. Those workers who tried to produce more than the
group norms were isolated, harassed or punished by the group. The findings of the study are:-
1. Each individual was restricting output.
2. The group had its own "unofficial" standards of performance.
3. Individual output remained fairly constant over a period of time.
4. Informal groups play an important role in the working of an organization.

Contributions of the Hawthorne Experiment: Elton Mayo and his associates conducted their
studies in the Hawthorne plant of the western electrical company, U.S.A., between 1927 and 1930.
According to them, behavioural science methods have many areas of application in management.
The important features of the Hawthorne Experiment are:-
A business organization is basically a social system. It is not just a techno-economic system.
The employer can be motivated by psychological and social wants because his behaviour is also
influenced by feelings, emotions and attitudes. Thus economic incentives are not the only method to
motivate people.

Management must learn to develop co-operative attitudes and not rely merely on command.
Participation becomes an important instrument in human relations movement. In order to achieve
participation, effective two-way communication network is essential.

Productivity is linked with employee satisfaction in any business organization. Therefore

management must take greater interest in employee satisfaction.
Group psychology plays an important role in any business organization. We must therefore rely
more on informal group effort.

The neo-classical theory emphasizes that man is a living machine and he is far more important than
the inanimate machine. Hence, the key to higher productivity lies in employee morale. High morale
results in higher output.

Elements of Behavioural Theory: There are three elements of behavioural theory.

The Individual: The neoclassical theory emphasized that individual differences must be
recognised. An individual has feelings, emotions, perception and attitude. Each person is unique. He
brings to the job situation certain attitudes, beliefs and ways of life, as well as skills. He has certain
meaning of his job, his supervision, working conditions etc. The inner world of the worker is more
important than the external reality in the determination of productivity. Thus human relations at
work determine the rise or fall in productivity. Therefore human relationists advocate the adoption
of multidimensional model of motivation which is based upon economic,individual and social
factors.>

Work Groups: Workers are not isolated; they are social beings and should be treated as such by
management. The existence of informal organization is natural. The neo-classical theory describes
the vital effects of group psychology and behaviour on motivation and productivity.

Participative Management: The emergence of participative management is inevitable when

emphasis is laid on individual and work groups. Allowing labour to participate in decision making
primarily to increase productivity was a new form of supervision. Management now welcomes
worker participation in planning job contents and job operations. Neoclassical theory focuses its
attention on workers. Plant layout, machinery, tool etc., must offer employee convenience and
facilities. Therefore, neoclassical approach is trying to satisfy personal security and social needs of
workers.

Human relationists made very significant contribution to management thought by bringing into
limelight human and social factors in organizations. But their concepts were carried beyond an
appropriate limit. There are many other factors which influence productivity directly. Modern
management thought wants equal emphasis on man and machine and we can evolve appropriate
man- machine system to secure both goals – productivity and satisfaction.
Limitations of Human Relations Approach:-
The human relationists drew conclusions from Hawthorne studies. These conclusions are based on
clinical insight rather than on scientific evidence.

The study tends to overemphasize the psychological aspects at the cost of the structural and
technical aspects.

It is assumed that all organizational problems are amenable to solutions through human relations.
This assumption does not hold good in practice.

The human relationists saw only the human variables as critical and ignored other variables.
The human relationists overemphasize the group and group decision-making. But in practice,
groups may create problems and collective decision-making may not be possible.

Modern Theory (System Approach): The systems approach to management indicates the fourth
major theory of management thought called modern theory. Modern theory considers an
organization as an adaptive system which has to adjust to changes in its environment. An
organization is now defined as a structured process in which individuals interact for attaining
objectives.

