PRINCIPLES

OF
MANAGEMENT
1
CHAPTER 1

NATURE AND SIGNIFICANCE OF MANAGEMENT

Management is an art of getting things done with and through others. Management can be defined as,
the process of getting things done with the aim of achieving organizational goals effectively and
efficiently.

Efficiency and Effectiveness

Efficiency (completing the work at low cost) means doing the task correctly at minimum cost through
optimum utilization of resources while effectiveness (Completing the work on time) is concerned with
end result means completing the task correctly within stipulated time. Although efficiency and
effectiveness are different yet they are inter related. It is important for management to maintain a
balance between the two.

1. James prepared a well-documented and factual report on Company’s performance but she could not
present it in Board meeting as she could not complete it on time.

[Hint: Efficient but not effective]

2. Best roadways promised to deliver goods in time and charged extra money from Mr. Banda. But the
goods were not delivered on time.

[Hint: Efficient but not effective]

Characteristics of Management

1. Goal oriented Process It is a goal oriented process, which is to achieve already specified and desired
objectives by proper utilization of available resources.

2. Pervasive: Management is universal in nature. It is used in all types of organizations whether

economic, social or political irrespective of its size, nature and location and at each and every level.

3. Multidimensional: It is multidimensional as it involves management of work, people and operations.

4. Continuous: It consists of a series of function and its functions are being performed by all managers
simultaneously. The process of management continues till an organization exists for attaining its
objectives.

2
5. Group Activity: It is a group activity since it involves managing and coordinating activities of different
people as a team to attain the desired objectives of the organization.

6. Dynamic function: It is a dynamic function since it has to adapt according to need, time and situation
of the changing business environment. For example, McDonalds made major changes in its ‘Menu’ to
survive in the Indian market.

7. Intangible Force: It is intangible force as it can’t be seen but its effects can be felt in the form of
results like whether the objectives are met and whether people are motivated or not and there is
orderliness and coordination in the work environment.

Objectives of Management

(1) Organizational objectives:

Organizational Objectives can be divided into Survival (Earning enough revenues to cover cost); Profit
(To cover cost and risk); and Growth (To improve its future prospects).

(A) Survival – Management by taking positive decisions with regard to different business activities
ensures survival of business for long term.

(B) Profit – It plays an important role in facing business risks and successful running of business
activities.

(C) Growth – Management must ensure growth which can be measured by increase in sales, number of
employees, number of products, additional investment, etc.

(2) Social Objectives:

Social objectives is to provide some benefits to society like applying environmental friendly practices in
the production process and giving employment to disadvantaged sections of society, etc. Example:
TISCO, ITC, and Asian Paints.

(3) Personal Objectives:

Personal Objectives is to focus on diverse personal objectives of people working in the organization
which need to be reconciled with organizational objectives.

3
Importance of Management

(1) Achieving Group Goals: Management creates team work and coordination in the group. Managers
give common direction to individual efforts in achieving the overall goals of the organization.

(2) Increases Efficiency: Management increases efficiency by using resources in the best possible
manner to reduce cost and increase productivity.

(3) Creates Dynamic organization: Management helps the employees overcome their resistance to
change and adapt as per changing situation to ensure its survival and growth.

(4) Achieving personal objectives: Management helps the individuals achieve their personal goals while
working towards organizational objectives.

(5) Development of Society: Management helps in the development of society by producing good
quality products, creating employment opportunities and adopting new technologies.

Management as an Art

Art refers to skillful and personal application of existing knowledge to achieve desired results. It can be
acquired through study, observation and experience. The features of art as follows:

(1) Existence of theoretical knowledge: In every art, Systematic and organized study material should be
available compulsorily to acquire theoretical knowledge.

(2) Personalized application: The use of basic knowledge differs from person to person and thus, art is a
very personalized concept.

(3) Based on practice and creativity: Art involves in consistent and creative practice of existing
theoretical knowledge.

In management also a huge volume of literature and books are available on different aspects of
management. Every manager has his own unique style of managing things and people. He uses his
creativity in applying management techniques and his skills improve with regular application. Since all
the features of art are present in management. so it can called an art.

Management as a Science

Science is a systematized body of knowledge that is based on general truths which can be tested
anywhere, anytime. The features of Science are as follows:

(1) Systematized body of knowledge: Science has a systematized body of knowledge based on principles
and experiments.

(2) Principles based on experiments and observation: Scientific principles are developed through
experiments and observation.

4
(3) Universal validity: Scientific principles have universal validity and application.

Management has systematic body of knowledge and its principles are developed over a period of time
based on repeated experiments & observations which are universally applicable but they have to be
modified according to given situation.

As the principles of management are not as exact as the principles of pure science, so it may be called-
an inexact science? The prominence of human factor in the management makes it a Social Science.

Management as Profession

Profession means an occupation for which specialized knowledge and skills are required and entry is
restricted. The main features of profession are as follows:

(1) Well-defined body of Knowledge: All the professions are based on well-defined body of knowledge.

(2) Restricted Entry: The entry in every profession is restricted through examination or through some
minimum educational qualification.

(3) Professional Associations: All professions are affiliated to a professional association which regulates
entry and frames code of conduct relating to the profession.

(4) Ethical Code of Conduct: All professions are bound by a code of conduct which guides the behavior of
its members.

(5) Service Motive: The main aim of a profession is to serve its clients.

Management does not fulfill all the features of a profession and thus it is not a full-fledged profession
like doctor, lawyer, etc., but very soon it will be recognizedas full-fledged profession.

Levels of Management: Top, Middle and Operational Levels

“Levels of management” means different categories of managers, the lowest to the highest on the basis
of their relative responsibilities, authority and status.

5
Top Level

Consists of Chairperson, Chief Executive Officer, Chief Operating Officer or equivalent and their team.

Chief task is to integrate and to coordinate the various activities of the business, framing policies,
formulating organizational goals & strategies.

Middle Level

Consists of Divisional or Departmental heads, Plant Superintendents and Operation Managers etc.

Main tasks are to interpret the policies of the top management to ensure the availability of resources to
implement policies, to coordinate all activities, ensure availability of necessary personnel & assign duties
and responsibilities to them.

Lower Level/Supervisory Level

Consists of Foremen and supervisor etc. Main task is to ensure actual implementation of the policies as
per directions, bring workers’ grievances before the management & maintain discipline among the
workers.

Functions of Management

1. Planning: Thinking in advance what to do, when to do, and who is going to do it. It bridges the gap
between where we are and where we want to reach.

2. Organizing: organization means deciding the framework of working how many units and sub-units are
needed, how many posts are needed, how to distribute the authority and responsibilities.

3. Staffing: It refers to recruitment, selection, training, development and appointment of the employees.

4. Directing: It refers to guiding, instructing, inspiring and motivating the employees.

5. Controlling are the main functions of management. Controlling is monitoring the organizational
performance towards the attainment of the organizational goals.

Coordination (The Essence of Management):

Coordination is the force which synchronizes all the functions of management and activities of different
departments. Lack of coordination results in overlapping, duplication, delays and chaos. It is concerned
with all the three levels of management as if all the levels of management are looked at together, they
become a group and as in the case of every group, they also require coordination among themselves. So,
it is not a separate function of management, rather it is the essence of management.

6
l. Coordination integrates group efforts: It integrates diverse business activities into purposeful group
activity ensuring that all people work in one direction to achieve organizational goals.

2. Coordination ensures unity of action: It directs the activities of different departments and employees
towards achievement of common goals and brings unity in individual efforts.

3. Coordination is a continuous process: It is not a specific activity matter it is required at all levels, in all
departments till the organization continues its operations.

4. Coordination is all pervasive function: It is universal in nature. It synchronizes the activities of all levels
and departments as they are interdependent to maintain organizational balance.

5. Coordination is the responsibility of all managers: It is equally important at all the three-top, middle
and lower levels of management. Thus it is the responsibility of all managers that they make efforts to
establish coordination.

6. Coordination is a deliberate function: Coordination is never established by itself rather it is a

conscious effort on the part of every manager. Cooperation is voluntary effort of employees to help one
another. Effective coordination cannot be achieved without cooperation of group members.

7
CHAPTER 2: SCHOOLS OF MANAGEMENT THOUGHT

CLASSICAL MANAGEMENT THEORY

Classical Management Theory is a “Body of management thought based on the belief

that employees have only economical and physical needs, and that social needs and need for job-
satisfaction either don’t exist or are unimportant. Accordingly, this school advocates high specialization
of labor, centralized decision making, and profit maximization. To have originated at the end of the
nineteenth century and in the beginning of the twentieth century, the Classical Management Theory
dominated management thinking in the 1920s and 1930s by emphasising on the efficiency of the work
process. Classical Management Theory has three schools of thought Scientific Management, which
identifies the best way to do a line of work; “Bureaucratic Management, which focuses on rules and
procedure, hierarchy and clear division of labour; and Administrative Management, which emphasises
the flow of information within the organisation. We discuss the three schools of thought of Classical
Management Theory and try to find out whether they have really become outdated and are of little
relevance to work and organisation in today’s world.

1. Scientific Management

Frederick Taylor is known as the begetter of Scientific Management. Taylor’s approach was to increase
organisational productiveness by increasing the efficiency of the production process through
emphasising on the empirical research. Especially in the United States where labour, especially the
skilled labour was short in supply at the start of the twentieth century and the only way of increasing
productivity was by raising the efficiency of the workers. Scientific Management states that the line of
work should be designed in such a way that every worker has a well-controlled and well-stipulated task,
and specific methods and procedures are strictly followed for each job. (Cole, 2004) Taylor’s
management theory is founded upon a fundamental belief that managers not only are intellectually
better than an average employee, but they have a positive duty as well to oversee staff and to organise
their work activities. Therefore, his theory was only used on low-level repetitive and routine tasks which
could be easily managed at supervisory level.

Taylor developed four principles for his theory of Scientific Management. First principle is to
scientifically develop best methodology to perform each task. Second principle is that managers should
make sure that the best person is picked to perform the task and to ensure that he/she gets the best
training. Third principle is that managers are responsible for assuring that the best person selected for
the job does it by applying the best methodology. Last principle Taylor developed was that total
responsibility for the work method should be removed from the worker and should be passed on to the
management, and the employee is only responsible for the actual work performance. (Cole, 2004;
Stoner et al, 1996)

On production-line time studies Taylor has based his management system. Taylor contrived the best and
quickest methods of performing each component by breaking down each job into its components and
applying time study as his base. He also tried to persuade employers to pay a higher rate to more

8
productive workers. In the early parts of twentieth century Scientific Management Theory became very
popular as its application was shown to lead improvements in productivity and efficiency.