Meaning of "System": The word system is derived from the Greek word meaning to bring
together or to combine. A system is a set of interconnected and inter-related elements or component
parts to achieve certain goals. A system has three significant parts:
Every system is goal-oriented and it must have a purpose or objective to be attained.
In designing the system we must establish the necessary arrangement of components.
Inputs of information, material and energy are allocated for processing as per plan so that the
outputs can achieve the objective of the system.
The Design of a Basic System

Systems Approach Applied to an Organization: When systems approach is applied to

organization, we have the following features of an organization as an open adaptive system:-
 It is a sub-system of its broader environment.
 It is a goal-oriented – people with a purpose.
 It is a technical subsystem – using knowledge, techniques, equipment and facilities.
 It is a structural subsystem – people working together on interrelated activities.
 It is a psychosocial system – people in social relationships.
 It is co-ordinate by a managerial sub system, creating, planning, organizing, motivating,
communicating and controlling the overall efforts directed towards set goals.
Characteristics of Modern Management Thought:
The Systems Approach: An organization as a system has five basic parts -
1. Input
2. Process
3. Output
4. Feedback and
5. Environment.
It draws upon the environment for inputs to produce certain desirable outputs. The success of these
outputs can be judged by means of feedback. If necessary, we have to modify out mix of inputs to
produce as per changing demands.

Dynamic: We have a dynamic process of interaction occurring within the structure of an

organization. The equilibrium of an organization and its structure is itself dynamic or changing.

Multilevel and Multidimensional: Systems approach points out complex multilevel and multi
dimensional character. We have both a micro and macro approach. A company is micro within a
business system. It is macro with respect to its own internal units. Within a company as a system we
have:-
 Production subsystem
 Finance subsystem
 Marketing subsystem
 Personnel subsystem.

All parts or components are interrelated. Both parts as well as the whole are equally important. At
all levels, organizations interact in many ways.

Multimotivated: Classical theory assumed a single objective, for instance, profit.

Systems approach recognizes that there may be several motivations behind our actions and
behaviour. Management has to compromise these multiple objectives
eg: - economic objectives and social objectives.

Multidisciplinary: Systems approach integrates and uses with profit ideas emerging from different
schools of thought. Management freely draws concepts and techniques from many fields of study
such as psychology, social psychology, sociology, ecology, economics, mathematics, etc.
Multivariable: It is assumed that there is no simple cause-effect phenomenon. An event may be the
result of so many factors which themselves are interrelated and interdependent. Some factors are
controllable, some uncontrollable. Intelligent planning and control are necessary to face these
variable factors.

Adaptive: The survival and growth of an organization in a dynamic environment demands an

adaptive system which can continuously adjust to changing conditions. An organization is an open
system adapting itself through the process of feedback.

Probabilistic: Management principles point out only probability and never the certainty of
performance and the consequent results. We have to face so many variables simultaneously. Our
forecasts are mere tendencies. Therefore, intelligent forecasting and planning can reduce the degree
of uncertainty to a considerable extent.

Contingency Theory: Systems approach emphasizes that all sub- systems of an organization along
with the super system of environment are interconnected and interrelated. Contingency approach
analysis and understands these inter relationship sothat managerial actions can be adjusted to
demands of specific situations or circumstances.

Thus the contingency approach enables us to evolve practical answers to problems demanding
solutions. Organization design and managerial actions most appropriate to specific situations will
have to be adopted to achieve the best possible result under the given situation. There is no one best
way (as advocated by Taylor) to organize and manage. Thus, Contingency Approach to
management emphasizes the fact that management is a highly practice-oriented discipline. It is the
basic function of managers to analyse and understand the environments in which they function
before adopting their techniques, processes and practices. The application of management principles
and practices should therefore be continent upon the existing circumstances.

Contingency approach guides the manager to be adaptive to environment. It tells the manager to be
pragmatic and open minded. The contingency approach is an improvement over the systems
approach. It not only examines the relationships between sub-systems of the organization, but also
the relationship between the organization and its environment.
However, the contingency approach suffers from two limitations:-
It does not recognize the influence of management concepts and techniques on environment.
Literature on contingency management is yet not adequate.
Planning
Definition: Planning is the fundamental management function, which involves deciding beforehand,
what is to be done, when is it to be done, how it is to be done and who is going to do it. It is an
intellectual process which lays down an organisation’s objectives and develops various courses of
action, by which the organisation can achieve those objectives. It chalks out exactly, how to attain a
specific goal.

Planning is nothing but thinking before the action takes place. It helps us to take a peep into the
future and decide in advance the way to deal with the situations, which we are going to encounter in
future. It involves logical thinking and rational decision making.
Characteristics of Planning
Managerial function: Planning is a first and foremost managerial function provides the base for
other functions of the management, i.e. organising, staffing, directing and controlling, as they are
performed within the periphery of the plans made.

Goal oriented: It focuses on defining the goals of the organisation, identifying alternative courses
of action and deciding the appropriate action plan, which is to be undertaken for reaching the goals.
Pervasive: It is pervasive in the sense that it is present in all the segments and is required at all the
levels of the organisation. Although the scope of planning varies at different levels and departments.
Continuous Process: Plans are made for a specific term, say for a month, quarter, year and so on.
Once that period is over, new plans are drawn, considering the organisation’s present and future
requirements and conditions. Therefore, it is an ongoing process, as the plans are framed, executed
and followed by another plan.

Intellectual Process: It is a mental exercise at it involves the application of mind, to think, forecast,
imagine intelligently and innovate etc.

Futuristic: In the process of planning we take a sneak peek of the future. It encompasses looking
into the future, to analyse and predict it so that the organisation can face future challenges
effectively.

Decision making: Decisions are made regarding the choice of alternative courses of action that can
be undertaken to reach the goal. The alternative chosen should be best among all, with the least
number of the negative and highest number of positive outcomes.

Planning is concerned with setting objectives, targets, and formulating plan to accomplish them.
The activity helps managers analyse the present condition to identify the ways of attaining the
desired position in future. It is both, the need of the organisation and the responsibility of managers.
Importance of Planning
It helps managers to improve future performance, by establishing objectives and selecting a
course of action, for the benefit of the organisation.
It minimises risk and uncertainty, by looking ahead into the future.
It facilitates the coordination of activities. Thus, reduces overlapping among activities and
eliminates unproductive work.
It states in advance, what should be done in future, so it provides direction for action.
It uncovers and identifies future opportunities and threats.
 It sets out standards for controlling. It compares actual performance with the standard
performance and efforts are made to correct the same.

Planning is present in all types of organisations, households, sectors, economies, etc. We need to
plan because the future is highly uncertain and no one can predict the future with 100% accuracy, as
the conditions can change anytime. Hence, planning is the basic requirement of any organization for
the survival, growth and success.
Steps involved in Planning
By planning process, an organisation not only gets the insights of the future, but it also helps the
organisation to shape its future. Effective planning involves simplicity of the plan, i.e. the plan
should be clearly stated and easy to understand because if the plan is too much complicated it will
create chaos among the members of the organisation. Further, the plan should fulfil all the
requirements of the organisation.

Advantages of Planning:
1. Primacy of Planning:
Even though there are other managerial functions such as organising, staffing, directing and
controlling which helps to achieve the organisational goals, planning precedes all other managerial
functions. It establishes objectives necessary for all group effort.

2. Helping to Management:
Since the planning is a future course of action, mangers are able to define their objectives and get
direction. Also it creates a unity of purpose.

3. Effective Utilisation of Resources:

Proper planning helps to proper and effective utilisation of resources. Resources are identified for
optimum utility through planning. So waste or minimum waste of resources will not result and
thereby idle time for workers and downtime for machines will be reduced. This will lead to result in
minimum cost of operations.

4. Minimum Cost:
Planning helps to minimise cost by providing greater utilisation of the available resources. All kinds
of wastage of men, materials, money and machines are prevented with the help of planning.

5. To help in Motivation:
All employees of the organisation can feel that we have taken this plan, if the plans are
communicated to them. In this case the sense of belonging of employees increases and therefore
they will be highly motivated.

6. To Offset Uncertainty and Change:

There may be continuous change in the environment and organisation has to work in accelerating
change. This change is reflected in both tangible and intangible forms. Tangible changes are in the
form of changes in technology, market forces, and government regulations.
Intangible changes reflect in changes in attitudes, values, cultures etc. In order to cope up with the
requirements of such changes, organisation must role ahead for its future course of action, which is
basically provided by planning process. Planning does not stop changes in the environment, but
gears the organisation to take suitable actions so that it is successful in achieving its objectives.

7. Help in Coordination:
Proper planning is made by unifying all areas on departments of the organisation. It wills leads to
coordinate and harmony among the departments is achieved.

8. Facilities Control:
Planning provides performance standards and standards for measuring the progress of the
organisations. Therefore management can compare the actual performance with the standards.
Manager can control action by looking at different if any deviation.