2. Bureaucratic Management

Max Weber is known as the father of Modern Sociology. He had first used the term ‘bureaucracy’ to
describe an organisational form which in his view was superior to others. He viewed an ideal
organisation to be bureaucratic whose divisions of labour were clearly expressed and whose objectives
and activities were rationally thought. He believed that performance evaluation should entirely be made
on the basis of merit and that technical competence should be emphasized on. The key elements of a
bureaucracy are defined by Weber as: A clear chain of command within a well-defined hierarchy where
the top post holders have the authority and the right to control the lower post holders; Specialisation of
skills and division of labour, where every employee will have the authority and essential expertise to
finish a particular task; In writing, accurate and complete rules and regulations, to control and govern all
decisions, activities and situations; Impersonal relationships between employees and managers, with
clear duties of personnel and statements of the rights; And all the decisions regarding selection,
recruitment and promotion will be made on the basis of technical competence. The framework Weber
provided for his theory of Bureaucratic Management advanced the formation of many huge
corporations such as Ford.

3. Administrative Management

Henri Fayol a French industrialist was one of the most influential management thinkers who developed
one of the Classical Management Theory known as ‘Administrative Management’. Scientific
Management theory was concerned with increasing the productiveness of the shop floor while Fayol’s
theory grew out of the need to find guidelines to manage complex organisations like factories. An early
effort pioneered by Fayol was to identify the skills and principles that underlie effective management.
According to Cole (2004), Fayol believed that sound management falls into certain patterns which once
identified can be analysed, so he focused on management of business operations, which he felt had
been the most neglected.

He developed fourteen general principles of management based on his management experience. It was
generally believed that mangers are born not made, before Fayol. He insisted that management was a
skill like other skills which could be taught and learned once the principles underlying it were
understood.

Fayol's principles of management are listed below:

1. Division of Work – When employees are specialized, output can increase because they
become increasingly skilled and efficient.
2. Authority – Managers must have the authority to give orders, but they must also keep in
mind that with authority comes responsibility.
3. Discipline – Discipline must be upheld in organizations, but methods for doing so can vary.
4. Unity of Command – Employees should have only one direct supervisor.

9
5. Unity of Direction – Teams with the same objective should be working under the direction
of one manager, using one plan. This will ensure that action is properly coordinated.
6. Subordination of Individual Interests to the General Interest – The interests of one
employee should not be allowed to become more important than those of the group. This
includes managers.
7. Remuneration – Employee satisfaction depends on fair remuneration for everyone. This
includes financial and non-financial compensation.
8. Centralization – This principle refers to how close employees are to the decision-making
process. It is important to aim for an appropriate balance.
9. Scalar Chain – Employees should be aware of where they stand in the organization's
hierarchy, or chain of command.
10. Order – The workplace facilities must be clean, tidy and safe for employees. Everything
should have its place.
11. Equity – Managers should be fair to staff at all times, both maintaining discipline as
necessary and acting with kindness where appropriate.
12. Stability of Tenure of Personnel – Managers should strive to minimize employee turnover.
Personnel planning should be a priority.
13. Initiative – Employees should be given the necessary level of freedom to create and carry out
plans.
14. Esprit de Corps – Organizations should strive to promote team spirit and unity.

The ideas Classical Theorists have presented still have many applications in the management of today’s
organisations but with some modifications. Managers of today are facing many internal challenges
which are similar to the ones faced by the managers during earlier periods. Like Taylor’s concern for
increase productivity of workers is still shared by managers. The Scientific Management theory is still
relevant, even today but it is not as popular as it was in the past. The job design it presented is still
widely used in industries today and has made most of the industrial work repetitive, tedious, menial and
depressing, and can be noted for example in assembly lines of automobile manufacturers. McDonald’s
divides its operation into a number of tasks such as operating a deep fryer or cooking operation,
supervising and assign people to perform the tasks. The modern mass automobile assembly lines pour
out finished merchandises faster than Taylor could have ever thought off or imagined. In addition to
this, the efficiency techniques of Scientific Management are used in the training of Surgeons.

Today’s armies also employ Scientific Management. Of the main points listed – select workers with
appropriate skills for each job, a standard method to perform each task, training for standard task,
eliminating interruptions and planning work, and wage incentive for increasing output – all but wage
incentives are used by modern military for increased output. Wage incentives usually appear in the form
of skill bonuses in armies. Furthermore, industrial engineers of today are also taught Scientific
Management methods which include job-tasks analysis, time and motion studies and detailed
production planning regarding the field of operation research and management.

10
In United States Bureaucratic Management is still used by service-based organisations like libraries.
Libraries of Wichita State University are one concrete example where Weber’s Bureaucratic
Management ideas are still applied. Postal service in United States is also still using bureaucracy.

Piece rate systems and mass production line are used in the manufacturing and garment industries in
Mauritius. Sea-food hub is another industry where the Classical Management Theories are still applied,
more specifically at Tuna Processing plant in Mauritius.

But since the emergence and formulation of the Classical Management Theories in the nineteenth
century the economic landscape has rapidly changed. Businesses of today do not exist in a vacuum. They
have become open systems with dynamic and constant interaction with the environment. Business
environment of today is highly competitive and global, and managers of today are increasingly becoming
aware of the business environment and its effects.

There are two types of business environment known as the internal and the external environment.
Factors that can be relatively controlled by the organisation relates to the internal environment. These
factors are the employees, owners, customers, suppliers, pressure groups and authorities. The external
environment constitutes of Political, Economic, Social and Technological (PEST) factors that cannot be
controlled by the organisation.

Business environment of today is characterised with uncertainty, changes and innovation. At the same
time concern about the natural environment has also emerged worldwide. Current natural concerns are
climate changes, pollution, ozone depletion and other global issues like population and food security. It
is becoming more challenging because of the commotion in the financial sector and global economic
slowdown. Businesses must adapt to the environment at all cost or die. Managers of today have to be
concerned not only with the scientific facts but with the environment and the public perception.

Organisations today are mostly influenced by the external environment (continuous technology change,
globalisation, fierce market share competition, hiring and retaining front line workers and executives)
that often fluctuate with time. Yet Classical Management Theories only portrays the image of an
organisation that is not shaped by the external influences. In today’s world, Classical Management
Theories are gradually fading and the principal reason behind this is that people and their needs are
considered as secondary to the needs of an organisation by Classical theorists. Nowadays, Human
Resource Management has also very seriously challenged the scientific approach. Furthermore, in
organisations the Bureaucratic Management is rapidly giving way to the Matrix structure. However,
Classical Management Theories are still important because they had introduced the concepts of
management for intellectual analysis and provided ideas which were further developed by the
subsequent m

11
MAJOR MODERN SCHOOLS OF MANAGEMENT

1. Management Process School or the Operational Approach

This school regards management as a process of getting things done with people operating in organized
groups. Henry Fayol is known as the father of this school. According to this, school, management can
best be studied in terms of the process that it involves.

Those subscribing to this school are of the view that management principles are of universal application.
This approach is also designated as the traditional approach, the universal approach or the classical
approach. The contributors and thinkers who belong to this school are William Newman, summers,
McFarland, Henry, J.D. Mooney, A.C. Railey, lyndell Urwick and Harold Koontz.

2. The Empirical School or the Management by Customs School

This approach to management is taken by scholars who identify management as the study of
experience, followed by efforts to learn from the experience and then transfer the knowledge to
practitioners and students. Typically, this is done through a case study approach or through the study of
decision-making.

This school of thought believes that by analyzing the experience of successful managers or the mistakes
of poor managers, we somehow can learn about applying the most effective management techniques.
The main contributors of this approach are Earnest Dale, Mooney and Raliey, Urwick and many other
management practitioners and associations like the American Management Association.

The main features of this approach are

1. Management is the study of managerial experiences.

2. Managerial experiences can be passed over to the practitioners and students.

3. The techniques used in successful cases can be used by future managers for further references.

4. Theoretical research can be combined with practical experiences for better management.

The Human Relations Approach (or) the Human Behaviour School

This school takes note of the psychological factors causing a change in the human behavior in organized
groups under a given situation. It is based upon the fact that management involves getting things done
through people and therefore management must be centered on interpersonal relations.

This approach has been called the human relations, leadership or behavioral science approach.
Exponents of this school of thought seek to apply existing and newly developed theories, methods and
techniques of the relevant social science to the study of intra and interpersonal relations, which varies
from personality dynamics to relations of cultures. This school stresses on the people part of
management and the understanding aspects.

12
The motivation of the individual and adherents of this school is heavily oriented towards psychology and
sociology. The range of thought in this school are (a) The study of human relations and how managers
can understand and use these relations; (b) The role of manager as a leader and how he should lead
others; (c) The study of group dynamics and inter-personal relationships.

The Social Systems School

This school of thought is closely related to the human behavior or the human relations school of
thought. It looks upon management as a social system, which refers to a system of cultural inter
relationships. These can be formal organizational relationships or any kind of human relationships. This
approach to management being heavily sociological in nature does what the study of sociology does.

It identifies the nature of the cultural relationships of various social groups and attempts to show them
as an integrated system. The spiritual father of this school was the late Chester Barnard who developed
the theory of co-operation. The focus of this school of thought is on the study of the organization as a
co-operative or collaborative system. A social system is a unit or entity consisting of various social
subsystems called groups.

Decision Theory School

The decision theory approach concentrates on the rational decisions theory, which refers to the
selection of a suitable course of action from various possible alternatives. This approach may deal with
the decisions itself, with the person or organizational group who makes the decision or with an analysis
of the decision processes.

By expanding the viewpoint well beyond the process of evaluating alternatives, many people use the
theory to examine the nature of organizational structure, the psychological and social reactions of
individuals and groups and analysis of value considerations with respect to goals, communication
networks and incentives. The scientific approach to decision making involves some of the following
factors:

1. Defining the problem

2. Collecting all relevant information

3. Developing alternatives

4. Examining all the alternatives and the solutions

5. Testing the solutions, (if you can make this possible)

6. Selecting a course of action

7. Implementing the action.

8. Evaluating the results of the action

13
The Mathematical School

In this group, we have those theorists who see management as a system of mathematical models and
processes. According to the approach of the Mathematical school, decision-making is a logical process
that can be expressed in terms of mathematical symbols and relationships. This approach forces the
analyst to define a problem and allows for the insertion of symbols through logical methodology which
provides a powerful tool for solving complex phenomena.

The modern managers may normally face some of the following problems:

1. Increase in the size and complexity of organizational structures

2. Increase in paperwork, which stifles the ability to produce

3. Communication problems

4. The need for instantaneous management response in the decision-making areas, which requires up-to
date, accurate and comprehensive information

5. Increase in demands on management with fewer budgets

6. Increase in the number of people to be dealt with by government and business structures

The Systems Approach School

This school is of recent origin having developed in the later 1960s. It is an integrated approach, which
considers management in its totality based on empirical data. According to this approach, attention
must be paid to the overall effectiveness of a subsystem in isolation from the other subsystems. The
main emphasis is on the interdependence and inter-relatedness of the various subsystems, from the
point of view of the effectiveness of a large system. Its essential features are as follows:

A system has a number of subsystems, parts and subparts.

All the subsystems, parts and subparts are mutually related to each other. A change in one part will
affect the changes in other parts.

The systems approach emphasizes on the study of the various parts in their interrelationships rather
than in isolation from each other.

The systems approach to management brings out the complexity of a real life management problem
much more sharply than any of the other approaches.

It can be utilized by any other school of management thought.

The boundary of a system may be classified into two parts:

14
1. Closed system that has no environment. This part implies that no outside systems are to be
considered.