9. Facilitates Decision-making:
Planning provides a framework for decision-making. Since the planning provides for feedback,
periodic evaluation, and indication for any deviation, corrective action can be taken which leads to
better decision-making.

10. Encourage Innovation and Creativity:

It brings about rationality in managerial approach and improvement in executive thinking. D. F.
Hussey said that, “A good planning process will provide avenues for individual participation will
throw up more ideas about the company and its environment, will encourage an atmosphere of
frankness and corporate self-criticism and will stimulate managers to achieve more.”

11. Improves Competitive Strength:

Since the operations are planned in advance, company can take its action concretely. It improves the
competitive strength of the organisation.
Limitations of Planning:
1. Corporate Planning is not Integrated into the Total Management System:
The top management fails to identify and associate properly the formal planning with the central
concept of the organisation’s mission.
2. There is a Lack of Understanding of the Different Steps of the Planning Process:
The management may not be knowledgeable or skilled in understanding all steps of the planning
requirements.
3. Non-Availability of Correct Information and Data:
Planning is made by having information and data available. Generally correct information and data
not available.
4. Management at Different Levels in the Organisation has not Properly Contributed to Planning
Activities:
Generally all strategic planning are made and conducted at top management. So sometimes middle
level and lower level of management, which are closer to the operation, may not understand all
aspects of planning. This will affect their fullest contribution.
5. Costly or Uneconomical:
Planning is expensive. The cost of planning should not be in excess of its contribution and
managerial judgement is necessary to balance the expenses of preparing the plans against the
benefits derived from them.
6. The management is not always willing to cancel or modify your plans.
7. In starting formal planning, too much is attempted at once.
8. Resistance to change by organisational members.
9. Lack of contingency plans.
Management by Objectives (MBO)
Definition: Management by Objectives (MBO) or otherwise called as Management by Results
(MBR) is management philosophy which was first propounded by Peter F. Drucker in the year
1954, in his book “Practice of Management”.

Management by objectives is a planning and controlling system, in which the superior and
subordinates work together in order to define business objectives and establish targets that are to be
achieved by the subordinates, and also determine each individual’s key area of responsibility as
regards the results expected. Further, these measures are considered as yardstick to run the unit and
also assess the contribution of each individual.

Assumption of Management by Objectives

MBO relies on the premise that people tend to perform better when they are known about what is
expected from them and when they can associate their personal goals with that of the objectives of
the organization. In addition to this, it also proposes that people have interest in establishing goals
and comparing the performance against the set target.
Process of Management by Objectives
 Goal Setting: First and foremost, the long term goals of the organization are defined, such
as its startegic intent, vision, mission and goals. Once these are formulated, the management then
decides specific objectives to be attained within the given time frame.
Action Plan: Action plan refers to the way through which the objectives are achieved. It
provides direction regarding how the objectives can be achieved, as in what is to be done, what
steps are to be followed, etc.
Performance Appraisal: Last but not the least, at this stage, a comparison is made between
actual and predermined standards. These objectives acts as a basis for reviewing the progress.
MBO, is directed towards raising the performance level of the organization by conspiciosly
identifying the measurable goals and end results, which are agreed to the management as well as
employees of the organization. Thereafter, the employees participate in formulating the action plan
and strategy for the attainment of the goals.
Benefits of Management by Objectives
 It facilitates the employees to understand their tasks and duties in a better way.
 It is helpful in designing Key Result Area (KRA) for each employee, according to
their interest, specialization, experience and competency.
 It eliminates overalpping and confusions in the tasks and duties.
 Every employee contributes towards the achievement of the objectives by
successfully completing the tasks and duties assigned to them by the superior.
 It creates an open communication enviornment in the organization.
 In a nutshell, Management by objectives is nothing but a process wherein the goals,
plans and control system of the organization are defined by the management and
employees jointly.
DECISION MAKING
Decision Making refers to a process by which individuals select a particular course of action
among several alternatives to produce a desired result. The main purpose of decision making is to
direct the resources of an organization towards a future goals and reduce the gap between the actual
position and the desired position through effective problem solving and exploiting business
opportunities.

A decision is a choice made from various available alternatives.

Decision making involves commitment of the organization, its employees and its resources, towards
a particular course of action among various alternatives available to achieve some predetermined
objectives. Decision Making helps managers to identify organizational problems and attempt to
solve it. It is carried out at all management levels in an organization. Decisions that are taken in an
organization are usually related to –
Goals and objectives of the organization
Organizational structure
Organizational design
Budgets
Time period
Staff – salaries, wages, working hours, promotion, demotion
Marketing Mix – Product, Price, Place, Promotion
Research and design
Decision Making Process
 At this stage the decision maker becomes aware
Awareness of the Problem
about a problem that is to be solved.

Diagnose and State the Problem The decision maker understands and analyses the
Develop the Alternatives This stage
problem andinvolves
attemptscollection
to describeofthe
data regarding
problem and
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the step involves
problem
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and formulation
that of the alternate
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that canevaluating
basis beoffollowed the
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to solve ofthea
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andof business decision
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Feedback Decision
and makingMaking is aprofitable
continuous process, ofhence a
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affected byproblem created
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Basic decisions Routine decisionsor
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implementation, which calls a new decision and so
Decisions concerned with Decisions that have to be made
on.
unique problems and situations during the normal course of a
an organization is facing, that business, that are repetitive in
 Personal decisions Organizational decisions
Informal Decisions that a Formal Decisions that a person
Individual decisions
person makes as an individual, Group
makes decisions
as a member of an
Decisions taken by a of
and not as a member single
an Decisions taken using
organization by a group or a
formal
Rational
individual decisions Irrational decisions
organization during
which doregular not committee formed directly
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affect
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routine made
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to the Decisions
purpose based on intuition
to make an important or
directly affect organization. the organization.
Programmed
and systematic decisions
analysis of a Un-programmed
experience of the decisionsmaker
decision
policies of the organization. and informed decision for the
Routine and repetitive
problem and evaluation of decisions Decisions
and not based on relevantunique
concerned with facts
organization.
made
severalby alternatives
lower level executives
based on problems
and figures. faced by an
Difference between Programmed and Unprogrammed Decisions
using
rationalpre-established rules and
and logical facts and organization for which no pre-
procedures that require little established rules and procedures
Programmed figures.
Decisions Un-Programmed Decisions
time and effort and are easy and have been made. Such decisions
simple to make. are complex, demand lot of time
Concerned with Unique
Concerned with routine problems and effort and have a long term
problems
impact.

Repetitive in nature Non repetitive in nature

Structured Unstructured

Complex and have a long

Simple and have a small impact
term impact

Pre-established policies and Not used

Information regarding
procedures are used these Not easily available
Consumes
problems isless timeavailable
readily and efforts Demands time and discretion
Lower Executives Top Management

Various Techniques of Decision Making

Group Discussions
Brainstorming
Delphi technique
Marginal Analysis
Cost-Benefit Analysis
Ratio Analysis
Financial Analysis
Break-even Analysis
Operations research
Pareto Analysis etc.
Importance of Decision Making
Optimum and efficient utilization of resources
Aids in Problem solving and facing business challenges
Helps in business growth and achieving objectives
Facilitates effective management and Innovation
Motivates employees and improves overall business performance
Social Responsibility of Business

Meaning:
Social responsibility of business implies the obligations of the management of a business enterprise
to protect the interests of the society.
According to the concept of social responsibility the objective of managers for taking business
decisions is not merely to maximize profits or shareholders’ value but also to serve and protect the
interests of other members of a society such as workers, consumers and the community as a whole.

Thus, Sachar Committee on Companies and MRTP Acts appointed by Government of India states,
“In the development of corporate ethics we have reached a stage where the question of social
responsibility of business to the community can no longer be scoffed at or taken lightly. In the
environment of modern corporate economic development, the corporate sector no longer functions
in isolation. If the plea of the companies that they are performing a social purpose is to be accepted,
it can only be judged by the test of social responsiveness shown to the needs of the society”.
It may be noted that some Indian sociologists and economists relate the idea of social responsibility
of business of the Gandhian concept of trusteeship. According to Mahatma Gandhi, capitalist class
owns wealth or capital as trustees of the society. The resources and capital they use for production
of goods and services, according to him, should be used not to maximize profits for them but for the
larger benefit of the society.