2. Open system that has an environment. This part implies that it possesses systems with which it
relates, exchanges and communicates.

The Contingency Approach School of Management

The contingency approach to management emphasizes on the fact that management is a highly
practice-oriented and action-packed discipline.

Managerial decisions and actions initiatives are known to be matters of pragmatism and not of
principles. The environment of organizations and managers is very complex, uncertain, ever changing
and diverse. It is the basic function of managers to analyze and understand the environments in which
they function before adopting their techniques, processes and practices.

The choice of approaches and also their effectiveness is contingent on the behavior and dynamics of
situational variables. But, there is no one universally valid best way of doing things. Management
theory and principles tend to be deterministic, while the pace, pattern and behavior of events defy the
deterministic or dogmatic approaches. What is valid and good in a particular situation need not be the
same in some other situation.

15
CHAPTER 3

Meaning of Business Environment:

Business environment refers to forces and institutions outside the firm with which its members must
deal to achieve the organisational purposes. Here

• Forces = economic, social, political, technological etc.

• Institutions = suppliers, customers, competitors etc

It includes all those constraints and forces external to a business within which it operates. Therefore,

• The firm must be aware of these external forces and institutions and

• The firm must be nagged keeping in mind these forces and institutions so that the organisational
objectives are achieved. .

Features of Business Environment

1. Totality of external forces: Business environment is the sum total of all the forces/factors external to a
business firm.

2. Specific and general forces: Business environment includes both specific and general forces. Specific
forces include investors, competitors, customers etc. who influence business firm directly while general
forces include social, political, economic, legal and technological conditions which affect a business firm
indirectly.

3. Inter-relatedness: All the forces/factors of a business environment are closely interrelated. For
example, increased awareness of health care has raised the demand for organic food and roasted
snacks.

4. Dynamic: Business environment is dynamic in nature which keeps on changing with the change in
technology, consumer’s fashion and tastes etc.

5. Uncertainty: Business environment is uncertain as it is difficult to predict the future environmental

changes and their impact with full accuracy.

6. Complexity: Business environment is complex which is easy to understand in parts separately but it is
difficult to understand in totality.

7. Relativity: Business environment is a relative concept whose impact differs from country to country,
region to region and firm to firm. For example, a shift of preference from soft drinks to juices will be
welcomed as an opportunity by juice making companies while a threat to soft drink manufacturers.

16
IMPORTANCE OF BUSINESS ENVIRONMENT

1. Identification of opportunities to get first mover advantage: Understanding of business environment

helps an organization in identifying advantageous opportunities and getting their benefits prior to
competitors, thus reaping the benefits of being a pioneer.

2. Identification of threats: Correct knowledge of business environment helps an organization to identify

those threats which may adversely affect its operations. For example, Bajaj Auto made considerable
improvements in its two wheelers when Honda & other companies entered the auto industry.

3. Tapping useful resources: Business environment makes available various resources such as capital,
labour, machines, raw material etc. towards the business firm. In order to know the availability of
resources and making them available on time at economical price, knowledge of business environment
is necessary.

4. Coping with Rapid changes: Continuous study/scanning of business environment helps in knowing the
changes which are taking place and thus they can be faced effectively.

5. Assistance in planning and policy formulation: Understanding and analysis of business environment
helps an organization in planning &policy formulation. For example, ITC Hotels planned new hotels in
India after observing boom in tourism sector.

Helps in improving performance: Correct analysis and continuous monitoring of business environment
helps an organization in improving its performance.

Economic Environment in Zambia

As a part of economic reforms, the Government of Zambia announced New Economic Policy in 1991 for
taking out the country out of economic difficulty and speeding up the development of the country. This
was also the case in India with the introduction of National Economic Plan(NEP).

Main features of NEP, 1991 are as follows:

1. Only six industries were kept under licensing scheme.

2. The role of public sector was limited only to four industries.

17
3. Disinvestment was carried out in many public sector enterprises.

4. Foreign capital/investment policy was liberalized and in many sectors100% direct foreign investment
was allowed.

5. Automatic permission was given for signing technology agreements with foreign companies.

6. Foreign investment promotion board (FIPB) was setup to promote & bring foreign investment in India.

7. Various benefits were offered to small scale industries.

The three main strategies adopted for the above may be defined as follows:

1. Globalisation:
• Integrating the economy of a country with the economies of other countries to facilitate freer flow of
trade, capital, persons and technology across borders. It leads to the emergence of a cohesive global
economy.
• Till 1991, the Government of India had followed a policy of strictly regulating imports in value and
volume terms. These regulations were with respect to (a) licensing of imports, (b) tariff restrictions and
(c) quantitative restrictions.
• NEP ‘91 advocated rapid advancement in technology and directed trade liberalization towards:

a. Import Liberalisation

b. Export promotion towards rationalization of the tariff structure and

c. Reforms w.r.t foreign exchange

2. Liberalisation:
= Liberalising the Indian business and industry from all unnecessary controls and restrictions. That is
relaxing rules and regulations which restrict the growth of the private sector and allowing the private
sector to take part in economic activities that were earlier reserved for the government sector. The
steps taken for this were:
a. Abolishing licensing b. Freedom in deciding the scale of operations c. Removal of restrictions on
movement of goods and services. d. Freedom in fixing prices.
e. Reduction in tax rates and unnecessary controls

f. Simplifying procedures for import and exports g. Making it easy to attract foreign capital.

3. Privatization:

• Refers to the reduction of the role of the public sector in the economy of a country.

• Transfer of ownership and control from the private to the public sector (disinvestment) can be done
by: a. Sale of all/some asses of the public sector enterprises. b. Leasing of public enterprises to the
private sector. c. Transfer of management of the public enterprise to the private sector.
• To achieve privatization in India, the government redefined the role of the public sector and –

18
a. Adopted a policy of planned disinvestment of the public sector

b. Refer the loss making and sick units to the Board of Industrial and Financial Reconstruction (BIFR)

DIMENSIONS/COMPONENTS OF BUSINESS ENVIRONMENT

1. Economic Environment: It has immediate and direct economic impact on a business. Rate of interest,
inflation rate, change in the income of people, monetary policy, price level etc. are some economic
factors which could affect business firms. Economic environment may offer opportunities to a firm or it
may put constraints.

2. Social Environment: It includes various social forces such as customs, beliefs, literacy rate, educational
levels, lifestyle, values etc. Changes in social environment affect an organization in the long run.
Example: Now a days people are paying more attention towards their health, as a result of which
demand for mineral water, diet coke etc. has increased while demand of tobacco, fatty food products
has decreased.

3. Technological Environment: It provides new and advance ways/techniques of production. A

businessman must closely monitor the technological changes taking place in the industry as it helps in
facing competition and improving quality of the product. For Example, Digital watches in place of
traditional watches, artificial fabrics in place of traditional cotton and silk fabrics, booking of railway
tickets on internet etc.

4. Political Environment: Changes in political situation also affect business organizations. Political
stability builds confidence among business community while political instability and bad law & order
situation may bring uncertainty in business activities. Ideology of the political party, attitude of
government towards business, type of government-single party or coalition government affects the
business Example: Bangalore and Hyderabad have become the most popular locations for IT due to
supportive political climate.

5. Legal Environment: It constitutes the laws and legislations passed by the Government, administrative
orders, court judgements, decisions of various commissions and agencies. Businessmen have to act
according to various legislations and their knowledge is very necessary. Example: Advertisement of
Alcoholic products is prohibited and it is compulsory to give statutory warning on advertisement of
cigarettes.

MAJOR STEPS IN ECONOMIC REFORMS

1. New Industrial Policy – Under this the industries have been freed to a large extend from licences and
other controls. Efforts have been made to encourage foreign investment.

2. New Trade Policy – The Foreign trade has been freed from the unnecessary control. The age old
restrictions have been eliminated.

3. Fiscal Reforms. The greatest problem confronting the Zambian Govt. is excessive fiscal deficit.

19
(a) Fiscal Deficit – It means country is spending more than its income

(b) Gross Domestic Product (GDP) – It is the sum total of the financial value of all goods & services
produced in a year in a country.

4. Monetary Reform – It is a sort of control policy through which the central bank controls the supply of
money with a view to achieving objectives of general economic policy.

5. Capital Market Reforms- The Govt. has taken the following steps for the development of this market:

(1) Securities and Exchange Commision(SEC) has been established.

(2) The restriction in respect of interest on debentures has been lifted.

(3) Private Sector has been permitted to establish Mutual Fund.

6. Dismantling Price control – The govt. has taken steps to remove price control in many products
especially in fertilizers, iron and steel, petro products. Restrictions on the import of these things have
also been removed.

IMPACT OF GOVERNMENT POLICY CHANGES ON BUSINESS AND INDUSTRY

1. Increasing Competition: De-licencing and entry of foreign firms in the Zambian market has increased
the level of competition for Zambian firms.

2. More Demanding Customers: Now customers are more aware and they keep maximum information
of the market as the result of which now market is customer/buyer oriented, now, products are
produced keeping in mind the demands of the customers.

3. Rapid Changing Technological Environment: Rapid Technological advancement has changed/improved

the production process as a result of which maximum production is possible at minimum cost but it
leads to tough challenges in front of small firms.

4. Necessity for Change- After New Industrial. Policy the market forces (demand & supply) are changing
at a very fast rate. Change in the various components of business environment has made it necessary for
the business firms to modify their policies & operations from time to time.

5. Need for Developing Human Resources: The changing market conditions of today requires people
with higher competence and greater commitment, hence there is a need for developing human
resources which could increase their effectiveness and efficiency.

6. Market Orientation: Earlier selling concept was famous in the market now its place is taken by the
marketing concept. Today firms produce those goods & services which are required by the customers.
Marketing research, educational advertising, after sales services have become more significant.

20
7. Reduction in budgetary Support to Public Sector: The budgetary support given by the government to
the public sector is reducing thus the public sector has to survive and grow by utilising their own
resources efficiently.

21
CHAPTER 4: PLANNING

Meaning:

• Deciding in advance what to do& how to do it. It is one of the basic managerial functions.

• It involves 2 aspects:
Setting of aims and objectives of the organization + Selecting and developing an appropriate course of
action to achieve these objectives.

• Koontz and O‘Donnell – ―Planning is deciding in advance what to do, how to do, when to do, and who
to do it. Planning bridges the gap from where we are to where we want to go. It makes it possible for
things to occur which would not otherwise happen.

• Involves setting of objectives & developing an appropriate course of action to achieve these objectives

Importance of Planning

1. Planning provides directions: By stating in advance how the work is to be done planning provides
direction for action. If there was no planning, employees would be working in different directions and
the organization would not be able to achieve its goals efficiently.

2. Planning reduces the risk of uncertainity: Planning is an activity which enables a manager to look
ahead, anticipate change, consider the impact of change and develop appropriate responses.

3. Planning reduces wasteful activities: Planning serves as the basis of coordinating the activities and
efforts of different departments and individuals whereby useless and redundant activities are
mentioned.