However, in our view, it will be too idealistic to expect that business enterprises will be purely
guided by the benefits they confer on the society by their activities. The concept of social
responsibility as used in management science is that businesses should maximise their profits
subject to their working in a socially responsible manner to promote the interests of the society.
Their business activities should not harm other groups such as consumers, workers, and public at
large. Mr. N.R. Narayana, Chairman of Infosys makes the idea of social responsibility of business
quite clear when in a conference on corporate social responsibility he said, “Corporate’s foremost
social responsibility is to create maximum shareholders’ value working in a way which is fair to all
its stakeholders — workers, consumers, the community, government and the environment He
further points out.”

Working in harmony with the community and environment around us and not cheating our
customers and workers we might not gain anything in the short run but in the long term it means
greater profits and shareholders’ value’
Social Responsibility of Business and Social Contract:
It is evident from above, the social responsibility of business implies that a corporate enterprise has
to serve interests other than that of common shareholders who, of course, expect that their rate of
return, value or wealth should be maximised.

But in today’s world the interest of other stakeholders, community and environment must be
protected and promoted. Social responsibility of business enterprises to the various stakeholders and
society in general is considered to be the result of a social Fig. 3.1. Responsibility of Business
Enterprises towards Stakeholders and Society in General contract.

Social contract is a set of rules that defines the agreed interrelationship between various elements of
a society. The social contract often involves a quid pro quo (i.e. something given in exchange for
another). In the social contract, one party to the contract gives something and expects a certain thing
or behaviour pattern from the other.

In the present context the social contract is concerned with the relationship of a business enterprise
with various stakeholders such as shareholders, employees, consumers, government and society in
general. The business enterprises happen to have resources because society consisting of various
stakeholders has given them this right and therefore it expects from them to use them to for serving
the interests of all of them.
Though all stakeholders including the society in general are affected by the business activities of a
corporate enterprise, managers may not acknowledge responsibility to them. Social responsibility of
business implies that corporate managers must promote the interests of all stakeholders not merely
of shareholders who happen to be the so called owners of the business enterprises.
1. Responsibility to Shareholders:
In the context of good corporate governance, a corporate enterprise must recognise the rights of
shareholders and protect their interests. It should respect shareholders’ right to information and
respect their right to submit proposals to vote and to ask questions at the annual general body
meeting.

The corporate enterprise should observe the best code of conduct in its dealings with the
shareholders. However, the corporate Board and management try to increase profits or
shareholders’ value but in pursuing this objective, they should protect the interests of employees,
consumers and other stakeholders. Its special responsibility is that in its efforts to increase profits or
shareholders’ value it should not pollute the environment.

2. Responsibility to Employees:
The success of a business enterprise depends to a large extent on the morale of its employees.
Employees make valuable contribution to the activities of a business organisation. The corporate
enterprise should have good and fair employment practices and industrial relations to enhance its
productivity. It must recognise the rights of workers or employees to freedom of association and
free collective bargaining. Besides, it should not discriminate between various employees.
The most important responsibility of a corporate enterprise towards employees is the payment of
fair wages to them and provide healthy and good working conditions. The business enterprises
should recognise the need for providing essential labour welfare activities to their employees,
especially they should take care of women workers. Besides, the enterprises should make arrange-
ments for proper training and education of the workers to enhance their skills.
However, it may be noted that very few companies in India follow many of the above good
practices. While the captains of Indian industries generally complain about low productivity of their
employees, little has been done to address their problems. Ajith Nivard Cabraal rightly writes, “It
should perhaps be realised that corporations can only be as effective and efficient as its employees
and therefore steps should be taken to implement such reforms in a pro-active manner, rather than
merely attempting to comply with many labour laws that prevail in the country. This is probably
one area where good governance practices could make a significant impact on the country’s
business environment.”