4. Planning promotes innovative ideas: Planning is the first function of management. Managers get the
opportunity to develop new ideas and new ideas can take the shape of concrete plans.

5. Planning facilities decision making: Under planning targets are laid down. The manager has to
evaluate each alternative and select the most viable option.

6. Planning establishes standards for controlling: Planning provides the standards against which the
actual performance can be measured and evaluated. Control is blind without planning. Thus planning
provides the basis for control.

22
Limitations of Planning

(A) Internal Limitations

1. Planning leads to rigidity: Planning discourages individual’s initiative &creativity. The managers do not
make changes according to changing business environment. They stop taking or giving suggestions and
new ideas. Thus detailed planning may create a rigid framework in the organization.

2. Planning may not work in dynamic environment: Planning is based on anticipation of future
happenings and since future is uncertain and dynamic therefore, the future anticipations are not always
true.

3. Planning involves huge costs: When plans are drawn up, huge cost is involved in their formulation.

4. Planning is time consuming: Sometimes plans to be drawn up take so much of time that there is not
much time left for their implementation.

5. Planning does not guarantee success: The success of an enterprise is possible only when plans are
properly drawn and implement. Sometimes managers depend on previously tried successful plans, but it
is not always true that a plan which has worked before will work effectively again.

6. Planning reduces creativity: In planning, work is to be done as per pre-determined plans. It is decided
in advance what is to be done, how it is to be done and who is going to do it. Moreover, planning is done
by top management which leads to reduction of creativity of other levels of management.

(B) External Limitations

They are those limitations of planning which arises due to external factors over which an organization
has no control.

1. Changes in Government policies way leads to failure of planning.

2. Natural calamities such as flood, earthquake etc. also adversely affect the success of planning.

3. Changes in the strategies of competitors also leads to failure of planning many times.

4. Regular technological changes may affect planning.

5. Changes in the Economic and Social Conditions also reduces the effectiveness of planning.

Planning Process

1. Setting Objectives:
– Objectives specify what the organization wants to achieve.
– Objectives can be set for the entire org. & stated to each dept. within the org. very clearly, to
determine how all depts. would contribute towards overall objectives.
-Then these have to percolate down to all employees at all levels so that they understand how their

23
actions contribute to achieving objectives.
– E.g. Objective could be to achieve sales, expansion of business etc.

2. Developing Premises:
– Plans are made on the basis of some assumptions.
– These assumptions, which provide the basis for planning, are called premises.
– All managers involved in planning should be familiar w/ them, cuz plans are expected to operate &
reach their destination subject to these. They can be:
• Internal premises: Cost of products, capital, machinery, profitability etc.
• External premises: Changes in technology, population growth, competition, govt. policies etc

3. Identifying Alternative Courses Of Action:

– After setting the objectives, managers make a list of alternatives through which the org. can achieve
its objectives as there can be many ways to achieve the objectives & managers must know all of them.
– E.g. Sales could be increased through any of the following ways:
• By enhancing advertising expenditure
• Appointing salesmen for door-to-door sales
• By offering discounts
• By adding more product lines.

4. Evaluating Alternative Courses of Action

– Positive & negative aspects of each &every proposal need to be evaluated to determine their
feasibility and consequences in the light of each objective to be achieved.
– E.g. In financial plans, risk-return trade-off are imp. Riskier the investment, higher the returns it is
likely to give. To evaluate such proposals, detailed calc. of earnings, taxes, earnings per share etc. should
be done.

5. Selecting the Best Alternative

– Real point of decision-making→ Best plan has to be adopted and implemented.
– The ideal plan = most feasible, profitable and with least negative consequences.
– Most plans may not be subjected to mathematical analysis. In such cases, subjectivity & manager‘s
experience, judgment and intuition are important to select the most viable alternative.
– Sometimes a combination of plans may be selected instead of one best course.

6. Implementing the Plan

– Concerned with putting the plan into action.
– For implementing the plans, managers start organizing & assembling resources for it.
– E.g. If there is a plan to ↑ production, then more labour, more machinery will be reqd. This step would
also involve organizing for more labour and purchase of machinery.

7. Follow Up Action
– This involves monitoring the plans and ensuring that activities are performed according to the
schedule.

24
– Whenever there are deviations from plans, immediate action has to be taken to bring implementation
according to the plan or make changes in the plan.

TYPES OF PLAN

A Plan is a specific action proposed to help the organization achieve its objectives. It is a document that
outlines how goals are going to be met. The importance of developing plans is evident from the fact that
there may be more than one means of reaching a particular goal. So with the help of logical plans,
objectives of an organization could be achieved easily.

SINGLE USE PLAN

A Single use plan in a business refers to plan developed for a one-time project or event that has one
specific objective. It applies to activities that do not reoccur or repeat. It is specifically designed to
achieve a particular goal. Such plan is developed to meet the needs of a unique situation. The length of a
single use plan differs greatly depending on the project in question, as a single event plan may only last
one day while a single project may last one week or months. For example, an outline for an advertising
campaign. After the campaign runs its course, the short term plan will lose its relevance except as a
guide for creating future plans.

Types of Single Use Plan

1. Programme: A programme is a single use plan containing detailed statements about project outlining
the objectives, policies, procedures, rules, tasks, physical and human resources required to implement
any course of action.

2. Budget: A budget is a statement of expected result expressed in numerical terms for a definite period
of time in the future.

STANDING PLANS

Standing plans are used over and over again because they focus on organizational situations that occur
repeatedly. They are usually made once and retain their value over a period of years while undergoing
revisions and updates. That is why they are also called repeated use plans. For example, Businessman
plans to establish a new business Entrepreneur drafts business plan before opening the doors to their
business, and they can use their plan to guide their efforts for years into the future.

Types of Standing Plans

1. Objectives: Objectives are defined as ends for the achievement of which an organization goes on
working. They may be designed as the desired future position that the management would like to reach.
The first and foremost step of the planning process is setting organizational objectives. Examples
increasing sales by 10%, Getting 20% return on Investment etc. Objectives should be clear and
achievable.

25
2. Strategy: Strategies refer to those plans which an organization prepares to face various situations,
threats and opportunities. When the managers of an organization prepare a new strategy for the
business it is called internal strategy and when some strategies are prepared to respond to the
strategies of the competitors, then such strategies are called external strategies. Examples, selection of
the medium of advertisement, selection of the channel of distribution etc.

3. Policy: Policies refers to the general guidelines which brings uniformity in decision-making for
achievement of organizational objectives. They provide directions to the managers of an organization.
They are flexible as they may be changed as per requirement. Example, selling goods on cash basis only,
reserving some post for women in the organization.

4. Procedure: Procedures are those plans which determine the sequential steps to carry out some
work/activity. They indicate which work is to be done in which sequence/way. They help in the
performance of work. Procedures are guides to action. Example: Process adopted in the Selection of
Employees.

5. Rule: Rules are specific statement that tell what is to be done and whatnot to be done in a specified
situation. They help in indicating which points are to be kept in mind while performing task/work. Rules
are rigid which ensure discipline in the organization. Example: ‘No smoking in the office premises’.
Violation of rules may invite penalty.

6. Method: Methods are standardized ways or manners in which a particular task has to be performed.
There may be many ways/method of completing a task but that method/way must be selected by which
work can be done early at the minimum possible cost. Methods are flexible. Example, various methods
of training are adopted by an organization to train its employees like apprenticeship training, vestibule
training etc.

Basis of
Single use plans Standing Plans
Difference

A single use plans in a business A standing plans in a business refers to plans

refers to plans developed for a one developed for using over and over again
1. Meaning
time project or event that has same because they focus on organizational
objective. situations that occur repeatedly.

Single use plans is developed to

Standing plans however is developed for
carry out a course of action that is
2. Objective activities that occur regularly over a period of
not likely to be repeated in future
time.
time.

26
 Single use plans generally Standing plans generally encompass a wider
3. Scope encompass a narrow scope scope involving more than one department or
targeting a specific project or event. business function.

Single use plans are discarded when Standing plans are relatively stable and used
4. Stability the situation, project or event is over and over again with necessary
occur. modifications or updations.

Budget for Annual General Meeting Recruitment and selection procedure for a
5. Example
of Shareholders. particular post in a company.

27
CHAPTER 5

ORGANISING IN MANAGEMENT

Meaning of Organizing

• Once the objectives and plans are laid down, management has to identify and establish productive
relationships between various activities and resources for implementing plans. In general words
organising refers to arranging everything in orderly form and making the most efficient use of resources.
The aim of organizing is to enable people to work together for a common purpose.

‘Organizing is the process of identifying and grouping the work to be performed, defining and delegating
responsibility and authority and establishing relationships for the purpose of enabling people to work
most effectively together in accomplishing objectives.’

Steps Involved in the Process of Organizing

1. Identification & Division of Work:

The total work to be done should be divided into specific jobs as according to predetermined plans. –
Job = a set of related tasks that can be performed by an individual. It should have specific and definite
tasks to be performed. As far as possible, it should define expected results along with the job.
– Division of work → specialization of efforts and skills + avoids duplication of work.
– Management must ensure that all the activities required to achieve organizational objectives are
identified.

2. Departmentalization:
– Grouping similar and related jobs into larger units called departments, divisions or sections and placing
them under a department head. It facilitates specialization.
– The departments are linked together and are interdependent.
– Aims at achieving co-ordination and facilitate unity of action. Departmentation can be done on the
basis of:
•Functions: marketing, personnel, finance etc.
•Products: Textiles, chemical, power division etc.
•Territories: Western, northern, central, eastern etc.

3. Assignment of Duties:
– Define the work of different job positions and allocate work accordingly.
– Once departments are formed, the dept. is placed under the charge of an individual.
– Jobs are assigned to an individual best suited to perform it.
– Qualifications, experience, ability and aptitudes of people should be matched with duties.
– E.g. activities of finance should be assigned to persons having qualifications and experience in finance
e.g. C.A‘s.

4. Establishing Reporting Relationships:

– Granting requisite authority to enable employees to perform the job satisfactorily.

28
– Superior subordinate relations between different people and job positions created, so that everybody
knows from whom he is to take orders and to whom he can issue orders.
– Creates management hierarchy = a chain of command from the top manager to the individual at the
lowest level.
– This helps in coordination.

Importance of Organizing

1. Benefits of specialization: In organizing every individual is assigned apart of total work and not the
whole task. This division of work into smaller units and repetitive performance leads to specialization.
Thus organizing promotes specialization which in turn leads to efficient & speedy performance of tasks.

2. Clarity in working relationship: It helps in creating well defined jobs and also clarifying the limits of
authority and responsibility of each job. The superior-subordinate relationship is clearly defined in
organizing.

3. Effective Administration: It provides a clear description of jobs and related duties which helps to
avoid confusion and duplication. Clarity in working relationships enables proper execution of work which
results ineffective administration.

4. Optimum utilization of resources: The proper assignment of jobs avoids overlapping/duplication of

work. This helps in preventing confusion and minimizing the wastage of resources and efforts.

5. Adoption to Change: A properly designed organizational structure is flexible which facilitates

adjustment to changes in workload caused by change in external environment related to technology,
products, resources and markets.

6. Development of Personnel: Sound organization encourages initiative and relative thinking on part of
the employees. When managers delegate their authority, it reduces their workload so they can focus on
more important issues related to growth & innovation. This also develops the subordinates’ ability and
helps him to realize his full potential.

7. Expansion and growth: It helps in growth & diversification of an enterprise by adding more job
positions, departments, products lines, new geographical territories etc.

Meaning of Organizational Structure

It seeks to establish relations among all the persons working in the organization. Under the
organizational structure, various posts are created to perform different activities for the attainment of
the objectives of the enterprise. Relations among persons working on different posts are determined.
The structure provides a basis or framework for managers and other employees for performing their
functions. The organization structure can be defined as the frame work within which managerial and
operating tasks are performed.

29
Relation between Span of Management and Organization structure:

Span of management refers to the number of subordinates that can be effectively managed by a
superior. The Span of management to a large extent gives shape to the organization structure. This
determines the levels of management in the structure. Arrow span of management results in tall
structure whereas wider span of management results in flat structure.

(A) Functional Structure: In functional structure activities are grouped and departments are created on
the basis of specific functions to be performed. For example, all the jobs related to production are
grouped under production department, sales departments etc.

Suitability

(1) Large organizations producing one line of product.

(2) Organizations which require high degree of functional specialization with diversified activities.

Advantage

1. Specialization: Better decision of labour takes place which results in specialization of functions and its
consequent benefits.

2. Coordination is established: All the persons working within a departmental are specialists of their
respective jobs. It makes the co-ordination easier at departmental level.

3. Helps in increasing managerial efficiency: Managers of one department are performing same type of
function again and again which makes them specialized and improves their efficiency.

4. Minimizes cost: It leads to minimum duplication of effort which results in economies of scale and thus
lowers cost.

30
Disadvantages

1. Ignorance of organizational objectives: Each departmental head works according to his own wishes.
They always give more weight to their departmental objectives. Hence overall organizational objectives
suffer.

2. Difficulty in Inter-departmental Coordination: All departmental heads work as per their own wishes
which leads to coordination within the department easier but it makes inter-departmental coordination
difficult.

3. Hurdle in complete development – because each employee specializes only in a small part of the
whole job.

(B) DIVISIONAL ORGANIZATION STRUCTURE

Dividing the whole enterprise according to the major products to be manufactured (like metal, plastic,
cosmetics etc.) is known as divisional organization structure.

Suitability: This structure is suitable in organizations producing multi product or different lines of
products requiring product specialization. Also growing companies which intend to add more lines of
products in future adopt this structure.

Advantages

1. Quick decision-making: Divisional manager can take any decision regarding his division independently
which makes decisions quick and effective.

2. Divisional results can be assessed: Division results (profit/loss) can be assessed easily. On this basis
any unprofitable division can be closed.

3. Growth and Expansion: It facilitates growth and expansion as new divisions can be added without
disturbing existing departments.

Disadvantages

1. Conflicts among different divisions on allocation of resources.

31
2. Duplicity of Functions: Entire set of functions is required for all divisions. It gives rise to duplicity of
efforts among divisions & increases cost.

3. Selfish Attitude: Every division tries to display better performance and sometimes even at the cost of
other divisions. This shows their selfish attitude.

FORMAL ORGANISATION

– Refers to the org. structure that is designed by the management to accomplish organizational
objectives.

– It specifies clearly the boundaries of authority & responsibility and there is a systematic coordination
among the various activities to achieve organizational goals.

– Louis Allen – System of well-defined jobs, each bearing a definite measure of authority, responsibility
& accountability. .

Features

1. It is deliberately created by the top management.

2. It is based on rules and procedures which are in written form.

3. It is impersonal i.e. does not takes into consideration emotional aspect.

4. It clearly defines the authority and responsibility of every individual.

5. It is created to achieve organizational objectives.

Advantages

1. Easier to fix responsibility since mutual relationships are clearly defined.

2. No overlapping of work – because things move according to a definite plan.

3. Unity of command through an established chain of command.

4. Easy to achieve objectives – because coordination and optimum use of human and material
resources.

5. Stability in the organization – because behavior of employees can be fairly predicted since there are
specific rules to guide them.

Disadvantages

1. The Work is based on rules which causes unnecessary delays.

2. Lack of initiative: The employees have to do what they are told to do and they have no opportunity of
thinking.

32
3. Limited in scope: It is difficult to understand all human relationships in an enterprise as it places more
emphasis on structure and work.

INFORMAL ORGANISATION

An informal organization is that organization which is not established deliberately but comes into
existence because of common interests, tastes and religious and communal relations. The main purpose
of this organization, structure is getting psychological satisfaction. For example, employees with similar
interest in sports, films, religion etc. may form their own informal groups.

Features

1. It originates from within the formal organization as a result of personal interaction among employees.

2. It has no written rules and procedures.

3. It does not have fixed lines of communication.

4. It is not deliberately created by the management.

5. It is personal means the feelings of individuals are kept in mind.

Advantages

1. Speed: Prescribed lines of communication are not followed which leads to faster spread of
information.

2. Fulfilment of social needs – enhances job satisfaction which gives them a sense of belongingness in
the organization.

3. Quick solution of the problems – because the subordinates can speak without hesitation before the
officers, it helps the officers to understand the problems of their subordinates.

Disadvantages

1. It creates rumours: All the persons in an informal organization talk careless and sometimes a wrong
thing is conveyed to the other persons.

2. It resists change and lays stress on adopting the old techniques.

3. Priority to group interests: Pressurizes members to conform to group expectations.

33
Difference between Formal and Informal Organisation

Basis Formal Organisation Informal Organisation

It refers to the structure of well- It refers to the network of social

1. Meaning defined authority and relationships which develops
responsibility. automatically.

2. Nature Rigid and stable Flexible and unstable

Arises by virtues of positions in

3. Authority Arises out of personal qualities.
management.

4. Adherence to Violations of rules may lead to

No such penalties and punishments.
rules penalties and punishments.

5. Flow to Takes place through the scalar Not through a planned route, it can
Communication Chain. take plane in any direction.

To achieve planned organizational To satisfy social and cultural needs and

6. Purpose
objectives. fulfill common interests.

Deliberately planned and created Emerges spontaneously as a result of

7. Formation/ origin
by management. social interaction among employees.

Well defined structure of tasks and No clear cut structure because of

8. Structure
relationships. complex network of relationships.

Authority flows from top to bottom Authority flows vertically as well as

9. Flow of Authority
i.e. downwards. horizontally.

10.
Independent. Depends on formal structure.
Interdependence

34
Delegation of Authority

Meaning: It means the granting of authority to subordinates to operate within the prescribed limits. The
manager who delegates authority holds his subordinates responsible for proper performance of the
assigned tasks. To make sure that his subordinates perform all the works effectively and efficiently in
expected manner the manager creates accountability.

Process/Elements of Delegation

1. Authority: The power of taking decisions in order to guide the activities of others. Authority is that
power which influences the conduct of others.

2. Responsibility: It is the obligation of a subordinate to properly perform the assigned duty. When a
superior issues orders, it becomes the responsibility of the subordinate to carry it out.

3. Accountability: When a superior assigns some work to a subordinate, he is answerable to his superior
for its success or failure.

Principle of Absoluteness of Accountability: Authority can be delegated but responsibility/accountability

cannot be delegated by a manager. The authority granted to a subordinate can be taken back and re-
delegated to another person. The manager cannot escape from the responsibility for any default or
mistake on the part of his subordinates. For example, If the chief executive asks marketing manager to
achieve a sales target of sale of 100 units/day. The marketing manager delegates this task to deputy
sales manager, who fails to achieve the target. Then marketing manager will be answerable for the work
performance of his subordinates. Thus, accountability is always of the person who delegates authority.

Process of Delegation of Authority

Difference between Authority, Responsibility and Accountability

Basis Authority Responsibility Accountability

Accountability for the

•obligation to perform
1. Meaning Right to command outcome of the assigned
an assigned task.
task.

35
 Arises from formal Arises from delegated
2. Origin Arises from responsibility.
position. authority.

Downward- from Upward- from Upward- from subordinate to

3. Flow
superior to subordinate. subordinate to superior. superior.

4. Can be withdrawn Cannot be withdrawn Cannot be withdrawn once

Withdrawal anytime by giving notice. once created. created.

Importance of the Delegation of Authority

1. Reduction of Executives’ work load: It reduces the work load of officers. They can thus utilize their
time in more important and creative works instead of works of daily routine.

2. Employee development: Employees get more opportunities to utilize their talent which allows them
to develop those skills which will enable them to perform complex tasks.

3. Quick and better decision are possible: The subordinate are granted sufficient authority so they need
not to go to their superiors for taking decisions concerning the routine matters.

4. High Morale of subordinates: Because of delegation of authority to the subordinates they get an
opportunity to display their efficiency and capacity.

5. Better coordination: The elements of delegation – authority, responsibility and accountability help to
define the powers, duties and answer ability related to various job positions which results in developing
and maintaining effective coordination.

Decentralization

• Decentralisation of authority means dispersal of authority to take decisions throughout the

organization, upto the lower levels.

• It implies reservation of some authority with the top level management and transferring rest of the
authority to the lower levels of the organization. This empowers lower levels to take decisions regarding
problems faced by them without having to go to the upper levels.

According to Allen,‘ Decentralisation refers to systematic efforts to delegate to the lowest level, all
authority except the one which can be exercised at central points.‟

Centralization = authority retained at top level and Decentralization = Systematic delegation of authority
at all levels and in all departments of a firm. Firm needs to balance the two.

36
• In case of a decentralized firm, Top level retains authority for:

o Policies and decisions w.r.t the whole firm

o Overall control and coordination

• Middle and lower levels have authority to take decisions w.r.t tasks allocated to them

Centralization and Decentralization: represents the pattern of authority among managers at different
levels. Centralization of authority means concentration of power of decision making in a few hands. In
such an organization very little authority is delegated to managers at middle and lower levels. No
organization can be completely centralized or decentralized. They exist together and there is a need for
a balance between the two. As the organization grows in size, there is tendency to move towards
decentralization. Thus, every organization is characterized by both.

Importance of Decentralization

1. Develops initiative amongst subordinates: It helps to promote confidence because the subordinates
are given freedom to take their own decisions.

2. Quick and better decisions: The burden of managerial decisions does not lie in the hands of few
individuals but gets divided among various persons which helps them to take better and quick decisions.

3. Relieves the top executives from excess workload: The daily managerial works are assigned to the
subordinates which leaves enough time with the superiors which they can utilize in developing new
strategies.

4. Managerial Development: It means giving authority to the subordinates up to the lower level to take
decisions regarding their work. In this way the opportunity to take decisions helps in the development of
the organization.

5. Better Control: It makes it possible to evaluate performance at each level which results in complete
control over all the activities.

Difference between – Delegation and Decentralization

Basis Delegation Decentralization

1. Nature It is a compulsory act. It is an optional policy.

2. Freedom of Less freedom to take decisions due to More freedom of action due to less
action more control by the superiors. control by the top management.