3. Responsibility to Consumers:
Some economists think that consumer is a king who directs the business enterprises to produce
goods and services to satisfy his wants. However, in the modern times this may not be strictly true
but the companies must acknowledge their responsibilities to protect their interests in undertaking
their productive activities.
Invoking the notion of social contract, the management expert Peter Drucker observes, “The
customer is the foundation of a business and keeps it in existence. He alone gives employment. To
meet the wants and needs of a consumer, the society entrusts wealth-producing resources to the
business enterprise”. In view of above, the business enterprises should recognise the rights of
consumers and understand their needs and wants and produce goods or services accordingly.
The following responsibilities of business enterprises to consumers are worth mentioning:
1. They should supply goods or services to the consumers at reasonable prices and do not try to
exploit them by forming cartels. This is more relevant in case of business enterprises producing
essential goods such as life-saving drugs, vegetable oil and essential’ services such as electricity
supply and telephone services.
2. They should not supply to the consumers’ shoddy and unsafe products which may do harm to
them.
3. They should provide the consumers the required after-sales services.
4. They should not misinform the consumers through inappropriate and misleading advertisements.
5. They should make arrangements for proper distribution system of their products so as to ensure
that black-marketing and profiteering by traders do not occur.
6. They should acknowledge the rights of consumers to be heard and take necessary measures to
redress their genuine grievances.
Despite the above responsibilities which are generally regarded as good marketing practices by
management experts the business enterprises in India generally do not pay heed to them and as a
result consumers are dissatisfied or disappointed in a large number of cases. There has been a
growing awareness of consumer rights.
The organised movement to protect consumer rights which is termed as consumerism has been the
result of the negligence of business enterprises to their responsibilities to consumers. Besides, due
to the indifferent attitude of business enterprises to consumer rights, Government has been
compelled to enact Consumer Protection Act to protect consumers’ rights and to prevent their
exploitation by the businesses.

4. Obligation towards the Environment:

The foremost responsibility of business enterprises is to ensure that they should not damage the
environment and for this purpose they should reduce as much as possible air and water pollution by
their productive activities. They should not dump their toxic waste products in rivers and streams to
avoid their pollution. Pollution of environment poses a great health hazard for the people and is a
cause of several respiratory and skin diseases.
In economic theory pollution of environment is regarded as social cost that must be minimised.
There is now a growing awareness towards reduction in environment pollution. According to the
recent findings the climate change is occurring due to greater emission of carbon dioxide and other
pollutants.

Therefore, the corporate enterprises should adopt high standards of environmental protection and
ensure that they are implemented regardless of enforcement of any environment laws passed by the
government. Many countries including India have passed laws to protect the environment but they
are not properly and strictly enforced.
Business enterprises in their attempt to maximise profits recklessly and negligently pollute the
environment. Therefore, it is required that government should take tough measures and enforce
environment laws strictly if environment is to be protected.

5. Responsibility to Society in General:

Business enterprises function by public consent with the basic objective of producing goods and
services to meet the needs of the society and provide employment to the people. The traditional
view is that in performing this function businesses maximise profits or shareholders’ value and
doing so they do not behave in any socially irresponsible way.

According to Adam Smith whose invisible hand theorem is often quoted that while maximising
their profits, businessmen are led by an invisible hand to promote the interests of the society. To
quote him, “An individual or business generally, indeed neither intends to promote the public
interest, nor knows how much he is promoting it…. He intends only his own gains, and he is in this,
as in many other cases, led by an invisible hand to promote an end which was no part of his
intention,…… By pursuing his own interest he frequently promotes that of the society more
effectively than when he really intends to promote it”.

In the present world where there are monopolies, oligopolies in product and factor markets and also
there are externalities, especially detrimental externalities such as environment pollution by the
activities of business enterprises maximisation of private profits does not always lead to the
maximisation of social benefit.

In fact in such imperfect market conditions, consumers are exploited by raising of prices much
above the cost of production, workers are exploited as they are not paid fair wages equal to the
value of their marginal product. Besides, there are harmful external effects to which are not given
due considerations by private enterprises in making their business decisions. Therefore, there is
urgent need to make business enterprises behave in a socially responsible manner and to work for
promoting social interests.

In view of the above in the context of modern developments, it is hard to agree with Milton
Friedman, a winner of Nobel Prize in economics, who called the idea of corporate social responsi-
bility as a “fundamentally subversive doctrine”. Friedman writes, “There is one and only one social
responsibility of business – to use its resources and engage in activities designed to increase its
profits so long as it stays within the rules of the game, which is to say, engages in open and free
competition without deception or fraud”.