37
 It is a process of sharing tasks and It is the result of policy decisions taken
3. Status
authority. by top management.

Narrow- as it is confined to a superior Wide- It includes extension of delegation

4. Scope
and his immediate and subordinate. to all the levels of management.

To increase the role and the autonomy of

5. Purpose To reduce the burden of manager.
lower level of management.

38
CHAPTER 6

DIRECTING AND LEADERSHIP

Meaning:
Directing means giving instructions, guiding, counselling, motivating and leading the
staff in an organization in doing work to achieve Organizational goals. Directing is a key
managerial function to be performed by the manager along with planning, organizing,
staffing and controlling. From top executive to supervisor performs the function of
directing and it takes place accordingly wherever superior – subordinate relations exist.
Directing is a continuous process initiated at top level and flows to the bottom through
organizational hierarchy.

Direction has got following characteristics:

1. Pervasive Function- Directing is required at all levels of organization. Every manager

provides guidance and inspiration to his subordinates.
2. Continuous Activity- Direction is a continuous activity as it continuous throughout the
life of organization.
3. Human Factor- Directing function is related to subordinates and therefore it is related
to human factor. Since human factor is complex and behaviour is unpredictable,
direction function becomes important.
4. Creative Activity- Direction function helps in converting plans into performance.
Without this function, people become inactive and physical resources are meaningless.
5. Executive Function- Direction function is carried out by all managers and executives
at all levels throughout the working of an enterprise, a subordinate receives instructions
from his superior only.
6. Delegate Function- Direction is supposed to be a function dealing with human beings.
Human behaviour is unpredictable by nature and conditioning the people’s behaviour
towards the goals of the enterprise is what the executive does in this function.
Therefore, it is termed as having delicacy in it to tackle human behaviour.

Importance

1. Initiates Action: It helps to initiate action by the people in the organization towards
attainment of desired objectives. The employees start working only when they get
instructions and directions from their superiors. It is the directing function which starts
actual work to convert plans into results.
2. Integrates Employee’s Efforts: All the activities of the organization are interrelated so
it is necessary to coordinate all the activities. It integrates the activities of subordinates
by supervision, guidance and counselling.
3. Means of motivation: It motivates the subordinates to work efficiently and to

39
contribute their maximum efforts towards the achievement of organizational goals.
4. Facilitates change: Employees often resist changes due to fear of adverse effects on
their employment and promotion. Directing facilitates adjustment in the organization to
cope with changes in the environment.
5. Stability and balance in the organization: Managers while performing directing
function instruct, guide, supervise and inspire their subordinates in a manner that they
are able to strike a balance between individual and organizational interests.

Principles of Effective Direction:

Effective direction leads to greater contribution of subordinates to organization goals.

The directing function of management can be effective only when certain well accepted
principles are followed.

The following are the basic principles of effective direction:

1. Harmony of Objectives:

It is an essential function of management to make the people realize the objectives of

the group and direct their efforts towards the achievement of their objectives. The
interest of the group must always prevail over individual interest. The principle implies
harmony of personal interest and common interest..

2. Unity of Command:

This principle states that one person should receive orders from only one superior, in
other words, one person should be accountable to only one boss. If one person is under
more than one boss then there can be contradictory orders and the subordinate fails to
understand whose order to be followed. In the absence of unity of command, the
authority is undermined, discipline weakened, loyalty divided and confusion and delays
are caused.

3. Unity of Direction:

To have effective direction, there should be one head and one plan for a group of
activities having the same objectives. In other words, each group of activities having the
same objectives must have one plan of action and must be under the control of one
supervisor.

4. Direct Supervision:

40
The directing function of management becomes more effective if the superior maintains
direct personal contact with his subordinates. Direct supervision infuses a sense of
participation among subordinates that encourages them to put in their best to achieve
the organizational goals and develop an effective system of feed-back of information.

5. Participative or Democratic Management:

The function of directing becomes more effective if participative or democratic style of

management is followed. According to this principle, the superior must act according to
the mutual consent and the decisions reached after consulting the subordinates. It
provides necessary motivation to the workers by ensuring their participation and
acceptance of work methods.

6. Effective Communication:

To have effective direction, it is very essential to have an effective communication

system which provides for free flow of ideas, information, suggestions, complaints and
grievances.

7. Follow-up:

In order to make direction effective, a manager has to continuously direct, guide,

motivate and lead his subordinates. A manager has not only to issue orders and
instructions but also to follow-up the performance so as to ensure that work is being
performed as desired. He should intelligently oversee his subordinates at work and
correct them whenever they go wrong.

(i) Supervision- implies overseeing the work of subordinates by their superiors. It is the
act of watching & directing work & workers.

(ii) Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal
to work. Positive, negative, monetary, non-monetary incentives may be used for this
purpose.

41
(iii) Leadership- may be defined as a process by which manager guides and influences
the work of subordinates in desired direction.

(iv) Communications- is the process of passing information, experience, opinion etc

from one person to another. It is a bridge of understanding.

1. Supervision, as an element of directing:

-Process of guiding the efforts of employees and other resources to accomplish desired
objectives.

-Overseeing people at work

-Involves instructing, observing, monitoring and guiding employees.

Carried out at all levels but more important at the lower levels therefore the term
‘Supervisor’s used at the operatives level of management

I. Importance of Supervision/Role of a Supervisor/Functions

1. Link between workers and management because the supervisor explains

management policies to workers and brings workers problems to the notice of the
management.

2. ensures issuing Instructions: To make sure that the instructions are communicated to
each and every employee.

3. Facilities Control: Control means match between actual and planned output. It
ensures checking on the methods in use and progress of work according to planned
schedule.

4. Maintenance of discipline: The strict supervision and guidance of supervisor

encourages the employees and workers to be more disciplined in the activities.

Under the guidance of superior the workers follow a fixed or strict timetable and execute
the plans in right directions.

5. Feedback: The supervisors are directly dealing with the subordinates. As a result,
feedback in the form of suggestions, grievances keep coming to the management. It
improves quality management decisions and revision of plans & policies.

42
6. Improved Motivation: A supervisor with good leadership qualities can build up high
morale among workers. The relationship with the supervisor is a very good incentive to
improve the motivation level of the employees while guiding the employees, the
supervisors encourage the subordinates to perform to their best capacities.

7. Optimum utilization of resources: All the activities are under the observation of
supervisor so less wastage and optimum utilization of resources is possible.

II. Motivation

Meaning:

i. Incitement or inducement to act/move.

ii. Process of stimulating people to action to accomplish desired goals.

• Three key terms = motive, motivation, motivators

-Motive: inner state that energizes, activates and directs behaviour towards goals.

Arises out of unsatisfied needs = causes restlessness.

-Motivation: Process of stimulating people to action + Depend on satisfying needs of

people.

-Motivators: Technique used to motivate people.Egs. = pay, bonus, promotion,

recognition etc.

Features

1. Psychological Phenomenon: Motivation is an internal feeling which means it cannot

be forced on employees. The internal feeling such as need, desire, aspiration etc.
influence human behaviour to behave in a particular manner.

2. Goal Directed Behaviour: It induces people to behave in such a manner so that they
can achieve their goals. A motivated person works towards the achievement of desired
goals.

3. Motivation can be either positive or Negative: Positive motivation means inspiring

people to work better and appreciating a work that is well done e.g., pay increase
promotion recognition. Negative motivation means forcing people to work by threatening
or punishing them. e.g., issue of memo, demotion, stopping increments etc.

43
4. Complex Process: It is a complex and difficult process. Individuals differ in their
needs and wants and moreover human needs change from time to time.

5. Continuous Process: Human needs are unlimited and so they keep on changing
continuously, satisfaction of one need gives rise to another. As soon as one need is
satisfied another need arises. So managers have to continuously perform the function of
motivation.

Maslow’s Hierarchy Of Needs:

Maslow‘s need hierarchy is considered to be fundamental to the understanding of
motivation and plays an important role in motivation.

• People have a wide range of needs like physiological needs, social needs, safety
needs, esteem needs and self-actualisation needs which motivate them to work.

• The manager must understand the needs and wants of people in order to motivate
them and improve their performance levels.

• For the satisfaction of these needs, managers must offer different incentives
(monetary and non-monetary).

Management Can Satisfy This

Examples Of Need
NEED Need By (Organizational
(Individual Example)
Example)

Most basic in the hierarchy Offer monetary incentives e.g.

and corresponds to Good salary/wages and
1. Basic Physiological Needs
primary needs. Hunger, comfortable working
thirst, shelter, sleep. conditions

Security and protection

from physical and Offer job security, pension,
2. Safety/Security Needs
emotional harm, stability insurance etc
of Income etc.

44
 The firm can encourage team
building and permit the
Refer to affection, sense of
3. Affiliation/Belonging workers to opportunity to
belongingness, acceptance
Needs interact socially and so develop
and friendship
cordial relations with
colleagues

Recognize good performance,

Include factors such as
provide opportunity for
self-respect, autonomy
4. Esteem Needs employees to feel a sense of
status, recognition and
accomplishment, provide
attention
important job titles etc

The drive to become what

Offer the freedom to take
one is capable of
decisions, providing them with
becoming. These needs
5. Self-Actualisation Needs opportunity to learn things,
include growth, self-
encouraging creativity, leading
fulfillment and
to achievement of goals etc.
achievement of goals.

Financial and Non-Financial Incentives: Incentive means all measures which are used
to motivate people to improve performance.

Financial incentives = directly in money Non-financial incentives= main emphasis is to

form or measurable in monetary terms. provide psychological and emotional
satisfaction. Not measurable in monetary
1. Pay and allowance terms. 1. Status

2. Productivity linked incentive schemes 2. Organizational climate

3. Bonus 3. Career advancement opportunities

4. Profit sharing 4. Job enrichment

45
 5. Co-partnership/Stock options 5. Employee recognition programmes

6. Retirement benefits 6. Job security

7. Perquisites 7. Employee participation 8. Employee

empowerment

III. Leadership

Leadership is the activity of influencing people to strive willingly for mutual objectives.
Managers at all levels are expected to be the leaders of their subordinates. Leadership
indicates the ability of an individual to maintain good interpersonal relations with
followers and motivate them to contribute for achieving organizational objectives. It is a
process of interaction between the leader and his followers. It helps in persuading
employees to work cooperatively and enthusiastically towards common goals.

Importance of Leadership:

1. Makes people contribute positively:

• Influences behaviour and makes people contribute positively and produce good
results.

2. Creates congenial work environment:

• Maintains personal relations, helps followers fulfil their needs+ provides confidence,
support and encouragement.

3. Introduces change:

• Persuades, clarifies and inspires people to accept changes.

• So overcomes resistance to change with minimum discontent..

4. Handles conflict

• Does not allow adverse effects.

• Allows followers to express their feelings and disagreements and gives suitable
clarifications.

46
5. Trains subordinates:

• Builds up successors and helps in smooth succession process.

Qualities Of A Good Leader:

1. Physical features – appearance, personality, heath and endurance inspires followers

to work with the same tempo.
2. Knowledge – knowledge and competence to instruct and influence subordinates.
3. Integrity – the leader should be a role model regarding ethics, values, integrity and
honesty.
4. Initiative – grab opportunities instead of waiting for them.
5. Communication – capacity to explain his ideas and also be a good listener, teacher,
counselor and persuader.
6. Motivation skills – understand followers needs and devise suitable means to satisfy
them. 7. Self-confidence – so that he can provide confidence to followers
8. Decisiveness – should be firm and not change opinions frequently
9. Social skills – sociable, friendly and maintain good relations with followers.

Styles of Leadership

Leadership styles refer to a leader’s behaviour. Behavioural pattern which the leader
reflects in his role as a leader is often described as the style of leadership.

A Leadership style is the result of the leader’s philosophy, personality, and experience
and value system. It also depends upon the type of followers and the atmosphere
revealing in the organization.

Different types of leadership style are:

1. Autocratic leadership
2. Participative leadership/Democratic
3. Free rein leadership/Laissez Faire

A leader may use all styles over a period of time but one style tends to predominate as
his normal way of using power.

l. Autocratic or Authoritarian Leader

An autocratic leader gives orders and insists that they are obeyed. He determines the
policies for the group without consulting them. He does not give information about future
plans but simply tells the group what immediate steps they must take. Under this style,

47
all decision making power is centralized in the leader. He does not give the
subordinates any freedom to influence his decisions.

It is like “bossing people around.” This style should normally be used on rare occasion.

It is best applied to situations where there is little time for group decision making or
where the leader is the most knowledgeable member of the group.

2. Democratic or Participative Leader

A democratic leader gives order only after consulting the group and works out the
policies with the acceptance of the group.

He never asks people to do things without working out the long term plans on which
they are working. He favours decision making by the group as shown in the diagram.

This improves the attitude of the employees towards their jobs and the organization
thereby increasing their morale. Using this style is of mutual benefit – it allows them
(subordinates) to become part of the team and helps leaders (seniors) to make better
decisions.

When should Participative/democratic leadership be applied?

It works best in situations where group members are skilled and eager to share their
knowledge.

It is also important to have plenty of time to allow people to contribute, develop a plan
and then vote on the best course of action.

This style should NOT he used when:

48
In situations where roles are unclear or time is of the essence, democratic leadership
can lead to communication failures and incomplete projects.

3. Laissez Faire or Free Rein Leader

A free rein leader gives complete freedom to the subordinates. Such a leader avoids
use of power. He depends largely upon the group to establish its own goals and work
out its own problems. Group members work themselves as per their own choice and
competence. The leader exists as a contact man with the outsiders to bring information
and the resources which the group requires for accomplishing the job. Note: This is also
known as laissez faire which means no interference in the affairs of others. [French
laissez means to let/allow fair means to do].

Communication

It is transfer of information from the sender to the receiver with the information being
understood by the receiver. Communication plays key role in the success of a manager.
Directing abilities of manager mainly depend upon his communication skills. That is why
organization always emphasizes on improving communication skills of managers as
well as employees. Communication is important for the directing function because all
other elements of directing become possible only when there is adequate
communication.

Elements of Communication Process

1. Sender: Who conveys his thoughts or ideas.

2. Message: Ideas, feelings, suggestions, order etc.

3. Encoding: Converting the message into communication symbols such as

words/pictures etc.

4. Media: Path/Channel through which encoded message is transmitted to receiver e.g.,

face to face, phone call, internet etc.

5. Decoding: Converting encoded symbols of the sender.

49
6. Receiver: Who receives communication of the sender.

7. Feedback: All those actions of receiver indicating that he has received and
understood the message of the sender.

8. Noise: Some obstruction or hindrance to communication like poor telephone

connection, inattentive receiver.

Importance of Communication

1. Facilitates Coordination: between interrelated departments and sections thus creating

a unity of purpose and action.

2. Provides data necessary for decision makings: When information is effectively and
efficiently communicated to management.

3. Increases managerial efficiency: Every individual in the organization is assigned a job

or task. The employee must know clearly who has to report to whom, what part of total
job they are expected to perform and what are their decisions. The clarity comes only
with smooth flow of communication which keeps the organization at work with efficiency.

4. Promotes cooperation and Industrial Peace: The two-way communication promotes

cooperation and mutual understanding between the management and workers and
brings peace in the organization.

5. Establishes effective leadership: Effective communication helps to influence

subordinates. while influencing, a leader should possess good communication skills.

If there is two-way information flow between the superior and subordinates then there
will be positive reaction of employees.

Communication taking place within an organization may be broadly classified into two
categories.

Formal communication
Informal Communication:
1.Official communication following the chain of
command 1.Takes place outside the official
channels –
2.Is concerned with official matters

50
 3. May be written/oral but generally recorded and 2. May be work related or other
filed. matters –

4.Directions = 3.Arises out of social interactions –

 Vertical: 4.Grapevine:
1. Downward-superior to subordinates –
 Origin and direction of flow is
sending notices, passing guidelines, asking
not easily located
them to complete assigned work.
 Cuts across scalar chain
2. upward- subordinates to superior –
application for leave, submission of reports.  Spread of rumors is possible as
it is not easy to fix
 Horizontal- between departments – about
responsibilities –
schedule of product delivery, product
design etc.
5.Types =
5.Popular communication networks are:
 single strand,
 Single chain, Wheel, Circular, Free flow and  gossip,
Inverted V
 probability network,
 clusters

Difference between Formal and Informal Communication

Basis Formal Communication Informal communication

Between individuals and groups

1. Meaning Follows the official chain of command.
are not officially recognized.

2. Channel Through a definite path. No definite path.

Slow: because all information has to pass Very fast-Cuts across all the
3. Speed
through an established scalar chain. official channels.

51
 Flexible and varies from individual
4. Nature More rigid and cannot be modified.
to individual.

5. It is mostly expressed in the written

It mostly tends to be oral.
Expression form.

Barriers to Effective Communication

Semantic Barriers: Concerned with problems and obstructions in the process of

encoding or decoding of message into words or impressions. Semantic barriers are as
follows:

1. Badly expressed message: Sometimes intended meaning may not be conveyed.

2. Words with different meanings confuses the receiver.
3. Faulty translations may transfer wrong messages.
4. Unclarified assumption: Different interpretations may result in confusion.
5. Technical Jargon: Technical words may not be understood by the workers.

Psychological/Emotional barriers

1. Premature evaluation- judgement before listening leads to misunderstanding.

2. Lack of attention/poor listening may disappoint the employees.
3. Loss by transmission and poor retention: When oral communication passes through
various levels it destroys the structure of the message or leads to transmission of
inaccurate message.
4. Distrust: If the parties do not believe each other. They cannot understand each
other’s message in its original sense.

Organizational Barriers

Factors related to organization structure:

1. If organizational policy does not support free flow of information it creates problem.
2. Rules and regulations: Rigid rules and regulations may lead to red tapism and delay
of action.
3. Status conscious managers may not allow subordinates to express their feelings
freely.
4. Complexity in organization structure results in delay and distortion.

52
Personal Barriers: of superiors and subordinates.

1. Fear of challenge to authority may withhold or suppress a particular communication.

2. Lack of confidence of superior in his subordinates.
3. Unwillingness to communicate. e.g., fear of punishment/demotion.
4. Lack of proper incentives stops the subordinates to offer useful suggestions.

Improving Communication Effectiveness

1. Clarify the ideas before communication.

2. Communicate according to the needs of receiver.
3. Consult others before communicating.
4. Be aware of language, tone and content of message.
5. Ensure proper feedback. Feedback provides opportunity for suggestions and
criticism.
6. Follow up communication helps to remove hurdles, misunderstanding of information
given by managers to subordination.
7. Be a good listener.

53
CHAPTER 7

CONTROLLING

Meaning & Definition: Controlling involves comparison of actual performance with the planned
performance. If there is any difference or deviation, then finding the reasons for such difference and
taking corrective measures or action to stop those reasons so that they don‘t re-occur in future and that
organizational objectives are fulfilled efficiently.

Importance of Controlling

1. Controlling helps in achieving organizational goals: The controlling function measures progress
towards the organizational goals and brings to light/indicates corrective action.

2. For Evaluating/Judging accuracy of standards: A good control system enables management to verify
whether the standards set are accurate or not by careful check on the changes taking place in the
organizational environment.

3. Making efficient use of resources: By the process of control, a manager seeks to reduce wastage of
resources.

4. Improves employee’s motivation: A good control system ensures that employees know well in advance
what they are expected to do & also the standard of performance. It thus motivates & helps them to give
better performance.

5. Facilitating Coordination in action: In controlling each department and employee is governed by

predetermined standards which are well coordinated with one another. Control provides unity of
direction.

6. Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the
organization by keeping a close check on the activities of its employees.

Nature of Controlling/Features of Controlling

1. Goal oriented: Controlling is directed towards accomplishment of organizational goals in the best
possible manner.

2. Pervasive: Controlling is an essential function of every manager and exercised at all levels of
management.

3. Continuous: It is not an activity to be pursued in the end only; it has to be done on a continous basis.

4. Controlling is looking back: Controlling involves measurement of actual performance and its
comparison with the desired performance. It is the process of checking and verification.

5. Controlling is forward looking: It is related to future because it seeks to improve future results on the
basis of experience gained in the past.

54
6. Depends on planning: It pre supposes existence of planning because without planning no control is
possible.

7. Action oriented*: Control has no meaning if no corrective action is taken; So timely action should be
taken to prevent deviations.

8. Primary Function of Management* – controlling is performed at all levels and in all types of
organizations.

9. Brings back management cycle back to planning:* Control should not be viewed as the last function. In
fact it links back to planning. Controlling involves

• Comparing actual performance with standards • Finding out deviations • Taking corrective action so that
they don‘t repeat in future These are the guidelines when future planning is done. Thus controlling not
only completes one cycle of management process and also helps to improve planning in the next cycle.

Relationship between Planning and Controlling

Planning and controlling are interrelated and in fact reinforce each other in the sense that-

1. Planning is pre-requisite for controlling. Plans provide the standard for controlling. Thus, without
planning, controlling is blind. If the standards are not set in advance managers have nothing to control.

2. Planning is meaningless without controlling. It is fruitful when control is exercised. It discovers

deviations and initiates corrective measures.

3. Effectiveness of planning can be measured with the help of controlling.

4. Planning is looking ahead and controlling is looking back: Planning is a future oriented function as it
involves looking in advance and making policies for the maximum utilization of resources in future that is
why it is considered as forward looking function. In controlling we look back to the performance which is
already achieved by the employees and compare it with plans. If there are deviations in actual and
standard performance or output then controlling functions makes sure that in future actual performance
matches with the planned performances. Therefore, controlling is also a forward looking function. Thus,

55
planning & controlling cannot be separated. The two are supplementary function which support each
other for successful execution of both the function. Planning makes controlling effective whereas
controlling improves future planning.

Controlling Process

1. Setting Performance Standards: Standards are the criteria against which actual performance would
be measured. Thus standards become basis for comparison and the manager insists on following of
standards.

2. Measurement of Actual Performance: Performance should be measured in an objective and reliable

manner which includes personal observation, sample checking. Performance should be measured in same
terms in which standards have been established, this will facilitate comparison.