However, few economists and rational thinkers will subscribe to Friedman’s views like that of
Adam Smith. Thus, authors of a noted textbook on management write, “It is true that Friedman sets
a rather high standard when he suggests that businesses should operate within the ‘rules of the
game’, practicing neither deception nor fraud. The rules of the game obviously include accepted
ethical practices, in addition to international, national and other laws. How many corporations are
willing to tell the absolute truth in the advertisements and to engage in open and fair competition
avoiding collusion, price fixing and so forth. The fact is that few subscribe to Friedman s hard-line
views today”.

Expressing the same sentiments, Dr. Manmohan Singh, who has been instrumental in initiating
economic reforms promoting liberalisation and privatization, in his recent speech while
inaugurating the campus of Institute for Studies in Industrial Development on May 1, 2007 said, “I
was struck by a comment in the media that most of the billionaires among India’s top business
leaders operate in oligopolistic markets and in sectors where the government has conferred special
privileges on a few. This sounds like a crony capitalism……. Are we doing enough to protect
consumers and small businesses from the consequences of modern capitalism in our country” Later,
on May 24, 2007, while giving inaugural address at the Annual Session of CII he urged the captains
of Indian industry to break cartels and abstain from greed in their quest for profit maximisation.
To quote him, “The operation of cartels by groups of companies to keep prices high must end. It is
unacceptable to obstruct the forces of competition from having free play. It is even more distressing
in a country where the poor are severely affected by rising commodity prices. Cartels are a crime
and go against the grain of an open economy”. More importantly, he further adds, “Maximisation of
profits should be within the bounds of decency and greed”.
The above views of Dr. Manmohan singh show that corporate businesses in India do not show any
sense of social responsibility and due to oligopolies, informal collusion and other malpractices
fleece the customers by charging higher prices in order to maximise their profits. This is clearly
refutation of Friedman’s view that profit maximisation always implies social responsibility of
business.

Business enterprises have a lot of responsibility to the society at large.

We mention below some of them:
1. To take appropriate measures to reduce level of pollution and adopt eco-friendly
technologies.
2. To generate sufficient employment opportunities so as to make good contribution to the
reduction of poverty in the country.
3. Respect the rights of workers and other employees and take appropriate measures to
ensure their safety and to improve their working conditions.
4. To provide quality healthcare to their employees.
5. To invest adequately in the research and development so as to make innovations to
improve their productivity.
6. Do not pay excessive remuneration to promoters and senior executives as it creates social
resentment.
7. To end cartels that keep prices highly
8. To implement affirmative action and to provide jobs to SCs, STs and OBCs. Besides, Dr.
Manmohan Singh wants the private corporate sector to give preference to minorities,
especially Muslims in providing employment.
9. To resist to pay bribes to officials and therefore do not promote corruption. He thus says,
“Corruption need not be the grease that oils wheels of progress. There are many successful
companies today that have refused to yield to this temptation. Others must follow”.

Conclusion:
Social responsibility is related to the concept of ethics. Ethics is the discipline that deals with moral
duties and obligations. Social responsibility implies corporate enterprises should follow business
ethics and work for not only to maximise their profits or shareholders’ value but also to promote the
interests of other stakeholders and the society as a whole.

Two instances of lack of social responsibility of business witnessed in India are worth mentioning.
One refers to Bhopal Gas Leak Tragedy. On Dec. 2,1984 in a pesticide factory located in Bhopal
and owned by a multinational corporation ‘Union Carbide Limited (UCL), there was a leakage of
poisonous gas from factory which resulted in the death of more than 2000 poor people and about 2
lakh persons were badly injured and crippled.

This was due to the non-installation of safety measures by the company. Union Carbide tried to
show that it was not responsible. A long legal battle was fought and ultimately Union Carbide was
held responsible by the court and was asked to pay $ 650 millions to the victims as damages.
Another recent case of lack of corporate social responsibility in India and failure of good corporate
governance in India is provided by Satyam Saga. Ramalinga Raju, chairman of Satyam Computers
Committed fraud running into several thousand crores inflicting heavy losses to the shareholders
and lenders of the company. For this criminal act Raju is in Jail and his company has been taken
over by Mahindera.

This Satyam fraud raises the question of failure of corporate governance in India, especially the role
of independent directors in ensuring good governance of the corporates. The above two examples
should serve as a wake-up call for Indian corporate businesses that they should discharge their
responsibility to their customers, employees, other stakeholders and society at large.