3. Comparing Actual Performance with Standard: This step involves comparison of actual
performance with the standard. Such comparison will reveal the deviation between actual and desired
performance. If the performance matches the standards it may be assumed that everything is under
control.

4. Analysing Deviations: The deviations from the standards are assessed and analysed to identify the
causes of deviations.

5. Taking Corrective Action: The final step in the controlling process is taking corrective action. No
corrective action is required when the deviation are within the acceptable limits. But where significant
deviations occur corrective action is taken.

Limitations of Controlling

1. Difficulty in setting quantitative standards:

Control system loses its effectiveness when standards of performance cannot be defined in quantitative
terms. This makes comparison with standards a difficult task.

e.g areas like human behaviour, employee morale, job satisfaction cannot be measured quantitatively.

2. Little control on external factors:

An enterprise cannot control external factors like government policies, technological changes, and
competition. Etc.

3. Resistance from employees:

Control is resisted by the employees as they feel that their freedom is restricted. E.g employees may resist
and go against the use of cameras to observe them minutely.

56
4. Costly:

Control involves a lot of expenditure, time and effort. A small enterprise cannot afford to install an
expensive control system.

Managers must ensure that the cost of installing and operating a control system should not exceed the
benefits derived from it.

57
CHAPTER 8

STAFFING

Staffing means putting people to jobs. It begins with human resource planning and includes different
other functions like recruitment, selection, training, development, promotion and performance appraisal
of work force.

Need and Importance of Staffing

1. Obtaining Competent Personnel: Proper staffing helps in discovering and obtaining competent
personnel for various jobs.

2. High Performance: Proper staffing ensures higher performance by putting right person on the right
job.

3. Continuous growth: Proper staffing ensures continuous survival and growth of the enterprise.

4. Optimum utilization of human resources: It prevents under-utilization of personnel and high labour
cost.

5. Improves job satisfaction: It improves job satisfaction and morale of employee.

Staffing as a Part of Human Resource Management (HRM)

Staffing
• Function which all managers have to perform as all managers directly deal with people
• Staffing refers to this kind of role played by all managers in small organizations.
• As organizations grow and number of people employed increases, a separate department called the
human resource department is formed which consists of specialists who are experts in dealing with
people.
• In fact early definitions of staffing focused narrowly on only hiring people for vacant positions. But
today staffing is a part of HRM which encompasses not only staffing but also a number of other
specialized services such as job evaluation, management of labour relations.

Human Resource Management

• Involves procuring, developing, maintaining and appraising a competent and satisfied workforce to
achieve the goals of the organization efficiently and effectively.
• Its purpose is to enable every human being working in the organization to make his best possible
contribution..

58
PROCESS OF STAFFING

1. Estimating Manpower Requirement: It involves the following:

(a) Making inventory of current human resources in terms of qualification, training & skills.
(b) Assessing future human resource needs of all departments.
(c) Developing a programme to provide the human resources. Job Analysis is an intensive way of finding
details related to all jobs.

2. Recruitment: It refers to identification of the sources of manpower availability and making efforts to
secure applicants for the various job positions in an organization.

3. Selection: It is the process of choosing and appointing the right candidates for various jobs in an
organization through various exams, tests &interviews.

4. Placement and Orientation: When a new employee reports for duty, he is to be placed on the job for
which he is best suited. Placement is very important process as it can ensure “Right person for right job”.
Orientation/Induction is concerned with the process of introducing a new employee to the organization.
The new employees are familiarized with their units, supervisors and fellow employees. They are also to
be informed about working hours, procedure for availing leave, medical facilities, history and geography
of organization and rules/regulations relating to their wages etc.

5. Training and Development: Systematic training helps in increasing the skills and knowledge of
employees in doing their jobs through various methods.
Development involves growth of an employee in all respects. It is the process by which the employees
acquire skills and competence to do their present jobs and increase their capabilities for higher jobs in
future.

6. Performance Appraisal: It is concerned with rating or evaluating the performance of employees.

Transfers and promotions of the staff are based on performance appraisal.

RECRUITMENT

(A) Recruitment: Recruitment may be defined as the process of searching for prospective employees and
stimulating them to apply for jobs in the organization.

Sources of Recruitment
(A) Internal Sources
(B) External Sources

59
(A) Internal Sources of Recruitment
Internal sources refer to inviting candidates from within the organization. Following are important sources
of internal recruitment:

1. Transfers: It involves the shifting of an employee from one job to another, from one department to
another or from one shift to another shift.

2. Promotions: It refers to shifting an employee to a higher position carrying higher responsibilities,

prestige, facilities and pay.

3. Lay-Off: To recall the temporary worker for work is called Lay-Off, who were temporarily separated
from organization due to lack of work.

Advantages of Internal Sources Recruitment:

(1) Employees are motivated to improve their performance.
(2) Internal recruitment also simplifies the process of selection & placement.
(3) No wastage of time on the employee training and development.
(4) Filling of jobs internally is cheaper.

Limitation of Internal Sources

(1) The scope for induction of fresh talent is reduced.
(2) The employee may become lethargic.
(3) The spirit of competition among the employees may be hampered.
(4) Frequent transfers of employees may often reduce the productivity of the organization.

External Sources of Recruitment

When the candidates from outside the organization are invited to fill the vacant job position then it is
known as external recruitment. The common methods of external sources of recruitments are:

1. Direct Recruitment: Under the direct recruitment, a notice is placed on the notice board of the
enterprise specifying the details of the jobs available.

2. Casual callers: Many reputed business organizations keep a data base of unsolicited applicants in their
office. This list can be used for Recruitment.

3. Advertisement: Advertisement in media is generally used when a wider choice is required. Example–
Newspapers, Internet, Radio, Television etc.

4. Employment Exchange: Employment exchange is regarded as a good source of recruitment for

unskilled and skilled operative jobs.

5. Campus recruitment and labour contractors can be used for the purpose.

Merits of External Sources

1. Qualified Personnel: By using external source of recruitment the management can attract qualified
and trained people to apply for the vacant jobs in the organization.

60
2. Wider Choice: The management has a wider choice in selecting the people for employment.

3. Fresh Talent: It provides wider choice and brings new blood in the organization.

4. Competitive Spirit: If a company taps external sources, the staff will have to compete with the
outsiders.

Limitations of External Sources of Recruitment

1. Dissatisfaction among existing employees: Recruitment from outside may cause dissatisfaction
among the employees. They may feel that their chances of promotion are reduced.

2. Costly process: A lot of money has to be spent on advertisement therefore this is costly process.

3. Lengthy Process: It takes more time than internal sources of recruitment.

Selection
Selection is the process of choosing from among the candidates from within the organization or from
outside, the most suitable person for the current position or for the future position.

PROCESS OF SELECTION

the successive stages in selection process are:

1. Preliminary Screening: After applications have been received, they are properly checked as regarding
qualification etc. by screening committee. A list of candidates to be called for employment tests made and
unsuitable candidates are rejected altogether.

2. Selection Tests: These tests include:

(a) Psychological tests which are based on assumption that human behaviour at work can be predicted by
giving various tests like aptitude, personality test etc.

(b) Employment test for judging the applicant’s suitability for the job.

3. Employment Interviews: The main purpose of interview is:

(a) to find out suitability of the candidates.

(b) to seek more information about the candidate.

(c) to give the candidate an accurate picture of job with details of terms and conditions.

61
4. Reference Checks: Prior to final selection, the prospective employer makes an investigation of the
references supplied by the applicant. He undertakes a thorough search into candidates’ family
background, past employment, education, police records etc.

5. Selection Decisions: A list of candidate who clear the employment tests, interviews and reference
checks is prepared and then the selected candidates are listed in order of merit.

6. Medical/Physical Examination: A qualified medical expert appointed by organization should certify

whether the candidate is physically fit to the requirements of a specific job. A proper physical exam will
ensure higher standard of health & physical fitness of employees thereby reducing absenteeism.

7. Job Offer: After a candidate has cleared all hurdles in the selection procedure, he is formally
appointed by issuing him an Appointment Letter. The broad terms and conditions, pay scale are integral
part of Appointment Letter.

8. Contract of Employment: After getting the job offer, the candidate has to give his acceptance. After
acceptance, both employer and employee will sign a contract of employment which contains terms &
conditions, pay scale, leave rules, hours of work, mode of termination of employment etc.
Nishant wants to set a unit in rural area where people have very few job opportunities and labour is
available at a low cost.

For this he wants four different heads for Sales, Accounts, Purchase and Production. He gives an
advertisement and shortlists some candidates after conducting selection tests.

1. Identify and state the next three steps for choosing best candidates.

2. Also identify two values which Nishant wants to communicate.

Training: Training is the act of increasing the knowledge and technical skills of an employee for doing a
particular job efficiently. Both existing employees and new employees get acquainted with their jobs and
this increases job related skills.

Benefits to the firm:

1. Avoids wastage of time, effort and money involved in Benefits to the employee:
the hit and trial method. 1. Improved skills an knowledge so better
2. ↑ productivity(quality + quantity)thereby leading to ↑ career opportunities
profits
3. Equips future managers(to take over in emergencies) 2. Better performance→ higher earnings
4. ↑ employee morale,↓ absenteeism and turnover
5. response to fast changing environment 3. Less accidents
6. ↓ supervision, standardization of procedure and safety 4. ↑ satisfaction and morale of employees
of operations

Training Methods

62
(A) On the Job Method: It refers to the methods that are applied at the work place, where the employee
is actually working. It means learning while doing.
The following are the methods of On-the job training:

1. Apprenticeship Training: Under this, the trainee is placed under supervision of an experienced person
(master worker) who imparts him necessary skills and regulates his performance. The trainee is given
stipend while learning so that he/she can enjoy “earn while you learn” scheme.

2. Internship Training: Under this method an educational institute enters into agreement with industrial
enterprises for providing practical knowledge to its students by sending them to business organizations
for gaining practical experience.

3. Induction training is a type of training given to help a new employee in settling down quickly into the
job by becoming familiar with the people, the surroundings, the job and the business. The duration of
such type of training may be from a few hours to a few days. The induction provides a good opportunity
to socialize and brief the newcomer with the company’s overall strategy, performance standards etc. If
carefully done, it saves time and cost (in terms of effectiveness or efficiency etc.)

Training and Development

Training is concerned with imparting technical knowledge in doing a particular job. But development is a
wider process concerned with growth of an individual in all respects. However, both are related
processes; training helps the employees in learning job skills whereas development shapes attitude of the
employees.

Comparison of Training and Development

Basis Training Development

1. It means imparting skills and knowledge It means growth of an employee in all

Definition doing a particular job respects.

It is concerned with maintaining and It seeks to develop competence and

2. Purpose
improving current job performance. skills for future performance.

It is imparted through off the job

3. Methods It is imparted through on the job method.
method.

The boss takes the initiative for imparting The individual takes the initiative for
4. Initiative
training to his subordinates. self growth and development.

63
 Training programmes are organized for Development takes place over a large
5. Duration
short terms. period of time.

64